Siemens Gamesa: stormy weather buffets the wind turbine maker
The sector in general is having a rough time, but the Spanish-listed group is not just a casualty of externalities
So much for the winds of change. Siemens Gamesa Renewable Energy, which makes wind turbines, kicked off the year with yet another profit warning.
This year’s sales are now expected to fall as much as 9 per cent year-on-year, compared with previous guidance of up to 7 per cent. Adjusted ebit margins previously expected to rise between 1 and 4 per cent, are now forecast to shrink as much as 4 per cent.
There are only so many profit warnings a company can get away with, and investors were quick to dump shares, driving them down 11.4 per cent in morning trade. SGRE’s peers, facing similar challenges with bottlenecks and inflated costs for inputs like steel, were also marked down. Shares in Vestas fell by 6.6 per cent and those of Oersted 3 per cent. This trajectory is nothing new either. The Danish duo have lost 40 per cent in the past year while Gamesa’s share price has more than halved.
The sector is having a stormy ride, buffeted by everything from supply chain disruptions to slowing wind speeds. Problems appear to be more sustainable than profits; SGRE flagged supply disruptions in the previous quarter too. Delayed orders mean idled capacity. But the Spanish-listed group, 67 per cent owned by Siemens Energy, is not just a casualty of externalities. The rocky ramp up of its 5. X onshore platform, which is facing design challenges, is behind schedule. Customers are delaying projects and higher costs resulted in an onerous contract hit of €289m in the first quarter.
Shareholder optimism, which fuelled rapid rises in 2020, has long since been tempered. Valuations however have deflated more slowly. SGRE’s first quarter ebit margin of -17 per cent, excluding integration, restructuring and other costs, is a long way from the 8-10 per cent long term target. The underlying case for wind turbine makers and the power they provide remains robust but the timeframe is elastic.
Geely and Renault to build cars in South Korea
New partnership marks further expansion for Chinese group and attempt by French company to break into Asia
Carmakers Geely and Renault will begin building vehicles in South Korea, as the Chinese group expands its global web of partnerships further, and the French company seeks a stronger hold in the Asian markets traditionally dominated by alliance partner Nissan.
Under the deal, Geely will supply its manufacturing systems to Renault, which will build new hybrid and traditional engine vehicles at its South Korean facility for the domestic and overseas markets.
The deal, which follows a memorandum of understanding in August, is the most significant example of the groups working together after Renault’s electric Alpine brand signed a development deal with the UK’s Lotus, controlled by Geely.
It is a further expansion for Geely, which also owns Sweden’s Volvo Cars and has built stakes or partnerships with other leading groups including Germany’s Mercedes-Benz and Volvo Trucks.
For Renault, it is an attempt to carve out a market in Asia, particularly China, where its Japanese partner Nissan is dominant as part of a formal strategy where each alliance company, which includes Mitsubishi, has an area of the world where it leads.
Renault has underperformed in China, the world’s largest market that also provides carmakers from Volkswagen to General Motors with important profit pools.
The alliance between the three carmakers, which has faced questions over its long-term survival since former leader Carlos Ghosn left the businesses after his 2018 arrest, is due to issue an update on the group next Thursday.
Under the Geely deal, the new models will be produced at the Renault-Samsung facility in Busan, South Korea, from 2024. They would increase the companies’ “penetration in the Asian hybrid vehicle markets”, the groups said.
For Renault, it also marks part of chief executive Luca de Meo’s turnround strategy as he aims to upgrade its South Korean operations by partnering with others in the industry.
“We are happy to initiate such an innovative partnership with Geely Group, which has an impressive record in the automotive industry,” de Meo said.
“Geely has a proven record in creating mutually beneficial collaborations that focus on technology, experience and shared ideas with the ultimate goal of creating higher quality, more sustainable products,” said Geely chair Eric Li, also known as Li Shufu.
“We are looking forward to working with Renault and realising new synergies that combine strengths from both parties to create value for the end user.”
