(Reuters) – Netherlands-based telecom giant Altice NV (ATCA.AS) and its U.S. cable unit are working on an offer to buy Charter Communications Inc (CHTR.O), but have yet to submit a proposal, sources told Reuters on Wednesday.
The move highlights an expected wave of consolidation in the industry as cable companies enter the wireless business and also look for additional ways to cut costs and grow as more U.S. consumers are cutting their cords.
Shares of Charter Communications rose 2.7 percent to $400.17 on the news, first reported by CNBC. Altice USA Inc (ATUS.N) shares were down 9 cents at $30.96.
Altice USA’s initial public offering in June was viewed as a means for Altice’s founder, Franco-Israeli billionaire Patrick Drahi, to expand his U.S. cable empire by giving the company public stock it can use as currency for new acquisitions. In May, Drahi told reporters that he considered cable expansion a priority, followed by mobile and content.
Financing an acquisition of Charter or a merger of the company with Altice USA would be a major challenge for Drahi, whose net worth is pegged by Forbes at $14 billion. Even without a takeover premium, Charter is worth more than $180 billion including debt, while Altice NV and Altice USA have almost as much debt as their combined market capitalizations, of 32 billions euros and $23 billion, respectively.
“Given (Charter’s) newfound scale after its own recent acquisition of the former Time Warner Cable, a full takeout seems somewhat of a tall order for any potential suitor,” said Tuna Amobi, an analyst at CFRA Research.
Altice is working with banks to finance the deal through cash and equity, a source said.
Buying another cable company would give Altice USA, currently the fourth-biggest U.S. cable provider, the opportunity to build more scale and cut costs in the United States. Altice completed its $17.7 billion acquisition of Cablevision last June, after buying Suddenlink for $9.1 billion in 2015.
Altice NV and Charter declined to comment, while Altice USA was not immediately available for comment.
Analysts and investors have said that tie-ups between cable companies and wireless carriers increasingly make sense as the distinction between broadband and wireless connectivity blurs, and consumers demand seamless connections for their devices.
Altice could have some competition in going after Charter. Reuters reported last month that Japan’s SoftBank Group Corp (9984.T) was also considering making a bid for Charter by the end of August, so that it could combine the cable company with wireless carrier Sprint Corp (S.N).
SoftBank owns a majority stake in Sprint.
Additional reporting by Pamela Barbaglia in London, Laharee Chatterjee in Bengaluru, Mathieu Rosemain in Paris; Editing by Anil D’Silva, Bernard Orr