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Irish King of Cable conquers the world

Tuesday, January 14 12:08:32

John Malone, the new owner of Humewood Castle in Co Wicklow, aims to become the king of consolidation in the cable TV industry with an offer to buy Time Warner Cable for USD37.3 billion.

Known as "The King of Cable" after he built a small Denver cable company into the nation's largest system in the 1980s, John Malone aims to become the king of consolidation in the same industry once again.

Charter Communications, in which Malone's Liberty Media holds a 27 percent stake, offered yesterday to pay $37.3 billion in cash and Charter stock to buy Time Warner Cable, merging the fourth-largest U.S. cable company with the second-largest and likely setting off more combinations within the $98 billion cable industry.

Time Warner Cable's board rejected the offer. If the two sides can work out a deal, the merged companies would provide service to around 16 million video subscribers, second only to Comcast, which has 22 million subscribers, and satellite provider DirecTV with 20 million.

In 2012, Mr Malone bought Humewood Castle, a neo-Gothic jumble of towers, gables, and turrets at the foot of the Wicklow mountains. The landscape of forest and heath could hardly be more different from Colorado's high plains, where the cable cowboy owns thousands of acres - but it reflects a broader strategic shift for Malone.

Over the past decade, the 72-year-old billionaire has amassed a European pay-TV empire that's bigger than any cable operation he ever owned back home - and he's still buying.

In the 1980s, Malone won big with bets on startups like Discovery Communications and Black Entertainment Television and even by bailing out rival media tycoon Rupert Murdoch. But since largely abandoning the U.S. cable market in 1999, Malone has spent about $40 billion in Europe. His Liberty Global, owners of UPC,. is on track to report 2013 sales of almost $15 billion, data compiled by Bloomberg show.

Combining Charter and Time Warner Cable would serve large clusters of subscribers in New York, Texas and California, where they both have operations. That would give Charter more size to undercut telecom companies in the lucrative data service market.

A larger company could have the heft as well to roll out new video streaming services that might create a battle with Netflix and others.

"In prime time, about half of all the traffic on the Internet is Netflix or Amazon - in other words, it's video," Malone said in a July interview with the Denver Post. "As that trend continues, the need for greater capacity on the local distribution of the Internet really favors cable."

Malone, 72, has stressed in interviews that cable companies need to be larger to take on content owners such as Walt Disney , Twenty-First Century Fox Inc and others, who increasingly are wringing higher fees out of cable and satellite operators whose margins suffer.

Charter CEO Tom Rutledge said in an interview that he shares a common view with Malone "about the value that cable can bring in the marketplace if well executed."

Charter's bid is similar to the decade-long European buying spree by Liberty Global, of which Malone personally owns 27.5 percent of its voting shares. Through a series of acquisitions, Liberty Global became the continent's largest cable operator with separate companies that have 20.6 million video subscribers in 12 countries, according to the company.

It also has 13 million European Internet subscribers and 11 million telephone customers.

Liberty Global's European mass has allowed it to invest in technology to increase its Internet speed to a very fast 100 mega bits per second or higher in most of its European markets. That contributed to what it said was a record third quarter addition of broadband customers.

In the U.S., Malone began to assemble the pieces for a larger company in March when Liberty Media paid $2.6 billion to buy a 27.2 percent stake in Charter.

Charter acquired Bresnan Broadband Holdings in July from Cablevision for $1.625 billion, adding operating systems in Montana, Wyoming, Colorado and Utah.

To give it flexibility to buy Time Warner Cable, whose market value is nearly three times that of Charter, Liberty said on Jan. 3 that it would pay about $10 billion to minority shareholders to buy the stake in satellite radio provider Sirius XM Holdings Inc that it didn't already own.

The deal, which still must be approved by a panel of independent Sirius board members, would allow Liberty to take advantage of its cash flow and borrowing capacity to make the bid for Time Warner, Liberty Chief Executive Officer Greg Maffei told Reuters on the day of the announcement.

"That's one way it could help us get the Time Warner Cable deal done," Maffei said.