DEAL REPORTER
Altice [AMS:ATC] could finance a bid for French telco Bouygues Telecom by issuing new shares in its subsidiary Numericable, two bankers and a minority investor said.
The market expects Altice to make an announcement on its next European telco target “soon”, they said.
Dexter Goei, Altice CEO, said in November the company would be the “most natural buyer” of Bouygues Telecom, adding that a deal could happen this year. The transaction would generate considerable synergies from infrastructure, sales and marketing, he said.
A merger between the two companies could result in around EUR 6bn in synergies, the Altice minority shareholder said. Around half of this could be used to pay the seller, French telecoms and construction group Bouygues [EPA:EN], he said.
Extensive synergies mean Altice may be able to do the deal in cash only, the first and a third banker said. But, Altice’s recent purchases – SFR and PT Portugal – mean its balance sheet is stretched, so raising capital would be necessary, the first banker and investor said.
Altice’s FY2014 results (published March 2014) show the company’s synergised net leverage stands at 4.4x. The telco could raise leverage to 4.5x EBITDA to finance a deal, a fourth banker believed.
Altice could even look at financing the acquisition with debt only, a fifth banker speculated. The debt market is very favourable at the moment, so it would be feasible, this banker said.
Assuming a price tag of EUR 8bn for Bouygues Telecom, a deal wholly funded with debt would take Altice's net leverage/Ebitda to 5.5x, not taking synergies into account, according to Dealreporter analytics.
Culturally, Altice is not as constrained by leverage as other telcos when it comes to M&A, the third banker agreed. But, completing a transaction the size of Bouygues – which could cost up to EUR 8.5bn – without additional equity would be difficult, the first banker said.
When acquiring SFR, Altice used a combination of debt and a rights issue, while at the same time handing equity over to the seller, Vivendi [EPA:VIV]. Altice could repeat some of this structure by partly paying Bouygues in Numericable-SFR shares, the minority shareholder said. While also dilutive, this structure could be used instead of a rights issue and would likely be supported by investors, he added.
But, issuing rights at the Numericable level would be welcome, as it would increase liquidity. The market would be responsive to a rights issue at Numericable, the second banker said, adding there would certainly be enough demand.
But, depending on the timing of the acquisition, a capital raise at the Numericable level would not necessarily be needed, the fifth banker suggested. Altice has committed to divesting Portuguese businesses Oni and Cabovisao in order to acquire PT Portugal, and it may also gain increased financial flexibility from sales of assets related to its SFR buy.
Bouygues was in separate negotiations to sell its telecoms unit to Iliad and Orange last year, but bids did not match its expectations.