Businessessesses are confusing



  • Could someone explain to me how the hell Charter Communications, a company with ~1/3rd the assets of Time Warner Cable, ~1/4 the income, 2/5ths the market cap, and a 232 debt:equity ratio can purchase TWC for ~$200/share (~50:50 cash:stock).



  • I can't. I was wondering about that too.

    Do you think there's numbers on Time Warner we're not seeing? They're obviously desperate to sell... why?



  • I had some sort of educated guesses based on how a couple of telcos I do know quite well do similar things, but some of the numbers involved seem too high for them to apply. That and I'd never heard of Charter before that post.



  • I mean at best my guess is that Charter stands to lower their debt:equity ratio this way because they'll be getting a large amount of assets from TWC.


  • mod

    Consumerist is calling it a merger:

    Comcast: 22.3 million customers
    Time Warner Cable: 11.9 million customers
    Cox: about 6 million customers
    Charter: 5.9 million customers
    Cablevision: 3.1 million customers
    Bright House: 2.5 million customers

    They're a lot smaller than TWC, but that's just because the top two are significantly larger than the next four. The merger also involves Bright House, which would turn the chart into:

    New Charter: 24 million customers
    Comcast: 22 million customers
    Cox: about 6 million customers
    Cablevision: 3 million customers



  • Um, since Time Warner is valuable, and Charter is credit worthy, they can borrow (a lot) and use TWC as collateral.

    All this really means is that Charter's management is campaigning Wall Street to take over control of WTC's assets (i.e., they're asking Wall Street to vote those TWC bums out of office). Charter, and presumably Wall Street, expect that they can make more money than TWC's management does.



  • @Captain said:

    and Charter is credit worthy

    How? They have 235x their equity in debt!!

    @Captain said:

    All this really means is that Charter's management is campaigning Wall Street to take over control of WTC's assets (i.e., they're asking Wall Street to vote those TWC bums out of office)

    I see what you're saying, but this isn't a hostile takeover right, so what happens at the shareholders meeting doesn't actually matter, management should hold enough shares to approve

    @Yamikuronue said:

    Consumerist is calling it a merger:

    So is TWC apparently. Thanks for the accurate reports CNBC :/



  • I don't know for sure if they're doing it this way, but this is how a company like Bain Capital does it.

    1. Pick a company (VictimCo) that has a lot of cash on hand, say $2 billion. This is important, as you'll see.
    2. Go to the bank and put some of your cash as collateral on a loan for, say $2 billion. If you have a good relationship, you should only have to put up a couple of percent as collateral, maybe $40 million.
    3. Take over VictimCo in a hostile takeover. It's important that you get a controlling interest, so you need to be sure your war chest is big enough at the start.

    Now that you have pwned VictimCo--have a controlling interest--you can order the company to do anything. So now comes the raiding:

    1. You make VictimCo pay its $2 billion cash to you as a dividend. Bonus time!
    2. You make VictimCo assume the $2 billion loan you borrowed to buy it. This is the fun part, because VictimCo is now paying for its own takeover.
    3. VictimCo will immediately have cash flow problems, so you'll need to impose austerity measures. Lay those employees off in droves.

    VictimCo goes bankrupt anyway, because it's hard to go from having $2 billion cash to being $2 billion in debt with no cash. Now that it's bankrupt:

    1. Raid the pension fund and sell off everything salable to pay as much of the bank loan as possible.
    2. Bank writes off the rest. This is not for the faint of heart, because you might think this would damage your credit rating. No such thing: You paid your debt when VictimCo assumed the loan. It's VictimCo that gets the credit damage from the loan write-off, because it was the debtor.

    Got it? That's how you buy out a $2 billion company and make $2 billion free and clear, with just $40 million starter cash.



  • @CoyneTheDup said:

    Bank writes off the rest. This is not for the faint of heart, because you might think this would damage your credit rating. No such thing: You paid your debt when VictimCo assumed the loan. It's VictimCo that gets the credit damage from the loan write-off, because it was the debtor.

    But... don't you own VictimCo at that point?

    Can I start a business and have it say lots of racist/sexist/generally bigoted things and then not take any responsibility because I was speaking on behalf of my racism production company?



  • @ben_lubar said:

    But... don't you own VictimCo at that point?

