Charter Communications, Inc. (CHTR), Time Warner Cable Inc (TWC): Making Money From John Malone’s Lunch

When a lion takes down a gazelle, other animals also get a meal.

What’s true in nature is also true in business. Small investors are always looking to profit from the maneuvers of large players.

In the area of broadband, the big player today is John Malone. The 72-year old Colorado entrepreneur has two vehicles for investors. Liberty Media Corp (NASDAQ:LMCA) controls American assets, and has a market cap of $15.36 billion. Liberty Global PLC (NASDAQ:LBTYB) mainly holds European assets and has a market cap of $18.95 billion. That’s over $34 billion in market cap, plus whatever Malone can squeeze out of bankers, in order to shop for cable systems around the world. Liberty Global PLC (NASDAQ:LBTYB) has been most active this year, picking up Virgin Media for $23.3 billion and taking a stake in a Dutch system.

But now the U.S. arm is getting active, taking a $2.6 billion stake in Charter Communications, Inc. (NASDAQ:CHTR), along with board seats, raising speculation of a “mega-deal” that would consolidate Charter Communications, Inc. (NASDAQ:CHTR), Cablevision, and possibly Time Warner Cable Inc (NYSE:TWC) in a Liberty-controlled entity.

What Malone sees

Malone sees rising costs for rolling trucks as killing new broadband investments, at the same time the value of that pipe for Internet traffic becomes clear. He believes he can essentially become a global Internet monopolist, raising prices for consumer access to the resource, and at the same time demanding rent from players like Netflix, Inc. (NASDAQ:NFLX) for reaching “his” customers.

Regardless of what you think of that strategy, the fact is that Malone has the money to play. That is one reason why Telsey Advisory Group now has a $135 price target on Time Warner Cable Inc (NYSE:TWC), 20% higher than it’s presently worth.

Time Warner Cable Inc (NYSE:TWC), meanwhile, sees Malone buying it time. The industry is bedeviled by the fact that consumers are increasingly killing their cable bills and going with Internet service only, then looking to buy content directly from Netflix, Inc. (NASDAQ:NFLX) or other players, such as Amazon.com, Inc. (NASDAQ:AMZN) The only thing holding them back is the attractiveness of live sports, a model Malone sees as “unsustainable.”

How you can play

In the wild you make money off the gazelle by being a hyena or vulture and circling as the lion stalks her prey. In the markets you put your money on the prey and then profit when the lion pounces. And the weaker the prey, the more likely you are to get a meal.