FT : Megadeals buoy global M&A despite pullback from record 2021

Megadeals buoy global M&A despite pullback from record 2021
Deals such as Elon Musk’s proposed acquisition of Twitter carried volumes to $2tn in first half

A wave of megadeals carried global mergers and acquisitions volumes to $2tn in the first half of the year, even as inflation, interest rate rises and the Ukraine war have ravaged confidence and caused significant deals to fall through.

Twenty-five deals worth over $10bn have been announced in the first half of 2022, up 12 per cent compared with the same period last year — although overall deal volume fell by a fifth, according to figures from Refinitiv.

Concern has also arisen that some of the biggest deals that have buoyed the market might fall through or take longer to close than anticipated.

Elon Musk has repeatedly threatened to walk away from his $44bn takeover of Twitter and Broadcom is preparing for lengthy antitrust investigations into its proposed $69bn acquisition of cloud software company VMware. SoftBank’s $66bn sale of UK chip business Arm to Nvidia collapsed in February because of regulators’ concerns and Walgreens Boots Alliance this week halted the sale of Boots.

Dealmakers in the US are also preparing for a more hostile approach to M&A from officials installed by President Joe Biden in the Department of Justice and the Federal Trade Commission.

“The administration set out to cool things off in the M&A market and it is having some effect,” said Eric Swedenburg, co-head of M&A at Simpson Thacher & Bartlett. “The FTC has said it will fight a lot of deals even if that means they will lose more often.”

Global M&A last year hit its highest level since records began, thanks in part to booming markets and widespread stimulus measures during the pandemic.

US dealmaking is already down significantly from last year, with $950bn worth of deals agreed in the first half, a drop of 28 per cent from the same period in 2021. The blank-cheque boom that fuelled transaction volumes last year has largely died down and dealmakers have become more pessimistic on the economic outlook.

Corporate leaders “are going to be looking pretty closely at their balance sheets again to make sure they have rainy-day plans in place”, Swedenburg added. “For a lot of companies right now, that is more top-of-mind than inorganic growth.” 

Turmoil in the global economy has caused a rise in the value of deals being called off altogether, which stands at the highest level since before the pandemic at $286.2bn.

“We’re in a transition phase where sellers have high expectations of value, but buyers have repriced to lower multiples,” said David Higgins, a partner at Kirkland & Ellis. “That, together with issues around the quantum and pricing of debt available, has led to some processes being withdrawn or postponed.” 


The megadeals have helped shelter investment banks’ M&A businesses from the significant drops in fee income that they have suffered elsewhere. Fees from advising on deals have fallen 7 per cent this year, compared with declines of 72 per cent in banks’ equity businesses and 26 per cent in bonds.

As corporate M&A has faltered, private equity firms have stolen their largest-ever share of overall dealmaking, the figures show. Buyout groups’ deals accounted for 26 per cent of total M&A so far this year, the highest figure since records began in 1980.

The industry’s deals include a €54bn takeover bid by Blackstone and the billionaire family behind luxury fashion brand Benetton for Italian infrastructure group Atlantia in April, the largest ever take-private deal for a European listed company. In the US, activist fund Elliott Management led take-privates of media ratings firm Nielsen for $16bn and software firm Citrix for $16.5bn.

Buyout firms are turning more to private lenders for financing, but these groups are now warning that a slowing debt market will curtail activity.

“Demand for direct lending capital will meaningfully exceed the available supply,” said Marc Lipschultz, co-founder of Blue Owl Capital, who noted loans are sitting on lenders’ books longer, limiting their capacity to finance new deals. “The capital that’s normally refreshing the system just won’t be there,” he said.

Elizabeth Cooper, co-head of Simpson Thacher’s private equity M&A practice, said: “I think the summer is going to be quiet . . . If markets stabilise, I think we’ll see more take-private transactions.”

But other dealmakers said their clients were still showing interest in getting deals done.

“2022 was never going to be like 2021. It was a record way in every way,” said Stephen Arcano, global head of transactions at Skadden. “While there has been a slowdown this year, there has been a rebound in interest in transactions. It feels like the pipeline is pretty active, even with meaningful global, financial and regulatory headwinds.”

