TheChek News Flow

Modella Capital renegotiates price downwards after weak trading at UK retailer

The buyer of WHSmith’s high street business has renegotiated the price downwards after trading at the chain deteriorated in recent weeks.

WHSmith now expects to receive gross cash proceeds of up to £40mn from the sale to Modella Capital, compared with the £52mn it had projected when it first announced the deal on March 28, the company said in a stock exchange statement Monday.

The renegotiation with Modella, which plans to change the name of the 233-year-old business to TG Jones, comes after “the future of the high street business under a change of ownership has led to a more cautious outlook amongst stakeholders”, WHSmith said in a statement.

The sale has now completed.

Smelters say they are losing power battle with Big Tech

US and European industry executives say high electricity prices are holding back efforts to rekindle domestic industry

High electricity costs and an intensifying battle with Big Tech for power are hampering US and European policymakers’ efforts to reshore strategically important metals processing industries, executives say.

Washington and Brussels are offering billions of dollars of taxpayer funds for smelting, processing and mining projects for metals such as copper and aluminium, in order to break China’s stranglehold on the industry. The US has also imposed punitive tariffs on imports in a bid to protect domestic industry.

But senior executives told the Financial Times that more support was needed to make western smelting and processing profitable, while Silicon Valley companies were pushing up the cost of power in the US.

“The most important factor deciding where you actually build a smelter is a long-term competitive power price,” which accounts for about a third of an aluminium smelter’s costs, said Trond Olaf Christophersen, chief financial officer of major aluminium producer Norsk Hydro.

He said that in the US, smelters were vying for electricity contracts with technology groups, which were willing to pay much higher sums in order to develop the data centres that underpin the artificial intelligence revolution.

Big Tech had “a much higher ability to pay for the power compared to an industry like aluminium”, said Christophersen.

One mining industry veteran characterised the dynamic as “not [US aluminium company] Alcoa versus China, but Alcoa versus Google”.

Smelting is an energy-intensive but crucial step in the production of the metals essential for a range of industries from energy to defence and technology. China dominates the sector, with European and US smelters increasingly struggling to compete with its scores of new state-backed factories.

China now controls more than half of the world’s smelting capacity for aluminium, according to the US Geological Survey. It also leads in the processing of other critical minerals, including rare earths and lithium, a trend that has concerned policymakers in the US and Europe.

While smelters required long-term contracts for power at costs of about $40 per megawatt hour, Big Tech companies had penned agreements for upwards of $100 per megawatt hour, the US Aluminium Association said this year.

“Large-load customers remain willing to pay premiums to secure supply,” said consultancy Wood Mackenzie, adding that power prices in the US would “grow steadily in real terms”. Alex Christopher, senior aluminium analyst at market analysis group CRU, said the proliferation of data centres in the US would “only act to drive up competition for limited transmission capacity, forcing up prices”.

The Aluminium Association estimates that a single new aluminium smelter would use about the same amount of electricity each year as a city such as Boston or Nashville.

Although US power prices are below those in Europe, which remain elevated following the energy crisis triggered by the war in Ukraine, average costs last year were almost double those in Canada and significantly higher than in Norway, according to data supplied by Hydro.

Guido Janssen, chief executive of zinc and lead company Nyrstar, said many western smelters were operating on razor-thin margins. “What we need is competitive electricity prices, that’s key,” he said, adding that power prices in Europe were especially high. 

The opening of new smelters in the US and elsewhere would also require government support, such as grants and “de-risking” mechanisms, such as a guaranteed minimum price and buyer, he said. 

Nyrstar is planning to expand its US facilities to enable the production of germanium and gallium — essential for the defence and tech sectors. But Janssen said it would need government funds to be profitable. It is in talks to secure financial support.

The company’s lead smelter in Australia was lossmaking and “we don’t see this changing” without government support, Janssen added.

US authorities are in talks with two companies, Chicago-based Century Aluminum Company and Emirates Global Aluminium from the UAE, over incentives to build the first aluminium smelter in the US since 1980.

EGA said its project was contingent on the company securing a “competitive long-term power supply” and government financial support. Century declined to comment.

