Altice ready­ing takeover of­fer for Char­ter, sources say

The Globe and Mail (Prairie Edition) - - REPORT ON BUSINESS - LIANA B. BAKER AN­JALI ATHAVALEY

CEO aims to ex­pand the Dutch com­pany’s U.S. ca­ble em­pire by us­ing pub­lic stock as cur­rency for acquisitions

Nether­lands-based tele­com con­glom­er­ate Altice NV and its U.S. ca­ble unit are in the early stages of work­ing on an of­fer to buy Char­ter Com­mu­ni­ca­tions Inc.,

sources told Reuters on Wed­nes­day, in a move that would build more scale in the United States.

A wave of con­sol­i­da­tion is ex­pected in the tele­com in­dus­try as ca­ble com­pa­nies seek ad­di­tional ways to cut costs and grow with more U.S. con­sumers cut­ting their cords.

A deal for Char­ter would al­low Altice’s founder, Franco-Is­raeli bil­lion­aire Pa­trick Drahi, to bring his busi­ness model to bear in the United States. Mr. Drahi made his for­tune through debt-fu­elled acquisitions swiftly fol­lowed by cost cut­ting to boost prof­its.

“Altice man­age­ment funda- men­tally be­lieves that U.S. ca­ble … mar­gins should be sub­stan­tially higher than where they are at cur­rently, which along with a will­ing­ness to put high lever­age on [Char­ter] un­der­pins what could be a rel­a­tively ag­gres­sive bid,” said Jeff Wlo­dar­czak, an an­a­lyst at Piv­otal Re­search, said in an e-mail.

Altice USA’s ini­tial pub­lic of­fer­ing in June was viewed as a means for Mr. Drahi to ex­pand his U.S. ca­ble em­pire by giv­ing the com­pany pub­lic stock it can use as cur­rency for acquisitions. In May, Mr. Drahi told re­porters that he con­sid­ered ca­ble ex­pan­sion a pri­or­ity, fol­lowed by mo­bile and con­tent.

Fi­nanc­ing an ac­qui­si­tion of Char­ter or a merger of the com­pany with Altice USA would be a ma­jor chal­lenge for Mr. Drahi, whose net worth is pegged by Forbes at $14-bil­lion. Even with- out a takeover pre­mium, Char­ter is worth more than $180-bil­lion in­clud­ing debt, while Altice NV and Altice USA have al­most as much debt as their com­bined mar­ket cap­i­tal­iza­tions, of €32bil­lion ($47.8-bil­lion Cana­dian) and $23-bil­lion (U.S.), re­spec­tively.

“Given [Char­ter’s] new-found scale af­ter its own re­cent ac­qui­si­tion of the former Time Warner Ca­ble, a full take­out seems some­what of a tall or­der for any po­ten­tial suitor,” said Tuna Amobi, an an­a­lyst at CFRA Re­search.

Altice is work­ing with banks to fi­nance the deal through cash and eq­uity, a source said.

Altice NV, Altice USA and Char­ter de­clined to com­ment.

Buying another ca­ble com­pany would give Altice USA, cur­rently the fourth-big­gest U.S. ca­ble provider, the op­por­tu­nity to build more scale and save on costs as- so­ci­ated with con­tent pro­duc­tion, dis­tri­bu­tion rights and in­fra­struc­ture in­vest­ments.

Altice com­pleted its $17.7-bil­lion ac­qui­si­tion of Cable­vi­sion last June, af­ter buying Sud­den­link for $9.1-bil­lion in 2015. Both acquisitions were done through debt, with tar­geted cost sav­ings of more than $1-bil­lion for both en­ti­ties.

Its U.S. shop­ping spree fol­lowed the pur­chase of ri­val French mo­bile telecom­mu­ni­ca­tions firm SFR in 2014, which was fi­nanced with $21.9-bil­lion-equiv­a­lent in debt, rais­ing con­cerns among credit rat­ing agencies and an­a­lysts.

SFR has lost more than 1.6 mil­lion mo­bile cus­tomers and 500,000 fixed broad­band cus­tomers since Mr. Drahi took con­trol of the com­pany, ham­pered by a late bol­ster­ing of cru­cial in­vest­ments in its net­works.

Altice could have com­pe­ti­tion for Char­ter. Reuters re­ported last month that Ja­pan’s SoftBank Group Corp. was also con­sid­er­ing mak­ing a bid for Char­ter as early as the end of Au­gust, look­ing to com­bine the ca­ble com­pany with wire­less car­rier Sprint Corp, of which SoftBank owns a ma­jor­ity stake.

An­a­lysts and in­vestors have said tie-ups be­tween ca­ble com­pa­nies and wire­less car­ri­ers make more sense now that the dis­tinc­tion be­tween broad­band and wire­less con­nec­tiv­ity has blurred and con­sumers want seam­less con­nec­tions for their de­vices.

Altice USA (ATUS) Close: $31.09 (U.S.), up 4¢ Char­ter (CHTR) Close: $400.90 (U.S.), up $11.15

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