Dial M for Mystery
BT stock was at 185 pence when Drahi unveiled himself as the former state monopoly’s biggest shareholder. At that price, his 1.2 billion shares would have cost 2.2 billion pounds. The Altice Europe founder probably paid less, as BT shares have risen by a quarter since the beginning of May. Even so, that’s still a hefty outlay.
Yet Drahi may not have put up the entire sum. One way to economise is by using a so-called equity collar. This involves using a put option, bought from a bank, giving the investor the right to sell the shares at a lower price. This puts a floor under the investment, enabling the buyer to use more aggressive leverage.
The flipside of the structure is a price cap, via a call option, that lets the counterparty bank buy the shares if they rise beyond a certain amount. The lender typically hedges its exposure by selling an equivalent amount of stock short. This would help explain why the number of BT shares out on loan jumped from 250 million to 1.25 billion in early June.
Drahi is keeping quiet. But if this theory is correct, it would mean the tycoon has acquired 12% of BT’s voting rights but limited his exposure to movements in its share price. That’s at odds with his professed belief in the 20 billion pound company’s bright future.
One possible explanation is that Drahi couldn’t afford to buy the shares outright. That could change if his Altice Europe sells its business in Portugal, which Reuters reported earlier this month could be worth 6 billion euros. Drahi could then reap the rewards from any BT shakeup, like the partial sale of its Openreach broadband network, which generates EBITDA of 3 billion pounds but needs to spend 15 billion pounds laying fibre across the United Kingdom.
Drahi is a fan of these deals. He sold half of Altice’s nationwide Portuguese fibre-optic network to Morgan Stanley at a multiple of 18 times EBITDA in 2019. Such multiples offer a clue to his thinking, although he’s not pushing BT to sell an Openreach stake, Reuters reported on Monday, citing a person familiar with the situation. For now, though, BT’s other shareholders can only guess.