By Ronald Grover and Liana B. Baker
LOS ANGELES/NEW YORK Jan 13 Known as "The King
of Cable" after he built a small Denver cable company into the
nation's largest system in the 1980s, John Malone aims to become
the king of consolidation in the same industry once again.
Charter Communications, in which Malone's Liberty
Media holds a 27 percent stake, offered on Monday to
pay $37.3 billion in cash and Charter stock to buy Time Warner
Cable, merging the fourth-largest U.S. cable company
with the second-largest and likely setting off more combinations
within the $98 billion cable industry.
Time Warner Cable's board rejected the offer. If the two
sides can work out a deal, the merged companies would provide
service to around 16 million video subscribers, second only to
Comcast, which has 22 million subscribers, and
satellite provider DirecTV with 20 million.
Combining the two companies would serve large clusters of
subscribers in New York, Texas and California, where they both
have operations. That would give Charter more size to undercut
telecom companies in the lucrative data service market.
A larger company could have the heft as well to roll out new
video streaming services that might create a battle with Netflix
"In prime time, about half of all the traffic on the
Internet is Netflix or Amazon - in other words, it's video,"
Malone said in a July interview with the Denver Post. "As that
trend continues, the need for greater capacity on the local
distribution of the Internet really favors cable."
Malone, 72, has stressed in interviews that cable companies
need to be larger to take on content owners such as Walt Disney
, Twenty-First Century Fox Inc and others, who
increasingly are wringing higher fees out of cable and satellite
operators whose margins suffer.
Charter CEO Tom Rutledge said in an interview that he shares
a common view with Malone "about the value that cable can bring
in the marketplace if well executed."
BUILDING A CABLE POWER IN EUROPE
Charter's bid is similar to the decade-long European buying
spree by Liberty Global, of which Malone personally
owns 27.5 percent of its voting shares. Through a series of
acquisitions, Liberty Global became the continent's largest
cable operator with separate companies that have 20.6 million
video subscribers in 12 countries, according to the company.
It also has 13 million European Internet subscribers and 11
million telephone customers.
Liberty Global's European mass has allowed it to invest in
technology to increase its Internet speed to a very fast 100
mega bits per second or higher in most of its European markets.
That contributed to what it said was a record third quarter
addition of broadband customers.
In the U.S., Malone began to assemble the pieces for a
larger company in March when Liberty Media paid $2.6 billion to
buy a 27.2 percent stake in Charter.
Charter acquired Bresnan Broadband Holdings in July from
Cablevision for $1.625 billion, adding operating systems in
Montana, Wyoming, Colorado and Utah.
To give it flexibility to buy Time Warner Cable, whose
market value is nearly three times that of Charter, Liberty said
on Jan. 3 that it would pay about $10 billion to minority
shareholders to buy the stake in satellite radio provider Sirius
XM Holdings Inc that it didn't already own.
The deal, which still must be approved by a panel of
independent Sirius board members, would allow Liberty to take
advantage of its cash flow and borrowing capacity to make the
bid for Time Warner, Liberty Chief Executive Officer Greg Maffei
told Reuters on the day of the announcement.
"That's one way it could help us get the Time Warner Cable
deal done," Maffei said.
The strategy Malone is pursuing on both sides of the
Atlantic is essentially the same strategy he used in the 1970s
and 80s to build Telecommunications Inc from a nearly bankrupt
Denver cable operator with 100,000 subscribers to the nation's
largest at the time.
Malone, an engineer who has a PhD from Johns Hopkins in
operations research, built the company for founder Bob Magness
by striking deals to buy smaller operators throughout the
In 1991, TCI paid $142 million in cash to buy United Artists
Entertainment Co, combining the two companies into the nation's
largest with 10 million subscribers.
"He was just so smart about building that company when we
dealt with him," said Tony Vinciquerra, former chairman of Fox
Networks Group, which oversaw FX and other Fox cable channels.
"When you sat down with him, he'd know more about your business
than you did."
TCI's heft gave Malone the muscle to create value for his
company beyond its subscription base. At that time, TCI's cable
systems covered about 25 percent of the country.
As he was building TCI, he also invested in the Discovery
Channel, American Movie Classic, and the Family Channel to help
them get on the air.
In 1986, Malone put together a group of 14 cable operators,
who paid $560 million to help CNN founder Ted Turner avoid
bankruptcy after he had taken on too much debt to buy the MGM
In return, TCI took a 21 stake in Turner Broadcasting
"John refers to himself as the philosopher king," said
MoffettNathanson analyst Craig Moffett, who organized a meeting
of Time Warner Cable shareholders before Charter's bid. "He
spoke mostly about his long-term vision for the cable industry."
Charter's bid for Time Warner Cable makes it clear his vision
includes larger cable companies, with the muscle to out-duel its