Altice to buy Cablevision for $17.7 billion

French cable systems owner Altice N.V. (Euronext: ATC, ATCB), the new home of former Alcatel-Lucent chief Michel Combes (he was named group COO and chairman of Numericable-SFR in August), says it has agreed to acquire Cablevision Systems Corp. (NYSE: CVC) for $34.90 in cash for each Cablevision share. That represents an enterprise value of $17.7 billion.

Altice plans to combine Cablevision with Suddenlink, which it agreed to acquire this past May (see "Altice to buy Suddenlink; eyes TWC?"), to create what it asserts will be the fourth largest "cable operation" in the U.S. Altice says the two service providers will operate with independent capital structures, but will "draw upon management from both companies" to serve a combined 4.6 million customers in 20 states.

Cablevision's footprint is concentrated in the New York metro area, extending into New Jersey and Connecticut. Its network passes more than 5 million premises, Altice says.

In addition to residential services, Cablevision also offers business services through its Lightpath unit (see, for example, "Lightpath intros 100-Gbps optical transport service"). It also owns News 12 Networks and Newsday Media Group, which owns Newsday and other newsletters, and Cablevision Media Sales, the company's advertising sales division.

Together, Cablevision's operations generated $6.525 billion in revenue and $1.858 billion in adjusted free cash flow on a consolidated basis for the 12 months ended June 30, 2015. Cablevision's cable and Lightpath businesses generated $6.206 billion and $2.005 million in adjusted free cash flow over the same timeframe.

Altice plans to fund the acquisition via $14.5 billion of new and existing debt at Cablevision, cash on hand at Cablevision, and $3.3 billion of cash from Altice. BC Partners and CPP Investment Board have an option to participate for up to 30% of the Cablevision equity. Altice intends to raise equity by issuing Class A shares in connection with funding its portion of the acquisition. Altice says it has received full financing commitments from JP Morgan, BNP Paribas and Barclays.

The transaction, naturally, is subject to regulatory review. Altice expects to close the deal in the first half of 2016.

The U.S. moves are part of a larger strategy by Altice Founder and President Patrick Drahi to reshape his company as an international force in communications, says analyst John Delaney, associate vice president, mobility, at market research and analysis firm IDC.

"Patrick Drahi's clear ambition is to build Altice, which started as a small regional cable player in France, into an empire," Delany wrote in a note issued shortly after the deal was announced. "His realization of that ambition has been enabled, in large part, by cheap money. In the current era of ultra-low interest rates, Altice has borrowed huge amounts of money to fund a series of very large acquisitions, most notably that of French mobile operator SFR and of the Portuguese incumbent telco, Portugal Telecom.

"Altice will need to work hard on allaying regulators' wider concerns about consolidation in the U.S. cable market, in the context both of Charter's acquisition of TWC and of Altice's clear ambitions to be a bigger player in U.S. telecoms and TV," Delaney added. "Indeed, we may see further aggressive moves from Altice quite soon."

Delany theorizes that the company may make a play for a wireless operator.

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