First, Comcast (CMCSA), the world’s largest cable company, agreed to buy smaller rival Time Warner Cable (TWC) for $45.2 billion. Then AT&T (T), America’s No. 2 wireless company, stepped up to the plate and is reportedly interested in buying the top satellite TV provider DirecTV (DTV) for about $50 billion.
No, with all these multibillion-dollar deals in the works, and the march of cord-cutters threatening the traditional TV industry, the question isn’t whether there is going to be another M&A move … but when.
Let’s take a closer look at what other deals could eventually be on the table:
Verizon (VZ) and Dish Network (DISH)
Verizon (VZ) is the No. 1 wireless company with 35.1 million retail post-paid customers (which are the most coveted) at the end of the last quarter. The company’s FioS Video business has about 5.3 million customers, while its Internet service has about 9 million broadband connections. That’s respectable, but it greatly lags CMCSA, which has about 26 million customers (23 million video, 19.8 million broadband and 10.2 million voice).
If Verizon wanted to make as big of a splash as rival AT&T, the most logical acquisition target for it would seem to be No. 2 satellite provider Dish Network (DISH), which had more than 14 million TV customers as of the end of the first quarter, along with 489,000 broadband customers.
Dish Network previously had been linked as a merger partner with DirecTV in some press reports even though regulators quashed the deal when it was tried earlier this decade. DISH stock has underperformed DTV year-to-date, gaining 5% vs. DirecTV’s 20%-plus thanks to disappointing earnings, among other reasons.
Last year, DISH offered to acquire Sprint (S), but was outbid by Japan’s SoftBank (SFTBF). Dish Network’s billionaire chairman, Charlie Ergen, might be willing to take another stab at closing this deal.
Regardless of whether the AT&T-DirecTV merger goes through, expect someone — maybe even DTV — to make a run at Dish.
Sprint (S), T-Mobile (TMUS) and…
Meanwhile, Sprint has done little to hide its interest in buying T-Mobile (TMUS), which under CEO John Legere has upended the wireless industry through his innovative marketing, such as agreeing to pay customers’ early termination fees for those that switch their service. These talks might have hit a snag — TMUS parent Deutsche Telekom (DTEGY) reportedly is demanding a break-up fee of at least $1 billion — but hey … what does that have to do with video?
Well, Softbank already is in the digital television business in Japan, and Masayoshi Son — the billionaire who controls the company — wants to make a big splash in the U.S. as quickly as possible. Softbank may net about $58 billion from its fortuitous investment in Alibaba, which has recently announced plans for its much-hyped IPO, so theoretically Son could afford to make a wireless and video acquisition.
Charter Communications (CHTR) and Cablevision (CVC)
The other wild card in this equation is billionaire John Malone, whose holdings include Charter Communications (CHTR).
Malone has been arguing for years about the need for industry consolidation. He tried to merge CHTR — which has about 11 million video, Internet and voice customers — with Time Warner Cable (TWC), only to be outbid by Comcast. Charter has agreed to acquire the customers that CMCSA and TWC have agreed to dispose of in order to get regulatory approval for their deal.
Malone, though, is always willing to open his checkbook if he can makes deals and avoid the long arm of the taxman.
But outside of picking up customers, Cablevision (CVC) is another potential target for Charter … even though the Dolan family that controls the company is unpredictable. CVC has about 3 million customers, and like CHTR, it’s too small to remain independent over the long run. Cableivision recently reported better-than-expected revenues, a nearly 25% improvement in operating cash flow and a 20% drop in capital expenditures in its latest quarterly announcement.
Like Dish Network … if Malone doesn’t buy CVC, someone else will.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.