Altice USA and asset sales expected to keep Altice Europe afloat

Tuesday 9 January 2018 | 16:25 CET | Background

Altice has updated its strategy. The main elements are splitting Altice USA and Altice Europe and reorganising Altice Europe. Both companies are highly leveraged. In the US, growth is ensuring that the debt falls to more acceptable levels, while the European activities will get a boost from a dividend from the US company and the sale of low-margin activities. 

New strategy: US-Europe split

Since its disappointing Q3 results, Altice has made a number of changes: new management, announcing plans to sell assets in order to strengthen its balance sheet, selling its Swiss activities, scaling back its FTTH ambitions in France, and now a completely new corporate structure. The highlights from the latest update include:

  • Altice USA (listed, 67% owned) will be separated from Altice NV, and the latter will be renamed Altice Europe. This will result in a big increase in the free float of Altice USA. Dexter Goei is the CEO.
  • Altice Europe will be reorganised into three units: Altice France (including the overseas activities which it's acquiring from Altice International), Altice International (Portugal, Israel, Dominican Republic) and Altice Pay TV (content, rights). Dennis Okhuijsen is the CEO.

Altice USA will pay a dividend of USD 1.5 billion prior to the split, of which EUR 900 million goes to Altice Europe. After the split, Altice USA will start a share buyback worth USD 2 billion.

Altice Europe's strategy is mainly focused on a turnaround in France and Portugal. Non-core assets will be sold, and Altice named specifically Switzerland (already agreed), towers (already announced), Dominican Republic and the international wholesale voice business.

Altice also gave preliminary results for 2017 that show Altice Europe's revenues were down 2 percent, hurt by weakness on the business and wholesale markets and lower equipment sales. As of 30 September 2017, the company's net debt was worth 5.4x EBITDA of the previous 12 months. The aim is to reduce this to 4x. 

Altice USA's strategy will continue the same: realising cost savings from the merger of Optimum and Suddenlink and rolling out the Altice One platform, FTTH and a MVNO on the Sprint network. Pro forma for the planned dividend pay-out, Altice USA has a leverage of 5.8x. It aims to reduce this to 4.5-5.0x, compared to a previous target of 5.0-5.5x. 

Altice Europe turnaround dependent on Altice USA and divestments

Altice has abandoned the idea of synergies between its US and European activities - and these likely would not have been huge anyway. Similarly, Liberty Global recently completed the separation of its Latin American activities from its European business. 

The resulting picture is a robust American business. The company has room to increase its external debt in order to support the European activities and buy back shares. If it continues with the same strategy, the leverage will naturally reduce. 

The situation is different in Europe. Not only does the company need cash from Altice USA, assets must be sold in order to avoid the danger zone. The hope is the company's profile in Europe will also improve naturally. However, this will not be easy in a competitive market like France. Consolidation is the word, and that's what Altice is doing. At the same, it's highly unfortunate that there is no room for takeovers at the moment. A nice acquisition could provide a growth boost at the European business and give it extra scale advantages. 

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