Charter potentially eyes merger with Altice USA

• Charter is reportedly eyeing a takeover of Altice USA

• New Street said Charter and Altice’s markets “fit together very well,” if not for Altice’s Suddenlink assets

• Charter’s CEO has hinted the company could acquire another cable ISP “at the right price”
  

Looks like Charter might be eyeing a takeover of fellow cable rival Altice USA.

Sources told Bloomberg Charter is working with financial advisors to determine if it makes sense to buy Altice. But there’s no telling if Charter would actually go through with the plan.

Unsurprisingly, both Altice and Charter declined to comment. But according to New Street Research’s Jonathan Chaplin, a Charter-Altice merger makes sense given their respective footprints.

The markets in New York, Connecticut and Massachusetts “fit together very well,” he said in a note to investors. As do Charter and Altice’s markets in Texas (specifically Dallas, Houston, Austin and San Antonio), Kentucky, Louisiana, North Carolina, Ohio and West Virginia.

Sounds like a match made in heaven, right? Not quite. When factoring in Altice’s Suddenlink markets, Chaplin said the fit between the two operators is “less good.”

You might recall Altice a couple of years ago was exploring a sale of its Suddenlink assets. The company never revealed who exactly it was negotiating with, but rumors suggested a deal could have been valued at as much as $20 billion.

Ultimately, Altice in December 2022 decided not to move forward with a Suddenlink sale. Following Altice’s announcement, New Street analysts commented “they obviously didn’t get an offer at a price they considered adequate.”

Perhaps things have changed since then. Still, Chaplin noted a merger between Charter and Altice would not come cheap.

“The industrial logic of putting Altice together with Charter or Comcast is powerful.  It is slightly more powerful for Charter than it is for Comcast,” he said. “The integration costs would be very high for both companies, and both are very aware of these costs. The leverage makes the deal very difficult, given the magnitude of the integration costs.”

Although Charter isn’t commenting on a possible M&A deal, CEO Chris Winfrey said at an investor event last November, “I don’t think there's any cable company out there that at the right price, we wouldn't be willing to acquire.”

Price isn’t the only consideration.

“There are certain assets, I'm not picking on one, but you take a look and say, do I have to write down the revenue? Is the pricing too high? Do I have to reinvest in OpEx to get service? Do I have to recapitalize the network? Do I have to recapitalize simple things like trucks and tools, test equipment and outfit the labor force and all that, you have to factor that in,” Winfrey explained.

Cable cos seek to revitalize broadband subs

It’s no secret cable operators have been shedding legacy broadband subscribers. This past quarter, Altice, Comcast and Charter all reported broadband net losses.

In Charter’s case (posting a loss of 61,000 broadband customers), the company referred to competition from fixed wireless access in its existing footprint as well as “wireline overbuild activity” (i.e., fiber competitors).

It may take a while for cable to recover from FWA pressure. New Street analysts have said “we may not see a slowing in aggregate FWA adds, that is sufficient to drive a recovery in Cable adds” until late 2024 or even 2025.

Perhaps the synergies that come with a cable merger could provide a way to offset these subscriber losses. We can only wait and see.