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Harvard Case - Dialing For Dollars: The Altice Acquisition Growth Strategy

"Dialing For Dollars: The Altice Acquisition Growth Strategy" Harvard business case study is written by Stefan Michel, Ioana Mihut, Jon Bechert, Pavel Sanin. It deals with the challenges in the field of Strategy. The case study is 4 page(s) long and it was first published on : Jul 19, 2018

At Fern Fort University, we recommend that Altice adopt a more focused and strategic approach to its acquisition strategy. This should involve a shift from a purely growth-driven approach to one that prioritizes value creation, integration, and sustainable growth. This strategy should be underpinned by a robust framework that considers both internal and external factors, including competitive landscape, market trends, and the company's core competencies.

2. Background

This case study focuses on Altice, a multinational telecommunications company, and its aggressive acquisition strategy. Altice, founded by Patrick Drahi, has rapidly grown through a series of acquisitions, primarily in the cable and telecommunications sectors. While this strategy initially yielded impressive results, it also led to challenges, including integration difficulties, debt accumulation, and a decline in customer satisfaction.

The case study highlights the tension between Altice's desire for rapid growth through acquisitions and the need for careful integration and value creation. The main protagonists are Patrick Drahi, the charismatic and ambitious founder of Altice, and the company's management team, who are tasked with executing the acquisition strategy and managing the resulting complexities.

3. Analysis of the Case Study

Strategic Framework:

To analyze Altice's situation, we can utilize a combination of frameworks:

  • Porter's Five Forces: This framework helps understand the competitive landscape in the telecommunications industry. Altice faces intense competition from established players like Comcast and Verizon, as well as new entrants like streaming services. The industry is characterized by high capital intensity, network effects, and limited differentiation.
  • SWOT Analysis: This framework helps identify Altice's strengths, weaknesses, opportunities, and threats. Altice's strengths include its entrepreneurial spirit, financial resources, and expertise in cable and telecommunications. However, its weaknesses include its high debt levels, integration challenges, and a focus on short-term growth over long-term value creation.
  • Resource-Based View: This framework focuses on Altice's core competencies, which include its expertise in cable infrastructure, network management, and customer acquisition. However, Altice needs to leverage these competencies more effectively to create sustainable competitive advantage.
  • Value Chain Analysis: This framework helps identify the value-creating activities within Altice's operations. While Altice excels in acquiring assets, it needs to improve its integration capabilities and customer service to maximize value creation.

Key Issues:

  • Uncontrolled Growth: Altice's rapid acquisition strategy has led to significant debt accumulation and integration challenges.
  • Lack of Strategic Focus: The company has often acquired assets without a clear strategic rationale or integration plan.
  • Customer Satisfaction: Altice's focus on cost optimization has negatively impacted customer service and satisfaction.
  • Corporate Governance: The company's governance structure has been criticized for its lack of transparency and accountability.

Strategic Implications:

Altice's aggressive acquisition strategy has led to a complex and unwieldy organization. The company needs to prioritize value creation over growth and focus on integrating acquired assets effectively. This requires a shift in strategic focus, a more disciplined approach to acquisitions, and a commitment to improving customer service and operational efficiency.

4. Recommendations

  1. Shift to a Value-Driven Acquisition Strategy: Altice should adopt a more selective acquisition strategy, focusing on acquiring assets that complement its existing operations and contribute to long-term value creation. This should involve a rigorous due diligence process, clear integration plans, and a focus on synergies.
  2. Improve Integration Capabilities: Altice needs to invest in building stronger integration capabilities to ensure that acquired assets are effectively integrated into its existing operations. This involves establishing clear integration processes, providing adequate resources, and fostering communication and collaboration between different teams.
  3. Enhance Customer Service: Altice should prioritize customer satisfaction by investing in improving customer service and operational efficiency. This includes streamlining processes, investing in technology, and empowering employees to provide exceptional customer experiences.
  4. Strengthen Corporate Governance: Altice needs to enhance its corporate governance practices to increase transparency, accountability, and stakeholder engagement. This involves establishing clear governance structures, implementing robust risk management processes, and ensuring compliance with relevant regulations.
  5. Focus on Innovation: Altice should invest in innovation to develop new products and services that meet evolving customer needs. This includes exploring emerging technologies like AI and machine learning, developing innovative content offerings, and investing in research and development.

