TheChek News Flow

Proposal made public by Choice Tuesday involves significant business and execution risk, Wyndham executives said

Wyndham Hotels & Resorts WH 10.38%increase; green up pointing triangle rejected an unsolicited $7.8 billion takeover offer from Choice Hotels CHH -4.54%decrease; red down pointing triangle International.

The stock-and-cash proposal, which Choice made public in a so-called bear hug letter Tuesday morning, undervalues Wyndham’s growth potential and involves significant business and execution risks, Wyndham executives told The Wall Street Journal. Wyndham’s board also has concerns over the value of Choice’s stock, they added. Choice’s offer includes 45% stock.

Any deal would carry an extended regulatory timeline given the U.S. government’s aggressive stance on antitrust, with an uncertain outcome that could result in potential franchisee churn and excessive leverage at the combined company, the executives added.

Choice said it made an initial bid for Wyndham in April, confirming a Wall Street Journal report in May. The companies have continued to hold talks privately since then.

Wyndham said that last month it held multiple conversations with its suitor to discuss its regulatory and execution concerns, but that Choice was unwilling to address them.

On Sept. 27, Wyndham said it told Choice it was rejecting the offer.

U.S. missiles were secretly deployed to Ukraine in recent days

Ukraine launched ATACMS missiles at Russian forces on Tuesday, marking the first time that the U.S.-provided weapons have been used in the conflict in Ukraine.

A small number of the missiles have been secretly sent to Ukraine in recent days, where they will augment Kyiv’s capability to carry out long-range strikes at Russian forces during an important stage of its counteroffensive, according to people familiar with the matter.

Ukraine has long sought ATACMS, a surface-to-surface missile that can strike well behind Russian lines and that can be fired by the Himars, or High Mobility Artillery Rocket System launchers, the U.S. has provided the country.

On Tuesday, the Ukrainian military’s communication department said on the Telegram messaging app that it “made well-aimed strikes on enemy airfields and helicopters near the temporarily occupied Luhansk and Berdyansk.”

The ATACMS models that were provided have a range of about 100 miles.

The U.S. decision to send the ATACMS, which stands for the Army Tactical Missile System, has been long in the making. Ukraine repeatedly said the missiles were essential to its war plan, giving it the range it needed to strike targets behind the front lines in Russian-held Ukrainian territory.

Ukraine’s Special Operations Forces said the attacks caused dozens of Russian casualties and destroyed nine Russian helicopters, an air defense launcher and an ammunition depot. It said the military struck the two airfields after receiving intelligence that Russia was using them as a major base for aircraft, military hardware and ammunition in the occupied territories.

Ukraine hasn’t officially confirmed the use of ATACMS. But in a speech posted to social media on Tuesday, Ukrainian President Volodymyr Zelensky hinted at the use of the new weapons provided to Ukraine.

“I thank those who are destroying at scale the logistics and bases of the occupiers of our land. We have results,” he said. “I thank certain partners of ours: effective weapons, just as we agreed.”

Yuriy Ihnat, the spokesman for Ukraine’s Air Force, said that long-range strikes against Russian air bases are a crucial part of Ukraine’s broader strategy of weakening Russian forces as Ukraine continues its counteroffensive.

Russian helicopters have menaced Kyiv’s forces that are trying to push forward in parts of the south and east, operating from a distance that makes them unreachable for most of the air defenses.

Ihnat said longer-range strikes against Russian air bases will force the Russian military to keep its choppers further from the front, easing the pressure on Ukrainian troops. As a result, Russian helicopters would need to fly further to reach the front lines, which would diminish their ability to apply firepower and give Ukrainian forces more time to track those flights.

The Hollywood actor says the Swiss timepiece maker’s eco-innovative practices are an exemplar for the watch industry

Hollywood actor and environmentalist Leonardo DiCaprio will today be announced as an investor in ID Genève, Switzerland’s first luxury watch company to be awarded “B Corp” certification. DiCaprio’s investment is part of a $2mn seed round for the brand, which rose to prominence by only using recycled as well as reused parts and materials in its watches, including steel melted using the sun’s rays and watch straps made from green waste.

DiCaprio’s investment in the brand goes against the grain. It is common practice for luxury Swiss watch companies to pay A-listers to wear their watches as “ambassadors”; but rarely do celebrities invest in watch brands. Among the closest exceptions are seven-time Grammy winner guitarist John Mayer, who has invested in the watch media company and retailer Hodinkee, and footballer Cristiano Ronaldo, who recently became a shareholder in Chrono24, a pre-owned watch marketplace. Bezel, another US-based online watch reseller, lists actor Kevin Hart and musician John Legend among its investors.

