Altice Shares Climb as U.S. Spinoff Plan Reassures Investors

(Bloomberg) -- Shares of Altice NV and its U.S. cable-television business jumped after the telecommunications carrier said it will spin off the American unit, letting billionaire Patrick Drahi maintain control of both while he pursues a turnaround in Europe.

Altice’s 67 percent stake in Altice USA Inc. will be distributed to shareholders by the end of the second quarter, the companies said Monday. Drahi’s holding company will have at least 51 percent of the voting power of the U.S. company after the transaction. Before the spinoff, Altice USA will pay a $1.5 billion dividend to shareholders, meaning the parent company gets a $1 billion parting gift.

The split lets Altice USA continue on its expansion path unfettered by its parent company’s struggles in Europe, where Drahi is seeking to appease investors worried about group debt that tops $50 billion. The billionaire has indicated he’d like to participate in consolidation in the U.S. pay-TV market and perhaps enter the wireless business there.

“This will certainly go a long way to steady people’s nerves and to allow him to continue to expand in the areas where he wants to,” said Freddie Lait, chief investment officer at Latitude Investment Management. “He has to balance out his empire somehow.”

Altice USA rose 14 percent to $24.08 at 9:36 a.m. in New York, giving the company a market value of $17.7 billion. Through Monday, the stock had dropped 30 percent since the division’s initial public offering in June. The parent advanced 9.6 percent to 10.36 euros in Amsterdam for a market value of 12.3 billion euros ($14.7 billion).

In August, Altice considered seeking funding to make a bid for Charter Communications Inc., the second-largest U.S. cable company. The American unit of Drahi’s company has $21.2 billion in debt, mostly from the acquisitions of Cablevision Systems and Suddenlink Communications in 2015 and 2016.

Profit Forecast

In Europe, Drahi has made management changes, put a stop to acquisitions, and committed to selling assets and bringing down leverage in the European business to four times earnings before interest, taxes, depreciation and amortization, or Ebitda, from about 5.1 times.

The parent company cut its full-year profit forecast in November, citing slower than expected progress at reducing costs at its French phone and cable businesses. The announcement sparked a 60 percent plunge in Altice NV shares by the end of that month.

“This is an important moment for the group to focus on existing operations,” Altice USA Chief Executive Officer Dexter Goei said on a conference call. “Over time we suspect that the clarity and simplicity of the structure will help our investor base be supportive of things going forward. The DNA of the group is to try and grow strategically over time.”

The spinoff will make Altice USA a more liquid stock, give the company a more diverse shareholder base and remove the overhang of the European business’s operating challenges, Jonathan Atkin, an analyst at RBC Capital Markets LLC, said in a report to clients. Also, the separation will make it easier to sell the U.S. business in the future, he wrote.

Altice NV will use 675 million euros of the cash that it gets from the dividend to prepay a credit facility, ending up with net debt of about 31 billion euros. The American unit will fund the dividend with its $500 million credit facility and other debt.

--With assistance from Guy Johnson and Matthew Miller

To contact the reporters on this story: Crayton Harrison in Los Angeles at tharrison5@bloomberg.net, Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Phil Serafino, Ville Heiskanen

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