TheChek News Flow

German manufacturing job losses deepen fears over industrial decline

Voters prepare to go to polls this weekend as political parties seek remedies for economic heartland’s woes

Germany has lost almost a quarter of a million manufacturing jobs since the start of the Covid pandemic as companies and politicians sound the alarm that Europe’s industrial heartland is suffering an irreversible decline.

As German voters prepare to go to the polls on Sunday, data highlights the struggle of Europe’s biggest economy to cope with high energy costs, consumer malaise and fierce competition from China.

The trend has piled pressure on political parties to find remedies. Friedrich Merz, tipped to be next chancellor, warns that the country risks deindustrialisation with industrial groups “going abroad in droves; taking their money abroad”.

Once gone, these investments in domestic production were “not coming back”, the leader of the Christian Democratic Union (CDU) warned.

The loss of manufacturing jobs has been masked by a broader shift in employment trends. Overall the number of German jobs grew by 4.8 per cent between the start of 2020 and November last year, according to Bundesbank data — buoyed by growth in services industries such as real estate, healthcare, communications and public administration.

But among the hardest-hit industrial sectors, such as suppliers to the automotive industry, the loss has been palpable. According to the industry group VDA, some 11,000 jobs were lost last year alone among German car suppliers — one of the first sectors to announce job cuts as car production started to decline.

Gesamtmetall, a lobby group for employers in the metal and electrical industries, has warned of further cuts in jobs, forecasting that up to 300,000 more jobs will disappear from its members over the next five years — a near 7 per cent decline.

The contraction of Germany’s industry is evident in the fall of market value in the sector. Together, Dax constituents Volkswagen, Thyssenkrupp and BASF have lost €50bn, or 34 per cent, in market capitalisation over the past five years.

From 2010 to 2014, carmakers on the Dax index were more valuable on average than their peers in any other sector, but valuations have slipped as demand has started to falter.

VW’s deliveries to customers last year slumped by nearly a fifth compared to the pre-pandemic year of 2019. In other industrials, steelmaker Thyssenkrupp has announced plans to reduce its production capacity by up to a quarter and cut 40 per cent of jobs. BASF is looking to cut costs at its Ludwigshafen headquarters, the world’s largest chemical site, by €2bn a year.

One of the big issues German industry faces is significantly higher energy costs compared to competitors in the US and China.

Even before Russia’s full-scale invasion of Ukraine in early 2022, German businesses were complaining of high energy costs, with Vladimir Putin tightening gas flows already in 2021.

Since the invasion, Germany — then Gazprom’s biggest European customer — has scrambled for costly LNG. The country remains Europe’s largest gas consumer, with industry, primarily steel and chemicals, using 60 per cent of Germany’s total consumption.

Malte Küper, an expert on energy at the Cologne Institute for Economic Research, expects that German companies will still be paying more for both electricity and natural gas — as well as for hydrogen — in 2030.

“Energy costs are not the only reason for Germany’s low economic performance and the drop in production but it’s one of the main reasons,” he said. “If policymakers don’t act, Germany will remain stuck — making it hard to regain its attractiveness as a business location.”

Energy-intensive companies in Germany are now producing nearly 20 per cent less than before the war, according to the Federal Statistical Office. Germany’s sprawling chemical industry, from the world’s largest producer BASF to a myriad of small family-owned businesses, have been among the hardest hit.

According to Destatis data, roughly 40 per cent of jobs and more than half of revenues in Germany’s chemical industry are tied to so-called base chemicals, most of which are derived from gas and crude oil. Producers of the materials, used in plastics, fertilisers and coatings, rely on cheap energy to maintain narrow margins in a highly competitive market.

Germany’s chemical and energy industry union, IG BCE, warned in January that it was aware of more than 200 cases of plants either cutting capacity or shutting down, putting 25,000 jobs at risk. And the sector, which supplies other industries, has long been a bellwether for industrial demand.

Corporate distress in Germany remains elevated with levels expected to rise over the next 12 months, according to restructuring specialists at US law firm Weil, Gotshal & Manges.

Its quarterly distress index, based on the financial health of about 3,750 listed European companies, estimates that in the most pessimistic scenario Germany’s score could almost double to a level not seen since the height of the pandemic. The index uses 16 measures to gauge corporate distress, including profitability, risk of insolvency and change in valuation.

