The Corporate Restructuring Report-Altice Europe NV (ATC) & Altice USA Inc. (ATUS)
On June 8th, 2018, Altice NV (ENXTM: ATC) completed the spin-off of its 67.2% stake in is U.S. unit, Altice USA Inc. (NYSE: ATUS). The parent company was renamed Altice Europe NV. The spin-off was tax-free and was announced on January 18th, 2018. Pursuant to the transaction, Altice Europe reorganized its structure comprising Altice France (including French Overseas Territories), Altice International, and a newly formed Altice Pay TV subsidiary. The spin-off makes sense as investors are worried about the high debt-laden European business. The transaction will shield the US business from concerns about European operations.
The operational and financial turnarounds in France and Portugal are at the core of the company's strategy. Though the company has started to witness substantial improvements to key customer metrics (specifically net adds), we are concerned over its sustainability, as the majority of net adds gains have come at the expense of lower ARPU. The spin-off and non-core asset sale program is a positive as it signals investors about the company's commitment to pare down debt. However, the debt levels (net leverage of ~5.5x) still remain a cause of concern.
Altice USA is well-positioned to drive top- and bottom-line growth owing to the material investments it is making in product enhancements, and a proven track record at driving margin expansion through its cost-conscious operating model. Altice USA's upscale demographics and investment in increasing broadband speeds bodes well for the company. The continued rollout of Altice One, fiber (FFTH) development, and new MVNO network investment should bolster growth going forward.
Of the two, we prefer Altice USA owing to more upside potential. In our view, Altice Europe is fairly valued and Altice USA is undervalued.
Altice USA is a holding company. Through its subsidiaries, the company provides broadband communications and video services and markets its services primarily under two brands: Optimum, in the New York metropolitan area, and Suddenlink, principally in markets in the south-central United States. The company delivers broadband, video, and telephony services to the residential and business customers. The company also provides fiber connectivity, bandwidth and managed services to enterprise customers through its Lightpath business (also marketed as Altice Business) and the company provides advertising time and services to advertisers. The company has launched Altice Mobile, a mobile offering, to consumers across its footprint.
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