Charter Stock Sinks Below a Buck

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Charter Communications Inc. stock sank to a new all-time low last week, dipping below $1 per share for the first time.

The St. Louis-based MSO — pummeled since it announced it anticipated lower-than-expected cash flow and revenue growth in the fourth quarter — closed at 79 cents per share on Oct. 10, its lowest point since its initial public offering in November 1999.

At 79 cents per share, Charter's market capitalization is an anemic $233 million. The stock's all-time high was reached shortly after its IPO — $25.50 per share on Nov. 11, 1999, for a market capitalization of around $7.5 billion. Charter went public on Nov. 9 of that year.

This year, Charter has struggled as it tried to push nonpaying subscribers from rolls and strengthen its balance sheet. The company said Oct. 1 that third-quarter revenue growth would be about 13 percent — at the low end of its previous guidance range — and that it would miss earlier targets of 14 percent cash-flow growth for the period.

Subs on decline

Charter had expected revenue of between $1.19 billion and $1.2 billion, or between 13 percent and 14.6 percent growth in the third quarter. The company had also predicted that cash flow would rise between 14 percent and 16 percent over the period.

At the heart of the decline is an expected fall-off in basic subscribers for the quarter. Charter did not say how many customers it expects to lose in the third quarter, but in a research report, CS First Boston analyst Lara Warner estimated that its third-quarter subscriber count would be about 16,000 less than the second quarter.

She estimated that Charter would finish the year with 6.759 million customers, a decline of about 3 percent, or 154,000 subscribers.

Investors apparently were waiting for company chairman and Microsoft co-founder Paul Allen to make a bold move, perhaps by buying a substantial amount of Charter's public debt.

Charter CEO Carl Vogel spoke with Allen in Seattle as part of a regularly scheduled meeting last week, and sources said he was expected to press the chairman to make that move. But Allen hasn't made it yet.

Some close to the situation said that if Allen were to agree to buy Charter debt — and some say it would have to be at least $500 million — it could be revealed by the time Charter releases its third-quarter results on Nov. 5.

A $500 million bond purchase would retire about $1 billion of Charter debt, since its bonds are trading at about 50 cents on the dollar.

According to UBS Warburg LLC cable debt and equity analyst Aryeh Bourkoff, Charter's bonds have been off about 10 percent in the past two weeks.

"Charter bonds have been weaker, but the company does not face an immediate liquidity crisis or a trigger," Bourkoff said. "The concern could be that there is some weakness in the business model. The growth rates have to be adjusted to reflect a more-competitive environment."

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