THR James Dolan - H 2015
Peter YangIt’s a done deal: European cable and telecom giant Altice has closed the acquisition of Cablevision Systems in a transaction valued at $17.7 billion, including cash and debt.
The takeover, first announced in September 2015, marks Altice’s next step in the U.S. cable market, following its acquisition of Suddenlink, and creates the fourth-largest U.S. cable operator behind Comcast, Charter Communications and Cox Communications.
“The completion of the Cablevision acquisition marks a critical step in the development of the Altice Group,” Patrick Drahi, founder and controlling shareholder of Altice, said Tuesday in a statement, adding: “I wish to also thank the Dolan family for entrusting us with their life’s work at Cablevision, where they have developed under their pioneering stewardship one of America’s pre-eminent cable operations with best-in-class management talent.”
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Under the agreement, Altice, founded by John Malone protege Patrick Drahi and based in the Netherlands after previously being based in Luxembourg, paid $34.90 in cash for each Cablevision share, a 22.3 percent premium over the company’s closing stock price when the deal was unveiled.
The Dolan family long controlled Cablevision, which focuses on the New York area. The Dolans continue to own entertainment and sports businesses in the form of cable channel company AMC Networks, the Madison Square Garden Company, which owns the New York Rangers hockey and New York Knicks basketball teams, and MSG Networks.
Cablevision, which has been led by CEO James Dolan, served more than 3.1 million residential and business subscribers as of the end of the first quarter, including more than 2.8 million broadband and nearly 2.6 million video customers. Cablevision mostly operates in New York, but also New Jersey and Connecticut.
Cablevision is Altice’s second U.S. cable deal. Late last year, the European company acquired, for $9.1 billion, a 70 percent stake in Suddenlink, the seventh-largest U.S. cable operator, which ended March with nearly 1.6 million residential and commercial customers, including more than 1.25 million broadband and nearly 1.1 million video subscribers. Beyond its newer U.S. focus, Altice concentrates on Western Europe, including France and Portugal, Israel and the Caribbean.
The Cablevision deal closed after New York’s Public Service Commission approved the transaction with conditions. It voted after a panel had recommended that 25 percent of cost savings from the deal be passed on to customers over five years and not lay off customer-facing jobs in New York for four years, to which Altice agreed. The commission’s vote was the last major hurdle for the deal. Previously, the FCC okayed the deal. New York City also had greenlighted it on the condition that Altice keep “consumer-facing jobs” in New York “for an acceptable period of time.”
“Although there is ample skepticism on Altice’s targeted $900 million cost reduction bogey, we estimate that the $34.90 [per share] price is a push with just $375 million in savings,” said Wunderlich Securities analyst Matthew Harrigan. Cablevision also had signaled to analysts that its top 10 executives, including Dolan, would depart the company once the deal closes.
Harrigan also predicts more cable acquisitions in the U.S. from Altice over time. “We fully expect Altice to try to attach further private operators, such as WOW! and Mediacom, to further bolster its U.S. position,” he said.
Asked about potential further possible M&A in 2016, Altice management said in March that it expects to mostly keep its head down. The current year is “a year of integration and operation,” CEO Dexter Goei said, adding, “we don’t anticipate doing anything else” outside possible small deals or a French deal this year.
Altice looked at a possible bid for Time Warner Cable after Comcast’s planned takeover ran into regulatory opposition. Charter, in which Malone’s Liberty owns a big stake, ended up buying Time Warner Cable. Drahi last year told a French parliamentary hearing that Altice felt it lacked the management resources to digest such a big deal in a market that is still new for it. “I didn’t follow up on the exchanges we had on Time Warner Cable that were mentioned in the media because we were not ready,” Reuters quoted him as saying.
Morocco-born Drahi, a citizen of both France and Israel, is a sort of protege of Liberty Media and Liberty Global chairman John Malone. In the 1990s, he sold one of his companies to Malone. He is known for his financial acumen and, like Malone, likes to use debt financing to build businesses. Drahi has gained a reputation as a bold dealmaker who is a relentless cost-cutter. Discovery Communications CEO David Zaslav last year said about him that he “has great ambition. He is a brilliant guy.”
Malone himself last year called Drahi “a genius,” “my friend” and “a capitalist entrepreneur.” Asked about Altice’s move into the U.S., Malone said the entrepreneur was “taking advantage of today’s low interest rates.” He did, however, also lament that Drahi was driving up the cost of businesses for others looking for deals.