DiCaprio told the Financial Times he had invested in ID Genève because it was “disrupting the luxury watch industry” and “championing ethically sourced and recycled materials and low-carbon footprint processes in a circular economy”. While the exact value of the actor’s investment has not been declared, “several Swiss family offices” participated in ID Genève’s first round of financing, according to the company.

Earlier this month, ID Genève achieved its B Corp status — an independent certification awarded to companies demonstrating enhanced commitments to environmental and social goals.

The watch industry overall has been slow to adapt to growing consumer appetite for sustainable luxury goods. Nicolas Freudiger, who co-founded ID Genève in late 2020 and is the company’s chief executive, said he expected the mix of his brand’s approach, the market’s receptiveness to products with a low environmental impact and DiCaprio’s advocacy to catapult his business forward. “In every industry, at some point, there are inflection points where a new technology or new brand becomes more interesting than others,” he said.

Freudiger, 34, said the investment will be made through convertible notes — a form of debt that can be converted into equity at a later date. He said this would happen automatically in two years’ time and would be based on the company’s market valuation at that date.

He added the conversion to equity would coincide with a Series A investment round that would fund the “ID Lab”: an innovation hub where the company plans to develop circular material and manufacturing technologies. Freudiger said he wanted the lab to “mutualise resources and encourage collaboration within the industry to accelerate the transition [to circularity in watchmaking]”.

Damian Oettli, head of markets at WWF Switzerland and co-author of a 2018 report that was critical of the watch industry’s poor environmental standards, is supportive of ID Genève’s model. “We like ID Genève very much,” he said. “They’re doing a great job and have a holistic perspective on sustainability. They also have B Corp certification, a framework that’s quite progressive.”

ID Genève watches are currently available in Switzerland, the US and the UK, including in Watches of Switzerland stores, where they retail from £3,700. Freudiger said 80 per cent of the company’s sales were through its ecommerce site and he expected to end the year having sold about 600 watches. The company has six employees — including the other two co-founders, Cédric Mulhauser and Singal Moesch — and is in profit, according to Freudiger, who previously worked for Coca-Cola in Zurich.

He admitted that “$2mn is a small amount in the luxury watch industry”, but that, together with DiCaprio’s name, would provide his company with “the opportunity to build partnerships and to connect with like-minded people with impact in mind to disrupt an industry”.

Watches of Switzerland Group said it would welcome the imminent announcement. “As a primary retail partner of ID Genève, we’re delighted to hear of Leonardo DiCaprio’s ringing endorsement of this eco-innovative brand,” said Kesah Trowell, the group’s head of sustainability. “We’re confident his involvement and personal investment will shine a bright light on sustainable innovation within the watchmaking world and contribute to ID Genève’s long-term success.”

ID Genève’s low-carbon production initiatives include steel cases made from waste material collected from the watch industry that is melted in a solar furnace, using the sun’s rays. The company claims the carbon footprint of its “solar steel” is 165 times lower than in standard steel.

Its watch straps are made from green waste gathered in London’s parks, and it works with the UK-based companies Magical Mushroom and Notpla to produce compostable packaging derived from seaweed and mycelium, the material structure found in fungi. It also uses refurbished mechanical movements, sourced from unsold stock made available by undisclosed Swiss watchmakers.

ID Genève is not the only Swiss watch company pursuing sustainability strategies in some form. Breitling has pledged to replace its gold with fully traceable ethical gold by March 2025, while Panerai is one of a number of brands to replace heavy watch boxes with lower-impact packaging, and Oris has announced a programme of carbon reduction.

Meanwhile, members of the Watch & Jewellery Initiative 2030, co-founded by Cartier and luxury group Kering last year, have signed up to the UN’s Sustainable Development Goals, a set of 17 targets for 2030. Adopted in 2015, these range from eliminating hunger to achieving universal access to water and education. Chanel, Montblanc and Gucci Watches are among the initiative’s 53 member brands.

But DiCaprio said the industry should do more. “Sustainability should be a core value at any company,” he said. “ID Genève’s pioneering efforts in this space are something I hope other companies take note of and continue to grow over time.”

Tufan Erginbilgic must prevent costs from creeping back in to maintain share rally

Restructurings at Rolls-Royce are a bit like British trains. There are plenty of them but they do not always reach their destination. 

