Charter Communications: Paul Allen's Toy

“Everybody knows” that Charter Communications is the “natural buyer” for “AFN,” even though nobody knows precisely what portions of AFN would be for sale, if it were for sale, which according to the City Council’s pronouncements, it isn’t. The primary proponents of selling AFN (to Charter) are Gino Grimaldi, Ashland’s outgoing Administrator, and Lee Tuneberg, the City’s top accountant. Their reasoning is – they’ve borrowed all the money the banks will lend, and then borrowed more money from their friends the municipal bond bankers, who charged the City a mere $250,000 to underwrite our $15.5 Million bond issue. They’ve played hide-the-budget-ball with three generations of City Councils, and managed all this without ever hiring a real head of AFN, and the whole game is simply played out. They can’t bear the idea of giving up control over this financial behemoth, but they don’t want to deal with it anymore. They spend all of their time explaining why they did what they did, and they can’t get any other work done.

So Charter to the rescue, at any price. Although Charter is not a financial behemoth, with the total value of all its outstanding common stock under half a billion, it has one important stockholder whose personal finances dwarf those of our tiny burg. The largest holder of Charter stock is Microsoft co-founder Paul Allen, who has acquired 29,165,526 shares. Allen’s interest in Charter is as current as his rumored romance with former Countess von Bismarck Laura Harring. He is a mighty chieftain of the business world who invests seven and eight-figure sums in various companies through Vulcan Securities, a private investment house dedicated entirely to investing Allen’s money. Like all investment houses, Vulcan pays big salaries to MBAs and CPAs to produce intensive financial reports on prospective investments. Since July 2004, Allen has bought and sold millions of shares in private transactions that value Charter stock at up to 30 times its market value. A May 2004 Business Week articled entitled “The $12 Billion Education of Paul Allen,” noted that Charter was one of a select group of technology assets Allen retained in his portfolio after deciding to cut his losses on a broad array of wired investments that had not panned out. The article indicates that Allen takes a personal interest in Charter that is unique among his investments:

Allen, who had long suffered from a sort of investor's attention deficit disorder, has made a big effort to become more focused. Never married, he says he is spending more time than ever on his investments. He holds weekly meetings with his financial advisers; before, he met with them only on an ad-hoc basis. Now he lunches with the senior members of his investment team every Monday to get updates on deals and discuss strategy. Allen holds another weekly meeting to catch up on developments at Charter, his biggest holding after Microsoft. “I've been through the fire in the last few years,” says Allen. “Now I get involved and ask questions that are a lot more pointed and specific and probing — and, I think, insightful.” … The devastation of the tech bust led Allen to some serious soul-searching. Last fall, he distilled his thinking into a 26-point memo setting out ways to improve his investment management…” Already, some outcomes are changing. One of Allen's bullet points is a reminder to “negotiate hard” but walk away from overpriced deals. … Adds Allen: “I wish we had the 26-point memo five years ago. Things would be in a different place today. Those lessons were learned at a significant cost.”

This snapshot of Paul Allen’s thinking shows that Charter’s main shareholder has been badly burned in the tech meltdown, and if we think Charter is going to buy AFN, we had better plan on giving it away – after burning through twelve of his thirty-billion dollar Microsoft haul, this billionaire has turned into a skinflint. As the article discusses, in a recent non-deal, Allen invested in Magis Technologies, an HDTV technology R&D startup, watched it slide into bankruptcy, joined other vulture investors making lowball offers, and was outbid by Sanyo for a lousy $3.5 Million. Fundamentally, companies are Paul Allen’s toys, and he is getting bored. He smashes them up, throws them away, and generally treats them like disposable entertainment.

As a result, you would never want Charter to buy anything large from you, because it’s losing money faster than the Titanic was shipping water when the rich people were stealing the lifeboats, and I bet Paul Allen has already commandeered one with oars, biscuits and fresh water. The statistics on Charter are so bad that it is clear that, but for Allen’s support, the company would be defunct. Although it has over $5 Billion in annual revenue, it has a negative profit margin of -18.7 %, negative net income of -$974 Million, and a negative book value of -$14.35 per share.

Allen’s not much a civic giver, either, if you were wondering. Turning his knack for screwing up businesses to the field of professional sports, he bought the Portland Trail Blazers. Under Allen’s mismanagement, a string of players started getting more time under the police photolamps than the gym lights, and the team earned a new name – the Jail Blazers. The Jimi Hendrix museum he paid Frank Gehry to design looks like a piece of stainless steel attempting to morph into an enormous amoeba, another abandoned toy, and his plans to renovate neighborhoods never produced any concrete fruit. Given Allen’s history for turning his back on bad investments, if Charter acquired AFN, that would cast us, the owners of AFN, from the frying pan of having to manage our own ISP into the fire of being owned by a collapsing gas giant that will strip our asset, jack up our prices, and give us service like you’ve never imagined.

Marti Mandelbratt