Move over, Brian Roberts, Rob Marcus and Tom Rutledge. There's a new cable kid in town.
Altice CEO Dexter Goei made that point abundantly clear Wednesday during the company's conference call with financial analysts about its $9.1 billion deal to purchase a 70% stake in Suddenlink Communications . Referring to Suddenlink as "our first US acquisition," Goei said the company has grand designs on the huge, and still somewhat fragmented, US cable market. (See Altice to Buy Suddenlink in $9.1B Deal and What's It All About, Altice?)
Noting that Altice executives see "significant in-market consolidation opportunities in the US," Goei said every cable operator "below Comcast effectively is in consolidation mode. So it augurs for an interesting next six months to two years. We certainly expect to be right in the middle of that consolidation."
Goei, whose company is reportedly wooing Time Warner Cable Inc. (NYSE: TWC) as well, did not spell out which other US MSOs might be in Altice's sights. But he emphasized that Altice, which has concentrated on Europe, Israel and the Caribbean up till now, intends to be a major American player from now on.
Assuming that the Suddenlink deal passes US regulatory review and goes through as planned, American properties will make up 12% of Altice's portfolio. Goei said the company's goal is to boost that portion to 50% of the company's holdings over time to balance out its investments between the US and Europe, although he cautioned that "that's not a golden rule."
The unexpected announcement of the Suddenlink deal and Goei's comments sent US cable stocks both soaring and falling yesterday. Shares of Time Warner Cable and Cablevision Systems Corp. (NYSE: CVC), seen as another key takeover candidate, rose markedly while shares of Charter Communications Inc. , which now faces a strong rival in its pursuit of TWC, dipped.
Analysts are generally mixed over whether Altice will pursue Cablevision, whose CEO James Dolan effectively put the company up for sale at the cable industry's INTX Show in Chicago two weeks ago. While Cablevision operates a large, highly valued cable system in the prime New York market, some analysts argue that its valuations are too high and its competition position is too vulnerable in a market where it fiercely competes head-to-head with Verizon Communications Inc. (NYSE: VZ)'s all-fiber FiOS platform. (See Cablevision Chief Plays the Dating Game.)
But, with Charter already pursuing Time Warner Cable and now negotiating a new deal with Bright House Networks , analysts strongly believe that more market consolidation is coming. The big question now is which company will be the Great Cable Consolidatior, Altice or Charter? (See Charter, Bright House: The Wedding's Back On.)
For all the excitement created by Altice's move earlier this week, Craig Moffett, for one, still thinks that Charter has the upper hand in the upcoming duel for TWC because it can offer more cash in its takeover bids than Altice right now. In a note to investors yesterday, Moffett, senior research analyst at MoffettNathanson LLC , also noted that Charter is less leveraged and better capitalized than Altice.
But, no matter what, TWC will likely go for a higher price now, assuming company executives decide that they don't want to stay independent. "The price for TWC just went up," Moffett wrote. "The value of a TWC deal to Charter therefore just went down."
Moffett, who criticized Altice for buying Suddenlink "at an unsupportably high price" and assuming improbably high cost synergies from the deal, also thinks that Charter will still emerge as the industry's grand consolidator, not the ambitious French communications giant. But he notes that Charter may end up having to pay a prohibitive sum for that privilege.
"Yes, Charter still has the inside track to being the industry's consolidator," he wrote. "But if they have to overpay to consolidate, it would be a pyrrhic victory."
— Alan Breznick, Cable/Video Practice Leader, Light Reading