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Liberty Media plunks down $2.62 billion for 27% stake in Charter

Tue, 03/19/2013 - 12:08pm
Mike Robuck

John Malone’s holding company, Liberty Media, has bought a 27.3 percent stake in Charter Communications for about $2.62 billion.

This morning the two companies announced that Liberty Media reached a definitive agreement with investment funds managed by, or affiliated with, Apollo Management, Oaktree Capital Management and Crestview Partners to acquire approximately 26.9 million shares and approximately 1.1 million warrants in Charter for approximately $2.617 billion at a price per share of $95.50. Liberty expects to fund the purchase with a combination of cash on hand and new loan arrangements.

The deal is slated to close in the first half or second quarter of this year.

“We are pleased with Charter’s market position and growth opportunities and believe that the company’s 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,” said Liberty chairman Malone.

Once the deal closes, funds managed by Crestview and Oaktree will hold approximately 7.4 percent and 2.2 percent, respectively, of Charter’s common shares. Charter’s board of directors appointed a special committee of independent and disinterested directors to consider the transaction on behalf of the company.

“We are excited to make this investment in Charter, the fourth largest cable provider in the US,” said Greg Maffei, Liberty president and CEO. “Tom Rutledge and his team have done an impressive job of turning around Charter’s operations and improving its financial position. We look forward to working with Charter’s management team and fellow board members in the future.”

The deal will include a shakeup to Charter’s board of directors. Once it closes, Malone, Maffei, Liberty Global CTO Balan Nair, and Michael Huseby, CFO of Barnes & Noble, will join Charter’s board after current members Stan Parker, Darren Glatt, Bruce Karsh and Edgar Lee resign.

Jeffrey Marcus, a partner at Crestview, will remain on the board. Subject to Liberty Media’s continued ownership level in Charter, the stockholders agreement also provides that Liberty Media can designate up to four directors as nominees for election to Charter’s board of directors at least through Charter’s 2015 annual meeting of stockholders, and that up to one of these individuals may serve on each of the Audit Committee, the Nominating and Corporate Governance Committee, and Compensation and Benefits Committee of Charter’s board of directors.

Liberty Media also said it would not attempt to take control of Charter. Liberty Media agreed to not increase its beneficial ownership in Charter above 35 percent until January 2016 and 39.99 percent thereafter. Liberty also agreed not to engage in proxy solicitations for nominations to Charter’s board of directors through the 2015 shareholder meeting and continue to so refrain as long as its designees are nominated to the Charter board or the agreement is earlier terminated.

Charter, the nation’s fourth-largest cable operator that was co-founded by Microsoft’s Paul Allen in 1993, emerged from bankruptcy in 2009. Last year former Cablevision chief operating officer Tom Rutledge took over as Charter’s CEO and president

During Charter’s fourth-quarter earnings conference call, Rutledge said Charter planned on going to all-digital as one way of to improve its services and product offerings. Yesterday the Federal Trade Commission approved Charter’s $1.62 billion purchase of the former Bresnan Communications systems that Cablevision had renamed Optimum West.

While Rutledge said on the earnings call that there were plenty of growth opportunities in its current footprint, having Malone’s backing gives Charter a war chest should it decide to pursue other cable systems.

“Liberty Media and John Malone have a well proven track record in our industry and in creating shareholder value,” Rutledge said. “While we have made real progress, we are still in the beginning of our effort to transform Charter, and we welcome the addition of Liberty Media as knowledgeable shareholders as we grow our products, service capabilities, and market share. All of us at Charter appreciate the contributions of Apollo, Oaktree and Crestview which put us on a path for sustainable success.”

Malone first made his mark in the cable industry with Denver-based Tele-Communications, which was sold to AT&T in 1998 for $48 billion. AT&T Broadband subsequently sold off the systems to Comcast for $72 billion in 2001.

Malone’s Liberty Global owns a 4.8 stake in DirecTV and a small stake in Time Warner Cable that dates back to when Time Warner Cable was part of Time Warner. In February, Liberty Global announced it had struck an agreement to purchase Virgin Media in a cash and stock deal valued at $23.3 billion.

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