Liberty Media to Buy 27.3% Stake in Charter

John Malone, Liberty Media’s chairman

(Reuters) – Liberty Media Corp said on Tuesday it will buy a 27.3 percent stake in cable television operator Charter Communications Inc for about $2.62 billion.

Liberty, a media holding company controlled by cable veteran John Malone, will pay $95.50 for each Charter share, a discount of 2.6 percent to Charter’s Monday close of $98.04. Charter shares fell 0.6 percent to $97.50 in premarket trading.

Liberty will buy the stake from Apollo Management, Oaktree Capital Management and Crestview Partners, the companies said in a joint statement. Charter provides video, Internet, and telephone services to approximately 5.2 million residential and business customers in 25 U.S. states.

In addition, Liberty agreed to not increase its ownership in Charter above 35 percent until January 2016 and 39.99 percent thereafter.

“We are pleased with Charter’s market position and growth opportunities and believe that the company’s investments in its high-capacity digital network which provides digital HD and on demand television, high-speed data and voice, will benefit its customers and shareholders alike,” Malone said in a statement.

Liberty has been tweaking its portfolio in recent months. It spun off the premium TV cable network Starz in January, increased its stake to gain full control of satellite radio operator Sirius XM Radio Inc and bought more shares in concert promoter Live Nation Entertainment Inc.

Analysts said Malone, Liberty’s chairman, may be using a tactic he has employed before: taking a minority stake in a company, then building it up over time to a controlling interest. He used a similar strategy with Sirius, said Macquarie analyst Amy Yong.

“He’s probably going to have a pretty big say in the company’s future over the next few years. This will accelerate capital returns and take advantage of Charter’s tax assets to consolidate the cable industry some more,” Yong said.

Malone, nicknamed “the king of cable,” founded Tele-Communications Inc, which he grew into the largest cable operator in the United States before selling it to AT&T Inc.

Malone is also the chairman of Liberty Global Inc, the international cable operator that purchased Virgin Media Inc, a UK company, for about $15.75 billion in February.

Liberty said it would not make any proxy solicitations for nominations to Charter’s board of directors through the 2015 shareholder meeting and continue to do so as long as its designees are nominated to the Charter board or their agreement is terminated.

It said it had the right to designate up to four directors for appointment to the Charter board upon the deal’s closing, expected in the first half of the second quarter of 2013.

Liberty Media said it expects to designate Malone; Gregory Maffei, chief executive of Liberty Media; Nair Balan, chief technology officer of Liberty Global; and Michael Huseby, chief financial officer of Barnes & Noble Inc as directors.

Liberty was advised by LionTree Advisors and Baker Botts LLP. Charter was advised by Kirkland & Ellis LLP. Apollo was advised by Citi and Wachtell, Lipton, Rosen & Katz.

Oaktree was advised by Citi, Goldman Sachs and Paul, Weiss, Rifkind, Wharton & Garrison LLP. Crestview was advised by Davis Polk & Wardwell LLP.

Photo courtesy of Reuters/Rich Wilking