India’s Bharti Enterprises announced that it would acquire a 24.5% stake in BT Group, a British multinational telecommunications holding company for a whopping 24.5%, valued at 3.2 billion pounds (USD 4 billion) from Patrick Drahi’s Altice group, as Drahi accelerates asset sales to reduce the company’s debt load.
Patrick Drahi stated in September 2023 that, to reduce leverage, he might put everything in the media and telecommunications conglomerate that he has built over more than 30 years up for sale.
Almost a year later, investors are growing weary of that promise. At least for the French and American units, the group has unloaded a variety of mostly non-strategic assets and made it plain that it does not intend to repay debt in full. It’s unclear what will happen to the money from the sale of BT as Altice gets ready to negotiate with creditors.
If the recent deal’s proceeds are anything to go by, Drahi might be able to keep the money away from Altice France’s creditors. When asked how the money from the BT sale would be used, an Altice representative remained silent, Irish Independent reported.
What’s The Present Scenario Now?
Drahi, a Franco-Israeli billionaire who made his fortune through debt-fuelled acquisitions in the telecoms and cable businesses, spent about 4.2 billion pounds for the 24.5% stake in BT, according to Reuters calculations, which he acquired in three steps from 2021 to 2023.
The telecom tycoon’s Altice group has currently a debt tally worth USD 60 billion, spread across entities in the United States and in Europe.
The deal sent shares in BT up 6% to 139 pence in early trading and will serve as an early test of the new Labour government’s attitude towards foreign ownership of stakes in key sectors.
Talking about Bharti Enterprises, the Indian telecom venture said it had already bought a 9.99% stake but would wait for the Keir Starmer government’s national security clearance before it buys the remaining 14.51%.
Sunil Bharti Mittal, the Chairperson of Bharti Enterprises, told the reporters, “BT to my mind has a much brighter future ahead and they need to be following their strategy, if I may say, even more boldly.”
He added that BT’s current share price allowed evaluating the price of the stake acquisition, which would amount to 3.2 billion pounds according to Reuters’ calculations.
While BT’s shares have risen 24% in the last six months as its long-term fibre build starts to yield results, they have lost 72% since 2015. Talking about BT’s other stakeholders, Deutsche Telekom is a long-term holder of a 12% stake in the venture, while in June 2024 Mexican magnate Carlos Slim bought a 3.2% stake in the company, a boost for Allison Kirkby, who became BT’s CEO in February 2024. Kirkby also called Bharti’s investment a “great vote of confidence” in BT’s strategy.
“Deutsche Bank analysts said the new shareholder removed an overhang from the stock caused by the pressure on Drahi to offload assets and noted potential for further cooperation between BT and Bharti,” reported Reuters.
In 2021 Drahi caused alarm when he bought into BT and its critical communications infrastructure, prompting the government to say it would intervene if necessary to protect the group. Bharti has also termed the deal as a vote of confidence in Britain and its stable business and policy environment, a possible nod to the new government after five years of turmoil under the Conservative party.
The group also noted its long-standing relationship with BT, which owned a 21% stake in Bharti Airtel from 1997 to 2001. The Indian venture had not asked for a board seat, although Mittal added that he had some “ideas” for management.
Who Is Patrick Drahi?
Drahi began his career as a fibre optics researcher at Philips. He eventually set his eyes on having his own business in the telecom sector. The first business was all about consulting in the United States on investment in European cable providers.
In 1994, in France, Drahi founded Sud Cable Services. He and an American partner convinced mayors in southern France to allow them to lay cable for television in their towns. In 1998 he sold the company to John C. Malone’s UPC Holding, a European telecommunications venture.
Drahi was paid in UPC stock and went to Geneva to work for the company. He sold his position in UPC for approximately 40 million euro just before the dot-com bubble burst.
Drahi founded Altice with more than 20 acquisitions of underperforming mobile and cable companies. Since then, he has grown the company through highly leveraged transactions.
