US cable behemoths Charter and Cox announce $34.5 billion merger: All you need to know about the deal

Charter Communications has agreed to acquire Cox Communications in a $34.5 billion merger amid a years-long struggle faced by cable companies due to the rising popularity of streaming services. The companies made a definitive agreement to combine their businesses in a transformative transaction.

The proposed merger of Charter and Cox will bring together two of the top three cable companies in the US.

Cox Communications is the third largest cable company in America. The company boasts of 6.5 million digital cable, internet, telephone and home security customers. It has a strong presence across states in the US, spanning from California to Virginia.

On the other hand, Charter Communications, popularly known as Spectrum, has over 32 million customers in 41 US states.

Shares of Charter rose over 8 per cent in pre market after the decision.

Charter and Cox deal

Charter Communications on Friday said that it will acquire Cox Communications’ commercial fibre, and managed IT and cloud businesses.

Cox Enterprises will contribute Cox Communications’ residential cable business to Charter Holdings, an existing subsidiary partnership of Charter.

Cox Enterprises will own approximately 23 per cent of the combined entity’s fully diluted shares once the transaction is closed.

As part of the deal, Cox will get $4 billion in cash, as per a press release. Additionally, the company is also entitled to $6 billion notional amount of convertible preferred units in Charter’s existing partnership. These units pay a 6.875 per cent coupon, and are convertible into Charter partnership units, which are then exchangeable for Charter common shares.

Cox will also receive approximately 33.6 million common units in Charter’s existing partnership, with an implied value of $11.9 billion, and which are exchangeable for Charter common shares.

The transaction, which needs approval from Charter shareholders as well as regulators, includes $12.6 billion in debt.

After the deal is complete, Charter CEO Chris Winfrey will become president and CEO of the combined company. Cox CEO and Chairman Alex Taylor will serve as chairman.

The transaction is expected to close at the same time as Charter's merger with Liberty Broadband, which was approved by Charter and Liberty Broadband stockholders in February.

Why are Charter and Cox merging?

The cable industry has been under assault for years from streaming services like Disney, Netflix, Amazon and HBO Max, as well as internet plans offered by mobile phone companies, Reuters reported.

The so-called “cord cutting” has cost the industry millions of customers and left them searching for ways to successfully compete. The merged entity will be better positioned to compete with AT&T, T-Mobile and other wireless providers, CNN reported. These wireless companies have been increasingly 
poaching customers with broadband services and clubbing them with wireless plans to lure more subscribers, according to CNN.