Charter Communications Inc, the No. 3 cable TV operator, offered to buy No. 2 Time Warner Cable Inc for $56 billion on Tuesday but immediately ran into questions about whether regulators would agree to the combined company, which would control a big swath of the cable and Internet markets.
The union of the two companies would compete against cable market leader Comcast, confront the increased popularity of streaming services, and mark a huge step toward industry consolidation, long advocated by cable pioneer John Malone, Charter's biggest shareholder.
The merger partners, which promised better access to broadband Internet for consumers, faster speeds and more public WiFi networks, nonetheless could face regulatory obstacles that helped sink Comcast Corp's earlier bid for Time Warner Cable.
The Federal Communications Commission was unusually quick to comment, saying early Tuesday it would closely review the deal's merits. The agency determines whether mergers are in the public interest.
"The Commission will look to see how American consumers would benefit if the deal were to be approved," FCC Chairman Tom Wheeler said in a statement.
Charter, 26-percent owned by Liberty Broadband Corp, offered about $195.71 in cash and stock for each Time Warner Cable share, based on Charter's closing price on May 20.
Including debt, the deal values Time Warner Cable at $78.7 billion, making it the sixth largest U.S. deal on record, according to Thomson Reuters data.
The offer, the latest in a rapidly consolidating U.S. cable industry facing competition from satellite TV and Web-based services from Amazon.com Inc, Netflix among others, could bring new outcries from critics who helped keep Comcast from acquiring TWC in a year-long saga. A key area of regulatory concern would be competition in broadband Internet.
A merger of Charter and Time Warner Cable along with other deals would create a company that controls more than 20 percent of the U.S. broadband market, according to research firm MoffettNathanson.
The merged company would still be smaller than Comcast, which serves about one-third of U.S. broadband users, said analyst Craig Moffett in a note to clients. He added that "one has to be sober about genuine risks that this deal could still be rejected."
Time Warner Cable's shares jumped 6.7 percent to $182.63 on Tuesday, well below Charter's offer, suggesting concerns on Wall Street about regulatory hurdles. Charter up 2.3 percent at $179.49.
Charter's current bid is much higher than its first offer of $37 billion, which Time Warner Cable rejected last year. The on-again deal marks a contrast to their acrimonious exchanges in 2013 and early 2014 that led Time Warner Cable to find a white knight in Comcast.
Growth has slowed at pay-TV companies in recent years as consumers watch shows and movies over the Internet through services provided by companies such as Netflix Inc and Hulu. Among other strategies, cable companies are beefing up their higher-margin Internet businesses through consolidation and partnerships.
In the video market, New Charter would be third with 17.3 million customers behind Comcast and a proposed DirecTV - AT&T combination, according to a Charter presentation.
Time Warner Cable Chief Executive Officer Rob Marcus said he was confident the deal would get done. "This is a very different transaction" from the Comcast-TWC deal, he said on a conference call.
"KING OF CABLE"
Malone, a 74-year-old billionaire dubbed the "King of Cable" after building a small Denver cable company into the nation's largest system in the 1980s, is now aiming to become the king of consolidation in the same industry.
As part of the complicated deal, Charter also wins control of Bright House Networks from Advance Newhouse, amending a March $10.4 billion deal. That would help Charter expand in Florida, a market where Bright House has a strong presence.
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