FT : SoftBank to meet Samsung to explore Arm ‘strategic alliance’

SoftBank to meet Samsung to explore Arm ‘strategic alliance’
Masayoshi Son will visit Seoul in October to explore tie-up for UK chip designer

SoftBank chief executive Masayoshi Son will travel to Seoul next month to open talks with Samsung about a strategic tie-up between the South Korean technology conglomerate and UK chip designer Arm, which is owned by the Japanese group.

The talks could mark a significant strategic shift by Son, who bought Arm for $32bn in 2016 and claimed at the time that it was at the core of SoftBank’s long-term vision.

SoftBank tried to sell Arm to chipmaker Nvidia, but abandoned those plans this year after facing opposition from competition authorities.

Following that setback, Son switched his focus to an initial public offering for Arm in the US — a move that has triggered intense lobbying from the UK government to ensure that some portion of the listing takes place in London.

In a statement on Thursday, Son said: “I intend to visit Korea. I’m looking forward to visiting Korea for the first time in three years. I’d like to talk with Samsung about a strategic alliance with Arm.”

SoftBank, and its flagship Vision Fund tech investment vehicle, have come under huge pressure this year as equity markets have tumbled and technology valuations have cratered.

The founder of the tech conglomerate behind the $100bn Vision Fund has not travelled since the Covid-19 pandemic broke out in 2020.

Samsung confirmed Son’s visit, saying it expected him to make a proposal regarding Arm, although it did not know what the proposal would be.

“A strategic alliance is a vague and broad term,” said a Samsung executive. “If he offers to sell Arm to us, we will have to consider it on a general basis.” 

Son said in August that he was in a “defensive mode”, prompted by a selldown of SoftBank’s stake in Alibaba and an examination of the sale of other assets, including private equity group Fortress.

Analysts said the deteriorating US stock market situation was not favourable for Arm’s proposed IPO.

They added that Samsung would be interested in buying Arm because of its weakness in the non-memory chip business, but it would be difficult for the South Korean company to chase the deal alone, as it would encounter similar regulatory hurdles to Nvidia.


“Given the unique position of Arm in the non-memory market, the monopoly risks become higher when it is taken over by a certain company,” said James Lim, an analyst at US hedge fund Dalton Investments.

“Samsung will likely face less regulatory opposition than Nvidia, but it would still be burdensome for the company to pursue the deal alone, given its position in the semiconductor market. It may form a consortium with Intel and others to chase the deal.” 

SoftBank Group shares were trading 2.2 per cent lower in Tokyo on the news, while Samsung’s were down 1.3 per cent in Seoul, underperforming the broader markets.

FT : GIC to take majority stake in luxury Sani/Ikos resorts

GIC to take majority stake in luxury Sani/Ikos resorts
Singapore sovereign fund flies in face of economic storms with biggest deal in European hotel sector since pandemic

Singaporean sovereign wealth group GIC has agreed to buy a majority stake in Mediterranean luxury resort operator Sani/Ikos Group in a buyout that values the company at €2.3bn, the biggest deal in the European hotel sector since the Covid-19 pandemic.

A clutch of investors, including US-based asset manager Oaktree Capital, Goldman Sachs’ asset management unit and London-based private equity firm Hermes GPE, will exit the business after selling their stakes to GIC. They first came on board when the hotel group was formed by a merger in 2015.

Since 2015, the revenues of the Greece-headquartered group, which owns and operates 10 beachfront resorts with around 2,700 rooms across Greece and Spain, have more than tripled from £88mn to a projected figure of €319mn for this year. Sani/Ikos is also pushing ahead with a five-year, €900mn expansion plan, which will add four more redeveloped resorts to its portfolio.

The acquisition by GIC comes as fears grow over a recession across Europe this winter, as the energy crisis resulting from Russia’s invasion of Ukraine has drained consumer confidence. Most of Sani/Ikos’s clientele is drawn from Germany and the UK. But the Singapore state fund is betting on the luxury sector defying the downturn.

Last month, Fitch Ratings cut its outlook for the group’s long-term debt to “negative” from “stable”, but kept the rating at B-. It said the business’s cash flow could come under pressure from its large expansion plans but that it benefited from “lower demand sensitivity” to a consumer downturn and “a record of above-average recovery post-pandemic” compared with peers in the luxury hotel sector.

Lee Kok Sun, chief investment officer of GIC’s real estate division, said the “excellent hospitality experiences” for guests helped Sani/Ikos stand out. “We believe this investment will generate resilient returns and is testament to our confidence in the Greek and wider European tourism sector over the long term,” he added. The deal is expected to close by the end of the year.

