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Market Update

1% Fall in S&P 500 Leads Global Decline, Charter in Expensive Cable Deal

Author: Nichole Harper
Last Update: 2:25 PM ET May 26 2015

1:25 PM In an expensive deal, Charter Communications agreed to acquire Time Warner Cable Inc for $78.7 billion including debt. The deal is expected to vault Charter to the second largest spot in the industry but the cable company faces several hurdles on cost and restive customer base.

Market indexes on Wall Street declined after a 3-day weekend and durables orders fell in April and new home sales in the month rose.

Charter Communication agreed to acquire Time Warner in the second attempt that stretched over a year.

The deal between the two companies is likely to face fewer regulatory hurdles and will catapult the company to the second spot with 17 million customers only to be trailed by Comcast with 22 million customers.

Charter originally offered $132.50 a share in January of 2014 but the deal was rejected by Time Warner because the management felt it undervalued the company and had too much of debt.

The current deal at nearly $196 a share values the company at nine times operating earnings estimate of this year compared to seven times in the previous offer and nearly half of it is debt and no shareholder protection against the highly priced share of Charter.

Cable industry has seen a flurry of activities as most mergers of the past have failed to create value for customers and only led to higher prices on an inflated package of channels that most subscribers do not use.

Durable goods orders in April dropped 0.5% to $235.5 billion and orders declined in two of the last three months, followed by 5.1% increase in March, the Department of Commerce reported.

In a separate report the department said seasonally adjusted new home sales in April jumped 6.8% to 517,000 from the revised March rate of 484,000 and surged 26.1% from a year ago month rate of 410,000.

On Wall Street, Tollbooth Strategy Index slipped 0.9% or 107.66 to 10,728.46.

S&P 500 index dropped 0.9% or 20.14 to 2,105.89 and the Nasdaq Composite Index declined 1.1% or 56.60 to 5,033.07.

Crude oil in New York fell $1.45 to $58.27 a barrel and gold plunged $17.20 to $1,187.70 an ounce.

U.S. Movers

Charter Communications, Inc (CHTR) slipped 1.1% or $1.89 to $173.44 after the cable services provider agreed to acquire Time Warner Cable Inc for $55.1 billion.

Charter offered $100 a share in cash and 0.5409 of its shares of a new public parent company ""New Charter.""

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

The Federal Communications Commission immediately issued the notice that it would closely scrutinize the deal but the deal is likely to face fewer hurdles in getting regulatory approval.

Charter also announced that the key shareholder Liberty Broadband Corporation agreed to buy $4.3 billion of newly issued shares of New Charter at a price equivalent to $176.95 a Charter share, upon closing of the Time Warner Cable transaction.

Liberty Broadband is expected to own between 19% and 20% of New Charter.

EMC Corporation (EMC) dropped 2.2% or 59 cents to $26.25 after the information infrastructure provider agreed to acquire privately-held Virtustream for about $1.2 billion in cash.

The transaction is expected to close in the third-quarter.

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Sources: Data collected by 123jump.com and Ticker.com from company press releases, filings and corporate websites. Market data: BATS Exchange. Inc