TheChek News Flow

Slow, steady and humdrum is having its day in the sun

There is nothing dull about being a corporate lender these days. The loans business is migrating away from the beleaguered banking sector. Long-dated insurance premiums are becoming the funding of choice. The shift is sufficiently seismic that once overlooked credit firms are now the subject of bidding wars.

Legacy capital managers do not want to be caught flat-footed. Take Blue Owl Capital’s recent acquisition of Kuvare Asset Management for $750mn, which eventually could reach $1bn. It is a serious price for an asset manager that is only a decade old and manages $20bn. Blue Owl itself manages $165bn for a juicy market capitalisation of just above $20bn. But Kuvare has established itself as a canny specialist in the bespoke assets that life insurers invest in. 

Kuvare joins a growing trend. A few weeks earlier, Japan’s Dai-ichi Life Holdings took a stake in Canyon Capital, a $20bn credit manager that made its name as a distressed and opportunistic debt expert. Within a few years, Dai-ichi will have the chance to acquire all of Canyon. Last year, private equity stalwart TPG attempted to jump on the insurance bandwagon by acquiring the credit specialist Angelo Gordon for $2.7bn.

For acquirers, the payoff remains uncertain. But debt markets present a bigger opportunity than equity markets and insurance has proved to be a reliable source of fee-paying permanent capital. For the limited universe of targets, this is the moment to cash in.

The Blue Owl deal is a little trickier than meets the eye. Apart from the investment manager, Kuvare also sells annuities. Blue Owl will make a separate $250mn injection into that annuities vehicle.

It is worth the extra effort. Blue Owl already has a large credit business, but it largely focuses on debt for large technology leveraged buyouts. Kuvare, on the other hand, targets investment grade instruments in private markets or securitised bonds. These should offer extra returns for holding complexity or illiquidity without adding credit risk. Blue Owl will make money by keeping the higher spread between payouts to policyholders and investment returns.

There is a philosophical debate to be had over whether insurers and related-party asset managers’ integration raises principal/agent conflicts. Those thorny questions have been left for buyers like Blue Owl to sort out.

When they were founded, the likes of Kuvare, Canyon and Angelo Gordon did not occupy the most glamorous corners of Wall Street. Slow, steady and humdrum is having its day in the sun.

The family-owned Spanish beauty and fashion company intends to apply for admission of the shares to the listing on the Barcelona, Madrid, Bilbao and Valencia Stock Exchanges.

PARIS — Puig intends to float on the Spanish Stock Exchanges, as the group looks to raise 2.5 billion euros and ends months of swirling speculation about whether it would go public.

The family-owned company said Monday it plans to apply for admission of class B shares to the Barcelona, Madrid, Bilbao and Valencia Stock Exchanges and trading through the Automated Quotation System. The timing of the IPO was not disclosed.

Buoyant equity markets and promise of mitigating interest rates are helping drive interest in IPOs around the globe. In the beauty space, Galderma and Douglas floated in Europe last month.

Puig’s offering will have a primary tranche of new shares targeting an equity raise of about 1.25 billion euros.

A larger, secondary offering of shares is then to be made by Puig SL, the group’s controlling shareholder that’s controlled by Exea, the Puig family’s holding. Following the offering, the Puig family will retain a majority stake and the vast majority of voting rights in the company Puig.

The group said it will use the proceeds from the equity raise to finance the acquisitions of additional interest in Byredo and Charlotte Tilbury, and to finance other investments and capital expenditures.

The Puig family has been the sole owner of the company Puig since its start in 1914.

“Today’s announcement is a decisive step in Puig’s 110-year history,” said Marc Puig, chairman and chief executive officer of Puig, in a statement. “Thanks to our strategy of building up a portfolio of owned brands, focusing on prestige products, and expanding our leadership in niche fragrances, makeup and dermocosmetics, Puig has consistently delivered strong profitable growth.

“Our unique and creative DNA has allowed us to attract leading founders and brands, establishing longterm partnerships and helping them grow while preserving their legacy,” he continued. “We strongly believe that building premium brands requires long-term thinking and having a family behind a company fosters this long-term approach, because they tend to care in equal measure about the time horizon of the next generation and the next quarter.

“At the same time, it is important for any family business to have the right checks and balances in place, particularly during generational transitions,” Puig said.