GIC told the FT in July it was focusing its investment strategy on inflation-protecting businesses which can pass on cost increases to customers. This year, GIC has taken stakes in the Paddington office estate in London and university accommodation providers The Student Hotel and Student Roost.

Sani/Ikos traces its origins to the Sani Club, a resort opened in 1971 by Greek hotelier Anastasios Andreadis, which expanded over the following decades.

Andreadis’s sons — Stavros and Andreas — became major shareholders in the group when it was formed from a merger of Sani Resorts and Ikos Resorts in 2015, alongside former Oaktree executive Mathieu Guillemin. All three will stay on as shareholders and continue working with the business.

Andreas Andreadis and Guillemin, who serve as co-CEOs, said in a joint statement that the company had “led a remarkable path” of growth over recent years “despite the pandemic”. Bookings across the 10 resorts this year were up 52 per cent on last year and 57 per cent on pre-pandemic levels. The company added that early 2023 bookings were strong.

“We can now solidify our leading position across the Mediterranean, to the benefit of our shareholders, our people and the communities where we operate,” they added.

>>> US After Hours Summary: FUL +4.1% on earnings, CRM +2.6% on guidance, SCS -2

After Hours Summary: FUL +4.1% on earnings, CRM +2.6% on guidance, SCS -2.6% on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: FUL +4.1%, CRM +2.6%

Companies trading higher in after hours in reaction to news: TWO +1% (1-for-4 stock split)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: SCS -2.6%, KBH -0.5%, LEN -0.1%

Companies trading lower in after hours in reaction to news: CIM -3.3% (lowers dividend), CIFR -2.3% (files $500 mln mixed securities offering; common stock offering by selling shareholders), PGEN -1.7% (names new COO), SPIR -1.3% (awarded NOAA contract), MEOH -0.5% (receives approval for share repurchase program), C -0.2% (raises lending rate), GLP -0.1% (acquires Tidewater Convenience)

>>> US Close Dow -1,70% S&P -1,71% Nasdaq -1,79% Russell -1,42%

Closing Stock Market Summary

The stock market was confined to a narrow trading range until the FOMC rate hike decision at 2:00 p.m. ET fueled whipsaw price action. The FOMC voted unanimously to raise the target range for the fed funds rate by 75 basis points, as expected, to 3.00-3.25% and suggested that further rate increases will be appropriate. The Summary of Economic Projections conveyed a higher terminal rate of 4.60%, versus 3.80% with the June projection.

The initial reaction was a heavy inclination to sell before a rebound effort, supported by falling Treasury yields, took the S&P 500 above the 3,900 level. The market ran into resistance there, however, and sold off sharply, finishing at its lows for the day.

The takeaway from today's rate hike decision, Summary of Economic Projections, and Fed Chair Powell's press conference was that the Fed will be raising rates further and will keep them at higher levels for longer. Fed Chair Powell conceded that there is apt to be another 100 or 125 basis points of tightening this year and that he thinks it is very likely the fed funds rate will certainly get to 4.60%, which is the Fed's median estimate for 2023 and presumably the new terminal rate. 

The equity and bond markets both had volatile reactions. The action in the Treasury market will be interpreted as a belief that inflation will be quelled by the Fed's rate hikes and a material slowdown in economic activity. The 2-yr note yield dropped to 3.95% (from 4.10%) and settled at 3.98%. The 10-yr note yield went from 3.61% to 3.51%.

The moves in the Treasury market supported the rebound effort until it resonated for stock market participants that Fed Chair Powell's message has not changed at all from Jackson Hole where he said, "Restoring price stability will require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy."

This is not a friendly statement for the economy or for the market. It is a statement that suggests multiple expansion is not going to be easy to achieve, because interest rates are header higher. The uncertainty about how much impact that will ultimately have on earnings prospects, along with the uncertainty as to how high the fed funds rate will go and how long it will stay there, is why investors will be reluctant to pay a premium for each dollar of earnings.

The late sell off that ensued was broad and indiscriminate. The three main indices all logged losses of at least 1.7%. The Vanguard Mega Cap Growth ETF (MGK) closed down 1.9% and the Invesco S&P 500 Equal Weight ETF (RSP) closed down 1.7%. 

Every S&P 500 sector closed in negative territory with losses ranging from 0.3% (consumer staples) to 2.4% (consumer discretionary). The former was supported by General Mills (GIS 79.72, +4.31, +5.7%), which was able to buck the downtrend after reporting favorable quarterly results. 

