Charter Communications and Cox Communications, two of the largest US cable and broadband companies, have entered into a definitive agreement to merge in a historic $34.5 billion transaction. The deal, one of the largest in the cable industry in recent years, will redefine the competitive landscape and form a new broadband, mobile, and video entertainment services industry leader.
Deal Structure and Valuation:
The transaction values Cox Communications at an enterprise value of $34.5 billion, including $21.9 billion of equity and $12.6 billion of net debt and other liabilities. The valuation is predicated on Charter's 2025 estimated adjusted EBITDA trading multiple and is in line with current Wall Street consensus.
Ownership and Governance:
Cox Enterprises will get $4 billion in cash, $6 billion in convertible preferred units (with a 6.875% coupon), and roughly 33.6 million common units of Charter's partnership for an implied total value of $11.9 billion. Cox Enterprises will own roughly 23% of the fully diluted shares of the combined company and have two board seats after the transaction closes, with Alex Taylor (Cox Enterprises CEO) as chairman of the new board.
Branding and Headquarters:
The merged entity will be renamed Cox Communications within a year of closure, while the Spectrum brand of Charter will continue to serve as the consumer brand in all markets. The headquarters will be retained in Stamford, Connecticut, with a strong presence in Atlanta, Georgia.
Strategic Rationale and Synergies
The combination is intended to result in a broadband, mobile, and seamless video entertainment industry leader focused on high-quality customer service and job creation in the United States. Charter anticipates realizing $500 million of annualized cost savings within three years through procurement and overhead reductions.
Customer and Employee Impact
Cox customers will be able to migrate to new Spectrum bundled offerings or keep their existing plans. The combined company has committed to bringing jobs back onshore from abroad, investing in employee training, and creating charitable and employee relief funds based on Cox's programs.
Financial Outlook:
The merged entity will inherit Cox's $12 billion of debt, and Charter's net leverage is projected to be around 3.9x following the merger. The merger is projected to generate greater cash flow per customer and better returns on investment by enhancing product penetration and lowering operating expenses.
Regulatory and Shareholder Approvals
The transaction will be subject to customary regulatory approvals and Charter shareholder approvals. Closing is anticipated in tandem with the acquisition of Liberty Broadband by Charter, who has expressed support for the merger.
Insight
This giant merger not only combines two cable titans but also makes the new Cox Communications the biggest cable and broadband company by subscribers in the U.S., overtaking Comcast. The transaction is likely to fuel innovation, increase U.S. job opportunities, and provide enhanced services to millions of homes and businesses. Nevertheless, the merger will be subject to close examination by regulators and may trigger competitive reactions from industry competitors such as Comcast.
"This union will enhance our capacity to innovate and to supply superior, competitively priced products, delivered with top-notch customer service, to millions of residences and businesses," stated Chris Winfrey, President and CEO of Charter, who will helm the combined company.
Source: CNBC, TipRanks, Reuters, Charter Communications News Release, Axios
