Charter to buy Bright House Networks

Charter Communications, Inc. (NASDAQ: CHTR) and its subsidiary, CCH I, LLC (which currently bill themselves as the "New Charter") and Bright House Networks have decided to soothe the headaches the proposed Comcast/Time Warner Cable deal would cause them by pooling resources in the form of M&A. Charter has reached agreement with Bright House's owner, Advance/Newhouse Partnership, to buy Bright House for $10.4 billion.

Charter, and particularly leading shareholder Liberty Broadband (NASDAQ: LBRDA, LBRDK), have been active in promoting consolidation within the cable MSO community as a way of addressing the shifting video subscriber market, including the advent of over-the-top (OTT) programming and other alternatives to standard cable video services. Charter placed a bid for Time Warner Cable (TWC) but was trumped by Comcast. Bright House, meanwhile, has an operating agreement covering technology and programming rates with TWC that the proposed Comcast/TWC merger imperils.

So a linkup makes sense for both parties. However, a complicating factor is that TWC holds a "right of first offer" for Bright House. Thus, the acquisition will hinge on whether the Comcast/TWC merger goes through. The fall out from that deal also would see Charter acquire certain assets from the Comcast/TWC tie up (see "Time Warner Cable agrees to merge with Comcast" and "Comcast agrees with Charter on post Time Warner Cable merger divestitures").

The proposed deal would see the creation of a partnership between Charter and Advance/Newhouse using an existing subsidiary of Charter Communications Holding Company, LLC, a partnership subsidiary of Charter. New Charter would contribute 100% of its assets into the partnership, and Advance/Newhouse would contribute 100% of Bright House's assets. Charter would own 73.7% of the new entity. Advance/Newhouse would receive common and convertible preferred units in the partnership, as well as $2 billion in cash.

At the transaction's close, New Charter's board of directors will comprise 13 directors, including three designated by Advance/Newhouse and three designated by Liberty Broadband.

Charter's shareholders must approve the deal, as must federal regulators. Given the seemingly endless review process of the Comcast/TWC merger, this latter approval is neither guaranteed nor should it be expected quickly.

If the deal closes, the combination would create the second largest cable MSO in the United States, behind Comcast/TWC. Bright House currently is the sixth largest cable operator in the country, with approximately 2 million video subscribers in central Florida (including Orlando and Tampa Bay), Alabama, Indiana, Michigan, and California. The company has been an early proponent of DOCSIS Provisioning over EPON (see "Alcatel-Lucent unveils DPoE platform, signs Bright House Networks").

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