FT : Seized Gazprom division to keep paying bonuses after €10bn German bailout

Seized Gazprom division to keep paying bonuses after €10bn German bailout
New boss says rebranded company is ‘back in town, ready to resume our business’

The Gazprom unit that was seized by the German government in April and given a €10bn taxpayer bailout will continue to pay bonuses to its gas traders, its new managing director has said.

Egbert Laege told the Financial Times that Securing Energy for Europe, previously known as Gazprom Germania, was “back in town, ready to resume our business” after receiving the loan from German state development bank KfW.

Berlin seized control of Gazprom Germania and its subsidiaries in early April, several weeks after Russia invaded Ukraine, placing them under the trusteeship of the country’s federal energy regulator, the BNA.

Sefe owns a number of gas storage facilities in Germany including the country’s largest, Rehden, as well as the Wingas distribution company that supplies big industrial consumers, and UK trading division Gazprom Marketing & Trading, which is also set to be rebranded.

Russia struck back in May by cutting the volume of gas it supplies to the company, forcing it to buy in the spot market instead, often at higher prices, and plunging GG into a financial crisis.

The German government this month stepped in with its loan to save the company from insolvency and extended the BNA’s trusteeship beyond its previous cut-off point of September this year.

Laege said the loan had provided Sefe with much-needed liquidity and was helping it pay for the more expensive gas it was procuring.

He said his immediate goal as the head of Sefe was to secure the critical infrastructure under the company’s control to “ensure security of supply” for Germany, as well as to stabilise the company’s finances.

He added that the company had good long-term prospects based on the “unique capabilities” of its staff, particularly their experience of trading and portfolio management, and its control of infrastructure that could become the “backbone of a transformed energy system”. 

Gazprom has been accused of contributing to a squeeze on Europe’s gas supplies even before the invasion of Ukraine, after the company left the Gazprom Germania storage facilities in Germany and Austria practically empty ahead of last winter.

Laege said thanks to the KfW loan, GM&T “will now be able to start trading again”. He said many of its counterparties were “coming back to . . . us” and new ones were also appearing. “We take this as an encouraging sign that business is picking up,” he said. “We’re back on the GM&T side and back on the retail side, both in the UK and Germany,” he said.

London-based GM&T is a big trader of gas, liquefied natural gas and power, buying from sources including Norway and the North Sea and selling worldwide.

The average salary at GM&T was £127,000 a year in 2020, according to accounts filed in the UK, including administrative staff. Top traders at the company can at times receive millions of pounds in bonuses, according to one person close to the company.

Laege said there were no plans to change the existing pay structure. The company declined to comment on the size of trader bonuses.

GM&T’s subsidiary Gazprom Energy is the biggest supplier of gas to business in the UK, providing more than a fifth of that used by British companies, making it a crucial part of the country’s energy system.

Gazprom Energy, which has 30,000 corporate customers, came under pressure in recent months as companies such as Siemens and McDonald’s said they would try to withdraw from their contracts, and NHS trusts and local authorities were encouraged to find new suppliers.

The UK government had been on standby to put the company into “special administration”, a de facto nationalisation where it would have been kept as a going concern with taxpayer support.

Using German taxpayer money to pay bonuses to UK-based gas traders could prove controversial. Asked whether there might be adverse reaction from the German public, Laege said “German taxpayers have two interests — security of supply and making sure the money given to the company is [well-managed] and paid back some time.”

Asked why Sefe hadn’t tried to spin off its trading subsidiaries while maintaining control over the critical infrastructure assets, Laege said it was limited in its ability to restructure itself by the terms of its arrangement with the BNA. “Under the trusteeship that we have right now, there are strong limitations on breaking up the company,” he said.

Laege declined to comment on fears expressed by some in the industry that Sefe’s technology may be compromised because it was set up by Russian government security experts. “Fear is a bad adviser,” he said.

While he was “confident” that Germany could fill its gas storage to 90 per cent capacity as mandated by a new law, he said that should supplies from Russia continue to be curtailed, “it will be very very difficult to achieve that target”.

The Rehden storage facility is still only 17 per cent full.

