Telecom Deals Are Back as Billionaires Jostle to Expand Empires

Altice Chairman Patrick Drahi
Patrick Drahi, billionaire and chairman of Altice SA. Photographer: Ivan Guilbert/Bloomberg

If you thought telecommunications deals were losing steam, think again.

Wednesday’s move by Patrick Drahi’s Altice SA to take control of $9.1 billion U.S. cable company Suddenlink Communications may herald a revival of mergers and acquisitions involving Europe’s biggest telecoms players. Fellow billionaires, including Liberty Global Plc’s John Malone, also look ready to jump on the M&A bandwagon.

If they act soon, it would mark a swift turnaround for dealmaking in the industry. Before today, the volume of transactions involving European communications companies had fallen by about 45 percent this year compared to the same period in 2014, according to data compiled by Bloomberg.

While the start of 2015 may have been slow, transactions are about to speed up, Yvan Desmedt, a partner at law firm Jones Day in Amsterdam, said in a phone interview.

“We are poised to see a lot more deals in coming months,” Desmedt said in a phone interview. “Telecoms is an industry where size really matters.”

Amid increasing price competition and pressure to maintain profit growth, phone operators from Europe and Asia to the U.S. and Latin America are growing via acquisitions while cheap financing is available. At the same time, phone companies are competing to provide packages that combine mobile, broadband, fixed-line and TV offerings as they try to tempt new customers.

Expanding Empires

Drahi is seeking to expand his empire in a U.S. cable market that is being reshaped by a series of mergers. Altice, Drahi’s investment vehicle, has also eyed larger Time Warner Cable Inc., whose merger with Comcast Corp. was called off last month, a person with knowledge of the matter said. And before going for Suddenlink, Drahi was looking at Bouygues SA’s telecom unit in France, which may still attract interest from other buyers.

He’s not alone. Liberty Chairman John Malone said in an interview with Bloomberg on Tuesday that a tie-up with Vodafone Group Plc would be a “great fit” for his cable empire in western Europe -- his first public comments on a long-mooted combination of the carriers. Last month, Liberty’s Belgian unit Telenet Group Holding NV agreed to buy Royal KPN NV’s local mobile-phone business for 1.33 billion euros ($1.5 billion).

In another crossborder deal, America Movil, controlled by Mexico’s richest man, Carlos Slim, is offering 3 billion euros of bonds that can be converted into shares of KPN, paving the way for an exit from the Dutch carrier. The sale comes two years after Slim’s failed bid to take over the company.

KPN, which also owns a stake in Telefonica Deutschland Holding AG, could itself become a target of companies such as Deutsche Telekom AG amid the coming wave of consolidation, according to Kohulan Paramaguru, a London-based analyst at Exane BNP Paribas.

The Dutch telecom firm’s CEO himself, Eelco Blok, said in an interview earlier this month that Belgacom SA in Belgium could be a logical candidate to combine with as the sector consolidates.

Regulator Support

“Transatlantic deals are still the exception rather than the rule,” said Tom Levine, a partner at law firm Allen & Overy LLP in London and head of the firm’s global telecommunications practice. “But we’ll likely see plenty more deals in the short term as companies continue to seek growth outside their home regions and markets.”

Drahi and Malone aren’t the only heavyweights who’ve sought out deals. French billionaire Xavier Niel made an unsuccessful bid last year to acquire T-Mobile US Inc. from Deutsche Telekom. That business has repeatedly drawn interest from suitors.

Beyond the Netherlands, France and Germany, companies in Italy and across Scandinavia are likely to see more telecoms M&A this year, Desmedt of Jones Day said. Yet one of the main drivers for further consolidation might come from officials in Brussels, better known for providing hurdles to deals, he said.

“European regulators are more supportive of mergers between phone companies than before, which could be yet another trigger for both domestic and crossborder deals,” he said.

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