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Galderma shareholders’ best case is that French group’s stakebuilding is prelude to full takeover

It is rarely a good look for a listed company to buy a minority stake in another, however glamorous the target’s prospects may be. There is no reason why a company should be better than its shareholders at stockpicking, and investors should be free to make their own mistakes.

Corporate finance orthodoxy doesn’t necessarily dissuade executives from having a go. Witness the web of interlocking stakes that US tech companies have woven with impunity, including Nvidia’s investments in OpenAI and Intel. And sometimes there are genuine reasons why tying up capital in this way creates value.

L’Oréal, which this week doubled its stake in Swiss skincare company Galderma to 20 per cent — a shareholding worth SFr8bn ($10bn) at current market value — provides an example. Neither of the two reasons the French company posits for its investment is watertight, but there is an unmentioned third that would make the whole thing worthwhile.

First, the bad. L’Oréal highlights Galderma’s “solid growth journey”. It is true that the group’s injectable aesthetics — treatments similar to Botox, which make up more than half its revenue — are part of a niche expected to grow at roughly twice the rate that skincare products are delivering at present, according to Berenberg analysts. L’Oréal might want to coattail on Galderma’s prospects, but that’s something its investors can do by themselves.

Second, L’Oréal mentions the potential for board seats and for collaborating with Galderma on “scientific partnerships”. This gets half a point. There may well be a market opportunity for products that straddle Galderma’s medical approach to skincare and L’Oréal’s lotions and potions. But the parties could as easily strike commercial agreements without buying shares. 

What about the third potential reason? While L’Oréal says it will continue to support Galderma’s “independence”, the best case for its shareholders would be if its stakebuilding were the prelude to a full takeover. As well as potential new product launches, the companies would probably be able to cut a healthy slug of costs.

True, buying the company in stages may increase the overall cost of the transaction, as Galderma realises more of its potential. But its backers — a consortium led by private equity group EQT — still own a chunk of shares, and may not want to immediately sell. And the extra cost is probably worth it if L’Oréal gets time to learn the mechanics of a new category, lowering future integration risk. Warren Buffett likes to say that the more you learn, the more you’ll earn. L’Oréal should take that to heart.

New EV class with lighter rules and subsidy arrangements aims to help European carmakers battle Chinese competition

Brussels is to propose special privileges for a “Made in Europe” small car class, which will benefit from preferential parking, lighter rules and more generous subsidy arrangements to keep out Chinese competition. 

The new all-electric category will be presented as part of a package of measures aimed at easing pressure on Europe’s car industry, which is under heavy pressure from the influx of affordable Chinese EVs, US tariffs and sluggish demand.

It will grant eligible cars — which are built in Europe and under a certain weight — access to reserved parking spaces and charging infrastructure as well as a 10-year exemption to incoming regulations such as safety rules and the EU’s Euro 7 emissions standards that are due to come into force in 2026. By doing so the commission hopes to keep the price lower since frequent changes in standards contribute to rising costs for carmakers.

The weight is still subject to negotiations but will probably be no more than 1.5 tonnes, according to people with knowledge of the plans. In the commission, the car category has been nicknamed the “Sejournette” after the diminutive French industry commissioner Stéphane Séjourné overseeing the proposal.

Small cars are one area where European manufacturers still have an edge over their Chinese counterparts, which have focused on larger car segments for their EVs and plug-in hybrids. 

Carmakers such as Stellantis and Renault have argued that there should be a new category for even smaller cars that are more affordable, with lighter regulations so that compact electric cars can be built profitably.

But at the same time, the manufacturers have lobbied for the definition of the new category to allow similar support for existing smaller sized models such as the new Twingo for Renault, Citroën ë-C3 for Stellantis or the Golf for Volkswagen.

Proposals for the small car class, loosely inspired by Japan’s Kei car, will accompany a heavily lobbied review of the EU’s 2035 combustion engine ban. First proposed in 2021, the law will outlaw sales of new combustion engines in the bloc from 2035 and was seen as a totemic part of the EU’s ambitious climate laws.

