Has the richest man in Israel been dethroned?
Patrick Drahi owns Altice, whose stock is down 40% in three weeks
After telecom giant Altice NV, which owns HOT cable, posted dismal third-quarter earnings earlier this month, shares in the company have fallen by almost half.
This has left its billionaire founder, Israeli-French businessman Patrick Drahi, with his fortune cut in half – currently estimated by Forbes to be worth $5.9 billion, compared to the $13b. they estimated in March. Eyal Ofer, the inheritor of a shipping empire, is now likely the wealthiest Israeli, with personal wealth estimated at $9.2b., according to Globes.
Altice has historically expanded after taking on a massive debt load, but that strategy is faltering as Altice’s stock price has fallen 40% on the Euronext Amsterdam stock exchange since the start of November – trading at the lowest price since April 2014.
The company’s market value sits at €11b. ($13b.), but its debt-load totals around €50b. ($59b.), which is more than five times its earnings before interest, taxes, amortization and depreciation. This makes the company extremely leveraged after multiple international acquisitions. It currently broadcasts in France, the United States, Israel, Belgium, Portugal, Switzerland and other countries.
Some of the telecom’s financial woes may stem from the generational change in how viewers sit down and watch television. Younger consumers are increasingly “cutting the cord,” no longer subscribing to cable and broadband and instead, paying for television channels separately or for video streaming services like Netflix.
Altice’s Israeli paid-subscriber subsidiary HOT is facing much greater competition from two mobile phone companies entering the market, Cellcom and Partner, which are getting into the fixed-line, broadband and TV industry. They are also competing with long-time competitor Bezeq, according to analyst Ilanit Sherf from Psagot Investment House. That leaves four Israeli companies vying for consumers.
“Now, you and me, and all Israelis can get very similar services for less than half the price from HOT in less than two years,” Sherf told The Jerusalem Post, adding that Altice’s Israeli branch has had to cut costs in to stay competitive.
Sherf also compared the woes facing Altice to the dismal financial prospects plaguing Israeli pharmaceutical giant Teva. Both companies face plunging stock prices, coupled with CEO transitions.
“Teva and Altice, at the same time approximately, are doing the same thing and acting in the same way. They’ve both either reduced or stopped paying a dividend to shareholders. The risk is very high for now,” Sherf said, adding that Teva’s credit rating decreased and its interest rate for borrowing increased.
Similarly, Altice could face a similar spike in borrowing costs. As central banks worldwide start raising interest rates – after a nearly decade-long lull in response to the financial crisis – taking out debt may soon become much more expensive. Altice does have some time, as it doesn’t face a big refinancing until 2022, according to Bloomberg.
Other investors are skeptical that Altice can respond to European competitors with its hefty indebtedness. The company announced a share buyback in August, which may be a ploy to boost earning and signal that Altice may have run out of good ideas.
Its CEO, Michael Combes, stepped down earlier this month in a management reshuffle, replaced by Dexter Goei. Drahi also reclaimed the helm as president. Altice is seeking to reassure investors after posting dismal earnings across Europe, but such change could indicate a lack of a long-term strategy.
A spokesman for Altice would not comment publicly, while representatives of HOT cable referred inquiries elsewhere.
Drahi is the telecom’s largest shareholder, with a 31.1% stake, according to Reuters. He also owns Israeli news channel i24NEWS.