The next name of Time Warner Cable?

Charter Communications is laying the foundation for a leveraged buyout of Time Warner Cable before the end of the year in a deal that could leave Time Warner Cable’s broadband customers with Charter’s usage caps.

Reuters reported discussions between the two companies grew more serious after last week’s revelation a poor third quarter left TWC with 308,000 fewer subscribers.

Charter is relying on guidance from Goldman Sachs to structure a financing deal likely to leave Charter in considerable debt. Charter Communications emerged from bankruptcy in 2009 and is the country’s tenth largest cable operator, estimated to be worth about $13 billion. Time Warner Cable is the second largest cable operator and is worth more than $34 billion.

The disparity between the two companies has kept Time Warner Cable resistant to a deal with Charter, stating it would not be beneficial to shareholders. Charter executives hope to eventually win shareholder support for a buyout stressing the significant cost savings possible from a combined operation, particularly for cable programming.

The deal would likely end Time Warner Cable as a brand and leave Charter Communications CEO Thomas Rutledge in charge of a much larger cable company. Pricing and packaging decisions are usually made by the buyer, which could bring faster broadband speeds to Time Warner customers, but also usage caps already in place at Charter.

John Malone’s War on Customers

Malone

Cable billionaire John Malone, former CEO of Tele-Communications, Inc. (TCI) — America’s largest cable operator in the 1980s — believes consolidation is critical to the future of a cable business facing competition from phone companies and cord cutting. Malone’s Liberty Media, which now holds a 25% stake in Charter, is currently buying and consolidating cable operators in Europe. Malone’s post-consolidation vision calls for only two or three cable operators in the United States.

Malone’s quest for consolidation is nothing new.

Under his leadership, TCI eventually became the country’s biggest cable operator, but one often accused of poor service and high prices. More than a decade of complaints from customers eventually attracted the attention of the U.S. Congress, which sought to rein in the industry with the 1992 Cable Act — legislation that lightly regulated rental fees for equipment and the price of the company’s most-basic television tier.

Despite the fact consumer advocates didn’t win stronger consumer protection regulations, TCI was still incensed it faced a new regulatory environment that left its hands tied. One executive at a TCI subsidiary advocated retaliation with broad rate increases for unregulated services to make up any losses from mandated rate cuts.

A 1993 internal TCI memo obtained by the Washington Post instructed TCI system managers and division vice presidents to increase prices charged for customer service calls and add new fees for common installation services the company used to offer for free. TCI’s Barry Marshall recommended charging for as many “transaction” services as possible — like hooking up VCR’s, running cable wire, and programming remote controls for confused customers.

“We have to have discipline,” Marshall wrote. “We cannot be dissuaded from the [new] charges simply because customers object. It will take awhile, but they’ll get used to it. The best news of all is we can blame it on re-regulation and the government now. Let’s take advantage of it!”

Tele-Communications, Inc. (TCI) was the nation’s largest cable operator. Later known as AT&T Cable, the company was eventually sold to Comcast.

The FCC’s interim chairman at the time — James Quello, charged with monitoring the cable industry, was not amused.

“It typifies the attitude of cable companies engaging in creative pricing and rate increases to evade the intent of Congress and the FCC,” Quello said. “There is little doubt that the cable industry has an economic stake in discrediting the congressional act they vehemently and unsuccessfully opposed.”

Marshall defended his internal memo, although admitted it was inartfully written and was not intended for the public. Revelation of a damaging memo like this would normally lead to a quiet resignation by the offending author, but not at John Malone’s TCI, a company with a reputation for being difficult.

Mark Robichaux’s 2005 book, Cable Cowboy: John Malone and the Rise of the Modern Cable Business, was even less charitable.

Robichaux describes Malone as a “complicated hero,” at least for investors for whom he was willing to ignore banking rules and creatively interpret tax law. Robichaux wrote Malone’s idea of customer service was to ‘charge as much as you can, but spend as little as you can get away with.’

TCI’s top priority was to keep up the cable business as an “insular cartel.” The predictable result included accusations of “shoddy service” customers were forced to take or leave. In the handful of markets where TCI faced another cable competitor, TCI ruthlessly slashed prices to levels some would describe as “predatory,” only to rescind them the moment the competitor was gone. TCI’s intolerance for competition usually meant mounting pressure on competitors to sell their system to TCI (sometimes at an astronomical price) or face a certain slow death from unsustainable price cuts.