But it has come under heavy pressure from the car industry and rightwing politicians who argue that it is too stringent in forcing the sector to rapidly switch to electric vehicles. Heated discussions are ongoing in the commission ahead of the announcement of the review on December 16.

Among several options under negotiation is whether to allow plug-in hybrids and range extenders, which have a fuel unit that kicks in to extend the battery power, for potentially another five years, according to officials involved.

Another option being discussed is to require an emissions reduction of 90 per cent by 2035, leaving a small gap for combustion engine sales to continue, two officials said. “It’s not a done deal,” one said.

The commission is also weighing allowances for biofuels and “carbon neutral” e-fuels, made with carbon dioxide and renewable power, officials said, while cautioning that no final decision has been made.

Some officials have argued against the inclusion of plug-in hybrids, warning that the Chinese are already further ahead in this technology than their European counterparts.

The commission declined to comment on the upcoming proposals.

Rivals eye options as bidding war for Warner Bros escalates

Pressure mounts for Netflix and Paramount as hostile battle could push deal price higher than expected

David Zaslav stunned Hollywood and Wall Street when the Warner Bros Discovery chief signalled the sale of his company would cost $30 a share — more than triple its stock price for most of this year.

Now the consummate dealmaker’s intimations look prescient. WBD has become the prize in one of Hollywood’s fiercest bidding wars, with Paramount gatecrashing a deal reached with Netflix a week ago and potentially pushing the eventual price well beyond Zaslav’s once-mocked target.

WBD’s shareholders expect Paramount to bump up its existing $30 per share offer, which values the whole company including debt at $108bn. And Paramount chief executive David Ellison made clear that the bidding could go higher, disclosing in a regulatory filing on Monday that his offer was not the “best and final”. 

“I thought the final episode of the streaming series was last week. Now it appears we have been picked up for another season,” said a person in the Warner camp. “The fact that we are now talking about a deal in the high 20s, or even low 30s, is pretty amazing compared with 18 months ago.”

A lot will depend on what WBD says by December 22, the deadline to address Paramount’s proposal.

WBD’s board could opt to stick with the agreed Netflix offer, which only covers the studio and streaming assets — at a valuation of $27.75 in cash and stock. The board’s choice could depend on how it values the traditional television assets — CNN and the other cable networks — that would be left behind with shareholders if the Netflix deal proceeds.

An optimistic reading by a Bank of America analyst in September valued those channels at roughly $5 a share, which would make Netflix’s offer appear stronger relative to Paramount’s. But Paramount argues the true value of the declining TV networks at closer to $1 a share, changing the arithmetic.

If Paramount continues with its tender strategy and a substantial number of WBD shareholders support Ellison’s bid, the pressure on WBD’s board to engage would intensify. Analysts at CreditSights expect that if talks resume, Paramount could lift its bid to about $32 a share, a level that may test Netflix’s willingness to counter.

Raising its bid to $32 a share could require Paramount to raise more capital, and potentially having to ask its Middle East sovereign wealth fund backers to increase their equity contribution from the existing $24bn.

Alternatively, Larry Ellison, David’s billionaire father and Oracle founder, could put more cash on the table, given the family trust is backstopping the entire $41bn equity package. Even after Oracle’s stock dropped about 10.8 per cent on Thursday, the trust still holds roughly $225bn, leaving ample room to add firepower.

It is unclear whether Netflix — whose market value has fallen roughly 20 per cent, or about $100bn, since its interest in WBD leaked in September — has any appetite to escalate. 

WBD’s advisers have said “cash is king”, meaning investors would expect Netflix to convert its partly stock bid into an all-cash offer. Doing so would risk Netflix losing its investment-grade rating as it would have to raise the $59bn in debt it has taken on.

