Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Sirius XM Radio Inc (SIRI), Charter Communications, Inc. (CHTR): The (Ma)lone Ranger Strikes Again

John Malone’s Liberty Media Corp (NASDAQ:LMCA) empire has been doing deals at a feverish pace lately, with a recent spinoff of its Starz programming network and the acquisition of a majority stake in Sirius XM Radio Inc (NASDAQ:SIRI). In its latest deal, the company’s founder returned to his roots with a $2.6 billion purchase of a major stake in regional cable provider Charter Communications, Inc. (NASDAQ:CHTR). So, should investors follow Mr. Malone into this cable giant?

Sirius XM Radio Inc (SIRI)Charter is the nation’s fourth largest cable operator, with four million subscribers in a hodgepodge of states that include Michigan, California, and Wisconsin. Since filing for Chapter 11 bankruptcy in 2009, the company has been controlled by three private equity firms, led by Apollo Management. Charter used the bankruptcy process to improve its highly-leveraged financial position and provide funding for its ongoing network upgrade activities.

In FY2012, Charter Communications, Inc. (NASDAQ:CHTR) produced marginally improved financial results, with increases in revenues and adjusted operating income of 4.2% and 0.7%, respectively, versus the prior year. The company’s sales benefited from a small increase in the total number of subscribers and a stable pricing environment for its products. While the number of cable subscribers fell 4%, due to competition from alternative programming choices, Charter offset those losses with increases in its internet and telephone segments.

Despite competition from online video networks and traditional telecommunications providers, Charter Communications, Inc. (NASDAQ:CHTR) has maintained its competitive position in its core markets. The company’s goal is to maximize the number of customers utilizing multiple services, as with its so-called triple-play value proposition, which includes cable, internet, and phone service. Charter Communications, Inc. (NASDAQ:CHTR) has been fairly successful at targeting these customers, with 65% of their subscribers currently opting for multiple services. Given the constantly rising cost of acquiring both programming content and subscribers, the company will increasingly be looking to upsell its existing customer base to generate future profit increases.

Despite a diminished role for cable companies in the current entertainment delivery ecosystem, Liberty obviously sees a solid potential return on its multi-billion purchase price. Liberty received a 27% stake in Charter Communications, Inc. (NASDAQ:CHTR) for its $2.6 billion investment, which valued the company at roughly an 8 EV/EBITDA multiple. The price was not overly expensive, given the large stake and a likely ability to control Charter’s future business and capital allocation decisions.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.