John C. Malone has slipped through the door again. The American cable magnate is buying 27 percent of Charter Communications from three buyout firms for $2.6 billion. He’s no garden-variety minority owner, though. Even heavyweights like Rupert Murdoch and Barry Diller can attest to Mr. Malone’s cunning use of smaller stakes. Charter investors should keep their guards up.
On its face, the deal seems sensible enough. Mr. Malone, a pioneer of the U.S. cable television industry, is returning to his roots. He sold most of his cable-related empire to AT&T for $48 billion back in 1998, and since then has been more focused on overseas cable assets - including a $20 billion proposed acquisition of Virgin Media of Britain in February - and on media and internet investments. The know-how of Mr. Malone and his crew could help Charter, which emerged from bankruptcy in 2009, to capitalize on the growth in broadband.
The structure is what’s potentially worrisome, especially if history is any guide. Most recently, Sirius XM discovered just how a partnership with Mr. Malone can evolve. He bailed out the satellite radio company in 2009, a highly profitable rescue operation that led to creeping control and ultimately to majority ownership for him earlier this year, without his ever having to pay a premium.
Mr. Malone’s creative maneuvers have outwitted other clever tacticians, too. He parlayed his voting stake in News Corp, and the leverage it gave him over Mr. Murdoch, into what turned out to be a lucrative exchange for DirecTV. And after a long relationship with Mr. Diller got prickly, Malone used a stake in his partner’s IAC/InterActiveCorp to try and seize control, eventually forcing a messy unwinding and carving up of the assets.
Though Charter boss Tom Rutledge welcomed Mr. Malone to the table, he also tried to give the house an edge. Liberty Media, Malone’s holding company, can’t increase its stake in Charter above 35 percent until January 2016 and after that is capped at just under 40 percent. Mr. Rutledge may hope that despite Malone’s four board seats at Charter, one of which he will fill personally, the ownership restrictions will keep his new investor under control.
Smart money attuned to Mr. Malone’s dealings should assume he’s already thinking about ways around them.
Jeffrey Goldfarb is an assistant editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
