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Cable Technology Feature Article

March 20, 2013

Liberty Takes a Minority Position in Charter

By Tara Seals, TMCnet Contributor

Billionaire John Malone’s (News - Alert) Liberty Media has agreed to pony up $2.62 billion to buy a 27.3 percent stake in Charter Communications, the U.S. MSO that serves five million customers in 25 states.

Liberty agreed to $95.50 per share, which represents a discount rather than a premium: the price is about three percent off from the cableco’s Monday closing stock price.

Liberty is purchasing 26.9 million shares and about 1.1 million warrants in Charter from Apollo Management, Oaktree Capital Management and Crestview Partners. After the deal, Crestview will own 7.4 percent of Charter shares, while Oaktree will own 2.2 percent.

Liberty will nominate four people to the company's board. According to Reuters (News - Alert), those members will likely be Malone, Liberty president and CEO Gregory Maffei, Liberty executive Nair Balan and Barnes & Noble CFO Michael Huseby.

As for Malone’s plans for the company, history may give some clues. Liberty spun off its Starz premium pay TV channel subsidiary in January, but then took a majority stake in satellite radio company Sirius XM Radio. Also this year, it bought more of the live concert promotion company Live Nation Entertainment, raising its stake to 27 percent.

Malone, "the king of cable, may be using a tactic he has employed before: taking a minority stake in a company and building a controlling interest,” Macquarie analyst Amy Yong told Reuters. “He used a similar strategy with Sirius XM.”

She added, Malone "is probably going to have a pretty big say in the company's future over the next few years. This will accelerate capital returns and take advantage of Charter's tax assets to consolidate the cable industry some more.”

Perhaps heading off concerns about Liberty having an undue influence on the company, it agreed to a staged buyout of more shares in Charter. It agreed not to raise its stake above 35 percent until January 2016, and not above 39.99 percent after that. It is also not eligible for additional board positions until the 2015 shareholder meeting.

The deal is expected to close in the first half of the second quarter of 2013.

Edited by Brooke Neuman

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