Authors: Aditya Soni, Jaspreet Singh and Milana Vinn
(Reuters) - Charter’s communications agreed on Friday to buy private rival Cox Communications for $21.9 billion and combine the U.S.’s largest cable and broadband operator with the battle of streaming giants and mobile operators.
The deal – one of the world’s largest deals this year – will drive a charter-bound effort to bundle broadband and mobile services with wireless carriers engaging internet customers with aggressive plans, while millions of dollars of traditional pay-TV are used for streaming services.
Analysts say the Charter's strategy to combine internet, television and mobile services into a single customizable package shows the advantages, but it requires scale when cable companies rely on renting network access from major operators to provide mobile plans. Charters to rent wireless network capacity from Verizon.
"This combination will enhance our ability to innovate and deliver high-quality, competitively priced products," said Charter CEO Chris Winfrey.
The merger will be one of the first major tests of M&A regulations under the Trump administration as it will create the largest cable and broadband provider and has about 38 million subscribers, surpassing market leader Comcast.
Amy Klobuchar, a Democrat on the U.S. Senate Antitrust Committee, said the review of the deal needed to "ensure that such a proposed merger does not harm consumers by adversely affecting competition in the wired and broadband markets or killing innovation."
“Telecommunications services are crucial to our economy and I urge our antitrust executives to gain insight into this merger to ensure it does not raise prices or additional barriers to internet access,” she said.
The U.S. Department of Justice Antitrust Division may review it. Gail Slater, assistant attorney general who leads the department, made it clear that she intends to focus on reducing competition in ways that harm consumers or workers.
"There may not be significant direct competition between the two compared to the overall footprint, so much of the competition should be eased," said Andre Barlow, an antitrust attorney in Washington.
He said the Justice Department will consider whether the merged company is leveraged to its competitors. The Justice Department cleared the Charter's acquisition of Time Warner Cable in 2016, on the condition that the company does not restrict programming providers from entering distribution deals with streaming services.
Winfrey said some analysts believe that an attempt to strengthen the deal's antitrust call, the merged company will bring Cox's customer service efforts back from overseas, but he hasn't specified much. The charter's customer service team is already fully based on the United States
"Antitrust attention is legal. But in an age of deregulation, as long as they don't frustrate the president," said eMarketer analyst Ross Benes.
Synergistic
The two companies said they expect to achieve a cost saving of $500 million in three years after the expected interim deal ends in 2026.
Under the cash and stock agreement, Charter will assume about $12.6 billion of Cox's net debt and other obligations, bringing the transaction's corporate value to $34.5 billion.
Cox Communications’ family parent Cox Enterprises will own about 23% of the combined entities, with its CEO Alex Taylor serving as chairman.
The combination with the charter will also make Cox a part of a wider platform and provide customers with more competitive products, Cox sources said.
The combined company will re-taste Cox Communications within one year of the deal, and Charter's Spectrum is a consumer-facing brand. It will maintain its headquarters at Stanford University in Connecticut while maintaining a huge presence on the Cox campus in Atlanta, Georgia.
According to media reports, Charter and Cox also discussed the merger in 2013 and then put the plan on hold. The conversation between the two cable providers has started and cooled a few times, according to sources close to the deal. The Charter has started discussions with Cox in January, and within a month after the discussion began, the Charter's formal proposal was made, the source said.
Cable billionaire John Malone said the November charter should be allowed to merge with rivals such as Cox shortly after the charter agreed to buy its free broadband.
Free Broadband shareholders will receive direct interest on the charter under the terms of the transaction with Cox.
Citi and Liontree served as financial advisor to Charter, and legal advisors to Wachtell, Lipton, Rosen and Katz. Allen & Company recommends Cox Enterprises, while BDT & MSD Partners, Evercore and Wells Fargo recommends Cox Communications. Latham & Watkins served as legal counsel to Cox Enterprises.
(Reports by Gursimran Kaur, Aditya Soni and Jaspreet Singh of Bangalore; Other reports by Jody Godoy in Washington; Editors by Mrigank Dhaniwala, Devika Syamnath and Nick Zieminski)