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Cablevision Capex Could Crimp Altice Cuts

European telecom giant Altice’s plans to squeeze $900 million in cost synergies from Cablevision Systems hit a bit of a speed bump after the U.S. cable operator released a financial forecast that calls for a nearly 4% rise in capital expenditures over the next four years.

Cablevision filed a proxy statement on Nov. 16 concerning its Altice merger, outlining revenue and cost projections for the next five years.

According to the proxy, Cablevision expects revenue to rise 6.4% between 2016 and 2019, and adjusted operating cash flow (AOCF) to grow 4.4% during that period, lower than some analyst expectations.

But the biggest surprise was on the capital expenditure line. Cablevision estimated capex would increase 3.6% from $908 million in 2016 to $941 million in 2019, which some analysts said could put a damper on Altice’s cost-cutting plans.

“This higher capex outlook is noteworthy given Altice’s expectation for $900 million in targeted cost savings ($150 million in capex), which we believe may hamper investment and impair long-term revenue growth,” Morgan Stanley media analyst Ben Swinburne said in a research note.

Altice agreed in September to purchase Cablevision in a cash and assumed debt transaction valued at $17.7 billion, or about $34.90 per share.

Key to the deal is Altice’s ability to extract cost savings from Cablevision, something it had done with great success in deals with French wireless company SFR and cable operator Numericable. But analysts and investors have been skeptical about synergies Altice chairman Patrick Drahi has said he could achieve.

Altice’s $900 million target is $100 million more than Charter Communications believes it can extract from Time Warner Cable, a company three times Cablevision’s size. Other analysts have said such extensive cost cuts would decimate customer service and plant maintenance.

For his part, Drahi has said he could achieve those savings by streamlining Cablevision’s network and eliminating high salaries. But, according to the proxy statement, several top executives stand to reap huge paydays if they don’t stay with the company after the deal.

And the decision by Cablevision’s controlling stockholders — the Dolan family, led by chairman and founder Charles and his son, CEO James — to receive cash instead of Altice stock has proven to be very smart. Altice stock, at 12.94 euros on Nov. 24 is down about 60% from its midsummer highs of about 33.16 euros. With more than 65.5 million Cablevision shares, the Dolans stand to reap about $2.3 billion.