In France, he founded the French cable operator Numericable and in 2013 bought SFR, the second largest mobile phone and internet provider in the European country, from media conglomerate Vivendi. In the United Kingdom, he bought 18% of the BT in 2021 and in 2023 increased his stake to 24.5%.
He took the US by storm with his USD 9 billion purchase of a 70% share in cable company Suddenlink and his USD 17.7 billion acquisition of Cablevision in 2015. After those US companies were split off, Altice USA went public in June 2017.
Drahi owns the Israeli cable television company HOT. In 2013 he founded the Israel-based international news channel i24news, which broadcasts in French, Arabic, and English.
Altice entered the American telecommunications market in 2015 by purchasing 70% of Suddenlink Communications, the seventh-largest cable company in the United States. Later in 2015, Drahi bought Cablevision from the Dolan family, renaming it Altice USA with its flagship brand Optimum being the fifth largest cable operator in the world’s largest economy.
In June 2019, New York-headquartered fine arts company Sotheby’s announced it was being acquired by Drahi at a 61% market premium. In September 2020, to take the company private, Drahi offered 2.5 billion euro to minority shareholders of Altice. An increased bid was accepted in January 2021.
As of December 2023, Forbes lists his net worth at USD 4.9 billion, ranking him 584th in the world.
Crisis In France As Well
Creditors of Altice France have already been informed that they will have to accept a valuation cut in order to reduce borrowing totalling more than 24 billion euro (USD 26.2 billion). The venture has shifted at least part of the proceeds it got from the 1.55 billion euro sale of Altice Media to an entity that sits above Altice France’s operations, reported Bloomberg recently.
“Earlier, the money was in an unrestricted unit of Altice France that creditors could claim in the event of an insolvency or an in-court restructuring. The move is another sign of the tough stance Altice plans to take with its creditors as it starts debt talks. In March, the company’s management told them in an earnings call that they would have to take a haircut to help the company reach a new leverage target,” the report stated.
Around 3.5 billion euro has been added to the company’s positive side of the ledger. The proceeds from the sale of 70% of SFR’s data centres, the Altice Media company and its 49% ownership in La Poste Telecom, which Bouygues Telecom is in exclusive talks to acquire, as well as 1 billion euro from XpFibre’s dividend recap total worth 20.5 billion euro.
This 3.5 billion euro will reportedly meet a target Altice announced in August 2023 to cut leverage inorganically by one time its earnings before interest, taxes, depreciation, and amortisation, but is below what it would have raised had the company managed to sell XpFibre, as Drahi was seeking.
In July 2024, the advisers entered into non-disclosure agreements to start debt discussions with Altice. The company needs to cut around 10 billion euro of debt to reach its leverage target.
“Negotiations with a group of secured creditors holding around 17 billion euro of debt may prove particularly tough as creditors including Pacific Investment Management Co. and Anchorage Capital refuse to accept haircuts that would give Altice’s billionaire owner Patrick Drahi equity value at their expense,” Bloomberg reported, while adding, “Other members of the group, which is advised by Rothschild & Co. and Gibson Dunn & Crutcher, appear willing to accept a loss and move on, the people said. The vast majority of members have signed a cooperation agreement that binds them to not accept any offer unless 50.1% of the group accepts it.”
Altice International Situation
The telecom company wants to reduce its debt to EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortisation) ratio from five times to as low as four times. It was earlier that it would sell Teads SA, a platform for video advertising, to Outbrain, a United States-based advertising company, for USD 1 billion, including USD 725 million upfront.
Plans to list the company for a valuation of roughly 5 billion euro were shelved in 2021. Although the proceeds were not used as stated in the statement, management informed creditors in May 2024 that leverage would be reduced if the sale of Teads or Altice Portugal went through. Altice International is currently in the process of selling its Portuguese subsidiary.
Meanwhile, the Dominican Republic unit was put up for sale, but the bids were deemed insufficient, so it was put on hold.