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The big conversation in the U.S. this morning is the announcement that Charter Communications, Inc. (NASDAQ:CHTR) has entered into an agreement to merge with its bigger rival Time Warner Cable, Inc. (NYSE:TWC) and a smaller rival, Bright House Networks. Bright House is not a publicly-traded company.
Some seem to be stunned that Charter and TWC would even dream about entering into a deal just a few weeks after industry leader Comcast Corporation (NYSE:CCV) withdrew its bid for TWC, when it became evident that the Federal Communications Commission (FCC) did not feel inclined to approve the deal.
However, what must be understood is that the Number One (Comcast) acquiring Number Two (Time Warner) was viewed as somewhat monopolistic. The Charter merger with Time Warner and acquisition of Bright House is viewed as creating a more level, competitive playing field. FCC Chairman, Tom Wheeler, told both Charter and TWC that “Just because the FCC’s staff wasn’t convinced that the Comcast deals were in the public interest, they should not assume the agency is against any and all future cable deals.”
Charter’s share price closed at 175.33 on Friday (U.S. markets were closed yesterday for Memorial Day), opened today at 176.03, and declined to 172.39 by late morning. At the noon hour shares had gained ground, returning to 175.04.
Time Warner shares gained ground in response to the $55 billion offer that boils down to $195.00 per share. On 19 May, one week ago, TWC shares closed at 157.94. As rumors developed through the week, the share price jumped to close at 171.18 on Friday. Its shares opened at 179.61, rose to a 52-week high of 180.84 in early trading, and, despite a brief pull-back, are holding ground at 179.74 at midday.
Charter boasts more than six million customers in 29 states and employs some 23,000 people. It is a constituent of the Fortune 500.
TWC also has a service presence in 29 different states, but with a broader reach, serving 15 million customers and employing over 50,000 people.
Bright House “is the sixth-largest owner and operator of cable systems in the U.S., and the second-largest in Florida.” However, its service area includes only four other states: Alabama, Indiana, Michigan and California.
Combined, the new entity will begin with approximately 23 million total customers and would immediately become the second-largest cable services provider in the U.S. behind Comcast. That information alone is sufficient to understand why the FCC should look much more favorably on this M&A.
Final Observation: It is now 12:30 pm on the U.S East Coast. CHTR shares have recovered to post nearly a 2% gain to 178.75. TWC shares have continued progressively higher to 181.35, a gain of nearly 6%.
Final Speculation: Investors are digesting the news – and the more they read, the more they like it.
Image courtesy of tungphoto at FreeDigitalPhotos.net
