As if it needed more cold water tossed onto its head, Altice chief Patrick Drahi’s reported interest in acquiring Charter Communications took on even more skepticism today in an investor note from MoffettNathanson analyst Craig Moffett, who essentially wondered why anyone took the notion seriously in the first place.
“What is most surprising about the flurry of reported suitors—first Verizon, then SoftBank, now Altice—isn’t that they are considering deals, it is instead that the market takes them all seriously. None are credible,” Moffett wrote.
Charter, he noted, has a market capitalization of $120 billion and another $63 billion in debt. A successful bid for the company would have to come in at around $185 billion, analysts say.
CNBC reported earlier this week that Altice is looking to throw its hat into the Charter proposal ring, following earlier rumored dalliances by Japan’s SoftBank and Verizon.
“None of the proposed suitors—Verizon, SoftBank, Altice—have the balance sheet to acquire Charter,” Moffett added.
Greg Maffei, chairman of Liberty Broadband, whose corporate parent holds a 25% stake in Charter, told investors Thursday that Liberty is skeptical of taking on equity in highly leveraged companies as compensation.
“Let’s put a finer point on it,” Moffett added. “The ONLY reason [Liberty Media chief] John Malone would be willing to swap his equity in Charter for equity in Altice would be if he believed, with real conviction, that Altice could simply manage the asset better than Charter’s current management. It is not a knock on Altice to suggest that there is simply no way that Liberty would believe that. Next.”
As for SoftBank’s reported ambitions, Moffett described the debt as insurmountable. “They already sit on $135B of debt,” he wrote. “Add Charter’s $63 billion and you’re within a rounding error of $200 billion. Add any cash at all for Charter’s equity and you’re flirting with a quarter trillion (trillion!) dollars of debt. Were SoftBank to buy Charter, they would become not only the most heavily indebted non-financial company the world has ever seen, they would in fact be more indebted than most countries.”
For his part, Moffett thinks only one telecom merger rumor—perhaps the longest running one—makes sense.
“We’ve said all along that the only serious pairing here is Sprint and T-Mobile,” Moffett said. “We still think so. But even if you give that deal 80/20 odds of being attempted and 50/50 odds of being approved, you get to just 40% odds of it being completed.”