Altice’s Deal to Buy Suddenlink May Be Prelude to Pursuit of Time Warner Cable

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Patrick Drahi, the chairman of Altice. The European telecommunications giant is also the parent company of the French cable operator Numericable.CreditEric Piermont/Agence France-Presse — Getty Images

Not written by, but merely posted by, Louis Sheehan.

LONDON — With its $9.1 billion acquisition of Suddenlink Communications on Wednesday, the European company Altice established a small foothold in the United States cable market, gaining control of a distributor with only 1.5 million subscribers in 17 states.

But the deal may have set the stage for Altice to go after an even larger and more tantalizing target: Time Warner Cable.

Altice, based in Luxembourg and controlled by the French billionaire Patrick Drahi, has approached Time Warner Cable, the second-largest cable operator in the United States, about a potential deal, according to people with knowledge of the talks, who spoke on the condition of anonymity. One of the people cautioned that the talks were very preliminary and might not lead to a deal.

Just weeks earlier, Comcast’s $45 billion attempted takeover of Time Warner Cable collapsed because of regulatory concerns. The latest flurry of activity injects a new foreign player into the consolidation frenzy that has been sweeping through the American cable business for nearly two years. The maneuvering is likely to continue, potentially reshaping the television and broadband infrastructure in the United States.

For an entrepreneur like Mr. Drahi, the United States’ sprawling single market represents an alluring expansion target. Mr. Drahi has built a formidable cable and telecommunications business in Europe but has been frustrated by the patchwork of national boundaries and a fragmented regulatory structure that impedes truly continentwide operations.

“We are in a very new and very different regulatory environment that is preventing the deal making of U.S. companies and creating an interesting door for others to open,” said Rich Greenfield, a media analyst at BTIG Research. “This seems like a very, very strategic chess move.”

A foray into the United States cable market by a foreign company like Altice would be unusual and could raise significant regulatory concerns of its own — especially if the company is serious in its pursuit of Time Warner Cable, which has nearly 15 million total customers in markets including New York and Los Angeles.

In scrutinizing the Comcast-Time Warner Cable deal, regulators expressed worries about the level of control that the combined company would have over the United States market for broadband services — the high-speed links into consumers’ homes that carry not only TV programming but also Internet communications. It is unclear how regulators would view the prospect of a foreign company controlling a large portion of the American broadband market.

Except for a 2012 deal in which Cogeco, a Canadian telecommunications company, acquired a small cable operator in the United States, there are no other examples of American cable companies coming under foreign control, said Amy Yong, a media analyst with the Macquarie Group.

“We’ve never seen it before,” she said, adding that Altice’s bid for Suddenlink might be just the beginning. “There is a belief that once you start, you don’t stop,” she said. “It is a business of scale.”

Though relatively unknown in the United States, Altice is a growing force in Europe, where Mr. Drahi aspires to be the European equivalent of the cable deal maker John C. Malone. If Mr. Drahi, a 51-year-old entrepreneur who once worked for Mr. Malone, moved beyond Suddenlink and pursued Time Warner Cable, he might find himself vying with his former boss.

“You see a lot of the same DNA,” Ms. Yong said. “That global view that Malone has probably is so ingrained in his thinking.”

Charter Communications, which is backed by Liberty Broadband, one of Mr. Malone’s companies, has been pushing to consolidate the American cable industry for almost two years, and Mr. Malone has his own designs on Time Warner Cable. Until Altice’s emergence, analysts had seen it as almost inevitable that Time Warner Cable and Charter would join in some way.

Altice’s interest in Time Warner Cable, however, remains at an early stage, according to one of the people with knowledge of the conversations.

“There’s a big difference between having talks and actually entering negotiations,” the person said, suggesting that Time Warner Cable might have been talking up a potential deal for its own benefit.

Before its agreement with the St. Louis-based Suddenlink, Altice had aggressively expanded across Europe and the Caribbean. Through its Numericable-SFR division, Altice is one of the largest telecom operators in France, with about 6.5 million fixed-line customers and 22.5 million mobile customers. It also now competes elsewhere with some of Europe’s most established telecom operators, including Liberty Global, the European branch of Mr. Malone’s empire.

Because Mr. Drahi, Altice’s chairman and biggest shareholder, has not been afraid of taking on entrenched players in other countries, his American foray “doesn’t come as a surprise,” said Emmanuel Carlier, an analyst with ING in Brussels. “In a big market like France, they have shown that they can successfully integrate acquisitions.”

Nor has Altice been hesitant to cut costs to increase profitability in the companies it takes over, analysts said. “It is pretty cutthroat,” Ms. Yong said. “They take the best of breed for both companies, and the surviving brand takes over.”

If it impedes service and future innovation, that cost-cutting model could pose concerns to government regulators in the United States, which would consider whether a deal between Altice and an American cable operator was in the public interest.

Altice said it would acquire a 70 percent stake in Suddenlink from the private equity firm BC Partners and the Canada Pension Plan Investment Board, which would retain a minority holding in the business.

“The U.S. is an incredibly large and very attractive market,” Dexter Goei, Altice’s chief executive and a former investment banker at Morgan Stanley, told analysts on Wednesday. “It’s a market that will be consolidating for years to come.”

The deal is the latest career milestone for Mr. Drahi, who was born in Morocco and moved to France as a teenager. He attended the École Polytechnique, one of the country’s most prestigious universities, before starting his own cable business in the mid-1990s. Part of his strategy was to lobby French mayors to let him install high-speed networks in parts of the country that were not covered by the country’s former telecom monopoly.

Shares in Altice, which has a market value of $34.6 billion, rose 11.6 percent on Wednesday in Amsterdam, where the shares are listed.

While the multibillion-dollar deal for Suddenlink represents the latest chapter of Altice’s rapid growth, analysts questioned how the European telecom operator would benefit from its new perch in the United States.

“The cost savings of cross-border deals aren’t that obvious,” said Dan Bieler, an analyst with Forrester Research in Munich. “It comes down to a desire of building a global footprint.”

Although the company is in early-stage talks with Time Warner Cable, it may also pursue a strategy of buying smaller regional cable assets to expand its American footprint, people with knowledge of the talks said. The company’s previous acquisitions have primarily been funded through investment firms willing to back the company’s debt-fueled takeover plans.

Mr. Goei, the company’s chief executive, told analysts on Wednesday that Altice planned to reduce its reliance on the European market, where it currently generates more than three-quarters of its revenue. That included plans to get as much as 50 percent of revenue from the United States in the coming years, he added.

“Our goal is to be 50-50,” Mr. Goei said, in reference to the company’s European and American assets. “We like the balance of Europe versus the U.S.”

But when asked by analysts on Wednesday whether Altice was exploring a potential deal for larger assets in the United States, including Time Warner Cable, Mr. Goei would not discuss the company’s strategy.

“I think I’ll punt that one,” he said.

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Louis Sheehan
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