Altice USA chief operating officer Hakim Boubazine‘s decision to resign from the company last week had some media analysts searching for hidden meaning, with Bernstein’s Peter Supino doubting that CEO Dexter Goei, who will take over Boubazine’s duties, can right the ship while concluding the company, often seen as a takeover target, is undervalued.
Boubazine, who has run several businesses for Altice N.V. founder and chairman Patrick Drahi over the years, and joined Altice USA shortly after Drahi first entered the U.S. cable market in 2015, resigned unexpectedly on Sept. 9, agreeing to stay on in an advisory role through the end of the year. In a press release, Altice USA said Goei will assume Boubazine’s duties, in addition to his own as CEO, immediately.
In a research note, Supino wrote that Boubazine’s departure is significant because he ran so many parts of the business. According to its website, Boubazine was in charge of product, marketing, technology, engineering, and operations functions as COO. His departure also comes at a time when Altice USA has “badly underperformed” its peers, according to Supino, adding just 8,000 organic broadband customers over the past three quarters.
“Operational trouble seems to run deeper,” Supino wrote, adding that analysts’ consensus cash flow forecasts for Altice USA began declining in 2018, and in the second half of 2019, the company struggled with its OSS/BSS transition and the launch of its wireless service, Altice Mobile.
Supino also saw problems with Altice USA’s marketing decisions, adding that he found it “odd” that the company focused on price maximization in 2019 through the roll out of its “Price for life’” campaign.
More recently, the company decided to rebrand Suddenlink as Optimum because ”(in our assessment) Suddenlink is loathed by too many consumers and not because Optimum is known to any of them,” Supino wrote.
Adding to the pressure is that Altice USA stock is down about 24% year-to-date, and there are some doubts as to how effective Goei, an investment banker by training, will be in running the telecom side of the business.
“With roots in investment banking, we are not convinced that Goei has the background to solve Altice’s operational problems,” Supino wrote. But the analyst still recommended the stock, not necessarily because he sees a turnaround — although he called Goei an “energetic leader with an enormous stake in the company” — but because he expects Altice USA to be a takeover target.
“While our most important 2H21 estimates remain below consensus, we continue to recommend ATUS because we believe the business is structurally sound, under-valued, and strategically appealing to several larger, acquisitive companies,” Supino wrote.
Altice USA has been tossed around as a potential takeover target ever since it came on the scene. With attractive assets in the New York metro area — mainly the Bronx, Staten Island and New Jersey and Connecticut systems it purchased from Cablevision Systems in 2016 — Altice USA could fit well with Charter Communications and Comcast, each of which have substantial assets in those markets. Suddenlink systems in the Midwest could be seen as attractive to operators like Cox Communications and Cable One.
In a research note earlier this month, MoffettNathanson principal and senior analyst Craig Moffett made the case for taking Altice USA private, pointing to its declining share price and undervalued assets. In that report Moffett opined that Altice USA could sell off its Suddenlink systems for around $22.7 billion and take its Optimum unit private for about $10.8 billion.
So far Altice USA has been a buyer not a seller, doing mainly small deals like its purchase of Service Electric Cable of NJ in July 2020 for $150 million, and its April buy of North Carolina fiber company Morris Communications for $310 million.
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Last year Altice USA made its biggest M&A splash, teaming up with Rogers Communications in an $8 billion bid for Canadian operator Cogeco Communications and its U.S. cable unit Atlantic Broadband. That bid, where Altice would acquire Atlantic Broadband and Rogers would take the rest, was soundly rejected by Cogeco, and the unsolicited bid was abandoned in November 2020.
