Telsey's Latest Update On Charter-Time Warner And What It Means For Liberty Broadband

In a report published Friday, Telsey Advisory Group analyst Tom Eagan updated investors with his latest take on the

and

merger and what this means for

.

Eagan stated that although the Charter bid for

was higher than he expected, it is still "nominally" accretive to valuation. Using an 8.5x multiple and assuming $800 million in synergies results in the analyst's estimated value of $204.19 per share. Shares of Charter were maintained Outperform rated with a price target raised to $204 from a previous $199.

According to Eagan, there is "nominal" risk of a regulatory rejection of its merger with Charter given the FCC Chairman's comments that he isn't against cable consolidation. The combined company will serve 19.4 million broadband subscribers which is less than the 34.4 million under a hypothetical Time Warner-Comcast merger, as such an expedited approval process is likely. The analyst noted that the Charter-Time Warner deal spread has narrowed slightly over the past few days and it will ebb and flow over the next six months. However, with a final decision not expected in the immediate-term, the analyst is expecting volatility in price performance due to Charter's stock price movement and the DC approval process. Shares of Time Warner were maintained with a Market Perform rating.

Liberty Broadband Corp holds stakes in both Charter and Time Warner and offers investors an alternative method to "participate" in the industry consolidation. Liberty Broadband has agreed to invest $5 billion in the Charter/Time Warner/BrightHouse merger in exchange for 28.3 million shares of New Charter stock and the conversion of its Time Warner shares into an additional 8.5 million New Charter shares. As such, the company will own 65.6 million shares of New Charter, representing a 19 percent stake. By using Eagan's $204 Charter price target, he sees a 42 percent total upside in shares of Liberty Broadband. The upside is comprised of 25 percent to his Charter target and 16 percent from the narrowing of the net asset value discount. The analyst's Liberty Broadband asset value (post New Charter investment) was calculated to be $73.74 per share. Shares were maintained with an Outperform rating.