Allen Mulls Charter’s Future

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Charter Communications chairman and largest individual shareholder Paul Allen revealed in a federal filing Wednesday that he is mulling several options for the St. Louis-based cable company ­-- including taking the cable operator private.

In a Securities and Exchange Commission filing Wednesday, Allen – who owns 52% of Charter’s equity and 91% of its voting shares – said that he may consider, among other options, a going-private transaction through which he would end up owning all or substantially all of Charter’s outstanding shares. Allen also said he would consider a recapitalization or restructuring of the company, a merger, reorganization or sale of material assets.

Allen, who has pumped about $7 billion of his own money into Charter since acquiring the cable operator in 1998, has seen his investment dwindle over the years. Charter went public in 1999 at $20 per share, but the stock, which has been rebounding of late, has fallen off substantially overall. Charter shares were trading at $2.57 each on Wednesday.

Buying out Charter wouldn’t be that expensive – for a man of Allen’s means. With roughly 400 million shares outstanding, Allen could offer a 50% premium to the stock price and spend just $1.5 billion for the remaining shares of the company he doesn’t already own.

But paying a premium for the stock is not the main hurdle to a privatization of Charter – its $19.6 billion debt load is.

Whether Allen would want to take on responsibility for that debt personally or whether he could find a way to refinance the bulk of it remains to be seen. Investors and analysts for years have said that Allen could solve many of Charter's problems by swapping a substantial amount of that debt for equity, something that so far he has been unwilling to do.
Adding fuel to the speculation is Allen’s recent move to alter his investment in DreamWorks Animation. An early investor in DreamWorks SKG – which split off the animation unit into a separate publicly traded entity in 2004 partly to provide Allen with some liquidity – Allen said earlier this month that he would reduce his stake in the company and give up his seat on the board of directors.

Charter has made significant inroads in turning around the company over the past two years hiring former AOL executive Neil Smit as CEO, restructuring the management team and rolling out voice service. In the second quarter Charter reported its third straight period of double-digit revenue and cash flow growth,but lost about 29,000 basic subscirbers in the period.

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