Shares in Altice, the cable and telecom investment vehicle of Patrick Drahi, dropped significantly yesterday after Patrick Drahi’s company unveiled a complex financial operation on Monday.
Altice’s controlling shareholder and Drahi’s personal investment vehicle, Next, has entered in to a ‘funded collar transaction’ relating to 81.2 million A shares or 13.8% of its shareholding in Altice, which represents 7.5% of Altice’s overall outstanding shares.
To facilitate the collar transaction – a type of financial transaction that is designed to protect a long-term investor’s position in a company from stock market fluctuations upwards or downwards – Next has loaned the shares underlying the collar to Goldman Sachs International, which in turn is selling about 61 million Altice shares to institutional investors to establish an initial hedge for the collar.
Next will used the proceeds of the deal to prepay all of the outstanding loans that were originally set up to acquire shares from minority investors after its IPO as well as to buy out some of its older pre-IPO shareholders. Next will than be “free of any encumbrances” in the form of pledges, according to the company.
In the case of a company whose shares serve as a guarantee for loans, lenders can demand cash payments from the borrower to compensate a diminution in the value of the shares, which could in turn lead to a further fall in the value of the shares as the borrower sells shares to make the payment.
Following the transaction, Next’s overall position will remain unchanged with 64.1% control of the voting rights of Altice.