>>> US After Hours Summary: PFE and BNTX announce new vaccine supply agreement w

After Hours Summary: PFE and BNTX announce new vaccine supply agreement with US govt; RH -5% falls on weak guidance; SGH -12.8% and DCT -12.3% lower on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: POWW +10.6%, CDMO +5.5%, MLKN +5%

Companies trading higher in after hours in reaction to news: AVDL +8.5% (provides corporate update), LXRX +8% (announces positive top-line results from phase 2 study of LX9211), SYM +4.2% (stock offering), NXST +2.5% (NXST nearing a deal to acquire majority control of the CW Network from WBD and PARA, according to WSJ), BNTX +1.4% (PFE and BNTX announce new vaccine supply agreement with US govt), STNG +1.3% (president purchases 50,000 shares), PFE +0.5% (PFE and BNTX announce new vaccine supply agreement with US govt), PARA +0.5% (NXST nearing a deal to acquire majority control of the CW Network from WBD and PARA, according to WSJ), LRN +0.2% (names new CFO), XRX +0.2% (CEO and Vice Chairman John Visentin unexpectedly passes away), OSCR +0.1% (launches its Next Best Actions engine), UBS +0.1% (ordered to pay $25 mln to settle SEC fraud charges, according to Reuters), WBD +0.1% (NXST nearing a deal to acquire majority control of the CW Network from WBD and PARA, according to WSJ)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: SGH -12.8% (also to acquire Stratus Technologies), DCT -12.3%, RH -5% (lowers FY22 revenue and op mgn guidance; maintains Q2 guidance), FIZZ -1%

Companies trading lower in after hours in reaction to news: HYPR -15.6% (CEO will step down for personal reasons), CYTK -13.9% (proposes $450 mln convertible notes offering), WSM -3.9% (in sympathy with weak RH guidance), W -1.4% (in sympathy with weak RH guidance), OIS -0.2% (settles dispute with HCperf Holdings), ETD -0.1% (in sympathy with weak RH guidance)

WSJ : Nexstar Nears Deal to Acquire Majority Control of CW Network

Nexstar Nears Deal to Acquire Majority Control of CW Network
Owner of local TV stations is looking to broaden CW’s programming to cater to older audience

Nexstar Media Group Inc., NXST -1.19%▼ the nation’s biggest owner of local television stations, is close to a deal to acquire majority control of the CW Network from co-owners Warner Bros. Discovery Inc. WBD -3.59%▼ and Paramount Global, PARA -1.88%▼ according to people familiar with the matter.

Under the terms being discussed, Nexstar would acquire 75% of the CW, a broadcast network aimed primarily at teens and young adults, with Paramount and Warner Bros. Discovery each retaining 12.5% stakes, the people said.

Nexstar isn’t expected to pay cash for the CW but instead would assume at least a significant portion of the network’s current losses, which could exceed $100 million, some of the people said. The talks could still fall apart, but the people familiar with the matter say an agreement could be finalized in the coming weeks.

CBS—the broadcast network of Paramount—and Warner Bros. are expected to continue to create content for the CW going forward, but Nexstar is also planning to acquire shows from other producers as well, the people said. In addition, Paramount and Warner Bros. Discovery are expected to retain several hundred million dollars in content-licensing revenue from pre-existing deals, including a significant pact with Netflix Inc., some of the people said

Nexstar already is the largest owner of CW affiliates. By taking over control of its operations, the broadcaster is continuing a strategy to invest further in creating and owning content. Over the past few years, it has launched the NewsNation cable channel and acquired the political news outlet The Hill.

One of the motivations for Nexstar is to pivot the programming on the CW to something closer to the older audience of its local stations, a person familiar with the broadcaster’s thinking said. The CW already has taken some steps in that regard by veering slightly away from teen-angst dramas such as “Riverdale” and adding shows such as “Walker,” about a Texas lawman, and “The Professionals,” a new action hour about a private security firm premiering this season.

The CW was born out of the 2006 merger of Warner Bros.’ WB and CBS’s UPN networks, both which had been struggling. The rationale behind the merger was that it would provide a platform for the companies’ production arms to place content at a time when selling to other networks was becoming more difficult as a result of industry consolidation.

