Each of 15.4 million Time Warner Cable customers will effectively pay $19.48 to cover executive golden parachutes and Wall Street bank advisory fees if the merger with Charter Communications is approved by regulators.

Five senior executives at Time Warner Cable will split $200 million with an additional $100+ million going to a variety of investment banks that provided advice for the merger deal.

A required filing with regulators disclosed the exit bonuses likely to be paid to the departing executives of Time Warner Cable, some who have been in those positions for less than two years:

• CEO Robert Marcus, who has served in that role for only a year and a half, will receive roughly $4.5 million in salary, $23 million in bonuses and stock worth $74 million. His total golden parachute: $102 million;
• COO Dinesh Jain: $32 million;
• CFO Arthur Minson: $32 million;
• General Counsel Marc Lawrence-Apfelbaum: $22 million;
• Chief Strategy Officer Peter C. Stern: $18 million.

Ironically, golden parachutes were originally designed to protect shareholders from executives’ self-interest. Instead of interfering in merger and acquisition deals to protect their salaries and positions, the incentive of a generous exit bonus encouraged executives to do the right thing for shareholders.

Wall Street investment banks participating in the deal are also handsomely compensated for a few weeks of “advice.”

Together, the banks will share an estimated $100 million to $150 million in fees, according to Thomson Reuters and Freeman Consulting Services. The lucky ones — Morgan Stanley, Citigroup, Centerview Partners and Allen & Company — advised Time Warner Cable and get 60 percent of the proceeds. The pickings are slimmer for a larger pool of banks that advised Charter, some that will only get to earn based on their role financing the deal. The biggest winners on the Charter side are omnipresent Goldman Sachs along with the tiny firm LionTree Advisors (which barely has a website). LionTree enjoys the confidence of John Malone, who uses them often in similar deals. These two firms will split $30-50 million.

Charter executives will benefit from the deal later, when future demands for bigger compensation packages are met.

Among investors, a handful of hedge funds will likely walk away with the most money. Paulson & Company, run by the billionaire John Paulson, owned 8.7 million shares of Time Warner Cable stock, according to a March 31 public filing. He is expected to walk away with a profit of at least $250 million by buying low and selling high. Time Warner shares have risen ever since Wall Street found out Time Warner was a willing seller.

So who is likely to lose the most from the deal? Customers, employees and middle management.

If approved, Time Warner Cable and Bright House Networks customers will become customers of Charter Communications, a considerably indebted company with mediocre customer service ratings and a menu of service options carefully designed to boost the average revenue Charter collects from each of its customers. Charter is likely to endure growing pains common when a company swallows another four times larger than itself. Bright House customers will likely see the changes the most. Its customer service ratings are stellar when compared against Charter and Time Warner Cable.

Middle management positions at Time Warner Cable and Bright House deemed redundant in the era of New Charter will be eliminated. At even bigger risk are call center and customer service positions. Charter Communications has already beefed up its own customer service operations, partly for its customers and those it assumed it would gain from a deal with Comcast and Time Warner Cable. Charter was also to be closely involved in supporting the GreatLand Connections spinoff proposed in that failed deal. With excess customer service capacity, Charter is in a position to consolidate or close several Time Warner Cable and Bright House call centers. Charter has also aggressively pursued savings by offering customers more self-service options, such as mailing set-top boxes and cable modems customers can install themselves. Whether Charter decides to outsource more of its cable service technician positions is not yet known.

Malone

The Economist reports Charter Communications’ acquisition of Time Warner Cable and Bright House Networks has been structured so that “it should pay no tax for several years, at least.”

The merger deal, which intimately involves John Malone, the boss of Liberty Media — a cable and media conglomerate, has all the hallmarks of a classic Malone-inspired deal: complex ownership structures, high debt levels, assiduous tax planning and a refusal to overpay.

Unlike many other dealmakers, Malone seems to want to avoid the spotlight. His firm Liberty Media is Charter’s biggest single investor and will kick in at least $5 billion in Charter stock purchases to help consummate the transaction, which will be handled primarily by Charter’s management.

The deal comes at Malone’s insistence the American cable landscape must be consolidated into just 2-3 large companies. For now, he is content standing aside while the public faces of the merger are Charter’s CEO Thomas Rutledge and Time Warner Cable’s Rob Marcus. (Bright House Networks is also a part of the transaction but has been completely overshadowed by its larger deal partners.)

While coverage of the transaction has been relegated to the Business section of newspapers and has evoked shrugs from American reporters, The Economist calls it nothing short of an extraordinary landmark.