The failure of past turnarounds does not bother Tufan Erginbilgic. Nine months in as chief executive, he is going full steam. In his latest move, Rolls-Royce will cut up to 2,500 jobs, 6 per cent of its workforce. 

Markets have expected cost reductions. Its shares are up more than 115 per cent this year. To maintain this rally, Erginbilgic must prevent costs from creeping back in. Just as important, he must set out where future growth lies.

Its three core businesses — civil aerospace, defence and power systems — largely operate as fiefdoms, with their own finance, legal, human relations and marketing staff. Power systems, which makes diesel engines for trains and ships, especially needs better integration.

The job cuts could strip out between £175mn and £215mn of costs, an amount largely expected by investors, says UBS. That would explain why Rolls-Royce has kept its full year £1.2bn-£1.4bn underlying operating profit guidance, which was upgraded in July. Analysts expect Erginbilgic to hit the top of that range, according to Visible Alpha estimates.

A stronger than expected post-lockdown bounce in air travel helps. Profitability at the core civil aerospace division is at the highest level for at least 15 years. An operating margin of 12.4 per cent still trails rival General Electric’s at 19 per cent.

Erginbilgic has promised to set out longer-term plans next month, a bigger test. For example, a move back into the higher volume single-aisle aircraft engine business would require a partner to scale up production.

There is more to do. Rolls-Royce still has about £1.4bn of unprofitable contracts it seeks to renegotiate. Also, Erginbilgic could trim some lower margin units, such as the power systems’ agricultural business. The Rolls-Royce share price run suggests investors will require more than this to trust that his restructuring avoids getting stuck in the sidings.

The combined VML will employ more than 30,000 people in 64 markets

Advertising holding company giant WPP is combining two of its major creative agencies, VMLY&R and Wunderman Thompson, as it seeks to further simplify its business for marketer clients.

London-based WPP, which owns agencies including Ogilvy as well as media-buying giant GroupM, said the combined agency will be called VML and employ more than 30,000 people in 64 markets.

VMLY&R and Wunderman Thompson were the product of mergers five years ago when WPP sought to integrate some of its iconic creative agencies with more digitally focused shops. In 2018, WPP matched creative shop Young & Rubicam with digital ad firm VML to form VMLY&R. Also that year, WPP combined J. Walter Thompson, one of the oldest ad agencies in the world, with digital agency Wunderman to create Wunderman Thompson.

VML will be led by Jon Cook as global chief executive and Mel Edwards as global president. Cook previously led VMLY&R and Edwards led Wunderman Thompson. Debbi Vandeven, who had been global chief creative officer at VMLY&R, will take on the same role at VML.

The merger is another important step in the simplification of WPP and its offerings to clients, Chief Executive Mark Read said.

Advertising agencies’ remit has ballooned far beyond work such as making television commercials and now includes offerings such as data consulting, e-commerce and other technology-related services.

WPP, for instance, has said an increasing amount of its creative agencies’ efforts fall outside traditional agency work to include technology, e-commerce and data consulting. The company hopes to make it easier for marketers to access such different services by putting them under the same roof.

WPP needed to evolve more as the marketing landscape has continued to shift, especially as the industry braces for what artificial intelligence will bring, Read said.

“Success with AI is going to require us integrating creative and media and production, and it’s going to be much easier for us to do that inside WPP with fewer, stronger companies,” he said.

Asked whether the merger would result in job cuts, Read said the move is designed to help VML invest more in areas such as creativity, strategy and technology. “Some of that will come likely at the expense of non-client facing capability, but it’s really about investing the resources we have on what matters to clients,” he said.

Cook said VML hopes to focus on brand experience, customer experience and commerce for clients. “I think the feeling from a lot of our clients is if you can make [the agency offering] simpler, you can also make it more powerful and create more relevance,” he said.

The choice of name was meant to showcase that simplicity, Edwards said. “We could have gone with an amalgamation of VMLY&R and Wunderman Thompson, but oh my goodness, can you imagine the name?” she said.

WPP, which plans to report quarterly earnings next week, in August reduced its growth forecast for the year after it saw lower revenue in the U.S. from technology clients and delays in spending on technology projects.

Global warning system essential to beat future pandemics, says Cepi chief

Richard Hatchett’s call for rapid detection comes as countries discuss WHO treaty on how to avoid another health crisis

A “global early warning system” for dangerous viruses is essential to head off future pandemics and speed up vaccine development, says the head of an organisation charged with preventing such health crises.

Greater surveillance and co-operation are needed to flag what health experts call “disease X”, an infectious disease yet to emerge that has the potential to cause a pandemic, said Richard Hatchett, chief executive officer of the Coalition for Epidemic Preparedness Innovations (Cepi).