Although the CW itself rarely made a profit, it was very successful for its parent companies, thanks primarily to the Netflix licensing agreement. While the audience for the CW was often small compared with other broadcast and cable networks, its shows such as “Riverdale” and “Arrow” developed big followings on Netflix. On Wednesday, two CW dramas—“Legacies” and “All American”—were ranked in the U.S. top 10 of most-popular shows on the streaming service.

The license fees from Netflix made the CW profitable for its partners. At the same time, it also sometimes created differing priorities between the partners on one hand and the CW Network and its local station affiliates on the other, people close to the network said. Shows whose ratings had declined, such as “Dynasty” and “Charmed,” were renewed for years because Netflix would continue to pay for global distribution rights despite their weak performance on the network.

In 2019, the CW’s parent companies decided to end the Netflix agreement because both wanted CW content for their own streaming services—Paramount+ and HBO Max, respectively. That meant shows created after the agreement expired wouldn’t go to Netflix but shows currently available on Netflix would remain for several more years.

While the decision was motivated by a desire to bolster their own platforms, it also meant increased costs to license the content on top of the loss of fees from Netflix.

That, combined with a shift in priorities at both Paramount Global and Warner Bros. Discovery, meant that the CW became something of an afterthought. Paramount Global is focused on its own streaming service as well as rebuilding its Paramount movie studio, while Warner Bros. Discovery, which is under new ownership, is looking to cut costs and determine which businesses aren’t a priority.

Immediate on-air changes aren’t expected at the CW, the people familiar with the matter said. In May, the network announced its lineup of new shows for the upcoming 2022-23 season, and that isn’t expected to change in the event of the sale. The CW also just completed selling ad inventory for its new lineup, which would also make any immediate changes challenging.

>>> US Close Dow +0,27% S&P -0,07% Nasdaq -0,75% Russell -1,12%

Closing Stock Market Summary

It was a choppy day for the stock market with the major indices sticking to a narrow range, though with volatile price action. The indices set early session lows before rolling along the rest of the day above those levels. There was more of a negative bias than what the major indices showed.

Rate hike and growth concerns weighed on trading mentality. There was little conviction from the buyers today as evidenced by the advance-decline line. Decliners led advancers by a roughly 2-to-1 margin at both the NYSE and Nasdaq.

Another factor that showed growth concerns were the mega caps which outperformed the broader market. The Vanguard Mega Cap Growth ETF (MGK) closed up 0.3% compared to the 0.6% loss in the Invesco S&P 500 Equal Weight ETF (RSP). The Russell 2000 and S&P Mid Cap 400 were down 1.2% and 0.8%, respectively.

Of the 11 S&P 500 sectors, six closed in the green. Some of the outperformers were counter-cyclical sectors, including health care (+0.9%), consumer staples (+0.5%), and utilities (+0.1%). 

The cyclical sectors lagged today. The energy (-3.4%), real estate (-0.8%), materials (-0.7%), financials (-0.6%), and industrials (-0.6%) sectors all closed in the red, further fueling the growth concern narrative.

Rate hike concerns were fueled this morning by Cleveland Fed President Mester (FOMC voter) saying she would advocate for another 75 basis point rate hike in July if conditions remain the same. Fed Chair Powell for his part acknowledged at an ECB forum that the importance of fighting inflation is worth the risk of slowing economic activity too much, which was another way of saying that it will be challenging for the Fed to achieve a soft landing.

Treasury yields closed lower. The 10-yr note yield fell 11 basis points to 3.09% and the 2-yr note yield fell seven basis points to 3.07% in a curve-flattening trade.