Among Malone’s most-trusted friends: junk bond financier Michael Milken and Leo Hindery, former CEO of Global Crossing.

Congressman Albert Gore, Jr., later vice-president during the Clinton Administration, was probably Malone’s fiercest critic in Washington. Gore’s office was swamped with complaints from his Tennessee constituents upset over TCI’s constant rate increases and anti-competitive behavior.

The cable industry’s biggest competitor in the 1980s-1990s was a TVRO 6-12 foot diameter home satellite system.

Gore was especially unhappy that TCI’s grip extended even to its biggest competitor — satellite television.

In the 1980s and early 1990s, cable operators made life increasingly difficult for home satellite dish owners, many in rural areas unserved by cable television. But things were worse for home dish owners that walked away from TCI and began watching satellite television instead. To protect against cord-cutting, the cable industry demanded encryption of all basic and premium cable channels delivered via satellite. It was not hard to convince programmers to scramble — most cable networks in the 1980s were part-owned by the cable industry itself.

To make matters worse, unlike cable systems that only leased set-top boxes to customers, home dish owners had to buy combination receiver-descrambler equipment outright, starting at $500. Just a few years later, the industry pressured programmers to switch to a slightly different encryption system — one that required home dish owners replace their expensive set-top box with a different decoder module available only for sale.

Gore was further incensed to learn TCI often insisted home dish owners living within a TCI service area buy their satellite-delivered programming direct from the cable company. Customers hoping to leave cable for good found themselves still being billed by TCI.

Sometimes the rhetoric against TCI and Malone got personal.

”He called me Darth Vader and the leader of the cable Cosa Nostra,” Malone said of Gore. “You can’t win a pissing contest with a skunk, so there’s no point in getting involved in that kind of rhetoric.”

“There’s a joke going around Washington,” John Tinker, a New York-based Morgan Stanley & Company investment banker who specializes in cable television said of Malone back in 1990. “If you have a gun with two bullets, and you have Abu Nidal, Saddam Hussein and John Malone in a room, who would you shoot? The answer is John Malone — twice, to make sure he’s dead.”

TCI itself was a four letter word in the many small communities that endured the cable company’s insufferable service, outdated equipment, and constant rate “adjustments.”

The New York Times reported John Malone’s TCI had a reputation for treating customers with “utter disdain,” and provided examples:

• In 1973, rate negotiations stalled with local regulators in Vail, Colo., the local TCI system shut off all programming for a weekend and ran nothing but the names and home phone numbers of the mayor and city manager. The harried local government gave in.
• In 1981, TCI withheld fees and vowed to go completely dark in Jefferson City, Mo., if the city failed to renew its franchise, while a TCI employee — “who turned out to have a psychological problem,” said Malone — threatened harm to the city’s media consultant. Again, a beleaguered local government renewed the franchise — although in a subsequent lawsuit, TCI was fined $10.8 million in actual damages and $25 million in punitive damages.
• In 1983, the small city of Kearney, Neb., also dissatisfied with poor service and rising rates, tried to give Malone some competition in the form of a rival system built by the regional telephone company. TCI slashed fees and added channels until the enemy was driven from the field.

“That’s the dark side, if you will, of TCI,” said Richard J. MacDonald, a media analyst with New York-based MacDonald Grippo Riely.

By mid-1989, Malone’s frenzied effort to consolidate the cable industry resulted in him presiding over 482 merger/buyout deals, on average one every two weeks. Among the legacy cable companies that no longer existed after TCI’s takeover crew arrived: Heritage Communications, United Artists Communications and Storer Communications.

To cover the debt-laden deals, Malone simply raised cable rates and shopped for easy credit. Bidding with others’ money, the per-subscriber price of cable systems shot up from $998 in 1983 to an astronomical $2,328 in 1989.

The General Accounting Office, the investigative arm of Congress, found deregulating the cable industry cost customers through rate hikes averaging 43 percent. In Denver, TCI raised rates more than 70% between 1986 and 1989.

Malone’s attempt to finance a leveraged, debt-heavy buyout of Time Warner Cable seems to show his business philosophy has not changed much.

LightSquared, the ill-fated venture to bring nationwide 4G wireless broadband to the masses may be all but gone and forgotten in bankruptcy reorganization proceedings, but the wireless spectrum it controls and the drama surrounding it is not.

