Malone, Maffei are excited about Charter Communications, Inc. (CHTR) Should You Be?

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Charter Communications, Inc. (NASDAQ:CHTR) has become one of the hot stocks this week after the company showed renewed interest in Time Warner Cable Inc (NYSE:TWC). However, even before this, John Malone, who is the Chairman of Liberty Broadband Corp (NASDAQ:LBRDA), and Greg Maffei, have indicated their excitement about Charter. There could be a number of reasons for Malone and Maffei to get excited because of their holding in Charter.

Change Of Scenario

However, the main excitement about Charter Communications, Inc. (NASDAQ:CHTR) is the renewed negotiating with Time Warner Cable Inc (NYSE:TWC). The move comes in the wake of the regulators expressing concerns and scuttling the merger between Comcast Corporation (NASDAQ:CMCSA) and Time Warner Cable.

As a result, Comcast has abandoned its attempt to pursue the merger. This has totally changed the situation thus giving a re-entry to Charter Communications, Inc. (NASDAQ:CHTR) to the negotiating table with Time Warner Cable (NYSE:TWC). There appears to be a change of perception among the two companies and Time Warner Cable seems to be more willing to hear Charter out this time.

Charter Communications, Inc. (NASDAQ:CHTR)’s stock has witnessed about 33% growth in the last one-year period. Sources indicate that Time Warner Cable Inc (NYSE:TWC) has also come to believe that Charter stock is more valuable now compared to 2013 and 2014. In effect, the acrimonious exchanges have been put on the back burner and fresh negotiations behind the scene have started. Time Warner also preferred to play it safe by indicating that it was ready to talk with other potential suitors too.

With Comcast out of the game, and Cox communications not interested, Charter is the most likely to consummate a deal.

Earlier Bid

Two years back, Charter Communications, Inc. (NASDAQ:CHTR) bid $37.3 billion or approximately $132.50 a share for Time Warner. The unsolicited offer was turned down after some bitter exchanges in the process. However, Comcast has thwarted its bid and made a higher bid at $158.82 a share. Now that the deal has fell through, the situation back to square one.

A few months back, Malone was asked whether he would be willing to purse the acquisition or merger with Time Warner Cable Inc (NYSE:TWC), if the Comcast deal fell through and he shot back with a firm yes. Therefore, the company became a natural contender after Comcast withdrew from the scene. Time Warner could be at a slightly disadvantageous position after the regulator’s opinion. Therefore, it remains to be seen how much Charter Communications, Inc. (NASDAQ:CHTR) would boost its earlier offer of $132.50 a share for Time Warner.

If there has to be a friendly agreement, then the offer price would most likely to be higher than Comcast Corporation (NASDAQ:CMCSA). For Charter, it recently announced a deal to buy Bright House for $10.4 billion through cash and stock. The Bright House deal is contingent on the close of the Time Warner Cable – Comcast deal.

Combination Could Be Heady

Any potential deal between Charter Communications, Inc. (NASDAQ:CHTR) and Time Warner Cable Inc (NYSE:TWC) could prove to be a heady one. The combination would create a new industry heavyweight.

The possible merger would mean the total video subscribers’ base would increase to 15.6 million while broadband customers would reach about 16.4 million. In comparison, Comcast Corporation (NASDAQ:CMCSA) would have video subscribers of 21.7 million and broadband customers of 20.7 million.

The data pertaining to the video and broadband clearly suggest that there would be no headaches from the anti-trust regulator. This means that the combination could sail through without much difficulty at the anti-trust level.

Analyst Take

Macquarie Securities analyst, Amy Yong, has reportedly said recently that Charter Communications, Inc. (NASDAQ:CHTR) was one of the few suitors remaining in the market. She believes that the company would have to make an offer between $150 and $160 a share for Time Warner Cable Inc (NYSE:TWC) for the deal to sail through.

Currently, Charter has earned the tag of a powerful stock for the transaction to sail through as its stock gained over 40% after the announcement of Comcast-Time Warner Cable merger.

Why Malone And Maffei Excited

John Malone and Greg Maffei, directors of Liberty Broadband, recently penned a letter to shareholders of Liberty Broadband about why they are excited about Charter.

Liberty Broadband Corp (NASDAQ:LBRDA)(NASDAQ:LBRDK) holds a 26% stake in Charter Communications, Inc. (NASDAQ:CHTR). Similarly, Liberty holds a minority stake in Time Warner Cable, as well as, the TruePosition operating unit. Both Malone and Maffei have listed a number of factors for their excitement. Let’s look some of them.

Charter has upgraded to all-digital network recently. This is expected to result in operational efficiencies, as well as, the industry leading performance to benefit the end customer.  The company will see increased free cash flow generation since its heaviest capital expenditures are behind it. This will ensure investor friendly allocations of the free cash flow. The company has growth opportunities ahead of it as  it primarily represents under-penetrated rural service territories with less competition.

The excitement was also due to the creation of a well focused and efficient service territory. Both Malone and Maffei believe that attractive tax attributes would also improve the company’s cash flow profile. Charter Communications, Inc. (NASDAQ:CHTR) is also well placed to consolidate its position in the cable industry in the Americas.

The company’s deal with Bright House would extend its footprint in central Florida. This included Orlando and Tampa Bay, apart from Alabama, Michigan, Indiana and California. However, the acquisition attaches conditions for the consummation. These locations represented 2 million video subscribers.

Conclusion

Irrespective of Time Warner Cable Inc (NYSE:TWC)’s decision whether to merge with Charter Communications, Inc. (NASDAQ:CHTR) or not, there were exciting opportunities for Charter to play a role as a consolidator. If it can not consummate a deal with Time Warner Cable at a reasonable price look for it to make more transactions like the Bright House deal.


Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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