Altice Stock Plummets, Forcing Change in Strategy, Top Management

After making headlines for its bullish content acquisition and convergence strategy, Altice, Patrick Drahi’s Netherlands-based telecom conglomerate, has seen its share value plummet more than 40% (as of Thursday) since it unveiled its third-quarter results on Nov. 2. The company has shuffled its top management, and now says it will focus on the “basics” of improving customer experience and service.

The plunge in share value to 9.80 euros per share has been attributed to the poor performance of its French telecom and pay-TV group SFR, which was acquired three years ago from Vivendi – Altice’s biggest challenger in France – and now represents 48% of Altice’s revenues and 45% of its EBITDA. During the third quarter, SFR lost 75,000 broadband customers in France and posted 15.5 billion euros of debt, while Altice’s total debt reached 49.6 billion euros – more than 5.3 times its core operating profit.

The drop in the company’s stock was further aggravated when Morgan Stanley reduced its price target by 34% from 20.5 euros to 13.5 euros per share in the wake of the quarterly results’ publication.

Since then, Chief Executive Michel Combes has been pushed out, while Drahi has taken over the presidency of the shareholders’ board and will have a greater operational role in the company. Drahi also upped Alain Weill, who was previously in charge of SFR, to the post of CEO of Altice and CEO of SFR. Dexter Goei, formerly responsible for Altice USA, is now CEO of Altice Group.

“Patrick Drahi is back with a clear team and a very detailed plan to put the customer in the core of all operational decisions, restore confidence and prepare the turnaround of SFR,” said Arthur Dreyfuss, Altice’s spokesman.

Although the group’s U.S. unit, Altice USA, which represents about 40% of its revenues and regroups Cablevision and Suddenlink, has performed well, analysts and investors have zeroed in on the poor results of France’s SFR because Drahi had vowed, when he acquired the struggling telco, to bring it back into the black and deployed a strategy that has so far failed to meet expectations.

Investor skepticism of Drahi’s debt-fueled acquisition strategy is not new, but the French-Israeli billionaire had up to now been given the benefit of the doubt because of his solid track record in Israel with thriving pay-TV company HOT.

Over the last 18 months, Altice positioned SFR as a rival to pay-TV giant Canal Plus in France and made a flurry of high-profile acquisitions and output deals with studios, notably NBCUniversal in the U.S. and Metropolitan in France. This fall, the company also launched Altice Studio with an offer of 400 movies per year and two series per month for SFR subscribers. Besides series and movies, Altice splurged on sports rights, buying the Champions’ League exclusively for 350 millions euros for 2018 to 2021 and the Premier League for 100 million euros for 2016 to 2019.

So far, SFR has spent 1 billion euros in content for 2018.

London-based Enders Analysis said in a report Thursday that Altice would likely reduce its investment in content and consider a less confrontational pay-TV strategy. A source close to the company acknowledged that “SFR had lost subscribers in spite of this rich [content] offer because of mismanagement, under-focused customer service and a poor technical service.”

Drahi said during a town hall meeting Wednesday that the company would now shift its focus back onto the “basics.” Dreyfuss confirmed that “Altice would now indeed concentrate primarily on customers as well as fixing and improving the issues of SFR’s services.”

In the next few months, SFR is expected to follow in the footsteps of rival Canal Plus and launch different packages to target specific customers who are fans of sports and/or series and movies, according to an industry insider.

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