John Malones Liberty Media Corp. (LMCA) agreed to buy about 27 percent of Charter Communications Inc. (CHTR) for about $2.62 billion, betting that the formerly bankrupt cable company can thrive in an era of digital services.

Liberty will pay $95.50 apiece for about 26.9 million shares and 1.1 million warrants for Charters private-equity investors Apollo Global Management, Oaktree Capital Management and Crestview Partners, according to a statement today. The transaction is expected to close by mid-May.

Charter, the fourth-largest U.S. cable operator, has been taking advantage of improving cash flow to refinance debt and add customers through the acquisition of Cablevision Systems Corp. (CVC)s Optimum West. Its shares have almost tripled since the end of 2009, when the St. Louis-based company emerged from bankruptcy protection with the deal that gave the private-equity firms their stakes.

We are pleased with Charters market position and growth opportunities and believe that the companys investments in its high-capacity digital network, which provides digital HD and on- demand television, high-speed data and voice, will benefit its customers and shareholders alike, Malone, Libertys chairman, said in the statement.

Charters stock rose 8.8 percent to $98.04 yesterday after reports of the deal first surfaced. Libertys offer represents a 6 percent premium over the stocks trading price before the news broke. The shares gained an additional 2.4 percent to $100.38 today in New York, reaching the highest level since the bankruptcy.

Shares of Liberty Media, based in Englewood, Colorado, fell 0.3 percent to $110.34 today.

For Malone, a billionaire who built Tele-Communications Inc. into one of the countrys biggest pay-TV companies decades ago, the move marks a return to the U.S. cable industry. In recent years, he has focused on the European market, making investments through his overseas cable business Liberty Global Inc. That company agreed to acquire Virgin Media Inc. for $23.3 billion in cash and stock last month to expand in the U.K.

As part of todays agreement with Charter, Liberty will name four directors to Charters board. The company expects to designate Malone; Liberty Chief Executive Greg Maffei; Liberty Global Executive Vice President Nair Balan; and Michael Huseby, chief financial officer of Barnes & Noble Inc., another company backed by Liberty. Current directors Stan Parker, Darren Glatt, Bruce Karsh and Edgar Lee -- who are affiliated with Charters private-equity backers -- will resign from the board.

Liberty also agreed not to attempt to take control of Charter. Under the terms of the deal, it wont increase its ownership above 35 percent until January 2016 and 40 percent thereafter. Liberty also said it wont start a proxy fight for more board seats, so long as its directors maintain their positions.

While Liberty Global has 19.6 million pay-TV, Internet and phone customers, mostly in Europe, and Malone directly holds a 4.8 percent stake in satellite-TV company DirecTV, his U.S. cable investments have been limited since he sold TCI to AT&T Corp. in 1999. Liberty Media holds an undisclosed stake in Time Warner Cable Inc., the second-biggest U.S. cable company, according to the annual report of Malones company.

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Liberty Media Will Pay $2.62 Billion for 27% Stake in Charter