Charter/TWC/BHN Could See Conditions That Try To Box In Malone's Influence

Neither the Liberty companies nor Chairman John Malone has “the incentive or ability” to use any New Charter leverage in any way that represents a conflict of interest, Liberty Broadband, Liberty Interactive and Liberty Media said in filings posted Tuesday in FCC docket 15-149. Numerous conditions have been proposed as the commission reviews Charter Communications' proposed buying of Bright House Networks and Time Warner Cable (see 1511130021). Regulators will likely impose some that attempt to put up a barrier to any Malone leverage, said Andrew Schwartzman, who represents Zoom Telephonics, which is among those suggesting conditions.

Limiting Malone's influence could be difficult, given the difficulty of determining his influence within New Charter, said Barry Orton, telecom professor at the University of Wisconsin-Madison. "Nobody but John Malone knows for sure all those interlocking deals. I'm sure [for] somebody at the FCC, and somebody at the Justice Department, that's the concern."

Malone has become a key part of the review of the $89.1 billion pair of deals (see 1511030024), with the Media Bureau earlier this month asking for details on any stakes held by or business involvement by Malone or other Liberty company officers. New Charter's policies, the potentially applicable parts of Delaware law, and corporate governance documents of Charter, Liberty Broadband and others "demonstrate that neither Liberty Broadband nor Dr. Malone has the 'ability' to 'take actions that conflict with or support New Charter's interests' in the face of other conflicts of interest," Liberty Broadband said. In response to FCC questions about Malone’s ownership or control, Liberty Interactive and Liberty Media referred to Liberty Broadband’s answer (see here and here).

Liberty Broadband, of which Malone is chairman, owns 25.74 percent of Charter, it said. After the deals, Liberty Broadband will own 17-19 percent of New Charter, while Liberty Interactive, where Malone also is chairman, will own 1.7-1.9 percent, Liberty Broadband said. Liberty Broadband also will control roughly 25 percent of the aggregate voting power, it said. Part of that voting power comes via an irrevocable proxy agreement with Liberty Interactive that gives it the right to vote all its New Charter shares -- Liberty Interactive receiving a share of Class A common stock in New Charter for each one of its TWC shares. Liberty Broadband also said it similarly signed a proxy and right of first refusal agreement with BHN parent Advance/Newhouse, letting it vote Advance/Newhouse’s shares in New Charter.

The Liberty companies' filings show an array of ownership stakes. Liberty Interactive has a 38 percent ownership interest in HSN, while QVC is a wholly owned subsidiary, it said. Malone has a 46.6 percent voting interest and 8.7 percent equity interest in Liberty Broadband, a 35.2 percent voting interest and 5.6 percent equity interest in Liberty Interactive, and a 47.1 percent voting interest and 9 percent equity interest in Liberty Media, Liberty Broadband said. He has a 28.6 percent voting interest and 4.8 percent equity interest in Discovery Communications, where he's a board member; a 3 percent voting and 3 percent equity interest in Lions Gate Entertainment; and a 31.9 percent voting interest and 6.1 percent equity interest in Starz, Liberty Broadband said.

The Liberty companies left many FCC questions unanswered, saying in numerous cases they were reviewing the files and would file supplements. Those questions include future acquisition and divestiture plans and financial or management ties with Discovery Communications, Starz or other programmer in which there are also attributable interests. The Liberty companies said they were checking their records regarding any plans to introduce or acquire an online video distribution service.

Beyond Malone issues, the FCC could put restrictions on manipulating channel lineups by requiring community consent, much as it did in approving Comcast's 2011 purchase of NBCUniversal, said Alliance for Community Media President Mike Wassenaar. One key point of debate is sure to be whether any proposed conditions are transaction specific -- an argument that came up repeatedly in AT&T's purchase of DirecTV and one "the agency has responded to," he said. "That's going to be the battleground, whether the harms being described are specially related to the transaction," Wassenaar said. Charter didn't comment on proposed conditions.

If the FCC does approve Charter/BHN/TWC, it won't be soon, Schwartzman said. "There are some important, non-frivolous questions that have been raised," he said, saying any possible approval "is going to take a good bit longer than first quarter of 2016."