TheChek News Flow

Canadian group’s move comes after funds employing a multi-strategy approach have thrived during the pandemic

Brookfield Asset Management is expanding its hedge fund business into Europe, as the Canadian investment group bets on a trading strategy that has delivered stellar returns for some of the industry’s biggest names during the pandemic.

The Toronto-based firm’s Brookfield Hedge Fund Solutions Advisors is a multi-strategy unit trading areas such as equity market neutral and event-driven, a profitable corner of the industry dominated by the likes of Citadel and Millennium Management.

Until now, the low-profile business, which runs around $1bn in assets, has based all its trading teams in New York. But it is now opening an office in London for its hedge fund business and has begun hiring, according to people familiar with the matter.

It has recruited William Rushmer, previously a partner at Mayfair-based investment firm CZ Capital, to run a long-short strategy in UK stocks in London, and plans to expand the business further, one of the people said.

The move by Brookfield, which manages around $650bn in assets globally and is best known for its real estate, infrastructure and private equity investments, will increasingly pit it against some of the biggest, most established names in the multi-manager hedge fund sector.

Such funds, which employ tens or even hundreds of small teams of traders, have enjoyed a strong period of performance and attracted billions of dollars from investors.

Ken Griffin’s Citadel, which manages $43bn, gained 26.3 per cent last year, and made money across credit, commodities, equities, fixed income and macro, and quantitative strategies. In 2020, it made 24.5 per cent.

Izzy Englander’s Millennium Management, which has $52bn in assets, gained around 13 per cent last year, having made 25.6 per cent in 2020, its best performance in two decades, while Steve Cohen’s Point72 and Balyasny also made gains last year.

Funds have been helped by their diversification across assets, an ability to cut risk quickly if conditions sour or to fire underperforming managers, and sharp price moves in areas such as commodities.

Data group eVestment noted that “2021 will go down as a year dominated by multi-strategy hedge funds”, noting that the bulk of the hedge fund industry’s inflows last year went into this sector.

Such funds, which often give autonomy to trading teams within strict risk limits, gained 10.5 per cent on average last year, according to eVestment, just ahead of the overall industry’s average gain. Many investors favour these funds because of the low volatility of their returns and their ability to make money even when managing a large base of assets.

The success of such funds during the pandemic has led to a fierce battle for talent, which has pushed payouts for top traders sky-high. Payments just to compensate top traders when they leave a rival, for instance, can now reach $10m and occasionally as much as $20m.

Brookfield’s hedge funds business, which is led by New York-based Jason Siegel, began running money in 2019.

The Canadian group as a whole has been investing in Europe for close to 20 years. Its assets in the region, which include real estate, infrastructure and renewable power, have ballooned from $6bn in 2013 to around $110bn.

Brookfield declined to comment.

European companies could be sued for environmental, human rights violations in their supply chains

Supply chain under scrutiny

One of the more vexed and contested proposals in the commission’s legislative portfolio is getting closer to its debut, write Sam Fleming, Mehreen Khan and Andy Bounds in Brussels.  

Proposals for rules on sustainable corporate governance, which were knocked back twice last year by the commission’s internal regulatory scrutiny board, are tentatively scheduled for release in the middle of February.

The commission has yet to finalise the provisions, but under the current draft large companies could find themselves taken to court if they fail to do enough to crack down on human rights or environmental abuses in their supply chains, according to people familiar with the discussions.

The rules would apply to companies with more than 500 employees and €150m of annual revenues. There may be an additional category for “high-risk” sectors such as mining, which apply to 250-500 employees. Smaller companies would be exempt.

The mooted regime, which is being spearheaded by Didier Reynders, the justice commissioner, has had a fraught genesis. Earlier ideas, including the possibility of forcing companies to withdraw certain non-compliant products from the single market, have not made it into the latest draft — although there is plenty of scope for things to change.

Reynders told the FT this month that the commission will come forward with an “ambitious proposal on due diligence, concerning environmental issues and human rights issues” — with the goal of landing the proposals in the first quarter of the year.

“We will start with large companies — we don’t want to put too many burdens on SMEs,” he said.

Members of the European parliament have been pushing hard for tighter rules, in part because of concerns over the use of forced labour in China’s Xinjiang region. Member states including Germany and the Netherlands have been moving forward with their own regimes.

The legislation would allow companies to be taken to court by injured parties if they fail to meet the required due diligence standards, while also permitting EU member states to introduce financial penalties. Companies would need to show they have properly examined risks in their supply chains.

