Malteries Soufflet/UMG: French bidder exploits Aussie’s malt faults
The process is ancient, but price tensions between suppliers and customers are eternal
Malting typically involves germinating barley and drying it for use in brewing. The process is ancient, but price tensions between suppliers and customers are eternal. France’s Malteries Soufflet is buying United Malt Group for $1bn to improve its bargaining position with big brewers.
The Australian maltster has been left more than a little mashed by disrupted commodity prices. These have been destabilised by the pandemic and war in Ukraine. The bitter added ingredients have been droughts that wrecked the Canadian barley harvest.
UMG was unable to supply malts economically to North American craft brewers. Its profits collapsed.
This has given InVivo an opportunity to participate in consolidation. The French co-operative, which counts KKR as a co-investor, acquired Malteries Soufflet in 2021. The UMG deal will propel InVivo to the number one place in global malting ahead of Boortmalt. The latter is owned by rival French co-op Axéréal, which also acquired Cargill’s malting business in 2018.
The deal broadens Malteries Soufflet’s footprint beyond its current European focus. “The malting industry is consolidating to catch up with brewers and rebalance market power,” says Brent Atthill of RMI Analytics.
Malteries Soufflet is paying A$5 a share, equivalent to a steep 45 per cent premium to the undisturbed price in March. However, UMG only listed last year with shares peaking at $4.9 shortly afterwards. The stock dropped about 35 per cent from peak to trough last year. Operating margins collapsed to less than 2 per cent from almost 10 per cent in 2019.
Taking into account next year’s expected earnings recovery, the multiple of 11 times ebitda is in line with sector norms.
Shareholders are unlikely to resist the deal. But shares trading below the offer price hint that competition authorities are a hurdle. The businesses of Malteries Soufflet and UMG overlap in the UK. The Competition and Markets Authority, the local antitrust watchdog, is increasingly muscular. Ancient industries are as exposed to modern regulatory trends as any other.
Buyout groups weigh bids for majority stake in FIS-owned Worldpay
Private equity firms explore deal that would value payments provider at more than $15bn
Private equity groups are exploring buying a majority stake in payments provider Worldpay from Fidelity National Information Services at a valuation of more than $15bn in what would be one of the largest corporate carve-outs ever, according to five people familiar with the matter.
US buyout firm Advent, which was previously part of a consortium that owned Worldpay, is among the parties studying a bid, according to two of the people. One of those people said GTCR, a Chicago-based private equity group that sold a business to Worldpay in 2010, has also studied a bid.
If FIS were to accept an offer it would mark a shift from its strategy, announced in February, of spinning off Worldpay into a separate publicly traded business.
A spokesperson for FIS declined to comment on what they described as market speculation. Advent and GTCR did not immediately respond to requests for comment.
Large Wall Street lenders have discussed providing funding for the deal, two of the people added. Doing so would mark a sign of confidence from banks that have for the most part demurred from financing large buyouts after several “hung deals” where they struggled to offload the debt to third-party investors.
The talks come four years after FIS acquired Worldpay for more than $30bn in a deal that was aimed at creating a diversified financial technology company offering payments processing services to large banks and merchants such as retailers.
Activist hedge fund DE Shaw last year urged FIS to review the structure of its business and was given a seat on the company’s board of directors in December. Jana Partners, another activist, also took a stake in the group.
No deal has been agreed but if a transaction is completed it would demonstrate how buyout firms flush with cash are pursuing large carve-outs of businesses.
Advent, which manages $92bn in assets, bought a majority stake in the business alongside Bain Capital from Royal Bank of Scotland in 2010 during the financial crisis. It took full control in 2013.
Worldpay was subsequently sold to Vantiv in 2017 before FIS acquired the combined company two years later.
Charles Drucker, who led Worldpay under Bain and Advent’s ownership, was hired by FIS as a strategic adviser this February to aid with the separation and was named chief executive of the merchant payments business it planned to spin off.
GTCR, based in Chicago, manages more than $35bn in assets and last month closed on a $11.5bn buyout fund that surpassed its $9.25bn target. It specialises in financial services and technology investments, and companies operating in healthcare and business services.
