Paul Allen’s $7 Billion Charter Investment, Down The Toilet
Microsoft Corporation (NASDAQ:MSFT) co-founder Paul Allen invested $7 billion in Charter Communciations. Fifty-one percent of Charter Communications, competitor of Comcast, is owned by Allen. Charter is the fourth largest cable operations company in America with about 5.5 million customers across 27 states. The stock of the company is about 8 cents per share.
Back in 1999, Charter’s stock was about $27.75. This was around the time that they had their IPO. Now the communications company may be facing bankruptcy. Charter CEO Neil Smit stated that the company is negotiating with bondholders and will be trying to roll over debt into new loans payable. This would swap debt for equity in Charter. Charter missed paying their debt payment this month and will be seeing another $1.9 billion in debt coming in this year. Charter has borrowed about $21 billion. I think it is suffice to say that Paul Allen will not be investing anymore money into the telecomm company.
Other properties that Paul Allen has invested in is the Seattle Seahawks, DreamWorks SKG, the Science Fiction Museum and Hall of Fame, USA Networks, CNET, Priceline, Egghead, and Value America. In 1998, Paul Allen bought Marcus Cable Company for $2.8 billion and paid $4.5 billion for stake in Charter. Charter ended up acquiring Marcus.
“For over 20 years, I have been talking about and investing in the `wired world,’ a connected future marked by the merger of high-bandwidth data channels, the power of the personal computer, and the availability of compelling content,” stated Allen at the time of the investment. Charter has never made profit since 1999.
Four former executives at Charter pleaded guilty to inflating revenue, cash flow, and the number of subscribers. Shareholder lawsuits costed the company $144 million in cash and stock. Charter CEO Carl Vogel resigned shortly after the controversy.
After Charter introduced their triple play package, subscribers rose once again. The subscribers paid about $106 per month and the company double operating income to $208 million, but that was all wiped out by $478 million of interest on debt.
Microsoft ended up investing $1 billion in Charter’s biggest competitor in 1997. Comcast became the nation’s biggest cable company which encourage Microsoft to buy more stock in Comcast in exchange for $5 billion stake in AT&T Broadband in 2002. Within the last year, Microsoft liquidated all of their shares in Comcast.