Cable Deal Hits New Bumps
23 December 2015 - 12:04PM
Dow Jones News
By Shalini Ramachandran And Nick Kostov
Altice NV's $10 billion deal to buy cable operator Cablevision
Systems Corp. is running into unexpected turbulence in New York
City.
Since the European telecom operator announced the U.S. cable
acquisition in September, Cablevision's shares have sunk further
below Altice's all-cash offer of $34.90 a share. The stock is
trading 9% below the agreed takeover price, reflecting investors'
concerns about the deal closing.
"The spread has widened in large part because people have become
increasingly concerned that neither the city nor the state will
find that the transaction is in the public interest, or
alternatively, they'll demand so much in terms of givebacks that
ultimately the deal won't be palatable to Altice," said Craig
Moffett, analyst at MoffettNathanson LLC.
New York City has said it has "a number of important concerns"
about the merger and believes it has the power to deny the deal if
it finds it isn't in the public interest. Cablevision's 3.1 million
customers are concentrated in the greater New York market.
In an interview, Mayor Bill de Blasio's top legal counsel Maya
Wiley said the city is concerned about whether Altice has the
financial wherewithal to digest Cablevision without skimping on
customer service and infrastructure upgrades for faster Internet
speeds. Ms. Wiley said the city is also concerned about the impact
on jobs. Altice has a reputation for instituting drastic cost
cuts.
"Altice is talking about $900 million in synergies. Well, what's
getting cut? How's that going to impact the economy of New York and
quality of services?" Ms. Wiley asked. "We certainly are not afraid
to disapprove a transaction."
The scope of the city's authority is a point of contention. The
companies are seeking approval from the Federal Communications
Commission and New York's Public Service Commission, but told the
city in a letter that their deal doesn't need its approval because
Cablevision's "franchise" contract with the city exempts its cable
services from review. They have filed for approval with the city,
but only regarding Cablevision's business-telecom arm.
New York City believes it has solid legal standing to review the
deal, based on its interpretation of the franchise contract. The
city is taking on a more expansive role than it did during
Comcast's ill-fated attempt to buy Time Warner Cable. City
officials say Cablevision's and Time Warner Cable's franchise
agreements give the city approval power over deals with a cash
component, whereas Comcast's offer had been all-stock.
The Public Service Commission is scheduled to complete its
review by April 29. Under the state regulatory body's newly
expanded powers over cable--thanks to a law passed last
year--Altice has to prove Cablevision customers will receive better
services after the deal.
Altice and Cablevision said in separate statements that the
transaction will deliver significant customer benefits and they
look forward to a "fair and open" regulatory process. "Altice has a
strong track record of investment, innovation and customer service
in all the communities we serve," said Altice, which expects the
deal to close in the first half of 2016.
In filings, Altice has argued that the deal will benefit the
public by bolstering investment in innovative products, improved
network speeds and reliability, and better customer service. Altice
has tended to slash costs dramatically following acquisitions such
as France's SFR, resulting in savings that it can reinvest in
infrastructure.
In October, Altice Chief Executive Dexter Goei met with City
Hall officials including Ms. Wiley and Deputy Mayor Alicia Glen. At
that meeting, Altice suggested running high-capacity fiber lines
closer to homes to increase Internet speeds and improve network
reliability.
Ms. Wiley said the city needs more than just a promise, but "the
demonstration of the ability to make good on a promise."
Ms. Wiley said there hasn't been a situation during the de
Blasio administration where federal regulators have approved a deal
and the city has blocked it. Local authorities have a history of
playing hardball with cable companies during deal reviews as a way
to extract concessions for their constituents.
The Communications Workers of America, the union that represents
about 300 Cablevision employees, has a historically contentious
relationship with Cablevision and filed an official objection to
the Altice deal with the FCC. The union also has ties to Mr. de
Blasio's office, having endorsed him in the election.
There are other, broader concerns about the deal. Altice's stock
has declined 50% since September, precipitated by widespread
investor skepticism about whether it can deliver the $900 million
in synergies promised in the Cablevision deal. Plus, the total
company will have $45 billion in debt by the end of 2016 if the
Cablevision acquisition closes, according to ING analyst Emmanuel
Carlier.
"There's a lot of skepticism from a lot of longtime media
investors" about Altice's debt-fueld cable roll-up strategy, one
longtime Cablevision investor said.
The spread on the Altice-Cablevision deal had been as wide as
16% earlier this month. On Tuesday, Cablevision shares rose more
than 3%. Altice closed its acquisition of U.S. cable company
Suddenlink on Monday.
Write to Shalini Ramachandran at shalini.ramachandran@wsj.com
and Nick Kostov at Nick.Kostov@wsj.com
(END) Dow Jones Newswires
December 22, 2015 19:49 ET (00:49 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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