Sprint Seeks Deal With Charter -- WSJ

By Ryan Knutson and Dana Cimilluca Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 29, 2017).

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Sprint Corp. has proposed a merger with Charter Communications Inc. that would create a media and communications giant, upending industries that are already in the throes of dramatic change.

Since the end of May, Charter and Comcast Corp. had been in exclusive talks with Sprint over possible deals, including one that would allow the cable companies to resell wireless service under their own brands. Though the exclusivity window ended this week, Sprint Chairman Masayoshi Son continues to pursue a much larger deal with Charter, according to people familiar with the matter: a full-blown merger of the two companies.

The complex proposal calls for the creation of a new publicly traded entity that would combine Sprint and Charter and be controlled by Japan's SoftBank Group Corp., the people said. SoftBank, whose chairman is also Mr. Son, already controls Sprint.

It is far from guaranteed that Charter would ultimately agree to such a deal, and pulling one off would involve a high degree of difficulty.

Should Mr. Son manage to succeed, the deal would be big: Sprint has a market value of $33 billion and about that much in net debt. Charter has a market value of nearly $100 billion after swallowing Time Warner Cable Inc. last year and more than $60 billion of net debt.

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The resale deal the cable companies have been discussing, which could have included an agreement to invest in Sprint's network and possibly buy a stake in the wireless carrier, appears to have taken a back seat to the merger talks. It is still possible, however, that there could be a resale deal with Sprint instead of any full-blown merger.

Before embarking on the resale talks, Sprint had been discussing a possible merger with rival T-Mobile US Inc., an effort that could now be rekindled alongside the Sprint-Charter talks, the people said. Even if Sprint and Charter did strike a merger or resale deal, it wouldn't preclude a subsequent tie-up between the new group and T-Mobile, one person said.

When The Wall Street Journal first reported on the talks between Sprint and the cable companies, people familiar with the matter said they also included the possibility that Charter and Comcast would together acquire the wireless carrier. John Malone, whose Liberty Broadband Corp. is Charter's largest investor, had been trying to convince Comcast Chief Executive Brian Roberts that the companies should jointly buy a wireless carrier, people familiar with the matter have said.

But Mr. Roberts has been reluctant and made comments on an earnings call this week that played down the possibility that Comcast would participate in any big wireless merger. "We really feel we're not missing anything," Mr. Roberts said. "No disrespect to wireless. It's a tough business."

As part of the deliberations, Mr. Son recently sought an investment in Sprint that could total more than $10 billion from billionaire investor Warren Buffett's Berkshire Hathaway Inc., the Journal has reported. It isn't clear where that effort stands, though one person said Mr. Son would need to corral such an investment -- if not from Mr. Buffett than from someone else -- for his current Charter bid to succeed.

Charter and Comcast, the two largest U.S. cable companies by subscribers, in May agreed to a partnership that barred either company from doing a wireless deal without the other's blessing or participation for a year. Charter would therefore need Comcast's approval for any merger with Sprint.

The backdrop of all the discussions is the convergence of the cable and wireless industries as smartphones become increasingly important and consumers rely more equally on cable and wireless companies to surf the web and watch videos.

Combining with Sprint could help Charter retain customers and fend off threats from cord-cutting and new rivals like Netflix Inc. The idea is that adding mobile-phone service to bundles of TV, phone and broadband internet service would make the offerings more essential and cost-efficient.

A Sprint-Charter tie-up would follow another proposed combination between media and telecommunications titans: the roughly $85 billion marriage of AT&T Inc. and Time Warner Inc., which has prompted companies across both industries to rethink their positioning and consider deals.

Meanwhile, wireless companies are engaged in a fierce price war in a saturated market that is quickly eroding revenue. Unlike Verizon Communications Inc. and AT&T, Sprint doesn't have an extensive consumer wired network, so combining with Charter could help speed the construction of next-generation, or 5G, wireless-internet connections.

Sprint reports its fiscal first-quarter earnings Tuesday and is expected to be grilled by analysts on its strategic options.

Write to Ryan Knutson at ryan.knutson@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

(END) Dow Jones Newswires

July 29, 2017 02:47 ET (06:47 GMT)