What You Need To Know This Week — May 30th, 2020
What You Need To Know This Week
A weekly recap to keep you informed on the most important events this week impacting markets, business, tech and the global economy.
SILVER LAKE TAKES STAKE IN THIRD POINT’S BLANK CHECK COMPANY TO PUSH THROUGH GLOBAL BLUE AG ACQUISITION
A candidate for deal of the year, private equity firm Silver Lake took an activist stake in hedge fund Third Point’s special purpose acquisition company Far Point with the goal of pushing through Far Point’s acquisition of fintech company Global Blue AG. Given the downturn in Global Blue’s business due to COVID-19, Far Point’s board of directors took the unprecedented action of recommending its shareholders vote against the deal that they previously put together. Silver Lake then acquired a $100 million, 12% stake in the blank check company with the goal of voting its shares for the deal and getting the Global Blue deal over the finish line. Silver Lake is Global Blue’s largest shareholder and is keen to exit the investment to Far Point. The unique characteristics of SPACs allow Silver Lake to vote its Far Point shares for the deal and then redeem its investment for cash, removing all deal risk for the private equity firm. Mastefully executed.
HERTZ FILES FOR BANKRUPTCY AS RECESSION HITS USED CAR VALUES
After years of strategic blunders, the 102-year-old rental car company Hertz finally succumbed to its massive debt load and filed for bankruptcy. The company’s long-term decline stemmed from its debt-fueled, overpriced acquisition of Dollar Thrifty in 2012. In addition, market share losses to ride-sharing companies Uber and Lyft, combined with the dramatic downturn in travel, made its business unsustainable. Hertz had $19 billion in debt, largely consisting of auto-backed debt. The coronavirus-led economic downturn has caused used vehicle prices to decline markedly, effectively causing a margin call for Hertz that it could not meet.
NEWSPAPER COMPANY TORSTAR SOLD TO INVESTOR GROUP AT A NEGATIVE VALUE
Here’s something you don’t see everyday: A buyout at a negative enterprise value. Publicly-traded newspaper company Torstar is being acquired for negative $18 million. That is, the $52 million price tag for Torstar, owner of the Toronto Star and a portfolio of other news media businesses, is less than the net cash on its balance sheet. The largest and oldest newspaper chain in Canada is being sold to NordStar Capital LP, an investment firm run by businessmen Paul Rivett and Jordan Bitove. At a buyout price less than the company’s cash, shareholders would likely be better off paying out the firm’s capital and then shutting it down. The $0.63 cash per share consideration represents a 57.5% premium to Torstar’s unaffected market price.
Notable Insights, Articles, Podcasts, and Tweets
Listen to the retired former CIO of Eclectica Asset Management, Hugh Hendry, discuss various current global macro themes including gold and inflation on the Real Vision podcast.
Social media company Twitter has added a fact-check warning to President Trump’s tweets, raising his ire and evoking threats of increased social media company regulation and scrutiny. Facebook’s Mark Zuckerberg pushed back against Twitter’s move, stating “that Facebook shouldn’t be the arbiter of truth of everything that people say online.” Clearly, the Facebook Chief cares about the company’s stock price, while Twitter’s CEO does not.
Who knew that Norinchukin Bank, a Japanese bank that serves local farmers and fishermen, was the biggest financier of U.S. leveraged buyouts? The low-key Japanese bank owns about 10% of the $700 billion market for corporate debt packaged into collateralized loan obligations. After facing a recent $3.7 billion loss on its CLO portfolio, it indicated it would not be making new investments.
Activist hedge fund Marathon Partners launched a proxy fight against e.l.f. Beauty, the first proxy battle of the post-COVID era. Marathon is seeking to nominate three directors to the company’s board of directors.
Peet’s Coffee completed a $2.5 billion initial public offering in Amsterdam, valuing the company at over $17 billion. The offering represented Europe’s biggest IPO of the year and was completed in just 10 days. Peet’s shares rallied as much as 18% on its first day of trading, confirming the notion that investor confidence, significantly damaged by the pandemic, has returned.
Europe’s anti-trust regulator, the European Commission, suffered a significant setback that may set the stage for increased consolidation in the future. A top European court has annulled a 2016 decision by the EU’s competition commissioner to block a merger of two British mobile companies on consumer interest grounds. The court stated that the anti-trust regulator made “several errors of law,” and failed to prove that prices would increase or competition would be harmed from the merger of two of the U.K.’s four telecom companies.
Tech heavyweight Sun Microsystems announced the acquisition of Toronto-based Isopia Inc. in a stock-and-cash deal. The transaction helps Sun expand its offering of educational software. Well-capitalized corporations are not afraid to conduct strategic, tuck-in M&A in this environment.
Tech conglomerate Cisco is in discussions regarding the acquisition of software company ThousandEyes Inc. for nearly $1 billion in a bid to increase revenue from recurring software and reduce reliance on sales of networking equipment.
The story of Chinese company Luckin Coffee cooking its books confirms that fraud risk is the best argument against international diversification. I had learned this lesson from the 2010–2012 vintage of Chinese frauds, however, a new generation is now learning the same lesson: Never invest in Chinese companies (they are a great place to look for shorts though).
Several of the big Canadian banks maintained their dividends despite the recent rough quarter due to the ongoing recession. Laurentian Bank did not; they slashed their dividend by -40% as net income plummeted by -79%. This was the first dividend cut by a large Canadian lender since 1992. Laurentian’s stock plummeted as much as -20% on the news.
Private asset funds don’t value their investments to market prices and therefore may artificially smooth returns, especially in a market drawdown. Jason Zweig: “An asset’s value doesn’t change less if you measure it less often. You don’t gain less weight by measuring yourself on the bathroom scale once every three months instead of once a day.”
U.S. investment-grade corporate bond issuance has reached $1 trillion in the first 149 days of the year, setting a new record. This is double the amount sold in the comparable 2019 period.
Square’s founder believes a recession is a great environment to be launching a startup: “If you’re going to do something that’s never been done, by definition, you cannot be an expert. Take it from a glassblower who started a $30 billion payment company: You don’t have to be.”
Further evidence in the value and growth opportunities of podcasts, Amazon is now looking to invest in localized podcast content.
The Onion: Protestors Criticized For Looting Businesses Without Forming Private Equity Firm First.
Vanity Fair thinks “stock buybacks are controversial.” You know what’s really controversial? Journalists criticizing share repurchases, which are just a tax-efficient method of distributing excess capital to shareholders, effectively equivalent to dividends.
