Tech

Leila Abboud is a former Bloomberg Gadfly columnist.

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Billionaire Patrick Drahi isn't the kind of person to let pesky regulators get in his way. Less than a year after French market watchdogs blocked a first offer on procedural grounds, his telecoms group Altice NV is close to taking full ownership of its biggest European unit, SFR Group SA.

Altice says it will pay 34.50 euros per share in cash to the holdouts who own 4.1 percent of SFR's share capital. They won't have a choice but to sell this time since this is a mandatory squeeze-out, triggered when Altice crossed the 95 percent ownership threshold in August.

The reason for the move is clear: Heavily-indebted Altice wants to control all the SFR cash flows and not have to share dividends with minorities.

Drahi's Appetite
Altice's rapid expansion via acquisitions in Europe and the U.S. has left it with high debt
Source: Bloomberg

Drahi has taken an unorthodox approach, regulatory niceties be damned. The squeeze-out caps 10 months during which Altice essentially did an end-run around the regulator. After its September 2016 offer was thwarted by the AMF, Altice did some off-market share swaps with big shareholders to take its SFR stake from 77.75 percent to higher than 95 percent.

That has allowed the inveterate dealmaker to salvage a win from what looked like a loss. Drahi seems to be paying less than he would have had the first offer completed.

Parent and Child
The SFR share price has been affected by moves by parent Altice to bid for minorities
Source: Bloomberg

Some collateral damage has been incurred. Altice's relationship with the French regulator has been strained; Drahi sued it and lost. What's more, Altice's behavior could raise doubts among minorities in listed U.S. subsidiary Altice USA Inc. that they'll always be treated fairly.

As a reminder, the 2016 all-share proposal for 22.25 percent of SFR offered 1.6 shares in Altice for each one in SFR, a 3 percent premium to the SFR price the day before the offer. The shares consistently traded higher than the offer, showing some investors were betting Altice would raise. At their peak on September 22, they traded 9 percent above the bid price.  

When the AMF killed the offer, SFR investor hopes for a higher Altice bid were dashed.

Drahi didn't do what a more conventional executive would have done: Offer a slightly higher price and correct the irregularities opposed by the AMF.

Instead, Altice just went out and found SFR holders willing to do private trades. Over 10 months, it carried out 25 swaps to buy more than 80 million shares this way. Nearly all were at exchange ratios lower than the original tender, with some struck at just 1.45 Altice shares for each of SFR.

Overall the average exchange ratio on the swaps was a bit more than 1.5, according to Gadfly calculations. 

Only the truly obstinate who held out till the end got Drahi to pay more than what he offered a year ago. The squeeze-out price of 34.50 euros is equivalent to 1.86 Altice shares for each of SFR, based on their current 18.56 euro price.

But blend the two operations and the average cost per SFR share turns out to be 1.59 Altice shares, a smidgen less than the September 2016 offer.

The upshot: When the billionaire is told non, he finds a way to come back with a resounding mais oui.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Leila Abboud in Paris at labboud@bloomberg.net
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net