Ultimately, for Friedman to take home his nine figure package, the equity float must go lower. The impact on the share price is entirely predictable.
Throughout 2017, RH has already repurchased half of its outstanding float at an average price of .45.
Some were surprised at the buyback because RH’s stock price had already been rising towards the highest prices of the year (then closing in on ).
Even more surprising (to some) was that within just 50 trading days, RH had announced that it had already , accounting for a significant portion of the daily volume during that time.
What I will describe below is how Friedman is now using a combination of positive cash flow and new debt to further reduce the share count.
There was the announcement of the share repurchase, the announcement of Friedman’s own open market purchases of million in RH stock in the s and then the announcement of the early repayment of RH’s second lien notes in October.
There is therefore no dilution until the share price exceeds well over 0.
In 20, RH paid Bof A-ML over 0 million for the long legs of these bond hedges to neutralize dilution.
The share price has already nearly doubled since those purchases.
Because of its increased leverage, the market has been very focused on RHs “capital structure”. As a result, when RH suddenly announced three weeks ago that it was already paying down its 0 million second lien term loan (within just 3 months of it being issued), the stock quickly shot up 20 points from the s to the s, quickly hitting new 52 week highs.