“The boss of Liberty, a cable and media conglomerate, he has struck more deals than perhaps any other tycoon in the world—buying and selling hundreds of firms worth over $100 billion since the 1970s, often negotiating on his own, using calculations that fit on a napkin,” said the publication. “Unusually for an empire-builder he has made his investors a ton of money, and has little interest in the public eye.”

While Malone is hardly a household name, he could soon be at the center of the sixth largest corporate takeover in U.S. history and make him the world’s unparalleled media baron, controlling an empire three times the size of Rupert Murdoch’s media ventures. While Comcast will remain America’s largest single cable operator, Malone’s Liberty Media will dwarf Comcast globally with more than 75 million cable customers around the world.

Malone does not share the concerns of some Time Warner Cable and Charter investors that the merger will generate a “staggering” $66 billion in debt from day one, initially loaned from Wall Street investment banks. The Economist notes Malone seems to be violating his own rule to never overpay in a deal. In the British financial press, Charter’s deal for Time Warner Cable and Bright House does not pass Malone’s own smell test.

“At 9.1 times gross operating profits he is paying at least a fifth more for TWC than he typically does,” says the newspaper. “He is offering 23% more for it than Comcast did in its bid last year, which was scuppered by antitrust regulators. Based on last year’s cash-flow figures the deal will make a pitiful 5.6% return on capital, assuming no tax is paid. Like most cable firms TWC has a stagnant top line, with growing broadband sales being offset by declining TV and telephony revenues. So fast growth will not bail out Mr Malone.”

So where does The Economist believe John Malone will make his killing? From captive customers and suppliers, of course.

“The most obvious explanation is that Mr. Malone thinks the world has not changed much since the 1990s and that the cable industry remains a collection of local monopolies from which ever more juicy profits can be squeezed,” says The Economist. “America’s cable firms have poor service and high prices: the average Charter customer pays at least 50% more per month than one of Mr Malone’s customers in Britain or the Netherlands. In Europe cable firms face tough competition in broadband from telecoms operators; in America the telecoms firms have rolled out fixed-line broadband to perhaps just half of homes or fewer.”

The Economist suspects Malone’s new cable empire will follow Europe and be less dependent on flogging costly bundles of unwanted television channels to reluctant punters. Instead, it’s all about broadband and the platform it represents to obtain a range of video services that replace traditional cable television. But Malone’s future vision almost certainly includes a wireless mobile component, which means Americans should not be surprised to see the tycoon attempt to acquire a large mobile company, even one as large as AT&T, on which he can sell video and other telecom services. That is precisely what he is doing today in Europe.

A tiny Madison Avenue investment bank (so small its only web presence is a webpage displaying its logo) that spent one week advising Charter Communications on its merger deal with Time Warner Cable and Altice SA on its acquisition of Suddenlink Communications will earn as much as $65 million in fees if both deals close, according to a report from Bloomberg News.

LionTree Advisors has fewer than 50 employees, which adds up to more than $1 million per worker. Charter is expected to be billed as much as $25 million for the bank’s advice on the Time Warner acquisition and $40 million advising Altice on its buyout of Suddenlink. That represents about $1 from each Charter, Time Warner Cable and Bright House Networks customer and approximately $27 from each Suddenlink customer.

Aryeh Bourkoff and Ehren Stenzler, co-founders of the bank, were more than little thankful to “be a part of these transactions on behalf of our clients.”

With regulators considering rejecting Comcast’s $45 billion merger with Time Warner Cable, investment bankers hoping to reap fat fees “advising” Comcast and Time Warner Cable about the deal are starting to panic they won’t get paid.

Although a merger flop won’t hurt giants like JPMorgan Chase, which operates a 24/7 cash vacuum, continuously sucking fees from companies engaged in Mergermania, smaller “boutique” investment banks like Allen & Co., Centerview Partners, and PJT Partners don’t have that luxury.

Reuters reports some of the smaller investment banks involved in the deal are now on edge, worried they won’t get their share of at least $140 million in investment banking advisory fees that would be paid to complete the Comcast-Time Warner Cable merger deal.

“Big banks have many deals going on, and they can afford to lose one more, even though it is painful. Smaller firms are less diversified, so for them it’s much more painful,” Campbell Harvey, a professor of international business at Duke University’s Fuqua School of Business, told Reuters.