Eurovita/Cinven: flop raises concerns on buyout push into insurance
Regulators are right to focus on medium-term investors with responsibility for long-term liabilities
Italy has had its fair share of bank collapses. The slow-motion implosion of Eurovita is the first time an Italian insurer has crashed into special administration. Higher interest rates derailed the group, a situation that was resolved last week. Insurers including Generali and Allianz will invest in a new company to secure Eurovita’s €10bn of assets.
European insurance regulators are investigating whether Eurovita’s failure posed any wider risks to financial stability. They are expected to focus on its ownership by private equity group Cinven. It is just one of the private capital businesses that have poured money into the life insurance sector in recent years in search of higher returns.
The failure of Eurovita began last year as savers redeemed policies to take advantage of higher rates elsewhere. Eurovita’s weakening capital position forced it to sell government bonds that had fallen in price.
Regulators demanded more capital from UK-based Cinven to prop up Eurovita’s solvency ratio. Cinven eventually stumped up €100mn But that was well short of the €400mn thought necessary to recapitalise the insurer.
Eurovita will now be broken up and its assets redistributed.
Private capital groups have long seen insurance as offering good-quality cash flows at higher levels than conventional lower-risk investments. In the US, about 12 per cent of life and annuity assets are now under private equity ownership, according to McKinsey. In Europe, buyout groups have conducted $25bn worth of deals in the life sector over the past decade.
Rising rates mean lapse risks are growing at the same time that the quality of assets such as corporate bonds is falling.
This exacerbates concerns about medium-term investors such as private equity funds taking responsibility for long-term liabilities. They may be unwilling to take losses across the industry cycle. Financial engineering involving insurance played a part in the UK gilts mini-crisis last year.
Regulators are right to pay closer attention.
Transatlantic impasse over turning steel green
The US is watching politics in the Midwest while the EU is fretting about the WTO
Caught in a steel trap
It all looked so optimistic in the heady days when President Joe Biden was newish in office and talking an optimistic game on resetting transatlantic relations. In October 2021 the US agreed to suspend Donald Trump’s national security-related Section 232 tariffs on steel and aluminium imports from the EU, temporarily no longer deeming basic raw materials from longstanding allies a threat to the American way of life.
The Biden administration instituted instead an annoying but somewhat less damaging set of import quotas. Also, Brussels and Washington started negotiations about creating a permanent green steel and aluminium (aluminum, whatever) club to encourage all countries to adopt low-carbon production. The noises emanating from the talks — which are supposed to come up with a deal by October, when the tariff suspension expires — have never sounded very cheery. Last week the FT revealed the state of play: an impasse.
The US plan, as described by media reports, participants and observers to the talks, supposedly attempts to fix two or three problems in the steel market in one go — reliable supply (the supposed national security angle), emissions-intensive production and worldwide overcapacity. However, it does this in a way that would seem to create perverse incentives and which would very probably be declared illegal at the World Trade Organization.
As far as we can tell, the US idea is for members of the climate club to calculate a nationwide average for carbon intensity of steel production and create tariffs to penalise non-members’ steel industries (and indeed perhaps other members’ industries, but at a less punitive rate) for higher emissions. It makes no commitments to do anything new to the US steel industry in terms of introducing carbon pricing or otherwise deterring emissions. This immediately creates a likely problem with the WTO rules against discriminating between domestic and foreign producers.
The plan pushes further towards WTO-illegal territory by also wanting tariffs to punish trading partners for subsidising overcapacity. (This is an issue for which trade defence tools such as antisubsidy duties of course already exist, of which the US is an assiduous user.) That extra market distortion element would prevent the US from using environmental loopholes in WTO law to justify the tariffs, since it has nothing to do with preserving the planet.
In return for accepting this, the EU is supposed to surrender its own painstakingly worked-out carbon border adjustment mechanism, at least as regards imports from the US. The CBAM has attempted to stay within WTO bounds by relating border charges to the EU’s own carbon emissions pricing scheme and by taxing imports based on the carbon intensity of individual producers, not the country as a whole.
