Altice Offers $2.7 Billion to Buy Rest of French Carrier SFR

  • SFR owners to get 8 Altice shares for every 5 shares held
  • Drahi moves to consolidate global telecom group after deals

Patrick Drahi’s Altice NV agreed to buy the 22 percent of French unit SFR Group that it doesn’t already own for 2.4 billion euros ($2.7 billion), moving to overhaul the global telephone and cable-television empire after a debt-fueled acquisition binge.

Both companies advanced after Altice said in a statement on Monday it will issue eight new Class A shares for every five SFR shares held. The offer, valued at about 24.72 euros per SFR share based on Friday’s closing prices, represents a 2.6 percent premium to SFR’s last close in Paris.

Altice CEO Michel Combes Altice Discusses $2.7 Billion SFR Offer

Bloomberg

Drahi is taking steps to unify Altice’s far-flung operations after about 50 billion euros in acquisitions over the past two years. Integrating SFR, a mobile-phone, cable-TV and broadcasting business that’s struggled in a competitive French marketplace, will centralize strategy and give executives more flexibility, Amsterdam-based Altice said. SFR investors gain higher-growth and more-competitive assets in the U.S., where Altice recently acquired Cablevision Systems Corp., the company said.

“SFR shareholders give away part of their upside to Altice in exchange for higher liquidity, diversification into higher growth markets and increased weighting of cable assets,” ING Bank analyst Emmanuel Carlier said in a research note. “The exchange offer is well timed as we expect SFR’s financial turnaround to strengthen in the coming quarters driven by additional cost savings, price initiatives and the effect from accelerated network investments.”

For Gadfly columnist Leila Abboud’s take on the deal click here.

Indeed, Altice’s offer -- which was approved by both companies’ boards -- follows a 45 percent drop in SFR’s stock in the past year, to a market value of about 10.6 billion euros as of Friday. SFR lost about 245,000 wireless subscribers in its most recent quarter, hurt by a lack of investments in its networks and a renewed price war in France. But the company has responded with a plan to cut jobs and focus on service quality, which could help attract higher-margin customers.

“The premium is low,” Thomas Coudry, an analyst with Bryan Garnier & Co., said in an e-mail. “When we look back, we can say that SFR’s minority shareholders paid for restructuring, and redeeming at the lowest point, when things could start to improve, is not a bad play for Patrick Drahi.”

SFR rose as much as 8.9 percent and was up 4 percent to 25.05 euros at 3:36 p.m. in Paris. Altice declined 1.8 percent to 15.18 euros after gaining as as much as 5.2 percent earlier in Amsterdam. Before the deal was announced, analysts on average projected a share price for SFR of 33.46 euros in the next 12 months, and 18.16 euros per Altice share, according to Bloomberg data.

SFR stock is trading higher than Altice’s offer, which means investors could expect higher bid. Asked about the exchange ratio, Altice executives defended it, telling analysts Monday that the potential value creation in the U.S. isn’t fully reflected in the stock. They also noted SFR’s independent directors have recommended the offer, and more than 75 percent of shareholders in the French carrier already hold Altice stock too.

SFR shareholders will benefit from a more diversified structure, exposure to the U.S. and higher liquidity, Altice Chief Executive Officer Michel Combes said in an interview in Paris. “It will be up to each shareholder to decide whether they bring shares or not,” he said.

Altice has about 50 billion euros in total debt that will mature in the next 10 years, following acquisitions that include Cablevision and the Suddenlink cable-TV system in the U.S. In June, Drahi’s holding company revamped its management as the U.S. business expanded.

Altice said in separately Monday it was buying its network supplier, Parilis SA, as well as the customer-service vendor Intelcia, as it seeks to improve network quality, upgrade its systems and improve customer service. The company is paying about 150 million euros for Parilis and about 50 million euros for Intelcia, Combes said.

The SFR deal, expected to be completed in the fourth quarter, is subject to approval by market regulators in France and the Netherlands.

BNP Paribas SA and JPMorgan Chase & Co. advised Altice, while Perella Weinberg Partners advised SFR.

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