Shares in Altice USA soared Thursday (July 21) after a report in Bloomberg News said the mid-sized cable operator was seeking a buyer for its Suddenlink Communications division that could fetch as much as $20 billion.
According to Bloomberg, Altice USA is working with Goldman Sachs on a potential deal, citing unnamed sources.
Altice officials declined to comment on what they called "rumors."
Altice USA CEO Dexter Goei opened the door ever so slightly to a sale back in May at the MoffettNathanson Media & Communications Summit, when he didn’t rule out a potential deal.
“Suddenlink in itself is a great asset, great growth matrices, under-penetrated markets, less competitive areas, despite that it’s very rural,” Goei said at the conference. “But strategically, it's not a footprint that makes you sit there and say ‘Wow, that’s the most strategic footprint out there.’ So are we sellers or restructurers of certain of our assets in other areas outside of Cablevision? We're always open to listening to people out there if it makes sense for us to trade, swap, sell certain assets.”
Altice USA shares rose more than 40% in afternoon trading July 21, priced as high as $13.17 each, up 43.5% or $3.99 per share. Trading was halted briefly by the NYSE because of the spike, but was resumed later in the day. The stock closed at $11.24 each on July 21, up 22.5% or $2.06 each.
Nevertheless, the gains have basically erased year-to-date declines for the shares — they were down 43% since December 31 prior to Thursday — fueled by broadband subscriber losses and threats of more intense pricing competition from telco Verizon Communications.
Altice USA has the greatest exposure of any operator to Verizon’s Fios product: About two-thirds of its Optimum footprint in New York, New Jersey and Connecticut competes with the telco. While its Suddenlink footprint is virtually Fios-free, it faces increasing competition from fixed wireless and fiber builds from large and small providers.
Suddenlink operates primarily across 17 states in the Midwest, southern and western parts of the country. Although Altice USA does not break out specific data for Suddenlink, in a research note Wells Fargo Securities analyst Steven Cahall wrote that he estimates the unit has about 1.8 million customers and passes about 3.9 million homes. He also estimated that 2022 cash flow could be about $1.4 billion. At a $20 billion take-out price, that implies a 14 times cash flow multiple, which would be considerably higher than recent deals.
Cahall had previously speculated in May that Altice USA could sell Suddenlink at a 7-to-8 times cash flow multiple, which would imply a $12 billion to $13 billion price tag. But if the Bloomberg report is correct, Cahall wrote that his past enterprise value for the company “was far too low.”
In a research note in September 2021, MoffettNathanson senior analyst Craig Moffett assigned a 12 times cash flow multiple to an upgraded Suddenlink, in line with past deals like Cable One’s purchases of Fidelity Communications (11.7 times) and Hargray Communications (17.2 times); adding that any possible buyer would not have as many cost-cutting opportunities as Cable One in those prior deals.
The list of possible buyers could run the gamut of private equity and strategic players, including Cable One, Breezeline (formerly Atlantic Broadband), Stonepeak Infrastructure Partners, TPG and others.
Whatever the price it is likely to be far in excess of the $9.1 billion Altice paid for Suddenlink back in 2015. That purchase was the international telco’s first in the U.S., and led to its $17.7 billion purchase of Cablevision Systems in 2016.
While Altice was able to cut a lot of costs out of the two companies, more recently it has had trouble gaining broadband customers, reporting a loss of 13,000 high-speed data customers in Q1, after shedding about 3,000 broadband subscribers in 2021.
In a note to clients Thursday, Moffett said while the idea that Altice would sell Suddenlink isn’t that surprising — equity values across the cable landscape are short of their intrinsic values — he was surprised they would attempt a sale while they’re still publicly traded. Altice shares have been on a steady decline over the past several months -- prior to today (July 21), the stock was down 68% since September 3, 2021. That had some speculating in the past that Altice management could take the company private.
“A large part of our recent reticence in taking a more constructive stance on the company despite its appealing valuation has been our fear that majority owner Patrick Drahi would be much more likely to take the company private first, potentially at only a modest premium, in order to capture the upside of a Suddenlink sale for himself,” Moffett wrote Thursday. ■
