Comcast, T-Mobile may also take a look at Altice USA – analyst

If Charter Communications is exploring a play for Altice USA, Comcast and T-Mobile might also take a look, New Street Research suggests in an analysis of this week's M&A chatter.

"[I]t would be irresponsible for Comcast not to dispatch the bankers" amid Monday's report that Charter could put together a takeover bid for Altice USA," New Street Research analyst Jonathan Chaplin wrote in a research note issued Monday. "We would put the probability that Comcast has discussions with Altice at very high. We would put the prospect of a competing bid, if any of this turns out to be true, much lower."

Chaplin also writes that T-Mobile might also have a look at Altice USA, but places even lower odds that T-Mobile could place a successful counteroffer. T-Mobile is Altice USA's MVNO partner.

Earlier, Bloomberg reported that Charter is exploring a takeover bid for New York-based Altice USA; Charter has already tapped financing advisors to explore the potential merits of such a deal, the story said.

Charter has not formally approached Altice USA about a possible deal, CNBC reported, citing a person familiar with the matter.

A Charter play for Altice USA would consolidate the US cable sector further and enable Charter to expand its presence in the key New York market.

Contiguous footprints

The network footprints of Charter and Altice USA "are more contiguous than we realized … The markets in New York, Connecticut, and Massachusetts fit together very well," Chaplin explained, illustrating that point with an FCC map of the operators' respective footprints. There are also fits in several other markets in several other states in Altice USA's Suddenlink footprint, including Texas, West Virginia, Ohio, Kentucky, Louisiana and North Carolina, he added.

The Comcast and Altice USA footprints also have some linkages in parts of New Jersey, New York, Connecticut and Massachusetts, Chaplin found in this map.

"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," Chaplin explained. But he warned that the integration costs would be "very high for both companies."

Comcast might also be hesitant to enter the mix, given that it scuttled its proposed bid on Time Warner Cable in 2015 once it was clear that the deal would not pass regulatory hurdles at the FCC and the US Department of Justice. Charter later swooped in to acquire TWC and Bright House Networks.

It's unclear how regulators would react to a play for Altice USA.

Charter execs have likened the company's rural broadband buildout to cable system M&A. But analysts also unearthed some recent commentary from Charter President and CEO Chris Winfrey suggesting Charter would be interested in cable M&A if the price were right.

"I don't think there's any cable company out there that, at the right price, we wouldn't be willing to acquire. That being said, it has to be at the right price," Winfrey said in November 2023 at a Liberty investor meeting (Liberty Broadband owns 26% of Charter) when a question was asked (at the 4:12:40 mark) if there was a scenario or conditions in which Charter would buy Altice USA. "I think we can turn around any cable system in the US, but in order to make a return on it, it has to be at the right price."

Wolfe Research analyst Peter Supino wondered in a research note if Charter's "bear hug" of Altice USA began at that point.

Meanwhile, Chaplin seems to agree that, given Altice USA's $25.1 billion of debt, Charter would only make a serious move if the price was attractive enough, but he reckons that the bar for that is high.

A deal for Altice USA could be accretive to Charter at the right price, "but it would never be transformative," Chaplin wrote, suggesting that synergies would need to be about $284 million annually for such a deal to be "neutral" for Charter shareholders.

Hitting that mark "is not a lay-up, but it is plausible," he added.