Terms of the deal

Time Warner Cable (TWC) shareholders will receive $100 cash and 0.5409 Charter Communications (CHTR) shares for each share of TWC. The transaction is expected to close by the end of the year. Time Warner Cable shareholders are expected to receive their respective dividends during the pendency of the deal.

Time Warner Cable shareholders may elect to receive $115 in cash and .4652 shares of Charter instead of the $100 plus .5409 CHTR consideration. This gives Time Warner shareholders some options in the transaction. I’ll discuss how to monetize that in a later post.

Basics of Time Warner Cable–Charter Communications Transaction

Here’s what you should know about the deal.

Conditions precedent

The deal needs to go through all these steps before it can close:

  • Time Warner Cable shareholder vote
  • Charter Communications shareholder vote
  • Hart-Scott-Rodino Antitrust
  • New York State Public Service Commission
  • FCC (Federal Communications Commission) approval
  • SEC (Securities and Exchange Commission) approval of joint proxy statement

Non-solicitation

Both companies have a non-solicitation agreement with a fiduciary out. This means if another suitor approaches either party, they can discuss a merger with that company if their board of directors thinks there’s a bona fide offer that would likely result in a higher bid for the company.

Keep in mind regulatory approvals

The Time Warner–Charter deal is in a highly regulated industry. These deals typically take a very, very long time. The companies are guiding for a close by the end of the year. And that’s probably an optimistic expectation. A typical utility deal takes 12–18 months. While this transaction isn’t a utility deal, the regulatory review will be more similar to a utility review than other transactions. You should remember that the process of vetting a transaction takes a while.

Note that the FCC review has a test as to whether the merger is in the public interest. There are other considerations here than simply market shares working. The FCC review can take 180 days. While the FCC is pretty familiar with Time Warner Cable from the Comcast (CMCSA) transaction, it still has to allow public comments for a certain period of time. So it’s possible the timeline could be shorter than the Comcast deal, but that’s not a given.

For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors. Investors who are interested in trading in the tech sector should look at the S&P SPDR Tech ETF (XLK).

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