Altice Drops; Goldman Sells 61 Million Shares in Drahi Trade

  • Drahi's holding company Next executes trade to pay back loans
  • Voting rights held by Next to remain at 61.4 percent

Patrick Drahi’s Altice NV slumped in Amsterdam trading as Goldman Sachs Group Inc. sold 793 million euros ($845 million) of the telecommunications company’s shares to fund an options transaction with Drahi.

The trade gives Drahi cash that he will use to pay off loans he had taken out to buy Altice shares after the company’s initial public offering, the Amsterdam-based company said in a statement after markets closed Monday. Institutional investors bought 61 million shares from Goldman for 13 euros each, 8.9 percent below Monday’s closing price, said a person with knowledge of the sale who asked not to be identified because the matter is confidential.

By paying off the loans, Drahi and his Next holding company remove the possibility of a margin call that could have further depressed Altice’s battered share price. When banks lend money for stock purchases, the shares are used as collateral for the loan. If the shares decline, banks can request additional collateral -- a so-called margin call -- which often prompts the borrower to sell shares, pushing the price down even more.

“A lot of the recent weakness was probably driven by expectations of Next becoming a forced seller, as Altice shares had collapsed,” Javier Borrachero, an analyst at Kepler in Madrid, said in a note. “This negative technical factor is now removed.”

An Altice spokesman declined to comment beyond the statement.

Altice sank 8.6 percent to 13.06 euros at 1:50 p.m. in Amsterdam, giving the company a market value of 14.4 billion euros ($15.3 billion). The stock has fallen 20 percent this year, in part because of investor concern about the size of the debt that Altice has taken on for acquisitions.

Next entered into a “funded collar” trade with Goldman, covering 81.2 million of Altice’s Class A shares. Next loaned the stock underlying the transaction to Goldman, and the bank set up an initial hedge of its position by selling 61 million shares to institutional investors, according to the statement.

Collar Trade

In a collar trade, an investor such as Drahi typically buys a put option giving him the right to sell the shares at a specified price, while at the same time selling a call option giving the acquirer of the contract the right to purchase the shares at a specified price. Should the stock plunge, the investor is protected on the downside by the put option, but if the stock soars his upside is capped because the buyer of the call can purchase the shares at a fixed price.

In a funded collar, the bank that’s brokering the transaction also extends a loan to the stockholder equal to the present value of the shares covered by the put option. Using that cash, Drahi can pay off the loans he took out to buy the shares.

Once those loans are paid, all remaining shares owned by Next will be free of any encumbrances, Altice said.

The 81.2 million shares in the collar trade represent 13.8 percent of Drahi’s stake in Altice, and 7.5 percent of the company’s outstanding shares. Drahi controls the company through Class B shares, which have higher voting rights than the Class A stock. The voting rights held by Drahi’s Next in Altice will remain unchanged at 61.4 percent.

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