(RTTNews.com) - U.S. cable giant Comcast Corp. (CMCSK, CMCSA) has agreed to acquire Time Warner Cable Inc. ( TWC ) for $45.2 billion in an all-stock deal, the two companies said Thursday.
The transaction will merge the largest and the second-largest cable operators in the U.S. Following the announcement, shares of Time Warner Cable are gaining more than 10 percent in pre-market trades.
Under the friendly merger deal that has been approved by the boards of directors of both companies, Comcast will acquire Time Warner Cable's 284.9 million shares outstanding for shares of CMCSA amounting to about $45.2 billion in equity value.
Each Time Warner Cable share will be exchanged for 2.875 shares of CMCSA, equal to Time Warner Cable shareholders owning about 23 percent of Comcast's common stock.
This represents a value to Time Warner Cable shareholders of about $158.82 per share, based on Comcast's closing stock price on Wednesday. The per share price represents a 17.4 percent premium to Time Warner Cable's closing stock price of $135.31 on Wednesday. The deal, subject to approval by shareholders of both companies, as well as regulatory review, is expected to close by the end of 2014.
Comcast thus trumps a takeover attempt made for Time Warner Cable earlier by Charter Communications Inc. ( CHTR ), the fourth-largest cable operator in the U.S. In mid-January, Charter, backed by billionaire John Malone's media holding company Liberty Media Corp. ( LMCA ), reportedly offered to acquire Time Warner Cable in a cash and stock deal valued at about $61.3 billion, including debt.
Charter is said to have offered a price of $132.50 per share, including a cash component of about $83 per share and about $49.50 in Charter stock. However, Time Warner Cable rejected the offer a day later, saying that the offer was grossly inadequate.
Comcast was also reportedly trying to buy some of Time Warner Cable assets from Charter Communications if that company's shareholders approved Charter's takeover bid for Time Warner Cable.
Brian Roberts, chairman and chief executive officer of Comcast said, "In addition to creating a world-class company, this is a compelling financial and strategic transaction for our shareholders. Also, it is our intention to expand our buyback program by an additional $10 billion at the close of the transaction."
Through the merger, Comcast will acquire Time Warner Cable's about 11 million managed subscribers. Comcast, the largest cable operator in the U.S., said that in order to reduce competitive concerns, it is prepared to divest systems serving about 3 million managed subscribers.
The two companies noted that the transaction will generate about $1.5 billion in operating synergies and will be accretive to Comcast's free cash flow per share while preserving balance sheet strength. The merger will also be tax free to Time Warner Cable shareholders.
The new cable company will be led by the President and CEO of Comcast Cable, Neil Smit.
Comcast's subscribers will have access to the cloud-based X1 Entertainment Operating System, plus 50,000 video on demand choices on television, 300,000 plus streaming choices on XfinityTV.com, Xfinity TV mobile apps that offer 35 live streaming channels plus the ability to download to watch offline later, and the newly launched X1 cloud DVR.
Time Warner Cable owns cable systems located in key geographic areas, including New York City, Southern California, Texas, the Carolinas, Ohio, and Wisconsin.
Time Warner Cable will combine its products and services with those of Comcast's, including StartOver and LookBack. StartOver allows customers to restart a live program in progress to the beginning, while LookBack allows customers to watch programs up to three days after they air live, all without a DVR.
In addition, Time Warner Cable will combine its more than 30,000 hotspots, primarily in Los Angeles and New York City, and its in-home management system, IntelligentHome, with Comcast's offerings.
Through the acquisition and management of Time Warner Cable systems, Comcast will net about 8 million managed subscribers in this transaction. This will bring Comcast's managed subscriber total to about 30 million.
Comcast noted that following the transaction, its share of managed subscribers will continue to remain below 30 percent of the total number of MVPD subscribers in the U.S. and will be essentially equivalent to Comcast Cable's subscriber share after its completion of both the 2002 AT&T Broadband transaction and the 2006 Adelphia transaction.
CMCSA closed Wednesday's trading at $55.24, up $0.24 or 0.44 percent on a volume of 9.96 million shares. In Thursday's pre-market trades, the stock is down $0.49 or 0.89 percent to $54.75.
TWC closed Wednesday's trading at $135.31, up $0.41 or 0.30 percent on a volume of 3.13 million shares. In Thursday's pre-market, the stock is up $14.45 or 10.68 percent to $149.75.
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