By contrast, the UK, France, Spain, and Italy would remain well below their pandemic levels even in the worst-case scenario, according to the research.

“Industrials, real estate and retail are the big drivers of distress in Europe, and Germany has two of these in scale”, said Andrew Wilkinson, partner and co-head of Weil’s London restructuring practice.

As the likely next leader of Europe’s largest economy, Merz has promised to rescue industry and the economy more broadly, by cutting taxes, reducing energy costs and slashing bureaucracy.

But to achieve a parliamentary majority, his CDU will have to form a coalition with at least one party, including either the Social Democrats or the Greens. That has left some industry leaders worrying that Merz will get bogged down in internal bickering of the kind that blighted Olaf Scholz’s three-way government.

Peter Leibinger, president of lobby group Federation of German Industries, called on the next German government to prioritise strategies to lift the country out of its “deep economic crisis”.

“Order books are empty, machines are idle, and companies are looking abroad to invest,” he warned. “I cannot remember such a bad mood among industrial companies.”

Feb 17 (Reuters) - U.S. Food and Drug Administration employees reviewing Elon Musk’s brain implant company Neuralink were fired over the weekend as part of a broader purge of the federal workforce, according to two sources with knowledge of the matter.

The cuts included about 20 people in the FDA’s office of neurological and physical medicine devices, several of whom worked on Neuralink, according to the two sources, who asked not to be identified because of fear of professional repercussions. That division includes reviewers overseeing clinical-trial applications by Neuralink and other companies making so-called brain-computer interface devices, the sources said.

Both sources said they did not believe the employees were specifically targeted because of their work on Neuralink's applications.

The loss of roughly 20 employees will hamper the agency’s ability to quickly and safely process medical device applications of all sorts, including Neuralink’s, according to the sources and outside experts.

“It’s intimidating to the FDA professionals who are overseeing Neuralink’s trial,” said Victor Krauthamer, a former FDA official for three decades, including a stint as acting director of the office that reviews human-trial requests for brain implants.

“We should be worried about the whole trial, and the protection of the people in the trial."

The FDA, White House and Musk did not immediately respond to comment requests. Trump has said that Musk will excuse himself from any conflicts of interest between his various business interests and his efforts to cut costs for the federal government.

Similar to other government agencies, the cuts affected scientists reviewing medical device applications who were probationary, one of the sources said. Probationary employees typically have less than one year or in some cases less than two years of service and have fewer legal protections.

Neuralink is currently testing its device, which allows paralyzed people to use digital devices solely via thought, in a small number of disabled patients. The company is also working on an implant aimed at restoring vision. Last year, the FDA gave that device a designation aimed at speeding up development and federal review, the company has said.

After spending more than $250 million to get President Donald Trump re-elected, Musk has been leading a sweeping effort to cut government spending, including at agencies that regulate his companies, such as Tesla (TSLA.O), opens new tab and SpaceX.

The dismissal letters sent to the FDA reviewers cited performance reasons, even though the employees had no issues on their prior performance, and had received top-notch rankings several weeks ago, according to the two sources familiar with the matter. The supervisors of the cut employees weren’t consulted before the mass layoffs and found out from their employees, the sources said.

Last decade, companies like Segment rewrote the book on how organizations used APIs to merge data from disparate apps to improve marketing strategies. Today, a startup called Hightouch — co-founded by a former engineering manager at Segment — is announcing $80 million in funding for the next chapter: a platform that lets sales, marketing, and customer service teams synchronize data warehouses and other locations, along with AI agents to do that work and build those experiences for them.

Sapphire Ventures is leading this Series C round, with NVC, Amplify Ventures, ICONIQ Growth, Bain Capital Ventures, and Y Combinator also participating. The funding, notably, catapults Hightouch to a $1.2 billion post-money valuation. For some context on that valuation, it roughly doubles the company’s valuation from its last round in 2023.

The funding will be used to continue developing Hightouch’s technology, as well as for business development and hiring.

Tejas Manohar — the co-CEO of Hightouch, who co-founded the company with Kashish Gupta (co-CEO) and Josh Curl (CTO) — said that at Segment, where he and Curl were also colleagues, there was work to be done beyond building a way to use APIs to improve integrations. That was a key evolution, but it was one that took a page from how developers worked, and thus could be too technical to execute in practice due to the number of data sources an organization might use.

