John Malone wrangles runaway US cable mess

Liberty Broadband

25/09/2024 13:00

(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.

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Cable operators had a rough few years    https://reut.rs/3XVnWJ6
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 (Editing by Jeffrey Goldfarb and Pranav Kiran)
 ((For previous columns by the author, Reuters customers can
click on  GUILFORD/  
Jonathan.Guilford@thomsonreuters.com))