You can add Altice to the growing list of companies trying to figure out a way to buy Charter Communciations.
The French telecom giant and its U.S. cable subsidiary, Altice USA, are working on an offer to buy Charter, but have not yet brought a purchase proposal to Charter or its advisors, according to people close to the situation. There's no guarantee that Altice will engage, though the prospects seem likely.
Altice and its founder Patrick Drahi have long had ambitions to expand in the U.S., and with SoftBank's recent interest in making an offer to buy Charter, Drahi has decided to see if he can compete.
Altice has bankers and lawyers working on a bid for Charter. But like SoftBank, it faces significant hurdles in crafting a deal that would meet shareholders' expectations on price while not being replete with the stock of the acquiring company, which in this case would be the far smaller Altice USA.
As CNBC reported two weeks ago, SoftBank has also been working on structuring an offer for Charter. That effort continues, though it is far from clear either SoftBank or Altice can come up with offers that meet the price objectives and structure of Charter's management or its largest and most influential shareholder, Liberty Media, which controls 20.5 percent of the company's equity and 25 percent of its voting shares.
Both SoftBank and Altice are hobbled by a perceived inability to craft deals with a large amount of cash. Drahi and SoftBank's Masayoshi Son are men unafraid of taking on vast amounts of debt to fuel their ambitions, but it's not clear Charter management or John Malone, the chairman of Liberty, has interest in accepting a deal in which much of the value they give up is traded for stock in a new company, laden with debt and reliant on the cash flow of Charter to pay down that debt.
In its short time operating in the U.S. market, Altice has shown a unique ability to cut costs and generate substantially higher margins, before taxes and other costs, than predecessor managements. But Liberty is still wary of taking Altice paper in the belief that it is too early to tell whether those gains are sustainable. And while Malone typically likes to craft deals that are tax free in nature, Liberty's enormous gain on its Charter stake, which could approach $20 billion in a deal, might lead him to accept a larger cash component in the consideration.
Charter, with $60 billion in debt and an expected purchase price that could reach or exceed $500 a share would represent an enterprise value of almost $200 billion. While Altice operates at higher levels of leverage than Charter and would be expected to add two turns of leverage to the $16 billion in cash flow it receives from Charter in the deal, those additional borrowings would not be near enough to fund a large cash component.
One wild card for both SoftBank and Altice is whether either can bring in significant equity investments from outside parties to help fund their bids.
As for Charter, regardless of whether it receives bids from SoftBank or Altice, it is clearly a desired property. In the last year Verizon, SoftBank and now Altice have all spent considerable time thinking about or trying to buy it. The only company that has not is CNBC parent, Comcast.
Officials from Altice, Charter and Liberty declined to comment.