Billionaire Patrick Drahi is offering 2.5 billion euros ($3 billion) to take Altice Europe NV private after a roller-coaster ride for the French phone company’s equity investors.
Altice’s founder and largest shareholder will pay 4.11 euros a share through his Next Private vehicle, the companies said in a statement, valuing the entire company at 4.9 billion euros. The offer represents a 24% premium over Thursday’s closing price, and the shares jumped as high as 4.22 euros on Friday.
The offer “undervalues the company materially -- and so we would recommend that shareholders do not accept the offer,” Russell Waller, an analyst at New Street Research, said in a note. “But we do have some sympathy” with Drahi’s plans given the depressed share price, he added.
Altice’s 29 billion-euro debt pile has meant the shares have swung wildly with its changing fortunes. The company said this volatility partly explained the decision to delist. While performance has improved at its biggest unit, France’s SFR, Altice is under heavy pressure to invest in fiber broadband and 5G wireless networks and still reduce leverage.
The move may also allow him to focus more on his fast-growing U.S. business. Drahi bought Suddenlink in 2015 and Cablevision in 2016 with a plan to create another U.S. cable giant. Last week, Altice USA offered $7.8 billion to buy Canadian cable company Cogeco Inc.’s U.S. assets and sell the rest to Rogers Communications Inc.
Altice Europe hasn’t paid a dividend on its common stock since it was created in 2018 through a spin-off of the U.S. assets. Taking it private allows the company to avoid forking out for stock buybacks it has promised once it reaches a leverage reduction target.
Next Private said it will support the group’s deleveraging strategy, and will use “commercially reasonable efforts” to prevent damage to the group’s credit ratings. Altice Europe is rated B at Standard & Poor’s, and is one of the continent’s biggest issuers of high-yield debt. The rating is five levels below investment grade and has a negative outlook, indicating it could fall further.
Bonds from Altice Europe borrowing vehicle Altice Finco due in January 2028 dropped 1.2 cents on the euro to 93 cents, the lowest since July, according to CBBT data at 11.10 a.m. in London. Other notes issued by the company also dropped around 1 cent on the euro.
The statement said the purchase price will be covered with a term loan provided by BNP Paribas SA, although it didn’t indicate how much of his own money Drahi would contribute.
A mass of leverage has never been a problem for the debt king, whose business mantra has long been to buy everything on credit. In the 1990s he used a student loan of 50,000 francs to set up his first cable business in a tiny Provencal town, and through a series of deals amassed the communications empire he runs today.
The stock is down about 42% since the start of the year, more than the 17% drop in the Stoxx Telecommunications index. It is unclear whether shareholders will agree to a premium below recent levels -- Altice was trading at over 6.5 euros a share in early February.
The delisting highlights the pressure Europe’s phone companies face in rolling out the latest communications technology while facing a squeeze on revenue from regulation and the pandemic. Share price slumps at Orange SA and Telefonica SA have forced both industry giants out of benchmark indexes.
The European telecom sector has lost more than 40% of its equity market value in the last five years, and other companies have been pulling back from public markets. The owner of French rival Iliad SA, Xavier Niel, has used buybacks to cement his control. Spanish phone company Masmovil Ibercom SA is being bought by a group of private equity firms.
Drahi’s move also represents the second time this month that a major European TMT company has discussed delisting from public markets. Germany’s startup factory Rocket Internet SE said on Sept. 1 it would withdraw its shares from the Frankfurt and Luxembourg stock exchanges.
The depressed valuations have boosted European telecom deal activity in the third quarter after a slow start to the year, with more than $17 billion announced before today, according to data compiled by Bloomberg.