TheChek News Flow

Before investors give the French group much more credit, they will want to see evidence that it can avoid nasty shocks

Companies that announce rights issues rarely see their stock prices rise. Alstom, maker of French TGV trains, is an exception. Its plan to raise €1bn of equity, coupled with disposals and a hybrid bond, has investors hopeful that it can find enough new money to repair its financial crash. A sense of relief is understandable. But for the next leg of Alstom’s journey to begin, it will have to prove that its operations are truly back on track. 

It is not hard to see why short sellers had been circling the stock. Suppliers involved in costly long-term projects need an investment grade rating: no customer wants to sign a contract with a company that might not be around when delivery time comes. Alstom, however, was at risk of falling to junk after its shock €1bn cash hit in the first half of last year, in part related to problematic UK contracts inherited from its acquisition of Bombardier.

The outcome was an unsustainable €3bn of net debt, as of March 2024, equivalent to 3 times ebit. The proposed rights issue, underwritten by major shareholders and a bank consortium, plus a €750mn hybrid bond and €700mn of executed disposals, will cut debt to €1bn. A further €1.5bn of forecast free cash flow over the next three years will finally bring its balance sheet to a place of safety. 

That would leave Alstom decently positioned to make inroads in what remains a complex sector. True, rail traffic should grow as carbon-conscious travellers switch to greener trains, and consolidation among suppliers has improved the competitive landscape. But customers are large, quasi-governmental organisations with a lot of negotiating power. Margins are tight, and the timing of orders and deliveries frequently slips. The UK’s huge Aventra rolling stock programme is but one example.

Alstom has scale on its side. As it runs off unappetising legacy contracts, it should be able to sign new ones on better terms. That would leave it positioned to make some €1.2bn of ebit this year, putting it on a forward multiple of around 7 times post-disposal enterprise value. Stadler, a much smaller Swiss competitor, is on 13 times, suggesting a chunky potential upside to the current share price.

For contractors, however, the proof of the pudding is in the cash flow. Before investors give Alstom much more credit, they will want to see evidence that the group can avoid nasty shocks. The gravy train is a way off yet.

Takeover could value PowerSchool at around $6 billion including debt

The Deal

Bain Capital is in talks to take education-software provider PowerSchool private.

The Details

A deal for PowerSchool could come together in the coming weeks, according to people familiar with the matter. It is still possible that talks could fall apart and not result in a transaction.

The deal is likely to value PowerSchool, whose shares closed Tuesday at $16.64, somewhere in the $20s per share, one of the people said. That would value the company, which had a market cap of about $3.4 billion on Wednesday morning, at about $6 billion including its debt of nearly $1 billion.

Folsom, Calif.-based PowerSchool provides software for K-12 education across North America. The company offers cloud-based products for schools to manage student data, enrollment and attendance. PowerSchool supports over 55 million students and more than 17,000 school districts and states.

PowerSchool was acquired by private-equity firm Vista from Pearson in 2015. In 2018 Onex said it had invested in PowerSchool alongside Vista, making them equal equity partners. The company went public in 2021. Vista and Onex still own stakes.

The Rationale

The deal would come at a time in which private-equity firms are looking to become more active making purchases after a period of dormancy caused in part by elevated interest rates. At the same time, they are eager to sell holdings to return capital to their backers.

Bain, based in Boston, recently announced that it has agreed to sell payroll and HR software provider Zellis Group to Apax Partners. In December it purchased consulting-services company Guidehouse from Veritas in a $5.3 billion deal.

Overall, private-equity deals are on the upswing compared with a very quiet 2023. So far this year they have struck $97.8 billion of leveraged buyouts, compared with $53.7 in the same period in 2022, marking an 82% increase, according to data provider Dealogic.

The Context

On Tuesday, PowerSchool said that its revenue increased 16% year-over-year to $185 million in the first quarter. It had a loss of $22.8 million.

It turns out that India accounted for a quarter of Israel Aerospace Industries' export revenues last year. Details on Azerbaijan and Morocco are also revealed in the Israeli company's annual report

India is the largest foreign customer of Israeli defense giant Israel Aerospace Industries, the company revealed in its 2023 annual report based on a Haaretz analysis of company statements from recent years.

