Former Chairman Paul Allen May See His Say in Charter Get Reduced Further
NEW YORK -- The board of cable operator Charter Communications plans to explore this quarter a possible stock conversion that could further reduce the voting stake and say of former controlling shareholder and ex-chairman Paul Allen.
The Microsoft co-founder invested billions to grow, including through an acquisition spree, the business of Charter, which lost money over the years and in 2009 underwent a restructuring of its high debt load in a Chapter 11 bankruptcy process.
In the restructuring, debt was converted into equity, diluting the stake of Allen and other shareholders.
The Charter debtors, for example, replaced Allen with a new chairman: Eric Zinterhofer, a partner at private equity group and debtor Apollo Management. However, Allen remained the largest individual shareholder of the firm.
His voting stake has been around 35 percent, even though his economic stake is only about 5 percent, according to Evercore Partners analyst Bryan Kraft. Allen's bigger voting power is due to his control of all the firm's higher-voting Class B shares.
On Tuesday, Charter said in a regulatory filing that its board plans to consider converting that Class B stock to Class A stock as Charter's certificate of incorporation allows it to do any time on or after Jan. 1, 2011.
"The disinterested members of the board of directors" can cause such a conversion, it said. Allen would then also lose the right to appoint four of the 11 Charter board members. Class B share-board members would become subject to the nomination process that the company uses otherwise and to the vote of all shareholders.
"We view this as a positive as it would eliminate the complexity of a dual [stock] voting structure," Kraft said about the possible changes.
Also, such a conversion would result in private equity owners Apollo, Oaktree Capital, Franklin Templeton and Crestview Partners controlling a combined 72.4 percent, compared to 45.9 percent currently, of the Charter shares outstanding, Kraft said.
This could also make a potential transaction, such as a sale, involving Charter more likely, Kraft said.
A spokesman for Allen couldn't be reached.