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|CHARTER COMMUNICATIONS, INC. /MO/ filed this Form 425 on 05/26/2015|
MAY 26, 2015 / 12:00PM GMT, CHTR - Charter Announces Transactions with Time Warner Cable and Bright House Networks M&A Call
Tom Rutledge - Charter Communications, Inc. - President, CEO
Well, with capital intensity I dont think Ive ever said what I thought the number ought to be, but I thought it ought to be better than it is. But what I mean, is that well be able to digitize the network with less costly [CPA, CTB], and by re-architecting the network, have lower costs per customer to create new products, because new products will be created digitally in a cloud environment. And distributed across an entire network without having to do a physical transaction. Thats a tremendous change in the business.
As we go forward, were going to have a lot less physical activity and a lot more digital activity, and that is inherently less expensive, it ultimately translates into less capital intensity. But in order to get there, you have to spend some money to get all digital and to upgrade to broadband networks and to make it work in a seamless fashion and to be reliable. And that capital will be spent over the next couple of years but after that, the ratio of capital to revenue will continually decline in our model.
Phil Cusick - JPMorgan - Analyst
Chris Winfrey - Charter Communications, Inc. - CFO
From a cash tax perspective, you know, currently Charter, not including this transaction, is not expected to be a cash income tax payer until 2020 or beyond. And then given the large amount of operating income that exists between the three companies coming together, under a key assumption Ill come back to, wed expect that be more like 2018, maybe 2019 that New Charter will be a cash income tax payer.
What that means is that the NTV of our significant NOL is being accelerated by faster utilization which brings value to all shareholders. Theres an element there that is an unknown and that is when Advance/Newhouse would exchange out of the partnership into common units at New Charter. For modeling purposes, when weve talked about the tax benefit of the Bright House transaction, weve assumed that doesnt happen for ten years. And part of that is just to be conservative because we dont really know. Its not in our decision. Its not our control, but theres significant value there.
To the extent that those, that the partnership units are exchanged at a faster pace the value of that goes up significantly. As I mentioned, you know, its not the value that become the transaction today, its the value of where Charter is valued from a public market perspective at that point in time and is spread on the basis. So if you think about the amount of tax basis that can get created over that, its pretty large, so in the example I gave Im assuming that the Advance/Newhouse continues to be a long ways out before they would convert into the New Charter out of the partnership.
Phil Cusick - JPMorgan - Analyst
Got it. Thanks, Chris.
Your next question comes from Mike McCormack with Jefferies.
Mike McCormack - Jefferies LLC - Analyst
Hey, guys, thanks. Maybe Tom, just a quick comment on the regulatory process. I mean, obviously, you know, taking nothing for granted coming off of what the prior transaction ended with, is this simply the regulators being able to dust off their prior work and getting it done pretty quickly? Your timing is obviously over seven months or so. Youre expecting a fairly expedited process, just wondering what you guys think the process is from here?
And then secondly, with respect to build outs, you talked about TWC Maxx initiative being something that you would embrace, is that something that youd roll out more widespread? And then just lastly in the commercial build, you said beyond your current footprint trying to get a sense for whether or not youre thinking about a CLEC activity. Thanks.