Cablevision and Altice confirmed it: Billionaire Patrick Drahi’s Luxembourg-based telecom company has agreed to buy the Long Island cable company for $34.90 a share, a 22.3% premium from Wednesday’s closing price. That values Cablevision at about $10 billion, not including $7.7 billion in debt.
Cablevision shares were up about 14% in late trading to $32.55, reflecting high confidence that it will be sold.
The transaction will end a colorful, and often tempestuous, 42-year period during which the cable company was controlled by founder Charles Dolan and his son James, who’s CEO. They collectively control more than 72% of the company’s voting shares. When Altice combines Cablevision with Suddenlink, which it’s in the process of buying, it will be the No. 4 operator in the U.S. — after Comcast, a combined Charter/Time Warner Cable and Cox — with 3.74 million video subscribers.
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Altice “will be truly worthy successors, and we look forward to doing all we can to affect this transition for our customers and employees,” James Dolan says. “We expect that Cablevision will be in excellent hands.”
The Dolans will continue to control AMC Networks and Madison Square Garden Co., which James adds are “all born of Cablevision and each with brighter prospects today than ever before.”
Cablevision has about 2.6 million video customers, mostly in the Tri-State Area around New York City — but not including Manhattan. Altice also will pick up Newsday, am New York, and News12. If Cablevision scraps the deal, it will have to pay a $280 million breakup fee to Altice. Conversely, if Drahi changes his mind, he’ll have to pay $560 million to Cablevision.
Cablevision has agreed not to pay a dividend until the sale closes, which they expect to happen by mid-2016 after the FCC and antitrust officials review it. Helping Altice with the financing are JP Morgan, BNP Paribas and Barclays. When the transaction takes place, Cablevision will have up to $5.8 billion in debt outstanding.
But Altice will have $14.5 billion of debt. It will take on $8.6 billion in new debt from term loans and high-yield notes and use $2.5 billion to repay some of Cablevision’s term loans, including debt it took on to buy Newsday. BC Partners and CPP Investment Board can help out by purchasing as much as 30% of Cablevision’s equity.
“The strategy of Altice in the large and highly strategic U.S. market is reinforced with the acquisition of Cablevision,” Drahi says. “We will be in a stronger position, as in all other markets in which we operate, to deliver the best services, invest in the most advanced technology, and develop innovative products for the benefit of our customers.”
When the cable deals close, about 30% of Altice’s revenues will come from the U.S., the company says. France will remain its biggest market, accounting for 51% of revenues.
The big question is: What measures will Altice take to make the numbers work? “Altice’s interest is one centered around cheap financing and cost cutting,” Macquarie Securities’ Amy Yong says. Drahi’s company has vowed to cut $250 million at Suddenlink, which it’s in the process of buying. That company is about 40% as big as Cablevision.
Altice told investors this morning that it expects to see more than $1 billion in “synergies and efficiencies” at Cablevision. They could come from system and back-office upgrades, “reduction of operational complexity,” and by eliminating the cost of being a public company, among other things.
Yong envisions a 20% cut to the workforce, and the sale of Cablevision’s real estate. “It’s too early to know if Altice will invest heavily in the video product,” she says. “However, negotiating a better rate card by combining Cablevision and Suddenlink could result in annual programming savings of $50 million.”
But Wunderlich Securities’ Matthew Harrigan warns that it may find just “limited” savings from programming, as well as “political sensitivity to employee reductions.”
What will Altice do now? It wouldn’t say in a conference call with analysts. But Wells Fargo Securities’ Marci Ryvicker says “we don’t think it’s done acquiring in the United States.”
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