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Charter Communications Cites Poison Pill on Heavy Trading

Charter Communications fired up a flare as its shares sank in heavy trading Thursday, reminding investors of a company plan to dilute potential acquirers.

The company issued a statement to the stock market Thursday afternoon citing a shareholder-rights plan, or poison pill, that kicks in to deter any one entity from acquiring more than 5% of the company without its approval. Under the plan, the company can exchange shares of stock for rights that are currently held by stockholders in an effort to dilute an acquiring party.

The statement came amid heavy trading in the company’s stock Thursday following a weak third-quarter earnings report. The stock sank $0.62 per share or 35% Thursday to $1.16 on heavy volume. Close to 50 million shares traded hands versus a daily average of about 12 million.

In August, Charter instituted the rights plan to protect its operating loss carry-forwards -- a tax break that lets the company apply current losses against future gains. That benefit would be challenged in the event of a change of control.

Other cable stocks were marginally lower on the day, as well, although the majors did trade through 52-week lows as the market sold off this afternoon.

Notably, sector bellwether Comcast traded to a low of $19.52 per share but closed off of that at $19.82, or 1.34% lower on the day.

Likewise for Cablevision Systems, which also reported earnings Thursday morning. Its stock ended nearly flat on the day at $26.45 per share, $0.88 higher than the session low.

Time Warner Cable closed through its year low at $25.82 per share, down $0.55 or 2.09%.

Charter’s net loss in the quarter was $452 million versus $133 million a year ago. The Q3 2006 number was boosted by income from discontinued operations and a gain from the extinguishment of debt.

The cable operator recorded a 9.9% increase in revenue to $1.525 billion and a 10.2% increase in operating costs to $1.015 billion, leaving adjusted earnings before taxes, depreciation and amortization (EBITDA) of $510 million versus $467 million a year ago. Income after these expenses was $107 million.

Charter’s interest expense decreased slightly in the quarter versus Q3 2006 but was still hefty at $452 million, accounting for the sizable loss in the quarter.

Charter lost 40,200 basic subscribers during the quarter but increased its revenue-generating units by 130,900, or 1.1%, through the sale of additional services. Its subscriber base is now 5.655 million and its RGUs total 11.7 million. Telephone customers increased by 102,300 during the quarter, or 15%, while data increased by 53,000, or 2%, and digital video rose 15,800, or less than 1%.

Charter’s average revenue per unit was $94.90 in the quarter versus $83.98 in the same quarter last year.