Gapping up
In reaction to earnings/guidance:
- LLNW +6.2%, PTON +6%, EDU +1.2%, NBHC +0.8%
Other news:
- VMAC +15.4% (shareholders approve business combination with Anghami)
- KURA +4.3% (received FDA authorization to proceed with KOMET-001 Phase 1b study)
- MESA +2.9% (reported 26,920 block hours in December 2021, +3.8% y/y)
- ALNY +2.7% (Presents Positive 18-Month Results from HELIOS-A Phase 3 Study of Investigational Vutrisiran in Patients with hATTR Amyloidosis with Polyneuropathy)
- ELAN +1.7% (announces FDA approval of Zorbium)
- TREB +1.4% (receives shareholder approval for combination with System1)
Analyst comments:
- AMBP +2.7% (upgraded to Outperform from Market Perform at BMO Capital Markets)
- AR +1.9% (upgraded to Buy from Neutral at Goldman)
- COTY +1.5% (upgraded to Buy from Neutral at DA Davidson)
- INO +1.5% (upgraded to Neutral from Underperform at BofA Securities)
Early premarket gappers
- Gapping up:
- VMAC +15.6%, PTON +5.9%, KURA +4.3%, LLNW +4%, ELAN +1.7%, PBCT +1.5%, TREB +1.4%, NBHC +0.8%, CRHC +0.7%, TCBI +0.6%
- Gapping down:
- NFLX -19.8%, RBBN -6%, ISRG -5.7%, SNPO -5.6%, ROKU -5.3%, ECL -3.9%, IDT -3.7%, DIS -3.7%, PPG -2.9%, CSX -1.8%, PRVB -1.2%, SIVB -1.2%, PRDO -1.1%, HOOD -0.9%, TWI -0.8%, MELI -0.7%, PLYA -0.6%
The SPAC Ship is Sinking. Investors Want Their Money Back.
One of the pandemic’s hottest trades is cooling down, as the hype surrounding ‘blank-check’ companies gives way to reality
Wall Street’s favorite pandemic bet is taking on water.
SPACs, or special-purpose acquisition companies, burst onto the scene in 2020 as the hip way to take Silicon Valley’s hottest startups public. Unlike traditional initial public offerings, SPACs were seen as modern and accessible, allowing any investor to put money into the companies of the future at the same time as professional money managers.
SPACs—sometimes called blank-check firms—begin as shell companies. They raise money from investors, then list on a stock exchange. Their sole purpose is to hunt for a private company to merge with and take public. Because the company going public is merging with an existing publicly traded entity, it can make business projections and skirt some of the other regulations associated with IPOs. After regulators approve the deal, the company going public replaces the SPAC in the stock market.
Upstart companies of all stripes clamored to participate, enamored with the pool of eager investors who were ready to back them, and enticed by celebrity SPAC creators and bankers who mint money when they complete deals. The company behind dog-toy subscription service BarkBox did a SPAC merger. So did the personal-finance app SoFi Technologies Inc. Office-sharing company WeWork Inc. found a SPAC after its planned IPO infamously blew up. Electric-vehicle battery makers, flying-taxi startups, self-driving car companies and a seemingly never-ending parade of biotech names all jumped into the fray.
Now, the hype is giving way to reality. Like so many investment fads, what at first seemed like a way to earn easy money has revealed itself to be full of potential perils. The threat of tighter regulation is looming, and high-profile stumbles by some companies that went public via SPACs have taught investors some harsh lessons. It turns out investing in unproven upstarts isn’t for everyone, and with interest rates looking likely to rise in coming months, all sorts of speculative investments from technology stocks to bitcoin are getting hit.
Shares of half of the companies that finished SPAC deals in the last two years are down 40% or more from the $10 price where SPACs typically begin trading, erasing tens of billions of dollars in startup market value. Losses top 60% from the peak about a year ago for many once-hot names like the sports-betting company DraftKings Inc. and space-tourism firm Virgin Galactic Holdings Inc., founded by British billionaire Richard Branson.
Fitness company Beachbody Co. now trades under $2, nearly a year after it said it was merging with a home-fitness bike company and a SPAC that counted NBA legend Shaquille O’Neal among its advisers. Electric-scooter company Bird Global Inc., private-jet company Wheels Up Experience Inc. and the company behind BarkBox all trade below $4.
A number of companies are now withdrawing from previously announced SPAC deals, even though they sometimes have to pay millions of dollars to the SPAC for backing out. Savings and investing app Acorns Grow Inc. was the latest to do so, ending its roughly $2.2 billion SPAC agreement on Tuesday and becoming the 10th company to terminate a SPAC deal since early November, according to Dealogic. There were 13 SPAC-deal terminations in the first 10 months of last year.
Market volatility, particularly for financial-technology stocks and companies that merge with SPACs, was a major factor in Acorns ending its deal, people familiar with the decision said. The company, which counts celebrities like Kevin Durant and Ashton Kutcher among its backers, now plans to raise money from investors privately and eventually pursue a traditional IPO, they said.
Other companies to end deals recently include billionaire Tilman Fertitta’s Fertitta Entertainment Inc.—a holding company for Golden Nugget casinos and Landry’s restaurants—financial trade clearing firm Apex Clearing Holdings LLC and drug-development technology firm Valo Health LLC.
