January 10, 2018

Breakingviews: Drahi U turn Makes Altice’s Problems Easier to See

by Breakingviews.

Patrick Drahi has made it easier for Altice shareholders to see if he is doing a good job. The founder of the cable and telecom group is spinning off the U.S. unit that was formed in 2015 at a cost of almost $30 billion including debt. He is also reorganising a struggling European business. The new structure will show clearly whether he is doing enough to tackle problems at home.

Drahi’s Netherlands-based group said late on Monday it would give shareholders its 67 percent stake in Altice USA after the unit pays a $1.5 billion dividend. That helps insulate the U.S. business from problems in Europe. A slowdown in France and Portugal pushed the parent’s shares down 46 percent in the last two months of 2017. Altice USA shares fell 10 percent over the same period, partly because of concern that its healthy cash flows might be diverted to service group debt of 50 billion euros.

A split reduces that risk, though Drahi still controls Altice USA. Its minority shareholders can now focus on the cable assets’ encouraging growth: analysts expect EBITDA to rise by more than 8 percent this year. The drawback is more debt, since the Dutch parent is extracting 900 million euros in pre-spinoff dividends. In the third quarter of 2017, Altice USA’s net debt was 5.4 times the past year’s EBITDA. Adjusted for the dividend, that ratio would have been almost six times.

Shareholders and creditors in the Amsterdam-listed parent have the most reason to be happy. They get a dollop of cash, 625 million euros of which will be used to prepay a credit facility that ballooned in size after Altice’s buyout of minority investors at French subsidiary SFR. The reporting structure is also tidier for being divided into three units: Altice France, Altice International and Altice Pay TV. That will help simplify a convoluted series of payments between French and international operations for pricey content, such as sports rights.

But with transparency comes accountability. For example, less ambiguity about content costs and monetisation means the French division, whose revenue fell last year, will stand or fall on its own merits. Drahi’s new transparent outfit leaves him little scope to hide.


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