“Asking customers to get data into Segment was an onerous task,” Manohar recalled, not least because data from warehouses, where a lot of data ended up, was primarily used for analytics — not marketing — purposes.

In 2019, as Segment scaled (eventually to the point of getting acquired by Twilio for $3.2 billion), Manohar and Curl teamed up with Curl’s friend Gupta, a machine learning specialist, to strike out on their own to build Hightouch.

Hightouch has focused on developing tools in two main areas.

The first is its core customer data platform (CDP) product. Designed both for non-technical users as well as data scientists, Hightouch’s CDP was a bit of a breakthrough when it launched in 2020 because of how it shifted away from looking at data in apps and focused on using machine learning and other tooling to make it easier to use data from data warehouses in marketing, sales, and customer service work.

“They realised that cloud data warehouses are the new customer data platforms,” Rajeev Dham, a partner at Sapphire Ventures, said in an interview. (He is joining the board with this round.)

Uses include building personalization campaigns, loyalty programs, syncing data from data warehouses to a wide range of tools (more than 250, the company says, including all the big CRM and marketing platforms), and more. As we’ve described previously, users can create SQL queries to send data from data warehouses to different apps for specific uses, and there is a graphical interface for non-technical people to create queries.

Hightouch’s second product is a newer offering, AI Decisioning, which goes deeper into machine learning and automation to do what the name says: it is an agentic AI product that can be prompted with a particular goal, which then runs multiple experiments and tests to suggest optimal campaigns.

AI Decisioning has been around since August 2024. But while Hightouch was not looking to raise money before — it’s “capital efficient” as investors like to say, with money in the bank — customer interest in the AI product is what led the company to put together this Series C.

“That’s what motivated us to say, All right, let’s have this conversation, and let’s raise the round,” said Gupta, “because now we finally have a good use for capital.”

Manohar admitted take-up of the AI product was helped by it getting rolled out to all of its existing customers — which include companies like Spotify, PetSmart, Tripadvisor, Grammarly, and more. But such is the juggernaut of AI right now that Hightouch found it was also picking up new business as a result of AI Decisioning.

While “do things faster” has long been one strong use case for adopting AI, as Manohar describes it, motivations are maturing.

“Companies, at the CEO and Chief Digital Officer and Chief Marketing Officer level, are really interested in like, how do we use AI to give our customers a better experience and increase lifetime value and revenue across our customer base?” he said. The AI Decisioning agents can “run thousands of experiments to figure out the best experience to deliver,” Manohar added.

Hightouch’s previous fundraises include a seed round in 2020 from Y Combinator and others; a $40 million round led by ICONIQ Growth; and a $38 million round in 2023.

Governor Christopher Waller says levies would only cause temporary increase in prices

A top US central banker has played down the prospect of Donald Trump’s trade war stoking inflation, highlighting divisions among Federal Reserve rate-setters on the impact of sweeping tariffs.

Christopher Waller said in Australia on Tuesday morning that Trump’s tariffs would “only modestly increase prices and in a non-persistent manner” — a signal the Fed governor believes the new administration’s trade policies should not affect the central bank’s decision-making.

“I favour looking through these effects,” Waller said.

Strong growth and sticky price pressures have left the Fed in wait-and-see mode, with uncertainty over the impact of the trade policies adding to central bankers’ reluctance to cut interest rates despite Trump’s claims that US borrowing costs need to fall “a lot”.

The Fed’s benchmark target range is now 4.25-4.5 per cent, following 1 percentage point of cuts in late 2024.

The rate-setting Federal Open Market Committee is united in thinking US short-term rates need to remain on hold for now.

But some of its members, such as the Chicago Fed president Austan Goolsbee and Cleveland Fed head Beth Hammack, are more concerned than Waller that Trump’s trade policies will have a more enduring effect on US prices.

Fed chair Jay Powell insists the FOMC does not yet have the evidence to make a reasonable call on which direction trade policy will drive prices.

So far, the only tariffs that have been implemented are 10 per cent levies on all Chinese imports. Trump has also threatened to impose 25 per cent charges on all imports from two of the US’s biggest trading partners — Mexico and Canada, with a decision set for early March.

