According to a Wolfe Research analyst, Charter Communications Inc. has always been seen as the natural buyer of Altice USA Inc. But could a deal actually materialize?
Market Response
Investors in Altice appear hopeful, with the stock experiencing a 60% two-day gain following a Bloomberg News report suggesting that Charter is exploring a potential combination. In contrast, Charter’s stock has dropped around 3% during the same period.
Market Landscape
Charter holds the top position in the cable market in New York City, as highlighted by Wolfe Research. On the other hand, Altice caters to approximately 6 million households in the New York region and the broader northeast.
Industry Challenges
Analyst Insights
Bernstein analyst Laurent Yoon notes that Charter’s stock has experienced a decline of about 20% post their latest earnings report, which could make the timing of a deal unfavorable. However, he suggests that operational synergies and potential cash flow benefits from broadband growth might be driving Charter’s interest in exploring this option.
Potential Synergies
While capital-expenditure synergies may not be immediately apparent, Yoon speculates that operational synergies could be realized, especially in key markets where both CHTR and ATUS have contiguous operations with minimal overlap.
With industry dynamics evolving rapidly, this potential strategic move by Charter Communications Inc. underscores the need for players to adapt and innovate in the competitive cable landscape.
Potential Refinancing for Altice
Charter could refinance Altice’s $25 billion debt, potentially lowering rates and benefiting both parties. However, this transaction may lead to an increase in Charter’s leverage ratio to 4.7 times, surpassing its target of 4.5 times.
Analyst Concerns
A recent report has raised several concerns and questions regarding this possible deal. Analysts are curious about Charter’s intentions, Altice’s willingness to sell, and the evaluation of a reasonable price for the transaction.
Challenges Ahead
Analysts have highlighted a significant set of challenges that Charter must navigate in the short term. Taking on an additional $25 billion in debt could have adverse effects, especially when considering risks to earnings before interest, taxes, depreciation, and amortization (EBITDA) and cash flow in the near future.
The Altice Factor
Altice’s situation adds an extra layer of complexity, as billionaire Patrick Drahi has control over the company and may not be rushed into a quick sale. With $25 billion in debt and declining EBITDA of $3.5 billion, time is of the essence. Nearly $12 billion in debt maturities by 2028 could ultimately erode Drahi’s equity.