You may have noticed that not much has been said about potential telecom-based M&A deals lately. That’s because the FCC had a ban on merger talks during the so-called quiet period while the agency’s spectrum auction took place. The auction is over and the ban has been lifted. Now what?
Wall Street anticipates a potential firestorm of telecom deals. Some will come as no surprise – others will.
A Merger Of Equals
A merger of Verizon Communications Inc. (NYSE:VZD) and Comcast Corp. (NASDAQ:CMCSAC) would effectively be a merger of equals. That’s because such a union would combine the nation’s biggest provider of landline broadband services with biggest wireless phone company.
To some observers this scenario is more likely than a merger between Verizon and DISH Network Corp. (NASDAQ:DISHC), mostly due to Verizon’s slow growth and debt load. On April 20 Verizon reported earnings and revenue that missed analysts’ estimates.
From a market cap perspective, Comcast has a valuation of $181 billion and Verizon’s is $193 billion. According to Craig Moffett, analyst at MoffettNathanson, "Is it likely that Comcast, to whom Verizon is more and more frequently being linked in the speculative parlor game of who will buy whom, would want to trade its own equity for Verizon's."
A Lessor Union
For reasons mentioned above, a merger between Verizon and DISH would be less likely to occur. DISH has incentive given the fact the company faces an FCC deadline to use the spectrum it just bought by 2021. Building a wireless network would be easier for DISH if it had a partner (Verizon) with which to share the cost of development.
Despite the incentive on the part of DISH the obvious likely scenario would involve DISH being acquired by Verizon. The advantage to Verizon would be the acquisition of DISH, all that spectrum and DISH’s SlingTV internet TV business.
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Discussion among would-be acquirers and acquirees is one thing. Permission from the Federal Communications Commission (FCC) is another. That is the true wildcard in this whole scenario.
New FCC Chairman, Ajit Pai, hasn’t tipped his hand by needing to respond to a major telecom deal yet. What is known is that Pai is generally skeptical of aggressive merger conditions. Further, President Trump’s pick for head of the Justice Department’s antitrust division has not yet been confirmed.
Some hint is given in Chairman Pai’s pro-competition stance on net neutrality. Accused of watering down Obama-era rules, Pai’s response was that he was “not acting from ideological zeal” but just trying to promote more competition.