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Malone: Altice Synergies May Be Hard to Achieve

Liberty Media chairman John Malone said he doubted that Altice chairman Patrick Drahi will be able to achieve the cost synergies he has claimed in his $17.7 billion purchase of Cablevision Systems, adding that the European telecom company risks damaging the cable company’s competitive position.

In announcing its deal with Cablevision in September, Altice said it expected to extract $900 million in cost synergies from Cablevision over time, a figure many analysts said was overly optimistic. At an industry conference shortly after the announcement, Drahi offered more detail, saying the telco could remove amplifiers and other electronics from the network to make it more efficient. 

At Liberty Media’s investor day in New York, Malone said that Altice will be able to extract some synergies from Cablevision; the level they have been talking about would be hard to achieve.

Malone said Altice had tremendous success in its purchase of French wireless company SFR, and applying cable operating tenets to the much more loosely run wireless business resulted in big savings. But teh cable business is a lot different than the wireless business.

“I suspect he [Drahi] is being pretty aggressive in his projection of savings in his Cablevision transaction,” Malone said. “I think he will find some efficiencies, but I would be very surprised if he could generate operating savings at the level that had been talked about without damaging his competitive position in the market place. New York in particular is a tough market.”

He noted that Cablevision has a deep-pocketed, high-quality competitor in New York – Verizon’s FiOS TV.

“I think Patrick will end up being fine, but I doubt that he’ll generate as strong a wealth-building enterprise as he’s predicted,” Malone said.

Charter Communications CEO Tom Rutledge, who presented at the Liberty conference and ran Cablevision as chief operating officer for almost a decade, added that Drahi may be applying European operating metrics to the U.S. industry, which have  much higher content costs. He added that if you put cable operating margins in the European model, they would work out to be more than 50%. Drahi has complained that Cablevision’s margins are in the 32% range.

“When you take out all of that stuff, I think you have comparable margins,” Rutledge said. “Some of the things Patrick said involved taking out electronics from the network. These are multi-year projects. To assume you could do that in one fell swoop I think is really difficult. Could it be done through time? Possibly, with investment.”

Liberty CEO Greg Maffei added that he has told Altice CEO Dexter Goei, a long-time friend, that there are three ways Altice’s entrance in the U.S. cable market could play out.

“Either you’re going to do something really well and we’re going to learn and be better for it and we’re going to go to school, or you’re going to do something really well and get so wealthy that you can buy us for a really big price, or you’re going to fail in which case we’re going to buy you cheap,” Maffei said. “All three of those scenarios are actually pretty additive for Charter.”