Charter Communications (News - Alert) Inc., the fourth-largest cable operator in the United States, has reached an agreement with sixth-largest operator Bright House Networks LLC to potentially acquire the latter company for $10.4 billion. If this deal is carried out Charter Communications will become the nation’s second-largest cable operator, competing directly with the pending-approval merger between Comcast (News - Alert) and Time Warner Cable.

“Bright House Networks provides Charter with important operating, financial and tax benefits, as well as strategic flexibility,” said Thomas M. Rutledge, CEO of Charter Communications. “Bright House has built outstanding cable systems in attractive markets that are either complete, or contiguous with the New Charter footprint. This acquisition enhances our scale, and solidifies New Charter as the second-largest cable operator in the U.S.”

Bright House serves approximately two million customers in predominantly central Florida as well as Alabama, Indiana, Michigan and California. The company is one of the last small cable operators in an industry that continues to be swept by mergers and consolidation.

Charter’s acquisition of Bright House is in fact a backup plan that follows its attempt to acquire Time Warner (News - Alert) Cable last year, which was squashed by a $45 billion offer from Comcast. Furthermore, a special arrangement has been in place for quite some time between Time Warner Cable and Bright House that provided the latter company access to Time Warner Cable’s agreements with television groups and technology investments. It is not clear whether this deal will continue to apply.

According to Charter, if the Comcast-Time Warner Cable is approved by regulatory entities some of Comcast’s markets and subscribers will be shifted to Charter. However, if the merger is rejected and Charter cannot acquire these disposed assets it will not proceed with the Bright House deal. The announcement of plans for a $10.4 billion acquisition can thus be interpreted as confidence that the deals will go through or as a strategic move showing regulators that Comcast-Time Warner Cable would be subject to competition from a similarly-sized company.

Charter plans to put up $2 billion in cash and pay the rest in stock shares. Under the terms of this deal Charter will own 73.7 percent of the resulting business whereas Bright House’s parent company Advance/Newhouse will retain the remainder. Additionally Liberty Broadband, the vehicle used by media mogul John Malone (News - Alert) to control his stake in Charter, will purchase 700 million of newly issued Charter shares when the deal closes.

The new company will operate with a 13-member board that includes three directors selected by Advance/Newhouse and three selected by Liberty Broadband. Assuming the deal is green-lighted it will still be subject to federal and state regulatory approvals.