Fueling rumors that Charter Communications will make yet another major cable purchase in the coming months, Macquarie Capital analyst Amy Yong described the MSO as being “in the driver's seat” in regard to further M&A.
Citing managements “aggressive approach to leverage” and its “proven track record,” Yong singled out the No. 2 U.S. cable company as the most likely catalyst for the industry’s next major merger deal.
On Wednesday, the New York Post reported that Charter is interested in reapproaching the No. 3 operator, privately held Cox Communications. But Cox continues to steadfastly deny that it’s remotely interested in being purchased.
For her part, Yong seemed undeterred in her note to investors today, indicating that a “Charter-Cox combo would result in 28.5 million broadband subs, 3.4 million more than Comcast.”
She added that “the risk to Charter, though, is now a competing offer from Altice.”
Notable: A FierceCable reader noted that Cox is in the process of converting its video base to a licensed version of Comcast's X1 platform—an incongruent mix with Charter's Spectrum Guide technology.
Yong also mentioned the possibility of overbuilding through mid-sized operator WOW!. Fresh off a $300.5 million IPO that resolved its debt situation, Yong said it is another MSO that could “drive the next round of consolidation.”
“Establishing a near-nationwide footprint resolves the structural disadvantage of cable (regional vs nationwide),” Yong added. “Scale also settles issues around programming/marketing/capex efficiencies and speeds up innovation on OTT and 5G/wireless. This could lead to improved margins, higher EBITDA/FCF conversion, and better long-term growth prospects.”
The analyst also cited the need for wireless synergies among cable operators—a need that was only partly resolved by the joint operational agreement signed by Comcast and Charter recently.
“After Comcast and Charter’s one-year wireless partnership comes to an end in mid-18, we believe a cable-wireless combo is next,” she said. “Just in time, as a T-Mobile-Sprint merger could unfold in ’17-18. M&A permutations in ’18+ could include Comcast/Charter/Altice for Verizon/T-Mobile/Sprint.”