Charter-TWC will be 'relatively small': Rutledge
Charter Communications (CHTR)' bid for Time Warner Cable is very different than Comcast (CMCSA)'s and stands a good chance of gaining Federal Communications Commission approval, Charter chief Thomas Rutledge said Tuesday.
"If you look at the ecosystem, who we're playing with in terms of other competitors, they're very large, and we'll still be a relatively small company compared to the large phone companies, compared to Comcast, compared to the wireless companies," he said on CNBC's "Squawk on the Street." (Tweet This)
Charter confirmed Tuesday it will purchase Time Warner Cable (TWC) for $55 billion in a deal that would merge the second and third biggest U.S. cable companies and create a larger rival to No. 1 cable company Comcast.
Read More Charter agrees to buy Time Warner Cable for $195 a share
Charter also announced it would acquire Bright House Networks, the sixth-largest U.S. cable company, for $10.4 billion. The combined companies could have as many as 23 million total customers, just behind Comcast's 27.2 million customers. (Comcast owns NBCUniversal, CNBC's parent company.)
The Comcast-Time Warner Cable deal rejected by regulators would have created a provider with roughly 40 percent of the U.S. high-speed Internet market.
Charter hopes its deal for Time Warner Cable will be viewed more favorably by regulators. FCC Chairman Tom Wheeler reached out to the chief executives of the two companies last week to convey that the agency is not opposed to any and all cable deals, The Wall Street Journal reported. Any deal would be considered on its own merits, the paper quoted Wheeler as saying.
"The FCC reviews every merger on its merits and determines whether it would be in the public interest," Wheeler said in a statement Tuesday. "In applying the public interest test, an absence of harm is not sufficient. The Commission will look to see how American consumers would benefit if the deal were to be approved."
The deal values each Time Warner Cable share at about $195.71 based on Charter's closing price on May 20, the companies said in a statement. The transaction will include a $2 billion breakup fee.
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The price Charter will pay is equal to 9.3 times Time Warner Cable's earnings before certain expenses, a lofty multiple in the cable industry. Rutledge said Charter believed it could make the combined company more efficient and grow the business enough to justify the cost.
"Yes, the multiple is high relatively speaking today, but so is the upside, and so is the growth potential and so is the ultimate cost potential of this business," he said.
Rutledge added that Charter's debt will decrease rapidly and its margins would increase as it reduces the number excess transactions it performs.
"It means that when we sell better products, that the life of our subscribers increases, so for the same amount of revenue you get less activity because your subscribers last longer, meaning there's less churn, there's less connects and disconnects in a business," he said. "Those physical transactions come out of the business and reduce the cost of a business."
He added that the combined company would be able to pay workers more because they will become more productive. "Better people doing better-quality work translates into less transactions, less service calls, which translates into higher margins."
While overlap will lead to layoffs in some areas, Charter does not expect to cut a significant number of jobs, Rutledge said. Charter will need the majority of existing employees to maintain the current infrastructure of Time Warner Cable and Bright House, he added.
Time Warner Cable shares were nearly 4 percent Tuesday morning; Charter's were down 1 percent.
-Reuters contributed to this story.
DISCLOSURE: Comcast owns NBCUniversal, CNBC's parent company.
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