PARIS/NEW YORK (Reuters) - Telecoms and cable group Altice NV (ATCA.AS)
(ATUS.N) is separating its U.S. and European operations to try to reassure
investors alarmed by its high debt and low revenue generation, especially in
its core French
telecoms business.
Altice said it would spin off its U.S. arm to existing investors and
prioritize a turnaround of its European operations. Both companies will have
new management.
Altice’s battered shares -- down about 50 percent over the past year --
rose 6.6 percent in Europe on Tuesday, boosted by hopes the breakup could open
the door to a wider reorganization and possibly allow it to offload problematic
assets.
The U.S. business, no longer owned by Altice NV, would be shielded from
concerns about the European operation, while a parting $1.5 billion dividend
payment will improve the balance sheet of the European arm.
“Altice USA’s shares have suffered from guilt by association with the
weaker results at the European parent,” said Craig Moffett, an analyst at
MoffettNathansonMoffett.
“The biggest overhang on Altice USA shares,” he added in an email, “has
been the nagging concern that U.S. shareholders might somehow be called upon to
backstop weakness in Europe. That risk will now be gone.”
Altice’s performance in Europe last year led investors to question its
strategy, and in November founder Patrick Drahi returned as president while
Chief Executive Michel Combes resigned.
Altice NV, which is based in the Netherlands and will be renamed Altice
Europe, aims to complete the spinoff of its 67.2 percent interest in Altice USA
by the end of the second quarter, following regulatory and shareholder
approvals.
Turning around operations in France and Portugal are the top goals for
the European business.
Altice NV’s stock is down by about half over the last 12 months, while
shares in the U.S. unit are down about 35 percent from their market debut last
June.
ACQUISITION SPREE
Altice has grown in the United States and Europe through debt-fuelled
acquisitions, raising its net debt to more than five times its annual core
operating profit.
Drahi in a statement also said that there was a path to further
strengthen the European balance sheet over the long term through non-core asset
disposals.
Analysts at brokerage Raymond James said Altice’s European arm could
become an acquisition target for rival French telecoms companies.
“A separate listing of Altice Europe makes a sale of this asset easier,
to Bouygues (BOUY.PA) or Iliad (ILD.PA) for instance, which could both consider
market consolidation synergies in France, in our view,” Raymond James wrote in
a research note.
“However, we doubt that the intention to sell is unlikely to be reached
in the medium-term, as this would require a material discount to the price paid
for these assets,” it added.
The two companies will be led by separate management teams with Drahi
retaining control of both companies.
Dennis Okhuijsen will become CEO of Altice Europe and Dexter Goei will
continue to serve as chief executive of Altice USA.
Franco-Israeli tycoon Drahi will own 52 percent of the European business
and 43 percent of the U.S. business.
The dividend to be paid to Altice Europe will add to Altice USA’s net
debt, which was approximately $21.2 billion at the end of the third quarter of
last year. Altice USA also approved a $2 billion repurchase program of U.S.
shares, once the separation is complete.
The U.S. dividend will provide an approximately 900 million euro cash
injection to the European operation.
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