He has said in the past that the third generation of Puig family members, of which he is a part, would be the last to be operationally involved in the running of the company.

“We believe that the balance of being a family-owned company that is also subject to market accountability will allow us to better compete in the international beauty market during the next phase of the company’s development,” Puig said in the statement. “Additionally, we believe that becoming a publicly listed company will align our corporate structure with those of best-in-class, family-owned companies in the premium beauty sector globally, help us to attract and retain talent and support the growth strategy of our brands and portfolio.”

Barcelona-based Puig operates across 32 countries with 17 brands. The largest of those sales-wise are Rabanne, Charlotte Tilbury and Carolina Herrera.

Over the past few years, Puig redefined its strategy, focusing on a few core pillars. One focus has been on prestige, with Puig consolidating its businesses in the higher-margin, premium beauty arena. The group has also prioritized its own brands. Ninety-five percent of company net revenues last year, which reached 4.304 billion euros, came from its fully- or majority-owned brands.

Puig has also built a portfolio of niche fragrance brands, which are part of the fastest-growing category in the hot perfume market today. Those include Penhaligon’s, L’Artisan Parfumeur, Dries Van Noten and Byredo.

In beauty, Puig has broadened its focus from perfume into makeup and skin care. In the color cosmetics category, Puig acquired Charlotte Tilbury and launched makeup for Christian Louboutin and Rabanne. In the skin care segment, Puig acquired Dr. Barbara Sturm, which will be added to the portfolio including Uriage, Apiita, Kama Ayurveda and Loto del Sur.

Puig’s net sales rose 19 percent in 2023 versus 2022. The company’s net profit increased 16 percent on-year to 465 million euros in the period.

Atos will receive $489 million in financing to maintain operations as it aims to strike a deal with creditors on a new capital structure by July

Atos ATO -12.30%decrease; red down pointing triangle said it reached an agreement in principle with a group of banks, bondholders and the French State for much-needed liquidity until the troubled French IT company strikes a definitive agreement with creditors to trim its debt pile and restore profitability.

The group said Tuesday that it would receive 450 million euros ($488.8 million) in financing to keep operations going while it aims to strike a deal with creditors on a new capital structure by July.

Atos needs EUR600 million to fund the business over the 2024-25 period, a sum it is hoping to raise through debt and equity. The company is also seeking EUR300 million in credit facilities and EUR300 million in bank guarantees, for a total injection of EUR1.2 billion.

The group said existing stakeholders and third-party investors can submit proposals by April 26, though it cautioned that a new agreement would most likely dilute their current shareholding in the company.

The announcement comes two days after Onepoint, a consulting firm that commands a 11.4% stake and voting rights in Atos, said that Paris-based investment company Butler Industries was joining it in a consortium to rescue Atos from a net debt pile of EUR2.23 billion, a sizeable amount for a company with roughly EUR257.3 million in market value.

Onepoint said the consortium would present a plan to Atos’s board of directors by the end of April aimed at restructuring its debt while preserving all of its assets and restoring profitability.

Atos shares jumped more than 6% when the Paris stock exchange opened, but quickly changed course and were down more than 5% within the first half hour of trading. The stock is down almost 70% since the year began.

Atos has been through a tumultuous few years. It lost several executives after a failed takeover attempt in 2021 and issued a number of profit warnings that dented investor confidence. The group ended 2023 with a net loss of EUR3.44 billion after booking impairment charges and reorganization expenses.

The company had sought to raise funds by selling some of its assets in recent months, but talks with investors fell through. Atos had been in discussions to sell its big data and security unit to Airbus for up to EUR1.8 billion. It also held separate talks to sell its Tech Foundations business to an investment company steered by Czech billionaire Daniel Kretinsky for EUR2 billion.

At the time, Atos said it was looking at alternatives that would take into consideration “the sovereign imperatives of the French state.” Some French lawmakers have sought to nationalize the embattled group.

Atos’s operations span high-performance computing, IT management, service and maintenance, cloud and cybersecurity, including for governments, homeland security and defense clients. The company manages some IT services for the Paris Olympics this summer.

Now, the company is seeking to restore profitability and improve its credit profile, hoping to regain a BB credit rating profile by 2026. In February, S&P Global lowered its ratings on Atos for the third time in less than a year, saying the group could face challenges or delays in addressing its liquidity shortage.

