PARIS — Patrick Drahi, the Franco-Israeli tycoon behind the company that surprised the media world this week with its $17.7 billion deal to buy Cablevision, has been diagnosed with “acquisition bulimia” by the French media.
Drahi, 51, who lives in Geneva and founded the Israel-headquartered news channel i24news in 2013, was fairly low profile just 18 months ago. But that was then. His Luxembourg-based telecom conglom Altice has now become France’s second-largest bundled operator (offering TV, Internet and telephone service) with the acquisitions of Numericable-SFR (second to Orange) and Portugal’s largest bundled operator, MEO/Portugal Telecom.
Altice also picked up Virgin Mobile and NextRadio TV (which owns BFM-TV and RMC) and stepped into the U.S. cable market with the acquisition of Suddenlink in May and now Cablevision, which will make the combined entity the third largest cable operator in the U.S. behind Comcast and Charter Communications, after Charter completes its purchase of Time Warner Cable.
Drahi clearly has had his eyes set on the U.S. cable market and is eager to play a significant role in its consolidation. Going forward, Drahi’s ambition is to have half of Altice’s assets come from the U.S. (compared with the current estimated 15%). Drahi also initiated talks to acquire TW Cable in May, but was no match for Charter’s $56 billion offer.
Drahi ruffled feathers when he tried, in vain, to push for further consolidation in France and made a bid to acquire Bouygues, a smaller rival to Numericable-SFR, for about $11.4 billion — deemed a generous offer — in June. Drahi was immediately hammered with harsh criticism in France, flagged by the French economy minister, Emmanuel Macron, and anti-trust authorities, and derailed by French media before being turned down by Bouygues’ owner Martin Bouygues in a very public way. Marcon said back then that “All the synergies that could justify such a price are in fact about killing jobs.” Macron also suggested that Altice’s debt-fueled acquisitions model could be problematic.
The primary reproach that has been made against Drahi in France lies in his acquisition strategy, which involves deploying massive debt. Julian Watson, analyst at IHS, said Altice has a net debt of 4.4 times earnings before interest, taxes, depreciation and amortization (EBITDA), which is more than twice the leverage ratio of Orange and Vodafone.
The deal for Cablevision for $17.7 billion is being financed through $14.5 billion in new and existing debt at Cablevision plus an undisclosed amount of cash from Cablevision’s balance sheet and $3.3 billion in cash from Altice. The price tag is seen in the U.S. as high, even as the M&A market heats up with several deep-pocketed investors in the hunt to consolidate TV and digital distribution assets.
“Altice is willing to use much higher levels of debt than Europe’s traditional telecom players to fund M&A activity. This reflects the private equity background and approach of its founder Patrick Drahi,” explained Watson.
Altice also benefits from low interest rates and the markets’ high tolerance for telco companies’ debt, according French business trade Les Echos, which nevertheless called characterized Altice’s debt as a mountain and estimated it in the €30 billion range two months ago.
The trade also wrote that Drahi was “known for being a shrewd cost-cutter, capable of lowering charges to generate profit and repay his debt. It’s what he proved when he bought SFR (from Vivendi).”
Indeed, Drahi’s strategy is to acquire and combine assets in order to build a quadruple-play model — bundling TV, Internet, fixed phone and mobile services. “In doing this, it is seeking to make ‘synergies’ or reduce costs and increase profits and cash flows from these businesses,” Watson explained.
However, Drahi hasn’t yet made headlines for cutting jobs, unlike other French tycoons. Following the acquisition of SFR in 2014, Altice and Numericable guaranteed to SFR there wouldn’t be any mass job cuts for three years.
The Morocco-born businessman was raised in a middle-class family and graduated from France’s prestigious Polytechnique school. He’s known for his dapper wardrobe and generally sunny disposition. He doesn’t seem to mind being perceived as a predator in France; he even teases local journalists with sarcastic remarks. For instance, right after his offer to Bouygues was turned down, he said, “with regards to the €10 million, which I didn’t spend, don’t worry, my teams are already surveying the grounds for potential targets,” Le Monde reported in a recent story.
Drahi began his career as a marketing executive at technology and manufacturing giant Philips Group. He moved to telecom provider Kinnevik-Millisat in 1991 where he developed cable networks in Spain and France and helped launch commercial TV stations in Eastern Europe as that region’s media marketplace boomed in the 1990s. He has worked as a consultant on international media ventures and founded two cable companies in France in the mid 1990s: Sud Cable Services and Mediareasuex, according to Bloomberg.
Altice was founded in 2002 as a holding company for Drahi’s many interests in cable and telecom companies. It made headlines in financial circles in January 2014 with an IPO that raised $1.8 billion.
His incursions into some of France’s most established institutions have captured the attention of French media outlets.
“(Drahi), who compares the telecom sector to a pinball game since he said himself that ‘as long as there will be balls he will continue playing,’ has therefore chosen to make a move in the U.S., pinning down a new target on its hunting table,” Le Monde opined after the news of Altice’s acquisition of Cablevision broke.
It remains to be seen whether Drahi will be able to apply his quadruple-play model in the U.S., where existing operators have traditionally focused on getting wireless customers to consume more data across several connected devices. “Altice’s experience of running cable operators and triple play in Israel and France will be a benefit,” Watson said.