Charter to Acquire Cox Communications in $35 Billion Deal

The deal, which includes the assumption of debt, is set to position Charter as the largest cable operator in the United States, boasting nearly 38 million customer relationships, according to Reuters. The acquisition represents a calculated effort to counteract slowing revenue growth and adapt to an industry increasingly disrupted by cord-cutting and wireless competition.

A Complex Financial Package

Per Reuters, the structure of the transaction reflects Charter’s strategic ambitions. The company will pay $4 billion in cash and issue approximately 33.6 million common partnership shares, currently valued at around $12 billion. In addition, the agreement includes $6 billion in convertible preferred units that offer an annual yield of 6.875%, delivering more than $400 million in annual payments until they convert into common stock.

Once finalized, Cox Communications’ backers are expected to hold roughly 23% of the merged entity. The combined company would leapfrog Comcast to become the nation’s top cable provider.

Financial and Strategic Upside

The merger comes at a time when Charter’s revenue has seen limited growth—just 2% over the past two years. However, executives see significant room for financial improvement. Charter projects annual cost savings of $500 million, which, once capitalized and taxed, could be worth close to $4 billion. According to Reuters, Charter valued Cox using the same 6.4 times EBITDA multiple at which it trades, signaling confidence in the deal’s long-term value.

Analysts from MoffettNathanson estimate Charter’s weighted average cost of capital at around 7.5%, and New Street Research suggests the merger synergies could be even higher than currently projected. When factoring in Cox’s $3 billion in 2024 operating income and the expected savings, the transaction could deliver a post-tax return of roughly 8%—surpassing Charter’s cost of capital.

Regulatory Hurdles Ahead

Despite the compelling financial rationale, regulatory approval remains uncertain. As Reuters notes, past efforts to consolidate the telecom industry have met stiff resistance. AT&T’s attempted acquisition of T-Mobile US was blocked in 2011, and Comcast’s bid for Time Warner Cable was also quashed in 2015. Given heightened antitrust scrutiny in recent years, Charter’s proposed acquisition is expected to face detailed review from federal regulators.

Expanding Footprint and Diversifying Services

The strategic appeal of the acquisition lies in its potential to fortify Charter’s evolving business model. As traditional pay-TV subscribers continue to migrate toward streaming services, Charter has been shifting focus toward broadband and wireless, notably through its partnership with Verizon Communications.

With Cox’s customer base, Charter will be able to expand its internet offerings and introduce bundled services that combine broadband, wireless, and potentially even streaming content. This expanded reach could help the company better compete against a wide range of rivals—from tech giants to mobile providers.

Looking Ahead

If regulators approve the transaction, Charter’s CEO Chris Winfrey will gain more than just scale—he will secure valuable time and resources to navigate a fast-changing media environment. The combination with Cox is more than a merger; it’s a strategic maneuver aimed at future-proofing Charter in an industry where disruption is the norm.

Source: Reuters