Drahi’s Altice Reverses Course in U.S., Europe, After Wings Clipped
Problems in the telecom firm’s home market of France and a heavy debt burden have sapped its ability to make deals
Founder Patrick Drahi has said he’s no longer looking for big new deals for now, instead selling noncore businesses to lower debt.
Founder Patrick Drahi has said he’s no longer looking for big new deals for now, instead selling noncore businesses to lower debt.PHOTO: ERIC PIERMONT/AGENCE FRANCE-PRESSE/GETTY IMAGES
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By Nick Kostov
Jan. 11, 2018 11:08 a.m. ET
PARIS—When French billionaire Patrick Drahi spoke in 2016 to top managers at Cablevision—the New York-area firm he had just bought for $10 billion—he told them the key to his success was making decisions fast.
He also said if necessary he could reverse course just as quickly. In recent months, the founder of telecommunications giant Altice NV has been making a lot of those U-turns.
Mr. Drahi’s biggest retreat came this week, when he said he would spin off Altice USA Inc., the listed company that houses his American assets, to existing shareholders amid operational troubles in Altice NV’s home market of France and a share-price rout. The move effectively abandoned long-held ambitions of turning his telecom and cable enterprise into a single trans-Atlantic powerhouse. Mr. Drahi will keep control of both entities.
The planned spin-off marks the latest in a series of quick pivots.
Mr. Drahi’s deal-making made him one of Europe’s biggest telecom barons. Back-to-back acquisitions across the Atlantic elevated Altice from obscurity in the U.S. to the country’s No. 4 cable company by subscribers.
But for now, Mr. Drahi says he is no longer seeking out big new deals, instead looking to sell noncore businesses to lower debt. After stepping back from an operational role at Altice in Europe, he returned to the helm in November. He is also reviewing the group’s content-buying strategy and pouring money into his core European business—instead of keeping costs low on the continent as planned.
Shares in Altice, which was built over almost two decades by borrowing heavily and then squeezing costs, have fallen by almost half in the past three months. Mobile network problems and declining sales have beset the company’s business in France, its biggest market, and in Portugal. After aggressively cutting costs initially, Altice has been forced to invest more to hold on to customers—adding exclusive content, for example—and offering discounts to boost flagging subscriber numbers.
Saddled with debt and the operational problems, Mr. Drahi can no longer access with ease the high-yield debt market that fueled Altice’s growth in the past. Also, with shares in the dumps, equity isn’t a convenient currency for deal making.
Mr. Drahi is also shifting Altice’s content strategy, which involved buying exclusive rights to such fare as sports events. He said in November that he had been “doubly wrong.” Instead, Altice will seek out less-expensive partnerships.
The series of measures have heartened investors a bit; the stock is up 35% from a low point in November. But the modest rebound hasn’t been enough to prompt Altice to rejoin the deal-making frenzy that is redrawing the U.S. media and telecoms landscape.
AT&T Inc. has said it would go to court to fight Justice Department concerns over its $85 billion deal to buy media company Time Warner Inc. Meanwhile, Walt Disney Inc. has agreed to buy a big chunk of 21st Century Fox Inc., including its stake in European satellite-TV broadcaster Sky PLC, for $52.4 billion.
As recently as August, Mr. Drahi was in the mix, too. He was considering a move on Charter Communications Inc., the No. 2 U.S. cable operator by subscribers, behind Comcast Corp. Discussions about a potential bid were internal, and there was never an approach, said people familiar with the matter.
Critics say that while Mr. Drahi’s U.S. business isn’t suffering from the same problems as in France, Altice USA is too small to compete in the long run without more deal making. Shares of the American business are down 24% since listing in June, dragged lower by worries that the European woes could sap cash flow. That leaves it little firepower to bulk up through deals.
Altice USA chief Dexter Goei told investors this week not to view his company’s absence from the deal table as permanent. “On the consolidation standpoint, we continue to be long-term ambitious,” he said. “To the extent that in the medium-term things become open to us, of course we’ll be looking at it.”