Charter's Proposed Cox Deal Could Challenge Comcast, Surpass AT&T In Broadband

BofA Securities analyst Jessica Reif Ehrlich maintained a Buy rating on Charter Communications, Inc. (NASDAQ:CHTR) last Friday, with a price target of $450.

Ehrlich noted that Charter had announced an agreement to merge with privately held Cox Communications for an equity purchase consideration of $21.9 billion and the assumption of $12.6 billion in Cox debt and lease obligations.

The $21.9 billion equity consideration is comprised of $11.9 billion in common units, $6 billion notional value in preferred units, and $4 billion in cash, the analyst said.

Also Read: Charter Seals $34.5 Billion Cox Merger Deal, Creating Powerhouse To Battle Streaming, Wireless Rivals

The combined entity's pro forma economic ownership will be 67% Charter, 23% Cox, and 10% Advance/Newhouse, according to Ehrlich. She views the $33.9 billion transaction as value accretive, noting it implies a ~6.44x EV/2025E EBITDA multiple before synergies. With $500 million in synergies—likely a conservative estimate—the multiple drops below 6x by year three.

Ehrlich said the deal will expand Charter's reach to 69.5 million passings, 37.6 million customers, and 35.9 million broadband subscribers. It also allows Charter to apply its pricing and packaging strategy across an additional 12.3 million passings and pursue mid-sized commercial and enterprise markets more aggressively.

As per Ehrlich, the deal should not present significant regulatory hurdles and should likely close in mid-2026. The companies do not have overlapping footprints, and 69.5 million passings is only ~5 million larger than Comcast Corp (NASDAQ:CMCSA) (64 million) and also not significantly larger than AT&T Inc’s (NYSE:T) (and AT&T also offers nationwide wireless).

Time Warner Cable /Charter deal in 2015/2016 received regulatory approval in less than 12 months, and the environment has become significantly more competitive.

Ehrlich noted that Comcast is unlikely to present a competing bid due to a likely more difficult regulatory path.

The analyst expects the Cox merger to boost revenue growth across broadband, video, and mobile, improve margins, increase free cash flow, and reduce leverage. While integration may pose challenges, Charter's strong execution history and improving broadband and video trends should support EBITDA growth.

CHTR Price Action: At the last check on Monday, Charter Communications stock was down 2.1% to $418.27.

Read Next:

• Charter’s Strong Network, New Bundles Drive Analyst Optimism For Long-Term Growth

Photo: Shutterstock