Comcast's downsizing plan to make its merger with Time Warner Cable palatable to regulators will elevate Charter Communications the second-largest U.S. cable company.

The two companies announced a divestiture plan early today that would take effect after the close of the Comcast-Time Warner Cable merger. Charter would acquire about 1.4 million of Time Warner Cable's current subscribers in a cash deal, boosting its customer base from 4.4 million to 5.7 million.

Comcast and Charter will also swap about 1.6 million existing Time Warner Cable customers and 1.6 million Charter customers in a "tax-efficient like kind" exchange. After a tax-free reorganization, the "new" Charter will also acquire about 33% of a new Comcast-created and publicly-traded spin-off company with about 2.5 million current Comcast customers.

Overall, these transactions, contingent on the approval of the merger between Comcast and Time Warner Cable, the deals would result in Comcast divesting about 3.9 million customers. That would put Comcast's managed residential subscriber base below 30% of total cable TV subscribers in the U.S., the same market share the company had in past deals with Adelphia in 2006 and AT&T Broadband in 2002, Comcast says.

"Today's Agreement follows through on our willingness to divest subscribers, while also marking an important step in our merger with Time Warner Cable," said Comcast CEO and chairman Brian Roberts in a statement. "The realignment of key cable markets achieved in these transactions will enable Comcast to fill in our footprint and deliver operational efficiencies and technology improvements."

Charter president and CEO Tom Rutledge said that the transactions "will provide Charter with greater scale, growth opportunities and improved geographical rationalization of our cable systems, which in turn will drive value for shareholders and more effective customer service."

After the merger and deals, the merged Comcast-Time Warner Cable company be the largest cable operator at about 30 million customers.

The deal faces likely approval from the Justice Department but was recently met with reluctance by a Senate panel. "I am deeply concerned that Comcast's proposed acquisition of Time Warner Cable would give Comcast both the power and the incentive to act as a gatekeeper on the Internet, raising costs and limiting choices for consumers," wrote Sen. Franken in a letter recently.

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