Quick Pitch: Optimum Communications (OPTU)

Odd-lot tender offer: $140 upside (at $1.08/share)

Correction: the initial pitch incorrectly stated that the tender covers 80% of the free float. The actual figure is 43% of the float. If the tender closes on current terms, the proration is likely to be high. Thus the setup applies mostly to odd-lot positions, which will be accepted on priority basis. Playing this with larger positions might still work out, but the pay-off will depend on where the shares will trade post-tender.

This is a highly unusual tender offer with $140 upside for odd-lots (at 99 shares position). The offer is the product of asset reshuffling and financial maneuvering by the controlling shareholder in his standoff with creditors, and the rationale for both the tender and the high offering price is therefore a bit murky. That said, looking purely at current trading levels, the risk/reward seems heavily skewed to the upside for odd-lot positions. Below is my research on the setup.

Optimum Communications is repurchasing 42% of its Class A stock at $2.5/share, while OPTU currently trades at just $1.08. Odd-lot priority is included. Management owns around 5% of the Class A shares and will not participate, so the offer effectively covers ~43% of the free float. For odd-lots, the upside is currently $140 versus $40 downside to pre-announcement levels. The expiration date is set for June 30, and beneficial holders will be treated equally to record holders.

It may also be possible to play this tender with a larger position as well. If the tender goes through, the upside on the 43% of accepted shares would fully cover the cost of the position at current levels, leaving the remaining shares as a free option. Where would those remaining shares trade after that is anyones guess.

OPTU is on the brink of bankruptcy and has been fighting with its debtholders for two years. The tender is part of a wider capital structure repositioning meant to pressure creditors toward the negotiating table. This introduces two main risks:

• OPTU reaches a restructuring deal with debtholders over the next few weeks, and as part of that deal, creditors demand the tender be canceled. Debtholders in a restructuring are not usually thrilled about cashing out equity holders. The tender document includes the quote below as one of the conditions:

If, prior to the Expiration Time, CSC Holdings, LLC enters into an agreement with holders of its indebtedness that are party to that certain Cooperation Agreement, dated June 13, 2024, under which all or a portion of such holders agree to enter into a transaction with CSC Holdings, LLC for the restructuring of all or substantially all of its debt securities and such agreement requires the Offer not be consummated;

• It is not entirely clear why management is running this tender at such a high price in the first place, which raises the question of whether it is a genuine buyback or simply a pressure tactic dressed up as one. The offer comes at 4x pre-announcement price. Will management actually follow through if bondholders don’t move fast enough to stop them, or will they simply keep extending the expiration date and then cancel once a restructuring agreement is signed?

Both concerns are more addressable than they appear at first.

As for the first risk, restructuring negotiations take time, and it’s quite unlikely that OPTU and creditors come to an agreement as fast as this month. Debtholders are bound by a cooperation agreement (which somewhat limits the speed with which they can react), and this is a large and complex restructuring of a $6bn debt pile.

Optimum’s controlling shareholder is “cable cowboy” billionaire Patrick Drahi. Two of his other companies recently were in very similar situations to the one OPTU is in currently (I will shed some light on these later). One took 11 months to resolve, while another is now six months in and still ongoing.

The relationship between OPTU and its creditors is very hostile: the two sides have been fighting for a long time, and there is even an antitrust lawsuit in the mix. The nearest debt maturity is not until April 2027, so there is still plenty of time to hold proper talks and there is no immediate pressure forcing either side to yield. In the context of OPTU’s overall capital structure, this $300m tender is tiny against $26bn of total debt. After years of digging in, creditors are unlikely to rush into negotiations just to stop a $300m buyback.

As for the second risk, this is admittedly just my guess (so take it with a grain of salt) but Drahi has at least two reasons to follow through with the offer. The first is the main one and is most likely to be the actual game plan here. The other one is softer, but together they round out a pretty reasonable picture:

• Buying out minority shareholders helps establish a “fair value” for OPTU’s stock ahead of the eventual restructuring. One way or another, a restructuring is only a matter of time for OPTU, and it will most likely involve a debt-for-equity swap. By setting the share price at 4x pre-announcement levels, Drahi creates a defensible, market-validated price reference for the stock, which could let him negotiate the swap on far more favorable terms. Drahi has already started this process by exchanging a large portion of his OPTU shares into preferred stock of Optimum’s subsidiary at $2.5/share (more on this below). As an insider, however, his own conversion might carry limited credibility on its own. Cashing out most minority holders at the same price would go much further toward establishing it as a defensible market price reference.
• The offer provides exit liquidity for minority shareholders ahead of the restructuring. This could be a way to play nice and save face after OPTU’s dismal stock performance over the years, assuming Drahi cares about that at all, which is debatable.

Overall, this is a genuinely interesting situation with plenty of drama. Most importantly, the risk/reward is highly asymmetric for odd-lots. The actual downside might be larger than $40 (at pre-announcement levels), but a wipeout or anything close to that is extremely unlikely. The company cannot be forced into bankruptcy over the next few weeks. It is also hard to imagine that Patrick Drahi, who is known as a very aggressive negotiator and has experience in dealing with such situations, would rush into a deal that zeros out his equity.

Let’s unpack how the company ended up in the current situation.

