By Anjali Athavaley and Liana B. Baker
(Reuters) - Verizon Communications Incis interested in exploring a combination with U.S. cable company Charter Communication Inc as part of a long list of acquisition targets, but no proposal has been made for a tie-up between the two companies, sources told Reuters on Thursday.
Speculation over a combination of the companies underscores the pressure the nation's largest wireless carrier faces to do a deal in the wake of AT&T Inc's planned $85.4 billion takeover of Time Warner Inc. Verizon and other carriers also face a saturated smartphone market.
Verizon said in July that it struck a deal to buy Yahoo Inc's core internet properties, but the deal was cast into doubt after Yahoo disclosed data breaches last year.
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"I think the market is predictably impatient and wants Verizon to do something yesterday," said Craig Moffett, an analyst at MoffettNathanson. "The market inevitably draws the comparison to AT&T that, for better or worse, has made its big strategic bet."
After rising as much as 10 percent and hitting a session high of $341.50 on the news, Charter shares eased and were trading up 6.5 percent at $330.59. Verizon shares were down 1.4 percent at $49.08.
Charter and Verizon declined to comment.
A Charter acquisition would signal that Verizon has a drastically different strategic vision than rival AT&T, which has sought to diversify away from the wireless business through its deal for Time Warner and earlier acquisition of satellite-TV provider DirecTV.
Instead, a deal for Charter would indicate Verizon is betting on infrastructure. On its earnings conference call with investors on Tuesday, Chief Financial Officer Matt Ellis said that 5G wireless technology was a focus for Verizon.
"The great irony could be that the cable operators are better positioned to compete in 5G wireless than the wireless operators themselves," Moffett said.
Speculation over a tie-up with Charter has been building steadily since last month when Verizon Chief Executive Officer Lowell McAdam told Wall Street analysts that such a deal would make "industrial sense," according to a December note by BTIG analyst Walter Piecyk.
With Charter, Verizon would gain a fiber and cable network across 49 million homes, including markets in California, Texas, and Florida, that the wireless carrier recently divested to Frontier Communications Corp, JPMorgan analysts said in a note in December.
From a traditional antitrust point of view, the combination of a phone company and a cable company would not raise competition issues that cannot be overcome, said George Bittlingmayer, a professor at the University of Kansas School of Business.
"The wildcard here is whether people's unhappiness with their cable and mobile phone providers would translate into some grandstanding and arm-twisting on the part of the new administration for political benefit," he said.
Phil Cusick, an analyst at JPMorgan, said in an email on Thursday that he expects $2 billion in annual synergies from a Charter deal but added that the deal's math is "difficult to make work," noting that a combined company would be heavily leveraged.
The Wall Street Journal, which first reported a preliminary approach between the companies, said it was unclear if Charter's executives would be open to a transaction and that there was no guarantee a deal would be struck.
Verizon had a market capitalization of $203 billion as of Wednesday's close, while Charter was valued at nearly $84 billion, according to Thomson Reuters data.
(Reporting by Anjali Athavaley in New York and Liana B. Baker in San Francisco; Editing by Jeffrey Benkoe and Alan Crosby)