TheChek News Flow

Elon’s Musk xAI is close to having billions of dollars more in its coffers to make its chatbot Grok a more fearsome competitor to OpenAI’s ChatGPT.

Musk’s year-old startup is raising $6 billion at a valuation of $18 billion not including the investment, according to two people close to the deal. Sequoia Capital is one of the investors participating in the xAI round, according to one of the people, and it’s expected to close in the next two weeks, said the second. The round represents one of the largest single hauls among the startups competing to develop technology that writes, talks and creates art like humans, a category that includes OpenAI and Anthropic.

The Takeaway

• xAI is raising $6 billion at a valuation of $18 billion

• Sequoia is one of the investors

• The new money will help xAI develop its chatbot Grok

The new round is double the size of the funding figures xAI was discussing with investors earlier this year. The round’s backer and timing haven’t been previously reported. The Wall Street Journal and Financial Times previously reported on the funding talks.

The new investment adds to xAI’s warchest. In December, the company disclosed plans to raise $1 billion in a separate round primarily backed by Musk, people close to the company previously said.

Musk launched xAI in early 2023, and it released its chatbot Grok to premium subscribers on Musk’s social network X in December. The company is currently training the second generation of Grok on 20,000 Nvidia H100s, the chips that the most advanced AI models operate on, according to Musk. He said on Twitter Spaces this month that they ultimately need 100,000 GPUs to train Grok 3.0. xAI has also been focused on hiring engineers, poaching several top engineers from Tesla over the past few months, as The Information previously reported.

The new funding also shows that investors are willing to spread their bets among competitors in the sector, where valuations have skyrocketed. Sequoia Capital, for instance, started investing in OpenAI in 2021 and bought shares at a $20 billion valuation, but didn’t invest in the latest $86 billion tender offer, which valued the company at about 54 times its annualized revenue as of December. Sequoia is also an investor in Musk’s SpaceX and helped finance Musk’s $44 billion buyout of Twitter, now called X.

It’s not clear which other investors are participating in the latest xAI round. In the past, Valor Equity Partners and Vy Capital have been among those that backed Musk’s ventures. Valor, led by Antonio Gracias, was one of the first investors into Tesla and SpaceX, and Vy Capital invested in Musk’s Twitter purchase.

Quarterly sales at the two groups and market leader LVMH show the winning brands are those targeting the very wealthy

The fortunes of three of the world’s biggest luxury groups are diverging as the sector navigates an industry-wide transition to a lower growth phase and more challenging conditions in the critical Chinese market.

French groups Hermès, LVMH and Kering have delivered widely different sales growth in the first quarter, in a test of the sector’s resilience following years of rapid expansion and margin gains during the pandemic. This reflects in part the clientele they serve, with companies orientated towards the wealthiest customers faring better.

High-end Hermès, maker of the coveted Birkin bag, smashed analysts’ expectations with a 17 per cent revenue growth on a like-for-like basis in the first three months of the year. This is despite the high basis of quarterly comparison from a year ago, when China emerged from zero-Covid lockdowns.

LVMH, the world’s biggest luxury company with a complex business spanning fashion house Christian Dior to hotels and vineyards, ticked up 3 per cent as demand for its fashion and handbags softened and champagne sales fell.

At Kering, customer disaffection for Gucci, the group’s biggest brand accounting for half of consolidated sales and two-thirds of profits — led the company to warn profits would fall as much as 45 per cent in the first half of the year. Gucci sales contracted 18 per cent, dragged down by China.

“You are disappointed, you are frustrated, have no doubt that I am as well,” Kering’s billionaire chief executive François-Henri Pinault told shareholders at the group’s annual meeting on Thursday.

Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email licensing@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found at https://www.ft.com/tour.

https://www.ft.com/content/e1bf5e73-dbc3-41e7-a7bd-70f2d69a5df4

“The first quarter luxury reporting season flagged a widening divergence between the well-off and the aspirational shoppers, and a likely weakening shape to sales in recent weeks,” said James Grzinic, analyst at Jefferies. 

He added: “The dislocation in commercial and share price performance between winners and losers has rarely been this wide . . .[and] it is in Asia-Pacific that the divergence between aspirational and wealthy customers seems even more marked in recent months.”

In general however, Kering is the odd one out, with analysts expecting continued growth, not a contraction, throughout the sector.

Commenting on LVMH’s earnings, Bernstein’s Luca Solca said: “Positive growth in the first quarter — as compared with fears of negative growth as recently as January — is a material and meaningful step towards a 2024 soft landing scenario for LVMH and the sector at large.”

Smaller luxury groups including high-end Brunello Cucinelli, arty Prada and sports performance-orientated Moncler all grew sales in the mid-to-high teens.

