Back in the mid 1970s, Paul Allen cofounded Microsoft (NASDAQ: MSFT). Since then, he has bought many nice toys (such as luxury yachts and sports teams), as well as made investments in a variety of companies. Unfortunately, his investment record has been spotty (perhaps he should have focused on the toys instead?)
Now, it looks like Allen will take the biggest loss of his investment career; that is, in Charter Communications (NASDAQ: CHTR). In all, he has committed $7 billion to the firm.
While Charter produces a good amount of cash flow, it's not enough to deal with the current recession and tight credit markets (the debt load is a crushing $21 billion). As a result, the firm is attracting interest from vulture investors, such as Apollo Group (NASDAQ: APOL) (which is a top private equity firm). This is according to a report from Reuters.
Basically, the plan is for Apollo to take control of Charter, giving Allen about 35% of the remaining voting control. Interestingly enough, Charter is already working through a prepackaged bankruptcy restructuring.
Over the long term, this could be a nice deal for Apollo -- as the debt structure is likely to get rationalized. And, for the most part, the firm got into this position with savvy purchases of Charter bonds. Thus, Apollo can swap its debt for equity.
And expect more deals like this. After all, Apollo expects to devote 25% of its $15 billion in assets on distressed plays.
Tom Taulli is the author of various books, including The Complete M&A Handbook,
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