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The Mating Dance

26 January 2017 by lberuti

After considering mating with more than ten potential media companies, network and cable operators, and fiber optic service providers, VZ (Verizon Communications Inc) was said to be ready to approach Charter Communications regarding a possible tie up. The deal would create a new telecom and cable giant which would overtake Comcast as the number one internet provider in the US, trying to cash in on consumers binge watching Netflix and Amazon Prime Video. The merger is by no mean à done deal though and it would be a tough sale to VZ's investors. In a scenario where VZ acquires Charter Communications at a 20% premium to yesterday's closing price, with one third cash and two thirds stocks, analysts estimate the deal would dilute 2018 profits by more than a third. It would also hurt VZ's balance sheet as more than $35Bln would need to be funded through debt and asset sales. The prospect of such large issuance led investors to push VZ's 5-year risk premium 8bps wider to 77bps, the highest it has been in almost a year.