Charter-Time Warner Merger Invites These Future Deals (CHTR, TWC)

The Charter-Time Warner merger is part of an industry consolidation that is far from over.

After several weeks of intrigue, Charter Communications Inc. (Nasdaq: CHTR) won the race for the hand of Time Warner Cable Inc. (NYSE: TWC).

Charter beat out several other suitors, including hungry French rival Altice SA (AMS: ATC). Despite a just-announced $9.1 billion deal to buy Suddenlink Communications, Altice was said to be lining up financing for a bid to acquire Time Warner Cable.

The intense interest from Altice likely inspired a more rapid consummation of the $55 billion Charter-Time Warner merger. Including debt, the deal totals $78.7 billion. Charter is also going through with a $10.4 billion acquisition of privately held Bright House Networks.

The combination of the No. 2 and No. 3 cable companies in the United States will create an industry giant with 23 million subscribers. Comcast Corp. (Nasdaq: CMCSA), with 27 million subscribers, will remain No.1.

The Charter-Time Warner merger comes just one month after the collapse of Comcast's $45.2 billion bid for TWC. That deal fell through under pressure from Washington regulators, particularly the Federal Communications Commission (FCC).

Why the Charter-Time Warner Merger Will Be Approved

The Charter-Time Warner merger figures to have an easier path. The Wall Street Journal reported last week that FCC chairman Tom Wheeler called the CEOs of both companies to assure them that his agency was not opposed to mergers in the industry, but would judge each on its merits.

The FCC is likely to look more favorably on the Charter-Time Warner merger.Charter-Time Warner merger

"It does not look to be nearly as big an antitrust concern as the Comcast deal was," Gene Kimmelman, the chief executive of Public Knowledge, a consumer advocacy group, told The New York Times. "In this instance, you're combining the No. 2 company with a smaller player that can be a bit of a counterweight to Comcast."

The cash-and-stock deal values TWC stock at $195 a share, a 14% gain from Friday's closing price of $171.18. Investors hedged a bit today, pushing TWC stock up 7.3% today (Tuesday) to $183.60.

CHTR stock was up 2.5% to $179.78, showing just how much Wall Street likes the deal. The overall market was negative, with most major stock indexes down about 1%.

The Charter-Time Warner merger comes in the wake of two decades of consolidation and a spike in M&A activity in the cable industry over the past year.

And a lot of companies in the industry are still looking for dance partners - take a look at these next potential dealmakers...

The Cable Merger Derby Has a Long Way to Go

Investors looking at cable industry stocks can profit from the merger mania by scooping up likely acquisition targets. Note that TWC stock is up 30% over the past 12 months and 21% year to date.

Another major cable industry deal in the works is AT&T Inc.'s (NYSE: T) $48 billion acquisition of DirecTV (Nasdaq: DTV). Since talk of that deal leaked out last year, DTV stock is up 20%.

The Charter-Time Warner merger leaves several disappointed suitors - companies likely to seek out a fresh target in short order. Three companies known to have some interest in TWC were Altice, Deutsche Telekom AG (OTCMKTS ADR: DTEGY), and Japan's Softbank Corp. (OTCMKTS: SFTBF).

But investors will want to focus most of their attention on the potential targets. Unfortunately, most of the available cable companies, including Cox Communications Inc., are privately held.

That leaves three main targets for investors: Cablevision Systems Corp. (NYSE: CVC), DISH Network Corp. (Nasdaq: DISH), and T-Mobile US Inc. (NYSE: TMUS).

Cablevision Now the Most Eligible Merger Partner

The flurry of M&A activity has drawn Wall Street's attention to Cablevision in particular. CVC stock is up 40% just in the past month. With a $7 billion market cap, it's easy to envision some aggressive bids for Cablevision, particularly from the likes of Altice.

Altice made it clear that its acquisition of Suddenlink was just a beachhead in the United States. A deal for Cablevision is almost a necessity for Altice to build the U.S. cable empire it desires.

Softbank, which owns Sprint, wants a U.S. broadband company to pair with its mobile offerings. Deutsche Telekom, which owns T-Mobile US, might be interested in Cablevision for the same reason.

As for DISH, it has something many companies in the industry covet: tons of wireless spectrum. So far, DISH hasn't tried to use it to build a wireless network, but it faces a deadline to use some of spectrum by 2017 or forfeit it back to the FCC.

That could make DISH attractive to Altice as a quick way to expand into wireless. But it's just as possible that DISH will be the company doing the buying.

DISH has considered buying T-Mobile US, which would entail buying out Deutsche Telekom's 66% stake in TMUS. The CEOs of all three companies have suggested such a deal is possible.

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"We look at their spectrum portfolio, and video, as a fascinating idea to consider," T-Mobile CEO John Legere said during an earnings conference call in February. "I think DISH offers a great opportunity for the country and possibly T-Mobile."

Follow me on Twitter @DavidGZeiler.

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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