T-Mobile US (NYSE:TMUS) is once again the subject of M&A speculation following French telecom conglomerate Altice's $17.7 billion deal to buy Cablevision (NYSE: CVC), with financial analysts suggesting T-Mobile could be in play for a cable operator.
"We believe T-Mobile could be a primary acquisition target of cable operators and today are increasing our price target on T-Mobile to $50 from $42 by moving the basis of our valuation target to 2017 estimates, a year we expect T-Mobile to generate $3 billion of free cash flow," BTIG analyst Walter Piecyk said in a blog post.
According to posts on Twitter, Altice Chairman Patrick Drahi said at the Goldman Sachs Communacopia conference that he would need to look into moving into the mobile market, and could see Altice owning a mobile network -- but that such a move would happen over time and "not next week."
"Altice is not the only cable operator whose interest in wireless might be on the rise. John Malone has expressed similar sentiments following Charter's announced acquisition of Time Warner and via their actions in Europe," Piecyk noted. "However, Malone has also echoed [Altice CEO Dexter] Goei's view that the U.S. wireless industry must first experience some incremental pricing pain before acquisitions can occur. The challenge with that view is in the timing, as there are likely more possible buyers of wireless than available sellers and predicting when your competitor decides to make a purchase can be difficult."
Piecyk noted that "the cable industry is consolidating to three major players, but there are only two options for acquisitions in wireless and if you believe the new re-engaged Masa Son, there might only be one."
Last year French Internet and mobile company Iliad abandoned plans to buy 67 percent of T-Mobile in a deal that valued T-Mobile at $36 per share. A T-Mobile spokeswoman declined to comment.
Piecyk noted that while Charter and Altice both think wireless pricing in the United States is too high and needs to fall before they make any deals, the industry might not go in that direction. T-Mobile's average revenue per user is growing and carriers are pushing subscribers into more expensive data buckets.
"Even if the wireless industry struggles, can any of these cable operators afford to wait on the assumption/hope that their fellow cable operators will also wait or agree to join together in a joint wireless effort in the future?" Piecyk said. "It's hard to buy into that theory given the owners. We are also skeptical that the Wi-Fi-first plans of cable operators can disrupt the wireless industry."
MoffettNathanson analyst Craig Moffett said in a blog post that he does think Altice is done in M&A following the Cablevision deal and its $9.1 billion purchase of Suddenlink Communications in May. There are not many more cable assets to scoop up, he said. While a T-Mobile deal could make sense, Altice might not have a great deal of scale in the U.S.
"Inevitably, that will lead investors to conclude that a wireless operator will be next (T-Mobile, anyone?)," he said. "Altice has a self-professed affinity for the quad play, so such a move can't be ruled out. But the logic of attaching a national wireless operator to a cable conglomerate that in aggregate covers just 5% of the country seems, well, awfully thin (a national quad play available only in Brooklyn, the Bronx, Nassau, Suffolk, Rockland, Westchester… and College Station, Texas?)."
T-Mobile CEO John Legere said in July it would be logical for T-Mobile to partner with a cable player like Comcast.
"But it's just logical; if you step back and start from a consumer and then the consumer says, 'Hey, wait a minute. I have Comcast and I have T-Mobile. Why don't these guys do something together to provide a seamless set of capabilities to us?' And then certainly some of the evolution of what's happening in unlicensed and etc. is going to provide something," Legere said on T-Mobile's second-quarter earnings conference call. "So that's the way I think about it. And I think that will be in several years a big question of not if, but when, and I look forward to that as well, I think it provides great options for our customers."
- see this BTIG blog post (reg. req.)
- see this MoffettNathanson blog post (sub. req.)
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