A 25 per cent levy on aluminium and steel imports has been proposed for mid-March, as has the threat of reciprocal tariffs on countries the administration believes are hitting US companies through steep trade barriers or higher taxes.

Waller said, while the data was “not supporting a reduction in the policy rate at this time”, inflation could fall back over the coming quarters because companies tended to raise their prices at the start of the year. US inflation unexpectedly rose to 3 per cent in January, reinforcing expectations the Fed will not imminently lower borrowing costs.

“[I] will watch the data over the next few months to evaluate if we are having what looks like a repeat of high first-quarter inflation data that could be followed by lower readings later in the year,” he said.

He added: “If 2025 plays out like 2024, rate cuts would be appropriate at some point this year.”

Waller also said monetary policy could not be put on hold indefinitely, despite uncertainty over what sort of economic policies the White House would unveil.

“If incoming data supports further rate cuts or staying on pause, then we should do so regardless of how much clarity we have on what policies the administration adopts,” he said. “Waiting for economic uncertainty to dissipate is a recipe for policy paralysis.”

Rival bid for H&E follows wave of consolidation in heavy equipment rental industry in recent years

H&E Equipment Services has accepted a bid from Herc Rentals of nearly $5.3bn, rebuffing an earlier takeover offer from equipment rental rival United Rentals, according to people briefed on the matter.

Herc’s cash-and-stock bid values H&E at nearly $500mn more than United’s all-cash offer, which the takeover target’s board approved last month, the people said. As part of the original United deal, H&E was given a 35-day so-called “go-shop” period in which it could solicit interest from rival bidders, allowing Herc the opportunity to swoop.

The proposal from Herc values H&E’s shares at almost $105 each — with 75 per cent paid in cash and the remainder in Herc stock. H&E’s board concluded in recent days that Herc’s offer — which values the group at almost $5.3bn, including $1.4bn of net debt — was superior to United’s original bid, which valued the company at $92 a share.

Gatecrashing its larger rival’s deal would represent a coup for Herc as it races to compete with United, the world’s largest industrial and construction equipment supplier. The takeover of H&E adds a network of 160 branches across 30 states, with a rental fleet comprising 64,000 pieces of machinery and a workforce of 2,900 employees.

Combining with H&E would bolster Herc’s status as United’s leading competitor and result in significant cost and revenue synergies, the people said. United, which generated $13bn in revenues last year, has spearheaded a wave of consolidation across the industrial equipment rental sector in recent years. Together, Herc and H&E generated revenues of around $5.2bn.

Herc, which was spun out of Hertz in 2016, would also grant H&E two board seats as part of the proposal, the people said. Herc’s takeover will be financed by $4.5bn of debt financing led by French bank Crédit Agricole.

United has until the end of the week to submit a counter-offer or face losing the deal, the people added. Herc, United and H&E did not immediately respond to requests for comment.

Shares in United jumped almost 6 per cent on the day the deal was announced in January as investors welcomed the takeover. United’s offer valued H&E at a 100 per cent premium to closing price.

Shares in H&E have traded at least $4 below United’s bid price, in part because of the perceived antitrust risk of the dominant player in the sector trying to take over a smaller rival. United planned to buy H&E through a subsidiary.

Responding to a question last week about the increased competition faced if United and H&E were to combine, Herc’s chief executive Lawrence Silber declined to comment on a rival deal but said “consolidation is a good thing”. He added that consolidation “typically results in a more stable industry, which is an important part of our long-term strategy”.

Luxury brand upheaval exposes revolving door of high-end fashion

Abrupt exit of Gucci creative director Sabato De Sarno underlines unprecedented talent churn at leading labels

As Gucci unveils its runway collection in Milan this month, the creative designer behind it, Sabato De Sarno, will not be there to take the customary bow.

The Italian parted ways with the fashion house in early February, less than two years after parent company Kering handed him the task of reviving its most prestigious brand.

De Sarno’s exit is the latest in a lightning series of top-level changes at the big houses, who are churning through creative and management talent at the fastest rate in decades.

“I can’t remember a time in the last 20 years where we’ve seen this much change,” said Karen Harvey, founder of Karen Harvey Consulting, who headhunts for luxury brands.

The upheaval underscores the pressure on high-end brands during a significant market downturn, as the pandemic luxury boom recedes and the once-rapacious demand from Chinese consumers for expensive handbags and designer fashions has waned.

