FT : Euro weakness upsets luxury brand pricing

The gap between the prices for luxury handbags, watches and jewellery in Europe and in China is the biggest it has been for three years, as weakness in the euro upsets global pricing strategies for high-end consumer brands.
Currency swings mean a Chinese consumer would save 39 per cent on luxury goods by flying to Paris instead of buying at home, compared with a saving of 26 per cent last year, according to analysts at Bernstein.

The widening difference has been a headache for watchmakers such as Patek Philippe and fashion house Chanel, which have been forced to risk irritating customers with price changes in an effort to clamp down on the secondary, or “grey”, market in luxury goods.
While greater savings would be a benefit for consumers buying many types of retail goods, in the luxury area they represent a danger that the brand itself is seen as devalued.
“If you increase the price [to deal with currency movements], fine. The customer is relieved and happy to have bought it before the increase. If you decrease it, they feel ripped off,” said Mario Ortelli, an analyst at Bernstein.
Luxury products have historically always been cheaper in Europe than countries such as China, where import taxes increase the cost of goods, encouraging the activities of middlemen who arbitrage between the regions.
However, recent volatility in currency markets has exacerbated the price differential, with a Louis Vuitton Speedy 30 bag now 61 per cent more expensive in China than across mainland western Europe, according to Bernstein.

As of March this year, luxury handbags were on average 45 per cent cheaper in France than in China, compared with just 32 per cent last year, and luxury watches were 33 per cent cheaper, against 21 per cent.
In the same month, the euro fell to a near 12-year low against the dollar on the back of the European Central Bank’s €1.1tn quantitative easing programme.
On Wednesday, Burberry said it had cut prices in China and Hong Kong and raised them in Europe, adding that “recent FX volatility has been a little more extreme” than usual.
Its comments followed price moves from across the luxury sector. In April Chanel cut prices by 20 per cent in China and raised them by 20 per cent where its products are sold in euros.
Swiss luxury brands, such as Patek Philippe, have also been affected by the sudden appreciation of the Swiss franc following the Swiss National Bank’s decision to remove the currency’s cap against the euro in January.

FT : China brokers’ capital rush fuels margin-fed rally

China brokers’ capital rush fuels margin-fed rally

hina’s brokers have raised more capital this year than in the past three combined — and more than half the $14bn proceeds are being ploughed straight back into financing the equity boom that enabled them to tap the markets in the first place.
The frenzied rallies in Shanghai and Shenzhen this year have been largely fuelled by margin lending where loans to invest in the market are secured against the stocks purchased.

Margin-financed long positions in the onshore A-Share market now total Rmb1.9tn, or $307bn — up 84 per cent this year, and four times the level this time last year, according to Macquarie analysts. The sharp rise has stoked fears it could reverse almost as quickly: if the value of margin-financed portfolios were to fall, lenders would demand more collateral or reduce the size of loans, either of which could trigger forced selling.
Yet more than half of the $9.5bn of equity raised in Hong Kong this year by brokers will be used to finance more margin loans, according to the companies’ filings.
Still more funds will soon be added to the financing pool after Huatai Securities on Friday priced its initial public offering in Hong Kong at the top end of the range, raising a further $4.5bn. If its underwriters exercise an option to sell more shares when it begins trading on June 1, Huatai could raise a further $700m, making it the biggest IPO in Hong Kong since AIA raised $20bn in 2010, according to Dealogic.
“Brokers are the perfect stock in this market — they’re a leveraged derivative on what’s going on in China,” said one equities banker, who described the mainland rally as a “state-sanctioned bull run”.
The Shanghai Composite closed last week at a seven-year high, up 44 per cent this year amid trading volumes that topped $150bn on Friday. Shenzhen, home to start-ups, tech stocks and biotech groups among others, has nearly doubled and hit its fifth record high in as many days on Friday.
Huatai has already said that 60 per cent of the proceeds from listing will go towards margin financing, in line with its rivals who have already tapped the Hong Kong markets.
Chinese investors opened almost 5m new share trading accounts in the first two weeks of May alone, Macquarie said.
Tapping international investors via Hong Kong has been brokers’ preferred route. GF Securities raised $4.1bn in a Hong Kong IPO in March while China Galaxy Securities sold new shares worth $3.1bn in a private placement in April. At least half of each of those funds will go into the brokers’ lending businesses, including margin financing.
“This capital is being immediately redeployed, there’s no cash drag and they’re not accumulating a war chest,” said one banker involved in the deals.
Haitong Securities, which has been clear about its international expansion plans, also raised $4.2bn in a private placement this month — of which 60 per cent is earmarked for margin finance.
Citic Securities is widely expected to tap the market via a private placement with plans to raise more than $4bn.