According to the annual report, sales to India came in at $953 million last year, about a quarter of the company's export sales. IAI's sales to India last year were 17 percent lower than in 2022.

According to statements by IAI, last year India paid the company $631 million for missile and space systems, $202 million for radar, electronic warfare and intelligence systems, and $94 million for drones.

According to the last report by the Stockholm International Peace Research Institute, which tracks global arms shipments, India is the world's largest arms importer – with Russia, France, the United States and Israel its biggest suppliers. India is the largest buyer of Israeli arms, and from 2019 to 2023 it accounted for 37 percent of Israel's defense exports.

IAI's exports totaled $3.7 billion last year, 51 percent of them to Asia, according to its Hebrew-language annual report. Sales to the Israeli market totaled $1.5 billion.

The annual report, published two months ago, does not explicitly name India but mentions "Material Customer A." However, the report's section "Material Agreements" lists past transactions signed at different dates with this customer.

On those dates, the company released statements on arms deals with India. Other transactions cited in the annual report were disclosed separately in India.

According to the annual report, "In October 2018, IAI entered into an agreement with a government company in Material Customer A's country for the joint manufacture and supply of air defense systems totaling $777 million."

According to IAI's website, in that month, the company announced an agreement with Indian government company Bharat Electronics to supply the naval version of the Barak 8 air defense system for $777 million.

According to the annual report, "In April 2017, IAI entered into an agreement with Material Customer A for the development, manufacture and supply of air defense systems for a total of $1.6 billion." On its website, IAI unveiled in April 2017 a $1.6 billion agreement to supply the Barak 8 system to India.

The annual report states: "In October 2018, IAI entered into an agreement with Material Customer A for the supply of air-defense command, control and communications (C3) systems for a total of $550 million." In October 2018, it was reported that IAI was selling India its Sky Capture C3 system for $550 million.

Finally, "In 2006 and 2009, IAI entered into an agreement with Material Customer A for the development and production of air defense systems for a total of $1.85 billion." In 2009, the Indian media reported that the government had agreed with IAI to buy the Barak air defense system in a deal nearing $2 billion.

The annual report's section "the nature of agreements with Material Customer A" contains more hints about the country's identity. According to the report, in October 2020, a new procurement procedure came into effect that included "a local-content requirement of between 40 percent and 60 percent of the products. … Material Customer A has an option for fast-track procurements under a requirement for the product to be supplied within 12 months of signing."

In 2020, new defense procurement procedures came into effect in India. Following tensions with Pakistan and China, India's armed forces received emergency procurement powers under which they could make "fast-track" purchases for delivery within 12 months of signing. These procedures also mention the 50 percent local-content requirement.

Azerbaijan and Morocco

The annual report also unintentionally reveals that the $1.2 billion transaction that the company announced last November – "for the supply of air defense systems to Customer C" – was with Azerbaijan. In September, Azerbaijan's Defense Ministry announced that the country's military had conducted major air defense drills that included the Barak 8 air defense system.

The annual report does not explicitly name Azerbaijan, but it states that in 2012, IAI signed a $1.6 billion deal with Customer C for "miscellaneous defensive and offensive systems," and that these agreements were updated in 2017. In 2012, a $1.6 billion arms deal with Azerbaijan was reported by the Israeli media. Over the years the agreement was updated; IAI supplied to Azerbaijan the Barak missile system and drones, including suicide drones.

The annual report also reiterates a February 2022 transaction that was mentioned in last year's annual report: "The company entered into an agreement with Customer D for the supply of air defense systems totaling $560 million."

This deal was never mentioned in an IAI press release or statement to the Tel Aviv Stock Exchange. Customer D, it turns out, is Morocco. That month, the Israeli media reported that IAI had sold advanced Barak air defense systems for half a billion dollars to Morocco, which had earlier signed the Abraham Accords.

