TheChek News Flow

Companies that came to market via blank-cheque deals are trading an average of 39% lower

Shares in businesses that went public through deals with blank-cheque companies have dropped by an average of two-fifths from their highs, as appetite for the once red-hot sector of the US stock market cools rapidly.

Of the 41 blank-cheque companies that have completed transactions since the start of 2020, only three are even within 5 per cent of their share price peaks. Eighteen of them have more than halved, and several are down by more than 80 per cent. The average decline is 39 per cent.

The figures come from a Financial Times analysis of data from Refinitiv tracking special purpose acquisition companies that acquired businesses worth more than $1bn, and come against the backdrop of a wider US stock market rally that set a new high in the past week.

Spacs, which raise money from investors on the promise of merging with an unidentified private company, have been among the busiest segments of global markets over the past year. Nearly half of the $230bn raised globally in new listings have gone to Spacs.

Less than two months ago, investors were still enthusiastically chasing Spac shares higher after companies announced their acquisition plans. Groups ranging from electric vehicle developers and software companies to mortgage originators chose to go public via deals with a Spac instead of the traditional route of an initial public offering.

The frenzy saw blank-cheque companies break records in terms of fundraising and dealmaking in the first quarter.

But deals are now taking longer to complete as regulators take a closer look at the disclosures and revenue forecasts being made by the companies, and institutional investors that typically fund the deals show more caution. As a result, new Spac launches have slowed to a trickle.

Shivaram Rajgopal, a professor at Columbia Business School, said that historically during a market frenzy there were a higher number of underperforming companies that go public as they try to ride the wave, and this trend had been true for Spacs. 

“When there’s overvaluation, when sentiment is going crazy, the more marginal company is likely to go public,” he said.

The share price declines and slowdown in new deals suggest retail investors and other market players are cooling in particular on start-ups with little to show in the way of revenue or often even a product, which were among those whose shares rose the most during the boom.

Shares in electric vehicle start-up XL Fleet shot up by almost 70 per cent to a peak of $35 after it went public via a Spac in December, before declining 80 per cent to just under $7 in the following months. Tortoise Acquisition Corp, the shell company that took truck parts maker Hyliion public, saw its share price increase fivefold after it announced the merger, but it is also on the list of stocks down more than 80 per cent.

Several retail investor favourites have come under attack by short-sellers, including electric truck developer Nikola and battery developer QuantumScape.

Of the Spac deals completed since January 2020, eight have fallen so heavily they now trade below the $10 at which the Spac’s shares were originally priced when they first raised cash.

That includes the two largest blank-cheque deals to date, the home loan originator United Wholesale Mortgage and healthcare group Multiplan, which went public in transactions with Spacs backed by billionaire private equity investor Alec Gores and former Citigroup dealmaker Michael Klein, respectively.

Shares in Spacs that are still hunting for deals have also fallen. More than two-thirds of the 425 blank-cheque companies that have listed since January are trading below $10, according to an FT analysis of Refinitiv data. This may suggest there is investor scepticism that they will find acquisitions that add value.

The share of Black homeowners in forbearance in mid-April was about 11%, more than double the overall rate

Black homeowners are having a harder time catching up on missed mortgage payments than other borrowers, new federal research shows.

The share of Black homeowners in forbearance stood at about 11% in mid-April, more than double the overall rate and that of white borrowers, according to the Federal Reserve Bank of Philadelphia. The rate for Hispanic homeowners hovered around 8.4%.

The mortgage forbearance program laid out in the March 2020 stimulus bill was designed as a short-term solution, a way for homeowners to postpone payments on federally backed mortgages until the economy and consumers recovered.

That is how the program has functioned for many. The share of homeowners in forbearance has decreased for eight straight weeks, to 4.49% as of mid-April, according to the Mortgage Bankers Association. Almost one in 10 homeowners signed up for forbearance at the height of the program’s use last June.

But the overall improvement masks a slower recovery for Black borrowers. Between June 2020 and mid-April 2021, the share of Black homeowners in forbearance fell 35%, compared with a 43% drop overall, according to data from the Federal Reserve Bank of Philadelphia. Asian, white and Hispanic borrowers saw improvement rates of between 45% and 53%.

