Altice USA Inc. is reportedly considering a sale of its Suddenlink business as the company faces escalating competitive pressures in the fiber market.
A deal could be valued at as much as $20 billion, Bloomberg News recently reported, citing unnamed sources familiar with the matter. Altice is reportedly working with The Goldman Sachs Group Inc. on the potential transaction and has started soliciting interest from possible buyers.
Wall Street cheered the possibility, sending shares of Altice soaring in the days immediately after the report. The stock jumped 26% between July 20 and July 21, the day the news broke, as several Wall Street analysts released reports assessing the sale potential. Valuation is considered the biggest potential hurdle, though some analysts noted that financing may also prove challenging for some would-be buyers.
The news comes as Altice has struggled with declining subscribers and EBITDA. In the first quarter of 2022, the company's EBITDA fell to $951.2 million from $1.05 billion a year earlier.
Unique residential customer net losses in the first quarter were 21,000, compared to a loss of 1,000 a year earlier. It is fairly common for a cable company to report subscriber losses amid increased cord cutting. What sets Altice apart is the loss of broadband customers: The company reported residential broadband net losses of 13,000 in the first quarter.
New Street Research analyst Jonathan Chaplin said a deal seems "reasonably likely," with Altice's assets drawing interest from large and medium cable players, as well as private equity and infrastructure funds.
"Among the large buyers, Charter Communications Inc. may have the most contiguous markets, but we don't doubt that Comcast Corp., Cox Communications Inc., Mediacom Communications Corp. and maybe even Cable One Inc. would be interested," Chaplin wrote in a research note. "The last three would need help financing a deal this big."
None of the referenced companies responded immediately to a request for comment by S&P Global Market Intelligence.
Suddenlink's operation in rural areas gives Altice a competitive advantage, according to MoffettNathanson analyst Craig Moffett. About 42% of homes passed by Altice are legacy Suddenlink footprint, with little fiber overlap and relatively low broadband penetration, suggesting room for growth, the analyst said.
* Learn more about Altice USA's 2015 deal with Suddenlink.
* See Suddenlink markets with the S&P Global Market Intelligence mapping tool.
One question Chaplin and Moffett have is valuation. Altice USA stopped breaking out results from its Suddenlink and Optimum businesses in 2018, but the company overall reported EBITDA of $4.34 billion in 2021. Chaplin estimates $1.4 billion of that is attributable to Suddenlink. Bloomberg cited sources as saying EBITDA was closer to $1.3 billion in 2021.
A $20 billion deal would imply a multiple of 14x enterprise value/EBITDA, based on Chaplin's estimate. If Bloomberg's $1.3 billion estimate is correct, the multiple would be over 15x.
"We are skeptical that the companies we cover would be willing to pay 14x for Suddenlink," Chaplin wrote. "They would certainly be interested in owning the asset at the right multiple, but 14x would be a stretch given where their multiples are today."
When Altice bought a majority stake in Suddenlink in 2015, the deal carried an implied enterprise value/EBITDA multiple of 12.66x.
While a 14x to 15x multiple might have been reasonable in 2020 or even 2021, rising inflation and cratering stock prices have made those higher multiples "a pipe dream," Moffett said.
"A multiple closer to 12x, or even 10x, might be as good as it gets," the analyst said.
Even with the stock's recent jump, shares of Altice were still down 65.8% for the 12 months ended July 22, the day after Bloomberg reported on the potential sale.
