Multinational cable and telecommunications provider Altice said on Thursday that it would purchase Cablevision Systems for $34.90 per share in cash – a total of $17.7 billion, including debt.
This price implies a premium of more than 22 percent in relation to the stock’s closing price on Wednesday.
The European company plans to finance the acquisition by raising approximately $8.6 billion of new debt, plus an extra $3.3 billion in cash that will come from an equity raising. Following the transaction, Cablevision will have a net debt of $14.5 billion.
Is The Offer Too High?
According to many analysts, Altice’s offer is quite high, at 9.4 times consensus estimates for 2016 EBITDA, especially given Cablevision’s recent poor financial performance and shrinking subscriber base. For instance, the leading player in the United States, Comcast Corporation CMCSA CMCSK, trades at 7.3 times consensus estimates for 2016 EBITDA.However, it seems like Altice’s bet is not based on profitability, but rather on market presence: It’s all about getting into the United States.
Altice's Chairman On Revenue Expectations
In fact, Altice’s Chairman Patrick Drahi told investors on Thursday that he intends to eventually derive at least 40 percent of revenue from the United States. However, plenty of cost-cutting measures need to be implemented, and analysts have noted the targets are quite ambitious.A Wall Street Journal article added, “Even if Mr. Drahi is up to the task, steep cost cuts could further undermine Cablevision’s ability to compete. Comcast and Charter have been increasing investment in areas like technology and customer service to gain market share. Altice would be going in the opposite direction, a risky move.
"Even so, this is unlikely to be Altice’s last move in the U.S. Mr. Drahi looks set to snap up smaller cable operators. To get real scale, though, he would likely need to buy closely held Cox Communications," author Miriam Gottfried expounded.
For his part, Cablevision’s CEO James L. Dolan assured, "The time is right for new ownership of Cablevision and its considerable assets."
Disclosure: Javier Hasse holds no stakes in any of the securities mentioned above.
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