Verizon's 'Logical' Target Charter, Despite CEO's Invitation to Others, Analysts Say
Verizon's "most logical" acquisition target is Charter Communications despite the telco's comments citing others as possible strategic partners, said Bank of America analysts. In a CNBC interview, Verizon (VZ) CEO Lowell McAdam invited Comcast, Disney and CBS to "knock on…
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the door" or "call" for talks, the analysts said in a note this week to investors. "While naming names for potential strategic deals is striking in general, the list itself is particularly surprising in our view because of its inclusion of major content players," the analysts wrote, noting McAdam omitted to name companies speculated to be talking with Verizon, including Charter, Dish and Zayo. "As a result, we believe these comments might be viewed as public negotiating with preferred major partners by opening the door to alternatives." They cited McAdam's previous flat denial that Verizon would buy CBS, and his comment Tuesday that "it doesn't make sense to go off strategy" even in a more accommodating regulatory environment. "There are cogent strategic arguments" for Verizon to acquire Charter, they wrote, including: (1) high-speed network footprint expansion that speeds market moves and reduces costs for deploying 5G mobile, (2) content "synergies," (3) diversification into a "faster growth business" and (4) disruption of any cable combination plans to pursue a facilities-based mobile play. "Key potential challenges include sheer cost of a deal, including EPS [earnings per share] dilution and a leverage bump, and the need to divest a large base of overlapping cable/VZ assets including NYC," they said.