Charter’s stock pops on report that Verizon’s CEO has broached possible merger

Verizon CEO Lowell McAdam reportedly has approached Charter to discuss a possible merger. (Image: Charter)

Verizon’s top executives are exploring a potential merger with Charter Communications, according to a report this morning in The Wall Street Journal—news that has sent investors scrambling for stock in Charter. Indeed, the MSO’s stock rose more than 6% to $330 per share in trading immediately following the release of the WSJ’s article.

Verizon’s own shares are down slightly though this morning to around $49 per share; the company’s stock lost significant value following the release of Verizon’s relatively uninspiring fourth-quarter results earlier this week. (It's also worth noting that Dish Networks' stock fell this morning, possibly due to investor concerns that Verizon wouldn't acquire Dish's spectrum, as some had expected, due to its interest in Charter.)

According to the WSJ, Verizon CEO Lowell McAdam has approached Charter to discuss a possible merger, and has formed an advisory team to look into the potential transaction. According to the report, it’s unclear whether Charter CEO Tom Rutledge would be open to the deal—Verizon and Charter officials declined to comment on the report.

Interestingly, Reuters reported that Verizon has not specifically proposed an acquisition. And Bloomberg followed that up with a report that Verizon's McAdam approached Liberty Media CEO Greg Maffei about a possible combination with Liberty’s Charter, but that was one of a number of possible combinations that Verizon is considering. Bloomberg also reported that there haven't been any specific talks between Verizon and Charter.

A merger between Verizon and Charter would marry the nation’s largest wireless carrier with the nation’s second-largest cable provider—as the WSJ notes, Verizon counts fully 114 million wireless customers, while Charter commands 17 million cable TV customers and 21 million broadband internet subscribers.

Naturally, any combination of two of the nation’s largest telecommunications companies would face regulatory scrutiny. However, it’s unclear how a Trump administration—including the FCC and Justice Department—might rule on a Verizon-Charter tie-up. Although Trump has spoken out against AT&T’s proposed merger with Time Warner, industry observers now believe that transaction will ultimately be approved.

However, as the WSJ pointed out, Trump’s pick for the Justice Department, Sen. Jeff Sessions, has said he would enforce antitrust laws and avoid injecting politics into the merger-review process.

The WSJ’s report today on initial discussions between Verizon and Charter comes just days after the New York Post reported that Verizon’s McAdam was seriously considering a purchase of either Charter or Comcast. According to the publication, McAdam told friends at the Consumer Electronics Show in Las Vegas recently that he wants a cable company. “They need it for 5G,” a second source told the Post. (Indeed, Verizon last year announced it would acquire XO Communications in a deal that would give it fiber and spectrum ideal for 5G deployments.) “As we densify 4G and think about 5G that explains why the XO acquisition was interesting to us to get those metro rings in 45 of the top 50 markets,” Matt Ellis, CFO and SVP of Verizon, said during the carrier’s fourth-quarter earnings call this week.

And following that Post report, Wall Street analysts argued that Verizon would likely be more successful in merging with Charter than Comcast. "We believe a combination of Verizon and Charter is feasible but difficult on the financials, but Comcast's overall size and NBC ownership make a deal with Verizon a nonstarter as the regulatory review process would likely be quite difficult," JPMorgan analyst Philip Cusick in a note to investors Monday.

Verizon’s reported moves toward Charter come just days after the company released results that point to a continued slowdown in Verizon’s wireless business. The company posted fewer wireless subscriber additions than expected in the fourth quarter, and saw its wireless service revenues shrink 4.9 percent year over year. And the carrier warned that wireless revenue won’t return to growth this year, but in 2018—a year later than initially projected.

Despite reports that Verizon is interested in Charter, some analysts view the transaction with skepticism. Wells Fargo analyst Jennifer Fritzsche wrote today following the publication of the WSJ story that "We also would question why VZ would want to purchase an asset with linear TV and consumer broadband, given it seemed to be distancing itself from this with the sale of its 3 of its properties to FTR last April. If fiber were the main point of such a purchase, there are other fiber pure play companies which exist which do not have this consumer exposure."

Article updated Jan. 26 with additional information.