The uneven economic recovery threatens to widen racial gaps in wealth and homeownership. Heading into the pandemic, the median Black household had about eight times less wealth, or the difference between assets and debts, than the average white family, according to the Brookings Institution. In 2020, 45% of Black families owned homes, below the 75% rate of white families and 67% of Americans overall, according to the Census Bureau.

Black Americans bore the brunt of coronavirus layoffs: The unemployment rate for Black workers stood at 9.6% in March, compared with 6% overall and 5.4% for white workers. Black Americans are also about twice as likely to die from Covid-19 as white Americans, according to the Centers for Disease Control and Prevention.

“You have this interaction of the structural barriers that were in place that made [Black households] vulnerable heading into the recession combined with the cyclical downturn that just makes those disparities worse,” said Michael Neal, a senior research associate in housing finance policy at the Urban Institute.

Of the 2.3 million homeowners in forbearance in April, some could be foreclosed on or forced to sell their homes if they can’t resume payments when relief programs end. Both of these outcomes could reduce wealth and homeownership levels among Black Americans, who are disproportionately represented among homeowners in forbearance.

Kurt Rose fell behind on his mortgage payments in 2019 after a divorce and job loss. By the time the pandemic hit, his mortgage company had started foreclosure proceedings, and shutdowns made it even more difficult to find work as a building-maintenance worker, he said.

To postpone the foreclosure, Mr. Rose in September agreed to enter a forbearance with his mortgage servicer, Specialized Loan Servicing LLC. In late March, Mr. Rose found his Longmont, Colo., home on a government website that lists properties with scheduled foreclosure sales. The early-April sale date was a few days after his forbearance was set to end. Mr. Rose said he had received no notice that the foreclosure process had resumed.

SLS declined to comment on Mr. Rose’s case but said it complies with all relevant federal, state and industry regulation. “This includes maintaining the current national moratorium on all foreclosures until June 30, 2021 and notifying borrowers in writing of each instance of a foreclosure being postponed,” the company said.

Mr. Rose’s forbearance was extended until July 1. In March, he started a new job with the state of Colorado. He plans to start paying again on June 1 and make up about half the payments he missed.

The Consumer Financial Protection Bureau in April proposed a rule that would restrict mortgage companies from beginning the foreclosure process through the end of the year. The measure is designed to help the large volume of borrowers expected to exit forbearance later this year when relief plans are set to end.

At NeighborWorks Western Pennsylvania, a nonprofit that provides homeownership counseling services, about 60% of the homeowners who have requested foreclosure prevention or pre-foreclosure counseling since last spring have been people of color, Chief Executive Colin Kelley said.

Eljon Williams’s mortgage was placed into forbearance last spring shortly after he was furloughed from his job as a substitute teacher in a Boston-area school district. Mr. Williams doesn’t yet know when he will be able to return.

At the time, Mr. Williams agreed that at the end of the forbearance period, he would either bring the loan current, pay off the roughly $300,000 mortgage in full or work with the company to figure out a repayment plan.

He said that earlier this year, his servicer, Dovenmuehle Mortgage Inc., told him the only option to make up the past-due amount of more than $40,000 was to increase his monthly payment to almost $3,400 from about $2,800.

Homeowners who opted into forbearance and whose mortgages are federally backed are able to add the missed payments to the end of their loan terms. Servicers of loans that are held by private investors—such as Mr. Williams’s mortgage—aren’t required to offer that option.

In an emailed statement, Dovenmuehle said it complies with “all applicable federal, state and local guidelines, including the CARES Act, CFPB recommendations and other regulatory guidelines that have been established to help borrowers during the pandemic.”

Dovenmuehle said it “can neither confirm nor deny the existence of any borrower or client” but disputed the accuracy of the details The Wall Street Journal shared with the company about the Williams’s situation because they are “clearly inconsistent with Dovenmuehle’s practices.” The company didn’t respond to further inquiries from the Journal.

When Mr. Williams does return to work, he said he wouldn’t be able to afford the higher payments.

“My fear is that in order for me to save my house, I might be forced to file for Chapter 13 bankruptcy,” he said.

Dutch telecoms group knocks back initial private equity offer

KPN has rejected a takeover offer worth about €18bn from a private equity consortium in the past two weeks, putting pressure on the bidders to raise their offer price for the Dutch telecoms group.