 

Quick background of the standoff

Optimum Communications is the 4th largest cable broadband provider in the US. Until the end of last year, the company was known as Altice USA. Patrick Drahi holds a 46% economic interest but controls 90.5% of OPTU’s voting power through super-voting shares.

Due to business headwinds and extreme leverage, OPTU stock has been in free-fall, down 97% over five years and 52% over the last year. It has effectively become an equity stub, trading at a $400m market cap against $26bn of debt. The company has limited liquidity and is burning cash.

$6bn of debt sitting under OPTU’s main operating subsidiary, CSC Holdings, matures next year. The creditors, which include major PE firms such as Apollo, Ares, Oaktree, and Blackstone, have decided to play hardball. In 2024, they signed a cooperation agreement to prevent Drahi from executing any individual deals that could pit lenders against one another. They have so far refused to accept Drahi’s restructuring proposals and allegedly pressured OPTU’s legal advisor to quit, while discouraging other legal firms from taking over.

Last year, OPTU filed an antitrust lawsuit against the creditor coalition, calling the cooperation agreement “a classic illegal cartel” that has locked the company out of credit markets and amounts to price fixing. Debtholders are seeking to have the case thrown out.

 

Recent escalation

Last week, the standoff intensified as OPTU executed a series of creative asset repositioning moves. The centerpiece was migrating its most valuable assets, Cablecar and Lightpath, into a new unrestricted subsidiary, CSC Investments II (see the organizational chart below). Unrestricted means that it doesn’t guarantee CSC Holdings’ debt, including that $6bn tranche that matures next year, and operates independently from CSC Holdings. The move technically insulates these crown-jewel assets in a CSC Holdings bankruptcy scenario. The migrated assets generate $2bn of adjusted EBITDA, while the restricted subsidiaries remaining in CSC Holdings, the ones backing the debt, generate just $1bn. The drop-down has likely slashed potential recovery for debtholders.

Management notes that the move was legal, because under the existing debt agreements, the migrated assets had already been unrestricted and financially independent from CSC Holdings. The migration only added a further layer of protection.

Management expects this reshuffle of assets to “increase the likelihood that the company will be able to reach a consensual comprehensive deal” with creditors, while also mitigating the potential adverse impact if no agreement is reached.

CSC Investments II has already raised $512m via preferred shares. $200m came from Drahi himself, who exchanged 80m of his OPTU Class A and super-voting Class B shares into the preferreds at $2.5/share price. To clarify, that $200m represents 80m shares converted at $2.5/share, with no cash injected. Management exchanged an additional $12m of Class A shares on the same terms. The remaining $300m was raised from third-party investors and will be used to finance the ongoing $2.5/share cash tender. The tender is conducted not by the ultimate parent (Optimum Communications) but the CSC Investments II subsidiary.

As a result of Drahi and management converting their OPTU shares into preferred equity, the new subsidiary now also holds 84.9m OPTU shares, representing a 17.8% economic interest. If the tender completes, that interest would rise to 43%.

Overall, this asset reshuffle substantially increased OPTU’s negotiating leverage:

• There’s now a new separate pool of value that can be offered to creditors as part of a consensual restructuring agreement.
• The WSJ has reported that people familiar with the matter believe the new subsidiary could raise up to $6bn of new debt. That could probably be used in restructuring talks.
• Bloomberg has reported that OPTU’s legal counsel has presented a new restructuring proposal to the debtholders this Monday.
• Management has also flagged that a debt-for-equity swap under bankruptcy would trigger deconsolidation, exposing OPTU to roughly $4bn of income tax liability. Presumably, that is something creditors would prefer to avoid and the timeline is narrowing.

The restructuring agreement is likely to be reached sooner or later. The key question is simply whether that will happen as fast as this month. And I think there’s a reasonable chance it won’t

 

Other asset repositioning moves by Drahi

Drahi has used the same asset reshuffle strategy against creditors at his two other major telcos over the last two years, Altice France and Altice International. His empire, including OPTU, was basically built on an aggressive M&A spree fueled by cheap debt, and things started to crumble once interest rates rose.

At Altice France, Drahi moved faster than the creditors. In March 2024, he migrated a small asset first, then threatened to move a key asset as well unless creditors accepted a haircut in a restructuring. Bondholders responded by entering into a cooperation agreement. A restructuring agreement was eventually reached in February 2025, with $8.6bn of Altice France debt eliminated and creditors receiving a 45% stake in the company, while Drahi retained 55% and control.

Altice International case is very similar to OPTU. Creditors signed a cooperation agreement in February 2025. In December, Drahi migrated most of Altice International’s assets, representing 80% of EBITDA, to an ringfenced subsidiary and raised €750m through the new subsidiary. The situation remains unresolved and I haven’t seen any updates on it since December.

The takeaway is that these negotiations rarely resolve quickly, let alone within a matter of weeks.

 

One additional risk

I suppose creditors could seek to challenge the asset reshuffle in court, which might prompt a halt to the tender. I think this risk is low. Drahi has executed this playbook at least twice before, and OPTU’s management has stated the migration was permitted under the existing debt agreements. As far as I know, neither Altice France nor Altice International creditors formally challenged the asset reshuffle in court, which suggests the debt documents across Drahi’s empire have consistently left enough room for these maneuvers.