Multinational cable, fibre, telecommunications, content and media company Altice N.V. is to separate Altice USA Inc. from Altice N.V. (which will be renamed Altice Europe). The separation will enable each business to focus more on the distinct opportunities for value creation in their respective markets and ensure greater transparency for investors. Altice NV aims to complete the proposed transaction by the end of the second quarter of 2018 following regulatory and Altice NV shareholder approvals.
The separation is to be effected by a spin-off of Altice NV’s 67.2 per cent interest in Altice USA through a distribution in kind to Altice NV shareholders. Following this proposed transaction, the two companies will be led by separate management teams. Patrick Drahi, founder of Altice, will retain control of both companies through Next and is committed to long-term ownership. Post-separation, Drahi will serve as President of the Board of Altice Europe and Chairman of the Board of Altice USA.
Simultaneously, the Board of Directors of Altice USA, acting through its independent directors, has approved in principle the payment of a $1.5 billion cash dividend to all shareholders immediately prior to completion of the separation. Formal approval of the dividend and setting of a record date are expected to occur in the second quarter of 2018. The payment of the dividend will be funded with available Optimum revolving facility capacity and a new financing at Optimum. Altice NV will use €625 million of its c.€900 million of proceeds received in the Altice USA dividend to prepay a portion of the Altice Corporate Financing facility and will retain c.€275 million on balance sheet. In addition, the Board of Directors of Altice USA has authorised a share repurchase programme of $2 billon, effective following completion of the separation.
In the spirit of enhanced accountability and transparency, Altice Europe will reorganise its structure comprising Altice France (including French Overseas Territories), Altice International and a newly formed Altice Pay TV subsidiary. This will include integrating Altice’s support services businesses into their respective markets and bundling Altice Europe’s premium content activities into one separately funded operating unit with its own P&L. Altice NV’s ownership of Altice Technical Services US will be transferred to Altice USA prior to completion of the separation for a nominal consideration.
“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 realise their full potential,” commented Drahi. 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 opportunities as we deliver on our operational aspirations around much improved customer service and monetising our premium infrastructure and content assets. Altice Europe has a unique asset base that is fully converged and fibre rich with strong number one or number two position in each market with nationwide fixed and mobile coverage. At the core of our strategy is the operational and financial turnaround in France and Portugal. In parallel, we have a clear plan to further strengthen our long-term balance sheet position as we execute our non-core asset disposals.”
“Altice USA sees exciting opportunities in the US market as we start 2018 with strong momentum. We have a full operational agenda to deliver best-in-class services to our customers, drive innovation and advance our fibre investment strategy. The new organisation 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 US and affirm the efficiency targets set out at the time of the acquisitions of Suddenlink and Optimum.”
The proposed transaction is designed to create simplified, independent and more focused European and US operations to the benefit of their respective customers, employees, investors and other stakeholders. In particular, the proposed separation will result in:
Altice Europe and Altice USA will be managed by two distinct management teams, focused solely on the performance in their respective markets. Both management teams will benefit from the strategic leadership of founder and controlling shareholder Drahi, who will serve as President of the Board of Altice Europe and Chairman of the Board of Altice USA. Armando Pereira will serve as COO of Altice Europe and serve as strategic advisor to Altice USA for all operations.
Dennis Okhuijsen will serve as CEO and a Director of Altice Europe with all corporate functions and country managers reporting into him. He will report to Drahi.
Dexter Goei will continue to serve as CEO and a Director of Altice USA. He will report to Drahi.
At the core of Altice Europe’s strategy is a return to revenue, profitability and cash flow growth and, as a result, deleveraging. Altice Europe benefits from a unique asset base which is fully-converged, fiber rich, media rich, active across consumers and businesses and holds number one or number two positions in each of its markets with nationwide coverage. The reinforced operational focus offers significant value creation potential. In parallel, Altice Europe is advancing with its preparations for the disposal of non-core assets.
Key elements of the Altice Europe growth and deleveraging strategy include:
In order to increase accountability and transparency, Altice Europe will be structured in three distinct operating units with new perimeters:
Altice France will cancel its existing wholesale pay-TV contracts for the content and channels being transferred to Altice Pay TV and will become a wholesale customer of Altice Pay TV with a new revenue sharing contract and significantly reduced annual minimum guarantee (in exchange for c.€300 million break fee payable in 2018 to Altice Pay TV). This new arrangement will include the transfer of other premium content contracts from Altice France to Altice Pay TV and allow Altice France to continue to distribute premium pay-TV content to its customers including SFR Sports and Altice Studio channels.
Altice believes the new Altice France perimeter will allow investors to better assess the underlying performance of Altice France compared to its market competitors.
Lastly, the new perimeter for Altice Europe will exclude Altice NV’s international wholesale voice business (separated to be sold).
Central to this deleveraging plan is the operational and financial turnaround in France and the return to revenue, profitability and cash flow growth. In addition, Altice Europe is advancing its potential disposal processes of non-core assets, which include its non-strategic tower portfolio and its operations in the Dominican Republic. As announced in December 2017, Altice has already entered into an agreement to sell its Swiss operations for a total expected consideration of CHF 214 million (9.9x LTM Adjusted EBITDA). The transaction is expected to close imminently. Altice Europe will update investors in due course as it executes on its non-core asset disposal programme.
Together with the c. €900 million dividend proceeds from Altice USA, the successful conclusion of the disposal programme would result in meaningful deleveraging of Altice Europe and would substantially enhance Altice Europe’s already strong liquidity profile.
Altice USA’s business strategy continues to focus on Altice’s original investment thesis when it entered the US market in 2015, which the US team has been successfully implementing since then. Central to Altice USA are investments in networks and the video product, simplification across the operations and improved customer service. Altice USA will focus on the following key areas to successfully complete the original acquisition plan and be prepared for the next phase of market consolidation:
Altice USA will benefit from a significantly enlarged free float from approximately 10 per cent to approximately 42 per cent post separation, providing for enhanced trading liquidity in its Class A Common Stock. Altice USA confirms its efficiency targets set out at the time of the acquisitions of Suddenlink and Optimum. At the same time, Altice USA affirms that its fibre (FTTH) deployment and new full mobile virtual network operator (MVNO) network investment will be executed within the historical capex envelope.