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Hedge funds seek to expand into private credit

Millennium, Point72 and Third Point among those seeking to push into popular asset class

Big hedge funds are pushing into private credit as they seek to establish themselves as diversified financial institutions, with Millennium Management, Point72 and Third Point all looking to launch new funds and strategies.

Third Point, a $20bn firm with a history as an activist investor, plans to launch a publicly traded private credit fund next month called Third Point Private Capital Partners, which will lend directly to businesses.

Millennium, which manages more than $75bn in assets, has been weighing whether to launch a separate fund to invest in less liquid assets, including private credit, its first new fund in more than three decades.

Steve Cohen’s Point72 earlier this year hired Todd Hirsch, formerly a senior managing director at Blackstone, to lead its private credit strategy. He has also recruited Alex Greeley from Linden Partners, Jay Ditmarsch from Carlyle and Rudder Zhang from Brookfield Asset Management.

“Hedge funds are in the asset gathering business,” said one leading banker to hedge funds. “The boom in private credit has really attracted their attention.”

Millennium, Point72 and Third Point declined to comment.

Private credit — or non-bank lending that encompasses everything from risky corporate loans to debts tied to music royalties — has become a huge growth area as asset managers displace banks as lenders.

Millennium, Point72 and Third Point — among the world’s largest and oldest hedge funds — have typically specialised in trading so-called liquid securities, such as equities, fixed income and commodities, that they can move in and out of quickly.

But private credit offers a way for them to target higher returns, access longer-term capital and cement their positions as more than just hedge funds, attracting potentially richer valuations for their businesses.

“If you’re the founder of a hedge fund and hitting that retirement succession phase, if you’re going to cash out, how am I going to get the best multiple?” the banker said.

Their investors, such as pension funds, endowments and sovereign wealth funds, were also increasingly looking for a “one-stop shop”, they added.

Third Point’s founder Dan Loeb said in April that he had looked on as the enterprise values of alternative asset managers such as Brookfield and Apollo soared, and that moving into private credit was one way to seek to compete with their pace of growth.

“We’ve always been involved in credit . . . [but] I wanted access to opportunities in the credit world that I wasn’t getting through public high-yield and structured debt,” he said. “And I realised I had to elbow my way into the party in the private credit world.”

Third Point has brought on a team of investors from Madison Capital Partners and Credit Suisse to lead the effort, according to an investor document seen by the Financial Times. It expects to make the majority of its loans to private equity firms and their portfolio companies, according to the document, even at a time when leveraged buyouts have largely stalled.

Loeb himself was committing more than $100mn to the publicly traded fund, according to two people familiar with the strategy. The hedge fund plans to focus on parts of the market that are not already dominated by bigger players, such as lending to mid-sized companies, added one of the people.

Cohen of Point72 said earlier this year that he wanted to expand into private credit in part because his firm was “more than just a hedge fund”. “Why define myself as just a hedge fund . . . I can do more than that,” he said.

Yet the hedge funds that embraced private credit years ago still have modestly sized strategies in comparison with their broader firm’s investments.

Multi-strategy firm DE Shaw, which first raised a private credit-focused fund more than a decade ago, remains a relatively small player. Its latest funds have drawn in about $1bn from investors, and the hedge fund currently has about $5bn devoted to the strategy, according to two people familiar with the matter. This is a small fraction of the firm’s overall $65bn in assets under management.

There is already intense competition between established private credit players, including Apollo Global Management, Ares Management and Blackstone, to find deals and fundraise the billions of dollars they need to remain competitive.

“You can’t just raise some capital and say, hey we’re open for business,” said one executive at a private credit firm.

“Across the board, hedge funds or otherwise, you’re going to see that some of these newer entrants, or what I might call tourists, aren’t going to be able to generate the same types of returns as the more established platforms.”

Mainstream assets managers such as BlackRock, Franklin Templeton and T Rowe Price have also jumped into the space through multibillion-dollar acquisitions. Rating agency Moody’s projects the asset class could grow to $3tn by 2028.

Advisers warned that hedge fund forays into private credit were not straightforward.

“What happens is these managers get bored with their main business, and then they want to do different things,” said one adviser. “But it’s wishful thinking on their part to think they can become like a Blue Owl or an Apollo or Cerberus.”