Charter Communications, 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 Wi-Fi networks, nonetheless could face regulatory obstacles that helped sink Comcast’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, 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 and 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 was 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 and Hulu. Among other strategies, cable companies are beefing up their higher-margin Internet businesses through consolidation and partnerships.
In the video market, the 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.
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.
A combined Charter-TWC would serve large clusters of subscribers in New York, Texas and California. Charter would have the size to undercut telecommunications companies in the lucrative data service market.
A larger company could also have the heft to roll out video streaming services in a potential battle with Netflix and others.
Charter has debt commitments in place of just over $31 billion to finance its merger with Time Warner Cable and the acquisition of Bright House Networks, according to Reuters’ IFR unit.
Left out was French telecommunications group Altice, which does not intend to submit a new offer for TWC, two sources said on Monday.
Comcast walked away last month from a deal to buy Time Warner Cable for $45 billion, citing regulatory concerns.
Comcast and Time Warner Cable had announced the deal in February 2014, valuing TWC at about $158 a share. The proposed union immediately ran into regulatory obstacles despite little geographic overlap. Industry executives warned it threatened to limit the choices of broadband providers.
As late as last November, Comcast chief Brian Roberts insisted the proposed marriage was going “full steam ahead.”
By April 2015, once it was clear the Justice Department and the FCC were ready to block the merger, Comcast reconsidered and abandoned its bid, in a setback for Roberts.
The Comcast CEO was on the sidelines cheer leading the bid on Tuesday.
“This deal makes all the sense in the world,” Roberts said in a statement. “I would like to congratulate all the parties.”
A Charter bid for Time Warner Cable would likely be approved by the Justice Department’s Antitrust Division but could face conditions at the Federal Communications Commission, said Gene Kimmelman, who worked at the Justice Department.
“It’s more of an FCC focus and there they have still a heavy lift. Will cable prices go up? Will broadband prices go up?” said Kimmelman, now president of the public interest group Public Knowledge. He added that the regulators’ review would also focus on developing internet video competition.
If the deal is blocked, it would leave Charter on the hook for a $2 billion break-up fee, the companies said.
Goldman Sachs, LionTree Advisors, Guggenheim Securities, Bank of America Merrill Lynch and Credit Suisse served as financial advisers to Charter.
Morgan Stanley, Allen & Co, Citigroup and Centerview Partners were Time Warner Cable’s financial advisers. UBS, Sabin, Bermant & Gould LLP and Sullivan & Cromwell LLP advised Bright House.
(Reporting by Supantha Mukherjee and Abhirup Roy in Bengaluru, Alina Selyukh and Diane Bartz in Washington and Lauren Tara LaCapra in New York; Writing by Nick Zieminski in New York; Editing by Sriraj Kalluvila, Ted Kerr and Jeffrey Benkoe)
This article originally appeared on Recode.net.