By James Regan, Leila Abboud and Arno Schuetze
PARIS/FRANKFURT (Reuters) - European telecoms group Altice has agreed to buy U.S. regional cable company Suddenlink Communications in a $9.1 billion deal, marking its first move across the Atlantic where it is also interested in buying Time Warner Cable.
The surprise move is further evidence that Patrick Drahi, Altice's billionaire founder, wants to build an empire in cable and mobile after doing four major deals last year alone.
But few expected the 51-year-old tycoon to target the U.S., analysts said, since it seemed more likely that Altice would seek to consolidate its existing markets, namely France or Israel, to create larger cost savings more quickly.
Altice shares were 7.7 percent higher at 124.45 euros by 1122 GMT, hitting all-time highs.
Drahi's foray into the U.S. cable market, which is being reshaped by mergers and the rise of fast broadband, could put him on a collision course with the man he has long cited as a role model: cable tycoon John Malone.
Drahi sold the first business he built, a French cable company, to Malone's European cable group UPC, working there for a while before creating Altice to further his own ambitions in 2001.
TIME WARNER CABLE APPROACH
In addition to Suddenlink, the U.S.'s 7th largest cable player, Altice has also approached number two Time Warner Cable over a deal, sources told Reuters.
Malone's Charter Communications is also interested in Time Warner, which was put back in play after Comcast's attempt to buy it foundered under regulatory opposition.
"Altice is very keen on Time Warner Cable," a source familiar with the matter said.
With a market value of $44.5 billion, TWC would be a big bite for Altice, which has a market value of about $30 billion.
Despite the size of a potential deal, Altice's offer for TWC is expected to be mainly in cash rather than shares, the source added.
Malone indicated he might be back on the deal trail after he told Bloomberg that his Liberty Global company would make a "great fit" with Vodafone, the world's second-biggest mobile operator. In the U.S., Malone's Charter is also working on a planned buyout of unlisted Bright House Networks.
Altice will buy 70 percent of Suddenlink from existing shareholders BC Partners, CPP Investment Board and Suddenlink management, it said in a statement on Wednesday. BC Partners and CPP Investment Board will retain a 30 percent stake.
"Our investment in Suddenlink opens an attractive industrial and strategic avenue for Altice in the U.S., one of the largest and fastest growing communications markets in the world," Altice Chief Executive Dexter Goei said.
Suddenlink is the seventh-largest U.S. cable operator with 1.5 million residential and 90,000 business customers spread largely over Texas, West Virginia, Louisiana, Arkansas and Arizona. Its sales grew 6 percent last year to $2.3 billion and operating profit grew at a similar pace to reach $905 million.
Drahi's Altice is expected to apply its usual formula at Suddenlink, namely aggressive cost cuts and attention to profit instead of volume of customers. The strategy is starting to pay off at Altice-backed French cable company, Numericable, which bought the country's second-largest mobile carrier, SFR, last year.
ING analysts wrote in a research note that Altice was aiming for $215 million in cost savings per year at Suddenlink, which was valued at 7.6 times EBITDA adjusted for synergies.
Altice will finance the purchase with the help of $6.7 billion of new and existing debt at Suddenlink, a $500 million vendor loan note from BC Partners and CPP Investment Board, and $1.2 billion of cash.
Kepler analyst Javier Borrachero cautioned that the U.S. expansion could be risky for Altice.
"Despite its exceptional track record, we see more clouds in this deal given Altice's financial position... " he wrote.
"We also think Altice's management is stretched at the moment with the integration of SFR and PT Portugal. There is also a risk of counterbids with Charter Communication also
aiming to consolidate the market."
The transaction is expected to close in the fourth quarter.
JPMorgan, PJT Partners and BNP Paribas acted as financial advisers to Altice. Franklin, Covington, Mayer Brown and Ropes & Gray acted as legal advisers to Altice.
(Additional reporting by Arno Schuetze in Frankfurt; Editing by Mark John and Keith Weir)