FT : Interior minister warns Greece will default on June IMF repayment

Greece has again threatened to default on loan repayments due to the International Monetary Fund, saying it will be unable to meet pension and wage bills in June and also reimburse €1.6bn owed to the IMF without a bailout deal with creditors.
“The money won’t be given . . . It isn’t there to be given,” Nikos Voutsis, the interior minister, told the Greek television station Mega.

He claimed the EU and IMF were pressuring Greece to make unacceptable concessions in the current bailout talks in return for unlocking €7.2bn of aid frozen since last year.
The warning by Mr Voutsis, one of prime minister Alexis Tsipras’s oldest political allies, comes just two weeks after Mr Tsipras made a similar threat in writing to Christine Lagarde, the IMF managing director.
Mr Tsipras said Greece would miss a €750m payment in May. That payment was ultimately met, though only through tapping an emergency account held by the IMF. Athens in effect borrowed IMF assets to pay the IMF.
Predicting when Athens will run out of cash has proven a fraught affair for eurozone officials, who have been bracing for default since March.
Given the repeated warnings from Greek officials that bankruptcy is imminent, some officials have begun to disregard such threats, believing Athens is now using them as a negotiating tactic.
But a senior Greek official with knowledge of the government’s funding position confirmed that Athens would be unable to make the IMF payments, which fall due in four separate instalments of more than €300m each between June 5 and June 19, unless a deal is struck.
“It’s clear the June payments to the fund can’t be covered without external financing,” the official said. He declined to be identified.
Creditors will not disburse the loan tranche without an agreement on further Greek economic reforms.
“We won’t accept blackmail that says it’s either liquidity with a memorandum [the Greek term for a bailout programme] or bankruptcy”, Mr Voutsis said.
The talks have picked up pace in recent days after a four-month stand-off but German chancellor Angela Merkel warned at last week’s EU summit in Riga that “there is very, very intensive work to be done”.
The government has ruled out a domestic default on payment obligations to Greece’s 2.9m pensioners and 600,000 public sector workers, saying they have first claim on the country’s shrinking resources.
People who have spoken to Mr Tsipras say he is in a dour mood and willing to acknowledge the serious risk of an accident in coming weeks.
One official in contact with the prime minister said: “The negotiations are going badly. Germany is playing hard. Even Merkel isn’t as open to helping as before.”
Athens is particularly worried by the IMF stance and Mr Tsipras has been attempting to convince the US to use its influence on the IMF board to soften the institution’s demands.
Greek officials are also hopeful that securing a statement from eurozone ministers recognising some progress in talks will allow the ECB to ease emergency liquidity restrictions.

FT : Negative rates pose corporate conundrum

Life for companies in Europe has been turned upside down. Like individuals, corporate treasurers are accustomed to paying when they wish to borrow and being rewarded for building up cash piles.
No longer. Companies, particularly large ones, are now able to borrow at historically low interest rates. But saving money has never yielded so little.

Some banks have even imposed negative interest rates on deposits — charging corporate clients for holding their cash. On Monday, HSBC became the latest to introduce a charge on cash held in a basket of European currencies.
“Treasurers must now be questioning whether it makes sense to have substantial cash balances when you are not remunerated for it,” says Myriam Durand, Emea managing director for corporate finance at Moody’s, the credit rating agency.
In Europe, in particular, low or negative interest rates bring a further worrying downside. Companies have been sitting on their cash for some years now, when investment is badly needed to drive lacklustre growth. However, even with rates at their current levels, companies’ bosses — and their investors — find themselves in a Catch 22 situation: they hold high levels of cash on their balance sheets, on which they are earning almost no return, but remain puzzled about how to put it to better use.
Among European companies, this conundrum is widespread — unlike in the US, where large cash piles tend to be concentrated in a few companies and sectors. Cash piles at European non-financial companies stood at more than $1tn a year ago — more than 40 per cent higher than in 2008. Analysts believe there has been little decrease since.
“The desire to hold cash despite ever-lower returns reflects the high level of uncertainty that has been palpable since the financial crisis, particularly in Europe,” Goldman Sachs points out.
In some sectors, such as telecommunications and utilities, low to negative real interest rates have proved a boon. With many companies in these industries still highly leveraged, lower rates have made it possible to refinance more cheaply and, often, at longer maturities — reducing overall debt servicing costs.
Debt issued by companies in the IBOXX EUR corporate bond index carries an average coupon, or fixed interest payment, of 3 per cent. But the average yield on these bonds when bought in the market is 1.1 per cent, suggesting that companies’ interest costs could be reduced further.