However sales at Kering are expected to continue to trend downwards for the rest of the year given the poor visibility on how the new creative director’s collections will fare, said Carole Madjo, analyst at Barclays.

“In a sector driven by market polarisation, Kering management also mentioned that Gucci is not in a sweet spot as it is [neither] high-end enough and [also] not aspirational, which is not reassuring,” she said.

Hermès shares are up 22 per cent so far this year, LVMH is up 9 per cent and Kering has fallen 9 per cent in the same period. At Hermès, the forward price-to-earnings ratio over the next year based on projected earnings is 51, according to data from Eikon. That compares with 24 times at LVMH, and 16 at Kering.

How brands are navigating the more restrained mood among Chinese shoppers, particularly aspirational ones, is being closely watched by investors worried about the outlook for a market that drove luxury growth for much of the past decade.

Hermès managed to grow in the mid-teens in what is now the world’s second-largest market for luxury goods. But it noted that traffic softened in March, with strong demand from wealthy clients offsetting fewer visits from aspirational clients who tend to purchase lower-priced silk scarves and accessories.

At LVMH, considered the bellwether of the industry, sales in Asia outside Japan — dominated by greater China — dropped 6 per cent, indicating some weakness too. However, chief financial officer Jean-Jacques Guiony said revenues from Chinese customers buying globally increased 10 per cent, reflecting higher rates of tourism among wealthy clients travelling to destinations such as Japan to shop.

“The Chinese clientele, whether in China or not, has progressed. I think this is a trend that will continue [and] I think China will succeed in reviving the economy,” said LVMH’s billionaire chief executive Bernard Arnault.

Event details and information

Business of Luxury

Chief executive Patrick Pouyanné says US investors back the group’s prospects and strategy

The chief executive of TotalEnergies has said the French oil major could move its primary listing from Paris to New York as US investors were more positive about the company and supportive of its fossil fuel strategy.

Patrick Pouyanné, Total’s boss for the past decade, has previously complained to investors behind closed doors that the company’s European listing was a drag on its valuation versus US peers, echoing similar complaints by Shell.

On Friday, he said publicly that the 100-year-old French group, which was founded by the state and is the biggest energy group in Paris’s blue-chip Cac 40 index, was seriously considering a move. He has previously dismissed the idea as politically difficult even if Total is no longer state-owned.

“There was a discussion with the board on the matter of a US listing, we all agree that we have to seriously look at it,” Pouyanné told analysts. “We have more and more US shareholders, thinking of having a clear listing in New York is obviously a move which the board asked me to look at.” He added that he would report back to the board by September.

He also clarified that the company’s headquarters would remain in Paris.

US investors now make up nearly half of Total’s shareholder base, up from a third 10 years ago. “It’s clear that in the energy and the oil and gas field, US shareholders are buying the shares and European shareholders are not buying in the same way,” Pouyanné said.

At Total, he has maintained a strategy of pursuing profitable oil projects while shifting more into gas as the company’s core fossil fuel. The proceeds from these two businesses have also been used to invest in renewable energy.

But the group has faced criticism from some shareholders who argue it is not moving fast enough in its transition to cleaner energy. It also came under political pressure to support customers with fuel price cuts, after energy costs shot up in the aftermath of Russia’s full-scale invasion of Ukraine.

Pouyanné’s public discussion of a listing move comes after the French government floated the idea of taxing gains from share buybacks.

Total, which posted a slightly better than expected 22 per cent drop in adjusted first-quarter net profit to $5.1bn on Friday on tumbling gas prices, said it would launch a $2bn buyback programme in the second quarter.

Its board also backed Pouyanné to stay on as joint chair and chief executive, after a coalition of shareholders called for a non-binding vote on splitting the roles at the company’s shareholder meeting in May. The board rejected the motion, Total said.

In London, Shell has expressed similar frustration with valuations and in 2021 it explored moving its listing to New York. At that time the Anglo-Dutch group decided instead to consolidate its listing in London.

Gapping up
In reaction to earnings/guidance:

Other news:

Analyst comments:

Sports streaming group accuses DFL of ‘unlawful behaviour’ after losing out to Sky

DAZN, the sports streaming group backed by billionaire Len Blavatnik, has threatened legal action against the German Football League after losing out in the auction for the rights to show the country’s best matches.

The German Football League (DFL) has been forced to suspend the auction process for the Bundesliga’s domestic television rights after DAZN claimed that it had unlawfully awarded the deal for the largest bundle of games to rival Sky. 

In a letter to the co-head of the football league sent on Thursday, DAZN said it would file a statement of claim in an arbitration tribunal to challenge the decision next week unless a solution could be reached.