A battle between billionaires and the hedge funds they support has broken out over who will ultimately control the failed venture — a hedge fund manager deep in LightSquared debt or the richest man in Colorado that often finds a way to get his way.

Harbinger Capital Partners’ Phil Falcone

Falcone

Phil Falcone earned his first fortune trading junk bonds in the 1980s. In 2001, he launched Harbinger Capital Partners and by 2007, Falcone and his investors were well-positioned for a blizzard of cash betting against sub-prime mortgages just before the housing collapse and credit crisis that followed. Falcone took home $1.7 billion in compensation that year while an epidemic of foreclosures and upside down mortgages was just getting started.

In late 2008, when the economy was in free-fall, Falcone suspended or limited withdrawals from his largest funds, upsetting investors who couldn’t get their money out. But Falcone reportedly gave special treatment to certain large investors (sources say Goldman Sachs is among them) who were able to clear out their exposed accounts before the losses piled up.

By 2009, Falcone was again making money — so much he vastly underestimated his federal and state tax bills. What’s a cash-strapped billionaire to do? Quietly loan himself $113.2 million from one of his investment funds at a favorable interest rate and keep it a secret from investors for five months. When they eventually found out, they were understandably disturbed. Falcone had barred those same investors from cashing out of the fund he borrowed from.

The Securities and Exchange Commission was not happy either and filed charges against Falcone.

“Today’s charges read like the final exam in a graduate school course in how to operate a hedge fund unlawfully,” Robert Khuzami, director of the S.E.C.’s division of enforcement, said in a statement. “Clients and market participants alike were victimized as Falcone unscrupulously used fund assets to pay his personal taxes, manipulated the market for certain bonds, favored some clients at the expense of others, and violated trading rules intended to prohibit manipulative short sales.”

Despite the publicity generated by the SEC, investors who appreciated Falcone’s ability to earn them money allowed them turn a blind eye to the ethics questions and pour money into Falcone’s latest venture — a wireless network known as LightSquared.

LightSquared was preparing to launch a unique nationwide 4G LTE mobile broadband network powered by satellites and ground-based cell towers, selling wholesale access to third-party wireless companies able to market the service under their own brand. Falcone’s funds poured nearly $3 billion dollars into the venture while getting a waiver from the government to operate high-powered transmitters on the “L” band — 1525-1559 MHz. LightSquared’s plans alarmed the next door neighbors — GPS satellites facing interference issues that would hurt the accuracy of precise location information provided to millions of tracking devices on the “L1” band — 1559 to 1610 MHz.

Initial testing showed that significant interference from the prototype ground-based transmitters would occur and potentially could cripple aviation and public safety GPS users. The FCC eventually withdrew permission for LightSquared to run its network as planned, a potential death-blow to the venture.

Creditors grew anxious wondering how LightSquared would be in a position to repay its loans when it was unable to launch its wireless network.

In May 2012, creditors forced the issue and LightSquared filed for bankruptcy protection, listing assets of $4.48 billion and debts of $2.29 billion. Falcone claimed the bankruptcy filing would give the company more time to overcome the FCC’s objections to its network operations plan. Falcone estimated it would take two years to secure a resolution. Analysts familiar with the FCC suggested Falcone might die of old age before the agency gave way.

Falcone’s subsequent efforts to win back control of the venture have been made more difficult because one man has been quietly buying up large amounts of LightSquared’s debt with designs on the venture’s spectrum.

Dish Networks’ Charles Ergen

With LightSquared’s debt trading at around 50 cents on the dollar, Charlie Ergen went shopping.

Ergen has been involved in the satellite business for decades. Today, he controls and runs Dish Network, a satellite television provider that has seen the back of high customer growth. Dish and DirecTV are both locked out of the “triple play” business most cable and phone companies offer customers. Neither company can offer broadband or telephone service without partnering with another provider. As cord-cutting continues to take hold, customers willing to pay for increasingly expensive television packages are in decline. That likely explains Ergen’s interest in acquiring wireless spectrum — to build Dish into a broadband, television, and telephone service provider.

In May, Dish publicly bid $2.2 billion for certain spectrum assets from LightSquared. But for more than a year earlier, Ergen was quietly buying up LightSquared’s debt through holding companies and hedge funds.

