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European telecom giant Altice NV announced plans late Monday to spin-off its U.S. cable unit, Altice USA, in a move it says will bring more transparency to investors and enable each business to focus on their distinct respective markets.  

As part of the separation, which is expected to be completed by the end of the second quarter of 2018, Altice NV will reorganize its international operations under the new name Altice Europe.

After the transaction, each business will have its own management team, with Altice founder Patrick Drahi retaining control of both companies and serving as president of the board of Altice Europe and chairman of the board of Altice USA. Dexter Goei will continue in his role of Altice USA CEO and his current management team will remain unchanged, while Dennis Okhuijsen will head up Altice Europe.

Altice USA went public in June, but despite positive third quarter results, has seen its stock decline recently, mainly due to concerns over its parent company’s debt burden.

“The separation will allow both Altice Europe and Altice USA to focus on their respective operations and execute against their strategies, deliver value for shareholders, and realize their full potential,” Drahi said in a statement. “Both operations will have the fundamental Altice Model at their heart through my close personal involvement as well as that of the historic founding team.”

The planned restructuring “squarely addresses” many issues that made MoffettNathanson analysts skeptical when Altice USA first debuted on the Nasdaq last year, including the connection to its European parent, analyst Craig Moffett said Tuesday in a note to investors.

“First, they [Altice USA] are jettisoning any connection to Altice NV. That should solve their ‘guilt by association’ problem,” Moffett said. “Second, they are lowering their leverage target (from an implausibly high 5.0-5.5x EBITDA to a still-high but more reasonable 4.5-5.0x). Third, they will increase their free float through the issuance of shares in the spin-off. While that might trigger a short-term surplus of shares, it will make the stock more investible (and give them a more reasonable target for equity shrink through share repurchases later on).”

Under the deal, Altice NV will distribute its 67.2 percent interest in Altice USA to shareholders. The board of directors of Altice USA has also approved in principal the payment of a $1.5 billion cash dividend to all shareholders immediately prior to completion of the separation, and a share buyback program of up to $2 billion.   

“Altice USA sees exciting opportunities in the U.S. market as we start 2018 with strong momentum. We have a full operational agenda to deliver best-in-class services to our customers, drive innovation and advance our fiber investment strategy,” Drahi said. “The new organization structure will enable us to focus even more on executing this agenda while enhancing transparency for our investors. We remain confident in achieving the objectives we set out at the beginning of our journey in the U.S. and affirm the efficiency targets set out at the time of the acquisitions of Suddenlink and Optimum.”

 

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