A $300 Billion Media Giant: Verizon Said To Be Exploring Charter Combination

Tyler Durden's picture

While the fate of the Time Warner-ATT merger still remains up in the air, with Trump's campaign threat he would not allow the combination still a lingering concern, moments ago the WSJ reported that in what could be the next mega telecom-cable merger, $200 billion Verizon is exploring a combination with cable company Charter Communications, whose market cap clocks in at over $100 billion as of this morning.

The reason for the proposed deal is that both Verizon and Charter face challenges to their core businesses. Growth in the U.S. wireless market has slowed and pricing pressure has chipped away at profits. Furthermore, the cable-TV business is threatened by cord-cutters and over-the-top video services.

The WSJ cautions that efforts are preliminary and may not result in a deal and CNBC's David Faber has poured some cold water on the speculation, however, noting that it is "very unclear" if there are actual talks going on especially since the resulting outcome would be a "very big company." He is correct: the resulting media giant would have a market cap of over $300 billion. Furthermore:

  • CHARTER LIKELY WANTS $400/SHR, CNBC’S FABER SAYS
  • NO CHARTER, VERIZON DEAL COMING ANYTIME SOON: CNBC’S FABER

To be sure, any transaction would face a close regulatory review, given the sheer size of the businesses and some overlapping services. Both companies provide home broadband and television services in certain markets, including the greater New York area. On its fiber-optics network, known as Fios, Verizon has about 5.7 million high-speed internet customers and 4.7 million TV subscribers, primarily in the Northeast.

Some more details from the WSJ:

Verizon CEO Lowell McAdam has made a preliminary approach to officials close to Charter and Verizon is working with advisers to study a potential transaction, the people said, though there’s no guarantee a deal will materialize.

 

It is unclear whether Charter executives, including Chief Executive Tom Rutledge, would be open to a transaction. The effort could be complicated by Charter’s ownership structure, which includes cable tycoon John Malone and the Newhouse family.

A merger would bring together Verizon’s more than 114 million wireless subscribers and what remains of its landline business with Charter’s cable network, which provides television to 17 million customers and broadband connections to 21 million.

A deal would also pose a big test for new antitrust enforcers under the administration of President Donald Trump, who during the campaign expressed concerns about media consolidation. In October, he vowed to block AT&T Inc.’s $85.4 billion purchase of Time Warner Inc., saying it put too much power in the hands of too few, but he hasn’t spoken publicly on the transaction since the election.

* * *

The idea of the merger between the two companies was first proposed by Chris Hohn, founder of hedge fund TCI, who in December predicted at the Sohn Conference in London that “Verizon over time will buy Charter (Communications).” At the time analysts roundly denied the idea: when questioned about the likelihood of such an arrangement, Recon Analytics’ Roger Entner balked at the thought. According to Entner, such a move would run contrary to around a decade of efforts on Verizon’s part to get out of wireline.

“Tell me why Verizon is selling landline and FiOS properties left and right just to buy a cable company,” Entner challenged. “Verizon has been a seller of wireline, not a buyer. The reason they bought XO (Communications) was because (XO) really didn’t have any customers and they got fiber and spectrum licenses. In three years when Frontier has money again, when they have digested California, Texas, and Florida, Verizon will most likely sell them the northeast. The key is Verizon’s strategy is getting out of retail fixed and this would get them deeper in than they ever were before.”

While fiber will certainly be an important asset for Verizon in the 5G future, Entner said a deal to buy Charter would come with the headache of lots of customers and offer very little upside. Entner guessed a hypothetical deal with Charter would cost the carrier somewhere around 10 times as much as the nearly $4 billion Verizon agreed to pay to acquire Yahoo earlier this year. Verizon’s real end game, he said, is sticking to wireless and keeping fiber assets an in-house affair.

“In the markets where they sold FiOS to Frontier simultaneously they built their own fiber backhaul using the right of ways they still had to just put them in and get done with it,” Entner said. “What Verizon is planning to do is insource their fiber backhaul, but buying Charter comes with so many headaches it’s not even funny. Who wants these headaches right when they’re cleaning up everything?”

It appears that Hohn was right after all (at least until Verizon denies the WSJ report). 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
hotrod's picture

Wow these market Caps are staggering.  First Trillion dollar company coming up soon.  Who will it be.  Facebook?

Tom Servo's picture

Charter might be one of the worst run corporations on the planet.  Their "CIO" is embezzling money from the company, despite all ethics violations reported by the employees.  Their upper management are loading that bitch up with debt and hoping to pull their golden parachute ripcords before it crashes down, then move on to the next industry with their crony friends.