This year, Atos is expecting revenue of roughly EUR9.9 billion, down 1.9% from 2023, with an operating margin of 4.3%. By the end of 2027, the group is forecasting revenue of EUR11.42 billion and an operating margin of 10.3%.

Tech giant develops new chips to cut reliance on outside vendors as the AI arms race intensifies

Google is making more of its own chips, rolling out new hardware that can handle everything from YouTube advertising to big data analysis as the company tries to combat rising artificial-intelligence costs.

The new chip, called Axion, adds to Google’s efforts stretching back more than a decade to develop new computing resources, beginning with specialized chips used for AI work. Google has leaned into that strategy since the late 2022 release of ChatGPT kicked off an arms race that has threatened its dominant position as a gateway to the internet.

The chip efforts promise to reduce Google’s reliance on outside vendors and bring it into competition with longtime partners such as Intel and Nvidia NVDA -3.83%decrease; red down pointing triangle, analysts said. Google officials said they didn’t view it as a competition.

“I see this as a basis for growing the size of the pie,” said Amin Vahdat, the Google vice president overseeing the company’s in-house chip operations.

Google’s larger competitors in the cloud, Amazon.com and Microsoft, have also poured money into making their own chips as the AI boom has intensified demand for computing resources.

Google owed much of its early success to an investment in the chips necessary to fuel the company’s web search algorithm. That often meant piecing together cheap, commercially available hardware in novel ways.

The boom in AI and its need for vastly more computing resources has pushed Google further in the direction of custom solutions. It has credited specialized AI chips it built, known as tensor processing units, or TPUs, with helping save money on services that make heavy use of AI.

Google has worked closely with semiconductor company Broadcom since 2016 to produce bespoke hardware.

Broadcom’s custom-chip division had a surge in business after Google rapidly increased production of TPUs recently, Chief Executive Hock Tan said during a March internal presentation. The increase, he said, was partly in response to Microsoft incorporating AI features into its Bing search engine, going directly after Google’s core business.

“They bought a ton,” Tan said, according to a recording viewed by The Wall Street Journal. “They sure did.”

The Broadcom division’s operating profit of more than $1 billion in a single recent quarter came mostly from Google’s business, Tan said. Broadcom didn’t respond to a request for comment.

Google Chief Financial Officer Ruth Porat told investors in January to expect notably larger spending on technical infrastructure such as AI chips this year. Parent company Alphabet’s GOOGL 0.84%increase; green up pointing triangle fourth-quarter capital expenditures rose by almost half to $11 billion from a year earlier.

Known as central processing units, or CPUs, Axion chips are suitable for a range of tasks including powering Google’s search engine and AI-related work. They can play an important supporting role in AI by helping to process large amounts of data and handling the deployment of the services to billions of users, Google officials said.

Axion is based on circuitry from the British chip-design firm Arm, making Google the third big tech company after Amazon and Microsoft to use that framework for a data center CPU. The shift has supplanted an old status quo where big operators of server farms bought their CPUs almost exclusively from Intel and Advanced Micro Devices.

Google has resisted selling chips directly to customers to install in their own data centers. The move would push the company more directly into competition with Intel and Nvidia, the biggest winner of the AI boom so far with more than 80% of the market for chips used to develop and serve the technology.

“Becoming a great hardware company is very different from becoming a great cloud company or a great organizer of the world’s information,” Google’s Vahdat said.

Google has chosen instead to rent custom chips to cloud customers. It said the Axion chips will become accessible to external customers later this year, and the latest generation of its TPUs was now widely available.

In November, Google said it successfully connected more than 50,000 TPUs to build AI systems, what it called the largest effort of its kind. Google created Gemini using TPUs and will exclusively use the chips for processing user queries.

The company’s growing cloud business has required balancing the competing demands of internal teams and demand from AI startups such as Anthropic, a situation made more difficult by widespread supply constraints.

Some teams inside Google have been told they won’t get any additional computing resources this year, partly because of growing demand for AI services, people familiar with the matter said.

Vahdat said Google prioritizes the fastest-growing products and services when deciding which areas should get more computing resources.

Google’s in-house chip efforts began with a 2013 breakthrough in voice-recognition technology.