    Can I start a business and have it say lots of racist/sexist/generally bigoted things and then not take any responsibility because I was speaking on behalf of my racism production company?

    One of the primary principles that makes corporations work (and also the one that leads to some of the worst abuses) is that stockholders are not responsible for corporate debt. Your company, that took over VictimCo, is a stockholder and is therefore not responsible for VictimCo's debt.

    Nice, isn't it?

    Addendum: Stockholders losses are limited to the value of the stock they hold. You had valuable stock, now it's worthless. That's okay, so long as you didn't lose any money when it tanked. And from the deal above, you can see that you really lose nothing.



  • I'm fairly certain that this is illegal where I live.


  • Grade A Premium Asshole

    @JazzyJosh said:

    Could someone explain to me how the hell Charter Communications, a company with ~1/3rd the assets of Time Warner Cable, ~1/4 the income, 2/5ths the market cap, and a 232 debt:equity ratio can purchase TWC for ~$200/share (~50:50 cash:stock).

    I have not looked in to the specifics of this particular deal, but if you really want a head scratcher you should look back to 2004. In that year, KMart bought Sears, Roebuck and Co. in a deal that kept KMart out of bankruptcy.

    To recap...they were on the verge of bankruptcy...so they bought an $11B company in order to stay out of bankruptcy. How the hell does that work?



  • So apparently it's in everybody's best interest for the big corporations to kill off their competitors, because the less efficient the market is, the more money there is to be made?


  • Grade A Premium Asshole

    @swayde said:

    I'm fairly certain that this is illegal where I live.

    Where do you live?



  • Denmark. I believe it's called 'selskabstømning' literally: "emptying of a Company"



  • @swayde said:

    selskabstømning

    Do all Scandinavian words sound like rotten herring?



  • @Gaska said:

    rotten herring

    That's surströmming. Totally different 😇


  • area_deu

    So that's why you're a Lego figure?



  • @swayde said:

    That's surströmming. Totally different 😇

    It means "emptying of a stomach".



  • @ben_lubar said:

    Can I start a business and have it say lots of racist/sexist/generally bigoted things and then not take any responsibility because I was speaking on behalf of my racism production company?

    Depends on how well you set up the business arrangement. But, yes.


  • Discourse touched me in a no-no place

    @Buddy said:

    So apparently it's in everybody's best interest for the big corporations to kill off their competitors, because the less efficient the market is, the more money there is to be made?

    This is really a side effect of limited liability that @CoyneTheDup mentioned. It is in theory possible to have a free market without limited liability for corporation owners. It just has never been tried for some reason.


  • sockdevs

    @antiquarian said:

    It just has never been tried for some reason.

    because the business owners want the limited liability so they can play these market games "legally"


  • Discourse touched me in a no-no place

    @accalia said:

    because the business owners want the limited liability so they can play these market games "legally"

    That's a valid explanation only if government has been in bed with big business from the beginning. So you may have a point.


  • sockdevs

    @antiquarian said:

    That's a valid explanation only if government has been in bed with big business from the beginning.

    i see no evidence to imply that they were not then nor any that they are not now.

    :-P



  • @ben_lubar said:

    Can I start a business and have it say lots of racist/sexist/generally bigoted things and then not take any responsibility because I was speaking on behalf of my racism production company?

    Ah, the MSNBC business model!


  • sockdevs

    @boomzilla said:

    Ah, the MSNBC {insert "Fair and Balanced" news network here} business model!

    FTFY

    and no i don't mean just Fox "news". Pretty much all of them are guilty of that these days. fox just had the funniest slogan to put there.



  • @accalia said:

    FTFY

    No, you really didn't.


  • sockdevs

    @boomzilla said:

    No, you really didn't

    hmm. i'm both disappointed and surprisingly okay with that.

    not sure if that's a good thing....


  • sockdevs

    Roll a die to find out?


  • sockdevs

    /me rolls a 1d6

    .... :wtf: :fa_question_circle:

    it landed on tails.


  • sockdevs

    @accalia said:

    it landed on tails

    I don't think he approves…

    Why have his eyes been recoloured?



  • He had to take some strong drugzzzz to stomach reading through this topic.



