SFR minorities’ protest against Altice offer ignores upside potential - source
SFR [EPA:SFR] minorities criticising Altice’s [AMD:ATCT] exchange offer for the 22.25% it does not own are ignoring upside opportunities from the combination, a source close to the situation said.
Minority SFR shareholder CIMA has filed a complaint with France’s stock market regulator AMF, contesting the fairness opinion conducted by independent expert Accuracy on the exchange ratio and questioning the methodology used to calculate the offer.
A second minority investor told this news service his fund is seeking advice from lawyers on whether a case can be made against Altice’s offer. This investor said it is not tendering.
SFR is confident the methodology employed by Accuracy stands up to scrutiny, said a source and a person familiar with the situation.
The French cable group stands by its decision to support Altice’s offer, the source said.
Eight newly issued Altice class A shares are offered in exchange for five SFR shares, corresponding to EUR 24.02 per SFR share based on Altice’s closing share price this afternoon (Thursday) of EUR 15.01. SFR closed at EUR 24.70.
Minority take-outs do not usually warrant a premium, the source said. Criticism may have been justified had the offer been in cash, and not allowed SFR shareholders to benefit in any upside in the combination, the source said.
There is a notable cross-shareholder base largely weighted in favour of Altice, the source and a person familiar with the situation said. The SFR camp believes these shareholders are likely to tender to benefit from improved liquidity in the Altice shares, the source said.
But the deal also means SFR shareholders will hold a stake in a debt-heavy Altice, which may not be as attractive to some shareholders, a former investor in the cable company said. SFR is a good brand which has lost customers since being acquired by Altice, this investor said. Altice’s debt, in particular the bond interest rate, could be a concern for SFR holders, this fund manager said.
In its latest investor presentation for 2Q16 results, Altice said group net leverage was 5.0x, with Altice France (SFR) at 4.0x.
Opposition from French shareholders with larger stakes in SFR than Altice does not come as a surprise, the person said. Altice is therefore unconcerned, he said.
The all-share offer announced on 5 September is opportunistic, the shareholder approached by this news service said. Altice is taking advantage of a slump in SFR’s share price, he added. His fund has long-term positions in both Altice and SFR, he added. It is making the offer prematurely, as SFR is yet to benefit from Altice’s investment in the cable company’s network, he said.
SFR hit a year-to-date closing high of EUR 38.10 on 29 March, just before news that a proposed tie-up between fellow French TMT players Orange [EPA:ORA] and Bouygues’ [EPA:BOUY] telecom unit had collapsed. SFR stock has since rebounded from a low of EUR 19.98 on 3 August.
Claims of opportunism are ill-founded, the source said. Altice always intended to acquire the outstanding shares sooner rather than later for better access to SFR’s cash flows, the source said.
The proposed Orange/Bouygues deal unveiled in January had a positive impact on domestic cable and mobile players. The prospect of French consolidation prevented Altice from making the SFR offer for a few months, the source said. Altice was also pre-occupied with concluding the Cablevision [NYSE:CVC] transaction in the US at this time, he said.
The pressures on SFR’s share price are not going to disappear in the short term, as the failure of the Orange/Bouygues deal suggests the French telecoms market will remain fiercely competitive, the source argued.
Altice declined to comment. SFR did not respond to a request for comment.