New York: Charter Communications Inc has agreed to combine with closely held Cox Communications in a cash-and-stock deal that would unite two of the biggest US cable providers.

The takeover values Cox at about US$34.5bil including debt, the companies said in a statement last Friday, confirming an earlier Bloomberg News report.

The deal includes about US$12.6bil of net debt and US$21.9bil in equity, the companies said.

The combined company would be the top broadband operator in the United States, and increase Charter’s subscriber base by more than 20%, according to Bloomberg Intelligence analyst Geetha Ranganathan.

It also comes at a time when cable companies are facing increasing competition. 

Wireless providers, such as AT&T Inc and T-Mobile US Inc, are luring away broadband customers with their own Internet offerings.

At the same time, streaming companies such as Netflix Inc have upended the traditional business of pay-TV.

The Cox family will be the largest shareholder in the combined company, with a stake of about 23%, and will have seats on the board.

Within a year of closing, the combined company will also change its name to Cox Communications.

Charter shares have risen about 24% this year, giving the company a market value of roughly US$66bil. 

Billionaire John Malone – chairman of Liberty Broadband, Charter’s largest shareholder – fuelled merger expectations when he said that the company should be allowed to merge with a media or telecom rival to stay competitive.

Speaking at Liberty Media’s investor day in New York last November, he named Cox among a number of possible merger candidates.

Charter and Cox previously discussed a potential deal more than a decade ago.

“This combination will augment our ability to innovate and provide high-quality, competitively priced products, delivered with outstanding customer service, to millions of homes and businesses,” Chris Winfrey, president and chief executive of Charter, said in the statement. 

Malone’s Liberty Broadband will cease its direct shareholding after the deal closes, and its directors will resign from the board. 

Cable companies like Charter, the largest pay-TV provider, rely on three main lines of business for their revenue: video service, Internet access and wireless phone service.

Subscribers to two of those businesses, video and broadband, are shrinking.

Cable providers have been selling their own mobile phone plans by leasing network access from major carriers.

At the same time, phone carriers have been poaching home Internet subscribers from cable companies. 

The bet is that customers will in the future prefer to buy their Internet and mobile phone services from the same provider – a trend referred to as convergence.

A combination of Charter and Cox would position them to better compete in that environment by allowing them to bundle offerings and more efficiently invest in infrastructure.

“Charter is aggressively marketing its converged mobile fixed bundles at competitive rates to improve subscriber acquisition and retention,” according to Bloomberg Intelligence analysts. “Regardless, the entire cable sector is being hurt by intensifying telecom competition from both fibre coverage and fixed wireless access.”

For Cox, which has been viewed as a perennial takeover target, a tie-up with Charter would end more than 70 years of outright ownership by the Cox family.

Cox Communications is the main division of Cox Enterprises, a conglomerate founded around the time of the Spanish-American War more than a century ago.

The Cox family entered the cable business in the 1960s and has grown Cox Communications into the largest private broadband company in America, offering Internet to almost seven million customers.

The company’s systems and regional footprint are expected to complement those of Charter, increasing the chances of a deal passing muster with regulators.

Even so, the deal could be a litmus test for US antitrust scrutiny under President Donald Trump’s new administration.

Operating under the Spectrum brand, Charter is the top cable TV company and the second-biggest broadband provider in the United States, according to data from Bloomberg Intelligence.

It had more than 12 million video subscribers and about 30 million Internet customers as of the end of March, earnings show.

Last year, Charter agreed to buy Liberty Broadband Corp in an all-stock transaction.

That deal consolidated two public companies in which cable billionaire Malone held significant interests. Malone remains chairman of Liberty Broadband. — Bloomberg