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John Malone: Time Warner Cable Should Be Rolling Up Cable Ops

Liberty Media chairman, whose bid for TWC was rebuffed, tells Reuters the No. 2 MSO is poised to make deals

John Malone, the once and possible future titan of the U.S. cable biz, believes that Time Warner Cable — a company he’s harbored an interest in buying — is in a position to snap up other cable operators.

The Liberty Media chairman made the comments in an interview Thursday morning with reporters at Allen & Co.’s annual mogul confab in Sun Valley, Idaho, as reported by Reuters.

Time Warner Cable “should be a consolidator because they’re the second biggest” after Comcast, Malone said, according to Reuters.

He hinted that TWC’s best opportunity would be to buy Cablevision Systems, which services the New York suburbs surrounding Time Warner Cable’s Big Apple footprint. That’s a tie-up that has been the subject of long-running speculation. “Obviously if you find you could buy the guy next door, that’s the best but those opportunities are somewhat limited,” Malone told Reuters. Time Warner Cable declined to comment.

Malone also cited the need for broader consolidation in the pay TV industry to gain scale to drive down programming costs. He specifically suggested that Dish Network merge with DirecTV, according to Bloomberg TV. The one exception seemed to be Comcast, which was “big enough to be okay.”

Malone’s comments come amid chatter at the Allen & Co. conference and elsewhere that many cable assets besides Comcast are in play, or will be soon.

“I’m waiting and watching,” said Comcast chairman and CEO Brian Roberts, who is attending the confab, when asked about the speculation on Wednesday.

Malone, who built Tele-Communications Inc. into America’s biggest cable company in the 1980s, re-entered the U.S. cable space in March by acquiring a 27% stake in Charter Communications. His interest in Time Warner Cable has been one of the hottest topics at the Sun Valley gathering this year.

SEE ALSO: Where John Malone May Move Next

In addition to the consolidation on the cable distribution side, there is continued market chatter about possible movement among high-profile cable programming companies, including AMC Networks, Starz, Scripps Networks Interactive and even Discovery Communications. Scripps, anchored by the highly successful Food Network, has also been rumored to be in acquisition mode, possibly eyeing Liberty Global’s U.K. channels Chellomedia.

Sources close to Malone confirmed that he’s interested in leveraging his Charter stake to buy Time Warner Cable, although he had not as of a few weeks ago initiated any due diligence. Time Warner Cable, meanwhile, has reportedly rebuffed Liberty Media’s advances to engage in merger talks.

When Malone was asked if he wanted to buy Time Warner Cable, he said, “That’s a tough question,” according to Reuters.

Malone added cryptically, “Whether A merges with B, B buys A or A, B and C get together to do a joint ventures to do things that have to be done in larger scale, that’s really the message I’m trying to deliver.”

After he sold TCI to AT&T in 1998, Malone turned his sights on media properties as well as the international cable market with Liberty Global, which is now the largest international MSO. Last month Liberty Global closed a $24 billion takeover of the U.K.’s Virgin Media, bringing it to 25 million customers primarily in 12 European countries.

Malone’s desire to jump back into U.S. cable in a bigger way isn’t a secret. At Liberty Media’s annual shareholder meeting last month, he laid out a case for Charter to become “a horizontal acquisition machine” to gain economies of scale by buying up other MSOs.

“The whole name of the game in the cable business is scale,” Malone told company shareholders. Charter will be “looking at other assets in the U.S. cable business that lack scale to have synergy.”

Charter’s stock has been trading at a premium relative to other cable companies. In addition, the value of Charter’s net operating loss carry-forwards — a result of its 2009 bankruptcy reorg — could be used to offset taxes the company would incur through acquistions. The operator had about $3 billion in federal and state NOL carry-forwards as of the end of 2012, albeit with some restrictions on when it may use them.

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