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John Malone's Outsized Ambition Drives Charter's Time Warner Bid

NEW YORK (TheStreet) -- And so it begins. At last, John Malone's mission to roll-up the cable industry and create a broadband provider bigger than any phone company, one with the power to tame the Internet and make it more like the cable and phone systems that existed before the Web was spun.

Charter Communications' (CHTR) $61 billion bid for Time Warner Cable (TWC - Get Report) was quickly rejected as inadequate but that was to be expected.

Truth be told, it is inadequate. The offer price of $132.50 a share, much of it in cash, is lower than Time Warner Cable's valuation at the start of the year.

What the newly released letter from Charter CEO Tom Rutledge to Time Warner Cable CEO Robert Marcus shows is that Charter has been working to make this deal happen since last June.

Charter's view is that the gains in Time Warner Cable shares since that time (the stock was trading in the low-$90s) are due entirely to Charter's interest, and should now be locked in.

If Charter walks away, the letter implies, shareholders will be facing huge losses. The hope is that shareholders now pressure Time Warner Cable to take a deal.

John Malone's Liberty Media (LMCA) agreed to buy 27.3% of Charter last May, in a friendly transaction, agreeing to hold less than 40% of the company at the end of 2016. Since then the value of Charter is up by about one-third.

Our Antoine Gara says Malone is trying to buy "an EBITDA empire," aiming to use net operating losses (NOLs) to create tax benefits that make the deal work. (EBIDTA is the abbreviation for earnings before interest, taxes, dividends and amortization.)

Such a deal makes no sense unless there's some other motivation behind it, and in this case there is.

Malone's plan is to own the means of distribution for all Internet content, and then squeeze both sides of each digital transaction. 

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