Altice And The Future Of The US Pay-TV Industry

On Monday last week, Altice, the fourth largest US pay-TV operator, laid out the details of its planned IPO (Initial Public Offering). With a projected initial public stock price offering of $27-$31 per share, the 45.5 million shares to be offered will mean that the company will raise between $1.3 billion and $1.4 billion, valuing the whole business at around $20 billion. In addition to raising the additional funds via the planned IPO, creating a $20 billion public vehicle will enable Altice to directly use equity to fund its continued US acquisition strategy. Corporate debt issuance deals will also become cheaper to fund, due to the tighter regulatory and reporting requirements in place around public companies, thereby significantly increasing the war chest available to Altice USA.

The Altice Approach

With 4.9 million US customers, Altice is now the fourth largest pay-TV operator since it moved into the US market through its formal founding in 2016, on the back of its acquisition of  Suddenlink communications for $9.1 billion and its $17 billion buyout of Cablevision Systems. Patrick Drahi, the founder of Altice has successfully built a global communications conglomeration on the back of successful debt-fueled acquisitions. With a current market capitalization of €32.9 billion ($36 billion), Altice NV is listed on the Amsterdam Stock Exchange, with its headquarters also in the same city and with its main markets in France, Portugal, Israel and now the US.

The Altice approach has underlined the power of using an aggressive acquisition strategy to both build an international heavyweight and also to break into new markets through buying out and merging existing players. From a financial institutional point of view, it also shows the ability to sell capital for acquisition in return for equity stakes. This both provides the financial institution with significant exposure to equity valuation increases through continued acquisitions inflating enterprise value, and also provides the promise of a bumper pay-day through a partial equity release via a public float on IPO day (Altice USA is currently 30% owned by BC Partners Ltd. and Canada Pension Plan Investment Board are expected to sell a third of their stake in the initial public float).

What The Future Holds For Pay-TV Operators

Part of the reason why Altice has been so successful at building a large global corporate combination in media and communications is its ability to both play a value acquisition strategy in a distressed marketplace – cable operators being subject to negative market sentiment in the cord-cutting obsessed world of Wall Street. At the same time, it is has been able to attract cheap capital from Financial partners sold on its acquisition strategy.

With traditional pay-TV undoubtedly facing secular long-term erosion in its market-share, the challenge for successful investors in the sector is to figure out which entity looks best placed to squeeze higher margins through acquisition-driven synergies while managing the transition from a mass –market proposition to a high-value premium niche offering as streaming video competitors tempt away the low margin mainstream audiences.