Discovery founders’ big bet to protect their wealth

Discovery founder and CEO Adrian Gore has bought more put options and sold shares in the company worth almost R30 million. Co-founder and Vitality Global CEO Barry Swartzberg also bought put options.

In a SENS announcement released on 30 May, the company said Gore took out put options, sold call options, and sold some of his shares in the company, potentially pointing to a belief that the company’s shares will go down.

On the same day, the company also announced that Swartzberg bought put options with an average strike price of R99.60 per share and sold call options with an average strike price of R150.11 and R160.77 per share.

In simple terms, a put option gives you the right to sell a stock at a certain price within a certain period.

A put option is bought when someone suspects a company’s share price will go down and is bought as “insurance” to protect their wealth from this decline.

Conversely, a call option gives you the right to buy a stock at a certain price by a certain date.

A call option is bought when someone suspects a company’s share price will go up and they want to profit from this growth.

Last week, Gore bought put options with a strike price of R95.50 and sold European call options with an average strike price of R153.37 per share.

On 30 May, Discovery announced that, on 22 May 2024, Gore had bought more put options, this time with an average strike price of R94.15 per share.

He had also sold more call options with an average strike price of R151.40 per share.

In addition, the CEO sold 250,000 Discovery shares for an average price of R117.6819. This means he sold shares worth R29.42 million.

In the SENS announcement released on 30 May, Discovery referred shareholders to previous announcements about Gore’s hedging transactions entered into over a portion of his shareholding in Discovery.

The company explained that Gore and Swartzberg had replaced their expiring hedging transactions and said they are related to funding arrangements entered into to follow various rights offers and subscriptions for Discovery shares over time.

The lowest Discovery’s share price has been in the past month was R107.21 on Tuesday, 14 May. 

This was because, on 14 May, President Cyril Ramaphosa announced he would sign the widely opposed National Health Insurance (NHI) Bill into law.

Shares in Discovery and other South African medical insurers slumped after this announcement.

Despite widespread criticism of the legislation, Ramaphosa assented to the NHI Bill on Wednesday, 15 May 2024.

Discovery’s shares dropped as much as 7.4%, the most since March, while its peers, including Momentum Metropolitan Holdings, Sanlam and Old Mutual, also traded lower.

The NHI Bill provides a framework for providing universal care through a state-run fund. It also bans the private sector from financing any treatment the NHI provides.

Ultimately, the legislation aims to provide quality health care for the 85% of South Africans who have no medical coverage and rely on a decrepit public system with too few doctors.

According to Bloomberg data, Discovery derives about 34% of its earnings from its South African health division.

Avior Capital Markets analyst Adrienne Damant told Bloomberg that under the NHI Bill, that division will no longer be allowed to operate fully.

“Ultimately, it’s an essential part of Discovery’s business that regulation is outlawing,” she said.