The $17.7 billion purchase of Cablevision (NYSE: CVC) by Altice will likely get federal approval, New Street Research says, but meeting FCC public interest guidelines will likely drive up cost for the French telco magnet.
In a note to investors, New Street Research said it doesn't anticipate that the Committee on Foreign Investment in the United States will object to the deal on anti-trust grounds.
But the investment bank added: "We do think there will be an issue at the FCC on the nature of the public interest benefit." Altice, it said, "has a reputation for operating with significant leverage, and increasing profits by cutting back on customer service. As improving customer service and network performance are two goals for this FCC, we think there may be some debate on how this deal serves the public interest."
Speaking to investors last week, Altice Chairman Patrick Drahi said nothing about specifically about cutting Cablevision's customer service. However, Altice did lay out an aggressive margin target approaching 50 percent.
"We will probably run things a little differently," noted Altice CEO Dexter Goei.
New Street Research also said local government officials in New York may raise objections to the deal "for the sake of gaining binding commitments on certain issues." For example, officials in Humboldt, Calif., recently stated their opposition to Altice's $9.1 billion purchase of Suddenlink Communications, arguing that "distant" owners of communications equipment "reduces competition, threatens media localism and harms information diversity." New Street Research said this could be a "template" for how other local officials will react to Altice's Cablevision purchase.
Still, the investment bank thinks Altice will ultimately get sign-off on its proposed Cablevision purchase
"To be clear, we believe the Altice deals will be approved, but we don't think it will be as easy as anticipated and may entail some costs currently not anticipated," New Street Research said.
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