Altice - Short Sohn Conference, Tel Aviv October 2015 Disclaimer - PowerPoint PPT Presentation

Altice - Short Sohn Conference, Tel Aviv October 2015

Disclaimer The following presentation represents ION’s analysis and opinions, and is based on publicly available market information and regulatory filings by Altice. This is not an offer to buy or sell securities of Altice, nor should it be taken as advice on whether to purchase or sell securities of Altice. ION may have positions, short or long, in the companies discussed in this presentation. For further information, we encourage readers to review Altice’s publicly available filings. 2

Boom and bust cycles – history repeats itself Potash price per tonne, $ Africa-Israel share price, ₪ 1000 600 800 500 400 600 300 400 200 200 100 0 0 Source: Bloomberg History is replete with the remains of once high-flying industries and over- leveraged companies 3

Altice overview - Altice is a Pay-TV/mobile operator in Europe, Israel, and most recently the US with net debt/EBITDA of 5.7x 500 Creation of dual class structure to Drahi sells 400 € 550mn in fund M&A while Drahi sells % change € 290mn protecting IPO 300 majority control 200 100 0 Source: Bloomberg Altice STOXX Europe 600 Telecommunications Altice “created” € 15bn worth of equity value in 21 months 4

Telco M&A frenzy Altice has overpaid for its acquisitions 16.0x EV/EBITDA multiple 14.0x 14.0x 12.0x 10.1x 10.0x 10.0x 8.0x 7.0x 6.9x 5.9x 6.0x 4.0x Source: Bloomberg; Sector 5 yr SFR ('14) Portugal Suddenlink Bouygues Cablevision Altice and Vivendi filings historical Telecom ('15) ('15)* ('15) *offer rejected average ('14) The sector’s current EV/EBITDA multiple is 6.8x, up from 5.6x 5 years ago 5

Industry headwinds threaten traditional Pay-TV - 7.3% of US households have broadband but no pay-TV subscription, up from 4.2% in 2010 - Rise of alternative OTT players - Broadband connection has become commoditized – aka “dumb pipe” Altice valuations have soared as sector headwinds have accelerated 6

Implausible EBITDA margins - Altice claims that it has increased margins across its holdings Source: Altice Cablevision presentation We question whether HOT’s “real” EBITDA margin has improved by 900bp 7

Israel: HOT’s Hebrew disclosure reveals EBITDA margin 500bp below Altice’s reported number Source: HOT 2Q15 financial statements Only 1/3 of the difference is explained by a management fee paid to Altice 8

Israel: We question HOT’s aggressive accounting % of content costs shifted from P&L to Balance Sheet 12% 10% 10% Altice acquired 8% majority 6% 5% ownership 6% 4% 1% 2% 0% 0% Source: 2010 2011 2012 2013 2014 HOT financial statements Increasing capitalized expenses to inflate ebitda margins 9

Israel: Adjusted margins paint a different picture 50% 48% 48% 46% 44% 42% 43% 40% 41% 38% Source: 36% Altice 2Q15 financial statements; Altice reported HOT reported Adjusted HOT HOT 2Q15 financial statement; ION research based on Hot public margin for HOT margin 2Q15 margin 2Q15 filings 2Q15 When adjusted for capitalized content costs, margin improvement is negligible 10

Israel: Cost-cutting went too deep Israel Pay-TV subscribers 700 600 Subscribers, k 500 400 HOT (-6% CAGR) 300 Yes (+2% CAGR) 200 100 0 Source: HOT financial statements; Yes financial statements 2011 2012 2013 2014 Analysts assign rich valuations to HOT (average 8.6x 2016 EBITDA) while incumbent Yes/Bezeq trades on 7.3x and is experiencing stronger commercial success Source: Bloomberg 11

Cablevision: Does this deal mark the top? - Altice is paying a historically high multiple of 10x EBITDA for Cablevision - Unsecured bonds raised for the Cablevision deal were sold at over 10% yield, reflecting doubts around the company’s ability to service its debt 12% Yield on 2022 Cablevision 10% 10% New average cost of 8% bond debt: 7.5% 6% Leverage level: 7.4x 6% pre synergies 4% 2% Day before Altice Current Source: Bloomberg acquisition 12

Cablevision: Cost-cutting targets are unrealistic 6 5 4 Non-content costs $, bn Implied 33% reduction in Non-content costs 3 other operating costs 2 Increasing 7.5% per 1 Content costs Content costs annum Source: Cablevision 2014 10k; - ION research 2014 2018e “Management has articulated longer term cost reduction targets to the equity market which far exceed $450 million in savings promised to bondholders. Moody's views this more aggressive target as a longer term, aspirational goal ” – Moody’s, September 24, 2015 13

Cablevision: We’re skeptical of margin targets Cablevision margin unlikely to reach Altice target 50% EBITDA % 45% 48% 40% 35% 35% 30% 32% 25% Source: Altice Cablevision Cablevision US Cable average Altice target for presentation Cablevision Cablevision synergy targets of $900m appear lofty especially considering fiber competition, lack of mobile offering, and rising content costs 14

Wall Street overlooks the issues “ Our 12-month ROIC-based price target of € 41/shr incorporates a premium above our € 30/shr valuation - to capture Altice’s M&A potential ” – Goldman Sachs note on Altice, Sept 8, 2015 “Given that the NAV is clearly growing, we place a 25% premium to NAV in determining our - € 38.00/share equity valuation .” – RBC Capital note on Altice, Sept 18, 2015 “Adding € 3.5bn for a 50% probability of a revived Bouygues deal and a further € 4.7bn from additional - M&A (based on our “PE” model) leading to a post -M&A Dec-16 TP of € 28. – JPMorgan note on Altice, Sept 1, 2015 Citi adds € 2.5 of value for unknown future deals to Altice’s price target in a Sum of the Parts - Lucrative Wall Street fees ($200m for Cablevision alone) coincide with many sell-side analysts assigning lofty multiples and adding value for unknown future deals 15

10 questions for Altice management How do you explain fully the discrepancy between HOT’s reported 2Q15 43% EBITDA margin and your reported HOT 1. margin of 48%? 2. Why has HOT been aggressively growing capitalized content costs while reducing expensed content costs? 3. Has Numericable shifted content costs from the P&L to the Balance Sheet? 4. When do you expect to reverse subscriber losses in Israel and France? 5. How much are content costs expected to rise at Cablevision over the next 3 years? 6. How can Cablevision without a mobile offering effectively compete against Verizon triple play? 7. Can you explain the difference in Cablevision cost-cutting guidance between equity holders and bond holders? 8. Why do you think that you can generate EBITDA margins in the US that far exceed those of any other US operator, including those with greater scale? 9. Why did you create a dual class structure despite the Expert Corporate Governance Service advising against it? Your aggressive cost- cutting efforts in Israel resulted in a large number of customer losses “due to poor service” and 10. you’ve had to invest in “restoring customer service levels” ( Altice 3Q14, 1Q15 earnings releases) . Why do you believe that this creates long-term shareholder value? 16

Summary History is replete with sectors whose valuations reached disproportionate levels and then crashed. Every boom and bust cycle has a poster boy. In this cycle, it’s Altice - We believe that Altice’s operating track record is far less impressive than we’re led to believe - We question management’s ability to retain subscribers and whether they’ve utilized aggressive accounting to inflate EBITDA margins - In our view, Altice has overpaid for Pay-TV acquisitions against the rising tide of OTT alternatives and cord cutting - On realistic multiples, we believe shares are worth ~50% below the current price 17