The commission declined to comment on the details of the proposals, which are also being overseen by Vera Jourova, commission vice-president.

Heidi Hautala, a Finnish Green MEP, said that without access to justice for victims of abuses covered by the directive the instrument would have almost no meaning. “It is something real, if the companies have to do everything in their power to identify the salient risks in the supply chain and work on those risks,” she said.

Business groups, while backing an EU-wide framework, have expressed concerns about the proposals. “The new rules should not task European companies with solving problems out of their scope, mixing up the roles of companies and governments,” said BusinessEurope, which represents the bloc’s large employers.

Deal worth £164m brings together heavy industry and advanced racing technology

Fortescue Metals Group’s green investment division has agreed to buy the battery and technology arm of the Williams Formula One racing team for £164m. 

The Australian mining group said that it would use the battery systems and electrification technology acquired by Fortescue Future Industries to help achieve its target to be carbon neutral by 2030.

Andrew Forrest, the billionaire founder and chair of Fortescue, told the Financial Times that the deal represented the “first merger of heavy industry with hyper advanced electrical technology” and that he had struck the deal after the mining company “scoured the world for battery technology.”

He said that electrification and battery expertise will add a third prong, along with green hydrogen and ammonia energy, to a new strategy and business capable of reducing the carbon emissions of heavily polluting industries including mining and transport.

Fortescue plans to use the new systems to adapt its 3km-long freight trains, heavy industrial equipment and haul trucks to reduce emissions at its mining sites, it said.

The first major project will be an electric “infinity train” concept, Fortescue said, which it expects to become a significant development in the green industrial transport sector.

Williams, one of the most famous names in car racing, was sold in 2020 to US fund Dorilton Capital for €152m in what was seen as an admission that the team could no longer compete with better-funded rivals such as Red Bull, Ferrari and Mercedes-Benz.

The team was founded in 1977 by Sir Frank Williams and was successful, winning 16 drivers’ and constructors’ championships in the 20 years to 1997. But it has not won since and has finished last on the grid for two consecutive seasons prior to its sale before finishing eighth out of 10 teams in the most recent season.

The Williams Advanced Engineering division, which employs 250 people, was founded to support the development of better engine technology.

The unit also turned its attention to saving energy for companies outside racing. Williams worked with Unilever to strip energy usage out of its soap manufacturing processes. It also adapted aerodynamic models used for the rear wings of its cars to slash the amount of power needed for supermarket refrigerators.

The unit collaborated with miners, including Anglo American and Fortescue, on fuel cell technology. Forrest hopes the acquisition can help fossil fuel companies to make the green transition.

“When you try to move away from oil and gas and coal you find barriers everywhere,” he said.

He expects to keep the Williams team in Wantage, the leafy Oxfordshire base of the company, and for the battery engineers to remain “inextricably linked” to the racing side of the business.

“Their challenges on the track are our challenges in the world,” he said. “It’s great to win a Formula One race but we’re all in a race . . . against climate change.”

The Lazard bank is trying to convince investment funds to finance the takeover of "Sauvignon" on "Pinot" to create a leader in distribution. The key is the promise of nearly 1.2 billion euros in synergies.

Is it possible, by assembling pinot and sauvignon, to obtain merlot? Whether in Burgundy or Bordeaux, winegrowers and varietal experts doubt it. But the alchemists of the investment bank do not despair of achieving it.

In mid-November, those of Lazard made the promise to investment funds. Objective: to convince them to finance the takeover of Carrefour (baptized “Pinot” by Lazard) by Auchan (“Sauvignon”). "Merlot would become the leading distributor in France with more than 29% market share in France and a unique international presence in 17 countries", they wrote on November 12, 2021 in a document sent to the largest investment funds, and that Le Figaro was able to consult.

A marriage project between Auchan and Carrefour had been closely studied by the leaders of the two distributors at the end of the summer and the beginning of the fall. At the time, it consisted of the takeover of Carrefour by Auchan, for a price of 21.50 euros per share, paid 70% in cash and 30% in shares of the new entity. But Alexandre Bompard, the CEO of Carrefour, abandoned the negotiations on October 7, even before receiving a formal offer. Its first shareholder, the Moulin family (11%), was only ready to accept an offer fully paid in cash, and at 22 euros. An investment of 17 billion euros unaffordable for the Mulliez Family Association (AFM), which owns 97% of Auchan.