Rapid detection is crucial to Cepi’s central goal to speed the world’s response to emerging viruses and cut development times for new vaccines to just 100 days.

“We need a global early warning system for disease X that is built on strong, active and continuous surveillance capabilities,” Hatchett told a Nikkei-Financial Times conference in Tokyo on communicable diseases. “This enhanced surveillance must be as global and as comprehensive and as interconnected as possible.”

Hatchett’s call for an early warning system came shortly after a draft of the pandemic preparedness treaty, being negotiated at the World Health Organization, was sent to member states.

The leaked draft, seen by the Financial Times, includes measures to help scale up production during a global health crisis. But the pharmaceutical industry is resisting any measures that would force it to waive its patents.

Thomas Cueni, director-general of the International Federation of Pharmaceutical Manufacturers and Associations, said the private sector was able to develop new vaccines and treatments to tackle Covid-19 because of decades of investment in research and development. 

“It would be better to have no pandemic treaty than a bad pandemic treaty, which the draft circulated to member states clearly represents,” he said. “If adopted, the draft treaty would undermine both and leave us weaker ahead of the next pandemic than we were in December 2019, and we urge governments to make significant revisions to the current text.”

Some non-governmental organisations called for the accord to have more teeth. Dr Mohga Kamal-Yanni, policy co-lead for the People’s Vaccine Alliance, said the current wording “contains too few obligations to ensure that government’s take these essential measures”.

The WHO aims to enact a pandemic treaty by May 2024.

Closer worldwide monitoring links with an initiative to prepare an international “vaccine library”, Hatchett said. This would contain the pharmacological building blocks for inoculations likely to be needed to counter any disease that might pose dangers on a pandemic scale.

“The core idea of a global vaccine library is to solve the critical challenges of vaccine design for a given genus or family of viruses in advance,” Hatchett said. “And to show that safe and effective vaccines employing such solutions can be delivered using the rapid response platforms available to us.”

Building such a library was a “huge task”, he added. Companies involved in the scheme would need to co-ordinate investments and share data when outbreaks of new diseases occurred.

Cepi, a partnership set up in 2017 between governments, charities and industry, has taken on a critical role since the Covid-19 pandemic. It has devised a $3.5bn five-year programme to produce vaccines that can pass initial clinical trials within 100 days of a pathogen being genetically sequenced and identified as a possible pandemic threat. That timeframe is much shorter than the 326 days it took for BioNTech/Pfizer’s jab to receive UK authorisation in December 2020.

Cepi’s partners include BioNTech, which developed the messenger RNA-based Covid vaccine, and the University of Oxford, developer of the low-cost jab manufactured by AstraZeneca.

Cepi is investing to expand networks of vaccine manufacturers in or near areas at high risk of disease outbreaks. It is also attempting to set up clinical trial systems in lower and middle income countries to enable rapid generation of efficacy and safety data for novel vaccines.

Hiroaki Ueno, president of Japan Pharmaceutical Manufacturers Association, told the Tokyo conference: “We have to prepare for the next pandemic. Agility in the face of emergency is important.”

Biden administration’s move aims to limit country’s access to advanced processors

The Biden administration is tightening export controls for cutting-edge artificial intelligence chips, in an update to existing rules that will severely limit the ability of Nvidia and other manufacturers to sell high-performance semiconductors to China.

The US commerce department on Tuesday extended the sweeping export controls that were first introduced in October 2022, in an effort to reflect technological advances and also to make it harder for companies to find ways to work around the restrictions.

Commerce secretary Gina Raimondo said the goal of the update was to curb China’s access to advanced chips that “could fuel breakthroughs in artificial intelligence and sophisticated computers” that are critical for the Chinese military.

It comes weeks before a possible summit between Joe Biden and Xi Jinping if the Chinese leader attends the Asia-Pacific Economic Cooperation forum in San Francisco.

China has slammed the US over its export controls. During recent visits to Beijing, however, US officials have stressed that while the Biden administration wants more engagement, it would not avoid taking national security actions when warranted.

Graphics processing units produced by Nvidia, AMD and Intel have become an indispensable component for training large AI models for tech companies, governments and start-ups, sparking a rush for the latest chips.

After the introduction of last year’s rules, Nvidia designed new versions of its top-tier H100 and A100 GPUs specifically for Chinese customers, bringing them below the performance threshold set by the US.

