May 26, 2015 / 3:29 PM / 2 years ago

Altice's ambitions for U.S. undimmed after Time Warner Cable setback

5 Min Read

Patrick Drahi, Franco-Israeli businessman, Executive Chairman of cable and mobile telecoms company Altice and founder of Numericable, leaves a news conference in Paris, April 7, 2014.Philippe Wojazer

PARIS (Reuters) - Patrick Drahi, the billionaire owner of deal-hungry European telecoms group Altice ATCE.AS, will not let missing out on Time Warner Cable TWC.N dissuade him from further expansion in the United States, people familiar with the situation said.

Taking his first step across the Atlantic last week by agreeing to buy Suddenlink cable group for $9.1 billion [CQUELS.UL], Drahi also held early talks with Time Warner Cable and weighed a bid, sources had told Reuters.

But the 51-year-old Franco-Israeli businessman was beaten to the finishing line by Charter Communications (CHTR.O), backed by his mentor turned rival, cable tycoon John Malone.

Charter has offered to buy Time Warner Cable for $56 billion, seeking to combine the No. 3 and No. 2 U.S. cable operators if regulators agree.

Altice does not intend to submit a fresh offer for TWC, two sources said late on Monday.

"There are plenty of other cable companies in the U.S. besides Time Warner, and Altice still intends to be a player in the coming consolidation in the U.S. market," one of them said.

But missing out on the big prize means that Altice could face a harder, more uncertain road in the United States, once the lines are redrawn by the latest deals, analysts said.

Drahi will also have to move fast if he is to realise his mission set after the Suddenlink deal for Altice to one day earn half of its revenue in the United States.

After buying Suddenlink, the seventh-biggest cable group in the United States, Altice will earn 12 percent of revenue from the market, with the rest coming from telecom and cable assets in France, Israel, Portugal and the Dominican Republic.

Analysts said among the possible targets for Altice are Cox Communications, the fourth-largest U.S. cable group, which is in private hands; publicly traded, fifth-placed Cablevision CVC.N; or privately held eighth-placed Mediacom.

Deal-Maker

Each target has strengths and weaknesses. Cox's family owners may not be interested in selling, while heavily indebted Cablevision faces considerable competition from Verizon Communications' (VZ.N) fibre network in New York, New Jersey and Connecticut and therefore is less profitable than some peers.

Cablevision Chief Executive James Dolan said in early May he would be interested in a deal with another cable operator, but not telecom player Verizon.

Altice shares dropped 6 percent to 123.10 euros at 1520 GMT, compared with a 1.1 percent fall for Europe's telecom index .SXKP.

Craig Moffett, analyst at independent research firm MoffettNathanson LLC, said in a note Altice would need to hurry to bid on something since Suddenlink "on a standalone basis simply isn't compelling enough, at least at the price Altice paid for it".

Suddenlink has 1.2 million subscribers in the south and midwest regions, and Altice has the aim of stripping some $215 million in annual cost reductions out of the company.

"To achieve their targeted 50-50 portfolio mix between U.S. and non-U.S. holdings, Altice would need to virtually run the table and buy half of everything out there that isn't named Comcast or Charter," Moffett said.

"If one assumes that Cox isn't a seller (they're the largest remaining company after TWC and Charter itself, and they have sounded relatively resolute in their desire to remain independent) then Altice would need to successfully buy essentially everyone else."

"Altice will never amount to much more than a distant, distant third. Very likely, they too will be long term sellers to Charter," Moffett concluded.

Others think it is too early to write off Drahi, who has surfed a wave of cheap debt to turn Altice into a serial acquirer since going public in January 2014.

Last year alone, the group used its French cable company Numericable NUME.PA to take over the country's second largest mobile carrier SFR, as well as snapping up Portugal Telecom PTC.LS and another operator in the Dominican Republic.

"This is not the end of the road for Altice in the United States," said Emmanuel Carlier, analyst at ING who has a buy rating on Altice.

"The company would not have bought Suddenlink without having the next steps in their heads. If it cannot get TWC, then it will probably buy other players but it will take a few years to carry out."

Additional reporting by Gregory Roumeliotis in New York; Editing by Alison Williams

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