Reviewing today's economic data:

  • Q1 GDP - Third Estimate -1.6% ( consensus -1.5%); Prior -1.5%; Q1 GDP Deflator - Third Estimate 8.2% (consensus 8.1%); Prior 8.1%
    • The key takeaway from the report is that consumer spending wasn't as strong as previously reported. Personal consumption expenditures increased just 1.8% in the first quarter versus the second estimate, which showed growth of 3.1%.
  • Weekly MBA Mortgage Applications Index 0.7%; Prior 4.2%
  • EIA Crude Oil Inventories had a draw of 2.76 mln barrels (prior week showed a build of 1.96 mln barrels) and gasoline inventories had a build of 2.56 mln barrels (prior week showed a draw of 710K barrels)

Looking ahead to Thursday, the Personal Income (Briefing.com consensus 0.5%; prior 0.4%), Personal Spending (Briefing.com consensus 0.5%; prior 0.9%), PCE Price Index (consensus 0.7%; prior 0.2%), and the Core PCE Price Index (consensus 0.3%; prior 0.3%) for May will be released at 8:30 a.m. ET. The weekly initial jobless claims (consensus 234,000; prior 229,000) and continuing claims (prior 1.315 million) will also be released at 8:30 a.m. ET. The Chicago PMI consensus 58.8; prior 60.3) for June will be released at 9:45 a.m. ET. The weekly EIA Natural Gas Inventories (prior +74 bcf) will be released at 10:30 a.m. ET.

  • Dow Jones Industrial Average: -14.6% YTD
  • S&P 500: -19.9% YTD
  • S&P 400: -19.4% YTD
  • Russell 2000: -23.4% YTD
  • Nasdaq Composite: -28.6% YTD

WSJ : Crypto Hedge Fund Three Arrows Ordered by Court to Liquidate

Crypto Hedge Fund Three Arrows Ordered by Court to Liquidate
The order follows creditor lawsuits over the crypto hedge fund’s failure to repay loans

A British Virgin Islands court ordered the liquidation of Three Arrows Capital Ltd. after creditors sued the cryptocurrency hedge fund for failure to repay debts.

Nichol Yeo, a partner at law firm Solitaire LLP, said Three Arrows Capital is considering its options and seeking legal advice in the British Virgin Islands.

Three Arrows Capital suffered losses in recent weeks due to a punishing decline in the value of cryptocurrencies. Twin forces have hit the digital asset ecosystem: a broad market selloff sparked by the Federal Reserve’s interest-rate increases and concerns over individual crypto coins and firms. Bitcoin’s dollar value has fallen by more than a third this month.

Two executives of Global advisory firm Teneo, Russell Crumpler and Christopher Farmer, were appointed by the British Virgin Islands to oversee the liquidation of assets and safeguard them, according to people familiar with the proceedings. The firm isn’t representing Three Arrows or the creditors.

Creditors to whom Three Arrows owes debts will be able to file their claims online, the people said. The process for debtors to reclaim their assets is likely to be lengthy, they said, noting the liquidation order would mark the start of that process.

Former schoolmates and Wall Street traders Su Zhu and Kyle Davies started Three Arrows nearly a decade ago. It had roughly $3 billion in assets under management in April, just before crypto markets cratered, Mr. Davies told The Wall Street Journal earlier this month.

Three Arrows Capital invested in Luna, “Lido Staked ether” tokens and Grayscale Bitcoin Trust. Luna collapsed last month when its sister cryptocurrency TerraUSD, failed to maintain its value against the dollar, sending ripples through the crypto universe. The two coins together lost more than $60 billion in value.

Hedge funds such as Three Arrows invested in Grayscale to arbitrage the difference between the value of the trust and bitcoin, whose value it tried to mimic. The Grayscale trade suffered as the trust faced competition from investment products created for everyday investors. Grayscale Bitcoin Trust, which traded at a premium to bitcoin in the past, was trading at a 29% discount to bitcoin’s price as of Monday, according to YCharts data.

Several creditors have sued over the firm’s failure to repay loans. Crypto broker Voyager Digital Ltd. earlier this week said that Three Arrows had defaulted for failing to make loan payments tied to large bets in the digital-currency realm. The loan, which included 15,250 bitcoin and $350 million in USD Coin, amounted to about $656 million based on bitcoin’s current price. Voyager Digital said it intends to recover its assets and is discussing legal remedies with its advisers.

The liquidation order was reported earlier by Sky News.

Three Arrows Capital operated as a regulated fund manager in Singapore until last year, when it shifted its domicile to the British Virgin Islands, part of a plan to relocate its operations to Dubai.