NEW YORK (TheDeal) -- John Malone-backed Charter Communications (CHTR) - Get Report will buy fellow cable operator Bright House Networks in a complex $10.4 billion cash and stock deal, the companies said Tuesday, March 31.
Shares of Charter jumped $15.22, or 8.3%, to $198.66 following the announcement.
Bright House is the sixth largest U.S. cable operator and would bring Charter another 2 million video subscribers. The transaction comes as Charter aims to acquire another 4 million subscribers through a $22 billion asset purchase and cable system swap with Comcast (CMCSA) - Get Report.
Charter CEO Tom Rutledge said in a Tuesday investor call that the Bright House transaction increases the likelihood that the Comcast deal will close. Time Warner owns a stake in Bright House and selling a controlling stake in the operations to Charter would reduce Comcast's potential holdings.
"This deal actually improves, from a regulatory point of view, the assets under the control of Comcast," Rutledge said.
The transaction values Bright House at 7.6 times adjusted 2014 earnings before interest, taxes, depreciation and amortization, though Charter said the multiple would fall below 7 times EBITDA when factoring in benefits from the deal.
Charter and Bright House parent Advance/Newhouse Partnership will fold their cable assets into a new venture.
Charter will hold 73.7% of the equity in the new partnership.
Bright House will receive $2 billion in cash, $2.5 billion of convertible preferred units and $5.9 billion of common units, giving it a 26.3% stake in the partnership.
Malone's Liberty Broadband (LBRDA) - Get Report will make a $700 million equity investment in the partnership. Through its equity in Charter, Liberty will own 19.4% of the new venture. Advance/Newhouse will give Liberty proxy to control 6% of its voting position, giving Malone a 25% stake.
The company will have 13 directors, with Liberty Broadband and Advance/Newhouse each appointing three.
Upon completing the Bright House deal and the purchase of systems from Comcast, Charter would have nearly $22.8 billion in debt, or 3.9 times 2014 EBITDA.
Charter's in-house team included General Counsel Rick Dykhouse, Dan Bollinger and Tom Proost. Goldman Sachs and LionTree Advisors were financial advisers. Steve Cohen, Victor Feldman, Oliver Board, Marianna Ofosu, Scott Grinsell, Jodi Schwartz, Mike Sabbah, Mike Segal and Mike Schobel of Wachtell, Lipton, Rosen & Katz provided counsel to Charter.
The buyer retained Kirkland & Ellis LLP for legal advice regarding financing. Renee Wilm and Buzz McGrath of Baker Botts LLP advised Liberty Broadband. UBS provided financial advice to Advance/Newhouse Partnership.
Andrew Kransdorf of Sabin, Bermant & Gould and Sullivan & Cromwell lawyers Brian Hamilton, Scott Crofton, Ron Craemer and William Snipes were counsel to Advance/Newhouse.