Wall Street Wins Trading Ideas


Charter Communications bids $55B to buy Time Warner Cable

By Kristen Schweizer | Wednesday, May 27, 2015, 1:08 AM

John Malone has returned to the U.S. cable industry with a vengeance.

Just two years ago, the man who made a fortune building Tele-Communications Inc. into a U.S. broadcasting titan was spending much of his time trying to repeat the trick in Europe through London-based Liberty Global Plc.

Yet Tuesday's $55 billion bid by Malone's Charter Communications Inc. for Time Warner Cable Inc. shows that the 74-year-old billionaire remains eager to grab a leading role in the industry consolidation taking place on both sides of the Atlantic.

"There's been no one as instrumental as Malone in this business," said Neil Campling, a senior analyst at Aviate Global in London. "He's also a banker at heart and does these deals not because he loves the industry, or there's a romance there, but because he's a shrewd businessman."

Should the Time Warner Cable acquisition go ahead, Malone will have come full circle from 15 years ago, when he gave up his number-two spot in U.S. pay-TV by selling TCI to AT&T Inc. Tuesday's announcement also marks a turnaround from 15 months ago, when Charter's first offer for Time Warner Cable was trumped by a $45 billion bid from Philadelphia-based Comcast Corp. - abandoned last month amid antitrust concerns.

Losing out to Comcast was considered a big blow to Malone after he tiptoed back into the U.S. cable waters in 2013 by becoming the biggest shareholder in Charter. It was also his second defeat that year after losing out to Vodafone Group Plc on a 7.7 billion-euro ($8.4 billion) bid for Germany's Kabel Deutschland Holding AG.

Charter's bid at $195.71 a share, 14 percent more than Time Warner Cable's May 22 close, would catapult Charter from the fourth-largest cable company to the No. 2 slot behind Comcast. The deal will let Charter almost quadruple its cable subscribers, gaining 15 million customers in cities including New York, Los Angeles and Dallas. (Time Warner Cable customers should not expect better customer service from Charter, analysts said.) It's also agreed to buy Bright House Networks LLC, the sixth-largest cable company, and will merge it into the combined entity.

The pursuit of Time Warner Cable was lent urgency after Patrick Drahi, a former Malone protégé, emerged as a rival looking to snap up U.S. cable assets. Drahi's Luxembourg-based Altice SA last week bought smaller U.S. cable provider Suddenlink Communications and was said to be in talks with Time Warner Cable.

"Drahi is an aggressive cost-cutter and his presence forced Malone to move quicker than later," said Matthew Harrigan, an analyst at Wunderlich Securities in Denver, Malone's hometown. "They wanted to lock this down."

While cable faces an uncertain future because of the emergence of Internet competitors such as Netflix Inc., Malone and Drahi are willing to finance large deals because they believe cable networks will be crucial in delivering large amounts of content at high speed.

"This deal is all about the pipeline," said Campling at Aviate, "and in areas where broadband Internet and fiber has not been rolled out, cable offers some of the best speeds."

Time Warner shares closed up $12.42, or 7 percent, to $183.60. Charter rose $4.45, or 2.5 percent, to $179.78.

Malone has also signaled a desire to pursue large deals in Europe through Liberty Global, saying last week that he thought Vodafone's mobile phone assets in western Europe would be a "great fit."

Liberty Global is the world's biggest cable company with 27 million subscribers, followed by Comcast's 22.4 million and Time Warner Cable's 11 million, according to Bloomberg Intelligence. Charter currently has about 4.3 million subscribers. Among its holdings, Liberty owns West Chester-based QVC Inc., the 24-hour daily television retailer.

With a net worth of $8.6 billion, according to the Bloomberg Billionaires Index, Malone started in the cable industry in 1972 when he helped a former cottonseed salesman.

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