This was another week of recovery for the Fab Five, with the group (+$720 billion for 1-wk, +$525 billion for 2-wks). While the year-to-date loss is still significant, the Fab Five loss is now well under a trillion dollars and was last this low at the beginning of March.
The Telco Top Five also increased their value this week (+$8 billion) with three stocks driving all of the change (Verizon, Comcast, and Charter). Two of those three had the top headlines with Verizon receiving approval to purchase Frontier Communications for $20 billion (includes debt – The Verge story here which includes a copy of the most recent letter from Verizon to the FCC).
We still struggle with the economics of a $20 billion purchase price as Verizon is paying $8,000 per fiber customer ($20 billion divided by 2.49 million consumer and business customers). The Frontier base should grow to 3 million total subscribers by the estimated deal close of Q1 2026 which reduces the purchase price to $6,700 per fiber customer. An 8.5x EBITDA multiple for the total company (re: nearly half of the Frontier footprint is still copper) is also rich. That said, Verizon should be able to quickly take advantage of the fiber footprint once it’s been acquired – the execution risk for Verizon should be fairly minimal.
Two important states (NY and CA) must approve the transaction. We would not be surprised to see tough requirements around buildout timelines (including legacy Verizon copper exchanges) and ACP-like pricing for low-income customers. Based on the California tmeline, the earliest possible approval appears to be September.
Separately, and more importantly, Charter and Cox agreed to merge (full announcement and conference call materials here). There are many facets to this combination, but the most important are these:
- Charter is paying 6.44x estimated 2025 earnings for a company that is already 100% converted to Gigabit speeds (vs. the 8.5x multiple from the latest Frontier earnings release).
- Charter is keeping Rapidscale (a company we are familiar with) and other elements of Cox that boost the Spectrum Business portfolio.
- The Cox family is rolling a lot of the value of the investment into Charter and will become their largest shareholder (23%) while Advance/ Newhouse will still hold 10% and John Malone (exclusive of Liberty) will hold a single-digit share. As a result, 37-39% of the combined company will be owned by three shareholders, which will add stability.
- The Cox family will have a vehicle to manage their exit from the cable business in a tax efficient manner.
- Cox + Charter will be materially larger than Comcast in every facet of the communications business, including content purchasing (which could negatively impact Comcast’s communications earnings and their broadcasting business).
- We can surmise that Cox will enjoy cost savings from a better Verizon MVNO purchasing rate. Cox also has a log history deploying their own mobile networks and has some CBRS PALs that could come in handy for the combined company.
We will speak more about the proposed transaction in next week’s Brief but wll note that Cox and Charter each have meaningful operations in California. We see that state’s approval as the toughest.
Have a terrific remainder of the weekend. Full file is below.