On average, thanks to the prevalence of energy-efficient electric arc furnaces “mini-mills” rather than traditional blast furnaces, US steel production is already relatively low in carbon emissions. David Kleimann of the Bruegel Institute think-tank in Brussels, one of the most prominent public critics of the US approach, argues that by declining to charge its own producers for emissions and taking a national average for carbon intensity that’s pulled down by EAFs, the Biden administration’s proposal essentially uses a green smokescreen to protect America’s relatively inefficient and carbon-heavy blast furnaces from further decarbonisation and international competition. (Said steel plants are, of course, concentrated in the Midwest political swing states of Ohio, Pennsylvania and Michigan.)
From the EU’s perspective, signing up to the US proposal means putting transatlantic alliance-building ahead of fidelity to open trade and global rules. European Commission president Ursula von der Leyen — and trade commissioner Valdis Dombrovskis, an instinctively Atlanticist Latvian — are both generally well-disposed to Washington, or at least to the Biden administration. But this might well be a principles-swallowing exercise on which even they would choke.
Let’s see what compromise they can concoct. My bet would be they’ll punt the Section 232 suspension forward another couple of years when it expires in the autumn. This is based on an assumption that otherwise we’re in a classic Zugzwang situation where any move loses. Any solution based on current negotiating positions either damages Biden’s poll ratings in the Midwest or the EU’s cherished self-image as a green multilateralist.
At the very least an extension would get it past the next US presidential election. Of course, Trump might be back in the White House in two years’ time. At that point the whole idea of even trying to conduct genteel transatlantic policy discussions rather than just waiting for the next eccentric idea to burst out from whatever has replaced Twitter by then will seem very quaint indeed.
Gapping down
News:
- AZN -5.9% (reported Datopotamab deruxtecan results)
- TOP -4.3% (files $300 mln mixed shelf securities offering)
- KRYS -3.6% (first patient dosed in phase 1 clinical trial of KB407 for the treatment of cystic fibrosis)
- SKYX -3% (files for 7,274,939 shares of common stock by selling shareholders)
- CBUS -2% (files $200 mln mixed shelf securities offering)
- EFC -1.4% (Great Ajax and Ellington Financial (EFC) announce merger agreement)
- TRUP -1.2% (provides statement on New York rate filing status)
- IFRX -1.1% (files $250 mln mixed shelf securities offering)
- RES -1% (to acquire Spinnaker Oilwell Services, an oilfield cementing services provider, for $79.5 mln)
Gapping up
Other news:
- XPEV +8.9% (June deliveries)
- AJX +8.5% (Great Ajax and Ellington Financial (EFC) announce merger agreement)
- TSLA +6.4% (reports Q2 deliveries of 466,140 vehicles)
- LI +6% (June deliveries)
- NIO +5% (June deliveries)
- NRGV +4.4% (files for $300 mln mixed securities shelf offering)
- DMAC +4.2% (files for 11,011,406 shares of common stock by selling shareholders)
- GCT +3.6% (announces it ceases to qualify as a foreign private issuer)
- LH +3.4% (completed the spin-off of Fortrea (FTRE))
- NOK +2.2% (signs a new patent cross-license agreement with Apple (AAPL) which will replace the current license that is due to expire at the end of 2023)
- BITF +2% (mines 385 BTC in June)
- MS +1.2% (to increase its quarterly dividend to $0.85/share from $0.775/share and reauthorizes a share repurchase program of up to $20 bln) .
Analyst comments:
- ACMR +7% (upgraded to Buy from Underperform at Jefferies)
- LAZ +1.1% (upgraded to Peer Perform from Underperform at Wolfe Research)
- SO +0.9% (upgraded to Conviction Buy from Buy and placed on Conviction List)
Saudi Arabia and Russia announce new oil production cuts
Move comes after previous curbs failed to boost crude prices
Saudi Arabia and Russia will extend or make additional cuts to oil production in August, the two most powerful members of Opec+ said on Monday, as they scrambled to boost the price of crude.
