With Altice USA announcing its formal separation from European parent company Altice NV on Friday, speculation is again brewing that the newly spun off U.S. cable company will soon bring its cost-trimming business model to a new acquisition.
In a note to investors earlier this week, MoffettNathanson analyst Craig Moffett said that while Altice’s bid last summer to buy Charter Communications may have fallen short, he continues to like the chances of the company buying midsized operator Mediacom.
“To be sure, the company needs to reduce leverage before they can pursue acquisitions. But eventually, they will be looking to buy,” Moffett wrote. “With cable valuations now more reasonable, Altice USA working its margin magic on a new target would be a nice catalyst.”
Mediacom chief executive Rocco Commisso has signaled that the privately held company, worth an estimated $4.3 billion, according to Forbes, is available.
Moffett, however, makes it clear that he and his teammates aren’t “starry eyed bulls” in regard to their assessment of Altice USA.
“The company’s Cablevision assets are still challenged; they face high fiber overlap in their footprint and enjoy an already-high broadband penetration rate of 52% today (leaving them with more to lose and less to gain than their peers),” Moffett wrote. “If and when Verizon Fios pivots to a $79 per month Gbps broadband-only offer as their lead offer (today they over-emphasize a sub-par video offering), it would be hard for Altice USA to respond. At best, it would be cap pricing. At worst, it would threaten market share. And there is also the nagging fear that they are simply cutting too much cost, as appears to have been the problem with SFR for Altice NV."
As for the spinoff, it officially took place this morning, with a special distribution of Altice NV’s 67.2% interest in Altice USA to Altice NV shareholders. With the spinoff, Altice NV formally changed its name to “Altice Europe N.V.”
Altice kingpin Patrick Drahi, copresident, CFO Charles Stewart and Gerrit Jan Bakker, treasurer, have been appointed to the Altice USA board of directors.