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Altice USA Embraces Home-Alone Strategy

Alan Breznick
1/11/2018
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Maybe Altice USA should just change its name, jettisoning the Altice brand altogether.

In a fervent bid to free itself from the debt woes plaguing its European parent, Altice USA is doing almost everything else it can to separate from its big daddy right now. As reported earlier this week, the US unit plans to spin off from the larger Altice conglomerate in the second quarter and stand (almost) entirely on its own in the big, bad world.

Fresh off its $2.2 billion IPO last summer, Altice USA aims to assert its new independence in a multitude of ways. Among other things, it intends to create its own dedicated management team and ownership structure, report its full earnings separately, lavish a $1.5 billion cash dividend on shareholders immediately before the spin-off this spring, buy back $2 billion in shares after the completion of the separation and reduce its leverage to 4.5 to 5.0 times net debt to earnings. (See Altice Spins Off US Biz, Rejigs in Europe and Altice Shifts From M&A to European Recovery.)

"It will lead to a complete separation of the two companies," said Altice USA Dexter Goei, speaking on a conference call with analysts and reporters to explain the corporate restructuring late Monday. "It will significantly simplify the way each company operates." In addition to Goei, who will continue to lead the US company while shedding his other role as CEO of the parent company, the dedicated Altice USA management team will consist of: Armando Pereira, special adviser for all operations; Hakim Boubazine, co-president and COO; and Charlie Stewart, co-president and CFO.

Altice USA will not be completely independent, however. Despite the spin-off of parent Altice's 67.2% interest in the US company, Altice founder Patrick Drahi will remain in charge of the company as controlling shareholder and chairman of the board. His stock holdings of the US company, though, will slightly decrease.

In another key move, Altice USA will take over the relatively new Altice Technical Services (ATS) unit, which the parent company created late last year to house all of the US field service, construction and fiber, design, outside plant maintenance, inside plant and field-based employees serving commercial accounts. But Goei stressed that he plans to keep that unit as a separate, third-party provider of services to Altice USA. "It will be run as if a separate business today," he said.

Altice USA -- which became the fourth-largest MSO in the US with 4.9 million customers through its recent purchases of Cable Systems and Suddenlink Communications -- will also give up its ambitions to grow through more acquisitions, at least temporarily. With its new focus on reducing debt and its continued emphasis on boosting operational efficiencies, the company has no plans to pursue other US cable operators in the near future.

"We continue to be long-term ambitious," Goei said. But for now, he said, the company will "focus on delivering best-in-class returns" on its cable operations. "We have a lot going on internally that we don't want to take our eye off the ball."


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What won't change for Altice USA is its core strategy of building fiber-to-the-home (FTTH) networks throughout the former Cablevision and Suddenlink footprints. Under that strategy, the MSO plans to extend fiber lines to nearly all of its 8.5 homes passed over the next few years. With more than 150,000 homes now passed by all-fiber networks, the company aims to boost this total to 1 million households by the end of this year.

Altice USA will also continue to roll out its new home communications hub, Altice One, throughout its regions. Plans call for deploying the hub, which was unveiled last fall, across the MSO's entire US footprint by the end of this year. (See Altice USA Plows Ahead With Hubs & Fiber.)

Finally, Altice USA will proceed with its intention to introduce its own cellular service. Following in the footsteps of Comcast and Charter, which have mobile virtual network operator (MVNO) deals with Verizon, Altice USA signed a deal with Sprint that will give the cableco full access to the cellular company's mobile network. Plans call for launching that wireless service in the second half of the year. (See Altice & Sprint Ink MVNO Deal.)

"There's no change whatsoever in our business strategy," Goei said. "There are no changes whatsoever to how we operate today."

Now the question is how much will investors be impressed. So far, things are looking up for the company In late trading Thursday, Altice USA's share price stood just below $23, up from just over $21 when the spin-off plans were announced late Monday.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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angelarichard
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angelarichard,
User Rank: Light Beer
1/16/2018 | 12:05:27 AM
Excellent Post
Excellent post. Way of presentation is superb. I liked it a lot. Thanks for sharing this valuable post. 
2mail2jburton@optonline.net
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2mail2jburton@optonline.net,
User Rank: Lightning
1/12/2018 | 3:10:22 PM
Clarification
ATS serves all accounts and services, not just commercial. 
brooks7
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brooks7,
User Rank: Light Sabre
1/12/2018 | 12:30:48 PM
Re: Spinhole
 

Well, according to the S-1 filed Altice USA loses money from operations right now.  The weird thing is they come up with this thing called "Adjusted EBITDA" and define it.

Here is the thing:  Much of the stuff they take out of the Adjusted EBITDA has nothing to do with EBITDA.  For example, 2 of the biggest line items in the calculation are the adding back of about $3.3B in Depreciation, Amortization and Interest.  But EBDITA should exclude all of this stuff anyway.

So, the way I read this is that they have this really complex way of trying to make themselves look good.  They go straight to a terrible bottom line and then say "well let's go back to EBITDA and it all looks wonderful."  Without a balance sheet and a cash flow statement, the whole thing is a bit iffy.

Note as well, they plan on sending a boatload of the cash to the European sub.  I would have to some work pre and post transaction, but I have no idea what the balance sheet looks like post-transaction.  I wouldn't touch it until I did.

Just my quick read.

seven

 
mendyk
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mendyk,
User Rank: Light Sabre
1/12/2018 | 10:22:01 AM
Re: Spinhole
Cablevision (aka Optimum) -- a pretty big player in the Northeast -- was the bigger play in the Altice "strategy." Even smallish cable operators generate profits -- which may be a 20th century metric. But apparently those profits are not enough to cover the debt burden created by the strategy.
Gabriel Brown
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Gabriel Brown,
User Rank: Light Sabre
1/12/2018 | 10:14:59 AM
Re: Spinhole
Even so, a French challenger operator acquiring a subscale MSO in Mid West America seems a stretch. It seems the intent was part financial engineering, and part to get a toe-hold in the U.S. The second part, at least, doesn't appear to be working that well.
mendyk
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mendyk,
User Rank: Light Sabre
1/12/2018 | 10:06:30 AM
Re: Spinhole
Growth through acquistion, as we know, is a common "strategy" for business success. The trick to making it work is to keep at least a half-step ahead of the debt that builds up in pursuit of this strategy. But if that debt catches up, the strategy falls apart.
Gabriel Brown
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Gabriel Brown,
User Rank: Light Sabre
1/12/2018 | 9:54:54 AM
Re: Spinhole
The thing that confuses me most -- and I'm not that close to this topic -- is why did Altice buy a US cable operator in the first place
mendyk
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50%
mendyk,
User Rank: Light Sabre
1/12/2018 | 9:30:53 AM
Spinhole
Happy talk aside -- though hats must be tipped for the "focus on delivering best-in-class returns" comment -- this sounds like a mess.
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