Charter Chairman Fields ‘Informal Inquiries’

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Charter Communications said its chairman and controlling shareholder Paul Allen was recently approached by unnamed investors inquiring about possible investments or transactions with the St. Louis-based cable company.

According to a document filed with the Securities and Exchange Commission Tuesday, Charter said that Allen has received “informal inquiries from various parties regarding investments or transactions involving the company.”

Charter did not identify those parties but said that with the consent of its independent directors, Charter recently provided a “limited number of those parties certain material non-public information under non-disclosure agreements.”

Charter said that there is no assurance that any investment or transaction will result from the informal inquiries and that it will make no further comment “unless it deems such communication appropriate.”

Just what those inquiries are about remains to be seen.

Charter, saddled with more than $19 billion in debt, has struggled over the past few years with a declining subscriber base as it tries to roll out new services like voice telephony.

In the fourth quarter, Charter managed to increase revenue by 10.3% to $1.55 billion and cash flow by 12.6% to $567 million-- its fifth straight quarter of double-digit revenue and cash flow growth. But the St. Louis-based cable operator lost 66,000 basic customers in the period and lost a total of 116,000 basic customers for the year.

The question remains whether the parties are inquiring about an outright sale of the company, the divestiture of some systems or just a small investment.

In a research note, Citigroup cable analyst Jason Bazinet had his own theory about the inquiries.

“We suspect this relates to potential system sales,” Bazinet wrote. “However, we believe sales are unlikely if capital raise is successful.”

Charter has several properties that could be attractive to other larger operators or private equity groups – including those in Los Angeles and Fort Worth, Texas – but so far has been reluctant to sell. With Charter stock trading at about 93 cents per share, a buyout wouldn’t be costly.

But Allen, who has about $7 billion of his own money tied up in the company, is not likely to sell out at bargain prices.

A plan to draw down about $275 million from its revolving credit facility and issue another $500 million in second-lien notes should solve its liquidity problems for the near term.

Charter said the money would fund it through 2010, but that if it could not access additional cash after 2010 it could be forced into bankruptcy.

Charter has faced these types of crises before and has always managed to refinance its debt to give it more breathing room.

Miller Tabak media analyst David Joyce said that the company usually has to disclose worst-case scenarios when it issues additional debt, but did not believe the company was teetering on the edge of default.

“They’re not going to go out of business,” Joyce said.    

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