John Malone wrangles runaway US cable mess
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jonathan Guilford
NEW YORK, Sept 24 (Reuters Breakingviews) -The cable cowboy is cleaning up the ranch. John Malone, renowned for his bewilderingly complex financial engineering, has embraced an uncharacteristically simple solution for one struggling part of his empire. The mess at Liberty Broadband LBRDA.O would be partly tidied up by a mooted merger with internet provider Charter Communications CHTR.O. Even better for the media mogul, he gets to leave the rest of the dirty job to someone else.
Liberty Broadband is a mere shell, but one structured with three classes of stock and a slug of preferred shares. It owns a 26% stake in Charter, a 16.5% piece of shriveling data analysis outfit Comscore SCOR.O, and the entirety of Alaskan cable operator GCI. Malone has 49% voting control of Liberty Broadband, which appoints three directors at Charter.
Before disclosing talks around a potential merger on Monday, Liberty Broadband shares were trading below $60, or 43% less than the value of its Charter stake alone. Liberty has proposed terms to close the gap. Some $14 billion of Charter shares would still fetch a discount; add in net debt of nearly $4 billion, however, and it works out to a deal worth more than $2 billion. On that basis, GCI would be valued at nearly 7 times expected EBITDA this year, according to Visible Alpha, roughly the same multiple that Charter commands.
Even then, it would represent a collapse from three years ago, when Charter’s multiple was higher than 11 times. With customer growth stalling, profit expansion is expected to wane. Mobile network operators like T-Mobile TMUS.O are horning in on its broadband business with fixed wireless alternatives. Worse, video revenue declined 6% in 2023 as streaming services abound.
It might have seemed unlikely back in 2021, when the decline of linear TV was not yet so clearly precipitous. Charter, like rival Comcast CMCSA.O, was rolling out its own version of cellphone service. Cable operators now account for 5% of all wireless phone subscriptions, according to analysts at MoffettNathanson.
The mobile companies have responded. T-Mobile recently raised its fixed wireless target to 12 million subscribers. New technological developments also could dramatically increase its capacity, TD Cowen analysts reckon.
Charter can play hardball with TV providers, as recently occurred with Warner Bros Discovery WBD.O, to keep hold of its subscribers. And cable is, technically, a superior internet service to wireless. Clawing back to growth, however, is a tall order, evidenced partly by Malone’s willingness to unwind Liberty. He would ride off with only about 1% of the combined company.
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CONTEXT NEWS
Holding company Liberty Broadband said on Sept. 23 that it had received a merger proposal from cable operator Charter Communications, and that it had sent a counterbid with terms for an all-stock transaction.
Liberty Broadband owns a 26% stake in Charter, a 16.5% stake in media data analysis company Comscore, and all of Alaska-based cable provider GCI.
Under the terms of Liberty Broadband’s offer, its stockholders would receive 0.29 shares of Charter for each of their shares.
Cable operators had a rough few years https://reut.rs/3XVnWJ6
Editing by Jeffrey Goldfarb and Pranav Kiran
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