Altice (AMS:ATC) has made a further foray into the US, agreeing to buy Cablevision Systems (NYSE:CVC) in a cash-and-stock deal worth US$17.7bn, including debt.
Altice (AMS:ATC) has made a further foray into the US, agreeing to buy Cablevision Systems (NYSE:CVC) in a cash-and-stock deal worth US$17.7bn, including debt.
In May, Drahi had made it clear that he would pursue other US targets after agreeing to buy a 70% stake in Suddenlink, in a deal valuing the number seven player at US$9.1bn.
Together, Cablevision and Suddenlink will become the fourth largest cableco with 4.6 million customers in 20 states.
Cablevision, founded by American billionaire Charles Dolan, is the leading operator in the New York metropolitan area, with a network passing some five million premises and serving about 3.1 million residential and business customers.
The European telecoms group said in a statement that it will pay US$34.90 in cash for each Cablevision share – a 22% premium to yesterday’s closing price. The purchase values the target’s cable operations and business services unit, Lightpath, at 6.1x synergy-adjusted adjusted operating cash flow (AOCF), Altice said. The acquisition also includes local TV news network News 12 Networks, Newsday Media Group (publisher of the Newsday newspaper) and advertising sales unit Cablevision Media Sales.
Wells Fargo analyst Marci Ryvicker noted that most of the AOCF improvement should come from a better billing system, improved customer communication and overall service, and lower capex via system upgrades and procurement improvements, with very little coming from programming costs.
“We don’t know how Altice will do this; but if it works, we ask can US companies replicate these practices to enhance the reputation of US cable in general?”
Cablevision had long been one of the Dolan family’s most prized assets, with others including AMC Networks and The Madison Square Garden Company.
“The strategy of Altice in the large and highly strategic US market is reinforced with the acquisition of Cablevision,” Drahi said. “We will be in a stronger position, as in all other markets in which we operate, to deliver the best services, invest in the most advanced technology and develop innovative services for the benefit of customers.”
Altice CEO Dexter Goei added that the deal marks “the next step in Altice’s long-term oriented strategy in the US, one of the largest and fastest growing communications markets in the world”.
Cablevision and Suddenlink will have separate capital structures, but share management and benefit from operating efficiencies and economies of scale, Altice said.
The Luxembourg-based group will finance the purchase with US$14.5bn of new and existing debt at Cablevision, cash on hand at Cablevision and US$3.3n of its own cash. BC Partners and CPP Investment Board, which own the remaining 30% of Suddenlink, have an option to participate for up to 30% of the target’s equity.
Altice plans to raise equity by issuing Class A shares to help fund its portion of the deal. It says it has received full financing commitments from JP Morgan, BNP Paribas and Barclays.
The parties expect the deal to close in the first half of 2016 subject to regulatory approvals. Cablevision shareholders with 59% of the voting power have given their written consent to the deal and no further shareholder approvals are required. There is a US$280m termination fee for CVC and a US$560m termination fee for Altice.
Altice’s financial advisors were JP Morgan, BNP Paribas and Barclays. Its legal advisors were Shearman & Sterling, Covington & Burling, Mayer Brown, Ropes & Gray, De Brauw Blackstone Westbroek and Morris Nichols Arsht & Tunnell.
Altice noted that Cablevision generated US$6.525bn in revenue and US$1.858bn in AOCF on a consolidated basis for the 12 months ended 30 June 2015. The Lightpath business generated US$6.206bn and US$2.005bn in AOCF over the same period, with a balanced mix between video, broadband, telephony and business services, the group added.
Altice said about 65% of Cablevision’s customers subscribe to triple-play services, leading to high ARPU and customer loyalty.
Since listing on the NYSE in 2014, Altice has bought Suddenlink, French cellco SFR via its local cable unit Numericable, and Orange Dominicana in the Caribbean, and agreed to buy incumbent PT Portugal.
It claimed to have 14 million fixed-line and 28 million mobile customers as of July in the markets in which it operates which in addition to the US, include France, Belgium, Luxembourg, Portugal and Switzerland, Israel and French overseas territories.
Macquarie Securities analyst Amy Yong said in an investor note that Altice’s interest in cable “reflects tremendous confidence in its broadband infrastructure advantage”, adding that while there are concerns about the evolution of the video bundle, demand for broadband speed and capacity is clearly growing.
Like many, she believes Altice’s entry into the US market could trigger more M&A, naming Cable One, privately-held Cox Communications and MediaCom as potential targets.
This could drive up multiples in the cable sector, but also asset prices if the newly-merged Charter Communications-Time Warner Cable (New Charter) seeks acquisitions, she said.
Noting that Altice’s acquisition strategy has centred around cheap financing and cost cutting, she contended that the window for consolidation is narrowing.
“Financing may become more expensive as interest rates potentially rise, regulatory conditions may become more onerous as the number of players shrinks and pay-TV multiples are at peak levels.”
Yong predicts that the Cablevision buy could generate at least US$350m in opex synergies if the integration with Suddenlink is managed successfully.
