With Altice USA revamping its management with a slew of Comcast veterans, investors are wondering if the latter might be eyeing an acquisition of the former. While neither company has publicly indicated they’re interested in such a deal, New Street Research thinks a tie up would have a decent chance of approval, depending on the political administration. Recon Analytics' Roger Entner, however, said he isn't so sure.
NSR's Blair Levin indicated in a note to investors this week what if Comcast were to buy Altice, it would be considered a geographic expansion transaction, in which a provider in one area purchases a provider of similar services in a different area. That type of deal tends to be easily approved, he said.
“Such deals do not diminish competition in any relevant product and geographic market, which is the primary test for a merger review,” he wrote.
Levin added a geographic expansion deal is less common than other M&A transactions, such as a horizontal deal between competitors or if an acquiring company is buying an enterprise in an adjacent market, such as a supplier or distributor.
Nearly a decade has passed since Comcast’s attempt to acquire Time-Warner Cable (TWC) for $45.2 billion. At the time, the U.S. Department of Justice was concerned that Comcast would gain control of over 60% of high-speed broadband lines in the U.S. Comcast ended up withdrawing its proposal in 2015, and TWC was acquired by Charter the following year.
But because Altice has a much smaller footprint than TWC did, Levin said the combined subscriber base of Comcast and Altice would be “significantly less” than the 60% threshold of concern. Moreover, fiber deployment has ramped up since Comcast went after TWC, so consumers have more choices for high-speed broadband and content providers “face less of a risk of a bottleneck,” he argued
Politics at the Federal Communications Commiss (FCC) could also play a role in approval of a Comcast-Altice deal. Levin said a Democrat-controlled FCC would likely seek conditions to ensure the transaction serves the public interest, such as a discounted service offer for low-income households or a commitment to additional footprint expansion.
Recon Analytics principal Roger Entner, on the other hand, thinks it’s unlikely a Democratic administration would approve Comcast’s acquisition of Altice at all. He told Fierce that typically, a Democrat-led FCC lets industries consolidate down to four players, whereas Republican administrations tend to allow consolidation down to three companies.
The FCC is currently deadlocked politcally, with a 2-2 split between Democrats and Republicans. Gigi Sohn could become the third Democrat on the panel, but her confirmation has been stalled for more than two years.
“You still have the problems of Comcast having a huge content arm,” he said, given the company’s ownership of NBCUniversal. “And then buying another cable guy – I don’t know why.”
A merger between Comcast and Altice would also reach levels “that are way too high” for the Herfindahl-Hirschman Index, a way of measuring the extent of competition in a market. Entner pointed out Comcast currently has around a 37% market share in broadband, Charter has 34% and Cox with roughly a 10% share.
Altogether, the sum of those market shares squared is “in the two-thousand range,” meaning the broadband market is already moderately concentrated. Comcast tried to go after TWC “when they were smaller,” noted Entner, and that effort still failed.
He further argued Comcast doesn’t have much reason to pursue an Altice acquisition, especially since Altice is doubling down on fiber and moving away from being a cable provider.
“I understand why Altice would want to sell. I don’t understand why Comcast would want to buy a construction site,” Entner commented. Such a merger would take “at least three years to go through,” making it more difficult for the companies to consolidate their businesses.
“Altice is struggling so much,” he concluded. “Why would you want to buy a falling knight?”