John Malone has said he would be willing to exit Charter Communications to get its planned US$66.4bn takeovers of Time Warner Cable and Bright House Networks over the line. Deal opponents are concerned about Malone’s influence over the pay TV and programming sectors.
John Malone has said he would be willing to exit Charter Communications (NASDAQ:CHRT) to get its planned US$66.4bn takeovers of Time Warner Cable (NYSE:TWC) and Bright House Networks over the line.
Asked in a CNBC interview whether he would relinquish his stake in Discovery Networks to get the deal past federal regulators, Malone (pictured) said “no, but I could exit Charter”.
“If the problem of Charter being able to do that transaction is me, I don’t have to be part of Charter controller ownership,” he said.
Malone, who is Charter’s largest shareholder, noted that he negotiated an exit of DirecTV when his interest in that company became an antitrust issue.
Critics of the planned merger have argued that it would give Malone even greater influence over the programming and pay-TV sectors.
A Bloomberg report last week stated that the Federal Communications Commission (FCC), which is in the process of reviewing the merger, has sent letters asking for details about Malone’s holdings in pay TV companies such as Charter, AT&T’s DirecTV and Dish Network as well as media companies such as Liberty Media, Discovery and Starz, whose customers include Charter rival AT&T’s DirecTV and Dish Network.
The companies of which Malone is chairman – Liberty Media, Liberty Broadband and Liberty Interactive – reportedly have until 16 November to respond to the FCC’s queries about his influence over Charter, TWC, DirecTV, the Liberty entities, Discovery and Starz. The commission is interested in online video plans and reasons Malone may have to act for and against Charter.
Charter CEO Tom Rutledge, also interviewed by CNBC, said he does not believe the economic arguments against Malone in respect to the merger hold water, noting that he will personally own only about 1.7% of New Charter.
“Even from an economic perspective, it is not rational for his ownership to, if he could control the company, to damage one of his video services like Discovery by giving it exclusively to Charter and not selling it to satellite and phone companies,” he said.
Charter agreed to buy TWC and Bright House Networks for US$56bn and US$10.4bn respectively in late May. If approved by regulators, the deal will create the country’s second largest cableco behind Comcast.
Analysts have generally been optimistic about the merger’s chances of approval, however recent comments by US regulatory officials about the lack of wireline broadband competition and risks to OTT video have raised doubts.
Opponents to the deal include Dish, public interest groups such as Public Knowledge and the National Association of Broadcasters which called upon the FCC in mid-October to suspend its review until it completes a long-delayed assessment of broadcast ownership rules, saying the existing ones do not reflect the current market.
BTIG Research analyst Richard Greenfield is more sceptical than many about the deal’s chances of approval. In a recent note, he described the FCC’s enquiry into Malone’s influence as “a pretty meaningful request”, saying “you can’t have complete confidence” that the deal will be approved.
In a separate, mid-October note, Greenfield said that, in light of Malone’s comments at the Vanity Fair New Establishment Conference on 7 October, coordination issues to do with the companies in which he has an interest are “blatantly obvious”.
At the conference, Malone had said: “I’m an investor, I don’t control these things, I invest it them. I try to coordinate their behaviour, OK, if I can, you know. But, the reality is it’s all about scale.”
Greenfield said the question is whether regulators care about such coordination issues.
“And if they do, are there ways to protect consumers from these risks through consent decree behavioural conditions (especially in the context of the failure of behavioural remedies in the Comcast NBC approval)?” he asked.
