LOS ANGELES: Altice NV will spin off its US cable-television business, letting billionaire Patrick Drahi maintain control of both companies while he pursues a turnaround plan for the debt-laden European operation.
Altice’s 67% stake in Altice USA Inc would be distributed to shareholders by the end of the second quarter, the companies said in a statement.
Drahi’s holding company will have at least 51% of the voting power of the US company after the transaction.
Before the spinoff, Altice USA will pay a US$1.5bil dividend to shareholders, meaning the parent company gets a US$1bil 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 debt that tops US$50bil.
The billionaire has indicated he would like to participate in consolidation in the US pay-TV market and perhaps enter the wireless business there.
“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.”
In August, Altice considered seeking funding to make a bid for Charter Communications Inc, the second-largest US cable company.
The American unit of Drahi’s company has US$21.2bil in debt, mostly from the acquisitions of Cablevision Systems and Suddenlink Communications in 2015 and 2016.
Shares of Altice USA have dropped 30% since the division’s initial public offering in June, giving the company a market value of US$15.5bil. They rose 1.9% to US$21.50 in late trading yesterday.
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 amortisation 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% plunge in Altice NV shares by the end of that month. The company now has a market value of about €11.2bil (US$13.4bil).
The spinoff would make Altice USA a more liquid stock, give the company a more diverse shareholder base and remove the overhand 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 would make it easier to sell the US business in the future, he wrote.
Altice NV will use €675mil of the cash that it gets from the dividend to prepay a credit facility, ending up with net debt of about €31bil. The American unit will fund the dividend with its US$500mil credit facility and other debt. — Bloomberg