IDC Comment: Altice to buy Cablevision: making the most of cheap money, while it lasts
17 Sep 2015
Altice, the European telecoms group, has made a bid to acquire US cable TV operator Cablevision for $17.7 billion. Both companies' boards have approved the deal, which is expected to close in the first half of 2016.
Patrick Drahi's clear ambition is to build Altice, which started as a small regional cable player in France, into an empire. His realization of that ambition has been enabled, in large part, by cheap money. In the current era of ultra-low interest rates, Altice has borrowed huge amounts of money to fund a series of very large acquisitions, most notably that of French mobile operator SFR and of the Portuguese incumbent telco, Portugal Telecom. Altice's appetite for large European acquisitions remains voracious. Earlier this year it made a €10 billion offer to acquire the French operator Bouygues, although that bid was eventually rejected.
But Drahi's ambitions are not confined to Europe: he wants a piece of the US market too, and the first step in that direction was taken in May when Altice acquired the US regional cable player Suddenlink. The first attempt to establish a much bigger US presence stalled, when Altice dropped out of battle with Charter Communications to acquire US cable giant TWC, Drahi stating that it "was not ready" for such a large acquisition. However, today's announcement clearly indicates that although it may have been biting off more than it could chew with TWC, Altice has by no means abandoned its plan to expand its empire in the US.
The size of the Cablevision deal, together with Altice's previous US cable acquisition, mean that there will be close regulatory scrutiny of the proposed transaction. This is unlikely to be a showstopper, because the combined market share of Cablevision and Suddenlink would make it only the fourth largest US cable TV player. However, Altice will need to work hard on allaying regulators' wider concerns about consolidation in the US cable market, in the context both of Charter's acquisition of TWC, and of Altice's clear ambitions to be a bigger player in US telecoms and TV.
Indeed, we may see further aggressive moves from Altice quite soon. Its acquisitions have been financed by debt to a large extent, and there are strong indications from financial authorities that interest rates will be moving up again in the near future. With the end of ultra-cheap money in sight, Drahi may wish to make the most of his window of opportunity before it starts to close. In the US, we may see Altice bid for additional cable assets in order to expand its presence and market share. More likely still is a move into the US mobile market. A major strategic trend for US and European telcos is to combine fixed and mobile operations, in order to address the growing demand for services and service bundles that span both fixed-line and mobile services. Altice has already moved in that direction in France and Portugal, and there is little doubt that it will want to do the same in the US, to avoid being locked out of the growing portion of the market that wants a fixed-mobile bundle deal. One possibility would be for Altice to set up as an MVNO in the US. Another possibility would be to acquire a US mobile operator. Last year another French tycoon, Xavier Niel, made a bid for T-Mobile USA which was ultimately unsuccessful. Patrick Drahi is certainly not lacking in ambition, and while the window of cheap money remains open, perhaps he is contemplating an attempt to succeed where Niel failed.
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