Who might make a play for Altice USA's Suddenlink systems?

Last week's report that Altice USA is exploring a sale of its Suddenlink assets, a piece of the company focused on rural markets largely located in the south and central US, sparked speculation about who might take a run at it. Those theories included other cable operators, both large and small, and the private equity sector.

And the amount that Altice USA reportedly is seeking for those assets – in the neighborhood of $20 billion – also raised eyebrows. Analysts wonder if Altice USA already missed its window to generate that kind of valuation out of the Suddenlink systems.

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

Altice USA, which acquired Suddenlink in 2014, declined to comment on the original report. But industry watchers see a sale as a distinct possibility.

"We have been getting questions on a possible Suddenlink deal all week, so the story isn't a huge surprise," the analysts at New Street Research wrote in a research note issued late last week. "We think a deal is reasonably likely."

In a follow-up post issued Sunday (July 24), New Street Research analyst Jonathan Chaplin viewed a Suddenlink sale as "plausible."

Possible suitors

But who would be in the game? Analysts were quick to outline who the potential buyers might be should Altice USA ultimately pursue that path.

Cable One, a rural-focused cable operator that's been active in M&A in recent years, seems a good potential fit and a party that "would at least be interested," MoffettNathanson analyst Craig Moffett explained in a research note.

The acquisition of a company the size of Suddenlink would be transformational for Cable One, Moffett wrote. He has previously argued that Cable One needs to become an "acquisition machine" to sustain its lofty value. "They have made no secret of their desire to get bigger and, other than privately-held Mediacom [Communications] … there is no other meaningfully-sized cable operator in the country that might reasonably be acquirable," he explained.

Cox Communications, a privately held operator, "can't be ruled out," Moffett added. "But they have expressed no particular interest in acquisitions."

Update: Any involvement from Cox in a potential sale of Suddenlink would be a tad surprising, given that Cox 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.

Moffett said Comcast or Charter Communications could afford Suddenlink, but he's skeptical that either would make a play for assets deemed non-strategic – the addition of Suddenlink's footprint would not materially change the size and scale of either operator.

New Street Research has a different view, holding that Charter, Cox, Mediacom and Cable One would be interested in the assets, with Charter having the most contiguous markets. But Cox, Mediacom and Cable One might need help financing a deal the size of Suddenlink.

"If Goldman is running a process, we would assume every large and medium cable company will be interested," the New Street Research analysts added.

Another potential option is private equity or an infrastructure fund, a path Altice USA travelled when it sold off 49.99% of Lightpath, its business-focused fiber unit, in 2020 to Morgan Stanley Infrastructure Partners (MSIP).

"Fortunately for Altice, we think there does appear to be a rather robust appetite for broadband investments of all kinds," Moffett wrote. "While there have been no significant private transactions this year, anecdotal evidence suggests both significant amounts of capital, and a high degree of interest."

A $20 billion pipe dream?

But there's plenty of skepticism about whether any parties would be willing to pay $20 billion for the assets, a figure that implies a multiple of 14x to 15x based on an assumption of Suddenlink EBIDTA of $1.3 billion to $1.4 billion.

Moffett acknowledged that he had previously "mused that a rural cable asset like Suddenlink might fetch as much as 15x EBITDA. Today, that seems like a pipe dream. A multiple closer to 12x, or even 10x, might be as good as it gets."

The multiples being bandied about in the Bloomberg report "might have been a reasonable valuation range in 2020 or 2021," Moffett added, citing current factors such as rising inflation and interest rates. But he does think Altice USA could get a "fair" price from an auction, just not a price that it could've gotten nine to 12 months ago.

New Street Research is a little less skeptical, holding that a premium could be warranted based on factors such as synergies (in the case of a strategic buyer), if Suddenlink's footprint is deemed under-penetrated (based on an assumption of 44% today, up from 40% penetration in 2018), and the tax benefits coming from a cash sale to a strategic or financial buyer.

But a sale of Suddenlink would also signal a big shift in strategy at Altice USA, which is at the front edge of an ambitious plan to upgrade about two-thirds of its footprint with fiber, including some 2.5 million homes in some of the Suddenlink areas, by the end of 2025.

"If we are to believe Bloomberg’s reporting, Altice's 180 degree turn to reinvest in the network is now being met with a new 180 degree turn to sell off what had been positioned to be the company’s growth engine," Moffett noted.

Running the regulatory gauntlet

In a separate note, Blair Levin, a policy adviser at New Street Research who once served as chief-of-staff for former FCC Chairman Reed Hundt, said he does not expect a buyer, even a large cable operator, to encounter "material difficulties in obtaining antitrust approval."

But he does believe a deal could provide the FCC with an opportunity to seek out commitments from a buyer, perhaps some related to employment or the Commission's Affordable Connectivity Program (ACP).

However, Harold Feld, SVP at Public Knowledge, speculated that Democrats could explore network neutrality conditions (a new bill is reportedly in the works).

Meanwhile, Moffett notes that a regulatory review would not just include the FCC and US Department of Justice, since individual states could join the fray and seek policy objectives.

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— Jeff Baumgartner, Senior Editor, Light Reading