Jeff Dean, a longtime engineering leader, told the systems infrastructure division that Google would need to roughly double the number of chips held in its data centers if the tech became widely used. “That was really the first taste of this impending issue,” he said.

When Google designed the first version of the TPU a few years later, Dean lobbied executives to purchase more than the company originally budgeted. Researchers later used them to create a software system called Transformers that became the basis for generative AI products such as ChatGPT.

Google has had mixed success opening access to outside customers. While Google has signed up prominent startups including chatbot maker Character and image-generation business Midjourney, some developers have found it difficult to build software for the chips.

Google said it has worked with Nvidia and other tech companies on a software project, OpenXLA, aiming to make it easier to develop AI systems across different chip types.

Anthropic, one of the largest users of TPUs, in September began moving some AI needs to custom chips developed by Amazon after the cloud giant agreed to invest up to $4 billion. Google later committed $2 billion in funding to Anthropic and said it had expanded its partnership with the startup.

AssemblyAI, a startup working on speech-to-text products, built the latest version of its technology on TPUs after encountering issues securing GPUs early last year, said CEO Dylan Fox. “From an availability perspective, we’ve been really happy,” he said.

The new Axion processors improve performance by up to 30% compared with the fastest similar Arm-based chips available in the cloud, according to Google’s internal data. It said customers including Snap were planning to test the new hardware.

Google’s investment in Axion would be worth it if the company achieved only half of its claimed performance improvements, said Forrester principal analyst Mike Gualtieri. It still faces intense competition from the other large cloud companies for new business, he said.

“This is going to be like any other set of web services that these hyperscalers offer,” Gualtieri said. “It’s going to be sort of tit-for-tat back and forth.”

Investigation uses new powers to protect European companies from state-backed foreign rivals

Brussels has launched a subsidy investigation into Chinese wind turbine companies as it steps up efforts to protect its domestic industry from cheap competition.

Margrethe Vestager, the EU’s top competition enforcer, said the probe would examine whether Chinese companies participating in wind parks across Europe may have benefited from state support from Beijing. 

The investigation will use the European Commission’s new powers designed to clamp down on market-distorting subsidies from foreign governments as Brussels seeks to defend itself from unfair competition from abroad, including Beijing.

Investigators will examine “the conditions for the development of wind parks in Spain, Greece, France, Romania and Bulgaria”, Vestager said.

The probe comes days after the commission launched investigations into two consortiums bidding for the development of a solar park in Romania, which include Chinese solar panel manufacturers.

In February the commission launched a similar probe into Chinese state-owned company CRRC’s bid to supply trains in Bulgaria, which was half the price of a European competitor. CRRC later withdrew from the process.

In a speech at Princeton University, Vestager said Brussels should move away from playing “whack-a-mole” with individual cases and instead use its full powers to defend its interest against unfair trade practices by China.

“We saw the playbook for how China came to dominate the solar panel industry,” she said. “First, attracting foreign investment into its large domestic market, usually requiring joint ventures.”

“Second, acquiring the technology, and not always above board,” she added. “Third, granting massive subsidies for domestic suppliers, while simultaneously and progressively closing the domestic market to foreign businesses. And fourth, exporting excess capacity to the rest of the world at low prices.”

Vestager said that as a result, less than 3 per cent of the solar panels installed in the EU were produced in the continent. Several manufacturing plants have closed in recent months, saying they cannot compete with Chinese imports.

China’s exports of green technology have ballooned in recent months as it opens factories. A surge in imports of electric vehicles prompted the commission to open an anti-subsidy investigation last year, which should conclude in July and could lead to tariffs.

Chinese officials claim their products are simply better.

Peng Gang, minister for economic and trade affairs at the Chinese embassy in Brussels, wrote on Monday that EU-China collaboration was a “win-win”.

He noted that some in Europe had attributed the success of Chinese companies to subsidies — while the EU was at the same time offering large subsidies to companies that were struggling to be competitive.

“The secrets behind Chinese products going global have never been the so-called subsidies, but diligence, innovation and competitive awareness of generations of Chinese entrepreneurs,” he said.

Ben van Beurden says valuation gap with US-listed companies is a ‘major issue’

The former head of Shell has said the oil major is “massively undervalued” in London and may benefit from switching its listing to the US, in another blow to sentiment surrounding the UK stock market.

