The recent reports about Verizon’s interest to buy Charter Communications have resulted in the significant increase in the shares of the cable service provider in the last few days. However, many analysts firmly believe that the merger between the two parties is less likely to happen.
The principal analyst at MoffettNathanson, Craig Moffett recently stated that he doesn’t think that this deal will happen. “We doubt it can or will happen,” he said. “To be sure, we understand why Verizon would be interested. The next generation of wireless will be about small cells with small radii. And every one of those cells needs to be connected to a wire. That means lots and lots of wires. And Cable has the most wires.”
On the other hand, there is an emerging belief among many companies and investors that no corporate merger is too anti-consumer or too big enough for the Trump regime, but Moffett does see a number of challenges that may prevent the merger between the two companies.
“Let’s leave aside the legal questions of whether Verizon could permissibly speak with Charter at all while the anti-collusion ‘quiet period’ rules of the incentive auction are still in effect,” he added. “There are two bigger hurdles to clear. The first is financial. Can Verizon afford it? We suspect not. The second is regulatory. Could a Verizon/Charter deal clear anti-trust hurdles? We’re not sure.”
Moffett focused on the financial part of the merger between Charter Communications and Verizon and noted that, “in order to consummate a deal, Verizon would have to pay a price that Charter would be willing to accept, using a currency that Charter would be willing to accept, and do so without exceeding untenable leverage ratios or an unsustainable dividend payout ratio.”
He added, “The clearest take away from this week’s earnings reports is this: cable is a much better business than wireless. That may seem obvious–cable earns much higher returns, and Comcast’s cable business is growing at 8% per year while Verizon’s and AT&T’s wireless businesses are both shrinking–but it doesn’t seem to be close to being fully reflected in the two sectors’ relative valuations. We would be hard pressed to imagine that John Malone would be willing to trade Charter for Verizon without a very large premium indeed.”