Netflix now finds itself in a strategic bind. By pursuing WBD in the first place, it sent a message to investors that it needs the deal to maintain long-term growth momentum, putting pressure on chief executive Ted Sarandos to keep bidding and avoid looking as though Netflix blinked.

Yet a sweetened Paramount bid would also provide Netflix with a graceful exit: the company could claim it admired the assets but refused to overspend. Such a move would spare it a long and potentially risky regulatory review, while also collecting a $2.8bn termination fee. 

One banker who has worked on multiple hostile transactions said there was a scenario in which all parties walk away with something: Paramount raises its bid modestly, Netflix bows out, and the combined Paramount-WBD agrees to supply Netflix with exclusive content for a predefined period — allowing both sides to declare victory in a battle neither can afford to lose.

CEO Marc Rowan has said private equity is no longer the $900bn group’s growth driver

Apollo has moved a fast-growing unit focused on complex lending out of its prized buyout division, in the latest sign of a shift towards private credit and away from a business that built it into a $900bn behemoth.

The shake-up, which has not been previously reported, began earlier this year and was announced at a town hall this week, according to people familiar with the matter and a presentation seen by the Financial Times.

Matt Nord, formerly co-head of private equity at Apollo, will helm the newly separated group known as hybrid capital, which crafts complex debt structures that are often attached to minority equity investments.

Reed Rayman, a rising star who was behind Apollo’s lucrative takeovers in 2021 of Yahoo and AOL, was appointed deputy head of hybrid investing alongside veteran Apollo credit investor Chris Lahoud.

The move highlights how chief executive Marc Rowan is pinning Apollo’s future on lending to businesses, a strategy that has transformed the group into a formidable challenger to the world’s biggest banks.

It also comes as Rowan, who was elevated to CEO in 2021 after the exit of its billionaire co-founder Leon Black, has told Apollo’s employees and shareholders that splashy corporate buyouts are no longer a growth driver.

“Private equity is an amazing asset class. It’s just not a growth business,” Rowan said at an investor conference on Wednesday.

He added: “I think the growth you will see in our equity business will come in two places. One will be hybrid, and the second will be a reimagination of what private equity is as an industry.”

David Sambur, Apollo’s veteran dealmaker, will be the sole head of its $127bn private equity business, which also includes real estate deals and second-hand fund stakes.

Nord will remain co-head of Apollo’s flagship PE funds alongside Sambur, but will be less involved with the unit’s day-to-day operations.

Apollo declined to comment.

Rowan has positioned Apollo to be a lender to companies at the centre of the artificial intelligence and energy infrastructure boom that require complex financings suited for private capital groups with locked-up capital and not regulated banks funded with flightier deposits.

By offering companies such as Intel customised borrowings, Apollo has been able to appeal to groups that need financing that does not resemble a traditional bond or common equity. For example, in the chipmaker’s transaction, Apollo designed an off-balance sheet joint-venture that allowed it to raise cash that still resembled a high-rated loan.

Rowan has presented these lending commitments as opportunities for Apollo’s traditional private equity dealmakers to underwrite large, complex investments, but outside of the mould of traditional buyouts — a crowded marketplace with little differentiation among buyout firms.

Apollo’s prominent recent hybrid deals include financing a takeover of members club Soho House and the carve-out of a large unit of waste management group GFL Environmental. The division has also worked with large companies such as Keurig Dr Pepper.

Nord and Rayman were also part of a recent partnership with venture firm 8VC to invest several billions of dollars of hybrid investments into what Apollo has called the “next wave of American industrial innovation”.

In recent years, Apollo’s hybrid business has earned far higher returns than its traditional buyouts. Since the beginning of 2024, hybrid deals earned nearly 20 per cent returns annualised, while recent buyouts earned less than 8 per cent, according to company filings.

However, Apollo continues to believe its private equity business will see a good reception from investors as it raises a new flagship corporate buyout fund. The group is seeking to raise $25bn for its newest buyout fund, an increase from a predecessor fund that raised $20bn, according to people briefed on the matter.