However, while managing debt may have become easier, that is only one side of the story. With HSBC and Germany’s Commerzbank now setting negative rates for deposits, and positive rates at all-time lows, no company is earning a meaningful return on cash balances — a situation that is increasingly causing disquiet among investors.
Paul Watters, head of corporate credit research at Standard & Poor’s, says that while companies in Europe have been inhabiting a low-interest rate world for some years, moves such as Commerzbank’s have “focused minds” — encouraging shareholders to ask managers why they are not putting cash to better use.
“Are returns [on cash] really better than investing in your own business?” he asks. “What is the opportunity cost of maintaining cash balances?”
In recent months, there has been evidence of investors pressing companies to explain what they will do with their cash piles. Vivendi, for example — the Paris-based owner of Universal Music Group and Canal Plus — had to increase its dividend payments after pressure from an activist US investor to hand over more of its estimated €15bn in cash.
It may be the first of many companies to be forced to adapt its policies. In the US, share buybacks and dividend payouts picked up sharply in the wake of the financial crisis, as companies sought to support their share price by promising income when they could not guarantee growth.
Although European dividend growth has significantly lagged behind the US, there are signs that this is beginning to change. According to S&P, dividends and share buybacks by rated European companies grew to over €250bn in 2014 — close to their 2007 peak and about €100bn more than during the worst of the financial crisis.

Diverting cash into mergers and acquisitions may also help to placate investors, given improving investor sentiment towards dealmaking. Goldman Sachs has found that companies making acquisitions in 2011 and 2012 were generally punished in terms of relative stock performance, but says market reaction has changed in the past two years. Even so, M&A activity involving European targets is still running below the levels of 2005.
And while more cash may be used for share buybacks, dividend hikes, or dealmaking, there is still little sign of it being diverted into investment — a key driver of future growth in Europe. Capital expenditure remains anaemic.
There is a further unanticipated consequence of the low interest rate world, which affects both companies and shareholders.
“The real danger is that negative real interest rates sustain assets and investments that would otherwise fail in an environment of more normal interest rates,” says Goldman Sachs. “At the very least [they] make it difficult to assess the ‘correct’ valuation of assets.”
Such a danger could result in the creation of a generation of “zombie” companies in Europe, preventing oversupply being eradicated from the region’s economy. This, combined with a continuing absence of corporate investment, poses long-term risks.
“Extremely low interest rates or even negative yields could discourage investors even further from risk taking, due to a lack of profitability, and hence lead to less expansion and growth creation,” warns S&P.
Companies for the moment may be enjoying a flood of cheap money in Europe, but there are perils lurking in its depths.

FT : High quality global journalism requires investment. Please share this artic

Life for companies in Europe has been turned upside down. Like individuals, corporate treasurers are accustomed to paying when they wish to borrow and being rewarded for building up cash piles.
No longer. Companies, particularly large ones, are now able to borrow at historically low interest rates. But saving money has never yielded so little.

Some banks have even imposed negative interest rates on deposits — charging corporate clients for holding their cash. On Monday, HSBC became the latest to introduce a charge on cash held in a basket of European currencies.
“Treasurers must now be questioning whether it makes sense to have substantial cash balances when you are not remunerated for it,” says Myriam Durand, Emea managing director for corporate finance at Moody’s, the credit rating agency.
In Europe, in particular, low or negative interest rates bring a further worrying downside. Companies have been sitting on their cash for some years now, when investment is badly needed to drive lacklustre growth. However, even with rates at their current levels, companies’ bosses — and their investors — find themselves in a Catch 22 situation: they hold high levels of cash on their balance sheets, on which they are earning almost no return, but remain puzzled about how to put it to better use.
Among European companies, this conundrum is widespread — unlike in the US, where large cash piles tend to be concentrated in a few companies and sectors. Cash piles at European non-financial companies stood at more than $1tn a year ago — more than 40 per cent higher than in 2008. Analysts believe there has been little decrease since.
“The desire to hold cash despite ever-lower returns reflects the high level of uncertainty that has been palpable since the financial crisis, particularly in Europe,” Goldman Sachs points out.
In some sectors, such as telecommunications and utilities, low to negative real interest rates have proved a boon. With many companies in these industries still highly leveraged, lower rates have made it possible to refinance more cheaply and, often, at longer maturities — reducing overall debt servicing costs.
Debt issued by companies in the IBOXX EUR corporate bond index carries an average coupon, or fixed interest payment, of 3 per cent. But the average yield on these bonds when bought in the market is 1.1 per cent, suggesting that companies’ interest costs could be reduced further.

