European telco Altice didn’t waste any time pushing toward the top of the list among top cable operators, agreeing to purchase Cablevision Systems in a cash and assumed debt deal valued at $17.7 billion.
The deal, expected to close in the first half of 2016, when combined with Altice’s pending acquisition of Suddenlink Communications, will create the fourth largest cable operator in the country with about 4.6 million video customers. In addition to Cablevision’s cable systems in the New York metropolitan area, Altice also will acquire Cablevision’s business services unit Lightpath, its local new operations News 12 and publishing unit Newsday.
The deal brings to an end virtually decades of speculation regarding Cablevision’s ruling Dolan family’s intentions for the cable unit. Over the years the cable operations were rumored to have been sold to Time Warner Cable and other larger operators only to be scrapped at the last minute. The family also unsuccessfully attempted to take the company private three times in the earlier part of the last decade.
“As a family business we are proud to be entrusted by the Dolan family with the ownership of Cablevision and look forward to continuing the pioneering path they have paved for us,” Altice chairman and founder Patrick Drahi said in a statement. “The strategy of Altice in the large and highly strategic US market is reinforced with the acquisition of Cablevision. We will be in a stronger position, as in all other markets in which we operate, to deliver the best services, invest in the most advanced technology, and develop innovative products for the benefit of our customers.”
Cablevision, founded by chairman Charles Dolan in 1973, has been a pioneer in the business – it was the first to successfully launch a $90 triple play and has made countless innovations in the industry.
Lately, Cablevision CEO James Dolan has set the company on a connectivity path, offering cord-cutter packages, and striking deals with over-the-top video companies like Netflix and Hulu.
In the end, it appears the competitive pressures and the consolidation movement that has swept the industry in the wake of Charter Communications’ pending $78.7 billion purchase of Time Warner Cable forced the company to look for deals. At INTX: The Internet & Television Expo in Chicago in May, James Dolan told an audience that operators should focus on consolidating markets instead of companies and offered the New York metro market as an example. Asked at the time whether that meant Dolan was putting Cablevision up for sale, the CEO replied that he was “proposing a commune.”
“Since Charles Dolan founded Cablevision in 1973, the Dolan family has been honored to help shepherd our customers and employees through the most extraordinary communications revolution in modern history,” James Dolan said in a statement. “Now, nearly half a century later, the time is right for new ownership of Cablevision and its considerable assets. We believe that Patrick Drahi and Altice will be truly worthy successors, and we look forward to doing all we can to affect this transition for our customers and employees. We expect that Cablevision will be in excellent hands.”
“For the Dolan family, we move forward with AMC Networks and The Madison Square Garden Company – two and, eventually, three public companies – all born of Cablevision and each with brighter prospects today than ever before,” James Dolan continued. “With profound gratitude to our employees, customers and shareholders who have made our vision a reality, the Dolans look forward to continuing this fascinating journey.”
The transaction is to be financed with $14.5 billion of new and existing debt at
Cablevision, cash on hand at Cablevision and $3.3 billion of cash from Altice. BC Partners and CPP Investment Board have an option to participate for up to 30% of the equity of Cablevision. Altice intends to raise equity by issuing Class A shares in connection with funding its portion of the acquisition. Altice has received full financing commitments from JP Morgan, BNP Paribas and Barclays
“We are very excited about our acquisition of Cablevision, which has developed into a pre-eminent cable operator under the steady, long-term ownership of the Dolan Family,” Altice CEO Dexter Goei said in a statement. “This acquisition, our second in the cable sector in the US, is the next step in Altice’s long-term oriented strategy in the US, one of the largest and fastest growing communications markets in the world.”
JP Morgan, BNP Paribas and Barclays acted as financial advisors to Altice. Shearman & Sterling, Covington & Burling, Mayer Brown, Ropes & Gray, De Brauw Blackstone Westbroek and Morris Nichols Arsht & Tunnell acted as legal advisors to Altice.
Given that nothing has come before the FCC, a spokesman declined to comment on the deal, which will get the requisite public-interest review by the agency and an antitrust vetting from Justice.
To the degree that it strengthens Cablevision as a competitor to Comcast, Time Warner Cable (or, if the FCC approves it, Charter-TWC-Bright House Networks) and AT&T-DirecTV, the deal could get a favorable nod.
There is no FCC prohibition on foreign ownership of cable television systems, though there is on CARS stations, the microwave systems used by cable operators.
"The acquisition of Cablevision is a good move for Altice's global media strategy," said Adonis Hoffman, chairman of Business in the Public Interest and former chief of staff to FCC commissioner Mignon Clyburn. "It may also be a good move for U.S. consumers by providing another competitor with scale in the market. Of course, one of the true tests will be how it structures programming. I would encourage Altice to be very open to independent and diverse programming and content providers, and build in onramps going into the transaction. This would speak volumes to the industry and the regulators on its intention to advance the public interest in programming."
Diversity commitments, usually volunteered by merging parties at the outset, have become a standard element in merger public-interest statements.
“I do not see any regulatory hurdles at this time that would prevent Altice from accomplishing its goal,” Hoffman added. "They will need to run the traps on the Hill, though, where some members might not be as familiar with the company or its ownership."
UPDATE, 11: 45 a.m.: At a press conference after the FCC's monthly meeting, agency chairman Tom Wheeler was asked for his reaction to the proposed deal.
He said he had two reactions. The first was that he had known Chuck Dolan and the Dolan family for decades, and they were "competitors and innovators in the space."
As to the policy issues, he said the commission would take those on in an "open, fast process." Asked about a timeline, he answered, somewhat incredulously, that the deal had only been announced at 2 a.m. the night before and that nothing had yet been filed.
As to whether there were any particular issues with a French (i.e., foreign) company buying Cablevision, Wheeler said a multitude of government agencies involved in national security and telecom — dubbed “team telecom” — reviews all such transactions.
The Team Telecom website offers this description of the organization: "Team Telecom is comprised of staff from the Department of Homeland Security, the Department of Justice, Federal Bureau of Investigation, representatives from the Department of Commerce, the Department of Defense, the Department of State, the Department of Treasury, and the Office of the United States Trade Representative. Based on its review, Team Telecom may have no comment on any application or may request that the FCC condition grant of the application on compliance with assurances made by the applicant in either an exchange of letters or a formal security agreement."
Such reviews usually take six months to a year, but can take less time. In any event, the FCC cannot act on an application until the review is completed.
Washington bureau chief John Eggerton also contributed to this story.