When Charter Communications began pursuing Time Warner Cable last year, its goal was to become the country’s second-largest cable operator.
But Charter, a regional cable television provider with headquarters in Stamford, Conn., saw its plans dashed when Comcast swooped in with a $45 billion offer for Time Warner Cable in February. Comcast, the country’s largest cable operator, would keep getting bigger, while Charter, it appeared, would be left in the cold.
On Monday, however, Charter announced a plan to accomplish its initial goal, after all.
In a three-part deal with Comcast, Charter will pick up subscribers that Comcast is divesting, acquire a stake in a new public company that Comcast is spinning out, and swap subscribers with Comcast.
Should the deals be completed, Charter would emerge as the second-largest cable operator in the country, behind Comcast. Charter shares were up nearly 8 percent Monday. “The transactions announced today will provide Charter with greater scale, growth opportunities and improved geographical rationalization of our cable systems, which, in turn, will drive value for shareholders and more effective customer service,” Charter’s chief executive, Thomas M. Rutledge, said in a statement.
The cooperation between Charter and Comcast signals a rapid thawing from relations that were chilly just two months ago.
After Comcast announced its bid for Time Warner Cable, Charter challenged the deal, urging shareholders to reject it and suggesting it would have a hard time getting past antitrust regulators. It also declined to withdraw its nominees to the Time Warner Cable board.
But the deal Monday was important to both Charter and Comcast.
For Charter and John C. Malone, the billionaire media mogul who last year took a stake in the company through Liberty Media, the deal would establish Charter as a legitimate nationwide cable provider, with added scale and a path to grow still larger.
For Comcast, this deal will probably help it win the approval of antitrust regulators, who are wary of the company’s growing market power. Should the transaction go through, it would reduce the cable operator’s subscriber base to less than 30 million, a symbolic figure that Comcast believes will smooth its Time Warner Cable purchase.
“Today’s agreement follows through on our willingness to divest subscribers, while also marking an important step in our merger with Time Warner Cable,” Brian L. Roberts, the chief executive of Comcast, said in a statement. “The realignment of key cable markets achieved in these transactions will enable Comcast to fill in our footprint and deliver operational efficiencies and technology improvements.”
Even Time Warner Cable cheered the deal. “This morning’s announcement is a win-win-win and moves us one step closer to completing our merger with Comcast,” the company said in a statement.
Charter also agreed to end its challenge of the Comcast-Time Warner Cable deal.
The details of the transactions involve Comcast divesting 3.9 million subscribers after it completes its acquisition of Time Warner Cable.
In one part of the deal, Charter would acquire about 1.4 million subscribers previously served by Time Warner Cable in Ohio, Kentucky, Wisconsin, Indiana, and Alabama. That would increase Charter’s cable subscribers to 5.7 million.
Then, the two companies would swap about 1.6 million subscribers, allowing each company to serve more adjacent subscribers. Comcast would acquire Charter’s customers in Los Angeles, New England, the South, and the Northwest, while Charter would pick up some of Comcast’s subscribers in the Midwest.
Finally, Comcast would move about 2.5 million of its current subscribers in the Midwest and the South into a new publicly traded company. Charter would take a 33 percent stake in the new company, paying a mix of cash and stock. Charter would also have a path to eventually control the whole new company.
For Malone, who is chairman of Liberty Media but previously ran TCI, once the largest cable operator in the country, the deals offer a partial return to the forefront of the cable television industry at a moment of rapid change.