However, while managing debt may have become easier, that is only one side of the story. With HSBC and Germany’s Commerzbank now setting negative rates for deposits, and positive rates at all-time lows, no company is earning a meaningful return on cash balances — a situation that is increasingly causing disquiet among investors.
Paul Watters, head of corporate credit research at Standard & Poor’s, says that while companies in Europe have been inhabiting a low-interest rate world for some years, moves such as Commerzbank’s have “focused minds” — encouraging shareholders to ask managers why they are not putting cash to better use.
“Are returns [on cash] really better than investing in your own business?” he asks. “What is the opportunity cost of maintaining cash balances?”
In recent months, there has been evidence of investors pressing companies to explain what they will do with their cash piles. Vivendi, for example — the Paris-based owner of Universal Music Group and Canal Plus — had to increase its dividend payments after pressure from an activist US investor to hand over more of its estimated €15bn in cash.
It may be the first of many companies to be forced to adapt its policies. In the US, share buybacks and dividend payouts picked up sharply in the wake of the financial crisis, as companies sought to support their share price by promising income when they could not guarantee growth.
Although European dividend growth has significantly lagged behind the US, there are signs that this is beginning to change. According to S&P, dividends and share buybacks by rated European companies grew to over €250bn in 2014 — close to their 2007 peak and about €100bn more than during the worst of the financial crisis.

Diverting cash into mergers and acquisitions may also help to placate investors, given improving investor sentiment towards dealmaking. Goldman Sachs has found that companies making acquisitions in 2011 and 2012 were generally punished in terms of relative stock performance, but says market reaction has changed in the past two years. Even so, M&A activity involving European targets is still running below the levels of 2005.
And while more cash may be used for share buybacks, dividend hikes, or dealmaking, there is still little sign of it being diverted into investment — a key driver of future growth in Europe. Capital expenditure remains anaemic.
There is a further unanticipated consequence of the low interest rate world, which affects both companies and shareholders.
“The real danger is that negative real interest rates sustain assets and investments that would otherwise fail in an environment of more normal interest rates,” says Goldman Sachs. “At the very least [they] make it difficult to assess the ‘correct’ valuation of assets.”
Such a danger could result in the creation of a generation of “zombie” companies in Europe, preventing oversupply being eradicated from the region’s economy. This, combined with a continuing absence of corporate investment, poses long-term risks.
“Extremely low interest rates or even negative yields could discourage investors even further from risk taking, due to a lack of profitability, and hence lead to less expansion and growth creation,” warns S&P.
Companies for the moment may be enjoying a flood of cheap money in Europe, but there are perils lurking in its depths.

WSJ : Nestlé Taps Into Bottled Water On-Demand

Nestlé Taps Into Bottled Water On-Demand

The Swiss company is getting a big lift from customized Web orders for its Poland Springs, Perrier and Pure Life brands in the U.S.


Water is heavy, cheap and flows from kitchen taps—not exactly the first thing you’d consider putting on your online shopping list, right?

Well, it’s more popular than you might think.

Nestlé SA says its U.S. water home-delivery business grew twice as fast as shipments to brick-and-mortar stores last year. In the first quarter of this year, it grew three times faster, and Nestlé expects the momentum to continue.

For decades, trucks have dropped off five-gallon, 40-pound jugs for water coolers to houses and offices, typically at regular intervals through subscriptions. Customers received monthly bills by mail. Then sales stalled during the recession.

Now Nestlé says it’s getting a big lift from customized Web orders for its still and sparkling water brands, including Poland Springs, Perrier and Pure Life, after it spent millions of dollars upgrading software. The company began offering a broader packaging mix, including half-liter bottles, a couple of years ago. Since last year, online consumers also could make one-time orders, with delivery within 24 hours.

