Altice USA unshackled from debt-laden parent in spinoff

Altice CEO Dexter Goei and founder Patrick Drahi
Altice chief executive and founder Patrick Drahi, seen here right of Altice USA CEO Dexter Goei, will maintain control over the newly spun off Altice USA operation. (Image; Brian Stanton/Altice)

Altice USA is being spun off as a standalone publicly traded company in a major reorganization that unshackles the American operation from its debt-bound European parent.

Altice founder and kingpin Patrick Drahi will maintain control over both Altice USA and the rechristened Altice Europe. The latter will be split into three subsidiaries—Altice France, Altice International and Altice Pay TV

The soon-to-be renamed and reorged parent, Altice NV, plans to distribute its 67.5% stake in Altice USA among shareholders, with completion of the spinoff expected to occur in the second quarter. 

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“Altice USA sees exciting opportunities in the U.S. market as we start 2018 with strong momentum,” said Drahi, who will retain 51% voting control over Altice USA, in a statement. 

“We have a full operational agenda to deliver best-in-class services to our customers, drive innovation and advance our fiber investment strategy,” Drahi added. The new organization structure will enable us to focus even more on executing this agenda while enhancing transparency for our investors. We remain confident in achieving the objectives we set out at the beginning of our journey in the U.S. and affirm the efficiency targets set out at the time of the acquisitions of Suddenlink and Optimum.”

Altice USA was formed in 2016 when the erstwhile Altice NV closed its purchases of Cablevision and Suddenlink Communications. The company was expected to continue shopping for U.S. cable assets. It also embarked on significant upgrade projects, such as its five-year plan to convert the former Cablevision footprint (now dubbed “Optimum”) to a fiber-to-the-home infrastructure. Altice also has plans to enter the U.S. wireless business via a recently signed MVNO deal with Sprint. 

Over the fall, however, Altice NV’s debt load—which exceeds $50 billion—hit a tipping point with investors. The parent company’s stock has cratered, and there has been concern among Altice U.S. investors that American expansion plans could be compromised. 

“The separation will allow both Altice Europe and Altice USA to focus on their respective operations and execute against their strategies, deliver value for shareholders, and realize their full potential. Both operations will have the fundamental Altice Model at their heart through my close personal involvement as well as that of the historic founding team. Altice Europe has tremendous,” Drahi said. 

Altice USA conducted a highly successful IPO last summer, raising $2.2 billion. 

"We were admittedly skeptics when Altice USA first debuted on the Nasdaq last year," noted MoffettNathanson analyst Craig Moffett, in a note to investors Tuesday morning. ..."Their U.S. properties were competitively more challenging than most, their leverage targets were dangerously high, and their valuation at the time just wasn't all that compelling. Importantly, they suffered from the connection to their European parent... 

"Last night's restructuring squarely addresses many of these issues," Moffett added. "And it does so at a time when Altice USA's share price is attractively low (every asset has its price, and we upgraded ATUS to Buy on November 10th, with an unchanged target price of $28, when its stock price had fallen to levels that were too cheap to ignore)."