Investments in Affiliates Accounted for Using the Equity Method
|3 Months Ended|
Mar. 31, 2015
|Investments in Affiliates Accounted for Using the Equity Method|
|Investments in Affiliates Accounted for Using the Equity Method||
(5) Investments in Affiliates Accounted for Using the Equity Method
In May 2013, Liberty acquired approximately 26.9 million shares of common stock and approximately 1.1 million warrants to purchase shares of Charter common stock for approximately $2.6 billion, which represented an approximate 27% beneficial ownership (including the warrants on an as if converted basis) in Charter at the time of purchase and a price per share of $95.50. Liberty funded the purchase with a combination of cash of approximately $1.2 billion on hand and new margin loan arrangements. Liberty allocated the purchase price between the shares of common stock and the warrants acquired in the transaction by determining the fair value of the publicly traded warrants and allocating the remaining balance to the shares acquired, which resulted in an excess basis in the investment of $2,532.3 million. The investment in Charter is accounted for as an equity method affiliate based on the ownership interest obtained and the board seats held by individuals appointed by Liberty.
During May 2014, Liberty purchased 897 thousand Charter shares for approximately $124.5 million. During November 2014, subsequent to the Broadband Spin-Off, Liberty Broadband exercised all of the Company’s outstanding warrants to purchase shares of Charter common stock for approximately $52 million.
As of March 31, 2015, the carrying value of Liberty Broadband’s ownership in Charter was approximately $2,456 million. The market value of Liberty Broadband’s ownership in Charter as of March 31, 2015 was approximately $5,569 million, which represented an approximate ownership of 26% of the outstanding equity of Charter as of that date.
Due to the amortization of amortizable assets acquired, losses due to warrant and stock option exercises at Charter (as discussed below) and the acquisition of additional shares of Charter, the excess basis has decreased to $2,436 million as of March 31, 2015 and has been allocated within memo accounts used for equity accounting purposes as follows (amounts in millions):
Upon acquisition, Liberty ascribed remaining useful lives of 7 years and 13 years to property and equipment and customer relationships, respectively, and indefinite lives to franchise fees, trademarks and goodwill. Outstanding debt is amortized over the contractual period using the effective interest rate method. Amortization related to debt and intangible assets with identifiable useful lives is included in the Company’s share of earnings (losses) from affiliates line item in the accompanying condensed consolidated statements of operations and aggregated $22.5 million and $20.2 million, net of related taxes, for the three months ended March 31, 2015 and 2014, respectively.
Due to dilution from Charter warrant and stock option exercises by outside investors (employees and other third parties) at prices below Liberty Broadband’s book basis per share, the Company had losses of $410 thousand and $45.8 million during the three months ended March 31, 2015 and 2014, respectively.
On March 31, 2015, Liberty Broadband announced its entry into a new stockholders agreement with Charter, a subsidiary of Charter (“New Charter”) and Advance/Newhouse Partnership (“A/N”) (the “Bright House Stockholders Agreement”), which would replace the Company’s existing stockholders agreement with Charter, as amended October 14, 2014. Liberty Broadband’s entry into the Bright House Stockholders Agreement came as the result of Charter’s announcement of a proposed transaction with A/N, pursuant to which New Charter would acquire Bright House Networks (“Bright House”) from A/N for $10.4 billion (the “Bright House Transaction”). The closing of the Bright House Transaction was subject to several conditions, including Charter’s receipt of stockholder approval, the expiration of Time Warner Cable’s right of first offer for Bright House, the closing of a binding definitive agreement between Charter and Comcast Corporation (the “Comcast Transactions Agreement”) and regulatory approval.
As announced by Charter on April 24, 2015, the Comcast Transactions Agreement was terminated by Comcast Corporation. As the closing of the Comcast Transactions Agreement had been a condition to the Bright House Transaction, the parties to the Bright House Stockholders Agreement are to consider and negotiate for a period of 30 days in good faith, amendments to the terms of the Bright House Stockholders Agreement that may be desirable to consummate the Bright House Transaction. No party is under any obligation to reach such an agreement and the Bright House Stockholders Agreement may be terminated by any party at any time within a 30 day period immediately following the expiration of the 30 day negotiation period.
Summarized unaudited financial information for Charter is as follows (amounts in millions):
Charter condensed consolidated balance sheet
Charter condensed consolidated statement of operations
The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group.
Reference 1: http://www.xbrl.org/2003/role/presentationRef