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Shoppers increasingly are ordering everything from diapers to wine online. When it comes to water, some don’t like how it tastes from the tap and don’t want to carry something heavy from a store. Now they don’t even have to lift a five-gallon jug in their house, and can change orders on the fly.

“The world is going this way,” said Tim Brown, president of Nestlé Waters North America. “It’s the convenience factor.’’

Some consumers appear willing to pay for that convenience. Nestlé says its home-delivery business has avoided increasing competition in stores, where prices for bottled water have been falling in recent years as private-label brands proliferate. It says customers typically pay $6 to $7 for a case of 24 half-liter bottles delivered to their homes, compared with $5 and less in stores.

Families, not single-person households, are doing most of the buying when it comes to home delivery, said Mr. Brown, who estimates U.S. household penetration of delivered water is only about 2%. Bottled water makers are benefiting from consumers avoiding soda, whose U.S. sales volumes have declined 10 straight years amid health and obesity concerns.

The Swiss company’s delivery business, roughly split between 1.5 million homes and offices, represented about 20% of its $4 billion in U.S. water sales last year.

Nestlé says its U.S. water home delivery business grew twice as fast as shipments to brick-and-mortar stores last year. The production line at the company’s processing plant in Dallas. ENLARGE
Nestlé says its U.S. water home delivery business grew twice as fast as shipments to brick-and-mortar stores last year. The production line at the company’s processing plant in Dallas. PHOTO: BRANDON THIBODEAUX FOR THE WALL STREET JOURNAL
Nestlé says its water sales to U.S. homes and small businesses rose 14% in volume terms in 2014, compared with 7.8% at stores. In the first quarter of this year, the company says its direct-to-consumer shipments increased nearly 21%, compared with 5.5% at retail outlets.

Other companies see the same opportunity. Private-label soda maker Cott Corp. last December acquired DS Services of America Inc., which delivers water via its water.com site, for $1.25 billion including debt. Consumers on Costco.com can have an entire pallet—1,872 half-liter bottles—of Pure Life water delivered to their homes for $489.99, if they live on the first floor.

Coca-Cola Co.’s Dasani and PepsiCo Inc.’s Aquafina water brands are sold on Amazon.com. Fiji Water Company LLC, which has been delivering water from a remote South Pacific island to U.S. stores for years, also offers home delivery. Its website offers shipping a 36-pack of 330-milliliter bottles for $47.50.

Nestlé has an advantage because it’s the biggest seller of bottled water in the U.S., with an estimated 34.9% share of the $13 billion market at wholesale prices. It also controls about a third of the $1.6 billion home-delivery market, with DS Services a close second, estimates industry tracker Beverage Marketing Corp.

The company owns a fleet of 2,000 delivery trucks for homes and offices reaching 60% of the U.S. population. Drivers track orders with hand-held devices and make about 50 deliveries a day. The average order is about $35, with roughly 20% of that for shipping costs. Orders carry a $20 minimum.

Not everyone is convinced this is the wave of the future for water.

“I don’t think water for hydration to keep us alive is going to be delivered by UPS or Amazon,’’ said Tom Pirko, managing director at Bevmark and a longtime beverage industry consultant.

Michael Bellas, chief executive at Beverage Marketing, expects single-serve bottles bought outside the home to continue to be the biggest driver of industry growth over the next few years. But he also sees potential for companies like Nestlé and DS Services that have built large customer bases from years of delivering five-gallon jugs.

“They already have entry into the home and the idea is to leverage that. It’s a service business,” said Mr. Bellas.

(BFW) France, Italy ‘On Right Path’ on Debt, Schaeuble Tells D-Radio

France, Italy ‘On Right Path’ on Debt, Schaeuble Tells D-Radio
2015-05-24 10:44:02.387 GMT


By Stefan Nicola
(Bloomberg) -- German Finance Minister Wolfgang Schaeuble
says France cut new borrowing “considerably,” and like Italy
is “on the right path” when it comes to national debt.
* Schaeuble comments in interview with Deutschlandfunk radio
* Says “average new borrowing in the euro zone has been cut
in half in recent years. So we’re on the right path in
Europe”
* G-7 finance ministers to discuss Greece in Dresden May
27-29; says Greece must honor commitments, solve problems at
home
* Says Varoufakis’ job is “tougher” than his; says Greeks
“don’t need more warnings”
* EARLIER: Greek Interior Minister Says Govt Can’t Pay IMF in
June: ANA
* NOTE: Schaeuble Expects Conflict at Dresden G-7 Over
Austerity Policy


