Comcast has eyed buying rival cable giant Charter Communications for longer than most people realize – but it hasn’t pulled the trigger, and the operative word is “debt,” On The Money has learned.
Specifically, Comcast CEO Brian Roberts – who unleashed an epic flurry of deal speculation when he revealed last week he planned to spin off NBCUniversal – isn’t about to digest nearly another $100 billion in debt while he’s in the middle of a massive corporate restructuring, sources said.
Those sentiments were directed to me by people with direct knowledge of the matter after we ran a story last week about bankers touting a Comcast-Charter tie-up, the idea being that the former is now effectively a pure-play cable and broadband distributor looking to grow.
“I just want to warn you about pushing the notion of that deal,” is what I was told by someone who knows Comcast’s inner workings. “Just look at all of the Charter debt.”
A Comcast rep declined to comment.
The Wall Street rumor mill is heating up with all sorts of prospective Comcast dealmaking, of course, now that Roberts will have currency to expand a distribution empire that isn’t bogged down by entertainment content that is seen as a drag on earnings.
One talked-about possibility would be for Netflix to swoop in and write a big check to buy NBCU after it lost the Warner Bros. Discovery bidding war to Paramount Skydance.
Another, equally touted scenario is for Comcast to buy out Charter.
Here’s the theory: Cable distribution, for all its issues (cord cutting and wireless competition at the top of the list) still throws off a lot of cash. Comcast needs to expand to compete, and combining with a competitor that operates in different markets like Charter seems like a strategic fit. Shares of Charter popped 10% on the speculation.
That’s before you do the math on Charter’s debt, which Roberts and his bankers have done. It’s enormous – around $100 billion on top of the roughly $90 billion Roberts already has. So you see why he’s more than a little nervous.
Both Comcast and Charter have been investing in infrastructure, which accounts for the leverage. Both have decent cash flow coverage of their debt, Comcast around 2.3 times EBITDA to debt compared to Charter’s which is much higher and closer to 5 times.
Meanwhile, Charter is completing a $34.5 billion deal to acquire rival broadband player Cox Communications.
There’s also antitrust issues; the Trump DOJ has been far more deal friendly than the Bidenistas, though increasingly activist state AGs can sue and win TROs if they can convince a federal judge that such overlap could lead to price hikes.
Yes I know, in an era of competition that we have now, it’s a lame argument. Neither are among the Big 3 of wireless, and as we said cord cutting has hurt their cable businesses, though bruising court fights are expensive and might make both parties think twice.
Roberts himself recently dismissed his recent restructuring is a prelude to dealmaking. “Absolutely not,” he said when asked by an analyst. “This is the right move to put each company in the strongest position to create value, fully monetize its assets, and aggressively pursue its own organic growth strategies.”
That said, I still think the rumor mill of a Comcast-Charter deal is onto something. Roberts is still controlling the company, and Michael Angelakis, known as a dealmaker (the guy that designed the NBCU purchase announced in 2009) will be CEO, so there’s that. Both are at the Allen & Co. Sun Valley media conference this week, I am told, where they will be bombarded with lots of ideas for deals.
As we have pointed out on these pages, Sun Valley is a media dealmaker’s paradise even if it’s the incubator of some of the worst combos to have ever been created. Bankers can sell just about any dog with proverbial fleas (the AT&T-TimeWarner comes to mind), and at least Comcast-Charter has fewer of them.