Ben van Beurden, who oversaw Shell’s move from The Hague to London in 2022 and the removal of its dual-class share structure, said the company’s board had previously decided that a move to the US was “a bridge too far”.

But he told the Financial Times on Tuesday that US-listed oil companies benefited from a deeper pool of capital, higher valuations and “more positive” attitudes from investors.

“All these factors conspire against the [companies] listed in Europe. And I think increasingly that will be a problem. Something will have to give,” he said, in his first public interview since leaving Shell. “The company is massively undervalued . . . the share price today is at an all-time high, but it could be significantly higher from where it is today.”

Van Beurden’s comments, at the FT Commodities Summit in Lausanne, will add to fears that London’s most valuable listed company could eventually leave the UK stock exchange. It comes after the FT revealed last year that the oil major had discussed the merits of moving to the US, before ultimately deciding to consolidate its base and stock market listing in London.

The UK’s equity market has recently been dealt a series of high-profile blows as companies including building materials group CRH and packaging company Smurfit Kappa have decamped to New York.

Wael Sawan, Shell’s current chief executive, expressed his own concerns about the London stock market in an interview published by Bloomberg on Monday. “I have a location that clearly seems to be undervalued,” he said. Sawan pledged to close the gap by cutting costs but added that if that did not work “we have to look at all options. All options.”

Van Beurden said the valuation discount between European and US-listed companies had “existed for a long time, and it will take a long time, maybe forever, to resolve”.

He also defended his successor’s decision to downgrade some of the company’s energy transition targets this year, saying the world had changed since he set the goals almost a decade ago and Sawan was right to be honest about the company’s progress.

“If you see things that can’t work, you have to adjust your strategies and your targets as well,” he said.

“[Sawan said] it’s an honest approach and I think he is absolutely right. To just waffle and bullshit that this is all happening while it isn’t would not be correct. I completely understand what he did, and I would completely support it.”

He added that when Shell introduced its climate targets in 2016, “we were right at the time, but a lot of things have changed since”.

Van Beurden said he felt in 2016 that the chances of an orderly transition to net zero “were actually pretty high”, but now believed it “very unlikely”, adding that the journey would “definitely” be bumpy and there was a possibility the energy transition would “completely derail”.

“I think the whole sentiment has changed and therefore we have to recalibrate,” he said.

Van Beurden called his last three years at Shell, marked by the coronavirus crisis and outbreak of war in Ukraine, a “very difficult period to work through”, saying the company made its decision to leave Russia, triggering a $4.2bn writedown, “in the weekend after the invasion”.

Bernard Looney, then chief executive of BP, called him on Sunday night to inform him that BP was leaving, van Beurden said. “In principle, [on] Sunday night, we had decided we should leave as well. And [on] Monday morning we formalised with the board.

“We took all the measures, spoke to governments and announced it close of business on the Monday,” he added.

Weak stock performance shows pace of growth has been much too fast

Europe and China’s battle over the solar industry has been going on for two decades. Chinese solar-panel makers are winning with an unassailable lead: they now account for 80 per cent of global production capacity. But the cost of that victory is now looking too high.

China dominates the solar panel sector’s entire supply chain. Prices, which are nearly two-thirds lower than US counterparts, have helped it to win market share.

Every year, this price gap widens. There was another 40 per cent price cut in 2023. China’s dominance has come from years of investment. It ploughed over $130bn into the solar industry last year — into production capacity increases. Chinese makers are able to build over 860 gigawatts of solar modules annually.

The biggest advantage Chinese companies have is scale. Due to the sheer size of the domestic market — which added a record 217 gigawatts of solar last year — companies invested heavily in larger scale manufacturing and automation. That is paying off today.

Another 600 gigawatts of annual capacity is expected to start operations this year. That would be enough to cover the world’s total demand through 2032, according to energy research group Wood Mackenzie.

Clearly, the fact that there is now more than enough affordable supply of solar products is good news for the environment and global efforts to shift to cleaner forms of energy production. China was the main driving force behind the 50 per cent increase in global renewable electricity generation capacity last year.

But the problem is the pace of growth has been much too fast. Even its vast domestic market cannot soak up that excess capacity. The weak stock performance of Chinese solar cell manufacturers reflects that mismatch. Longi Green Energy Technology, JA Solar Technology and Trina Solar are down more than 50 per cent in the past year. Longi, China’s largest business in the sector which has grown to become the world’s second most valuable solar energy group, trades at 18 times forward earnings. That is less than half the valuation of smaller US peers. Operating margins have halved over the past four years.

