Billionaire Drahi Knows the Art of the Deal-OxBig News Network

(Bloomberg Opinion) — Patrick Drahi is on a roll.

The billionaire telecoms entrepreneur struck a deal to chop borrowings at Altice France SA in February, lifting the cornerstone of his enterprise empire out of destructive fairness. Now he’s contemplating cashing within the firm’s major asset — France’s SFR mobile-phone community.

A quickfire disposal could be bittersweet for the bondholders who simply agreed to rescue Drahi from the mire.

Drahi warned in March final yr that Altice France’s €24 billion ($27 billion) of web debt was unsustainable and collectors must take losses. Back then, web leverage was greater than six occasions revenue as measured by earnings earlier than curiosity tax, depreciation and amortization. The fairness worth was zero or much less.

A restructuring is about to chop web borrowings to simply over €15 billion when it completes later this yr, with subordinated collectors taking the most important haircuts. The main compensation? A 31% stake within the enterprise for the senior collectors, 14% for the juniors. Drahi retained management with the remainder. But the worth of that fairness may very well be about to develop into deliciously clear.

With the ship stabilized, Drahi can take into account a full or partial sale of SFR from a place of energy. It’s actually an opportune second to take action. European regulators could also be turning into extra tolerant of cellular markets consolidating round three gamers. The UK is permitting Vodafone Group Plc to swallow up UK rival Three, for instance. An all-French deal right here would seemingly require SFR to be carved up in various chunks to Bouygues SA, Iliad SA and Orange SA, as Bloomberg Intelligence suggests. Emirates Telecommunications Group Co. may additionally consider a transaction, Bloomberg News reported.

Price is likely to be a much bigger stumbling block than regulators. A deal might worth SFR at as a lot as €30 billion, Bloomberg News reported. Even if that included Altice France’s stake within the XpFibre community, presumably value round €2 billion, it might nonetheless signify a chunky eight occasions the €3.5 billion Ebitda that CreditSights analysis reckons the enterprise may very well be making come 2027 — not outlandish however excessive. CreditSights’ base-case valuation a number of is 5, rising to seven with a takeover premium and probably greater in a take care of home synergies.

A transaction on the decrease finish of the vary appears extra achievable. That would even be comeback: A €22 billion deal would ink €7 billion of fairness worth, with practically €4 billion accruing to Drahi.

A fast flip of SFR at a powerful worth would, in fact, profit collectors, given their stake. But it additionally raises an embarrassing query. Shouldn’t they’ve resisted a restructuring deal and sought to take management of Altice France and flipped it themselves? In that situation, they might have finished even higher.

The snag is that there was no fast path to seizing management earlier than 2027 when troublesome debt maturities loomed. A extra combative group of bondholders may need dragged issues out till that crunch level. But the collectors listed here are an unruly coalition of risk-averse mortgage funds and opportunistic hedge funds. Drahi took benefit of fears that SFR’s efficiency might deteriorate over time, bringing everybody to the desk earlier than it was strictly obligatory.

If Drahi comes out on prime, it appears just like the junior collectors have finished comparatively nicely on the expense of their senior brethren, though cross-holdings blur the excellence. The junior debt didn’t clearly have any worth going into the restructuring. Its holders obtained their profitable fairness stake successfully to purchase their consent for a deal. Had they been worn out, they may have annoyed issues with authorized motion. The value of cooperation shall be felt when the spoils of any SFR deal are shared.

Drahi proved adept at studying the dynamics of energy between him and his collectors in getting the restructuring permitted. Has he learn regulators’ and telecom bosses’ urge for food for consolidation equally nicely? Probably, sure.

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This column displays the private views of the creator and doesn’t essentially mirror the opinion of the editorial board or Bloomberg LP and its house owners.

Chris Hughes is a Bloomberg Opinion columnist masking offers. Previously, he labored for Reuters Breakingviews, the Financial Times and the Independent newspaper.

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