Altice weighing takeover offer for Charter: sources

By Liana B. Baker and Anjali Athavaley

(Reuters) - Netherlands-based telecom conglomerate Altice NV and its U.S. cable unit are in the early stages of working on an offer to buy Charter Communications Inc , sources told Reuters on Wednesday, in a move that would build more scale in the United States.

A wave of consolidation is expected in the telecom industry as cable companies seek additional ways to cut costs and grow with more U.S. consumers cutting their cords.

A deal for Charter would allow Altice's founder, Franco-Israeli billionaire Patrick Drahi, to bring his business model to bear in the United States. Drahi made his fortune through debt-fuelled acquisitions swiftly followed by cost cutting to boost profits.

"Altice management fundamentally believes that U.S. cable...margins should be substantially higher than where they are at currently, which along with a willingness to put high leverage on (Charter) underpins what could be a relatively aggressive bid," said Jeff Wlodarczak, an analyst at Pivotal Research, said in an email.

Shares of Charter rose 2.9 percent to close at $400.90 after the news, first reported by CNBC. Altice USA Inc shares were up 4 cents at $31.09.

Altice USA's initial public offering in June was viewed as a means for Drahi to expand his U.S. cable empire by giving the company public stock it can use as currency for acquisitions. In May, Drahi told reporters that he considered cable expansion a priority, followed by mobile and content.

Financing an acquisition of Charter or a merger of the company with Altice USA would be a major challenge for Drahi, whose net worth is pegged by Forbes at $14 billion. Even without a takeover premium, Charter is worth more than $180 billion including debt, while Altice NV and Altice USA have almost as much debt as their combined market capitalizations, of 32 billions euros and $23 billion, respectively.

"Given (Charter's) newfound scale after its own recent acquisition of the former Time Warner Cable, a full takeout seems somewhat of a tall order for any potential suitor," said Tuna Amobi, an analyst at CFRA Research.

Altice is working with banks to finance the deal through cash and equity, a source said.

Altice NV, Altice USA and Charter declined to comment.

Buying another cable company would give Altice USA, currently the fourth-biggest U.S. cable provider, the opportunity to build more scale and save on costs associated with content production, distribution rights and infrastructure investments.

Altice completed its $17.7 billion acquisition of Cablevision last June, after buying Suddenlink for $9.1 billion in 2015. Both acquisitions were done through debt, with targeted cost savings of more than $1 billion for both entities.

Its U.S. shopping spree followed the purchase of rival French mobile telecommunications firm SFR in 2014, which was financed with $21.9 billion-equivalent in debt, raising concerns among credit rating agencies and analysts.

SFR has lost more than 1.6 million mobile customers and 500,000 fixed broadband customers since Drahi took control of the company, hampered by a late ramping up of crucial investments in its networks.

Altice could have competition for Charter. Reuters reported last month that Japan's SoftBank Group Corp was also considering making a bid for Charter as early as the end of August, looking to combine the cable company with wireless carrier Sprint Corp , of which SoftBank owns a majority stake.

Analysts and investors have said tie-ups between cable companies and wireless carriers make more sense now that the distinction between broadband and wireless connectivity has blurred and consumers want seamless connections for their devices.

(Additional reporting by Pamela Barbaglia in London, Laharee Chatterjee in Bengaluru, Mathieu Rosemain in Paris, and Sheila Dang in New York; Editing by Anil D'Silva, Bernard Orr and David Gregorio)