Allen Steps Back From Charter Control

Former Charter Communications chairman
Paul Allen has taken a further step back, reducing his
voting stake in the St. Louis-based cable company to
more closely align it with his economic interests.

Allen, a Microsoft co-founder whose billions helped fuel
an acquisition spree a decade ago that transformed Charter
Communications into the fourth-largest MSO in the country,
has apparently stepped further into the background,
converting his super-voting shares and relinquishing his
right to appoint board members.

Allen converted about 2.2 million shares of Class-B supervoting
stock to an equal amount of Class-A common shares,
according to the
company. As a
result, Charter
said that Allen
“no longer has
a 35% voting interest
with the Class B
common stock
and no longer
has the right to
appoint four directors.”

Charter had
said in earlier
filings with
the SEC that its
board had the
right to convert
the B shares as
of Jan.1, 2011 and that the board would evaluate its options
in the first quarter of this year.

Two directors that Allen had appointed — Vulcan Investments
general counsel William McGrath and Vulcan executive
vice president of investment management Christopher
Temple — have resigned from the board, effective immediately.
In their place, the board appointed two executives at
major Charter bondholders — Oaktree Capital Management
senior vice president Edgar Lee and Apollo Global Management
senior partner Stan Parker.


With the appointment of Lee and Parker, bondholders have a
firmer grip on the board — five of the 11 board members are
affiliated with a Charter bondholder. That hold could grow
stronger if the two remaining Allen appointees, former Vulcan
president W. Lance Conn and Columbia Capital executive
John Markley, elect to leave in the future.

The 2.2 million additional Class-A shares are worth about
$90.2 million, given Charter’s stock price of $40.99 on Jan. 18.
Allen has invested about $7 billion of his own money in Charter
over the years, according to published reports.

Allen has been inching into the background since Charter
emerged from Chapter 11 bankruptcy protection in November.
At that time, he resigned as chairman of the company —
former Apollo Management executive Eric Zinterhofer took
his place — and reduced his voting stake from 98% prior to
the bankruptcy to 35% after it emerged.

According to Charter, Allen’s Class-B shares converted on
a one-for-one basis to Class-A stock. He now controls about
3% of Charter’s outstanding Class-A shares and has warrants
to purchase another 4%; he remains Charter’s largest
individual shareholder. This transaction more closely aligns
Allen’s voting interest with his economic interest.

Allen’s voting dilution has evened the field for other large
shareholders. Apollo Management, which had controlled 20%
of the vote and a 31% economic stake, now has 31% of the vote.
Other large shareholders also achieved economic and voting
parity, including Oaktree Opportunities Investments, which
increased its voting control to 18% from 11%, and Franklin Advisers,
which upped its voting stake from 12% to 19%.

Since emerging from bankruptcy, Charter stock has performed
well. The shares returned to the NASDAQ Stock Exchange
on Sept. 14, at about $35 per share, and have risen
about 17% ($5.99 each) in the subsequent months, closing at
$40.99 on Jan. 18. The stock closed up 51 cents each to $41.50
on Jan. 19.


Miller Tabak media analyst David Joyce said that Allen’s
moves bode well for shareholders because his voting and
economic interests are now more closely aligned. With Allen
no longer in voting control — and with bondholders firmly
entrenched — it isn’t likely that Charter is gearing up for
any radical changes, he added.

“I don’t think this means at all that there is a greater likelihood
the company will be sold,” Joyce said. “They will continue
to be active in portfolio management, with smaller asset
sales and swaps.”