Unclear Future for Charter/TWC, Altice/Suddenlink
Upcoming deals such as Luxembourg-based Altice's $9.1 billion proposed buy of 70 percent of Suddenlink or Charter Communications' expected offer to buy Time Warner Cable might seem more palatable to regulators than Comcast/TWC, but that deal's dissolution left the regulatory landscape for transactions unclear, said cable attorneys and analysts Wednesday. After Comcast's withdrawal and with AT&T's proposed purchase of DirecTV still not yet cleared, the multichannel video programming distributor merger and acquisition landscape is “in flux” and “clear as mud,” MoffettNathanson analyst Craig Moffett emailed investors. The Comcast deal showed that the politics surrounding of a transaction can turn what appear to be minor legal issues “into mountains,” said BakerHostetler cable attorney Gary Lutzker.
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Cable attorneys we spoke to weren't aware of any obvious major barriers to Altice/Suddenlink, though Suddenlink's size and Altice's foreign provenance could cast the transaction in a negative light, they said. As for Charter/TWC, the size of the resulting entity could motivate opposition, though it would still be smaller than Comcast, Lutzker said. “That is not a tiny family-owned cable company.”
Suddenlink is the No. 7 U.S. cable company and would be Altice's entry into this country's cable industry, Altice said in a news release. Altice would buy 70 percent of Suddenlink from BC Partners, CPP Investment Board and Suddenlink management, while BC and CPP Investment retain 30 percent of the cable company. Suddenlink has 1.5 million residential subscribers and 90,000 business customers, mainly in Texas, West Virginia, Louisiana, Arkansas and Arizona, said the buyer. The price Altice is paying is “insupportably high,” Moffett said. Part of the reason Suddenlink may have been vulnerable to purchase could be hard content negotiations with Viacom, said Strategy Analytics in a news release. “An intense negotiation with Viacom resulted in Suddenlink dropping Viacom's content and losing some subscribers.”
The Suddenlink deal is expected to close in Q4 “once applicable regulatory approvals have been obtained,” Altice said. The company could be underestimating the pushback against its foreign ownership, attorneys and analysts said. Though cable, unlike broadcasting, doesn't have any rules against foreign ownership, Altice's Luxembourg origins add an extra layer of complication, said Cinnamon Mueller cable attorney Barbara Esbin. “The regulatory risks are not any easier for foreign operators -- and in fact include not only the FCC and [Department of Justice] but also the Committee on Foreign Investments,” Wells Fargo analyst Marci Ryvicker emailed investors. The committee's recommendations on media transactions usually take the form of conditions attached to a deal on top of what is mandated by DOJ and the FCC, Esbin said. Foreign owners can attract filings from opponents disputing that they're of the proper character to hold an FCC license, Esbin said, citing filings against Rupert Murdoch's attempted buy of DirecTV. The commission almost always rejects such filings, she noted. The deal could be politically divisive, which could create problems for Altice at DOJ, the FCC or local franchising authorities, Lutzker said.
The FCC will celebrate Altice's proposal because “it supports a narrative that investment in U.S. broadband is alive and well in the wake of the Open Internet Order,” said Moffett. FCC Chairman Tom Wheeler pointed to the deal in just that capacity in a speech Wednesday (see 1505200033). A possible issue with the deal that may attract negative regulatory attention is broadband prices, Moffett said. Since Suddenlink doesn't compete with fiber, it has the opportunity to increase broadband rates without getting undercut by competition, Moffett said.
The reception that Altice/Suddenlink or a Charter/TWC would receive from regulators could become clearer after a decision on AT&T/DirecTV, Lutzker said. Since Charter/TWC is smaller than Comcast and doesn't threaten to control nationwide broadband or have undue leverage over online video new entrants, it's not likely to draw as much regulatory or political opposition, New Street Research analyst Jonathan Chaplin emailed investors. Charter also has the advantage of having had a front row seat for what happened to Comcast, he said. Charter “was in the room for a number of critical meetings, including the final meeting at the DOJ,” Chaplin said. The FCC's decision on AT&T/ DirecTV will provide a further advantage to Charter, Chaplin said. “The FCC's articulation of what constitutes public interest benefits in that transaction can provide something of a template for how Charter could articulate public interest benefits from consolidation.”
Altice/Suddenlink could be a precursor to it making a move on TWC, some analysts said. Moffett and Ryvicker said such a deal is unlikely to succeed. Along with the additional regulatory risks of being foreign-owned, Altice has said it plans in-market consolidation, and buying TWC would be branching into new markets, Ryvicker said. “It is hard to imagine that Altice could raise enough cash to mount a credible all-or-mostly cash counter-bid to one from Charter, which would suddenly look like a very soundly capitalized alternative,” said Moffett.