Charter Communications Inc. is near an agreement to buy Time Warner Cable Inc. for $55.1 billion in cash and stock, according to people familiar with the matter, a takeover that would create a new powerhouse in the rapidly consolidating U.S. cable industry.
They said Charter would pay about $195 a share — 14 percent above Time Warner Cable’s closing price on Friday and 47 percent above an offer Charter made early last year. The sources, who asked not to be identified because the talks were confidential, said $100 per share could come in cash and the rest in Charter stock.
The deal could be announced Tuesday, the sources said, but one of them also stressed that talks continued and could fall through.
The merger also would have to get past regulators, who in April scuttled a larger hookup between No. 1 cable provider Comcast Corp. and No. 2 Time Warner Cable, the dominant cable company in the Kansas City area. Perhaps moreso than dominance in cable TV — which faces increasing competition from Internet streaming services — the power over Internet access that the Comcast-Time Warner merger would have produced concerned regulators.
One source said regulators might be more open to the smaller Charter-Time Warner Cable deal. Tom Wheeler, the Federal Communications Commission chairman, reportedly has called executives of the companies to dispel the notion that no cable industry merger could be approved, and to say any deal would be judged on its merits.
Charter, the fourth-biggest U.S. cable company, is making its second move on No. 2 Time Warner Cable after its early 2014 bid was rejected and No. 1 cable provider Comcast Corp. swooped in with a competing offer.
Charter and its biggest shareholder, billionaire John Malone, got another shot when the Comcast deal fell apart under the regulatory scrutiny. They also faced last-minute competition from French billionaire Patrick Drahi’s Altice SA, which held merger talks with Time Warner Cable over the past few days.
Since the collapse of the Comcast agreement, Charter has worked to win over its onetime reluctant target, focusing on a friendly deal and acknowledging that it would have to pay a much higher price tag.
“The idea that Time Warner Cable and Charter are merging isn’t a surprise, but the price raises some eyebrows,” said Craig Moffett, an analyst at MoffettNathanson in New York. “Altice undoubtedly contributed to Charter having to pay such a steep price to close the deal.”
Spokespeople for Charter, Time Warner Cable and Altice declined to comment.
Time Warner Cable shareholders will have the option to accept as much as $115 a share in cash and less Charter stock, the people said. The deal value of $55.1 billion is for Time Warner’s equity. Charter also will assume debt in the transaction. Bright House Networks, a smaller cable company that Charter is trying to buy, will also be merged into the combined entity, soucres said.
The deal would give Charter almost quadruple the number of its cable subscribers, gaining 12 million customers in cities including New York, Los Angeles and Dallas.
Dealmaking is heating up in an industry facing waning demand for traditional pay-TV packages and competition from Netflix, Amazon and other online services. While many analysts predicted a tie-up between Charter and Time Warner Cable, Drahi made a surprise foray into the U.S. on May 20 with the announcement of plans to buy a much smaller rival, Suddenlink Communications. While in the country, he also met with Time Warner Cable’s chief executive, Rob Marcus, according to a person with knowledge of the matter.
Going after Time Warner Cable just days after agreeing to take control of Suddenlink, the No. 7. in the industry, would be the boldest move yet for Drahi. The Franco-Israeli billionaire has built up a telecommunications and cable empire that so far stretches from France, Israel, Portugal to the Caribbean.
At $55.1 billion, Charter’s offer will be difficult to top for Altice, a Luxembourg-based company that has a market value of $35 billion and ballooning debt.
“It would be hard for Altice to structure a deal that would be as compelling for Time Warner Cables’ shareholders as a Charter deal,” said Moffett.
Liberty Broadband Corp., the Malone entity that holds the stake in Charter as well as shares of Time Warner Cable, will buy $5 billion of new Charter stock at the current price to help fund the deal, said the people. The transaction also has a breakup fee of $2 billion, which anticipates a possible bid by Drahi’s Altice SA and antitrust concerns, they said.
Charter has also been renegotiating its offer to buy billionaire Si Newhouse Jr.’s Bright House Networks for $10.4 billion. That agreement had been in jeopardy because it depended on Comcast closing its merger with Time Warner Cable, which has the right to match or block the deal because of a longstanding arrangement to negotiate programming and other deals for Bright House.
Cable providers have been expanding their Internet offerings to help offset the loss of cable subscribers. By opposing the Comcast merger, regulators have showed they are taking a hard look at deals that give companies too much power over broadband Internet, which is increasingly becoming the way that people watch TV.
Mergers may give cable companies more leverage when negotiating contracts with television networks, which could keep cable TV prices down for consumers.
Investors have been anticipating more deals. Cablevision Systems Corp., the No. 5 in the industry, rose 17 percent on May 20, the day Altice agreed to buy a controlling stake in Suddenlink Communications.
Bloomberg News and The New York Times contributed to this report.