AABA Altaba Inc

By Shalini Ramachandran, Ryan Knutson and Dana Mattioli 

Verizon Communications Inc. is exploring a combination with Charter Communications Inc. that would unite two giants in search of growth in a rapidly consolidating media and telecom landscape, according to people familiar with the matter.

Verizon CEO Lowell McAdam has made a preliminary approach to officials close to Charter, which has a market value of more than $80 billion. Verizon is working with advisers to study a potential transaction, the people said. There's no guarantee a deal will materialize.

It is unclear whether Charter executives, including Chief Executive Tom Rutledge, would be open to a transaction. The effort could be complicated by Charter's ownership structure, which includes cable tycoon John Malone and the Newhouse family.

A combination would bring together Verizon's more than 114 million wireless subscribers and what remains of its landline business with Charter's cable network, which provides television to 17 million customers and broadband connections to 21 million.

Verizon has a market capitalization of $194 billion and more than $100 billion in debt.

Buying Charter would take Verizon down a different path from rivals Comcast Corp. and AT&T, who have bet big on combining content and distribution -- Comcast, through its ownership of NBCUniversal, and AT&T with its pending acquisition of Time Warner Inc.

Verizon, by contrast, would be doubling down on its historic strength in distribution, as an owner of pipes that carry web traffic. Verizon executives have said they aren't interested in traditional cable or satellite TV services, but they are big believers in wires that power high-speed internet. Charter would offer a large, dense fiber and cable network that could bolster Verizon's coming fifth-generation wireless services, which will require high-speed wired connections to many antennas that are built closer to where people live, rather than one tall cell tower covering hundreds of people. 5G networks are expected to deliver ultra-fast internet connections wirelessly.

Both Verizon and Charter face challenges to their core businesses. Growth in the U.S. wireless market has slowed and pricing pressure has chipped away at profits. Furthermore, the cable-TV business is threatened by cord-cutters and over-the-top video services.

Any transaction would face a close regulatory review, given the sheer size of the businesses and some overlapping services. Both companies provide home broadband and television services in certain markets, including the greater New York area. On its fiber-optics network, known as Fios, Verizon has about 5.7 million high-speed internet customers and 4.7 million TV subscribers, primarily in the Northeast.

It would pose a big test for new antitrust enforcers under the administration of President Donald Trump, who during the campaign expressed concerns about media consolidation. In October, he vowed to block AT&T Inc.'s $85.4 billion purchase of Time Warner Inc., saying it put too much power in the hands of too few, but he hasn't spoken publicly on the transaction since the election.

Many deal makers are hopeful a more traditional Republican administration will be merger friendly. Mr. Trump recently appointed Ajit Pai, a Republican, as chairman of the Federal Communications Commission, which oversees telecom mergers in addition to the Justice Department.

In his testimony before the Senate, Mr. Trump's selection for Attorney General, Sen. Jeff Sessions, said he wouldn't have a problem blocking mergers deemed anticompetitive. "I have no hesitation to enforce antitrust law," Sen. Sessions said on Jan. 10. "There will not be political influence in that process."

To appease regulators in the event of a deal, analysts and industry executives believe Verizon would likely spin off Charter cable assets that overlap with its all-fiber Fios network in markets like New York. Comcast and other cable companies would be likely buyers of those, J.P. Morgan analyst Philip Cusick wrote in a December research note.

Shares of Dish Network Corp., which has been considered a potential takeover candidate for Verizon by some on Wall Street, were down 5% in late morning trading.

Any deal with Charter would require the blessing of Mr. Malone, whose Liberty Broadband has a 25% voting stake in the company, and the Newhouse family, which votes a 7% stake. People close to Mr. Malone and the Newhouses have said both aren't married to remaining in the cable business and would sell at the right price.

Mr. McAdam had preliminary discussions with Liberty Broadband Chief Executive Greg Maffei, a Charter board member, in recent months, some of the people said.

However, cable executives who know Mr. Rutledge note the Charter CEO just completed a major acquisition and is likely looking forward to continuing his consolidation march in cable and running Charter.

Last May, Charter vaulted ahead to be the No. 2 cable-television provider behind Comcast Corp., with a $55 billion cash-and-stock deal for Time Warner Cable and a $10.4 billion deal for Bright House Networks, a regional cable TV provider. Charter has expressed interest in offering wireless service and said last year it was planning to resell Verizon wireless service to its own cable customers.

At meeting with analysts in December, Mr. McAdam, the Verizon CEO, didn't dismiss the idea of a Charter acquisition. Asked about the potential for such a deal, McAdam replied that such a combination "makes industrial sense," according to BTIG analyst Walt Piecyk.

In 2014 Verizon paid $130 billion to buy Vodafone's 45% of their wireless joint venture. More recently, Mr. McAdam scooped up internet company AOL and agreed to buy Yahoo Inc.'s core internet business for $4.8 billion in July. That transaction has been delayed by Yahoo's disclosure last year of two massive security breaches.

Buying Charter would make Verizon look a bit more like AT&T, which became the biggest U.S. pay-TV provider two years ago when it swallowed satellite provider DirecTV for $49 billion. AT&T now has 25 million U.S. television customers and more than 91 million phone subscribers.

Verizon last year sold its TV, internet and landline phone business in California, Texas and Florida. But those operations carried a large amount of copper wires, which aren't as good for high-speed internet.

On Tuesday, Verizon projected 2017 sales and profits would be flat from last year.

Write to Shalini Ramachandran at shalini.ramachandran@wsj.com, Ryan Knutson at ryan.knutson@wsj.com and Dana Mattioli at dana.mattioli@wsj.com

(END) Dow Jones Newswires

January 26, 2017 11:50 ET (16:50 GMT)

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