Ergen created an opaque investment entity named “SP Special Opportunites, LLC” a/k/a “Sound Point” to buy LightSquared debt. Separately, Ergen asked Stephen Ketchum, a former investment banker with close ties to Ergen, to buy over $1 billion in LightSquared debt securities through Ketchum’s hedge fund. From April 2012 until May 2013, Sound Point allegedly spent $1,013,082,326.30 to purchase secured debt for Ergen’s personal benefit and without the knowledge of Dish or its board of directors. Secured debt held by creditors is paid first in a bankruptcy proceeding, and Ergen quietly because LightSquared’s largest single secured creditor.

That puts Charlie Ergen in a major ethical dilemma.

The more Dish offers to pay for LightSquared, the more money Ergen will be paid to cover the shares of LightSquared’s secure debt. Ergen has a controlling interest in Dish, which means he can order Dish to overpay for LightSquared, personally pocketing the proceeds.

Bloomberg’s Matt Levine explains the shady deal:

“An executive going around and buying up an asset for cheap, then convincing his company to buy all of that asset for a higher price – doesn’t come up a lot because it’s so obviously shady,” Levine wrote. “If you’re supposed to be devoting your time and energy to finding opportunities for your company, it looks pretty bad to steal those opportunities for yourself.”

Falcone was outraged when he learned of Ergen’s stealthy acquisitions.

Ergen

In July, Harbinger accused Ergen of “fraudulently” becoming a creditor to block efforts by LightSquared to reorganize and emerge intact from bankruptcy. Instead, Harbinger accused Ergen of seeking to acquire the company’s assets “on the cheap.” Harbinger also points to provisions in a LightSquared debt agreement that forbids certain competitors from buying the company’s debt.

Also upset are several major Dish Network shareholders who are not pleased Ergen’s private deal could make him a lot of money while costing shareholders plenty should Dish overpay for LightSquard’s assets or worse, end up with everything but the spectrum Dish covets.

At least five lawsuits have been filed since August, accusing Ergen and other board members of casting their fiduciary duties to the wind and wasting money along the way. They are also upset Ergen and his connections purchased $1 billion in LightSquared debt at a substantial discount and will likely be repaid the full face value of those debts with Dish Network’s money. That means nearly $300 million in personal profits for Ergen.

The latest shareholder lawsuit was filed by the Louisiana Municipal Police Employees’ Retirement System. It along with the suit filed by the City of Daytona Beach Police Officers’ and Firefighters’ Retirement System claim Ergen’s near-total control of Dish’s board of directors makes it impossible for the board to meet its obligation of representing shareholder interests first.

“Ergen’s control over the company and the board is highlighted by the numerous transactions he has caused Dish to enter into with members of his family,” the lawsuit states.

Ergen and Dish’s efforts to insulate themselves from charges of conflict of interest didn’t fly with many investors.

One lawsuit noted Tom Ortolf, one of the directors on the supposedly independent committee reviewing Dish’s bid, has a daughter that works at Dish; the other, George Brokaw, chose Mr. Ergen’s wife, Cantey Ergen—a Dish director named in the shareholder suit—to be the godmother of his son.

The discomfort level at Dish reached high enough to prompt one board member, Gary Howard, to suddenly resign in early September. Howard was also on the committee formed to vet the LightSquared deal because of the potential conflict of interest on Ergen’s part.

Before Falcone could claim the high road at Ergen’s expense, this week New York’s top financial regulator banned Falcone from managing Fidelity & Guaranty Life Insurance Company of New York for seven years. Harbinger Group bought Fidelity & Guaranty, the U.S. life and annuity unit of London-based Old Mutual Plc, for $350 million in 2011.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg LightSquared 9-5-13.flv[/flv]

Bloomberg News discusses the high drama between LightSquared and Dish Network. (4 minutes)

Verizon Communications spent Labor Day weekend putting the final touches on a carefully crafted deal to attain full ownership of its wireless unit, buying out its British partner’s 45 percent share in a deal valued at $130 billion.

The long talked-about buyout of Vodafone has been on the table for years, but became a priority for Verizon CEO Lowell McAdam, who spent much of his career overseeing Verizon Wireless. Since McAdam took over from predecessor Ivan Seidenberg in 2011, he has refocused priority on Verizon’s wireless business, at the cost of landlines and Verizon’s fiber optic network FiOS.