For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

To contact the reporter on this story:
Stefan Nicola in Berlin at +49-30-70010-6246 or
snicola2@bloomberg.net
To contact the editors responsible for this story:
Reed Landberg at +44-20-3525-7862 or
landberg@bloomberg.net
Stefan Nicola

(BFW) Monsanto May Need to Offer Over CHF500/Shr for Syngenta: SamS

Monsanto May Need to Offer Over CHF500/Shr for Syngenta: SamS
2015-05-24 09:58:30.204 GMT


By Simeon Bennett
(Bloomberg) -- Monsanto may make improved offer for
Syngenta next week, Schweiz am Sonntag reports, citing a person
familiar with the matter it didn’t identify.
* An offer of more than CHF500/shr, or CHF46b, would be
difficult for Syngenta’s board to find plausible arguments
for rejecting, Schweiz am Sonntag says, citing the person
* Talks between two companies are continuing, report says
* Spokespeople for Monsanto and Syngenta didn’t immediately
return calls from Bloomberg seeking comment
* NOTE: Monsanto Says Deal Would Mean Sale of Syngenta Seed
Unit
* NOTE: Monsanto May Have to Raise Syngenta Offer 11% to
Succeed

For Related News and Information:
First Word scrolling panel: FIRST<GO>
First Word newswire: NH BFW<GO>

--With assistance from Jan-Henrik Förster and Zoe Schneeweiss in
Zurich.

To contact the reporter on this story:
Simeon Bennett in Geneva at +41-22-317-9238 or
sbennett9@bloomberg.net
To contact the editor responsible for this story:
Chitra Somayaji at +44-20-3525-9717 or
csomayaji@bloomberg.net

(BN) Time Warner Cable Talks Pit Malone Against Protege Drahi (1)

Time Warner Cable Talks Pit Malone Against Protege Drahi (1)
2015-05-23 23:33:24.535 GMT


(Updates with Liberty deals in 18th paragraph.)

By Marie Mawad, Ed Hammond and Kristen Schweizer
(Bloomberg) -- Merger talks over Time Warner Cable Inc. are
pitting French-Israeli tycoon Patrick Drahi against his former
boss: media mogul John Malone.
A bid for Time Warner Cable, the second-largest U.S. cable
company with a market value of $48 billion, would be the boldest
move yet for Drahi, just days after his Altice SA holding
company made a surprise foray into the U.S. with the
announcement of plans to buy a much smaller rival. It would also
incite a billionaire tug of war on Malone’s home turf. Malone’s
Charter Communications Inc. is also said to be pursuing Time
Warner Cable -- for the second time in about a year.
Time Warner Cable’s talks with Altice and Charter are
expected to continue through the weekend, and an accord with
either suitor could be reached as early as next week, according
to people with knowledge of the matter. The negotiations may
fall apart and there is no certainty a transaction will be
agreed on, the people said.
Dealmaking is heating up in an industry facing waning
demand for traditional pay-TV packages and intense competition
from Netflix, Amazon and other online services. Charter, the
fourth-largest cable provider in the U.S., is making another run
at Time Warner Cable after its early 2014 bid was rejected and
market leader Comcast Corp. swooped in with a competing offer.
The Comcast deal collapsed last month because of regulatory
opposition.

Considered Mentor

Drahi, 51, amassed a personal fortune of almost $22 billion
-- more than double Malone’s, according to the Bloomberg
Billionaires Index -- by building one of Europe’s most
acquisitive telecommunications and cable businesses that stretch
from Israel, France, Portugal to the Caribbean.
Seeking to extend his influence to the U.S. means Drahi has
to compete with a rival he’s so far viewed more as a mentor,
according to a person with knowledge of the matter. The two
businessmen know each other well and meet regularly, the person
said, asking not to be identified discussing a private matter.
In the late 1990s, Drahi sold one of his companies to
Malone and then worked for his UPC unit in Switzerland.
As the two billionaires later expanded their own empires,
they have largely avoided going head-to-head with each other,
and Malone has focused on markets such as Germany, the U.K. and
the Netherlands.

