UPDATED: 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 U.S. cable operators to better compete against market leader Comcast Corp.
The Federal Communications Commission immediately served notice that it would closely scrutinize the deal, focusing not only on absence of harm but benefits to the public.
Charter, in which Malone-chaired Liberty Broadband Corp owns about 26 percent, is offering 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.
A key area of regulatory concern would be competition in broadband Internet.
A merger of Charter and Time Warner Cable, with other related deals, would create a company that controls more than 20 percent of the U.S. broadband market, according to research firm MoffettNathanson.
"Regulatory approval is no longer a given but we expect this is highly probable and greater than Comcast-Time Warner," Macquarie Research analyst Amy Yong wrote in a note.
Comcast walked away last month from a deal to buy Time Warner Cable for $45 billion, citing regulatory concerns.
The FCC was unusually quick to comment on the latest deal.
"The Commission will look to see how American consumers would benefit if the deal were to be approved," Chairman Tom Wheeler said in a statement. "In applying the public interest test, an absence of harm is not sufficient."
Time Warner Cable's shares were up 7.8 percent at $184.59 in premarket trading on Tuesday, well below Charter's offer, suggesting concerns about regulatory hurdles.
Charter's stock was up about 4 percent at $182.14.
Charter's current bid is much higher than its first offer of $37 billion, which Time Warner Cable rejected last year.
Pay TV companies such as Time Warner Cable and Charter have been experiencing slowing growth in recent years as customers access TV shows and movies over the Internet through services provided by companies such as Netflix Inc and Hulu.
Among other strategies, cable companies are beefing up their higher-margin Internet businesses through consolidation and partnerships.
Charter said that on completion of the deal it would form a new public company, initially known as New Charter.
Time Warner Cable shareholders, other than Liberty Broadband, would receive $115 in cash and New Charter shares equivalent to 0.4562 Charter shares.
Malone's Liberty Broadband would buy $5 billion of New Charter shares.
Charter said it would also form a partnership with Advance/Newhouse, the parent of cable operator Bright House Networks, that would result in New Charter owning 86-87 percent of the partnership.
Charter would 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 Broadband, are expected to own about 40-44 percent of New Charter. Liberty Broadband would own about 19-20 percent.
(Reporting by Supantha Mukherjee and Abhirup Roy in Bengaluru and Lauren Tara LaCapra in New York; Editing by Sriraj Kalluvila and Ted Kerr)