The challenging market for companies combining with SPACs was a driver of Valo’s decision to end its deal, a person familiar with the matter said. The company is now exploring a private financing round, the person said.
While deals can be called off for a variety of reasons and the number of terminated deals is still small relative to the number that have been completed, it highlights the punishing market for SPACs, analysts and executives say. It also shows the risks of opening startup investing to the masses.
“I never thought this was possible,” said Alex Vogt, a 31-year-old physician assistant in Grand Rapids, Mich., of the swift share-price declines. His portfolio, which consists mainly of startups that combined with SPACs, soared to around $1 million a year ago but now sits at roughly $500,000. It is still higher than where it started several years ago. Mr. Vogt, who operates a Twitter account called “EV SPACs,” counts SoFi and many electric-vehicle and charging firms such as Proterra Inc. among his investments.
“I feel like I’m not having any green days this year,” he said, referring to days on which his portfolio rises.
Some companies that went public this way have undershot business projections they made to attract investors, triggering stock-price declines that have rippled to others tied to the space. Regulators have increased scrutiny of SPACs, worried that amateur investors are losing money at the expense of insiders who are protected even if shares drop.
A recent investor stampede out of many crowded pandemic trades and stocks linked to technology is adding salt to the wound. Many investors are betting that a rebounding economy and rising interest rates will make other areas of the market more appealing. Higher rates typically boost banks and other economically sensitive sectors while raising the amount of money investors make from holding cash or ultrasafe government bonds.
“It’s a precarious time,” said Evan Ratner, president of Levin Capital Strategies and a SPAC investor. “The market right now is pricing in only downside and no upside.”
Setting records
SPACs have been around for decades—their predecessors were known as “blind pools” and associated with penny-stock fraud in the 1980s—but raised more than $80 billion in 2020, topping the amount raised in all other years combined. Last year, they raised over $160 billion, accomplishing that feat again.
The flood of money into the space prompted some skeptical investors to anticipate a return to earth. Short sellers, who bet on share-price declines, such as Hindenburg Research’s Nathan Anderson and Carson Block of Muddy Waters Capital LLC have bet against many deals. Short sellers borrow shares, sell them, then aim to buy them back at lower prices.
Hindenburg’s Mr. Anderson published a report in September 2020 alleging that electric-truck startup Nikola Corp.’s founder and one-time executive chairman, Trevor Milton, misled investors while taking the company public through a SPAC. Late last year, Nikola agreed to pay a $125 million fine to settle a regulatory investigation into Mr. Milton’s statements.
Shares of a few companies going public this way remain popular, such as electric-vehicle maker Lucid Group Inc. and Digital World Acquisition Corp. , the SPAC that is taking former President Donald Trump’s new social-media venture public. Many analysts expect a continuing divergence between the small number of well-received deals and the many other SPACs that complete risky transactions.
The Securities and Exchange Commission has investigated or is investigating several SPAC mergers, including the Lucid and Digital World mergers. Digital World’s deal to take Trump Media & Technology Group public has yet to be completed. SEC Chairman Gary Gensler said last month he wants to level the playing field between SPACs and traditional IPOs by focusing on requirements around disclosure, marketing practices and liability for those who launch blank-check firms.
Low share prices mark a particularly acute threat to SPACs because they can trigger a negative spiral. Investors who put money into a SPAC before it announces a deal don’t know what type of merger it will do, so they are allowed to withdraw their money before a deal goes through. The amount they withdraw typically comes out to the SPAC’s listing price of $10, plus a tiny bit of interest.
If shares of a SPAC trade below $10 before a deal closes, many hedge funds and other professional investors automatically choose to pull their money out to eliminate the possibility of taking a loss on the trade or lock in a risk-free return.
Since most SPACs are trading poorly, the average withdrawal rate soared to about 60% last quarter from 10% early last year, Dealogic data show. That often leaves companies that complete deals with much less cash on hand from their mergers. The smaller cash proceeds to expand the business can then add even more pressure to the stock price.
Nearly 95% of investors in the SPAC that took BuzzFeed Inc. public last month pulled their money out, leaving the digital-media outlet with just $16 million from the SPAC’s original $287.5 million. BuzzFeed also raised $150 million in convertible-note financing as part of the deal. Shares have since slumped roughly 60% to about $4. The company clashed with its largest investor, NBCUniversal, about the SPAC deal and granted the unit of Comcast Corp. concessions before it went through, The Wall Street Journal previously reported.