The European Commission has started probes into bids by Chinese firms for projects in the region. The EU’s solar industry has blamed a flood of Chinese imports for losses and plant closures by several European panel makers. With that market looking increasingly unlikely to provide the growth Chinese makers need, the forecast looks decidedly cloudy.

GQG Partners says pharma group has performed strongly under the chief executive

AstraZeneca’s chief executive Pascal Soriot is “massively underpaid” and deserves a proposed £1.8mn pay rise, according to one of the drugmaker’s top shareholders.

The British pharmaceutical company is preparing for a vote on its long-serving leader’s pay at the annual meeting on Thursday, including a rise that would take his package to a maximum of £18.7mn. Influential shareholder advisers Glass Lewis and ISS have recommended investors vote against the company pay policy.

But Rajiv Jain, chief investment officer of Florida-based GQG Partners, said Soriot had more than earned the additional pay because of the company’s strong performance.

“There is a compensation issue at AstraZeneca,” Jain, a top-20 shareholder, told the Financial Times. “The CEO is massively underpaid . . . given AstraZeneca’s impressive turnaround since he joined more than a decade ago.”

The defence of Soriot’s pay raises the prospect of a split among key shareholders as they vote on a new deal. Norges Bank Investment Management, which runs Norway’s sovereign wealth fund and is a top-10 shareholder, has also disclosed that it will vote in favour of increasing Soriot’s pay.

Glass Lewis branded increases to Soriot’s performance-linked pay package “excessive”. Soriot is already among the highest paid bosses in the FTSE with a £16.9mn deal in 2023, and takes home more than the chief executives of European pharmaceutical rivals.

Lars Fruergaard Jørgensen, chief executive of Novo Nordisk, Europe’s largest pharma group by market capitalisation, was paid DKr68mn (£7.8mn) last year. Emma Walmsley, chief executive of AstraZeneca’s British rival GSK, earned £12.7mn in 2023.

Under the new plan, Soriot could earn annual incentive payments based on long-term performance worth up to 850 per cent of his almost £1.5mn base salary.

This compares with the maximum of 650 per cent under an existing policy set in 2021. He would also be in line for a bonus worth up to 300 per cent of his base salary, compared with 250 per cent at present.

AstraZeneca makes 40 per cent of its sales in the US, like many European pharmaceutical companies, and it has sought to justify the increases by comparing Soriot’s pay with US pharma bosses. Chief executives at AbbVie, Eli Lilly, and Johnson & Johnson all earned more than Soriot in 2023.

The controversy over Soriot’s pay also comes as the UK seeks to encourage more companies to remain listed in London amid a global battle for talent.

Other FTSE 100 companies, including the London Stock Exchange Group, are seeking shareholder backing to increase pay for UK executives by benchmarking them against US peers. Meanwhile, medical devices company Smith & Nephew wants to increase pay for its US executives to bring it closer to American levels.

Soriot’s new pay deal comes after the company hit a $45bn sales target in 2023 that the chief executive had set in 2014, when the company fended off a takeover bid from US rival Pfizer.

Pointing to increases in AstraZeneca’s research and development budget under Soriot, the successful launch of many blockbuster drugs and the expansion of the business into rare diseases, vaccines and immunology, Jain said: “I’d argue he should be paid more, not less . . . we have no issue with a CEO receiving proper compensation when [they are] delivering results.”

Soriot’s pay package has proved a lightning rod for investors in the past. In 2021 — the last time the long-term incentives policy was reviewed — almost 40 per cent of votes were cast against it, and Glass Lewis and ISS also opposed the plan.

AstraZeneca’s chair Michel Demaré told the FT last year that the company was prepared to endure “major criticism” over his pay package in order to keep hold of Soriot.

Commenting on the latest plan, Glass Lewis said there was an “absence of compelling evidence that the CEO has been materially underpaid relative to peers in recent years”.

AstraZeneca said: “The new policy reflects the need to be competitive in the global market for talent and our compensation is structured to reward performance.” The company added that its shareholder returns in recent years had outpaced peers in Europe and globally.