The AFM management board did not allow itself to be destabilized by this rebuff. He asked his investment banker to continue looking for solutions to make the marriage possible. Lazard has therefore produced, in a few weeks, a 16-page document in English, which is intended to serve as the basis for an oral presentation to the funds. Its objective is then to achieve a closing of the operation at the end of 2022.

The promoters of the Merlot project estimate that the new group will achieve in 2025 a turnover of 108 billion euros and a gross operating surplus (Ebitda) of 8.6 billion. The margin would then be 7.9%, compared to 6.1% in 2020. An increase largely enabled by operational synergies (purchases, head office costs, logistics, etc.). Without detailing them and even less mentioning their social impact, at least in its written document, Lazard figures these synergies at 1.165 billion euros per year from 2025; their implementation cost would be 1 billion euros, spread over 2023 and 2024.

Project not yet mature

To convince the anti-competitive authorities, the promoters of the Merlot operation plan to sell 370 stores, including 144 hypermarkets, with an impact of 9.2 billion euros on turnover and 300 million on EBITDA. In addition to France, where the duplicate stores are mainly located in the North, the two groups are both present in Spain, Romania, Poland and Taiwan. Lazard hopes to make around 900 million from this sale.

Could a single buyer be interested in this international complex? Some players in this complex case are convinced of this. “Lazard is trying to build a project at Veolia, which revealed the name of the future buyer of the French activities of Suez the same day it announced its takeover project for Suez,” said one of them. "2MX, the Spac created at the end of 2020 by Matthieu Pigasse, Moez-Alexandre Zouari and Xavier Niel, would be the ideal buyer of the assets to be sold following Auchan's takeover bid on Carrefour", assures another.

On paper, the Merlot project is enough to make investment funds salivate. It remains to negotiate the financial package, which is more complicated. On the one hand, before investing alongside the AFM in a takeover bid on Carrefour, the funds must agree on the value of the Auchan group, which is not listed on the stock exchange; this complexity contributed to the breakdown of negotiations in October. On the other hand, even before entering the new group, the funds envisage their exit within five to seven years. Within the AFM, this prospect contributes to doubt some, who refuse the idea that the Mulliez family must end up leaving distribution one day.

The Merlot project is therefore far from being ready to drink, especially since many consider it unthinkable to announce it before the presidential election. But discussions continue behind the scenes between Lazard and the investment funds. After a few more months of maturation in the cellar, the Pinot-Sauvignon blend could end up becoming a reality.

La banque Lazard tente de convaincre des fonds d’investissement de financer l’OPA de «Sauvignon» sur «Pinot» pour créer un leader de la distribution. À la clé, la promesse de près de 1,2 milliard d’euros de synergies.

Est-il possible, en assemblant du pinot et du sauvignon, d’obtenir du merlot? Que ce soit en Bourgogne ou dans le Bordelais, viticulteurs et experts es-cépages en doutent. Mais les alchimistes de la banque d’affaires ne désespèrent pas d’y parvenir.

Mi-novembre, ceux de Lazard en ont fait la promesse à des fonds d’investissement. Objectif: les convaincre de financer le rachat de Carrefour (baptisé «Pinot» par Lazard) par Auchan («Sauvignon»). «Merlot deviendrait le premier distributeur en France avec plus de 29% de part de marché en France et une présence internationale unique dans 17 pays», écrivent-ils le 12 novembre 2021 dans un document envoyé aux plus grands fonds d’investissement, et que Le Figaro a pu consulter.

Un projet de mariage entre Auchan et Carrefour avait été étudié de près par les dirigeants des deux distributeurs à la fin de l’été et au début de l’automne. À l’époque, il consistait au rachat de Carrefour par Auchan, pour un prix de 21,50 euros par action, payé 70% en cash et 30% en titres du nouvel ensemble. Mais Alexandre Bompard, le PDG de Carrefour, a abandonné les négociations le 7 octobre, avant même de recevoir une offre en bonne et due forme. Son premier actionnaire, la famille Moulin (11%), n’était prêt à accepter qu’une offre intégralement payée en cash, et à 22 euros. Un investissement à 17 milliards d’euros inabordable pour l’Association familiale Mulliez (AFM), qui détient 97% d’Auchan.

Le conseil de gérance de l’AFM ne s’est pas laissé déstabiliser par cette rebuffade. Il a demandé à son banquier d’affaires de continuer à chercher des solutions pour que le mariage soit possible. Lazard a donc réalisé, en quelques semaines, un document de 16 pages en anglais, qui a vocation à servir de base à une présentation orale auprès des fonds. Son objectif est alors de parvenir à un closing de l’opération fin 2022.

