Comcast Corp offered to sell 1.4 million pay TV subscribers to Charter Communications Inc for $7.3 billion, as part of a wider transaction aimed at winning regulatory approval for its proposed $45 billion takeover of Time Warner Cable.
Comcast also said it would divest another 2.5 million subscribers into a new publicly traded company, dubbed SpinCo for now, to be one-third owned by Charter and two-thirds owned by Comcast shareholders.
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The deal will make Charter - whose own bid for Time Warner Cable was thwarted by Comcast's higher offer - the second-biggest U.S. pay TV company with 5.7 million customers, overtaking Cox Communications Inc.
Comcast will have less than 30 percent of the U.S. residential cable or satellite TV market after the deal, the company said in a statement.
SpinCo would have an estimated enterprise value of $14.3 billion and an equity value of $5.8 billion, Charter and Comcast said in an investor presentation. (http://r.reuters.com/vyd88v)
The agreement is contingent on Comcast's Time Warner Cable deal being approved by the Justice Department and the U.S. Federal Communications Commission, a process that could take many months.
"Comcast wanted to do this deal now with Charter so it could get in front of regulators at the Justice Department and the FCC at the same time as the Time Warner Cable deal," a source familiar with the matter said.
The source said there was a standstill agreement with Charter that stipulates that it cannot gain full control of SpinCo for four years.
Comcast will have no ownership in SpinCo if the divestment plan goes ahead. The companies said the divestments would deliver about $19.5 billion in value to Comcast shareholders.
Time Warner Cable had 11.2 million residential video subscribers as of March 31, while Comcast had 22.6 million.
"For Charter this deal is a transformative event and sets them up over time to consolidate the balance of the rest of the cable industry," Pivotal Research Group analyst Jeff Wlodarczak told Reuters, adding that the deal was good for both parties.
Charter's deal with Comcast marks an acceleration of John Malone's effective return to cable through his investment vehicle Liberty Media Corp, which owns about 27 percent of Charter, Wlodarczak said.
In addition to the divestments, Charter and Comcast will swap about 1.6 million customers.
Comcast will get parts of Los Angeles, New York state, western Massachusetts, North and South Carolina and parts of Texas and Georgia. Charter will get Detroit and Minneapolis-St. Paul in Minnesota, the companies said in the presentation.
Charter said it expected to fund the purchase of 1.4 million customers through debt.
Charter shares were up 1.5 percent at $132 in premarket trading on Monday. Comcast shares were untraded after closing at $50.97 on Nasdaq on Friday. Time Warner Cable shares were untraded after closing at $139.41 on the New York Stock Exchange on Friday.