Discovery Class B Stock Surges in Post-Archegos Tumult Twist

With one mystery seemingly solved in shares of Discovery Inc. after revelations of a Wall Street fire sale in the stock, another has opened.

After getting caught in the Archegos Capital tumult last week along with about a dozen stocks, a thinly traded class of the U.S. media company -- its Class B shares -- pivoted and surged Wednesday while trading volume spiked by a whopping 25,000%. The rally caused the price of the securities to come untethered from Discovery’s more popular A class of stock.

The cause of the jump was unclear. Very few Class B shares are available for trading -- only about 320,000, by Bloomberg’s calculations -- and about three times as many changed hands on Wednesday. The stock, which has been rallying away from the Class A shares all week, touched a record high at $150.72 earlier in the session, a 115% gain at one point. In contrast, Class A shares were little changed at $43.46.

It didn’t stop there.

Liberty TripAdvisor Holdings Inc. and Liberty Global Plc saw trading in their super voting share classes also halted for upticks in volatility. The common thread?: All of the stocks are low float, super voting shares tied to billionaire John Malone’s empire.

Dennis Dick, a proprietary trader and head of markets structure at Bright Trading, said the divergence in the trading of Discovery’s Class B and Class A shares could be an extreme example of what he calls an “arb squeeze,” or a short squeeze involving arbitrage traders.

Dick said the moves could be an indication that arbitrage traders were turning to the more thinly traded shares for Discovery after not being able to borrow against the Class A shares.

“Maybe some arbs are short one class and long the other, but then the position gets too big and they’re unable to get out, prompting a squeeze on the one class,” Dick said.

Liberty Media and Discovery representatives didn’t immediately respond to requests for comment.

Discovery Class B Stock Surges in Post-Archegos Tumult Twist

The volatile trading comes after Discovery Class A shares suffered their biggest drop ever on March 26 as the media company was one of the stocks to see a block trade related to the forced liquidation of positions linked to Bill Hwang’s Archegos Capital Management.

Discovery Class A shares had previously been among the top performers on the S&P 500 Index this year as the stock rallied on investor optimism for the company’s streaming service, Discovery+.

“There is a share class trade involving Discovery, but that concerns the Class A and Class C shares, not the Class B, which generally doesn’t trade as it is almost completely owned by John Malone,” said United First Partners analyst Ivan Deryugin.

Just 0.6% of Discovery Class B floating shares were held short as of Wednesday, according to data compiled by financial analytics firm S3 Partners. Short interest as a percentage of the float stood at about 31% in the more liquid Class A shares, roughly in line with where it has stood for much of the past year.

Share classes differ in several ways, including voting rights: B shares carry more than the A shares. The issues’ ownership profile is the other main difference. According to data compiled by Bloomberg, cable TV tycoon Malone controls about 94% of the B class -- the reason for the low float.

Around 1:40 p.m. in New York, volatility also spread to the B shares for Liberty TripAdvisor Holdings Inc. and Liberty Global Plc. Both were subject to multiple halts after surging as much as 135% and 42%, respectively.

A surprise spike in the price of Liberty TripAdvisor and Discovery’s closely held shares isn’t without precedent.

Liberty TripAdvisor shares surged 30% in a single day of trading last April and Discovery’s B shares gained 24% on May 1. Back then the two companies put out similar press releases with each saying they were “not aware of the reasons for the recent volatility” in each of the share classes.

©2021 Bloomberg L.P.

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