Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Never before were the words "everybody's in play" truer than in the case of the cable and telecom giants -- and Verizon Communications Inc. CEO Lowell McAdam let us know his company's included.

In an interview with Bloomberg News's Scott Moritz, McAdam said he's open to merger talks with Comcast Corp., Walt Disney Co. or CBS Corp. -- with two of those hypothetical transactions exceeding the $200 billion level. It's the most specific McAdam's been about how the wireless carrier could transform itself in the wake of rival AT&T Inc.'s $109 billion pending takeover of Time Warner Inc., which upon completion will give AT&T control over HBO, CNN and Warner Bros. studios. 

Verizon appeared to be conserving its balance sheet -- possibly for something big. Among the surprises in last week's results of the U.S. Federal Communications Commission spectrum auction was that Verizon bought nothing. And yet it has the most constrained network, based on its ratio of spectrum to subscribers, according to Matthew Kanterman and Joshua Yatskowitz, analysts for Bloomberg Intelligence. 

Surging Data Demands
Verizon CEO Lowell McAdam seems to have mergers on his mind -- maybe even with Comcast -- as he works to expand its constrained wireless network
Source: Bloomberg Intelligence
Note: Spectrum holding in average national MHz. Retail subscribers at end of 2016.

The company announced a deal earlier Tuesday with Corning Inc. for about $1 billion worth of fiber-optic cable and equipment that it will purchase over three years to improve its wireless coverage and speed its 5G launch. McAdam said that if Comcast's fiber assets help it get there faster, he'd consider a deal with the $178 billion cable provider, which is also the parent of the NBCUniversal media business. 

In pre-Trump administration times, such a tie-up would be totally out of the question. But conventional wisdom regarding cable and telecom deals should probably be tossed out. President Donald Trump and new FCC Chairman Ajit Pai are viewed as more friendly toward such mega-mergers, with Trump instead focused on the creation of jobs and infrastructure investment. If Verizon and Comcast could make promises to that end through network expansion, they very well could get the government's blessing. (Whether that'd be good for consumers' wallets is a different story.) The final decision on AT&T-Time Warner is a test of this notion, though.

As for the candidates on the content side, Disney would be the most attractive if it weren't for its struggles with ESPN. Selling or breaking up Disney could solve Chairman and CEO Bob Iger's succession conundrum, but Verizon is probably the wrong partner for that.

In February, I explained why Disney's preoccupation with figuring out how to fix or part with the sports network leaves CBS as the new Belle of the ball. CBS, with a market value of $28 billion, makes a much more digestible deal than Comcast and Disney. But turning that idea into reality comes down to convincing two important figures: Shari Redstone, the daughter of ailing media mogul and controlling shareholder Sumner Redstone, and Les Moonves, the chairman and CEO of CBS who is credited with its long-running success.

While McAdam didn't mention Charlie Ergen's Dish Network Corp., I'd throw that name into the mix here, too. Dish has doubled down on wireless spectrum -- a confounding move given that it doesn't have a wireless business -- but those airwaves could be useful to Verizon. Some analysts point to Verizon's decision not to buy any spectrum in the auction, but the reason may be more nuanced than lack of interest. It may just be carefully considering its balance sheet and prioritizing transactions.

Rumor Rally
As deal speculation lifts shares of its rivals, Verizon wants in on the action
Source: Bloomberg
Note: AT&T is in the process of buying Time Warner, but the deal still needs to win regulatory approval.

Aside from the small Corning deal, Verizon has also reportedly weighed a competing bid for Straight Path Communications Inc., the 5G-spectrum holder that agreed last week to a sale to AT&T for $1.6 billion. Verizon is also buying assets from Yahoo! Inc. to combine with its AOL brand -- a digital division that, by the way, it's re-branded as Oath. Because why use already recognizable brand names like AOL and Yahoo when you can have a meaningless moniker worthy of Twitter ridicule

There's always something funny about CEOs fanning their own merger speculation; they're usually trying to do the opposite. McAdam did tell analysts in December that he wasn't interested in Dish -- or CBS for that matter, saying "Les Moonves can manage Charlie Sheen better than I can." (That's according to an account by Cowen Group Inc., and never mind that Sheen is long gone from CBS.)

Then again, he also said Verizon didn't need a transformational acquisition at all. Now that's an oath he can't take. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net