  • How? They have 235x their equity in debt!!

    Natural monopolies imply secure cashflows. Debt isn't a problem if it's making money.



  • @accalia said:

    @boomzilla said:
    Ah, the MSNBC {insert "Fair and Balanced" news network here} business model!

    FTFY

    and no i don't mean just Fox "news". Pretty much all of them are guilty of that these days. fox just had the funniest slogan to put there.

    I usually go with "Fairly Unbalanced" (which you should read with the worst possible implication).



  • @antiquarian said:

    This is really a side effect of limited liability that @CoyneTheDup mentioned. It is in theory possible to have a free market without limited liability for corporation owners. It just has never been tried for some reason.

    From what I've read, the reason is because it makes investment more inviting for investors. Basically, your risk is limited to your investment.

    Consider a company that pulled an Enron: It has 100 million shares at $200 each. You laid out $20,000 for a hundred shares. Now the company has gone bankrupt, owing $63 billion.

    With limited liability, you've lost your $20,000 but that's the end of it.

    If liability weren't limited, you'd be out your $20,000 and be in debt another $63,000 to pay off the company debt. That's not as attractive a risk as the limited liability scenario.

    It should work, normally, because lenders are supposed to make sure companies don't go deeper in debt than they can afford to pay, just like they would if you were mortgaging your house. (Oh, wait, ....) Anyway, the banks are supposed to do due diligence to guard their interests with a corporate debtor.


    The only reason Bain Capital gets to do what it does, I suspect, is that the bank has some other hook where it gets its money back. One of the things I've suspected is the pension angle.

    Consider the deal above and add the supposition that VictimCo has $1 billion in a pension fund.

    Now when VictimCo went bankrupt owing $2 billion, the sale of its assets and the pension fund don't cover that; maybe $1.3 billion, leaving the bank "holding the bag" for a $700 million loss. Ostensibly.

    But let's suppose the bank was holding the pension fund in another bag. That was $1 billion, and they lent $900 million of that out in loans that went south or paid it out in bonuses and dividends. So there's really only $100 million in the fund, and the bank owes $900 million to the fund. So the bank takes the whole pension fund during the bankruptcy, which means their debt was reduced by $900 million and they collect the $400 million in cash (assets plus pension fund cash). So the bank is ahead by ($900 million - $700 million) + $400 million, or $600 million in cash and loan reduction in the deal.

    And no one would know, right?

    There has to be something like that, otherwise the banks wouldn't go for these deals...more than once.



  • It smells to me like the whole asset transfer just before bankruptcy is the key, and if a parent company transfers debt in/money out shortly before the child company bankrupts, then the parent may be liable for that money if they should reasonably have known it would cause bankruptcy.

    I don't have near enough legal knowledge to know if that would work though.


  • Discourse touched me in a no-no place

    @CoyneTheDup said:

    From what I've read, the reason is because it makes investment more inviting for investors. Basically, your risk is limited to your investment.

    Sure, but limited partnerships accomplish the same thing, and there's at least one person who has financial accountability (the general partner).



  • @PleegWat said:

    It smells to me like the whole asset transfer just before bankruptcy is the key, and if a parent company transfers debt in/money out shortly before the child company bankrupts, then the parent may be liable for that money if they should reasonably have known it would cause bankruptcy.

    I don't have near enough legal knowledge to know if that would work though.

    @antiquarian said:

    Sure, but limited partnerships accomplish the same thing, and there's at least one person who has financial accountability (the general partner).

    The accountability is held by the officers of, in this example, VictimCo. They're the ones who assumed the debt, according to the law. Note also that accountable does not mean responsible for repayment; they commit VictimCo to repay, not themselves.

    So there's a reputation hit on the officers of VictimCo, which is why one of the latest strategies that's been observed is to bring in a woman CEO to VictimCo to take over just before all the sh*t happens. (I'm sure they would explain that charitably by saying, "All the men avoided it.")

    But the company that took over VictimCo is just a stockholder. As the rules for stockholders do not permit them to be held liable, no, the company that caused this is completely non-responsible.

    The take-over company has stock that is now worthless, but why would they care? VictimCo paid for it.

    All this stinks, and I think this nonsense should be prohibited, but the "free marketers" in Congress don't agree.


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