Energy complex futures settled mixed. WTI crude oil futures fell 0.3% to $83.84/bbl while natural gas futures rose 1.2% to $7.81/mmbtu.

Looking ahead to Thursday, market participants will receive the Q2 Current Account Balance report (consensus -$260.0 billion; prior -$291.4 billion) and weekly initial jobless claims (consensus 220,000; prior 213,000) and continuing claims (prior 1.403 million) at 8:30 a.m. ET, the August Leading Economic Index (consensus -0.1%; prior -0.4%) at 10:00 a.m. ET, and weekly EIA Natural Gas Inventories (prior +73 bcf) at 10:30 a.m. ET.

Reviewing today's economic data:

  • The weekly MBA Mortgage Applications Index showed a total increase of 3.8% versus last week's 1.2% decline.
  • Existing home sales decreased 0.4% month-over-month in August to a seasonally adjusted annual rate of 4.80 million (consensus 4.70 million) versus an upwardly revised 4.82 million (from 4.81 million) in July. That is the seventh straight month that existing home sales have fallen. Total sales in August were down 19.9% from a year ago.
    • The key takeaway from the report is that higher mortgage rates are taking a bite out of existing home sales, having created affordability pressures that have forced some sellers to lower asking prices, which in turn is leading to a moderation in the pace of growth in median selling prices.
  • The weekly EIA Crude Oil Inventories showed a build of 1.14 million barrels after last week's build of 2.44 million barrels.

Dow Jones Industrial Average: -16.9% YTD
S&P 400: -17.7% YTD
S&P 500: -20.5% YTD
Russell 2000: -21.5% YTD
Nasdaq Composite: -28.3% YTD



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FT : US bank chiefs warn of China exit if Taiwan is attacked

US bank chiefs warn of China exit if Taiwan is attacked
Heads of BofA, Citi and JPMorgan say they will follow Washington’s orders in the event of conflict

Leaders of JPMorgan Chase, Bank of America and Citigroup have committed to complying with any US government demand to pull out of China if Beijing were to attack Taiwan.

The chief executives of the three largest US banks by assets made the commitments on Wednesday at a hearing of the committee on financial services at the House of Representatives. They spoke in response to a question by Blaine Luetkemeyer, a Republican congressman from Missouri, on whether they were prepared to pull their investments out of China in the event of a military assault on Taiwan.

“We’ll follow the government’s guidance, which has been for decades to work with China. If they change their position, we will immediately change it, just as we did in Russia,” said Brian Moynihan, BofA’s chief executive.

His comments were echoed by Jane Fraser and Jamie Dimon, the chief executives of Citi and JPMorgan, respectively.

Dimon evoked a sense of patriotism in his response. “We would absolutely salute and follow whatever the American government said, which is you all, what you want us to do,” he told the committee.

US banks responded to international condemnation of the Kremlin following its attack on Ukraine by announcing plans to wind down their operations in Russia. China’s economy is far larger than Russia’s, however, and many banks have sought to expand their Chinese operations.

At the end of 2021, Citi had $27.3bn worth of exposure to China, including loans and investment securities, five times what it had in Russia. JPMorgan in 2011 launched a securities joint venture in China and only last year took full ownership of it.

Multinational companies have become much more concerned about the possibility of a Taiwan conflict over the past 18 months, as China has stepped up military activity around the island.

Company executives have been asking security experts in Washington for briefings about the likelihood of a Sino-US war over Taiwan.

In March 2021, Admiral Philip Davidson, then the head of US Indo-Pacific Command, told Congress that he believed China could attack Taiwan by 2027, which sparked widespread concern.

President Joe Biden on Sunday said that the US would send forces to defend Taiwan in the event of a Chinese attack — his fourth warning over the past year and a shift in policy that has underscored the growing threat to the island from China.

The Chinese military has over the past two years stepped up the number of fighter jet and bomber exercises it conducts inside Taiwan’s “air defence identification zone”.

In August, the People’s Liberation Army held dramatic large-scale military exercises, which included firing ballistic missiles over Taiwan for the first time, after Nancy Pelosi became the first Speaker of the House to visit Taipei in 25 years.

China has accused the US of watering down the “One China” policy, which has existed since the countries normalised relations in 1979 and Washington switched diplomatic recognition from Taipei to Beijing. Under the policy, the US recognises Beijing as the government of China while only acknowledging — without endorsing — the Chinese position that Taiwan is part of China.