Takeover could value PowerSchool at around $6 billion including debt

The Deal

Bain Capital is in talks to take education-software provider PowerSchool private.

The Details

A deal for PowerSchool could come together in the coming weeks, according to people familiar with the matter. It is still possible that talks could fall apart and not result in a transaction.

The deal is likely to value PowerSchool, whose shares closed Tuesday at $16.64, somewhere in the $20s per share, one of the people said. That would value the company, which had a market cap of about $3.4 billion on Wednesday morning, at about $6 billion including its debt of nearly $1 billion.

Folsom, Calif.-based PowerSchool provides software for K-12 education across North America. The company offers cloud-based products for schools to manage student data, enrollment and attendance. PowerSchool supports over 55 million students and more than 17,000 school districts and states.

PowerSchool was acquired by private-equity firm Vista from Pearson in 2015. In 2018 Onex announced that it had invested in PowerSchool alongside Vista, making them equal equity partners. The company went public in 2021. Vista and Onex still own stakes.

The Rationale

The deal would come at a time in which private-equity firms are looking to become more active making purchases after a period of dormancy caused in part by elevated interest rates. At the same time, they’re eager to sell holdings in order to return capital to their backers.

Bain, based in Boston, recently announced that it has agreed to sell payroll and HR software provider Zellis Group to Apax Partners. In December it purchased consulting-services company Guidehouse from Veritas in a $5.3 billion deal.

Overall, private equity deals are on the upswing compared to a very quiet 2023. So far this year they have struck $97.8 billion worth of leveraged buyouts, compared to $53.7 in the same period in 2022, marking an 82% increase, according to data provider Dealogic .

The Context

On Tuesday, PowerSchool said its revenue increased 16% year-over-year to $185 million in the first quarter. It had a loss of $22.8 million.

Shares rise 13% after fourfold rise in quarterly group operating profit

Siemens Energy promised a turnaround at its troubled wind turbine business was under way as the company raised its revenue outlook and sought to draw a line under a crisis that has wiped billions from its market value. 

A new chief executive, Vinod Philip, will take charge of wind division Siemens Gamesa in August and will oversee job cuts in order to regain control of costs, the company announced on Wednesday.

Group operating profit rose fourfold, to €170mn, in its second quarter compared with a year previously, and the company raised its full-year revenue growth forecast from 3-7 per cent to 10-12 per cent.

Siemens Energy also said it would resume sales of its two troubled turbine models, the 4.x and 5.x, in the coming months. The suspension of sales for the two platforms — due to widespread engineering defects identified last year — led the company to a €4.6bn loss in 2023 and deepened a funding crisis for its renewable energy project pipeline that triggered a €15bn government bailout.

“The turnaround of our wind business is still our focus. To this end, we are taking steps to reduce complexity and create a more focused business,” said Siemens Energy chief executive Christian Bruch.

Shares in the company, which was spun out from its namesake Siemens, the German engineering giant in 2020, had risen 13 per cent by early afternoon, almost erasing their losses over the past year. Siemens still owns a quarter of the company. 

The group’s robust quarterly results were mainly driven by the performance of its Grid Technologies and Transformation of Industry divisions, but the company said it expects Gamesa to be a major driver of revenue growth in the second half of its financial year.

Gamesa will adopt a more streamlined approach in the future. The company has previously said it hopes to make €400mn of cost cuts at the division, and claimed the restructuring announced on Wednesday was the first “concrete step” towards achieving them. 

“We will not defend each and every market,” Bruch said. 

The company’s turbine business will focus on Europe and the US from now on, it said, with production capacity due to be ramped up at key sites in Denmark, France and Germany. 

Bruch praised outgoing Gamesa chief Jochen Eickholt, who only took over in March 2022, and was not responsible for the problems with the company’s turbines. The division required a “generational change”, Bruch said. 

Siemens Gamesa’s challenges come as the wider wind industry has been under pressure due to rising interest rates and supply chain strains pushing up costs. 

Demand nevertheless remains high. A record 117 gigawatts of new capacity was installed last year, according to a recent report by the Global Wind Energy Council trade group.