Private equity/football: trophy assets sit uneasily with financial investments
Outright club ownership is best left to the sports moguls
Billionaires and sports moguls are tackling more financially-driven investors in the bidding battle for Chelsea FC that closes on Friday.
One of the big six English Premier League clubs, Chelsea was put on the block by Roman Abramovich just weeks before the Russian oligarch was placed under sanctions by the UK. As one of sport’s biggest and most popular leagues, the EPL will earn broadcast rights of more than £10bn for the 2022-2025 cycle.
Football teams’ propensity for losing money and a glaring lack of predictability — league relegation means forfeiting these big broadcasting revenues — have rendered them trophy assets. Clubs should fit better with deep-pocketed tycoons than investment funds, such as Oaktree Capital. While exceptions exist — think Manchester United’s model — concepts such as financial discipline and dividends sit uneasily with a sport that spends 60-70 per cent of revenues on wages.
Covid changed that calculus. Postponed live matches and the subsequent nixing of broadcast rights left a lot of red ink on the pitches. The EPL clubs ended the 2019/2020 financial year with nearly £4bn of cumulative debt, Deloitte calculates. Private equity groups, rich with cash, moved from spectators to players, so to speak.
These groups cut their teeth on league investment, offering some of the thrills with perhaps fewer spills. Spain’s La Liga concluded a €2bn financial deal with CVC. PE bidders lead the field for France’s Ligue 1. Beyond association football, last month Silver Lake invested NZ$200mn ($134mn) in the organisation behind New Zealand’s All Blacks rugby team.
Methods new and old are in evidence. Debt financing is one. The All Blacks investment uses a perpetual security, convertible into equity after three years. A roll-up model is given a sporty airing by 777 Partners, a Miami-based investment firm busily acquiring soccer clubs, leagues and other sports teams.
That is a bold move. Squeezing cost savings from food delivery couriers or heavy industry look hard enough. That could explain the use of debt and hybrid securities. Outright club ownership is best left to the sports moguls.
Germany investigating Tui share transfer linked to oligarch in EU sanctions list
Travel group says share sale by Alexei Mordashov’s holding company ‘invalid’ until probe ends
German authorities have launched an investigation into the transfer of a major stake in Tui, Europe’s largest holiday company, by Russian oligarch Alexei Mordashov, who is under western sanctions.
Tui said on Friday that the German government was investigating the transfer by Mordashov’s holding company, Unifirm, of 29.9 per cent of its shareholding in the travel group. The transaction took place on February 28, the same day Mordashov was hit by EU sanctions over Russia’s invasion of Ukraine.
The stake was transferred to Ondero Limited, a company based in the British Virgin Islands. No owner of Ondero was listed when the transfer was filed with the German markets regulator despite laws strictly mandating that stakeholders must be named in regulatory filings.
On Friday Tui said that in an updated filing by Ondero, the controlling shareholder was named as Marina Mordashova. She is believed to be the oligarch’s third wife, although that has not been publicly confirmed.
The investigation into the transfer by Mordashov — a steel magnate and Tui shareholder for 15 years — is the latest sign of how wealthy Russians are moving to protect their assets as western governments target those perceived to be close to President Vladimir Putin.
Tui said that until the probe into “the effectiveness of the notified transaction” had concluded, the transfer was “invalid” and the shareholding was frozen.
Mordashov bought about 5 per cent of Tui in 2007 in the hope of pushing the group to launch operations in Russia. Until March 2, he was also a member of Tui’s supervisory board and had invested millions of euros into the company in order to save it from going under in the pandemic.
Mordashov is one of Russia’s richest men thanks to his position as chief executive of Severstal, the country’s largest steel and mining company, and as chair of Severgroup, a holding company with stakes in assets that range from gold mining to media.
On February 28, Mordashov was one of more than half a dozen Russian businessmen to be hit by EU sanctions. Italian authorities said last week that they had seized a €65mn yacht belonging to Mordashov.
The EU said Mordashov controlled television stations that had actively supported Moscow’s aggressive stance towards its neighbour.
On the same day that he was hit with sanctions, Mordashov moved 4.1 per cent of his shareholding in Tui to Severgroup, of which he is the controlling shareholder.
“Due to the EU sanctions, Mr Mordashov has no access to these shares as well as the voting rights and cannot derive any economic benefit from them,” Tui said.
However, the remaining 29.9 per cent — under the limit at which a formal takeover big must be launched — was transferred to Ondero and therefore, officially, out of Mordashov’s control. Companies in the British Virgin Islands are not obliged to publish their shareholder register.
Severstal declined to comment on the transactions or the relationship of Mordashova to the Russian oligarch. A spokesperson said neither Mordashov nor Mordashova were immediately available for comment.
