Altice should avoid fire sales, no urgent balance sheet requirement – bankers (MergerMarket.com)
Average debt maturity over six years
Disposals do not address underlying issues
Turnaround of French business key to recovery
Altice [AMS:ATC] can address its share price fall without resorting to a fire-sale of non-core assets, particularly as there is no urgent balance sheet requirement, bankers familiar with the situation said.
The company has lost around half its market value this month following disappointing performance at its French operation, SFR, and brokers’ downgrades. Following market speculation, the company released a statement this week saying it will not pursue "meaningful M&A opportunities" but instead focus on turning around the French business and disposing non-core assets.
Altice added it had initiated a process to dispose of towers. This specifically refers to those in France and Portugal, the first banker said. In France the potential bidders are TDF, Cellnex [BME:CLNX] and American Tower [NYSE:AMT]; in Portugal they are Cellnex and Telxius [BME:TLX], this banker said.
Although disposing of the assets will be a welcome gesture for investors, Altice should not overreact and compromise too much on the valuation it wants, the bankers said.
It could decide not to sell any of the non-core assets and still vastly improve its share price through turning the French business around and refraining from large deals, the bankers said.
The fact the group does not have any urgent debt maturities is in its favour, two of the bankers pointed out. Its average debt maturity is 6.3 years, Altice has said. It added it has EUR 1.66bn of cash on its balance sheet. As a result, disposing of small assets should be more about keeping shareholders on side than any desperate requirement.
Altice’s debt/EBITDA ratio target is broadly in line with the market, a sector lawyer said. Altice Group and Altice Europe's net leverage is 5.5x and 5.0x respectively, according to Q1 results published in May. It’s target leverage for Altice Europe given in May is around 4.0x, for Altice US around 5.0-5.5x.
But Altice peers have notably reduced their leverage. Telefonica [BME:TEF] has net debt/OIBDA of 2.72x and Vodafone’s [LON:VOD] net debt/EBITDA is 2.2x.
Recent press reports have linked the share price fall to the potential disposal of Altice’s Dominican Republic business. But the asset has been for sale for the past two years, one of the bankers said.
Altice has been trying to sell the company at 11x EBITDA, putting off buyers, this banker said. Again, while it may reduce price expectations for this asset as a concession for jittery shareholders, there is no balance sheet-related compulsion to do so, the banker said.
There are also rumours that the company may sell Portugal Telecom, another banker said. Armando Pereira, Portuguese-born and one of Altice’s founding partners, could oppose an exit however, this banker said.
Additionally, disposals will not solve Altice’s underlying problem, the bankers said. It needs to improve the French business, which is dragging the group’s value down, the bankers said.
This cannot be achieved through cost-cutting, the bankers said. A lot has already been done and Altice committed to protecting jobs when it bought French operator SFR in 2014, the first banker said. However, this was only a three-year commitment.
It will have to sacrifice profits to solve the French issue, the second banker said. The French market is highly competitive with four players, with Iliad [EPA:ILD] undercutting rivals.
Altice has begun its work by changing the management team. Armando Pereira is now Altice Telecom COO, with a primary focus on France. Alain Weill, SFR Media CEO, is appointed SFR Group Chairman and CEO, and Altice Media COO.
Wider management changes include that Patrick Drahi is now president of the board and Dexter Goei replaces Michel Combes as CEO.
In terms of long-term M&A strategy, these changes will not have much of an impact, the bankers said. Founder Drahi was already driving the company’s acquisition strategy.
Altice did not respond to a request for company comment.