Getting the deal done

Falling equity valuations have made funding a merger or acquisition with stock difficult. Equity derivatives dealers are devising and updating hedges to ensure deals get done despite the bear market. Rob Dwyer examines the latest techniques

The spectacle of France Telecom’s short put position on mobile telephone operator Orange going badly awry last month highlighted the dangers of using equity derivatives to sweeten a share-financed acquisition. The French group reportedly suffered a book loss of around E375 million when German utility Eon exercised a put, forcing France Telecom to buy Eon’s 2.1% stake in Orange for about E1 billion – at a strike price 65% higher than spot.

Clearly, when France Telecom gave Eon the option