Altice USA cans plan to sell Suddenlink

No sale. That was the conclusion the board of Altice USA made following a strategic review of Suddenlink, a portion of its cable business focused on rural parts of the south and central US.

"Over the course of the past several months, the Company has been considering options for, including the potential sale of, its Suddenlink business," Altice USA said in a statement issued Thursday. "Following this evaluation, the Board of Directors has unanimously determined that continuing to operate Suddenlink and pursuing the Company's long-term business plan represents the best path forward for Altice USA and its stockholders."

Figure 1: (Source: Richard Levine/Alamy Stock Photo)

New Street Research's analysts upgraded Altice USA to "buy" in July, writing that a "deal is reasonably likely" and that a deal could net a multiple that is more attractive than the market had assumed. With word that Suddenlink will be retained by Altice USA, the firm said today that it is heading back to the sidelines, downgrading the stock to "neutral" and lowering its price target on the stock to $4.

"Moreover, we thought a sale of Suddenlink would pave the way for management taking the Altice private," New Street Research analysts explained in a brief note issued this morning. "They obviously didn't get an offer at a price they considered adequate."

Update: "With Suddenlink formally off the table, operating results will be the primary driver of share performance, and we're cautious on that front," the analysts at ISI Evercore explained in a research note in which they lowered their price target on the stock to $5. The company, they added, "faces a tough competitive environment and any benefits from the ongoing fiber overbuild will take time to become clear, while the costs will burden FCF [free cash flow] for at least two more years."

Altice USA shares closed Thursday at $4.10, down 46 cents or 10.09% for the day.

The New Street Research analysts said the pullback has been "widely anticipated" of late, as the current value of Altice USA shares "reflects almost no expectation of a sale." New Street Research said it intends to reset its thesis on the company in the coming weeks.

Reports that Altice USA was weighing a sale of Suddenlink surfaced in July, sending the stock up more than 22%. Early scuttlebutt was that the company, looking to pay down debt, hoped to sell off its rural-focused Suddenlink cable properties for up to $20 billion. But reports also warned that Altice USA could ultimately decide to hold onto the unit.

Interest focused on buying pieces of Suddenlink

Early on, specultion swirled that Suddenlink might attract interest from Cable One, Mediacom Communications or Cox Communications. Cox seemed an unlikely option, given that Cox had sold off a chunk of what is now Suddenlink to Jerry Kent's Cebridge Connections (which eventually rebranded as Suddenlink Communications) some 16 years ago.

Analysts also surmised that Comcast or Charter Communications could afford Suddenlink. But they were skeptical that either would try to buy assets deemed "non-strategic," as Suddenlink's footprint would not materially change the size and scale of either operator.

Last month, Dexter Goei, Altice USA's former CEO and current executive chairman, acknowledged that the company had received inquiries from potential buyers about acquiring separate pieces of Suddenlink. That interest was not strong enough to give rise to a deal.

Altice USA acquired control of Suddenlink in 2015 and soon after made a play for Cablevision Systems, an operator that serves parts of New York, New Jersey and Connecticut.

Altice USA is pushing ahead with a plan to upgrade about 6.5 million passings to fiber by 2025 and pair that upgrade with the launch of symmetrical, multi-gigabit broadband speeds. Altice USA, which will focus a portion of that fiber-to-the-premises (FTTP) upgrade activity on the Suddenlink properties, ended Q3 with 1.9 million FTTP locations passed and 135,000 fiber subs.

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— Jeff Baumgartner, Senior Editor, Light Reading