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Morgan Stanley and UBS Face-Off on Time Warner Deal

Morgan Stanley and UBS Face-Off on Time Warner Deal

In separate reports, Morgan Stanley analyst Benjamin Swinburne and UBS analyst John Hodulik examine possible Charter Communications (NASDAQ: CHTR) and Comcast (NASDAQ: CMCSA) deals with Time Warner Cable (NYSE: TWC).

Morgan Stanley reports that Comcast's interest in Time Warner "may be a stronger suitor." Swinburne noted that Charter has meaningful tax assets and "smaller transactions would have less of an impact on driving long-term FCF." Despite these benefits, the analyst commented that Comcast's partnership has three "notable attractive elements." Swinburne wrote, "(1) Credit for synergies – Charter's turnaround in the last year has been notable, but it has just now reached the level of top line growth Comcast has been delivering for years. (2) PF leverage - Comcast has the capacity to offer a largely cash deal without pushing leverage above TWC's 3.25x comfort range, compared to TWC/CHTR where leverage likely lands 4-5x. 3) For Comcast, its current stated path to de-lever to 1.5-2x gross leverage is a drag on equity returns, and more leverage in an accretive (10-15% on FCF/share) deal for TWC would likely lift shares."

On the other side of the rink, UBS' John Hodulik commented that a Charter deal with Time Warner is most likely and that the reports on Comcast may be in an effort to get a higher price. Although the analyst noted that a deal with Comcast could have higher synergies, he points out that there is greater regulatory risk related with their larger subscriber base. Hodulik wrote, "In our 7/9/13 note, "Consolidation to Drive Stocks Higher," we estimated Charter could pay ~$150 per share for TWC. Given the $20 move in Charter shares, we now expect the company could pay ~$160, roughly 8.5x our 2015 EBITDA estimate. We believe a deal would bring $1B in annualized operating synergies as a base case and continue to assume the combined company could carry 5x leverage. With these assumptions, we estimate a deal would be slightly accretive to FCF per share in 2015E."

There is the possibility of a joint bid for Time Warner Cable. UBS analyst Hodulik noted that a joint bid would be "significantly more complicated and it is unclear why Charter would be interested in that scenario."

Latest Ratings for CHTR

Feb 2020RBC CapitalMaintainsSector Perform
Feb 2020SunTrust Robinson HumphreyMaintainsBuy
Feb 2020UBSMaintainsBuy

View More Analyst Ratings for CHTR
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Posted-In: Benjamin Swinburne John Hodulik Morgan Stanley UBSAnalyst Color News Analyst Ratings


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