Withdrawals reached a recent peak of 98.8% for the weight-loss biotechnology firm Gelesis Holdings Inc., according to SPAC Research. The company also raised a $100 million private investment in public equity, or PIPE, from professional investors as part of its deal.
Companies typically aim to raise a PIPE to generate additional cash from the SPAC deal and validate its valuation. PIPE investors can include large companies, sovereign-wealth funds, family offices and funds managed by staid Wall Street institutions such as BlackRock Inc. or Fidelity Investments Inc. Even the most respected PIPE investors have suffered heavy losses on many of their trades lately, making it more difficult for companies to raise PIPEs and creating another hurdle for finishing a deal, bankers say.
Spac kings lose their touch
Of 11 deals completed last year by prolific sponsors only one added value
Companies that went public via Spac deals spearheaded by tech investor Chamath Palihapitiya lost more value in 2021 than those of other high-profile Spac sponsors and the average blank cheque deal, Financial Times analysis shows.
Special purpose acquisition companies have boomed in popularity, attracting interest from bankers and investors to entertainment and sports stars.
Spacs raise money and list on the market as a cash shell before hunting for a private company to merge with and take public. Despite buoyant equity markets and the flood of available capital, the investment vehicles have offered weak returns to shareholders over the past 12 months, while often earning huge payouts for their sponsors.
Of 199 Spac mergers completed last year after a record flurry of issuance, share prices have slumped 40 per cent on average according to FT analysis of data from Spac Research.
The study of mergers completed by five prolific Spac sponsors last year shows that shares in Palihapitiya’s two deals — healthcare group Clover Health and fintech start-up Social Finance — fell the most, by 56 per cent on average.
By contrast, the benchmark S&P 500 index finished the year up 27 per cent.
“Spacs tend to lose money over one to two years after they merge,” said Michael Klausner, a professor at Stanford Law School. “It seems to be a gradual process of post-merger declines.”
Palihapitiya has set up multiple blank cheque vehicles since they surged in popularity, launching 10 Spacs and announcing five acquisitions, the most recent of which was disclosed this week and came after the investor sparked outrage for saying “nobody cares” about the Uyghurs in China.
Spac mergers by other high-profile sponsors also performed poorly, including the two deals struck in 2021 overseen by Howard Lutnick, chief executive of broker Cantor Fitzgerald. SoftBank-backed glass manufacturer View and car sensor maker AudioEye both merged with Cantor Fitzgerald Spacs last year and shares in the two companies have since slumped more than 50 per cent on average.
Representatives for Palihapitiya and Lutnick did not respond to requests for comment.
“There is a difference between some people who have just [issued Spacs] a whole bunch of times because they figured out how this works and they can just rinse and repeat over and over again . . . versus repeat sponsors who are more thoughtful about the target selection,” said Kyle Harris, partner at Cleary Gottlieb.
The enthusiasm for blank cheque vehicles has subsided significantly in recent months amid increasing regulatory scrutiny. Investors have been withdrawing cash at ever higher rates while the crucial Pipe financing market has dried up, forcing investors to seek more expensive forms of funding.
Of the 199 Spac mergers executed last year, nine in 10 are trading below their initial $10 share price and just 15 are trading in positive territory after merging with another business. Only eight have outperformed the S&P 500. Healthcare mergers completed last year were among the worst performing, falling by 49 per cent on average among the 44 spac deals concluded in 2021.
The best performer was British quantum encryption company Arqit, whose shares have doubled since its deal with Centricus Acquisition Corp, followed by electric vehicle company Lucid Motors which merged with Churchill Capital Corp IV in February — one of eight Spacs run by former Citigroup banker Michael Klein.
Of the five prolific Spac sponsors analysed by the FT, deals done by Klein’s Spacs performed the best. They returned 15.8 per cent on average largely thanks to Lucid Motors, whose shares have surged 75 per cent since it was brought to market and despite an SEC investigation.
While providing mixed returns for investors, Spac sponsors can make millions from the deals. They are paid in the form of founder shares called “promotes”, which typically involves them taking 20 per cent of the Spac’s equity for a nominal price of $25,000. When the Spac completes a merger, the sponsor’s deeply discounted shares convert into a smaller portion of equity.
The Lucid deal and the merger of online education company Skillsoft with Churchill Capital Corp I netted Klein $690m, while Palihapitiya has made $408m from the promotes of his two Spac deals last year, according to Spac Research data.
“From the perspective of pretty much everyone but the sponsor . . . it’s a less attractive product if you feel like there’s not going to be a good return,” said one M&A lawyer
Take the plunge – seven things you need to wild swim this winter
From lakes to lochs, here’s our selection of the best cold-water kit