US operator Altice is rumoured to be interested in a takeover of Charter Communications, the No 4 cable company in the US, but analysts say such a move is unlikely.
Even though Altice had a successful IPO in June, Altice USA only has a market cap of $23 billion — and almost as much debt. In comparison, Charter is a giant, and worth more than $180 billion including debt. That makes financing a challenge, although sources told Reuters that it is trying to work a deal with banks to finance the transaction with a combination of cash and equity.
"Given (Charter's) new found scale after its own recent acquisition of the former Time Warner Cable, a full takeout seems somewhat of a tall order for any potential suitor," Tuna Amobi, an analyst at CFRA Research, told the outlet.
Altice USA is the fourth-biggest US cable provider, thanks to its $17.7 billion acquisition of Cablevision last year and buying Suddenlink for $9.1 billion in 2015. The additional scale would allow it to negotiate lower retransmission fees with broadcasters and strike better deals for content and infrastructure. It’s likely that Altice would look to follow its European model of acquiring, slashing costs and focusing on margins.
"Altice management fundamentally believes that US cable... margins should be substantially higher than where they are at currently, which along with a willingness to put high leverage on (Charter) underpins what could be a relatively aggressive bid," Jeff Wlodarczak, an analyst at Pivotal Research, told Reuters.
Charter has faced a range of suitors of late, including Sprint, which is owned by Japan’s SoftBank. Similar to Altice’s dilemma, Sprint’s market value, at $34 billion, is only a third of the $99 billion that Charter commands before debt, so SoftBank CEO Masayoshi Son recently approached Charter with an alternative to brokering an outright acquisition. Son would like to see SoftBank form a new holding company that would have a controlling interest in a combined entity consisting of Sprint and an integration partner, first approaching Charter with the idea.
Charter rejected the offer outright, noting that it had no interest in getting into bed with a wireless company. Adding scale with another cable company however could be of more interest.