Taking Charter (CHTR) Private

August 15, 2007 by Douglas A. McIntyre

Billionaire Paul Allen disclosed that he was looking that the possibility of taking Charter Communications (CHTR) private or "a recapitalization or restructuring designed to reduce Charter’s leverage", according to The Wall Street Journal.

Dream on. Charter has $19.6 billion in debt, which is not ideal in any environment. In the current market it is deadly. Even with all of Allen’s money, it is hard to see how he could buy-out current public shareholders and support the debt.

Charter’s stock jumped up briefly on the news, but still traded as low as $2.45, close to it 52-week low. Charter would have to appoint independent directors to review any deal, as happened at Cablevision (CVC) when the founding Dolan family offered to buy-out its public shareholders. Charter traded near $5 in mid-July, so it may be hard to convince directors to take much less than that.

At $4.50 a share, the cost of buying in all of the public float would be close to $2 billion. The company simply could not support that amount plus the current debt load.

Allen could also try to sell the company’s assets to another firm, perhaps Comcast (CMCSA). But, with the debt that would have to be assumed, the price would be at least $25 billion. The company’s operating income run rate is about $750 million. So a sticker that high is not going to attract a buyer.

Charter is going to have to dig itself out the old fashion way. Costs and capex are going to have to stay low which is hard when it needs to compete with large telecom companies coming to market with fiber-to-the-home broadband and TV services.

Charter is a company with no good options.

Douglas A. McIntyre