French billionaire Patrick Drahi has said his telecoms group Altice wasn’t ready to buy Time Warner Cable (TWC), but will seek to acquire smaller cablecos to boost its presence in the US.
Speaking at a French parliamentary hearing, Drahi said that…
French billionaire Patrick Drahi has said his telecoms group Altice wasn’t ready to buy Time Warner Cable (TWC), but will seek to acquire smaller cablecos to boost its presence in the US.
Speaking at a French parliamentary hearing, Drahi said that after meeting with TWC CEO Robert Marcus, he decided not to pursue an acquisition as his company would not have had the resources to integrate and manage it. However, he said he would have had the financial backing to pursue such a deal.
Altice’s recent agreement to buy a 70% stake in the US’seventh-largest cableco Suddenlink Communications prompted speculation that it could enter a bidding war with Charter Communications for TWC. However Charter announced on Tuesday that it had agreed to buy TWC – the number two cableco – for US$55bn.
Drahi told France’s National Assembly that while his company is ambitious, he will not put its future at risk, adding that this also represents the future of his family.
The telecoms tycoon, whose most recent purchases include French cellco SFR, PT Portugal and Orange Dominicana in the Caribbean, said he will seek to acquire smaller cablecos in the US. Altice will looks at assets that the merged Charter, TWC and Bright House Networks, to be known as New Charter, decide to divest, he added.
Drahi contended that he can become as big as TWC if he buys five small operators, noting that Altice has “a very big capacity” to make more purchases.
Todd Antonelli, managing director of Berkeley Research Group in Chicago, told TelecomFinance he believes Altice could succeed in expanding its US footprint by buying smaller, regional players, noting that he has already proven he can do this in Europe.
While Altice typically pursues leveraged buyouts, Antonelli noted that these acquisitions generate operational efficiencies and cost savings which help fuel growth.
Altice could realistically become a competitive threat to number one cableco Comcast and New Charter by acquiring several smaller players, in his view. Cablevision, Cox Communications, Mediacom and Viacom are all likely takeover targets.
Atlice would, however, face additional regulatory hurdles to local consolidators, requiring permissions from both European and US authorities.
Such attempts at consolidation should, Antonelli said, help cablecos to cope with increasing competition from the likes of Apple, Amazon and Netflix, which he believes are “beginning to set the stage” for how people will consume media going forward.
“So consolidation will force choices and better speeds and pricing for consumers,” he said.
Moody’s assigned a B3 corporate family rating to Altice US following the announcement of the Suddenlink deal, which values the St Louis, Missouri-based cableco at US$9.1bn, or about 10x EBITDA. Altice US is a fully-owned subsidiary of Altice, which will raise debt for the transaction.
The ratings agency said the B3 CFR reflects the company’s very high leverage, limited free cash flow, and the parent company’s aggressive financial policy.
It noted that Suddenlink does, however, have a stable market position with strong network assets and limited competition within its footprint aside from DSL providers.
Altice’s plans to aggressively cut costs at Suddenlink by reducing staff and improving productivity could, in Moody’s view, jeopardise the cableco’s market position if it cause service quality to deteriorate.
“Over a longer timeframe, Moody’s believes that aggressive cost reductions will lead to a weakened competitive position or invite regulatory scrutiny,” the agency said. “Altice’s ability to dramatically improve profitability in such a short timeframe is unproven in this environment.”
Altice is currently present in France, Belgium, Luxembourg, Portugal and Switzerland, Israel and the Dominican Republic.
