Altice has announced a financial restructuring aimed at supporting future takeover activity following the rejection of its €10 billion ($11.2 billion) offer for Bouygues Telecom earlier this week.
The cable company controlled by billionaire Patrick Drahi has set up a new Dutch entity that will acquire the company currently trading as Altice . (See Altice Queries Bouygues' Motives in Rejecting €10B Bid and Altice Confirms Bid for Bouygues Telecom.)
The Altice holding company will then divide stock into A shares, each of which will carry one voting right and be worth €0.01 ($0.01), and B shares, worth 25 voting rights and €0.25 ($.028) per share.
Shareholders are to receive three A shares and one B share in exchange for each existing share in Altice.
"Pursuant to the Merger, the group will benefit from a powerful equity acquisition currency without prejudicing voting control of the company's founding shareholder group," said Dexter Goei, Altice's CEO, in a company statement. "This will further strengthen Altice's position in the next phase of value-enhancing growth."
Drahi, Altice's founder and chairman, currently owns 60% of Altice and bankers quoted in a Financial Times story have said the latest restructuring will allow him more easily to fund takeover activity through a mixture of equity and debt.
The operator has already been active on the acquisition trail -- having announced takeovers of French mobile operator SFR , Portugal Telecom SGPS SA (NYSE: PT) and US cable company Suddenlink Communications during the past 18 months -- and appears determined to seal more deals as soon as possible. (See Altice Eyes Next US Cable Prizes, Altice to Buy Suddenlink in $9.1B Deal and What's It All About, Altice?)
"They are very much focused on executing more deals since Drahi wants to close them before interest rates rise," said Kohulan Paramaguru, an analyst with Exane BNP Paribas, in an email sent to Light Reading.
Although Altice's share price has risen by 67% since the beginning of the year, there has been concern the company has relied too heavily on debt to fund takeover activity.
Altice was quick to point out that it had intended to fund its €10 billion ($11.2 billion) acquisition of Bouygues Telecom mainly through equity when responding late Thursday to Bouygues' rejection of its offer. (See Altice Queries Bouygues' Motives in Rejecting €10B Bid.)
Altice also insisted that it had not planned to announce major headcount reductions at Bouygues Telecom following a takeover.
The company has developed a reputation for boosting cash flow at acquired businesses by slashing costs, but claims to have realized savings at SFR without making sharp reductions to employee numbers.
Altice's net debt was about 4.7 times annual EBITDA at the end of March -- high even by comparison with Europe's heavily indebted telecom incumbents -- and higher interest rates would obviously make takeovers much costlier if they were funded largely through borrowings.
Drahi was thought to have offered a huge premium for Bouygues Telecom, which analysts have reportedly valued at about €5 billion ($5.6 billion), out of concern that rising interest rates would have made a takeover even costlier at a later date.
— Iain Morris, , News Editor, Light Reading