Charter $10.4 Billion Deal for Bright House Won't Affect Comcast/TWC
Charter Communications is buying Bright House Networks in a $10.4 billion deal that's contingent on the approval of the Comcast/Time Warner Cable deal being approved, Charter said in a news release Tuesday. The deal will add 2 million video subscribers and some contiguous markets to Charter’s footprint, and solve an “attribution problem” involving Bright House in the Comcast deal, Charter CEO Tom Rutledge said on a press call after the announcement. Despite the sale’s dependency on the Comcast/TWC transaction, it isn't expected to have much of an effect on that deal’s approval, several communications attorneys told us.
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The number of subscribers is too small to factor into regulators’ decision on Comcast /TWC, and the purchase doesn’t solve or create any new public issues for the companies, said Fletcher Heald communications attorney Thomas Dougherty, who's not connected to the transactions. Objections to Comcast/TWC largely have nothing to do with Bright House, Public Knowledge Senior Staff attorney John Bergmayer said. Public Knowledge opposes Comcast/TWC and is a member of anti-merger organization Stop MegaComcast. “This doesn’t really move the deal,” Bergmayer said of Charter/Bright House’s effect on Comcast/TWC.
Charter’s willingness to enter into a purchase contingent on Comcast/TWC before that deal is approved could be taken as a sign of confidence in the bigger sale’s approval, one public interest attorney opposed to Comcast/TWC told us on background. Rutledge said repeatedly in Tuesday’s press call that he expects both deals to be approved. However, since Charter is a party to Comcast/TWC and Bright House is partially controlled by Time Warner Cable, both companies have an interest in projecting confidence in the Comcast deal’s approval, Bergmayer told us. Asked about the timing of the announcement, Rutledge pointed to the benefits of increased scale for Charter and said the Bright House purchase is expected to make Charter’s acquisition of a portion of TWC’s subs under the Comcast/TWC deal go more smoothly because Bright House is used to working with TWC.
The purchase also solves an “attribution problem” in the Comcast acquisition, Rutledge said. Since TWC provides services to Bright House’s cable customers, regulators have treated Bright House subscribers as belonging to TWC, undermining the effect of Comcast’s divestitures to Charter, Rutledge said. By removing Bright House from the Comcast/TWC equation, the attribution problem is solved, he said. Several communications attorneys also pointed to Charter’s failed bid to buy TWC as evidence that the Bright House deal is simply an outgrowth of the company’s desire to grow. “Charter has talked about consolidation and there was no reason to wait,” Wells Fargo analyst Marci Ryvicker said in an email to investors. Bright House and Charter agreed to “negotiate revised terms in good faith” if Comcast/TWC doesn’t happen, Rutledge said.
Bright House is the sixth-largest cable company in the U.S., and once Charter acquires it, Charter and GreatLand -- a Charter-affiliated spinoff from the Comcast/TWC deal -- will pass 26 million homes, Rutledge said. Under the deal, Charter and Bright House parent Advance/Newhouse will form a partnership owned 73.7 percent by Charter and 26.3 percent by Newhouse, Charter said. Advanced/Newhouse will receive $2 billion in cash, $5.9 billion in “exchangeable common partnership units," and $2.5 billion in “convertible preferred partnership units,” both of which are exchangeable for stock in Charter. The deal also involves Liberty Broadband, which will buy $700 million in shares of Charter after the Bright House deal closes, the release said. After all the exchanges are complete, “Advance/Newhouse is expected to own 26.3% of New Charter’s outstanding common shares, and it is expected that Liberty Broadband’s equity ownership will represent 19.4% of New Charter’s outstanding common shares,” Charter said. The purchase is expected to close by the end of 2015 or early 2016, pending regulatory approval, a Charter employee told us. It's likely to be approved, because it doesn’t appear to involve large public interest harms or the opportunity to foreclose competitors, several communications attorneys told us.