As put options emerge as yet another sting in the tail of
an overoptimistic view of market prospects, investors are zooming
in on companies that are already stretched to breaking point -
among them the telecoms and some auto manufacturers. "We sold out
of France Telecom in November because we were concerned about its
off-balance-sheet obligations," says a rather smug fund manager.
But some lower-profile names are now also looking strained.
Put options are nothing new. It is fairly common for companies to
come to an agreement over profit sharing when transferring assets
between them, for example. When the business being sold is likely
to grow fast, rather than the buyer paying a high price upfront the
seller may retain the rights to some of the expected equity upside.
Or a transaction might be staggered so that the change of ownership
takes place in two or three stages - as Pinault Printemps Redoute
agreed with...
