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Liberty Media chairman John Malone is widely lauded as one of the pioneers of the U.S. cable TV industry.
Since agreeing in 1998 to sell his then-cable empire TCI, at the time the largest U.S. cable operator, to AT&T for $48 billion, he has been focusing on other U.S. activities, making cable sector headlines mostly abroad, especially for building Liberty Global, formed in 2005, into a pan-European cable giant with additional holdings in Latin America.
In March 2013, he signaled an interest in becoming a major domestic cable player again though as Liberty Media bought a 27.3 percent stake in Charter Communications, the fourth-largest U.S. cable firm. “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,” Malone said back then.
On Tuesday, Charter unveiled a deal to acquire Time Warner Cable, the country’s second-largest cable company, which, if regulators approve it, would make Malone a major U.S. cable mogul again. Charter would become the country’s second-largest cable and third-largest pay TV company (behind Comcast and the planned combined AT&T-DirecTV).
The deal, valued at $78.7 billion including debt, and a $10.4 billion deal for smaller operator Bright House Networks makes good on Malone’s goal to use Charter as an industry consolidator or, as he had called it in 2013, “a horizontal acquisition machine.”
“With this deal, John Malone returns to his long-ago position atop the U.S. cable industry,” MoffettNathanson analyst Craig Moffett tells THR. “It is not an overstatement to say that this is an industry that he largely built.”
“The deal certainly caps Liberty chairman John Malone’s career as a national/regional consolidator,” echoes Wunderlich Securities analyst Matthew Harrigan.
Macquarie Securities analyst Amy Yong says that with Liberty Media’s Liberty Broadband set to retain a stake of 19-20 percent in the larger entity, the deals will “give Malone an opportunity to carry forth his strategic direction for the industry.”
Some of the strategies used by his international cable giant could come into play at home. “Liberty Global’s playbook has been scale, improving the video service/boosting speeds and convergence of wireline/wireless services,” Yong explains. “Some of these could definitely help New Charter move forward in the U.S.”
“The new Charter’s footprint jibes nicely with Malone’s vision for business services, advertising, network optimization and even eventual quad play offerings,” says Harrigan.
Plus, Malone also has significant stakes in such content businesses as Discovery Communications, Starz and Lionsgate, although Wall Street has been less clear on how much synergy the mogul sees between them and his pay TV business.
Charter management has signaled that it expects the cable megamerger won’t immediately address the challenge of ever-rising programming costs for cable operators, but signaled that the enlarged company could over time realize benefits of its scale. One of the nicknames given to Malone is “Darth Vader,” which Al Gore allegedly gave him during Malone’s time as head of TCI. During that time, he took small equity stakes in networks in return for carriage.
Jonathan Morgan, deals analyst at The Edge Consulting Group in London, has lauded Malone for being “one of the greatest capital allocators of all times, with performance similar to Warren Buffett.” In a previously issued report on the time period of 2006 through October 2014, he said: “The recent period for John Malone-controlled entities has been outstanding, with Liberty Global, Starz … and others now totaling over $100 billion in market value.”
Moffett says the Charter deals clear up what he has described as the muddy picture of the cable sector. “The mud has cleared,” he said. “Charter and Comcast will be the two camps” that count.
The analyst says that the deals are “bad news” for U.S. telecom giants. “AT&T with DirecTV will be larger than Charter or Comcast by number of video subscribers, but they will be far smaller as a percentage of the U.S. broadband market, and they will lack Charter’s and Comcast’s two-way infrastructure,” he explains. “That’s a huge disadvantage. More broadly, the “two camps” of cable will each have the scale to compete with telcos even more aggressively than in the past. Over the coming years, Charter and Comcast will launch major assaults on the enterprise market and on the wireless market via WiFi-first wireless.”
He credited Malone with having foreseen all these opportunities. Says Moffett: “Ultimately, those opportunities are simply the next two manifestations of cable’s advantaged infrastructure, something that John Malone saw years ago and something that he has obviously not forgotten.”
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