Son said during Softbank's first fiscal-quarter earnings call Monday that Sprint Corp. (S) will launch a merger in the "near future," echoing comments made last week by Sprint CEO Marcelo Claure. While Son has not elaborated on who his partner will be, Charter and T-Mobile USA Inc. (TMUS) are the most likely candidates. Verizon Communications Inc. (VZ) is a dark horse candidate to merge with Charter.
"Charter has the brightest fundamentals AND M&A prospects with interest from both Verizon and SoftBank/Sprint," Macquarie analyst Amy Yong noted, raising her target for Charter from $405 to $430 per share.
Shares of Charter closed trading up 2.29% to $389.75 Tuesday, with Yong's new price target implying about 12% upside in shares of the cable TV and broadband provider.
It's hard to beat the economics of a deal combining Sprint and T-Mobile USA. Merging the wireless carriers would produce an estimated $30 billion in savings and other benefits, Yong noted, but would also entail a risky regulatory review. Washington has been reluctant to approve a merger of national wireless carriers, and Obama regulators specifically pushed back against Son's desire to merge Sprint and T-Mobile.
Son stirred talk of a deal between Charter and Sprint in July, when he reportedly spoke with Charter director and backer John Malone about an investment.
Charter shot down speculation that it is interested in buying the number-four U.S. wireless carrier. Sprint CEO Claure suggested during an early-August call that Sprint was never offered to Charter for outright sale, and suggested that a larger transaction could be in the works.
Merging with Charter would not give Sprint greater scale in the wireless industry. But it would allow Sprint to piggy back on Charter's fiber network to carry traffic after it leaves wireless towers. Plus, Sprint has booked $20 billion in net operating losses that Charter could use to shield itself from tax payments. Charter would also pose less of a regulatory challenge, as compared to a merger with T-Mobile.
Failing a deal with Sprint, recent transactions have underscored the value of Charter's more than 200,000 miles of fiber.
Verizon said in July that it would buy WideOpenWest Inc.'s (WOW) network in Chicago for $225 million plus a $50 million investment to complete construction of the network in the city. The deal values the network at 20 times projected Ebitda, according to UBS. Meanwhile, Crown Castle International Corp.'s (CCI) $7.1 billion purchase of Lightower, announced earlier in July, comes to 13.5 times Ebitda.
Masayoshi Son has been waiting to launch a mega merger in the U.S. ever since Softbank completed its $21.6 billion investment in Sprint in 2013. While Son is keeping the market in the dark about what type of deal Sprint will launch -- a consolidation in wireless, or diversification into cable --it seems that the suspense will not last much longer.
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