Expanding in U.S., Altice Plans to Buy Cablevision for $17.7 Billion

 

Altice, the European telecommunications giant, on Thursday said it would buy Cablevision for $17.7 billion, as the company pushes further into the fast-consolidating United States cable market.

If approved, the deal, for a company whose main operations are in the affluent suburbs surrounding New York City, would make Altice’s expanded American operations among the largest cable operators in the United States, behind Comcast, Time Warner Cable, Charter Communications and Cox Communications.

That further consolidation could subject the deal to intense regulatory scrutiny. But for Altice, which is based in Amsterdam and made its first foray into American cable this year when it agreed to buy Suddenlink Communications, a St. Louis-based cable operator, for $9.1 billion, the Cablevision deal is a chance to expand into the lucrative Northeast market.

On a conference call with analysts, Dexter Goei, Altice’s chief executive, said the company’s ongoing expansion in the United States had focused on the Northeast, where customers were more willing to pay for premium services.

“It’s an expansion into the most attractive and affluent parts of the United States,” said Mr. Goei, an American former investment banker.

Altice, founded and controlled by the 52-year-old French-Israeli billionaire Patrick Drahi, already operates big mobile and cable units in countries including France and Switzerland, and it is known for aggressively cutting costs to increase profitability in the companies it takes over. That has not always made for happy customers, when the company’s execution of its plans does not live up to its ambitions.

But Mr. Drahi, a telecom engineer by training, is also known for investing in technology in the cable systems he acquires. It remains to be seen if Altice will see opportunities for technology upgrades at Cablevision, which has met serious competition in recent years from fiber-optic broadband Internet and television offerings from Verizon.

Mr. Drahi, who analysts have said has financial access to perhaps $30 billion to invest in United States cable television, might be better able to pour money into Cablevision’s technology than the Dolan family, which founded and still controls the company.

“We will be in a stronger position, as in all other markets in which we operate, to deliver the best services, invest in the most advanced technology, and develop innovative products for the benefit of our customers,” Mr. Drahi said in a statement on Thursday.

Under the terms of the deal, Altice has offered $34.90 in cash for each Cablevision share, or a 22 percent premium to the company’s stock price on Wednesday. The deal price also includes debt.

On Wall Street, Cablevision’s stock opened 16 percent higher, at $32.94 a share, Thursday morning.

Shares in Altice rose 0.6 percent in late trading in Amsterdam on Thursday.

Altice’s proposed takeover of Cablevision — one of the American market’s last stand-alone cable companies — is likely to draw significant concern from United States regulators, particularly as the number of players in the broadband and cable television market shrinks.

If regulators approve, the deal is expected to close in the first half of 2016.

Charter Communications, a cable operator with ties to the billionaire John C. Malone, has already agreed to buy Time Warner Cable after its archrival Comcast failed to complete a deal. AT&T recently completed a $48.5 billion takeover of the satellite television operator DirecTV.

Adding Cablevision and its 3.1 million customers would let Altice jump into the top echelon of cable companies in the United States. Cablevision assets that Altice would acquire include the newspapers Newsday and amNewYork, as well as a local-television news channel, News 12 Networks.

Altice executives said on Thursday that they would not sell the news media properties, even though they were losing money.

“We want to keep control of the media assets,” Mr. Goei said. “They are a core part of the local community that we will continue to invest in.”

Although Altice is primarily a cable and telecom operator in Europe, it does have a nascent news media business that includes the French newspaper Libération, the magazines L’Express and L’Expansion, as well as i24, an Israeli television station. In late July, Altice also announced a strategic partnership with NextRadioTV, a French group that owns BFMTV, a French business television station, and RMC, a radio broadcaster in Monaco.

The Altice deal would not affect other companies controlled by the Dolans, including the Madison Square Garden Company, which owns the sports arena of the same name, as well as the New York Knicks basketball team, the New York Rangers hockey team, and AMC Networks, a cable channel company.

James L. Dolan, Cablevision’s chief executive, said in a statement that his family’s business, started four decades ago by his father, Charles, would be in good hands with Altice.

