CHTR - Charter Communications

[wellmont]

very bad blood now between malone and roberts. I don't suspect charter now has the inside track on divestitures. so I guess the strategy is to go "all in".

[tombgrt]

What do you mean with 'going all in' wellmont? TIA

[fareastwarriors]

Charter Said to Near Deal for Divested Comcast Subscribers


http://www.bloomberg.com/news/2014-04-22/charter-said-to-near-deal-with-comcast-for-1-5-million-customers.html

[fareastwarriors]

Charter Reaches Deal With Comcast for Subscribers



http://dealbook.nytimes.com/2014/04/27/charter-said-to-finalize-deal-with-comcast-for-subscribers/?ref=business

[wellmont]

What do you mean with 'going all in' wellmont? TIA

Apparently the "bad blood" was just for show. It appears that Malone was using the threat of making himself into a real nuisance and object to the Comcast/TWC deal, in the hopes that he could get something for charter. So he was "all in" in acting like a total jerk. He also knew that comcast wanted to swap subscribers with charter in LA. So being a jerk got comcast to the table.

And it looks like it worked. Malone knew he had lost TWC. But he got almost as good a deal with this 3 stage agreement. The original plan was for chtr to buy twc and split some of it with comcast. The only change is that comcast is buying twc and will split some with charter. The end result is comcast gets more subs and charter less than the original proposal. But this deal will work for both companies. If charter also bags COX and or CVC down the road, there will essentially be a duopoly in cable. And that could bode well for DTV/DISH.

[Liberty]

http://www.sec.gov/Archives/edgar/data/1091667/000109166714000090/exhibit992publicpresenta.htm

Charter and Comcast's presentation on the deal.

[JoelS]

http://www.cnbc.com/id/101920898?utm_source=twitterfeed&utm_medium=twitter

Warren Buffett's Berkshire Hathaway added Charter Communications to its stock holdings during the second quarter.

The stake is worth about $361 million, indicating the decision to buy was almost certainly made by one of Berkshire's portfolio managers, not by Buffett himself.

[Gopinath]

Such a complicated valuation on the deal! Anyone care to venture a guess what will be the market cap of the new charter? There could be opportunities in all these spinoffs and new company formation! I would like to see what's the valuation on single customer?

Ex:  New Charter will have 5.7M in legacy & 1/3(2.5M) in the spinco?? On a ownership basis, new charter will have 6.5M customers??

Proforma debt - $21.8 B
Current market cap - $16B??
EV - $38B

Each customer is valued @ $38B/6.5M(both legacy and spinco ownership) --> $5846???

Can someone verify the math above?? Something is wrong i guess!

[dwy000]

The value for Charter should be even more than that (whatever number you use per subscriber) because they are getting a revenue share fee for managing the new entity.  That's huge - it's a fee on the entire business so they are in effect paying themselves for their 1/3'd share but getting fees on the other 2/3's.  That revenue/fee should drop pretty squarely to the bottom line.

[pks99]

This is my first post on CoB.  Charter is intriguing, and I've just started trying to understand it to get a better handle on what LMCA pre-spin is worth.  Here is my stab at valuing Charter pro-forma for the Comcast transaction.  Welcome your thoughts / improvements:

2014 Charter Enterprise Value
+ 5.4m video subscribers = $5.7b revenue (+1.4m acquired)
+ 5.1m internet subscribers = $2.5b revenue
+ 2.5m voice subscribers = $0.7b revenue
+ 0.6m commercial subscribers = $0.9b revenue
+ 2.5m SpinCo video managed subscribers = $0.1b revenue (4.25% on revenue of SpinCo subscribers)
+ Other revenue = $0.5b
= $10.5b total revenue

x 36.0% Adj. EBITDA margin (historical 35%-37%)
= $3.8b Adj. EBITDA

x 9.5 EBITDA multiple (accounts for growth)
= $36.1b enterprise value

+ 33% stake in SpinCo = $2.1b equity value
- $21.8b debt (5.7x leverage)
= $16.4b equity value

/ 0.1b diluted shares
= $153 per share

Charter is currently trading around this value, suggesting upside of improved ARPU, margins and future capital allocation actions by Malone or Rutledge is not fully priced into the current price.  Charter could potentially be worth 25% more is one assumes improved ARPU and margins as a result of economies of scale. 

What do you think?