Morris Hibbitt, a field technician for Time Warner Cable Inc., prepares to clean and check the connection for a WiFi hotspot using a bucket truck in Manhattan Beach, California, U.S., on Monday, Aug. 12, 2013. Time Warner Cable Inc. said it's talking with CBS Corp., after a breakdown in negotiations led the cable provider to block its customers from seeing the network. Photographer: Patrick Fallon/Bloomberg *** Local Caption *** Morris Hibbitt
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Charter Communications is nearing a deal to acquire Time Warner Cable for about $55bn, said people familiar with the matter, in a victory for US tycoon John Malone — the so-called “cable cowboy” — over Franco-Israeli billionaire Patrick Drahi of Altice.

Charter, the third-largest US cable operator, is set to combine with its larger rival in a stock-and-cash deal that values shares in TWC at $195 each. The enterprise value of the transaction will be $78bn, which includes about $22bn in net debt.

The deal comes amid sweeping changes in the US cable industry, with consumers increasingly watching their video on the internet, rather than on television sets. Consolidation could help cable operators compete more effectively with a new generation of online video services such as Amazon and Netflix, and also better withstand the growing pricing power of content providers.

In a wave of dealmaking that has swept the sector, AT&T agreed to buy DirecTV for $48.5bn in 2014 and Charter itself lined up to acquire Bright House Networks, a smaller US cable operator, for $10.4bn earlier this year.

As part of the TWC deal, Charter will complete its Bright House transaction and merge the three groups into a single entity that will have a total of 23m customers.

That will make it the second-largest cable operator behind Comcast, which has 27m customers, including telephone and internet. Comcast, was thwarted by regulators in its own bid for TWC.

TWC shareholders will have the option of $100 in cash and the remaining $95 in Charter stock or $115 in cash and the remaining $80 in stock.

Pay-TV-companies-chart

Mr Malone, the Colorado-based billionaire who has been a linchpin of cable consolidation for more than two decades, will inject $5bn of equity to help fund the deal through Liberty Broadband.

Charter is prepared to pay 23 per cent more than Comcast had agreed to pay for TWC in 2014. The large premium is partly because of the late entry of France’s Altice in the bidding war for TWC.

Altice’s defeat is not likely to signal a retreat by the European operator from further expansion in the US. The French group, which last week bought rural cable operator Suddenlink for $9.1bn, is expected to continue scouring for deals both in the US and in Europe.

Time Warner Cable battle highlights industry upheaval

© Bloomberg

Aftershocks expected with Altice the potential loser as Malone’s Charter closes in

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Cable companies are the largest providers of high-speed broadband services in the US so the Charter-TWC deal is likely to face intense regulatory scrutiny because a successful deal would concentrate significant broadband power in one company.

Regulatory opposition was a key factor in Comcast’s withdrawal of its own $45bn bid for TWC. The Philadelphia-based company had pursued TWC for more than a year but dropped the bid even as regulators indicated they would have blocked the transaction.

The Charter-TWC deal has a $2bn break fee, which indicates that there are concerns that the deal could still fall apart over regulatory concerns.

A definite agreement is expected to be announced before US markets open on Tuesday morning after the Memorial day break, but people familiar with the matter warned that the deal could still fail.

Additional reporting by Matthew Garrahan in New York and Adam Thomson in Paris

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