Charter surges after company says not interested in Sprint

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(Reuters) – U.S. cable operator Charter Communications Inc’s shares shot up nearly 14 percent on Monday after the company said it was not interested in buying wireless carrier Sprint Corp.

A deal between the two could be complex and disruptive, analysts said, noting financing issues, complicated ownerships and the possibility of upending existing partnerships.

A merger between Charter and Sprint would be like exploring a not so obvious marriage, analysts at Macquarie Research said.

“The hurdles in structuring a deal include the various owners of Sprint/Charter and sizeable debt at both. Financing is also in question,” the analysts said on Monday.

Japan’s SoftBank Group Corp, which controls Sprint, proposed a complex transaction with Charter that would create a new company and be controlled by SoftBank, Reuters reported on Friday, citing sources.

The moves come at a time when the telecom industry is prepping itself for a wave of deal activity, after the regulators lifted ban of telecom companies pursuing mergers.

Analysts said SoftBank CEO Masayoshi Son’s proposal was ambitious in its scope – Charter has a market capitalization of more than $101 billion and another $60 billion in debt, while Sprint’s market value is around $33 billion.

Sprint has been looking to boost its financial status and better compete amid a fierce price war in a saturating U.S. wireless industry. As part of its plan, the company has been exploring deal options with T-Mobile US Inc.

Charter’s current mobile virtual network operator (MVNO) agreements could be affected by a deal with Sprint, analysts said. MVNOs do not own networks, and instead rent capacity from established operators to sell on to their customers.

“Buying or investing in Sprint could nullify part or all of Comcast and Charter’s MVNO deals with Verizon. Our understanding is that if cable invests in Sprint then Verizon can kill or modify the companies’ MVNO agreements,” J.P.Morgan analysts said.

“Instead of buying into wireless, we expect that cable would prefer to use its broadband network as a carrot to get better MVNO pricing over time,” JP Morgan analysts said in a note.

Charter’s announcement on Sunday raised speculations that Sprint might resume talks with T-Mobile, a long expected deal which is relatively considered to work well for both the companies.

T-Mobile shares were up 1.16 percent at $62.50 in premarket on Monday. Charter shares were up nearly 29 percent this year, while Sprint shares, unchanged in premarket trade, fell nearly 3 percent in the same time.

(This story corrects to remove reference to Charter rebuffing Sprint proposal in fifth paragraph)

Reporting by Rishika Sadam in Bengaluru; Editing by Saumyadeb Chakrabarty