It’s not every day we write about debt in this newsletter, but tech investors are increasingly paying attention to credit as a growing source of funding for AI. One big question going into next year is whether lenders will have the stomach to continue backing massive data center projects.

A recent debt offering from Blackstone-owned QTS, one of the largest U.S.-based data center developers, points to a potential solution: private credit.

QTS last month sold $1.75 billion in debt through what’s known as a 4(a)(2) private placement, said one person with direct knowledge of the deal. The offering was the second private deal by the company in a matter of months, following a $1.65 billion debt sale it completed in August.

Private credit deals like the one QTS completed are becoming more common as bankers work overtime to find the money for AI data centers, my sources tell me. Morgan Stanley in July predicted private credit would provide $800 billion of the $2.9 trillion required to build new data centers through 2028, more than twice as much as any other source of funding besides tech companies’ own cash flows.

As a consequence, expect companies like QTS and large private investors such as Apollo Global Management, which typically hold on to the debt instead of selling it to others, to directly negotiate more data center deals.

QTS, which Blackstone purchased for about $10 billion in 2021, has dozens of data centers in operation or under development in the U.S. and Europe for companies like Amazon. That includes megaprojects like the ones it’s building in Pennsylvania as part of a Blackstone pledge to invest more than $25 billion in the state.

Tech giants are increasingly eyeing private placements, too. On an earnings call Wednesday, Oracle’s principal financial officer, Doug Kehring, called out the private debt markets as one potential source of funding for the company’s data center expansion plans, along with banks and the public bond markets. (Oracle recently issued $18 billion in publicly traded bonds, and developers of data centers for the cloud and database company have borrowed at least $65 billion this year.)

Data center companies have traditionally taken out bank loans to fund the construction of their projects before tapping asset-backed securities markets. ABS usually falls under a classification known as 144A that allows investors to more easily trade the securities.

In contrast, offerings under rule 4(a)(2) are privately negotiated with investors and can't be traded, giving more flexibility to haggle over terms and make them attractive to large private lenders trying to generate above-market returns. That’s a big reason the private credit market has ballooned to $2 trillion by some estimates and continues to grow.

Details about private placements like the QTS offering, of course, generally aren’t disclosed to the public, and they’re not as liquid as ABS. What’s more, the credit ratings agencies generally don’t assess private credit, making it harder for investors to understand the risk.

That could make life difficult for regulators and investors if the data center boom suddenly goes sideways.

The event, at Nvidia’s Santa Clara, Calif., headquarters, signals how energy shortages are impacting companies building facilities filled with Nvidia’s power-hungry artificial intelligence server chips. Executives from power and electrical engineering startups are expected to attend the summit, including firms in which Nvidia has taken equity stakes. The firms sell products ranging from software to physical power equipment technologies.

A spokesperson for Nvidia declined to comment.

--> Comapnies close from NVDA who were attending to last NVDA Keynote and who looked very close from NVDA CEO were Schneider, Siemens Energy, Eaton, GE VErona, Hitachi Mitsubishi Electric, Siemens, Tesla d& Vertiv (hope exhuastive)

But AI chips are less than half of Broadcom’s business and other parts of the company are performing less robustly, which dilutes the growth impact. Broadcom CEO Hock Tan forecast that AI chip revenue would double in the company’s first fiscal quarter, through January, while total revenue would only rise 28% to $19.1 billion, the same growth rate as the fourth quarter.

Broadcom’s free cash flow is growing faster than its topline, however. In the fourth quarter, free cash flow hit $7.466 billion, up 36% on the year-earlier quarter.

Tan also said on the firm’s earnings call that Anthropic was the customer who placed a $10 billion order last quarter. He said Anthropic bought racks of Google’s tensor processing units. Anthropic placed another $11 billion order in the current quarter for the chips, Tan added. The Information first reported on Google’s plans to sell its TPUs directly to customers, instead of renting them through Google Cloud, in an effort to compete more directly with Nvidia.