Les promoteurs du projet Merlot estiment que le nouveau groupe réalisera en 2025 un chiffre d’affaires de 108 milliards d’euros et un excédent brut d’exploitation (Ebitda) de 8,6 milliards. La marge serait alors de 7,9%, contre 6,1% en 2020. Une progression en grande partie permise par les synergies opérationnelles (achats, frais de siège, logistique…). Sans les détailler et encore moins évoquer leur impact social, du moins dans son document écrit, Lazard chiffre ces synergies à 1,165 milliard d’euros par an à partir de 2025 ; leur coût de mise en œuvre serait de 1 milliard d’euros, étalé sur 2023 et 2024.

Pour convaincre les autorités anticoncurrentielles, les promoteurs de l’opération Merlot prévoient la cession de 370 magasins, dont 144 hypermarchés, avec un impact de 9,2 milliards d’euros sur le chiffre d’affaires et de 300 millions sur l’Ebitda. Outre la France, où les magasins doublons sont principalement situés dans le Nord, les deux groupes sont tous deux présents en Espagne, en Roumanie, en Pologne et à Taïwan. Lazard espère tirer environ 900 millions de cette cession.

Un repreneur unique pourrait-il être intéressé par cet ensemble international? Certains acteurs de ce dossier complexe en sont persuadés. «Lazard tente de bâtir un projet à la Veolia, qui a dévoilé le nom du futur repreneur des activités françaises de Suez le jour même où il a annoncé son projet d’OPA sur Suez», estime l’un d’eux. «2MX, le Spac créé fin 2020 par Matthieu Pigasse, Moez-Alexandre Zouari et Xavier Niel, serait le repreneur idéal des actifs à céder suite à l’OPA d’Auchan sur Carrefour», assure un autre.

Sur le papier, le projet Merlot a de quoi faire saliver les fonds d’investissement. Reste à en négocier le montage financier, ce qui est plus compliqué. D’une part, avant d’investir aux côtés de l’AFM dans une OPA sur Carrefour, les fonds doivent s’accorder sur la valeur du groupe Auchan, qui n’est pas coté en Bourse ; cette complexité a contribué à l’échec des négociations en octobre. D’autre part, avant même d’entrer dans le nouveau groupe, les fonds envisagent leur sortie d’ici cinq à sept ans. Au sein de l’AFM, cette perspective contribue à faire douter certains, qui refusent l’idée que la famille Mulliez doive finir par sortir un jour de la distribution.

Le projet Merlot est donc loin d’être prêt à boire, d’autant que beaucoup estiment inenvisageable de l’annoncer avant l’élection présidentielle. Mais les échanges se poursuivent en coulisses entre Lazard et les fonds d’investissement. Après encore quelques mois de maturation en cave, l’assemblage Pinot-Sauvignon pourrait finir par devenir une réalité.

Move by Trian Fund adds pressure on Unilever CEO after his failed bid to buy GlaxoSmithKline’s consumer health business

LONDON—Trian Fund Management LP, the activist hedge fund run by Nelson Peltz, has acquired a stake in Unilever UL -0.18% PLC, according to people familiar with the matter, adding pressure to the packaged food and consumer goods giant in the wake of its failed $68-billion bid for GlaxoSmithKline GSK 0.49% PLC’s consumer-health business.

The size of the stake couldn’t be learned. Trian started buying Unilever shares well before its bids for the GSK unit surfaced earlier this month, one of the people said.

Unilever’s shares have been under pressure in recent months as it has struggled to boost volumes. Analysts say it has underperformed some rivals during the Covid-19 pandemic in areas such as hygiene and packaged food and hasn’t launched any blockbuster innovations in some time.

The company faced strong opposition from investors to its plan to buy the GSK healthcare business, with analysts pointing to its mixed record on several other big acquisitions. Critics said the London-based company would be overpaying for the GSK business, and that it should focus on turning around its existing categories rather than taking on new ones in which it had little experience.

Trian’s stake in Unilever was earlier reported by the Financial Times.

Unilever Chief Executive Alan Jope late last year kicked off the effort to buy the consumer health business that GSK has said it is preparing to spin off. Unilever said the deal would be part of an effort to push further into health, beauty and hygiene products, at the expense of slower-growing food brands. The bid and the pivot to health amounted to Unilever’s biggest strategic shift in years. It said at the time that any big acquisitions would likely be accompanied by significant divestitures.

