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Altice: Trying to Unlock the Value of Cablevision

Shirley Pelts

Must-Know Merger Updates in the Media sector

(Continued from Prior Part)

Rationale behind the acquisition

On September 17, 2015, Altice acquired Cablevision Systems (CVC) for $10 billion, or $34.90 per share. In this part of the series, we’ll look at the rationale behind Altice’s acquisition of Cablevision.

Cablevision operates in the densely populated greater New York region with a population of 20 million. The company’s Cable business segment and Lightpath, a fibre-based telecommunication business that caters mainly to enterprises, together contributed roughly 95% to the company’s total revenues in 1H15. Cablevision had revenues of ~$3.2 billion in 1H15.

The Cable segment serves 3.1 million customers and offers Triple Play services (video, high-speed Internet, and voice) to 65% of its clients. It means that 35% of 3.1 million customers, or ~1 million, are not opting for Triple Play services. Altice can persuade these customers to change to Triple Play and increase average revenue per customer or user, or ARPU, in the process. Cablevision had an ARPU of $159 in 2Q15.

Altice also views a significant opportunity for growth in Cablevision’s Lightpath business, which currently has a market share of only 8%.

Cablevision had an adjusted EBITDA margin in 2014 of ~28%, as compared to its peers’ median EBITDA margin of ~36% in 2014. Cablevision’s peers include Comcast (CMCSA), Time Warner Cable (TWC), Charter Communications (CHTR), and Cable One (CABO). This means that Altice has significant potential to improve efficiencies and boost Cablevision’s adjusted EBITDA margin.

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How Altice intends to enhance efficiency for Cablevision

Altice expects to save $900 million in operating expenses with synergies from its acquisition of Cablevision and Suddenlink. Altice believes that the combined synergy of its US cable assets including Suddenlink and Cablevision will result in an operating expenditure (Opex) per customer per month of $25. The Opex per customer per month is $49 for Cablevision and $32 for Suddenlink.

However, a September 17 FierceCable report, citing analysts at MoffettNathanson, states, “Cost reductions like those won’t just mean cutting SG&A. It will mean slashing customer service, repair and maintenance, and sales and marketing (specifically, channel mix optimization, and back-office upgrades). It’s hard not to imagine that that might have at least some impact on market share.”

It remains to be seen how Altice will meet the challenge of maintaining Cablevision’s market share without cutting corners while achieving operational cost efficiencies.

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