Altice USA said its former parent Altice Europe sold about 17.9 million shares in the U.S. company to an unnamed broker dealer, with Altice USA purchasing about 3.6 million shares for $85 million.

According to Altice USA, the shares sold by Altice Europe represented substantially all of its remaining stake in the company.

Altice Europe was created in 2018 after French-based telecom conglomerate Altice NV separated its US and European operations. The move was made in part to ease investor fears that the U.S. operation would be liable for the former parent’s debt load. 

Altice USA went public in June 2017, and though it debuted on the New York Stock Exchange at about $30 per share, the stock has had its ups and downs since. Altice USA shares were priced at $24.48 each in early morning trading Tuesday, up 18 cents or 0.7% each.

Altice Labs, the Portugal-based technology arm of the eponymous global telecom conglomerate, has debuted a new line of RDK-based broadband gateways for service providers around the globe.

Most of the devices support the new WiFi 6, 802.11ax standard. And the gateways are available for both hybrid fiber coax and fiber-to-the-home networks, supporting DOCSIS 3.0, DOCSIS 3.1, GPON and XGS-PON.

Altice Labs will deploy the new devices with Altice Europe and Altice USA. The GPON version of the gateway is already deployed with SFR in France, which is part of Altice Europe

Altice, along with RDK Management, will also showcase the tech at the upcoming Broadband World Forum in Amsterdam (October 15-17).

RDK, or Reference Design Kit, is a consortium-backed set of pre-designed software bundles powering cable TV set-tops, broadband gateways and other CPE. The consortium is supported by Comcast, Liberty Global and Charter, and overseen by RDK Management.

“Our suite of Altice Labs’ gateways with RDK can help improve operator efficiency across access technologies and accelerate operator innovation by using a common approach for Wi-Fi management, device diagnostics and data analytics,” said Alcino Lavrador, general manager of Altice Labs, in a statement.

“Altice Labs is renowned for developing world-class broadband solutions, and we’re honored to have them in the RDK community,” added Steve Heeb, president and general manager of RDK. “Altice Labs should be commended for its ability to develop RDK solutions across multiple access network technologies, and for its use in the world’s first GPON deployment with RDK. These exciting broadband products are a clear testament to Altice Labs’ technological leadership and commitment to RDK.”

Altice USA said subsidiary CSC Holdings will issue $1 billion in debt securities to help finance a $1.5 billion special dividend tied to a planned split with its European parent.

Altice USA announced earlier this month plans to separate its U.S. and European operations, forming Altice USA and Altice Europe. The split is expected to be completed in the second quarter. As part of the agreement, Altice USA said it would issue a one-time cash dividend to its shareholders prior to separating.

In a statement Tuesday, Altice USA said its wholly-owned subsidiary CSC Holdings has priced $1 billion in senior guaranteed notes due 2028, with an interest rate of 5.375%. The notes will pay interest semi-annually on Feb. 1 and Aug. 1 of each year, beginning Aug. 1, 2018. The notes will mature on Feb. 1, 2028. The offering is expected to close on or about Jan. 29.

According to Altice USA, the offering will be used together with the proceeds from term loans made available to the issuer, borrowings from a revolving credit facility and cash on its balance sheet, to refinance certain debt and fund the special dividend.

Altice USA stock, weighed down by the enormous debt load of its parent, European telecom stalwart Altice N.V., is getting some needed relief in the form of a spinoff that should remove at least some of the shackles that have restrained the shares since the company’s June IPO.

Altice N.V. announced its plan to complete the split from the U.S. division by the second quarter. As part of the deal, Altice USA will issue a $1.5 billion dividend, which will mainly fall to the Altice N.V. shareholders that own about two-thirds of the U.S. unit. After the deal is closed, the European operation will be renamed Altice Europe and be led by current Altice N.V. chief financial officer Dennis Okhuijsen, rising to CEO. Former CEO Michel Combes left the company in November and was named president and CFO of Sprint earlier this month.

