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Analysts expect either Comcast or T-Mobile to make a play for Charter Communications. That's because the incoming Trump administration may be lenient toward such mega-transactions.
The stars may be aligning for a corporate takeover of Charter Communications. But who will pull the trigger: Comcast or T-Mobile?
It's a hot debate topic in most financial circles.
"We believe a Comcast/Charter merger could make industrial logical sense given the scale and subsequent massive synergies," wrote the financial analysts at TD Cowen.
Indeed, a combination of Comcast and Charter would marry two of the nation's biggest cable companies, and the resulting matchup wouldn't suffer from very much network overlap. Already the leadership at Comcast and Charter work together on MVNO operations, streaming services and in other areas.
"It is an obvious transaction," said analyst Walter Piecyk with LightShed Partners in a video posted on social media.
John Malone, the renowned investor and chairman of Liberty Media, agrees. When questioned about a Charter-Comcast merger by Variety late last year, he said: "Why not?"
Malone complained, though, that government antitrust regulations have so far stymied extensive consolidation in a maturing industry. Indeed, Comcast tried to buy Time Warner Cable (eventually bought by Charter) in 2014, before that deal was nixed by federal regulators.
But this time around a Trump administration might be more favorable to Comcast's merger ambitions. More on that later.
Malone also pointed to EchoStar's Dish Network and DirecTV, which attempted another failed merger at the end of last year. The two companies are struggling just like Comcast and Charter as consumers shift to streaming video services like Netflix.
A debate over 'Charcast'
Other analysts, however, don't think a Comcast-Charter merger makes sense.
"The economic and political considerations argue against the deal, not for it," wrote the financial analysts at MoffettNathanson.
Telecom economics are mostly local in nature, giving Comcast and Charter few synergies to achieve through a merger, the analysts explained, adding that the combined company would have no additional advantage when it comes to wireless-wireline convergence.
Andrew Lipman, Partner and TMT Practice Leader at Morgan Lewis, shares that view. In speaking with the financial analysts at Evercore, Lipman argued it would be "highly difficult" for a Charter-Comcast merger to get regulatory approval because of fears the combined company would raise prices for customers. He said Comcast's recent move to sell some of its media assets probably won't change that calculation.
But if Comcast doesn't make a move on Charter, Comcast could ultimately suffer under a Charter-T-Mobile combo. "We've even heard the argument that Comcast and Charter have to merge lest T-Mobile gets to Charter first, leaving Comcast out in the cold," wrote the MoffettNathanson analysts.
The Magenta factor
"A potential T-Mobile-Charter merger would be time consuming and complicated but still possible depending on how it is structured and how the wireless/wireline product market is defined," according to the Evercore analysts in their conversation with Lipman.
Lipman said that from a regulatory perspective, the merger of T-Mobile and Charter would be easier to sell than the merger of Comcast and Charter.
The financial analysts at Wolfe Research agreed, noting that a T-Mobile/Charter merger has "industrial logic." They argued that the incoming Trump administration will be more open to big corporate transactions and that T-Mobile's financial situation is improving as it slows its capital expenses.
For T-Mobile, there are some clear reasons to acquire Charter. The mobile operator does not have much wireline infrastructure, so gaining control over Charter's network would give T-Mobile the opportunity to sell converged wireless-wireline services across wide swathes of the country.
This would allow T-Mobile to directly challenge the likes of Comcast, AT&T and Verizon in offering bundled services. T-Mobile has already indicated some interest in convergence.
T-Mobile could also gain access to Charter's customer base, potentially reducing its customer acquisition costs and increasing its market share in both the mobile and broadband sectors. T-Mobile may also be able to generate some cost savings through operational efficiencies and shared infrastructure.
After all, T-Mobile's appetite for corporate acquisitions shows no signs of slowing. Just this week the company agreed to pay $600 million for advertising company Vistar Media. That follows T-Mobile's recent joint ventures for Lumos and Metronet, its $1.3 billion purchase of MVNO Mint Mobile, and its $4.4 billion proposal to purchase most of UScellular.
T-Mobile's M&A interest is driven by its record-setting market capitalization of almost $250 billion. That's double Comcast's $140 billion and five times Charter's $48 billion market cap.
However, T-Mobile officials seemed to downplay their interest in a cable mega-merger during the company's recent analyst day.
Trump 2.0
A primary element driving the debate over Charter is the incoming Trump administration, which is widely expected to look favorably on big corporate transactions.
Indeed, T-Mobile's first big acquisition, the $26 billion purchase of Sprint, was approved during the first Trump administration. (That was back when staying in a Trump hotel seemed scandalous.)
Trump's current pick for US attorney general is Pam Bondi, a former Florida attorney general. Bondi, who is a longtime Trump supporter, has recently worked as a lobbyist for Ballard Partners representing the likes of Amazon, General Motors and Uber – all of which have faced antitrust scrutiny.
But, during her time as Florida's attorney general, Bondi challenged mergers in healthcare (Aetna-Humana and Anthem-Cigna) and airlines (American Airlines-US Airways), potentially indicating a non-passive stance on antitrust enforcement.
Trump selected Bondi hours after his first choice, Matt Gaetz, withdrew from consideration following a federal sex trafficking investigation. Gaetz, for his part, voiced some support for President Biden's pick to lead the Federal Trade Commission (FTC), Lina Khan. Khan has been very active on the M&A battlefield, moving against big corporate combinations like Kroger-Albertsons and Microsoft-Activision Blizzard.
Indeed, according to The Wall Street Journal, Gaetz said that "I would hope whoever is the next FTC chair would continue many of the cases that Chair Khan has brought against predatory businesses."
Thus, it's not entirely clear how a Trump administration might ultimately view a Comcast-Charter matchup, or a T-Mobile-Charter merger.
(Does it matter that Trump this week called Comcast leadership "scum" because of some Seth Meyers jokes? ...Probably not.)
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