John Malone-backed Charter Communications Inc said it would buy Bright House Networks in a $10.4 billion deal as it expands its cable network after losing out to Comcast Corp in a fight for Time Warner Cable Inc.
The U.S. cable TV industry has been rapidly consolidating in recent years to counter the growing popularity of satellite TV and Web-based entrants such as Netflix Inc.
Comcast's $45.2 billion offer for Time Warner Cable last year highlighted the changing landscape of the industry. If approved, the deal will cement Comcast's No. 1 position and reshape the country's pay TV and broadband markets.
The Bright House deal will make Charter, in which Malone-controlled Liberty Broadband Corp is the biggest shareholder, the No. 2 U.S. cable TV provider.
With Charter looking to close its gap with Comcast, the deal could be the first in a series of acquisitions.
Analysts have cited Mediacom, CableOne and Suddenlink as potential targets for Charter.
"I think it is inevitable most of the rest of the cable industry not owned by Comcast is sold to Charter," Pivotal Research Group analyst Jeff Wlodarczak told Reuters.
Wlodarczak also said Charter could go after Time Warner Cable if the Comcast deal fell through, the likelihood of which was roughly 20 percent.
Charter's shares rose as much as 8.5 percent to a record high of $199 on Tuesday.
The company said it would pay Advance Newhouse — the owner of Bright House — $2 billion in cash and the rest in common and convertible preferred units of a new partnership created for the deal.
The deal will help Charter expand in Florida, a market where Bright House has a strong presence. Charter's key markets include Alabama, Georgia, Michigan and California.
Liberty Broadband said it would buy $700 million of newly issued shares of Charter.
After the deal closes, Advance Newhouse would likely own 26.3 percent of Charter and Liberty Broadband's stake would slip to 19.4 percent.
The deal is contingent on the expiration of Time Warner Cable's "right of first offer" for Bright House, which has an agreement for sharing programming rates with the larger cable operator.
Goldman Sachs and LionTree Advisors are financial advisers to Charter and UBS Investment Bank is adviser to Advance Newhouse. Wachtell, Lipton, Rosen & Katz is the legal adviser to Charter.
(Additional reporting by Liana Baker in New York; Editing by Kirti Pandey and Saumyadeb Chakrabarty)