By Liana B. Baker and Soham Chatterjee
(Reuters) - Comcast Corp on Monday agreed to a three-way deal with Charter Communications Inc as part of Comcast's efforts to win regulatory approvals for its proposed $45 billion purchase of Time Warner Cable Inc.
The transaction would make Charter, which lost out to Comcast in a bid to acquire Time Warner Cable, the second-largest cable provider in the United States.
The agreement would leave Comcast with less than 30 percent of the U.S. residential cable or satellite TV market, a factor seen as a key step to pleasing regulators. Charter would have about 6 percent of the pay-TV market, with an eventual shot to climb to 9 percent.
Under the deal, Charter would pay Comcast $7.3 billion for 1.4 million subscribers. Comcast would divest another 2.5 million subscribers into a new publicly traded company that would be two-thirds owned by Comcast shareholders and one-third owned by Charter.
In addition, Comcast and Charter would trade about 1.6 million subscribers in different parts of the country.
"For Charter, this deal is a transformative event and sets them up over time to consolidate the balance of the rest of the cable industry," Pivotal Research Group analyst Jeff Wlodarczak told Reuters, adding that the deal was good for both parties.
Comcast is awaiting approval by the U.S. Justice Department and the U.S. Federal Communications Commission to take over Time Warner Cable, something that likely will take many months and could impact the future of cable and broadband.
Charter's shares were up almost 8 percent at $139.90 in mid-morning trading while Comcast shares were up 1.4 percent at
Under the deal for the new company, Charter would manage the as-yet-to-be named company and Charter CEO Tom Rutledge would become its chairman.
The company would have an estimated enterprise value of $14.3 billion and an equity value of $5.8 billion, Charter and Comcast said in an investor presentation. (http://r.reuters.com/vyd88v)
A person familiar with the deal said there was a standstill agreement with Charter stipulating that it cannot gain full control of the new company for four years. Comcast will have no ownership.
The entire deal with Charter is contingent on Comcast closing the Time Warner Cable acquisition.
MORE CLOUT FOR MALONE
If the agreement with Comcast goes through, Charter would leapfrog Cox Communications Inc and become the second-biggest U.S. pay TV company, with 5.7 million customers.
The deal also marks an acceleration of John Malone's effective return to cable through his investment vehicle Liberty Media Corp, which owns about 27 percent of Charter.
Liberty Media got involved in working with Comcast but Charter did the nuts and bolts of the deal, the person familiar with the matter said.
In addition to the divestments, which will deliver about $19.5 billion in value to Comcast shareholders.
Under the agreement to swap about 1.6 million customers, Charter will acquire systems in Ohio, Kentucky, Wisconsin, Indiana and Alabama, while Comcast will get parts of the Los Angeles, New York state, western Massachusetts, North Carolina South Carolina, and parts of the Texas and Georgia markets.
The new company will get the Detroit and Minneapolis-St. Paul markets.
Time Warner Cable had 11.2 million residential video subscribers as of March 31, while Comcast had 22.6 million.
Charter, which also reported better-than-expected first-quarter revenue, said it expected to fund the purchase of 1.4 million customers through debt.
Time Warner Cable shares were up 1 percent at $141.01.
(Additional reporting by Abhirup Roy and Sruthi Ramakrishnan in Bangalore; Editing by Saumyadeb Chakrabarty and Leslie Adler)