John Malone’s Charter Communications Inc. struck a $56 billion deal to buy Time Warner Cable Inc., seeking to combine the third and second largest US cable operators to better compete against market leader Comcast Corp.

Charter, in which Malone-chaired Liberty Broadband Corp. owns about 26 per cent, offered about $195.71 in cash-and-stock for each Time Warner Cable share based on Charter’s closing price on May 20, the companies said in a statement yesterday.

Including debt, the deal values Time Warner Cable at $78.7 billion.

Pay TV companies such as Time Warner Cable and Charter have been experiencing slowing growth over the years as customers access TV shows and movies over the internet through services provided by Netflix Inc and Hulu.

These traditional TV companies are now beefing up their fast-growing, higher-margin internet businesses through consolidation and partnerships.

Charter’s current bid is much higher than its first proposed deal, which Time Warner Cable rejected last year. It is also higher than the $45 billion offer Time Warner Cable had accepted from Comcast. Comcast nixed the agreement last month because of regulatory concerns that the company would sap too much competition out of the broadband market.

Charter said it will form a new public company, New Charter.

Time Warner Cable shareholders, other than Liberty Broadband, will receive $115 in cash and New Charter shares equivalent to 0.4562 Charter shares.

Malone’s Liberty Broadband will buy $5 billion worth of New Charter shares.

Charter said it will also form a partnership with cable operator Bright House Networks’s parent Advance/Newhouse that will result in New Charter owning 86-87 per cent of the partnership.

Charter will pay Advance/Newhouse $2 billion in cash and units in the partnership. Charter had earlier agreed to buy Bright House for $10.4 billion. Time Warner Cable shareholders, excluding Liberty, are expected to own about 40-44 per cent of New Charter and Liberty Broadband about 19-20 per cent.

Time Warner Cable’s shares rose eight per cent to $185 in premarket trading.

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