Charter Communications, Inc. (NASDAQ:CHTR) has cleared the last hurdle to become the second-largest broadband provider and the third-biggest pay-TV operator in the United States. On Thursday, the California Public Utilities Commission approved the company’s merger with Time Warner Cable Inc (NYSE:TWC) after Charter agreed to provide broadband services to more customers and offer higher broadband speeds. Following the approval, Charter Communications announced that its merger with Time Warner Cable Inc and its acquisition of Bright House Networks will be completed by next Wednesday.
In a statement released by the company, Tom Rutledge, President and CEO of Charter Communications said, “We are pleased to have now obtained all approvals. We look forward to closing these transactions next week and to begin delivering the many benefits of these transactions to consumers.”
The US Justice Department had approved the deal last month, valuing the Charter- Time Warner merger at $78 and Charter’s acquisition of Bright House Networks at $10.4 billion. However, the approval came only after Charter agreed to not thwart online video competitors by striking deals with programmers that will make it difficult for services like Netflix, Inc. to obtain content. Last week, the Federal Communications Commission (FCC) also approved the merger after laying out certain condition. As part of the FCC’s approval, Charter agreed to extend broadband services to more areas and to not charge consumers for heavy data consumption, apart from letting online video providers connect to its network without any additional charges
Charter Finally Gets Closure
The consolidation in the cable industry began after online video streaming services like Netflix and Hulu started becoming too large for the behemoths in the industry to ignore and the cost of programming ballooned. It all started in late-2013 when Charter Communications made a bid for the Time Warner Cable, which was rejected by the latter. In its effort to avoid a hostile takeover attempt from Charter, Time Warner Cable accepted Comcast Corporation (NASDAQ:CMCSA)’s offer to acquire it for $158.82 per share, in February 2014. However, this deal was called off last year by both the companies after federal regulators said that they would work towards blocking the deal. Capitalizing on the opportunity, Charter again approached Time Warner Cable, but this time with a friendly deal, which was accepted by Time Warner Cable in May last year.
Option A & Option B
Following the announcement by Charter that the merger will get completed next week, shares of both Charter and Time Warner were being actively traded on the exchanges. Shareholders of Time Warner Cable were provided with two options -Option A and Option B- that they had to choose from, which will determine what they receive for each Time Warner Cable share they tender. The election deadline for choosing Option A or Option B was 5:00 p.m. EST on May 12, 2016. Shareholders who chose Option A, will be receiving $100 in cash and shares in New Charter equivalent to 0.5409 shares of legacy Charter for each share of Time Warner Cable that they owned. Shareholders that chose Option B, will be receiving $115.00 in cash and New Charter shares equivalent to 0.4562 shares of legacy Charter for each share of Time Warner Cable that they own.
The actual number of shares of New Charter that a Time Warner Cable shareholder will receive will be determined by multiplying the exchange ratios of 0.5409 or 0.4562 (depending upon the option they choose) by the parent merger exchange ratio of 0.9042, which is also the number of New Charter shares that legacy Charter shareholders will get for each legacy Charter share that they own. According to Charter, shares of Time Warner Cable for which no decision was made before the deadline will, by default, be converted into the right to receive the Option A.