Hedge Funds Triumph Twice in Bout With Billionaire

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Patrick Drahi’s agreement to sweeten his bid for full ownership of Altice Europe NV is a double victory for shareholder activism in Europe. Minority investors have not only forced the billionaire to pay a fair price for the telecoms company. They have also shown that court action to defend their rights can focus minds — even in the Netherlands, the preferred European destination for entrepreneurs who don’t want to give too much away.

To recap, Altice’s main asset is France’s SFR network. Drahi already had control through a dual-class share structure before making an early September bid to buy out minority shareholders for 2.5 billion euros ($3.1 billion). The offer was clearly opportunistic. Altice shares had roughly halved in value since just before the health crisis. The premium was a measly 24% over this weakened stock price. Small takeover top-ups are easier to justify when bidders already have control and are just cementing it. All the same, this was mean.

The revised 5.35 euros-per-share offer has won over the opposition. It’s a 61% premium over the same benchmark. That fits with the 50%-plus levels where we’ve seen M&A get agreed in Europe during the pandemic. Drahi can justify it. The telecoms sector clearly holds recovery potential, assuming vaccines help get the pandemic under control.

Indeed, Drahi is hardly overpaying. The offer is worth seven times expected 2021 Ebitda. That’s still below where low-cost challenger Iliad SA, owner of the Free brand, trades. For minorities, the cash bid pays out the value of a sizable recovery up front, while leaving upside for Drahi.

If there’s a loser, it’s probably Altice’s existing credit investors. Even leaving aside the question of how the buyout is funded, it’s plausible Drahi will be comfortable running the company with higher levels of debt away from the public markets, where shareholder pressure was focused on bringing leverage down.

The minorities — most vocally Lucerne Capital Management, but also the ubiquitous Elliott Management Corp. — probably had enough shares to prevent Drahi crossing the high threshold to squeeze them out. He had other tactical options, but these were open to legal challenge. The activists had already initiated proceedings in the Dutch Enterprise Chamber. Their case threatened the billionaire with the possibility not just of being forced to pay up, but also of seeing his influence chiselled away. A possible outcome was being forced into changing the board.

Now we won’t know what the court would have decided. In that sense, the Netherlands’ status as a founder-friendly jurisdiction tolerant of dual-voting share structures has been preserved. Victory for the naysayers would have set a precedent.

It’s been a good year for European activism. Drahi’s rival and fellow billionaire Xavier Niel, who founded Iliad, was part of a consortium that blocked mall operator Unibail-Rodamco-Westfield’s 3.5 billion-euro rights offer, a fundraising that needlessly threatened heavy dilution on ordinary shareholders. 

Having recommended the first weak offer, Altice’s directors have naturally endorsed the increase. It’s a shame they weren’t more robust in the first place. Boards watch out. The activists are holding you to account.

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

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

©2020 Bloomberg L.P.

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