Deutsche Bank downgraded Liberty Broadband (LBRDA, Financials) from "buy" to "hold" following the announcement of its planned merger with Charter Communications (CHTR, Financials), according to a note published Friday.
Analysts claimed the transaction would lower Charter's outstanding shares by around 7% without any negative effect. Excluding GCI Communication Corp., the deal comprises a 0.236 exchange ratio, nearly matching Charter's initial proposal of a 0.228 exchange ratio. Analyzes pointed out that this arrangement removes Charter's requirement for GCI Communication.
Notwithstanding the downgrading, analysts see Liberty Broadband as a good investment tool for Charter Communications-interested investors. The company projects Liberty Broadband shares to be trading at a 14.3% discount to the merger consideration value plus GCI Communication value.
"For investors who want to own Charter, we believe Liberty Broadband is an attractive vehicle," Deutsche Bank said.
John Malone, chairman of Liberty Broadband, is working on a larger initiative to streamline his media assets, and this purchase fits well. Malone has followed similar tactics recently, combining Liberty Sirius XM Holdings with Sirius XM Holdings in September.
The merging seeks to simplify corporate structures and improve shareholder value for both businesses. Consolidating their activities helps Charter and Liberty Broadband to increase operational efficiency and boost their position in the telecoms sector.
Liberty Broadband's shares, down 1.3% to $88.17, are within 6% of its $95, hiked from the $90 target price, according to the report. Stock is up 8.8% year-to-date.