5. Basis of Recommendations

These recommendations are based on a comprehensive analysis of Altice's situation, considering its core competencies, external environment, and competitive landscape.

  • Core competencies and consistency with mission: The recommendations align with Altice's core competencies in cable infrastructure and network management, while also focusing on improving customer service and operational efficiency.
  • External customers and internal clients: The recommendations address the needs of both external customers and internal clients by emphasizing customer satisfaction, employee empowerment, and improved communication.
  • Competitors: The recommendations consider the competitive landscape in the telecommunications industry and aim to position Altice as a more efficient and customer-centric competitor.
  • Attractiveness ' quantitative measures if applicable (e.g., NPV, ROI, break-even, payback): While specific financial measures are not provided in the case study, the recommendations aim to improve Altice's financial performance by reducing debt, increasing efficiency, and creating long-term value.

6. Conclusion

Altice's aggressive acquisition strategy has yielded mixed results. While it has enabled rapid growth, it has also led to challenges related to integration, debt, and customer satisfaction. To achieve sustainable growth and create long-term value, Altice needs to adopt a more focused and strategic approach to acquisitions, prioritize value creation, and invest in improving its operational efficiency and customer service.

7. Discussion

Alternative Options:

  • Divestment: Altice could consider divesting some of its non-core assets to reduce debt and focus on its core markets.
  • Strategic Partnerships: Altice could explore strategic partnerships with other companies to leverage complementary strengths and enhance its competitive position.
  • Organic Growth: Altice could focus on organic growth by investing in its existing operations and developing new products and services.

Risks and Key Assumptions:

  • Market Volatility: The telecommunications industry is subject to significant market volatility, which could impact Altice's financial performance.
  • Competition: Altice faces intense competition from established players and new entrants, which could limit its growth potential.
  • Technological Change: Rapid technological advancements could disrupt the telecommunications industry and require Altice to adapt its business model.

8. Next Steps

  1. Strategic Review: Altice should conduct a comprehensive strategic review to assess its current position, identify key opportunities and threats, and develop a clear strategic direction.
  2. Acquisition Criteria: Altice should establish clear criteria for future acquisitions, focusing on value creation, strategic fit, and integration potential.
  3. Integration Plan: Altice should develop a comprehensive integration plan for each acquisition, outlining key milestones, resource allocation, and communication strategies.
  4. Customer Experience Improvement: Altice should invest in initiatives to improve customer service, including training programs, technology upgrades, and customer feedback mechanisms.
  5. Corporate Governance Enhancement: Altice should implement measures to strengthen its corporate governance practices, including board composition, risk management, and transparency.

By implementing these recommendations and taking a more strategic approach to its growth strategy, Altice can position itself for sustainable success in the competitive telecommunications industry.

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Case Description

By 2014 Altice had made over 20 acquisitions in 8 countries followed by an IPO resulting in a market capitalization of €5.7B. By mid-2015, it was worth $35B, 369% higher than the IPO price. It entered the US market with a successful bid for a major US cable operator, becoming the only European provider to take an aggressive position in the US market. It subsequently made an offer for Cablevision, but its stellar capitalization growth was interrupted by a 70% drop in share price, driven by investors' concern about its ability to continue to execute its M&A playbook, especially with larger integrations in the US. Altice responded by increasing equity financing and playing down further M&As. Another investors' concern was customer attrition, experienced by Altice in some markets due to over-aggressive cost-cutting, resulting in poor network quality and customer care. In response, it increased CAPEX in France, Israel and Portugal but was it enough to stop attrition and increase revenues? Or should it exploit other options to drive incremental revenue, e.g. leveraging and expanding content creation capabilities or moving beyond voice and data into cloud computing, internet security, call centers etc. Having started as a small regional operator, Altice became a significant global player and #4 in the US, proving that an M&A strategy can create value. It took average performing businesses and created greater value based on its strong telecom and M&A capabilities. Now, Altice must decide how to stay ahead of the game and which resources and capabilities to develop. The case explores how Altice applies its M&A playbook and leverages its capabilities to compete and grow in a mature industry. Why do telecom operators sell to Altice and how can it offer more than other firms? The case also promotes discussion about the sustainability of Altice's business model, future strategic moves and its reasons for entering the US market.

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