In a previous statement, Mordashov described the conflict in Ukraine as “a tragedy for two fraternal nations” and said: “I fail to understand how these sanctions against me will contribute to the settlement of the dreadful conflict.”
A person who is regularly in touch with Tui shareholders said that none had yet flagged any intention to dump Tui stock because of the reputational risk.
Tui shares had fallen by just over 2.4 per cent by lunchtime on Friday.
Novalpina founders accused of ‘malign’ attempt to retake €1bn fund
Private equity fund behind spyware maker NSO Group is at centre of London court case
Two of Novalpina Capital’s ousted co-founders have been accused in a London lawsuit of a “malign and unpredictable campaign” to take back control of the private equity fund that owns Israeli spyware maker NSO Group.
Stefan Kowski and Bastian Lueken, alongside fellow co-founder Stephen Peel, were stripped of control of Novalpina’s €1bn private equity fund last year in a highly unusual move after investors concluded the trio had fallen out so badly that they were no longer capable of jointly running it.
Berkeley Research Group, the US consultancy that took over the fund, is suing Kowski and Lueken in London’s High Court. It said in court filings that they are in charge of entities that are seeking to “reassert control” over the fund, despite having agreed not to challenge BRG’s appointment and to co-operate with the handover last year. It is not suing Peel.
The pair say they “did not give instructions” for proceedings to be started in a Luxembourg court to put the fund’s original manager, which they ran, back in charge. Lueken said in court filings that BRG’s complaints against him were “groundless”.
The court battle is the latest sign of turmoil at the company that owns a majority stake in NSO and is scrambling to return cash invested by public pension funds from Yorkshire to Oregon.
It threatens to cast further uncertainty over the future of the spyware maker as well as the Novalpina fund’s other companies: Estonian gambling business Olympic Entertainment Group and the French pharmaceutical group Laboratoire XO.
In filings that describe Lueken and Kowski as “people of some means”, BRG said the pair appeared to only want to retake control until money had been paid to entities in their “camp”.
Still, it said, the pair’s actions “pose an existential threat to a fund with €1bn of commitments from investors”. It added that “without swift intervention from the court the fund faces potentially irreparable damage”.
Kowski responded that “the situation is quite the reverse” and said BRG was “mismanaging the fund and causing it to lose value”.
Lueken and Kowski “did their utmost to ensure that the handover [to BRG] was smooth, although their offers of assistance were sometimes rejected or ignored,” Kowski said in court filings for a hearing on Friday.
The pair also argue that their agreements not to challenge BRG are no longer valid because BRG did not uphold its side of the bargain, which was to appoint an independent valuer of the fund so it could hand them payouts.
Though the ousted Novalpina vehicle received a “priority profit share” payment of €18mn in August, just before BRG took control, Kowski said the “most significant” of the payments due to the founding partners had not yet been paid.
He said BRG had “refused, and continues to refuse, to appoint a valuer to carry out a valuation”, which is needed to determine the level of the payouts.
EY valued the fund at €2bn in June 2021, Kowski said.
The case is being heard in London’s High Court and is due to continue next week.
Research Calls
- Upgrades:
- Allstate (ALL) upgraded to Strong Buy from Outperform at Raymond James; tgt raised to $165
- BNP Paribas (BNPQY) upgraded to Buy from Hold at Societe Generale
- DigitalBridge (DBRG) upgraded to Neutral from Underweight at JP Morgan; tgt $7
- Garmin (GRMN) upgraded to Buy from Neutral at BofA Securities; tgt lowered to $140
- Guidewire Software (GWRE) upgraded to Mkt Outperform from Mkt Perform at JMP Securities; tgt $110
- MongoDB (MDB) upgraded to Buy from Neutral at UBS; tgt raised to $450
- STAAR Surgical (STAA) upgraded to Buy from Neutral at BTIG Research; tgt $98
- StoneCo (STNE) upgraded to Buy from Neutral at Citigroup; tgt $15
- Targa Resources (TRGP) upgraded to Buy from Neutral at Mizuho; tgt raised to $85
