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Cable MSO Mega Deal in the Works? John Malone, Who Once Built TCI Into the Largest MSO in the U.S., Is Said to Be Behind the Negotiations. It's Just a Question of Money, With a Classic Malone Goal of Paying Little to No Taxes Bloomberg

Cable guru John Malone and his Liberty Media Co. are on the prowl for a cable mega deal, report Alex Sherman and Serena Saitto at Bloomberg.

"Malone is exploring scenarios for how Charter Communications Inc. could acquire Time Warner Cable, even after his initial overtures were rebuffed, according to people familiar with the discussions," the story says, later adding, "In addition, Charter is considering acquiring Cablevision Systems Corp., the fifth-largest provider, two other people said. Such a deal faces its own challenges because it would require support from the Dolan family, which has controlled the company for 40 years. Kelly McAndrew, a spokeswoman for the Bethpage, New York-based Cablevision, declined to comment."

Malone, having spent a large part of his career building TCI into the largest cable operator in the U.S. before selling it to AT&T in 1999, is no stranger to big MSO acquisitions. His interest in doing these deals now stems from the fact that Liberty owns 27% of the MSO Charter Communications.

Notes the article, "Malone said this month at Liberty Media’s shareholder meeting that he saw Charter becoming 'a horizontal acquisition machine. ... The whole name of the game in the cable business is scale,' [added] the 72-year-old Malone.

"Despite the resistance of Time Warner Cable, the second-largest U.S. cable company, Liberty and Charter would like to get a friendly deal done in the coming months, one person said."

Charter, the 4th-largest MSO in the country, is much smaller than Time Warner Cable.

The story adds that among the challenges for Charter and Liberty is the fact "Time Warner Cable isn’t interested in a deal and doesn’t think Liberty and Charter can come up with an offer that’s attractive, according to people familiar with management’s thinking. Acquiring Time Warner Cable would be a challenge for Charter, a much-smaller company whose debt exceeds its $12.5 billion market capitalization. Time Warner Cable, valued at $31.5 billion, also would demand a hefty premium, said Bryan Kraft, an analyst at Evercore Partners Inc. in New York."

Still, not a lot of people have made money betting against Malone over the years. Says the story, "Liberty Media is considering options such as borrowing against its own balance sheet or Time Warner Cable’s assets to raise the cash needed for an offer, two people said. Comcast used a similar strategy to complete its purchase of NBCUniversal from General Electric in 2011."

The Bloomberg story also explains that "after buyng his stake in Charter in May, Malone set out to use the holding to rebuild a U.S. cable empire. He said earlier this month he was interested in both large and small cable acquisitions to give Charter more scale in negotiating programming contracts with content providers such as News Corp., Walt Disney Co. and NBCUniversal.

"Charter is also 'highly motivated' to pursue a merger with Time Warner Cable because it would allow it to increase the net present value of its net operating losses for tax-avoidance purposes, Evercore’s Kraft said. Charter has lost money every year since emerging from bankruptcy in 2009. Time Warner Cable, meanwhile, earned $2.16 billion in net income last year."

The story also notes that "CNBC reported earlier this month that Time Warner Cable discussed merging with Charter, pushing up the stocks of both companies."

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