Such a combination fits a typical M&A pattern of two large firms seeking growth through consolidation. On the other hand, this particular rumored merger has a few twists and turns that put it outside the mainstream.
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For starters this plan, unlike Comcast Corp.’s (NASDAQ:CMCSAC) ownership of NBCUniversal and AT&T’s (NYSE:TB) pending acquisition of Time Warner Cable Inc. (NYSE: TWC), does not count on combining content and distribution.
Clearly those companies see the future of growth coming from being able to offer (and control) content moving forward.
The Verizon and Charter union, on the other hand would double down on Verizon’s ace in the hole – distribution. The combination of the two would also bring together Verizon’s more than 114 million wireless customers and Charter’s cable network with 17 million customers plus the company’s broadband connections going out to 21 million homes.
Verizon has said it wasn’t interested in traditional cable or satellite TV services but does care about high-speed internet. Charter would add a giant fiber and cable network that could be used to boost Verizon’s upcoming 5G wireless services.
FCC And DOJ Issues
With growth in the U.S. wireless space slowing down and pricing pressure chipping away at profits, both Verizon and Charter have their work cut out for them. In addition, the cable-TV business is contending with cord-cutters and OTT video services.
Then there’s the FCC and the DOJ, both of which would likely look at a deal involving two companies this large with considerable scrutiny. There are some services that overlap – always a negative in the eyes of regulators. Plus, with Peter Thiel on the lookout for anti-monopoly officials for both agencies, according to Buzzfeed, this hurdle may be one hurdle too many.
During the recent presidential campaign, President Donald Trump vowed to block AT&T Inc.’s purchase of Time Warner Inc. because, in his words, it put too much power in the hands of too few.
Fortunately, Trump hasn’t had much to say on the subject since becoming president. This doesn’t mean, of course, he has changed his mind – just that he has other things on his plate for now.
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Not Likely Say Some
Not everyone thinks the rumor has legs. Negative comments about the deal by Wells Fargo’s Jennifer Fritzsche and by Bloomberg suggest this just isn’t the kind of thing Verizon would do. In the Bloomberg piece it was noted that Verizon has approached the CEO of Liberty Media about buying Charter. Liberty Broadband owns 20% of Charter.
Opining that the logic doesn’t add up, Fritzsche said she understands investors might put pressure on Verizon to take action but in her view, “Verizon is a NOT a reactionary company.”