Charter Communications closes Cox and Liberty Broadband deals, extending Spectrum to 45 states

In focus for CHTR: Charter Communications completed its acquisition of Cox Communications and the concurrent merger with Liberty Broadband Corporation on August 20, two deals that together extend the Spectrum brand to a 45-state footprint. Charter says the combination makes it the fastest growing mobile provider in its coverage area. The next confirmable milestone is mid-September, when Spectrum pricing and packaging is scheduled to go live across all former Cox markets.

Deal structure and dilution

Charter issued the equivalent of just over 46 million Charter shares to a Cox Enterprises subsidiary. That consideration comprised approximately 33.6 million common units in Charter's operating partnership, carrying an implied value of approximately $5 billion; $6 billion of convertible preferred units at a 6.875% coupon, convertible into 12.6 million common units; and approximately $4 billion in cash. Cox Enterprises and its subsidiaries now own approximately 26% of the combined entity's fully diluted shares outstanding on an as-converted, as-exchanged basis. Approximately $12 billion of Cox debt and finance leases remain at Charter subsidiaries following the close.

The Liberty Broadband transaction ran concurrently. Each holder of Liberty Broadband Series A, B, and C common stock received 0.236 of a Charter share per share held, with cash in lieu of fractional shares. Charter retired approximately 38.6 million of its own shares that Liberty Broadband had held and issued approximately 33.9 million shares to Liberty Broadband common stockholders, for a net decrease of approximately 4.7 million Charter shares outstanding. Charter assumed approximately $840 million of Liberty Broadband net debt, which it said will be repaid shortly after closing, and absorbed $180 million of Liberty Broadband preferred equity, now converted into Charter preferred equity.

What to watch

Customer migration starts today. Spectrum is offering Cox internet subscribers a free year of mobile service for those who don't already subscribe to Cox Mobile, the first customer benefit tied to the closing. The operational test comes in mid-September, when Spectrum's full product suite goes live across former Cox markets. Alex Taylor, Chairman and CEO of Cox Enterprises, becomes Charter's board chairman at close. Chris Winfrey stays President and CEO. Eric Zinterhofer, who served as board chairman before the close, moves to lead independent director. The 8-K filed as Entry into a Material Definitive Agreement carries the transaction terms on the record.