Saudi Arabia’s state news agency, citing an official source, said the kingdom would extend the 1mn barrels a day production cut announced last month for July into August, while Russia’s deputy prime minister and top energy official Alexander Novak said Moscow would also make a “voluntary” supply cut of an additional 500,000 b/d next month. Oil prices rose slightly on the news.
The move by the Opec+ leaders, made outside of a formal meeting of the group, comes as they have struggled to boost the price of crude oil that has fallen sharply from its peak last year in the immediate aftermath of Russia’s invasion of Ukraine.
Having briefly risen above $130 a barrel last March, oil is now trading closer to $75 a barrel, despite a series of announced production cuts by the group that started in October last year, with traders focusing on high inflation and a potential recession in many large economies.
Saudi Arabia’s energy minister Prince Abdulaziz bin Salman has been at the forefront of efforts to raise the oil price as the kingdom attempts to transform its economy through a vast investment programme that requires high crude revenues to fund it. His half brother, Crown Prince Mohammed bin Salman, is the kingdom’s de facto ruler and the architect of the plan.
Russia also desires a higher price to fund its war in Ukraine, having lost a large part of its gas export revenues to Europe after it largely cut supplies last year. It is facing a western-imposed price cap on a significant portion of its oil sales as part of retaliatory measures targeting its funds.
The Opec+ cuts have raised tensions in the past between Saudi Arabia and the White House, with US president Joe Biden keen to keep pump prices low ahead of next year’s election while putting the squeeze on Moscow’s revenues. But relatively low prices in recent months have tempered recent White House responses to one of its oldest allies in the Middle East, having at first accused Opec of effectively supporting Russia against the west.
Oil prices have disappointed the Opec+ group and many traders that had bet on them rising with forecasts of a significant tightening of the market in the second half of this year as China’s economy recovers from Covid.
But economic concerns have consistently weighed on the oil price, while the strength of Russia’s own exports — which have largely held up despite hurdles created by western sanctions — have helped keep global supplies relatively buoyant.
Brent crude initially jumped almost 2 per cent on Monday following the announcement, but by lunchtime it was up less than 1 per cent at $76 a barrel. US benchmark West Texas Intermediate was up a similar amount near $71 a barrel.
Saudi Arabia’s state news agency on Monday quoted an official source as saying the additional cut for August was designed to “reinforce the precautionary efforts made by Opec+ countries with the aim of supporting the stability and balance of oil markets”.
Novak’s office said the 500,000 b/d cut would be in addition to cuts already pledged.
Saudi Arabia’s own output will remain at about 9mn b/d. When Prince Abdulaziz announced the additional 1mn voluntary cut for July at last month’s Opec meeting in Vienna he had indicated it could be extended. But announcing it so early in the month may add to a sense the group has been disappointed by the market reaction so far.
Oil prices have been relatively flat since it was announced about four weeks ago, fluctuating near $75 a barrel, and are down from roughly $85 a barrel when Opec+ first announced it was moving to restrict supply last October.
Opec and its allies are gathering in Vienna this week for a conference known as the Opec Seminar, but has barred several large news organisations from attending the event.
Speakers from international oil companies, including BP chief executive Bernard Looney and TotalEnergies Patrick Pouyanné, are due to appear.
Research Calls
- Upgrades:
- ACM Research (ACMR) upgraded to Buy from Underperform at Jefferies; tgt raised to $23.40
- Downgrades:
- Croda Intl (COIHY) downgraded to Hold from Buy at Stifel
- Others:
- Amazon (AMZN) initiated with a Buy at DBS Bank; tgt $150
Early premarket gappers
- Gapping up:
- XPEV +10.8%, NRGV +8.8%, IFRX +7%, LI +6.5%, TSLA +6.3%, NIO +6.2%, GCT +4.6%, NOK +2.4%, SCHW +1.1%, BIIB +0.5%, MS +0.5%, OGN +0.5%
- Gapping down:
- TOP -8%, AZN -5.7%, SKYX -3%, TRUP -2.1%, CBUS -2%, DMAC -1.6%, TRP -1.6%, RES -1%, TFC -1%, DDD -0.6%