Michigander's picture

Their ethics are ony exceeded by their debt load. Fucking YUUGE.

orangegeek's picture

Not going to happen.  Just Dem connected corps fighting with Trump.

 

 

I am Jobe's picture

WTH- Dell EMC 59B and this crap. Set up to fail . 

King Tut's picture
King Tut (not verified) Jan 26, 2017 10:30 AM

Shitty Verizon buying shitty Charter- a shitty match made in heaven 

Cthonic's picture

And less competition in the shitty internet access market.  What's the point of legislation like the Sherman or Clayton Antitrust acts if they aren't enforced?

Kayman's picture

The laws are there. But if you are well paid not to enforce them...

As I said before the election, there are more than enough laws, just too many bribes offsetting them.

I am Jobe's picture

All of them are shitty, all these fucking companies will raise prices and no jobs. F em. 

motorollin's picture

I think Marc Faber is missing the fact the Charter (Spectrum) has a large long-haul and metro fiber buildout. That's valuable. If you own the tubes, you own the world.

Tom Servo's picture

they built a wired world, too bad the world is going wireless.  cable industry is shackled to 2 dying technologies, wired monolithic TV channel packages, and landline telephones.

 

Nunya Bidness Gogl's picture

Ha!

Not at the rates Verizon (and others) want to charge. Not to mention their artificial scarcity tiered pricing for different GB of data bullshit.

Was looking at TVs the other day. Bought a 1080p because I don't think we will ever actually see very much 4k content. Because the greedy telcos only want to ass rape your wallet, whilst doing as little as possible (or nothing) to upgrade their network. It's been that way for decades, and I don't see any of that changing until we start getting some competition. I'm not going to hold my breath.

JoeTurner's picture

Telco cartels desperately trying to hold on to their priviledged monopolies while new technology, demographics and ZIRP take their tolls....

Crash Overide's picture

Can't wait for the day where everything is piped in and you don't have to go through a "provider" for access to the internet.

I personally believe the Internet should be free from control and open to all at no cost, should be a common standard.

The amount of money being stolen and wasted in Washington could have paid for fiber across the whole country 10x over.

 

Why are we still paying for internet access, seriously?

MalteseFalcon's picture

"Why are we still paying for internet access, seriously?"

Check the campaign contributions to your Senators and Congressmen.

Nunya Bidness Gogl's picture

.gov already gave the telcos billions in subsidies, tax breaks, etc. to build out "high speed internet" starting in the 1990s. They never did it, and simply kept the money.

Telcos are one of the worst morass of corp + government corruption / fascism going. It's no wonder why we pay more $ for slower internet than almost all the rest of the world.

Son of Captain Nemo's picture

EXCELLENT!

NSA is in full control with ODNI having NO INTERFERENCE whatsoever to do what it wants. Hell maybe Donny should give authorization to Fort Meade with Section 1021 and 1022 of the NDAA to independently "snuff" American citizens both at home or abroad for "fake news"???....

It's like the "Meaning of Life's" THE REALLY BIG PHONE COMPANY now!!!

ConnectingTheDots's picture

If we continue on the current trajectory, eventually the entire planet will be owned by about 6 mega-corporations. If you thought that a "company town" was bad with its price fixing, total control of housing, and the never ending hammer of job control; you will not like a "corporate planet". Corporations are already more powerful than most governments. Unlike a government which have at least some accountability to the people, corporations do not care about people, communities, environment, or morality.

It is time to completely rethink the concept of corporations: whether they are serving the public good as was originally intended when they were first formed, to not allow them to grow beyond a certain size, and to have them renew their charters periodically once they prove they are for the public good, and to revoke the charters if they break the law.

Nunya Bidness Gogl's picture

“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
~Napoléon Bonaparte

Latter part of quote can be applied to corps just as well.

Emergency Ward's picture

“Tell me why Verizon is selling landline and FiOS properties left and right just to buy a cable company..."

Yeah, VZ, inquiring minds want to know.

Nunya Bidness Gogl's picture

Because they know what regulatory changes are coming. Because it's the legislators who are in their pocket who write the laws that Verizon tells them to.

I Write Code's picture

Must be the bad taste in their mouth after AOL and Yahoo.

barysenter's picture

Antitrust these dangerous actors violating the 1st Amendment

Dead Indiana Sky's picture

At this rate, everything consumable will be under the Brawndo umbrella within my lifetime.

angry_dad's picture
angry_dad (not verified) Jan 26, 2017 3:17 PM

will TRUMP allow these 2 fake news factories to get even larger

ThanksIwillHaveAnother's picture

Charter just bought Time Warner Cable.   Now Verizon to buy Charter?   FED fiat money funds all this monopoly building.  Smalls can't compete b/s they don't get Wholesale Wall Street Money.