The letter, which has been seen by the Financial Times, said that it was “determined to take legal action — if necessary before state courts — in order to achieve a correction of the unlawful behaviour of DFL”. 

The legal process will start with arbitration, according to one person familiar with the situation, but could continue in German civil courts. DAZN has until Tuesday to legally challenge the outcome of the auction. 

The DFL declined to comment on DAZN’s letter, and pointed to its previous statements on the matter, in which it stated that the process had been conducted “in accordance with the auction rules known to all interested companies”. 

“The DFL has not made any errors in the procedure regarding the current auction process. DAZN’s allegations are inaccurate and are rejected by the DFL,” the German league said.

DAZN believes that it had bid a higher amount than Sky in the auction this month for the rights to show a package of 196 matches each season, including many of those on Saturday afternoons and Friday nights.

DAZN declined to comment on the contents of the letter but told the FT: “The course of action the DFL leadership is pursuing is not in the best interests of the Bundesliga, the clubs and their fans. DAZN believes that how this decision was reached needs to be held to account with the outcome changed or the process rerun. We will determinedly, using all legal avenues, see that it is.”

Under the auction rules, a bidder can be awarded the package if its offer met the league’s minimum requirement and is at least 20 per cent higher than the next highest bid.

The DAZN letter says that “according to our understanding, DAZN’s bid for rights package B was 20 per cent higher than Sky’s second-highest bid and above the reservation price defined by the DFL”.

DAZN also claims that the DFL failed to give the company time to provide a requested bank guarantee. It said that “apparently, no bank guarantee was offered by Sky . . . this is further evidence that the decision of the management was unlawfully pre-determined to DAZN’s significant financial and reputational detriment”.

DAZN said that it had then obtained the bank guarantee “within a few working days”.

Any legal action could take several years to conclude, according to a person close to the process. This could threaten coverage of the league’s games after next season as they cannot be shown without a rights deal in place.

In the letter, DAZN said that it was also considering withdrawing from the entire rights process, which would potentially remove any competitive tension to drive prices higher. 

DAZN currently shares the rights to show the Bundesliga with Sky, albeit with a smaller number of games. 

The DFL’s struggles, with just two bidders for the best matches, reflect a broader malaise in the rights for European football this year, with an auction to show French football also facing problems and a drop in the real amount paid per game for auctions in the UK and Italy. 

Concerns about broadcaster appetite prompted the DFL to court private equity investors, with a view to setting up its own streaming platform. However, that process was abandoned after widespread fan protests.

Sky declined to comment.

Deal is latest acquisition by ‘Czech Sphinx’ who is also seeking to buy Royal Mail’s parent company

Shares of Thyssenkrupp rose as much as 10 per cent after the German industrial conglomerate said Czech billionaire Daniel Křetínský would take a 20 per cent stake in its steel business.

The two parties are in talks about Křetínský’s EP Corporate Group taking a further 30 per cent stake, forming a joint venture, the group added on Friday.

Thyssenkrupp’s chief executive Miguel Lopez said the partnership would allow the steelmaker to invest more and “reduce the cost of decarbonisation” to “accelerate the green transformation of the steel industry”.

The German industrial giant, which was once the largest steel company in Germany, has been hit by the double punch of higher energy prices and lower demand for steel from carmakers. It is in the middle of a restructuring that involved selling off its lift business as well as its car parts and stainless steel operations. It said last month it was in advanced talks to sell a stake in its submarines division to US private equity group Carlyle.

Thyssenkrupp is also struggling to decarbonise its steel production as the cost of carbon credits that the industry needs to buy to offset emissions is set to rise further. The steel sector is responsible for about 7 per cent of global emissions.

Analysts at Citigroup said the move was “likely positive for the green steel transition”. They estimated that the equity value of Thyssenkrupp steel, excluding €3bn of pension commitments, was about €700mn.

“We believe that any cash coming in from the stake sale at the parent company level could be injected into the steel business. This should help ease the cash needs of the business, especially given the green steel capex needs,” they wrote in a note.

Křetínský has been one of Europe’s most prolific dealmakers over the past few years, criss-crossing France, Germany and the UK. The so-called “Czech Sphinx” owns 50 per cent of Germany’s Metro supermarket chain and is also in negotiations to buy International Distributions Services, the parent company of the UK’s Royal Mail.

Thyssenkrupp confirmed the deal would not have an impact on the talks to sell its submarine business to Carlyle and a German government-backed fund.

Lopez said the deal with Křetínský would “contribute to the continued presence of the steel industry in Germany” and would allow the company to avoid potential job cuts.

“The entire European steel sector will undergo a similar transformation to the energy sector. We pay great respect to Thyssenkrupp Steel as one of the traditional pillars of the German economy,” said Křetínský.