After Faultline Online Reporter going on about the best deal for Comcast (and Charter) in cellular is for them to combine to acquire Verizon, someone else has finally picked up the tune, though they are banging their drum to a slightly different beat.
Citigroup financial analyst Jason Bazinet has made a suggestion that Comcast should put in a $215 billion offer for Verizon in a research note this week. The logic is clear, why build a close relationship with one cellular operator (Verizon) only to ditch it and start again with another – by buying Sprint or T-Mobile.
Just assume for a moment that Sprint and T-Mobile do end up merging. After that US cable would be faced with the same high price to acquire one of the three remaining cellular operators – with AT&T being out of reach, due to size and the concentration of broadband and pay TV, this would create leaving Verizon, its MVNO partner and a merged Sprint-T-Mobile, by then a similar sized combination, but with a lot of integration issues to work on.
At that point it would ONLY make sense to buy Verizon. But there is one other thing that needs to get into their share prices and that’s the fact that the US cellular market has become saturated, and will soon be saturated with smartphones. As the MNOs demonstrate constrained growth, that would see a dramatic downward drift in their share prices, and that in turn makes Verizon a lot cheaper. Even better if any growth that it is getting is coming from Comcast and Charter MVNOs. So the time to strike is in about 12 to 18 months.
Coverage of the Citigroup “original idea” mostly elicited disbelief, and the reasons given for doing the deal were to do with extending the internet beyond the home; pushing shared fiber deeper into neighborhoods, and the advice was to get the deal done before the President drops the corporate tax rate, which might see Verizon’s share price grow, despite a weak performance.
Bazinet points out that Verizon’s equity has fallen 17% this year and the Verizon CEO Lowell McAdam has been quoted in the press mentioning merger possibilities with Disney, CBS or Comcast. This report is really a reflection of press reports that were abounding a few months back about Verizon buying Charter, a deal that has been kicked firmly into touch with the cellular agreement between Charter and Comcast, which prohibits such a deal for at least a year. To Citigroup this is just the corollary, if Verizon can’t buy the second largest cableco, maybe it can buy the largest. But given their market trajectories, this would leave Comcast management in charge, after that the rest was obvious.