- Tractor Supply (TSCO) upgraded to Outperform from Perform at Oppenheimer; tgt $270
- United Airlines (UAL) upgraded to Neutral from Underperform at Exane BNP Paribas; tgt $38
- Downgrades:
- America Movil SA (AMX) downgraded to Neutral from Overweight at JP Morgan; tgt lowered to $21
- Cummins (CMI) downgraded to Neutral from Buy at UBS; tgt lowered to $214
- HarborOne Bancorp (HONE) downgraded to Underweight from Neutral at Piper Sandler; tgt $15.50
- JOANN Inc. (JOAN) downgraded to Neutral from Overweight at Piper Sandler; tgt lowered to $11
- NN Inc (NNBR) downgraded to Sector Weight from Overweight at KeyBanc Capital Markets
- Noodles & Co (NDLS) downgraded to Neutral from Overweight at Piper Sandler; tgt lowered to $7
- Park-Ohio (PKOH) downgraded to Sector Weight from Overweight at KeyBanc Capital Markets
- Telefonica Deutschland (TELDF) downgraded to Neutral from Buy at UBS
- TransUnion (TRU) downgraded to Neutral from Buy at Goldman; tgt lowered to $109
- Wingstop (WING) downgraded to Underweight from Overweight at Piper Sandler; tgt lowered to $102
- Others:
- Allbirds (BIRD) initiated with a Hold at Jefferies; tgt $6
- Booz Allen Hamilton (BAH) resumed with a Buy at Stifel; tgt $96
- CACI Intl (CACI) resumed with a Hold at Stifel; tgt $305
- Datadog (DDOG) initiated with a Neutral at SMBC Nikko; tgt $136
- Farfetch (FTCH) initiated with a Buy at Jefferies; tgt $25
- GMS (GMS) initiated with a Buy at Loop Capital; tgt $62
- Jacobs Engineering (J) resumed with a Buy at Stifel; tgt $159
- KBR (KBR) resumed with a Buy at Stifel; tgt $65
- Leidos (LDOS) resumed with a Buy at Stifel; tgt $126
- ManTech (MANT) resumed with a Hold at Stifel; tgt $90
- Montrose Environmental Group (MEG) resumed with a Neutral at JP Morgan; tgt $55
- Parsons (PSN) resumed with a Buy at Stifel; tgt $43
- Performance Food Group (PFGC) initiated with a Buy at Deutsche Bank; tgt $62
- Poshmark (POSH) initiated with a Hold at Jefferies; tgt $14
- Rent the Runway (RENT) initiated with a Buy at Jefferies; tgt $13
- Science Applications (SAIC) resumed with a Hold at Stifel; tgt $95
- Stitch Fix (SFIX) initiated with a Hold at Jefferies; tgt $10
- The RealReal (REAL) initiated with a Buy at Jefferies; tgt $13
- thredUP (TDUP) initiated with a Buy at Jefferies; tgt $13
- Vectrus (VEC) resumed with a Hold at Stifel; tgt $42
- ZimVie (ZIMV) initiated with a Neutral at Guggenheim
Gapping down
In reaction to earnings/guidance:
- BBAI -18.6%, JOAN -7.7%, GME -7.2%, FDX -3.5%, X -3.3% (guides Q1 EPS below consensus), AVPT -3% (also announces $150 mln share repurchase program), EMBK -1.5%
Other news:
- OR -4.8% (announces $250 mln bought deal financing agreement)
- MSGE -4.8% (Andrew Lustgarten is stepping down from his position as President of Madison Square Garden Entertainment Corp., effective April 1, 2022)
- ABR -4.1% (prices offering of 6.5 mln shares of common stock for gross proceeds of $108.9 mln)
- DS -3.5% (updates Fourth Quarter and Full Year 2021 Financial Results)
- SEDG -3.1% (prices offering 2.0 mln shares of common stock at $295.00 per share)
- CLF -1.3% (in sympathy with weak X guidance)
- VRSK -1.1% (issues statement in response to D.E. Shaw letter)
Analyst comments:
- WING -4.9% (downgraded to Underweight from Overweight at Piper Sandler)
- NDLS -2.9% (downgraded to Neutral from Overweight at Piper Sandler)
- HONE -1.6% (downgraded to Underweight from Neutral at Piper Sandler)
Gapping up
In reaction to earnings/guidance:
- STNE +28.4% (also announces executive hires), ONON +6.7%, USAS +4.8%, CURV +0.8%, .
Other news:
- WULF +7.3% (reports progress on building out mining operations)
- LXRX +4.5% (enters into loan facility to support commercialization of sotagliflozin)
- TMC +3.2% (signs term sheet for development of commercial system to collect deep-sea polymetallic nodules)
- TGI +2.3% (awarded five year contract with U.S. Navy for repair of SH-60 Seahawk enhanced digital electronic control units)
- GLDD +1.5% (receives several dredging awards totaling $132.3 mln)
- TRGP +1.1% (to acquire Southcross Energy for $200 mln)
- PRGO +0.9% (receives final approval from FDA for OTC use of Nasonex 24HR Allergy)
- EQR +0.7% (increases dividend)
Analyst comments:
- DBRG +1.4% (upgraded to Neutral from Underweight at JP Morgan)
- MDB +1.4% (upgraded to Buy from Neutral at UBS)
- GRMN +1.2% (upgraded to Buy from Neutral at BofA Securities)
- GWRE +1.1% (upgraded to Mkt Outperform from Mkt Perform at JMP Securities)