CHTR and TWC: The Deal Is (Almost) Finally Done

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Last year, Charter Communications, Inc. (NASDAQ:CHTR) was very interested in buying Time Warner Cable Inc (NYSE:TWC). There was even talk that cable industry leader Comcast Corporation (NASDAQ:CMCSA) was looking to work with CHTR to buy TWC and then split into palatable parts for federal regulators.

charter communications chtr cvcBut CMCSA went for TWC on its own; Comcast outbid Charter’s initial offer for Time Warner Cable, and the regulators iced the prospect for the deal weeks ago.

So, it’s no surprise that CHTR, led by Liberty Media Corp (NASDAQ:LMCA) honcho John Malone (LMCA owns 26% of CHTR) rolled back in to snap up TWC and build the second largest cable media player in the U.S. What is surprising is Charter’s new offer is about $10 billion more than its initial bid only a year or so ago.

Another potential surprise: regulators.

Merging the top two players in the industry didn’t sit well with the Federal Communications Commission (FCC). So, there’s a good chance that merging the second and third top players will be just as difficult. If the CHTR-TWC deal goes through, it would be the sixth largest merger in history.

John Malone is a cable industry pioneer and has envisioned consolidating the numerous players for quite some time. He seems to be making his move now.

What didn’t get as much press as the blockbuster deal for TWC, was CHTR’s nearly simultaneous $10 billion acquisition of Bright House Networks, LLC, the sixth cable provider in the country and second in Florida.

Now, some might think that Malone figured even if he is blocked from the deal, he will get Bright House with little fuss from the FCC, as it looks into the implications of the TWC deal.

It’s going to be interesting to see how the regulators can reject the two top companies in the sector from merging but give two companies the green light that will certainly put some significant distance between second place and the rest of the field, particularly when CHTR also acquired the sixth-place player.

Just to add spice to the whole scenario, there’s European telecom player Altice SA that actually came to the U.S. looking for a way to play in the U.S. market and passed on the TWC deal the first time around.

Altice recently purchased Suddenlink for $9.1 billion but has eyes on bigger prizes. Plus, CEO Patrick Drahi’s former mentor-turned-current-competitor is none other than John Malone. If the CHTR-TWC deal can’t get past the FCC, or the conditions are too onerous, Altice may be there to finally get a TWC deal done — with or without Malone.

One thing that my Portfolio Grader underscores here is that Charter and Time Warner are both rated Cs. There are a fair amount of reasons for this, and this fevered deal-making one of them.

Cable companies are looking for growth any way they can get it, and now they’re looking to consolidate. Their margins are getting attacked by streaming technologies, and their content strongholds are also being threatened.

Bottom line: there is a lot of transition right now, and it’s hard to see clearly how it is all going to shake out. Even if these giant companies merge, it doesn’t necessarily mean long-term success, given the dynamics of online content and increasing bandwidth.

There are much better sectors that have clearer paths to growth and profits. There’s no reason to invest in the risks that are inherent in the cable media space in general and in CHTR or TWC in particular.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/05/time-warner-charter-chtr-twc-fcc/.

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