Mike Snider

USA TODAY

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

The two companies announced a divestiture plan early Monday 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.

Shares of Charter Communications jumped $10.04, or 7.7% to close at $140.05. Comcast stock was up 73 cents, or 1.4%, to $51.70, while Time Warner Cable gained $1.54, or 1.1%, to $140.95.

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 will be the largest cable operator, with about 30 million customers.

Shareholders of Comcast and Charter "will like this deal for both companies, as it accelerates cash generation and rationalizes their regional footprints," said analysts Adam Ilkowitz and Donald Chen of Tokyo-based financial services group Nomura. "Charter cements its footprint in the Midwest, adding (Time Warner Cable) assets in Ohio and Wisconsin, while also acquiring the former Insight Communications in Kentucky and Indiana. (The new spinoff company) SpinCo adds some major markets, namely Minneapolis, Detroit, and Indianapolis. Comcast gains control of key media markets in Los Angeles and Dallas, while divesting (subscribers) in a shareholder-friendly way."

The Comcast-Time Warner Cable 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. Al Franken, D-Minn., in a letter recently.