But industry experts and analysts warn that such a rapid pace of renewal can confuse strategic goals and deny top talent the time required to make their mark.

“I don’t think [two years] is the appropriate breathing space for a brand,” Erwan Rambourg, global head of consumer and retail equity research at HSBC, said of De Sarno’s tenure, adding it was “way too short”.

Gucci’s split with its creative director did not come as a shock, say industry insiders, even if the abruptness was a surprise, as De Sarno’s designs had been in stores for only a short time. Sales at Kering’s flagship brand fell 21 per cent like for like in 2024 and the group issued several profit warnings.

Indeed, half the brands in Kering’s fashion and leather goods division, including Gucci and Saint Laurent, have changed chief executives in the past 18 months, and three, including Bottega Veneta and Alexander McQueen, have also appointed new designers.

Richemont too has changed its top guard, promoting Nicolas Bos to the role of chief executive alongside new heads for top brands Cartier and Van Cleef & Arpels.

Seven of the 16 brands in LVMH’s fashion and leather goods division have also changed their CEO in the past two years — including the two most important, Louis Vuitton and Dior — while another four have new creative directors. The company has also shuffled its executive committee, appointing a new chief financial officer and group managing director, and handing plum jobs to the children of billionaire owner Bernard Arnault.

Further driving the revolving door was the switch by Bottega Veneta’s Matthieu Blazy to become creative director at Chanel — arguably the most coveted design position in the industry. He will take up the post later this year.

While the changes at LVMH have largely been driven by succession planning, with top management posts going to members of the Arnault family or executives a decade younger than their predecessors, analysts say the upheaval at Kering has been led by market pressures.

“Kering is [thinking] more short-term than they should . . . because Gucci is going through tough times,” Rambourg said. “It’s a really insecure approach to managing brands.”

Analysts and retailers worry that if the pace of change becomes too fast on the creative side, brands risk confusing customers or botching execution.

While creative directors used to stay in post for a decade, in recent years the standard contract has become what the consultant Harvey called a “three plus two” — an initial three-year contract followed by a two-year extension.

“It’s very difficult in two years, [which is] four seasons — if you even get four,” she said. Sabato’s spell at Gucci was so brief that “there wasn’t time to . . . bake that creative vision”, she added.

Harvey also noted how designers were often held accountable for poor performance, when it was management that failed to create a framework for them in which to succeed.

In an industry driven by inventiveness and fresh ideas, changes in creative leadership tend to come in waves. “These are cycles. The best fashions go out of fashion and must deteriorate. So we must prepare to have creative evolutions,” Kering chief executive François-Henri Pinault told reporters after this month’s results.

However, the huge growth of top luxury labels over the past decade has increased the pressure on brands to rejuvenate, even amid a downturn.

LVMH’s Dior quadrupled in size to more than €10bn in sales in that period, for example, according to HSBC estimates, but growth has since levelled off.

“The numbers have gotten much bigger,” said the chief commercial officer of a luxury retailer. “Coupled with big economic headwinds and unpredictability it has pushed brands to move.”

But bigger size means top labels are less inclined to take a risk on new, untested talent — often poaching the creative directors of other houses rather than investing in the next generation.

“Luxury and fashion thrive on newness and creativity . . . so churning the same big names around the big brands is not necessarily very exciting or good for business,” the person added. 

The slowdown in the luxury industry following a period of high growth has been exacerbated by issues such as the effect of inflation on middle class households, as well as problems in China’s housing market and its declining stock market.

The sector has lost about 50mn luxury consumers over the past two years, according to Bain, many of them young shoppers who no longer see value in luxury products.

“I think it’s quite easy for the main luxury portfolio group to become a bit complacent when times are good,” said Harvey. “If you think about the last decade, it seemed, on the surface, that luxury was impenetrable. It’s not.”

Amid the whirlwind of top-level changes, the focus now shifts to execution and the tricky balance between revealing a new vision for a brand without losing its way.

“It depends how the transition is handled. If the brand has got really strong DNA, you see little or no change,” said the head of a large department store. “It’s where people deviate from the DNA that they run into trouble.” 