Altice USA CEO Dexter Goei and his team will remain in their current roles after the closing. And Altice founder Patrick Drahi will remain in control of both companies, serving as president of Altice Europe and chairman of Altice USA.

The separation should remove one of the biggest overhangs on Altice USA stock — its parent’s heavy debt load and uncertainty surrounding the European telecom market. Altice USA went public in June 2017 at $30 per share and enjoyed a strong run-up in the days after the IPO, rising as high as $34.30 per share by June 23. But concerns over that heavy debt — about $55 billion — and competitive issues over its wireless business in France negatively affected the U.S. stock. Altice USA finished the year down about 35% ($11.48 each) to $21.23 per share.

Investors appeared pleased with the split, driving Altice USA shares up 9.6% Jan. 9 to $23.11 each.

Taking the Long View

While the split was expected to remove much of the onus on the U.S. stock, Goei, in a conference call with reporters after the transaction was announced, said short-term market reaction is not one of the company’s biggest priorities.

“We feel we’ve positioned the U.S. stock and the European stock to perform to the best of its abilities and to reflect appropriately the value that the respective business should be valued at relative to its peers,” Goei said. “Let’s see how the market reacts, but this is obviously not a short-term thing we are doing today.”

In a research note, Jeff Wlodarczak, Pivotal Research Group CEO and senior media & communications analyst, wrote that the spin solves a lot of problems for the U.S. operations. It not only removes concern that the U.S. business may be pressed into shoring up the European operations (particularly in France), but also simplifies the structure and boosts the U.S. stock’s public float from 10% of outstanding shares to 42%, which should attract a wider swath of investors and free the company to return capital to shareholders through more aggressive buybacks.

Altice USA said that as part of the separation, it plans to buy back about $2 billion of its stock over the next three years.

But this plan doesn’t solve everything quite yet. Despite a management pledge to reduce leverage targets from 5.0-to-5.5 times cash flow to 4.5-to-5.0 times, initially the deal will increase debt at the U.S. company to about 5.8 times cash flow.

That added debt and the overall climate around deals means it is unlikely that Altice USA will embark on any buying spree — one of the early reasons to buy the stock — anytime soon.

“I don’t think we are there yet in terms of thinking about where our acquisition strategy could be,” Goei said on the reporters’ call. “I think this is an important moment for the group to focus on our existing operations and deliver on what we’ve promised in our respective geographies in Europe and the U.S. Over time, we suspect that the clarity and simplicity of our structure will help our investor base be supportive in things that we may want to do going forward.”

But he hinted that M&A isn’t totally out of the picture. “The DNA of the group is to try and grow strategically over time, but it is clearly not a focus today,” he said.

New Commitment to U.S. Arm

For now, the deal appears to further solidify Altice’s commitment to the U.S. operation. Problems at its European unit began to surface in November, when a big earnings shortfall at the company’s French wireless operations spooked investors, sending the European stock into a tailspin. For U.S. investors, the French unit’s failures signaled possible flaws with the domestic model, and the possibility that the U.S. business would be pressed to bail out its parent.

And though many analysts were skeptical of Altice’s cost-cutting ambitions — when it bought Cablevision in 2016 it pledged to shave $900 million in expenses, a move many believed would eviscerate the company — it has so far kept its promise. In Q3 Altice USA said its run-rate non-programming efficiency savings were more than $900 million since the Cablevision purchase.

In a research note in November, MoffettNathanson principal and senior analyst Craig Moffett noted that per-subscriber programming costs increased between 6% and 7% at Altice USA, almost half the 12.7% increase at much larger Comcast in the period. While Altice said it expects future programming-cost increases in the high single digits, Moffett added that Altice has captured much of the efficiencies it promised already, and there is no reason to believe more won’t come.

“With margins still rising rapidly, both [year-over-year] and sequentially, it doesn’t appear they are done yet,” Moffett wrote in the report.