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More Time to Weigh Allen Suit

2/08/2004 7:00 PM Eastern

Charter Communications Inc. now has more time to consider whether or not to sue chairman Paul Allen regarding the partnership interests he received as part of the MSO's acquisition of Bresnan Communications in 2000.

In a Feb. 2 securities filing, Charter said the parties have extended a previous deadline of Feb. 6, and both parties in the matter have agreed to notify the other within 10 days of initiating any legal action.

No new deadline was set in the Feb. 2 filing.

Charter originally set the Feb. 6 deadline in an filing on Jan. 20. But most people familiar with the situation saw that as more of an effort to move the negotiation process forward.

The dispute centers around a 2002 deal Allen struck with Comcast Corp. to buy Comcast's interests in the Bresnan partnership — called CC VIII — for about $650 million. Comcast had inherited the partnership interests as part of its acquisition of AT&T Broadband.

In April, Charter said it had issues with ambiguous wording in the partnership agreement regarding the ultimate ownership of the Comcast rights.

Charter appointed a special committee to look into the matter last year, which determined that Allen should be required to contribute the interest in the partnership to Charter in exchange for 24.3 million membership units in subsidiary Charter Holdco.

Those membership units would be exchangeable into Charter Class B common stock. Allen has informed the committee that he disagrees with their findings.

In a research note, UBS Warburg cable debt and equity analyst Aryeh Bourkoff said setting the Feb. 6 deadline was positive in that it shows Charter is taking a proactive stance in reorganizing its capital structure, but negative in that it proves that the interests of Charter and Allen are not aligned.

That final point is important, Bourkoff wrote, “given that an equity offering remains critical to alleviate pressure on the balance sheet.”

Forcing Allen to equitize the partnership stake would have the greatest benefit to Charter bondholders, Bourkoff said in an earlier interview.

“Holding a structurally senior position in the debt structure sends the wrong signal, and it impairs some of the value that is due to the bondholders,” Bourkoff said. “The dispute, which seems to be based on some ambiguously worded and somewhat vague documentation, is trying to commit Paul Allen to dilute himself and essentially lose economic value for the benefit of bondholders.” Charter officials declined to comment.

September