Charter Bulking Up

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| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

Charter Bulking Up

Charter bid on TWC before Comcast. Comcast wasn't going to get past regulators. Charter is hoping that they will with 2 bids in this week. One to buy TWC where Charter will pay $55 billion in cash and stock for Time Warner Cable. If you include the debt, the deal value is $78.7 billion. The bid is now $195.71 per share. The second deal is for Bright House.


Charter's deal with "Advance/Newhouse Partnership, the parent company of Bright House Networks, to acquire it for $10.4 billion. The amended agreement provides for Charter and Advance/Newhouse to form a new partnership, of which Charter will own 86 or 87 percent valued at $10.4 billion," according to the WSJ. Purchase price is 7.6x 2014 pro forma BHN EBITDA, according to the investor presentation.

A lot like SpectrumCo selling to VZW, this deal has a lot of moving assets. It is all about maximizing the tax benefits for all parties - Charter, Liberty, Newhouse. Liberty Broadband will invest $5.0 billion. Liberty will own 19% of New Charter, while Advance/Newhouse will own 13% of New Charter. New Charter will have 23.9 million customers and $35.7 billion in revenue.

"Charter will use $29.3 billion in new borrowings to help finance the two takeovers." Charter is assuming TWC's $22.7 billion net debt; on top of its own $14B in debt. (The CHTR bond schedule lists $22B in debt as of 3/31/15; the 1Q15 Investor prezo lists $14.2 Billion in debt for CCOH as of 3/31/15. Total principal amount of debt was approximately $21.1 billion as of December 31, 2014 via Exhibit 99.1 Earnings release on 12/31/14.) Seems like a lot of debt. Let's not forget that Charter had about $22 billion in debt at the end of 2008, just before it filed for bankruptcy. The pre-planned BK left Charter with $13B in bank debt due expiring in 2016.

While there is the talk of "Cost synergies inherent in simple.... Combined purchasing, overhead, product development, engineering and IT will also generate opex and capex synergies... estimated at $800M per year." Yeah, right. The pie is not getting bigger for TV (MVPD) or for Internet or voice. Charter owns no programming interests. Where will this debt get paid from?

The New Charter will be big (of course), passing 48 million units with 23.9 million customer relationships - 17M video, 19M Internet and 9M voice (all flat markets).

The only Consumer benefit: Charter's slowest speed tier (60 Mbps downstream) is considerably faster and less expensive than TWC's comparable tiers, with no data caps or usage based pricing. And Charter actually WANTS to run an MSO, while TWC execs obviously do not.

I feel sorry for the employees of TWC and BHN. There has been uncertainty for about a year - and they have about 9 more months of it before they see either stability or a pink slip.

Agents dislike M&A. It means new agreements and negotiations. It means a change in commissions.

It's funny when they talk about how big, when inside the dinosaur are many fiefdoms, local and state GMs, so many sales departments who compete internally - and who will now be competing even more! It won't be any easier to sell multi-location because it will still be TWC + BHN + Charter for years to come. (Just like it is at L3 and ELNK and WIND and C-Link. BTW, how many of those ever saw the "synergies"?)

But the bankers are happy. That's all that counts in America. They got paid once again for doing nothing but creating debt.

Consolidation means lesser choices, plus vendors have gone from 3 prospects to 1. That will hurt companies like ALU, Cisco, etc.

During this chaos, alternative service providers should be making headway. If not, these SPs have about another 18 months to 24 months to take some market share before the combined company - which will be about the size of Comcast - gets ready to roll.

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