Hedge funds target quick profit from obscure corporate bond clause

Guy Hands’ Annington, Just Eat Takeaway and Tennet among borrowers under pressure from investors over asset sales

Hedge funds are trying to exploit a unique clause in the bond documentation of some of Europe’s safest companies, forcing borrowers to buy back debt at above-market prices following asset sales or corporate break-ups.

Companies including Guy Hands’ property firm Annington, Just Eat Takeaway and Dutch state-owned electricity grid operator Tennet have been targeted by creditors arguing that, by selling large chunks of their business or splitting into multiple entities, the companies have defaulted on their debt.

The argument hinges on a so-called cessation of business clause, which has become commonplace in documentation for safer investment-grade bonds in Europe in recent years. If triggered, this clause forces the borrower immediately to repay outstanding bonds at face value.

Betting that they will be able to force a company either to repay fully its debt at par value or to buy it back above the market price in order to appease bondholders, opportunistic investors are monitoring break-ups or spin-offs, and are piling into bonds trading at a discount.

Advisers have drawn up “shopping lists” of companies with the clause in their documents, said a person familiar with such deals.

Borrowers are starting to wake up to the potential danger posed by the clause, according to bankers advising on the deals.

“Issuers are now trying to work out whether this is something you need to take into account when you’re planning your disposal strategy,” said one restructuring adviser involved in a number of such disputes.

During the past few months, Hands’ Annington has been pursued by funds including DE Shaw, Sona Asset Management and Attestor, according to people familiar with the matter. They have been scooping up its bonds at prices as low as 76 pence on the pound following the firm’s long awaited £6bn sale of 36,000 military housing properties to the UK government.

The company used the proceeds of the sale to pay off a £400mn term loan, cancel a £100mn revolving credit facility and launch a tender offer to buy back £3.35bn of its outstanding bonds above the market price but below their face value.

Some holdout creditors, advised by law firm Milbank, rejected the offer, insisting that Annington had triggered a cessation of business clause and that they were due repayments at par.

Around £2bn of bonds were bought back through the tender offer. If holdout investors can prove that the company triggered the clause and the asset sale was “materially prejudicial” to bondholders, they could stand to make a roughly 30 per cent profit.

“Annington has taken legal advice and is firmly of the view that the MQE [Married Quarters Estate] sale does not constitute an event of default,” said Annington chief executive Ian Rylatt. “The tender offer was priced to give existing noteholders an attractive premium to the market value of the notes.”

DE Shaw, Sona Asset Management and Attestor declined to comment.

Sweden’s SKF, the world’s largest bearings manufacturer, asked bondholders this month to confirm that spinning off its automotive business “will not cause an event of default under the conditions of the notes”.

The trade was pioneered in 2023, when investors in the bonds of Belgian chemicals group Solvay called investment bankers at Houlihan Lokey, arguing that the splitting of its speciality polymers business from the rest of the company constituted an event of default.

While Solvay was attempting to split the debt between the two entities, its creditors and Houlihan pursued it for triggering a cessation of business. Solvay was forced to repay the bonds at par, rewarding investors who bought up the debt for prices lower than 90 cents on the euro.

These opportunities, which depend on the legal language used, have arisen due to a period of very low interest rates in Europe from 2019 to 2021, said Jeff Dorst, a managing director and liability management practice leader in Houlihan Lokey’s financial restructuring group, who has advised creditor groups in these situations.

“A number of securities issued in that timeframe have very low coupons, and thus trade below par in the current rate environment,” he said.

Creditors have also used the clause to pursue Dutch grid operator Tennet, after it announced it would sell its German business to the government in Berlin. The dispute is on hold after Germany pulled out of the deal.

Early last year, bondholders asked Swedish personal care products maker Essity to repay its debt at par following the sale of its 52 per cent stake in tissue maker Vinda. The bondholders have now taken the company to court after it refused their demands.

Just Eat has become a recent target of creditors advised by Milbank over its sale of Grubhub, while WHSmith has appeared on the radar of investors after the retailer confirmed it was in talks to sell its UK high street shops.

However, advisers monitoring these opportunities said the bonds might not trade low enough to make the margin worth while.

“The facts are a little bit different on each one, the holders are a little bit different, the documents are a little bit different,” said a restructuring lawyer familiar with the documentation. “So just because one goes one way, it doesn’t necessarily mean they all will.”