“Since Charles Dolan founded Cablevision in 1973, the Dolan family has been honored to help shepherd our customers and employees through the most extraordinary communications revolution in modern history,” he said.

“Now, nearly half a century later, the time is right for new ownership of Cablevision and its considerable assets. We believe that Patrick Drahi and Altice will be truly worthy successors.”

Altice said that it would finance the deal with $14.5 billion of new and existing debt, as well as with cash reserves. The private equity firm BC Partners and the Canada Pension Plan Investment Board, two minority investors in Suddenlink, also have the option to buy a 30 percent stake of Cablevision’s equity, according to a statement from Altice.

If the deal is completed, the United States would represent roughly a third of the company’s annual sales, Altice said on Thursday.

Since starting Altice in 2002, Mr. Drahi has earned a reputation for taking on larger incumbents in some of Europe’s largest markets, as well as scooping up smaller assets in countries like Switzerland and Belgium that he has developed into larger operations.

In Europe, Altice has built a reputation for ruthlessly rooting out operating costs, while at the same time investing heavily in new infrastructure — with a focus on upgrading fixed-line networks with the latest fiber-optic technology. The priority, analysts said, is to provide subscribers with faster Internet connection speeds at competitive prices.

Just as it has elsewhere, Altice would size up Cablevision and “find out item by item where there is potential improvement,” said Nicolas Paulmier, a London-based partner at Cinven, a private equity group that has worked closely with Mr. Drahi as an adviser and shareholder for more than a decade.

Altice said it had identified about $1 billion in costs that it believed it could cut at Cablevision. Much of that, Mr. Goei said, would come from streamlining customer service. About 14 million calls each year to Cablevision’s call centers, for example, involved billing questions, he said.

“Just by simplifying billing practices, we should be able to significantly reduce that,” Mr. Goei said. “There are significant opportunities to ramp up and become as efficient as we can be.”

In France, where Altice bought the mobile operator SFR from Vivendi in 2014 and combined it with Altice’s cable company, Numericable, the integration has so far been a mixed success.

Revenue per customer is increasing, thanks in large part to an increase in subscription rates and an effort to push customers with ADSL broadband access to purchase more expensive fiber-optic services. But over the past year, SFR-Numericable has also lost more than 1.2 million French subscribers, particularly among prepaid mobile clients amid heated competition from low-cost competitors.

Some French consumer associations have complained of deteriorating customer service and longer waits to resolve technical problems. A group representing rural customers filed a class-action suit against SFR-Numericable in May, alleging that the company had signed up hundreds of subscribers to a more expensive 4G wireless service in areas where the company had not yet upgraded its network to provide it.

The group has also faced complaints about late payments to numerous French subcontractors and suppliers. Over the summer, the City of Paris also threatened to shut down the SFR-Numericable network until the company paid around 8 million euros, or about $9 million, in overdue infrastructure fees. (The company settled those arrears in July.)

Analysts say Altice has focused primarily on offering premium services across Europe, like superfast broadband and pay-TV channels, while avoiding price wars with local rivals.

In France, Numericable-SFR has charged higher prices than some of its competitors for broadband packages, while focusing on significant cost-cutting, including layoffs.

“There’s been a lot of cost-cutting,” said Stephanie Baghdassarian, a telecom analyst in Paris for the American research company Gartner. “They focus on that because cable is such a competitive market.”

Altice’s new focus on the United States comes as regulators in Europe have grown increasingly wary of cable industry consolidation — potentially limiting Mr. Drahi’s options for further expansion there.

The French economy minister, Emmanuel Macron, warned telecom companies in May against further consolidation in France, expressing concerns about the impact on employment and consumer choice. This month, the communications companies Telenor of Norway and TeliaSonera of Sweden dropped plans to merge their subsidiaries in Denmark after European Union competition authorities threatened to block the deal.

Through its acquisition of Suddenlink Communications and its deal for Cablevision, if completed, Altice has created a beachhead for potential future American deals. Mr. Goei told analysts that Altice might eventually look to float a United States stock offering for its American assets.

“We’ll clearly be looking at that in the future,” Mr. Goei said.