Shares of Liberty Broadband spiked 25% during Tuesday’s trading session after the company submitted a counterproposal for a business combination with Charter Communications.
Liberty has proposed an all-stock transaction in which holders of its common stock would receive 0.2900 of a share of Charter Class A common stock in exchange for each of their shares. Additionally, Charter would assume or refinance Liberty Broadband’s debt at or prior to closing as well as Liberty Broadband’s outstanding preferred stock.
The transaction would close on June 30, 2027 or an earlier date mutually agreed to by the companies and would be subject to board, stockholder and regulatory approvals and applicable tax opinions.
The counterproposal from Liberty comes after Charter proposed that the former’s shareholders would receive 0.228 newly issued shares of Charter common stock for each share of Liberty Broadband common stock. The exchange ratio represents a premium of approximately 27% to the value of its stock based on the closing price on Sept. 13.
Under Charter’s proposal, the combination would occur on June 30, 2027 or earlier based on a 60-day closing notice pending the necessary regulatory, board and shareholder approvals and recommendation of the pay TV giant’s independent special committee. It noted that prior to executive a definitive agreement, Charter would also need to complete a due diligence review of business, financial, tax, human resources and legal matters.
“As you have highlighted to us, Liberty Broadband has historically traded at a discount to net asset value, in part as a result of its holding company structure,” Charter CEO Chris Winfrey wrote in the initial proposal letter sent on Sept. 15. “We believe that this proposal represents a compelling opportunity for Liberty Broadband to simplify its structure and meaningfully reduce this discount, to provide greater value, certainty and ultimately greater liquidity to the Liberty Broadband shareholder.”
While Charter’s offer assumes that Liberty would divest GCI and associated debt prior to the transaction’s closing, the former said it is open to discussing terms that would keep the business and does not expect that it needs to be offloaded in order to close the deal. It also assumes Charter would repay the net debt of Liberty at closing, that the current governance arrangement between the two companies would continue until closing, subject to certain modifications, and that Liberty’s participation in Charter’s stock buyback program would be limited to a modest amount required to remain approximately cash flow breakeven.
In response to Winfrey’s letter, Liberty’s president and CEO Greg Maffei said Charter’s proposal was a “constructive starting point,” but that the offer undervalued Liberty. He argued that the counterproposal would “rationalize the dual corporate structure” between the two companies, provide “enhanced trading liquidity” and remove Liberty’s existing governance rights.
“The certainty of a future transaction would provide clarity to our shareholders and continue our strong partnership with Charter in the interim. In GCI, Charter would be acquiring an attractive business that is the leading connectivity platform in Alaska with significant opportunity for future value creation,” Maffei added. “We look forward to reaching a mutually agreed upon transaction for the benefit of all stakeholders.”
Liberty Broadband, which first invested in Charter back in 2013, has a 26% fully diluted ownership cap. Liberty Global chairman and cable billionaire John Malone holds a 49% voting stake in Liberty Broadband.
Shares of Liberty Broadband have fallen 16% in the past year, but are up 36% in the past six months and 22% in the past month. Charter, which saw its shares slip 1.4% during Tuesday’s trading session, are down 25% in the past year and 16% year to date, but are up 12.5% in the past six months.
The merger discussions between Liberty Broadband and Charter come after Malone recently spun off Sirius XM Holdings into an independent public company, separate from Liberty Media.
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