The transaction dwarfs (by nearly four times) the $33 billion annual budget of the entire state of New Jersey. Verizon has agreed to pay Vodafone $58.9 billion in cash and $60.2 billion in Verizon shares, and finance another $5 billion of the deal in loan notes. Verizon has also agreed to sell its 23 percent ownership in Vodafone Italy worth around $3.5 billion and take on $2.5 billion of Vodafone’s debt.

A deal this large would normally generate tens of billions in tax revenue payable to HM Revenue & Customs in England and the Internal Revenue Service in the United States, but creative accounting at both companies makes it all but certain Vodafone will pay nothing in British taxes and only $5 billion to the IRS, despite its $130 billion windfall.

Vodafone is structuring the deal through a Dutch holding company, transferring assets to Verizon in a way that minimizes the tax bite. As proposed, the deal is exempt from taxes in both the Netherlands and the United Kingdom.

[flv]http://www.phillipdampier.com/video/CNBC Verizon Wireless Vodafone McAdam Merger 9-3-13.mp4[/flv]

CNBC had this exclusive interview with Verizon CEO Lowell McAdam discussing why Verizon is willing to spend $130 billion to end its partnership with Vodafone and how Verizon Wireless will change as a result. (12 minutes)

Wall Street investment banks will do better than American and British tax authorities, dividing at least $1.3 billion in financing, merger, and legal fees surrounding the Verizon deal. Many of New York’s largest investment banks are taking part in the transaction.

Vodafone is depending heavily on guidance from Swiss-based UBS and Goldman Sachs. The latter has earned $438 million so far this year advising companies on mergers and acquisitions.

Verizon is relying on advice from J.P. Morgan Chase and Morgan Stanley. Bank of America Merrill Lynch and Barclays have joined to offer their help with the enormous debt-funding package required for the deal.

Verizon customers will notice little to nothing different about their wireless service after the deal is complete in the first quarter of 2014. Many customers had no idea Vodafone was part owner of the largest wireless company in the United States. Verizon always maintained effective control of the U.S. operation and plans no immediate changes as a result of assuming outright control of the company.

Little controversy is expected in getting the deal approved by regulators for the same reason.

Shareholders are likely to reap most of the rewards. Vodafone stockholders are expecting the bulk of the proceeds from the sale will be returned to them in the form of dividends. Verizon shareholders also expect better returns in the future now that Verizon’s profitable wireless unit will no longer have to set aside costly dividend payments intended for Vodafone and its shareholders.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/BBC Vodafone will not pay tax on 84bn sale to Verizon 9-2-13.flv[/flv]

The BBC reports the sale of Vodafone’s 45% share of Verizon Wireless has been structured so that both companies can entirely avoid British and Dutch capital gains taxes and limit the American tax bite to less than $5 billion.  (1 minute)

Verizon hopes being the master of its own destiny will allow the company to innovate its wireless network towards future revenue opportunities, especially in the machine to machine connectivity business. Both AT&T and Verizon Wireless are racing to enable medical devices, home appliances, electric meters, and automobiles to communicate over their respective wireless networks. Both companies are concerned that the cell phone marketplace has become saturated in the United States, with most people desiring cell phone service already having it. With Wall Street demanding ongoing growth quarter after quarter, new revenue sources are more important than ever.

“Even in the saturated market, (Verizon Wireless) continues to post growth figures,” Bill Menezes, an industry analyst at research firm Gartner told USA Today. “They’re looking at a world where growth is coming from these ancillary devices.”

Many Verizon shareholders expected a deal this year, but some are concerned Verizon has offered too much to buy out Vodafone. Many Wall Street analysts had expected Vodafone would part with its 45 percent ownership of Verizon Wireless for around $100 billion, but Vodafone clearly held out for more.

The corporate deal is the world’s third largest after Vodafone’s $203 billion takeover of Germany’s Mannesmann in 1999 and AOL’s 2000 $181 billion acquisition of Time Warner.

Vodafone is planning to use some of the proceeds not returned to shareholders to bolster its European business, which has suffered from the economic downturn and robust wireless competition that have kept prices low. Wall Street analysts predict the European market is ripe for a wave of consolidation similar to what happened in the United States over the last decade. Vodafone may need more financial resources to protect its market position or have the flexibility to buy out competitors.