But the effort faltered amid intense opposition from Unilever shareholders, while GSK held out for a better price. Mr. Jope last week said he wouldn’t raise Unilever’s last offer, essentially putting the deal on ice. Unilever said it was committed to improving the performance of its existing brands, including through a coming reorganization, and rotating its portfolio into higher-growth categories.

Some analysts and investors say Mr. Jope’s credibility has taken a hit from the episode.

Trian’s stake comes a few years after the New York firm bought into Unilever rival Procter & Gamble Co. PG 0.38% Mr. Peltz in 2017 narrowly won a P&G board seat, in what was at the time the most expensive proxy fight in U.S. history.

Mr. Peltz previously has served on the board of other consumer goods companies, including Oreos maker Mondelez International Inc. MDLZ 0.89% and Heinz. In some past activist campaigns, he has sought to break up companies, though that wasn’t a goal in his P&G involvement.

Analysts and investors have called for Unilever to jump-start its own sales growth in a way similar to P&G’s turnaround, including by divesting slower-growing brands and turning around its core business.

P&G at the time of Mr. Peltz’s involvement was struggling with intense competition, rising materials costs and its own bureaucracy. The Cincinnati-based company has since succeeded in upgrading consumers to premium versions of its products. It also shed mass-market beauty brands and led the industry in a move to raise prices to offset commodity costs and fatten profit margins.

More recently, P&G has benefited from big sales gains made through the pandemic, including through higher prices. Mr. Peltz late last year left P&G’s board.

Unilever’s misjudgment over investor opposition to the GSK bid has drawn parallels with its miscalculation in 2018 of shareholder support for the Anglo-Dutch giant’s bid to consolidate its headquarters in Rotterdam. The company, which had operated joint head offices there and in London, made a U-turn on its decision after fierce opposition. Shortly after, then-CEO Paul Polman stepped down, turning the reins over to Mr. Jope.

Mr. Jope, a Scotsman, successfully pushed through a separate corporate restructuring that consolidated the company’s headquarters in London, instead. Part of the rationale for the consolidation was that it would make the company more nimble in deal-making. Previously, Unilever executives say, the company’s dual-structure made its stock too cumbersome to be attractive to the owners of big businesses it was interested in pursuing.

The GSK offer—a mixture of stock and cash—was Mr. Jope’s first attempt at a major deal and would have catapulted Unilever into becoming the world’s largest vitamins owner, with brands like Centrum and Emergen-C. It would have added a raft of other drugstore staples, including Aquafresh toothpaste, Advil painkillers, indigestion remedy Tums and Flonase allergy relief.

Analysts criticized the deal not just for its $68 billion price tag but also because Unilever has little experience in consumer healthcare products. Such offerings can attract stricter regulation and can’t be quickly rolled out across new markets the way less-scrutinized consumer goods can.

Unilever’s shares in recent months have traded not far above their level in 2017, when the company became the target of an ultimately unsuccessful $143 billion hostile bid from Kraft Heinz Co. KHC -0.16%

Critics partly blame the company’s food unit, which houses brands like Ben & Jerry’s ice cream and Hellmann’s mayonnaise. Unilever for years has faced calls to spin off or sell its entire food business. The company in recent years has sold off big chunks of it. In 2018, it sold its spreads unit for about $8 billion, and in November, it struck a roughly $5 billion deal to sell the bulk of its tea business.

Mr. Jope, who previously worked as Unilever’s head of personal care before becoming CEO in 2019, has said consumers’ already growing interest in health and wellness has been accelerated by Covid-19 and has outlined his interest in pushing deeper into the category.

Jefferies analyst Martin Deboo said he thinks Trian will push Unilever to sell food brands more quickly or to sell or spin off the unit entirely. “The force and temperature of debate around Unilever now looks set to rise by several notches, with Trian likely to find a sympathetic audience,” among Unilever shareholders, said Mr. Deboo, adding that the episode would increase pressure on Mr. Jope.

Other major consumer products companies like P&G, Reckitt Benckiser Group PLC and Colgate-Palmolive Co. CL 1.00% are mainly focused on businesses like personal care, cleaning and consumer health. Food giant Nestle SA NSRGY 0.46% —in which activist investor Dan Loeb has a stake through his hedge fund Third Point LLC—has exposure to categories viewed as more promising like coffee and pet food.