Chinese tech companies have been rushing to buy these modified H800 and A800 GPUs, which are critical for generative AI, amid concern that the US would tighten restrictions.

One US official said the new rule would bar Nvidia from selling A800 and H800 GPUs chips in China. The updated rules will also impact Gaudi2, an Intel AI chip. A second official said the administration had taken into account how groups were “trying to work around our parameters” in drafting the update.

Nvidia chief executive Jensen Huang told the Financial Times earlier this year that the 2022 controls had left the Silicon Valley company with its “hands tied behind our back” by barring sales of its most advanced chips to China. He has said further restrictions could seriously harm US chipmakers by eating into their ability to finance investment.

Nvidia, which depends on China for as much as 25 per cent of its data centre chip revenues, did not comment on the updated rules.

“The most immediate effect will be cutting China off from advanced AI chips, including the modified versions of chips that Nvidia specifically designed to comply with last year’s controls,” said Gregory Allen, an AI expert at the CSIS think-tank. “Now [Chinese companies] are looking at years where the AI chips that China can access are significantly inferior to what is available in the west.”

Under the 2022 rule, the US barred exports of chips that exceeded two thresholds: one for power and the other for the speed at which chips talk to each other. The commerce department is replacing the latter with a “performance density” measure that is explicitly designed to stop companies from finding workaround solutions.

The revamped export controls will prohibit the sale to Chinese groups of data centre chips that are capable of operating at speeds of 300 teraflops — meaning they can calculate 300tn operations per second — and above.

Sales of chips with speeds of 150 to 300 teraflops will be barred if they have a performance density of 370 gigaflops (bn calculations) per square millimetre or more. Chips that operate at those speeds but with lower performance density fall into a “grey zone”, meaning firms must notify the government about sales to China.

Raimondo said the rules would exempt chips for consumer products, such as for smartphones and gaming. But the officials said exporters would have to notify the government when they exported chips with speeds of more than 300 teraflops.

The updated rules also expand the list of chipmaking tools that cannot be sold to China. The second official said the US would also add two Chinese groups to the “entity list”, making it extremely hard for them to get US technology. He said the two groups were involved in the design of chips that undermined US national security.

Belgian group cuts capital expenditure forecast after $715mn pledged in government support for factory in Ontario

Shares in European battery materials specialist Umicore rose 14 per cent on Tuesday after Canada granted huge subsidies for its planned plant in Ontario.

The stock price rise for the Belgian group, which added almost €1bn to its market capitalisation, highlights how a subsidy race triggered by the US Inflation Reduction Act is benefiting certain parts of the battery supply chain.

The Canadian and Ontario governments pledged late on Monday to provide up to C$975mn ($715mn) of support for a cathode materials factory that will cost up to C$2.7bn and will eventually supply enough material for 800,000 electric vehicles produced by manufacturers including BMW.

As a result of what Umicore called “higher than expected” subsidies, the company cut its forecast for capital expenditure between 2022 and 2026 to €3.8bn from more than €5bn previously.

After the news on Tuesday, Umicore shares staged their second-biggest one-day rally for three decades.

The business, which has historically made the bulk of its revenues from making catalytic converters for combustion engines, is one of a handful of western suppliers that produces the highly specialised materials used in the most expensive part of an EV battery, the cathode.

Chief executive Mathias Miedreich said in a statement that the “investment in Canada represents the final step in creating a truly global production presence”.

Umicore has a joint venture with Volkswagen that has also contributed to lowering its capital spending forecasts. The unit, called Ionway, announced last week that its first plant for cathode material production in Europe would be set up in Nysa, Poland. 

Umicore also announced a new target for a 25 per cent margin for its earnings before interest, taxes, depreciation and amortisation from 2026, up from above 20 per cent to 2030.

On Monday, it signed an agreement to supply the US battery plants of Chinese-owned battery group AESC with material produced from its Ontario plant.

Meanwhile, Ford has paused construction on a $3.5bn electric vehicle battery plant in Michigan using technology from another Chinese company CATL, amid Republican criticism and an autoworkers’ strike

Canada has been a big beneficiary of US president Joe Biden’s $369bn Inflation Reduction Act because raw materials sourced from Canada count towards tax credits, while its clean power is a draw for materials production, which is energy intensive.

But the US has also offered subsidies for the battery supply chain, including $2.8bn from the Department of Energy, pushing Canada to respond.

Canada’s mining minister Jonathan Wilkinson told the Financial Times last month that the government had increased subsidies to persuade companies from moving investments to the US and that the IRA “at times went beyond from a financial perspective where it needed to”.