Billionaire cable investor Paul Allen is dipping into his pocket once again, this time to buy out Comcast from a cable joint venture after having failed to negotiate a system swap deal between Comcast and Allen’s Charter Communications.
On Friday Allen unexpectedly agreed to pay Comcast $728 million in cash for its stake in the “CC VII” limited partnership — which includes cable systems in Texas and New England — in keeping with a previous agreement.
Last month Allen, the majority shareholder in Charter, agreed to backstop Charter with $300 million in backup credit to see it through any pending financial hazards as it struggles to meet its obligations on some $19 billion in debt.
Comcast, which is in the process of monetizing its off-balance sheet holdings, said it will use the proceeds to pay down its own hefty $27.2 billion debt mountain.
Comcast picked up the 30% stake in the collection of cable systems with Allen as part of its acquisition of AT&T Broadband last year, and it had the right to sell its stake back to Allen for a pre-agreed $725 million plus interest. Up until recently, the parties had been negotiating a more tax efficient alternative transaction that would have called for Charter to swap certain cable systems in lieu of cash.
Charter’s shares slumped 9.5% Friday to $3.06 on the news.
Analysts speculated that Allen’s inability to construct a swap-plus-cash deal for the stake could move the company one step closer to a restructuring through a major refinancing of its hefty debt pile, continued selloff of cable systems or possibly a Chapter 11 filing. Charter is the third largest U.S. MSO with 6.6 million subs, but its franchises are predominantly rural and less clustered than some of its rivals. Its most desirable, and possibly most sellable, systems are in Los Angeles, St. Louisand Ft. Worth.