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Charter Stock Soars on Liberty Speculation

'Journal' Reports That Liberty Planning To Invest $2.5 Billion for 25% Stake 3/18/2013 9:20 AM Eastern

Charter Communications stock soared more than 10% Monday after a report in The Wall Street Journal indicated that Liberty Media, headed by cable legend John Malone, was planning to acquire a 25% interest in the mid-sized market MSO for an estimated $2.5 billion.

Citing unnamed sources, the Journal said Liberty was close to acquiring the stake, but offered no further details.

Charter shares soared on the news – the stock was up as  much as 10.5% ($9.49 per share) to $99.50 each in early Monday trading, settling down to close at $98.04 per share, up 8.8% or $7.95 each. Liberty Media shares closed at $110.66 per share, up 0.3% or 29 cents each.

Officials at Charter and Liberty each declined to comment.

If a deal is announced, it would be Liberty Media’s first foray into U.S. cable distribution since it was part of Tele-Communications Inc., more than two decades ago. TCI was sold in 1999 to AT&T for about $49 billion.

In a research note, Lazard Capital Markets media analyst Barton Crockett wrote that LIberty certainly has the financial firepower for the deal -- he estimated the media giant has net cash of about $1.7 billion after the Starz spin and another $1.1 billion in investments in non-core publilcly traded securities that could be sold.

Crockett added the main positive for Liberty is that a deal would show it is putting its cash to work.

"We see rotating from cash and other investments, and into Charter, as having some advantages -- Malone knows cable very well, so investors would likely be comfortable with him sticking to his wheelhouse," Crockett wrote. "Such a move also would dampen speculation about where he will invest the cash horde at Liberty Media. Cash is earning very little now, so the hurdle rate of getting a better return on Charter stock, vs. sitting on cash earning almost nothing now, is low."

September