Merger good for Verizon, not so much Charter, analyst says

Verizon store front (Monica Alleven)

While merging with Charter would, to at least some degree, take care of Verizon’s cable competition and capacity problems, it wouldn’t benefit the cable company nearly as much.

So says New Street Research analyst Jonathan Chaplin, who explored the pros and cons of the much-speculated-upon merger this morning in a note to investors. 

“Verizon has much less capacity than their main wireless competitors, and owning Charter would help them close the gap in 36% of the country,” Chaplin said. Cable companies will enter the wireless market this year, and by acquiring Charter, Verizon eliminates a potential competitor in the same 36% of the country.”

Sponsored by Dell Technologies

Whitepaper: How to Elevate Your Content Delivery Workflows With Dell EMC PowerScale

Learn how Dell EMC PowerScale helps meet surging viewer demand while reducing costs with a single centralized platform for the ingest, processing, and delivery of the content your viewers love.

RELATED: ‘We doubt Verizon-Charter can or will happen,’ analyst says

Chaplin, however, also said he’s “bullish on Charter.” And while the end of Verizon-merger speculation may cool the MSO’s recently heated stock valuation in the short term, “we see considerable upside … from the unrecognized growth in broadband and ultimately wireless,” he said. “And while M&A doesn't drive our thesis, we think there are other deals for Charter that would be far more compelling than selling to Verizon.”

Complicating matters further, Chaplin added, “Verizon would need to pay much of the transaction price in stock; Charter will be concerned about the impact on the value of the stock they receive due to the potential value destruction in the parts of the country they don’t cover.”

Last month, The Wall Street Journal reported that Verizon’s top executives are exploring a potential merger—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.

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.

Suggested Articles

Alan Wolk, co-founder and lead analyst at TV[R]EV, carries out a postmortem on Quibi.

AT&T is still suffering massive pay TV subscriber losses and HBO Max is still working through distribution woes.

Using its OTT Video Market Tracker tool, Parks Associates has found that the number of OTT services in the United States has reached nearly 300.