But crying towels are also being readied for investment bankers involved in two side deals involving Charter Communications, which are likely to also fall apart in a chain reaction if the Comcast-Time Warner Cable merger dies.

Charter has deals pending with both Comcast and Time Warner Cable to launch GreatLand Connections and have plans to takeover Bright House Networks, both contingent on the Comcast-Time Warner Cable merger getting approval.

Those two transactions will bring another $170 million in fees to investment bankers, with JPMorgan Chane, former top Morgan Stanley banker Taubman, and Barclays Bank splitting $51-68 million in fees between the three firms.

Time Warner Cable’s own advisers are waiting for $57-75 million in fees as well, among them Morgan Stanley, Allen & Co., Citigroup, and Centerview Partners.

To understand how important the fees are to smaller bankers, Taubman was ranked 23rd in mergers & acquisitions fees in 2014. Without the Comcast deal, Taubman drops out of the top-100.

Some bankers may have negotiated a token fee to be paid by Comcast and Time Warner Cable if the deal falls apart. Most estimates suggest usual fees amount to around 10-15 percent of the amount they would collect if a merger is successfully completed.

The Federal Communications Commission announced Friday it will postpone an important spectrum auction until 2016 after broadcasters filed suit against the regulator challenging its proposed format.

The FCC wants your free, over-the-air television dial to be a lot smaller with a deal that will pay broadcasters to sign-off their channels for good to benefit the wireless industry. Remaining stations will be moved to VHF channels 2-13 and UHF channels 14-30. The spectrum covering UHF channels 31-51 would likely then be sold in pieces to major wireless carriers including AT&T, Verizon Wireless, Sprint, and/or T-Mobile.

To entice broadcasters to voluntarily switch off their transmitters, the FCC has designed a spectrum auction that would provide tens of millions in proceeds to smaller stations and up to $570 million for a UHF station in Los Angeles to get off the air. Technically, stations giving up their channels don’t have to sign-off — they can move to low/lower-powered broadcasting, share channel space with another television station on a digital subchannel, or move to cable television exclusively.

To sell stations on the deal, FCC Chairman Tom Wheeler hired Greenhill, a Wall Street investment bank, to prepare a presentation sent to every eligible television station in the country, encouraging them to sell their channels for some eye-popping proceeds:

(These numbers refer to full-power stations; in some markets there are also Class A stations, low-power stations that meet certain programming requirements. The estimated value of their spectrum is lower.)

Source: The FCC

There is so much money to be made buying and selling the public airwaves — at least twice as much as broadcasters originally anticipated– spectrum speculators have also jumped on board, snapping up low power television station construction permits and existing stations with hopes of selling them off the air in return for millions in compensation. Wireless customers are effectively footing the bill for the auction as wireless companies bid for the additional spectrum. Television stations will receive 85% of the proceeds, the FCC will keep 15%.

Major network-affiliated or owned stations in major cities are unlikely to take the deal. But in medium and smaller-sized markets where conglomerates own and operate most television stations, there is a greater chance some will be closed down, moved to a lower channel, or transferred to a digital sub-channel of a co-owned-and-operated station in the same city. The most  likely targets for shutdown will be independent, CW and MyNetworkTV affiliates. In smaller cities, multiple network affiliates owned by one company could be combined, relinquishing one or more channels in return for tens of millions in cash compensation.

In Los Angeles, the stakes are especially high with auction prices estimated at up to $570 million for a high-powered UHF station like KDOC-TV.

“There is some real money to be had,” Bert Ellis, chief executive of Ellis Communications, which owns KDOC-TV, told the Wall Street Journal. “I think every broadcaster should take a very close look at this.”

Estimates show at least 80 significant U.S. cities will likely lose one or more channels, especially when the bid price well exceeds the value of an independent, ethnic or religious station. Many of these will go dark, move to cable or a less desirable lower power VHF channel, or sign an agreement with a remaining station to carry its programming on a sub-channel.

The National Association of Broadcasters filed suit against the FCC’s auction in August. The NAB wants the FCC to guarantee that stations that wish to stay on the air will not have their coverage area reduced or forced to pay to move to a new channel number assigned by the FCC as the regulator “repacks” a much smaller UHF band.

“We’ve said from day one, if stations want to volunteer to go out of business, that’s their prerogative. But for those stations that choose to remain in business, they should be held harmless,” NAB spokesman Dennis Wharton said.

The spectrum auction is designed to address the wireless industry’s claim of a spectrum crisis, warning that if more frequencies are not found, wireless users will eventually see their service degraded.