John Malone's EBITDA Empire Strikes at Time Warner Cable

NEW YORK (TheStreet) -- If John Malone can successfully broker the takeover of Time Warner Cable (TWC) using Charter Communications (CHTR) and a possible contribution from either Liberty Media (LMCA) or SiriusXM (SIRI), or both, the billionaire could end 2014 as the most aggressive investor in the world, surpassing even Warren Buffett's Berkshire Hathaway (BRK.A) in putting his money to work.

But the empire that Malone is attempting to assemble using Liberty Media is dramatically different than what Buffett has built at Berkshire Hathaway. Investors who own shares in any of Malone's targets, whether it is Sirius, Charter or Time Warner Cable, should familiarize themselves with Liberty Media as they could soon own a piece of the cable and entertainment conglomerate.

While many of Liberty's assets generate significant earnings before interest, taxes, depreciation and amortization and cash flow (EBITDA), they have been notably light on the GAAP profits and cash balances that are a staple at Berkshire Hathaway.

Consider Charter Communications, a minority Liberty Media investment that is now campaigning for Time Warner Cable.

The company has unveiled an unsolicited $60 billion-plus takeover bid for Time Warner Cable that includes an offer of $83 a share in cash and a remaining component in stock. One might expect that Charter would be solidly profitable and generating significant free cash flow to finance the cash component of its Time Warner takeover offer.

That's not the case. Charter Communications hasn't earned a GAAP profit in any of the past three years. Its free cash flow generation has fluctuated between $130 million and $400 million in recent years. As of the third quarter, the company had $41 million in its bank account. That's not small potatoes, but it hardly seems grounds for a $60 billion takeover.

If you liked this article you might like

Discovery and Scripps Surge In Premarket Trading Amid Renewed Deal Talk

Netflix's Biggest Bear Warns the Company Is 'Hemorrhaging Cash' and Stock Could Crash 55%

Twitter Beats First-Quarter Earnings Estimate, Sees Active User Growth Increase

Avoid These 4 'Over-Owned' Stocks

AT&T and Time Warner Executives Head to Capital to Tout Merger