FT : French groups swoop for depressed British assets

French groups swoop for depressed British assets
Xavier Niel builds up stake in Vodafone while Aveva sold to Schneider amid depressed valuations


French buyers snapped up a slew of British assets on Wednesday, from a slice of the UK’s biggest telecoms group to a buyout of one of the country’s oldest technology companies, underlining how overseas acquirers are taking advantage of depressed valuations.

Entrepreneur Xavier Niel bought a 2.5 per cent stake in Vodafone; Schneider Electric agreed to buy Aveva for £9.5bn; and Suez moved to buy back its British waste-treatment business for around $2.3bn.

The UK is experiencing relatively high inflation, low investment confidence and a weaker currency, making it an attractive moment for European suitors to pounce on struggling British assets.

A top-25 shareholder in Aveva described the Schneider bid as “yet another example of a world-leading UK-listed company whose share price has been smashed to pieces being taken over”. Aveva’s shares have fallen 23 per cent in the past 12 months.

“As a beleaguered shareholder we can accept it — just — through gritted teeth. But it’s emblematic of what we’ve been having to deal with,” they said. “There is a massive ownership shift going on as the traditional owners of UK plc sell out to corporates, sovereign wealth funds and private equity, who can take advantage of the mispricing of UK equities.”

Senior business leaders have been warning for weeks that UK assets are now increasingly vulnerable to outside interest as the pound has tumbled to its lowest level since 1985, and companies have been hit by a pincer movement of rising costs and falling consumer spending.

Andrew Truscott, head of UK investment banking at Citigroup, said: “Each of these situations has its own peculiarities and you can’t extrapolate too much, but what you can see is that there is a global recognition that the businesses in the UK are cheap. There is not the liquidity coming into the UK [stock] market. It is all cash coming out,” he added.

Wednesday’s flurry of inbound French interest comes two months after France’s state-backed satellite group Eutelsat announced it was buying OneWeb, the space-based British internet company rescued from bankruptcy by Boris Johnson’s government. OneWeb had struggled to raise capital to come to market with its satellite constellation and become a viable standalone business.

In a parallel to Niel’s investment, French telecoms billionaire Patrick Drahi last year built an 18 per cent stake in former British telecoms monopoly BT, sparking speculation that the veteran dealmaker would ultimately try to wrest full control of the company.

“Since Brexit, valuations are very low so there are lots of companies that are listed in London that are very attractive financially,” said one French banker. “The UK companies are suffering from Brexit discount and the [falling] pound so lots of foreign buyers are scouting here, not just the French.”

FT : Vodafone/Xavier Niel: a second French tycoon targets UK telecoms

Vodafone/Xavier Niel: a second French tycoon targets UK telecoms
Investment vehicle Atlas describes mobile phone group as ‘an attractive investment opportunity’

Seven months ago, Vodafone rejected a €11.25bn offer for its Italian business from a consortium backed by French billionaire Xavier Niel. That should have been the end of the story. Niel’s telecoms business Iliad said it would pursue a standalone strategy in Italy.

But Niel was saying au revoir, not adieu, to the UK-listed European mobile phone group. On Wednesday, his investment vehicle Atlas revealed it had a 2.5 per cent interest in Vodafone. The tycoon may have found a way to take a second shot at Vodafone’s Italian assets.

Niel is the second French tycoon parking tanks on the lawn of a British telecoms champion. Patrick Drahi has an 18 per cent stake in BT Group. Aficionados of Fantasy M&A think Drahi is interested in BT’s Openreach network business.

Atlas stressed it is independent of Iliad and Niel. It described Vodafone as “an attractive investment opportunity”. But intriguingly it sees “opportunities to accelerate . . . the streamlining of Vodafone’s footprint.”

Niel may have an ally in Cevian Capital. The Swedish activist has an unspecified exposure to Vodafone and is pushing the board to overhaul the sprawling business. This could include the sale of the Italian and Spanish units.

Opposition may come from Emirates Telecommunications Group. The UAE state-controlled investment group has a near-10 per cent stake in Vodafone.

The telecoms group needs to dial up better returns for shareholders, however. The stock is down nearly 50 per cent over the past five years.

Vodafone has already reduced its footprint. It sold its Hungarian business for $1.8bn last month and hopes to sell a significant stake in the group’s masts business, Vantage Towers. It has held talks to merge its UK operations with Three UK.

Selling the Italian business would be a natural next step. Revenue growth is faltering at a business which made up 11 per cent of Vodafone’s turnover last year.

Niel has a better chance of breaking up Vodafone than Drahi does of splitting BT.