Cable Magnate Malone's Stakes Scrutinized in Charter-TWC Deal

  • U.S. FCC looks at Malone's sway over Discovery, Starz
  • Charter said it wouldn't favor programming linked to Malone

John Malone amassed a cable fortune decades ago, sold the holdings for billions of dollars, and went on to build a media empire with reach into pay-TV, movies and satellite radio.

Now Malone’s sprawling interests are being scrutinized by U.S. regulators reviewing the deal he helped broker to merge Time Warner Cable Inc. and Charter Communications Inc., where he is a leading shareholder, to create the second-largest U.S. cable company.

“It’s hard not to think about Malone when you think about Charter, about all Malone’s entanglements,” said Rich Greenfield, an analyst with New York-based BTIG. “This is one of those challenges they have to get past.”

The Federal Communications Commission sent queries asking for details about Malone’s holdings in companies including Discovery Communications Inc. and premium-video supplier Starz, which supply programming to Charter rivals such as AT&T Inc.’s DirecTV and Dish Network Corp.

Charter Stake

The FCC ’s letters to three corporations that list Malone as chairman -- Liberty Media Corp., QVC shopping site owner Liberty Interactive Corp. and Charter investor Liberty Broadband Corp. -- asked for a response by Nov. 16 about his sway over Charter, Time Warner Cable, DirecTV, the Liberty entities, Discovery and Starz. The agency wants to know about plans for online delivery of shows, and whether Malone has incentives to act for and against the enlarged Charter.

“It’s a pretty meaningful request,” said Greenfield. “You can’t have complete confidence” the deal will be approved.

Others take a more sanguine view. The FCC isn’t likely to consider Malone’s ownership of other entities to be a problem and the request sent to the Liberty companies Nov. 2 is “probably not a big issue,” said Craig Moffett, senior research analyst at MoffettNathanson LLC.

Comcast, NBC

Comcast Corp.’s ownership of NBC and its programming didn’t draw FCC attention as the top cable company pursued Time Warner Cable, and so Malone’s interests in companies “one step removed” aren’t going to be a hurdle, Moffett said. Comcast in April withdrew its Time Warner Cable bid after regulators expressed concern about preserving online competition to traditional cable video.

That cleared the way for Charter’s bid announced May 26. If the merger is approved Charter would be the second-largest U.S. cable provider with 23.9 million customers in 41 states.

Charter, based in Stamford, Connecticut, in a Nov. 2 filing said it wouldn’t have incentive to favor programming associated with Malone, and he wouldn’t have ability to exert influence since his interest will be indirect.

Malone, 74, has built a reputation for being a shrewd negotiator with a penchant for minimizing taxes over three decades of deal-making. In 1999 he sold the second-largest cable company, Tele-Communications Inc., to AT&T for $59.4 billion.

Liberty Rising

That deal left Malone in control of Liberty Media, which he turned into a giant that owns satellite radio provider Sirius XM Holdings Inc. and holds interests in Viacom Inc., Time Warner Inc., concert-promoter Live Nation Entertainment Inc., and bookseller Barnes & Noble Inc.

Last year, the company sent its Charter holdings to a spinoff, the Malone-chaired Liberty Broadband, which reported holding 26 percent of the cable provider’s shares. That makes Malone Charter’s biggest shareholder, followed by Warren Buffett’s Berkshire Hathaway Inc., which holds 7.56 percent.

Malone has spent about $40 billion in Europe where his Liberty Global group operates in 12 countries, with holdings including Virgin Media, available to 30 percent of U.K. homes with television, and Ziggo, the largest Netherlands cable-TV company.

The Yale University graduate owns a turreted Irish castle, and more than 2 million acres of ranch and timber land in the U.S., making him the largest private U.S. landowner, according to a Bloomberg Billionaires biography. He ranked No. 139 on the Bloomberg Billionaires Index on Nov. 6, with a worth of $8.7 billion.

Voting Limits

Malone has a 46.6 percent voting interest in Liberty Broadband, which will be entitled to vote no more than 25.01 percent of shares in the new company, Charter said in a June 25 filing. Interests in Liberty Broadband and Liberty Interactive give Malone a 1.7 percent direct interest in the enlarged Charter, according to the filing. He’ll hold a “minority interest” in Discovery and Starz, it said, adding that he won’t control day-to-day business decisions.

Tamara Lipper, a Charter spokeswoman, declined to comment. Courtnee Ulrich, a spokeswoman for Liberty Interactive, didn’t reply to messages left by e-mail and telephone.

Starz, where Malone is the biggest shareholder, told the FCC its rules for fair marketing of programs are sufficient to prevent abuses. Discovery in a filing said it “operates as a wholly independent programmer” regardless of common ownership, and wouldn’t cut off sales to non-cable companies that make up five of its top 10 partners, including Dish Network Corp. and DirecTV.

Raise Rates?

The American Cable Association, representing small and medium operators, remains unconvinced. It told the FCC that Malone controls about 29 percent of Discovery’s aggregate voting power, and has ownership interests in Starz of 46.6 percent.

Charter’s deal “will raise rates for consumers served by independent cable operators that compete against the combined company unless the FCC imposes conditions,” said Ted Hearn, a spokesman for the trade group that’s based in Pittsburgh.

The different Liberty companies invest in “many areas of entertainment,” the policy groups Public Knowledge, Consumers Union and Common Cause said in an Oct. 13 filing.

FCC analysis “must include the extent to which Mr. Malone exercises excessive influence on some of the companies he invests in,” the groups said, adding that Malone’s business ties “could create incentives for a post-merger Charter to offer more favorable terms to Malone-affiliated companies.”

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