Verizon Communications Inc. (NYSE:VZ) is reported to have given thought to acquiring Charter Communications Inc., an acquisition that would result in the biggest wireless and internet provider in the United States.
However, many in the finance industry are focused on another unmatched a Charter tie-up could result in: the biggest corporate debtor across the world. And that’s leading some credit analysts to contemplate how Verizon could finance this deal, while also achieving its objective of lessening debt, let alone evading a blow to its credit metrics.
What is into the deal?
Market analysts consider that the company is getting into massive number. It is not an unbeatable challenge, however it would be in contrast to their stated objective to reduce leverage and having an effect on its ratings and bond prices.
Verizon’s CEO Lowell McAdam approached the Chief Executive Officer of Liberty Broadband, Charter’s major shareholder, about a likely combination. The company hasn’t directly contacted Charter, and as of now there are no discussions between the two firms. Both the companies declined to comment.
Already one of the leading corporate bond borrowers internationally, Verizon would have no other option but to take even more debt to close this merger. Verizon recorded cash of less than $3 billion on its books as of the close of last year, and it is evident that the company may require far more than what it available to close Charter acquisition deal.
Borrowing more could be tough for both Verizon and Charter because of the large quantum of debt already recorded on books. Verizon posted debt of around $116 billion as of the close of 2016. Add on Charter’s additional borrowings and debt to fund this deal, and the figure could increase to $200 billion.
Verizon had a market cap of over $204 billion as of Friday’s close, while Charter was valued at around $84 billion. If the shares price of Verizon declines further, it would be not far away from hitting its 52-week low of 46.01.