Broadband Cable Association of Pennsylvania

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April 28, 2014

Comcast Corp. and Charter Communications Inc. reached a deal for Comcast to divest 3.9 million subscribers, in a move aimed at helping it smooth over regulatory concerns involving its $45 billion deal for Time Warner Cable Inc. As part of the agreement, Comcast will divest about 1.4 million existing Time Warner Cable customers directly to Charter for an estimated $7.3 billion in cash. Additionally, Comcast plans to create a new publicly traded company that will serve another 2.5 million existing Comcast customers. Comcast shareholders would own 67 percent of that new company, and Charter would own 33 percent. The two cable operators estimated the new company would have an enterprise value of $14.3 billion. The agreement also included a deal to swap 1.6 million Time Warner Cable customers and 1.6 million Charter customers in a like-kind exchange, which the companies said will improve their geographic footprints. The new Charter agreement is contingent on the Comcast-Time Warner merger being completed. "Today's agreement follows through on our willingness to divest subscribers, while also marking an important step in our merger with Time Warner Cable," Comcast CEO Brian Roberts said in a statement. To alleviate regulatory concerns, Comcast had said it plans to divest millions of subscribers. The deal with Charter would reduce Comcast's number of managed residential customers to less than 30% of the pay-TV market after all the transactions. Charter earlier this year lost out on its long-running bid to acquire fellow cable operator Time Warner Cable, after rival Comcast reached a $45 billion deal for TWC. However, last week The Wall Street Journal reported that Charter appeared to be in line for a consolation prize, with the company and Comcast in advanced talks toward a complex deal where Charter could end up with nearly four million additional subscribers. The companies said the divestiture deal would make Charter the second-largest cable operator in the U.S., a move that would help advance the growth strategy set out by Charter and its biggest shareholder, Liberty Media Corp., to consolidate the cable industry. Charter is currently the fourth-largest U.S. cable operator, behind Comcast, Time Warner Cable and Cox Communications Inc. Charter said Monday that, following the deals, it will have an estimated 5.7 million video customers and manage another 2.5 million through its agreement with the new company. That gives it a total of 8.2 million video customers, or nearly double its current total.

Specifically, Charter will acquire systems in Ohio, Kentucky, Wisconsin, Indiana and Alabama, while divesting systems in California, New England, Tennessee, Georgia, North Carolina, Texas, Oregon, Washington and Virginia. Meanwhile, the new company will own systems that are near Charter systems in Michigan, Minnesota, Indiana, Alabama, Eastern Tennessee, Kentucky and Wisconsin. Charter Chief Executive Tom Rutledge will be chairman of the new company. Separately, Charter reported its first-quarter results Monday morning, with the company posting a narrower loss for the period. The company reported a loss of $37 million, or 35 cents a share, compared with a year earlier loss of $42 million, or 42 cents a share. Revenue jumped 15% to $2.2 billion, helped by the July acquisition of Cablevision Systems Corp.'s Bresnan Broadband. Video and Internet revenue grew, though voice revenue declined. Analysts polled by Thomson Reuters recently expected per-share earnings of 12 cents and revenue of $2.18 billion. Charter found success recently in its effort to slow its video-subscriber losses by focusing on speeding up its broadband speeds and adding more high-definition TV channels. The company gained 18,000 customers in the latest period, compared with losing 25,000 a year ago. Charter also added 136,000 Internet customers in the first quarter, compared with 107,000 a year ago. Wall Street Journal

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