‘Aggressive Acquirer’

More recently, Altice and and Liberty Global Plc, Malone’s
European cable company, both looked at buying Royal KPN NV’s
Belgian carrier Base. Liberty’s local unit agreed to acquire the
asset last month for $1.4 billion.
“He’s a growth guy,” Malone told Bloomberg News on
Tuesday, just before Altice surprised investors with its
agreement to buy Suddenlink Communications, the seventh-largest
U.S. cable provider, in a deal valued at $9.1 billion. “He’s an
acquirer, an aggressive acquirer taking advantage of low-cost
debt right now and the ability to be pretty aggressive at
cutting costs out of what he buys.”
Altice Chief Executive Officer Dexter Goei last year
described the company as “the Liberty Global of the smaller
telecom opportunities.” This week, Goei said Altice will be
“right in the middle” of the wave of U.S. cable mergers and
acquisitions.
Everything “below Comcast effectively is in consolidation
mode,” Goei said during a May 20 analyst call to discuss the
Suddenlink purchase. Altice said it ultimately aims to have the
U.S. contribute to half of the company’s business.

‘Left-Field Disruptor’

The takeover of Suddenlink -- which will be financed mostly
using debt -- will lift Altice’s U.S. revenue to about 12
percent of its total, according to Neil Campling, an analyst at
Aviate Global in London, who called Drahi a “left-field
disruptor.”
“Drahi learned from the best oligopoly pioneer in the
world,” Campling said.
Time Warner Cable may fetch more than $54 billion in a
sale, according to a person with knowledge of the matter. For
Altice, which has a market value of $36 billion, financing a bid
for New York-based Time Warner Cable could be more complicated
than funding an offer for Suddenlink. Also, cross-borders deals
don’t offer as many cost-cutting opportunities as local ones.

‘Hell Yes’

A spokesman for Time Warner Cable declined to comment, as
did representatives for Charter and Altice.
Malone has a long history of disrupting the cable industry
around the world. He turned Tele-Communications Inc. in the
1970s and 1980s into one of the biggest pay-TV companies in the
U.S. before selling it to AT&T Inc. in 1999.
In Europe, Malone spent more than $50 billion over the past
decade consolidating the media industry and building Liberty
Global into one of the biggest international cable operators.
Liberty Global acquired British broadband provider Virgin Media
in 2013 and Ziggo NV in the Netherlands last year. More
recently, it has gone after sports rights with several content
deals and purchased a stake in U.K. commercial broadcaster ITV
Plc.
In the U.S., Malone’s influence over the Who’s Who of the
media industry has been wide-ranging. He controls companies
including premium cable channel Starz and Sirius XM Holdings
Inc., a satellite-radio company, and sits on the board of movie
studio Lions Gate Entertainment Corp. He’s known for engineering
complicated tax-free spinoffs and financial arrangements that
few can understand.
When asked in November whether Charter would attempt to buy
Time Warner Cable if the Comcast deal failed, Malone said,
“Hell yes.” And as soon as the deal with Comcast evaporated,
Charter immediately contacted Time Warner Cable about possibly
renewing talks, people familiar with the matter have said.
“At first blush, Altice’s interest in Time Warner Cable is
bad news for Charter,” Craig Moffett, an analyst at
MoffettNathanson, wrote in a note Wednesday following first
reports on a takeover bid by Altice. “If Altice can snatch away
Time Warner Cable, Charter is left at the altar. Again.”

For Related News and Information:
The French Billionaire Who Wants to Rule the U.S. Cable Business
Malone Says Liberty, Vodafone Make ‘Great Fit’ in Western Europe
Time Warner Cable Said in Sale Talks With Altice, Charter
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--With assistance from Manuel Baigorri and Dinesh Nair in London
and Gerry Smith and Alex Sherman in New York.

To contact the reporters on this story:
Marie Mawad in Paris at +33-1-5530-6290 or
mmawad1@bloomberg.net;
Ed Hammond in New York at +1-212-617-1963 or
ehammond12@bloomberg.net;
Kristen Schweizer in London at +44-20-3525-7526 or
kschweizer1@bloomberg.net
To contact the editors responsible for this story:
Kenneth Wong at +49-30-70010-6215 or
kwong11@bloomberg.net;
Cecile Daurat at +1-302-661-7607 or
cdaurat@bloomberg.net
Kenneth Wong, Jacqueline Simmons