The European wireless giant has been a quiet partner of Verizon Wireless for almost 14 years. Verizon Wireless was launched in 2000 as a joint venture of Bell Atlantic and Vodafone. As the venture was being launched, Bell Atlantic merged with GTE, forming Verizon Communications.

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CNBC reports historically low interest rates and cheap credit for corporations made it an ideal time to structure a deal so important to J.P. Morgan Chase, the bank sent CEO Jamie Dimond to persuade Verizon board members to approve it. Investment banks will split more than one billion dollars in deal fees.  (7 minutes)

Buying shares in a public company used to be straightforward and simple. Buyers instructed their broker to trade shares with the simple maxim: “buy low, sell high.”

These days, things are more complicated thanks to wealthy investment banks that have created Wall Street’s version of a Las Vegas casino. Today, buyers don’t even need to purchase shares in a company — they can make a killing just by betting at sites like suomikasinot.fi whether they believe a share price will increase or decrease.

The Options Regulatory Surveillance Authority is now investigating a sudden surge in such option trading just before AT&T launched its $1.19 billion cash bid for Leap Wireless, owner of the Cricket-branded prepaid cell service.

The unnamed buyers included investment bank Goldman Sachs, that either traded options for themselves, on behalf of well-heeled clients, or simply processed the trades as part of doing business.

Those who purchased the call options were either clairvoyant, extremely lucky, or had inside knowledge of the yet-to-be-announced deal and were able to buy thousands of lucrative contracts that bet Leap stock would make a sudden recovery and increase in price. Nanex reports an explosive increase of 15,749 Leap “call contracts” trading hands that week, according to a report in USA Today. That well-surpassed that same week’s 1,384 Leap “put contracts” — investors making the safer bet that the always-anemic Leap stock would fall in price even further. That particular week, they were very wrong.

During the last 15 minutes of trading on July 12, 2,536 Leap contracts were executed, and nearly 80 percent of them gave buyers the right to purchase Leap shares for $9 each through Aug. 16, an amazing display of confidence in a stock that traded as low as $6.58 per share a few weeks earlier.

Leap into the big money pool.

Other investors were left scratching their heads over the wisdom of that kind of trading until just after the market closed that day, when AT&T announced its intention to buy the prepaid carrier, boosting Leap’s stock price from $7.98 on July 12 to $17.23 on Monday, July 15.

“Did someone know something early in Leap Wireless?” asked Jon Najarian, co-founder of Option Monster, a provider of options-trading ideas, in a written commentary for TheStreet.com. “The question now is whether someone will end up in prison for insider trading.”

While the unnamed parties likely made a handsome and quick profit, the brokerages that sold the options took a beating.

“We, as market makers … sold these calls,” said Thomas Peterffy, head of Timber Hill and an affiliated group of brokerages. “When the news came out, we had an immediate loss of $1.5 million.”

Goldman $achs

Timber Hill promptly filed a request for an investigation into potential illegal insider trading with the Options Regulatory Surveillance Authority that has since responded it was reviewing the issue “to determine if any exchange or Securities and Exchange Commission rules may have been violated.”

A Nasdaq spokesperson did not respond to messages seeking comment. Goldman Sachs also declined to comment.

Peterffy told the newspaper securities regulators should pursue examples such as the Leap Wireless options trading, “where it’s very clear what happens.”

“This has been going on for 20 years. It happens all the time, happens about 20-30 times a year. And we’ve never seen a penny from this stuff,” said Peterffy.

The company best known for the 10 daily newspapers it publishes, including the Chicago Tribune, the Orlando Sentinel, the Baltimore Sun, and the Los Angeles Times, can’t wait to get out of the newspaper business.

Last December, the Tribune Company, the second largest newspaper publisher in the country, emerged from bankruptcy without its $13 billion debt and old owners. Now in charge: the same Wall Street banks that lent the company billions to go private. Two months after assuming control, Tribune’s new owners hired Evercore Partners and J.P. Morgan to oversee the dumping of Tribune’s newspaper portfolio.

Founded in 1847 with the launch of the Chicago Tribune, 166 years later the Tribune Company was finished with print news, probably for good.

Investment bank and now owner

Today’s Tribune, controlled by Oaktree Capital Management, best known for investing in “distressed” companies, JPMorgan Chase, a Wall Street investment firm, and Angelo, Gordon & Co., a hedge fund sponsor best known for helping the U.S. government deal with the toxic assets accumulated by banks that helped trigger The Great Recession, want into the television business instead.

