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Verizon Exploring Potential Charter Merger (Report)

Verizon is looking at scenarios for merging with cable giant Charter Communications, the Wall Street Journal reported — which, if such a multibillion-dollar blockbuster deal happened, would continue the wave of consolidation in the telecom and pay-TV sector.

Verizon chief Lowell McAdam made a “preliminary” overture to “officials close to Charter,” and the telco has enlisted advisers to study a possible merger, according to the Journal report, which cited anonymous sources.

Bloomberg later reported that McAdam met with Greg Maffei, CEO of Liberty Media — which owns a stake in Charter — to discuss a potential deal for the cable operator. Verizon has mulled more than 10 other potential targets, per Bloomberg’s sources, including large media companies, telecom providers and cable operators. There currently are no “significant” talks between Verizon and Charter, according to CNBC.

Verizon and Charter reps declined to comment on the reports. Charter shares were up more than 7% in trading Thursday morning on the report, while Verizon’s stock was down 1.6%.

With the backing of billionaire John Malone’s Liberty Media, Charter last year completed its takeover of Time Warner Cable, after Comcast’s attempt to buy TWC failed in the wake of regulatory opposition, giving it a presence in major markets like New York and L.A. Charter at the same time acquired Bright House Networks and is now the No. 2 cable operator behind Comcast.

For Verizon, the urge to merge comes as growth in its wireless sector has been slowing — and coupling with Charter would give the telco a much bigger footprint to gain economies of scale. Verizon would be able to tap into Charter’s backbone networks for wireless data backhaul, and a combined Verizon-Charter would have more leverage in negotiating programming deals with TV programmers.

Meanwhile, AT&T in 2015 acquired DirecTV, making the combined company the No. 1 U.S. pay-TV provider, and the telco is trying to swallow Time Warner in an $85 billion deal pending regulatory review.

Word that Verizon is potentially sniffing around Charter comes as Verizon’s $4.8 billion bid for Yahoo’s operating businesses remains in limbo following the internet company’s disclosure of two massive user-info breaches. Verizon said in its fourth-quarter earnings announcement Tuesday that it “continues to work with Yahoo to assess the impact of data breaches”; Yahoo this week said it expects the deal with Verizon to close in the second quarter of 2017.

Any kind of Verizon-Charter tie-up would face close regulatory review. The Trump administration is viewed as more laissez-faire than Obama’s, but even given President Trump’s business-friendly bias it would likely be a hard sell, since combining Verizon and Charter would eliminate a competitor for broadband, TV and phone service in many areas. But “while there is no guarantee on anything coming out of D.C., we do think such a combination would pass regulatory review,” Wells Fargo analyst Marci Ryvicker wrote in a research note. “It wouldn’t necessarily be easy but it should go through.”

Charter (combined with TW Cable) had 16.9 million residential video customers and 21 million broadband subs as of last September, while Verizon had 4.7 million Fios TV and 7 million high-speed internet subs at the end of 2016. For Q4, Verizon added a net 591,000 postpaid wireless connections (versus 1.5 million a year earlier) to stand at 108.8 million postpaid wireless retail customers.

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