Tribune, which already owned 23 local television stations including flagship WGN in Chicago, bought another 19 Monday in a deal estimated to be worth at least $2.7 billion.

The stations were acquired from Local TV Holdings, itself owned and controlled by Wall Street investment firm Oak Hill Capital Partners, founded by Texas oil billionaire Robert Bass. Oak Hill acquired the television outlets from The New York Times and News Corp., in two prior deals. Tribune won’t pay for the stations outright. It is financing the deal with a $4.1 billion credit line granted by banks including JPMorgan Chase and Citigroup.

The stations involved:

Assuming the deal meets the approval of the Federal Communications Commission, Tribune will control 42 stations in 16 markets, including New York, Los Angeles, and Miami.

It expects to pay off the loans and generate returns from the “significant free cash flow” generated by the stations.

Where will that cash flow originate? From pay television subscribers asked to pay a growing amount each year for the formerly “free TV” stations.

“Smaller players feel like they’re losing their way with pay-TV providers and broadcast networks,” Craig Huber, analyst at Huber Research Partners, told USA Today. “They feel like they’re at a disadvantage here unless they size up.”

As cable programming rates continue to increase and subscribers threaten to cut the cord, pay television providers have been more willing to play hardball and kick stations off the cable or satellite dial when they cannot reach a retransmission consent agreement.

With up to 90 percent of a station’s viewership coming from pay television platforms, a lengthy standoff can destroy a station’s primary source of income: advertising revenue.

To protect themselves, television station owners are retaliating by threatening providers with the loss of all of their stations across the country, not just one or two. The resulting subscriber uproar could prove politically difficult and threaten customer relationships with providers. The more stations a company controls, the bigger the threat it can pose to Comcast, DirecTV, AT&T and other national providers.

Tribune is not alone bulking up the number of stations they own and control. Last month Gannett nearly doubled its portfolio from 23 to 43 stations with the acquisition of Belo’s TV stations for $1.5 billion in cash and agreeing to cover $715 million in accumulated debt.

Sinclair Broadcast Group, already the largest local TV station owner in the country, has gotten even larger with the purchase of four TV stations owned by Titan TV Broadcast Group. If the deal is approved, Sinclair will own 140 stations in 72 markets. In some cities, Sinclair will nominally own or control up to five local stations.

Sinclair management is well-known for injecting conservative political viewpoints into local newscasts and programming decisions. In 2004, two weeks before the presidential election, Sinclair ordered all of its television stations to air propaganda critical of Democratic candidate John Kerry. Later that year, Sinclair ordered its ABC affiliated stations not to broadcast a “Nightline” episode about soldiers killed in the Iraq war, fearing it would turn the public against the war.

But for most owners, politics has nothing to do with the desire to supersize. It’s a matter of money.

Even smaller station groups are now consolidating. Media General and New Young Broadcasting Holding, are merging their combined 30 stations.

(Image: The Wall Street Journal)

Critics worry the changing landscape of local television will threaten the concept of “local service” stations are required to provide as a condition of their broadcast license. A station owner that lives and works in the community served is becoming an increasing rarity, and the Federal Communications Commission has allowed stations that used to fiercely compete for local news viewers to now “share resources.” Many stations, especially those owned by out of area investment banks, have discontinued local news altogether in cost-savings maneuvers.

“This deal adds to a blizzard of broadcast industry consolidation that is poised to leave America’s media system less local, less diverse and less accountable to the people in these communities,” said Free Press’ Craig Aaron in a statement on the deal. “By the time all these deals are done, a handful of companies could control almost all of the network affiliates in major markets and swing states. Local broadcasts are becoming simulcasts, with the same cookie-cutter content piped in from distant corporate headquarters, once-competitive stations combined into single newsrooms and fewer journalists forced to fill more hours of airtime.”

“The FCC needs to wake up to what’s happening on local TV,” said Aaron. “Wall Street may be overjoyed at this merger mania, but the rest of us should be very worried about having fewer viewpoints on the air and fewer reporters on the beat.”

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Former FCC commissioner Michael Copps shares his concerns about increasing media consolidation and its impact on an informed electorate. (Aired on Carolina Journal Radio May 23, 2013) (1 minute)