EQT and Stonepeak Infrastructure Partners have been circling KPN since last year and started conducting due diligence earlier last month, according to multiple people with direct knowledge of the talks.

They lodged a bid but this has been rejected by the KPN board, with the pair now considering whether to raise their offer, according to a person with direct knowledge of the situation.

EQT and Stonepeak were preparing a possible €3-a-share offer that would value the company at about €12.5bn. The company has €5.2bn of debt, giving it an enterprise value of almost €18bn at that level. The details of the potential offer were first reported by The Wall Street Journal.

KPN shares closed last week at €2.87 having traded as low as €2 prior to the reports of a takeover emerging.

Such a deal would be one of Europe’s largest-ever private equity buyouts, data from Refinitiv show. Advent International and Cinven last year bought Thyssenkrupp’s lifts business in a €17.2bn deal that was the largest in years.

EQT declined to comment. Stonepeak and KPN did not immediately respond to requests for comment.

Joost Farwerck, chief executive of KPN, said last week that any take-private offer would need to be considered to be in the best interests of employees and customers as well as shareholders.

Farwerck pointed to KPN’s investment in upgrading its telecoms network as a sign of its intent to grow. “We’re going to create a lot of value, maybe not immediately in 12 months from now, but over a number of years,” he said on a media call.

KPN has set out a plan to expand its fibre network to 80 per cent of the population of the Netherlands by 2026 after forming a co-investment joint venture with APG, a Dutch pension fund.

Siyi He, an analyst with Citi, said in a note that the acceleration of the fibre programme over the next three years should value KPN at €3.5 a share, so a bid at that level looked possible.

The main impediment to a buyout could be the Dutch government and whether it would allow a private equity consortium to acquire a critical national asset. One Dutch telecoms veteran described it as an almost “impossible deal” as bidders will have to negotiate with a board that will probably be backed by the government, which could quash any hostile bid.

KPN has long been seen as a potential takeover candidate but potential buyers have been deterred by political risk.

América Móvil, the Mexican telecoms company controlled by billionaire Carlos Slim, tried to acquire KPN for €7.2bn in 2013 but was blocked by the intervention of an independent foundation linked to the telecoms group. Slim still has a fifth of KPN’s shares and in February raised €2.1bn of bonds via a Dutch subsidiary that can also be converted into shares in the telecoms company.

Stockholm-headquartered EQT is already active in European telecoms, owning Delta Fiber, a small rival to KPN in the Netherlands, as well as telecoms assets in Germany and Sweden. It agreed a £3.3bn deal last month to buy FirstGroup’s US bus operations using its infrastructure fund. The units, First Student and First Transit, include tens of thousands of yellow school buses.

New York-based Stonepeak focuses on North American deals.

Valdis Dombrovskis says there has been a ‘very welcome shift’ since start of Biden administration

The EU’s trade commissioner has said he is increasingly hopeful of securing a deal with the Biden administration to end a 16-year feud over subsidies for Airbus and Boeing, in what would be a breakthrough in transatlantic trade relations. 

Valdis Dombrovskis told the Financial Times that the EU and US were engaging “very intensively” on resolving their trade disputes, as he hailed a “very welcome shift” since Joe Biden’s administration took office in January. 

The discussions on aircraft subsidies are a particular point of focus, given the shared desire in Brussels and Washington to end a dispute that during the past two years has led each side to hit the other with punitive tariffs on trade worth billions of dollars. 

Those duties — on a wide range of products from French wine to US sugar molasses — are currently suspended after the EU and US agreed in March to lift them for four months, creating the political space for negotiations. 

“The work is ongoing and I think there are reasons to expect we will be able to resolve this issue, and that we will not have to return to this mutual imposition of tariffs,” Dombrovskis said. 

Dombrovskis said the two sides were working on new rules, known as disciplines, on future subsidy arrangements for the airline sector. Asked whether the talks could achieve success within the four-month window announced on March 5, the commissioner said: “We are currently working with this timeline in mind.”

The dispute is one of the longest-running cases in the history of the World Trade Organization. Both sides have been found over the years to have failed to properly implement WTO panel rulings on illegal subsidies.

Its consequences have become increasingly tangible in recent years, with the US hitting European exports worth $7.5bn with extra tariffs in October 2019, while the EU imposed additional duties on $4bn of US exports the following year. Both sets of measures were in line with WTO rulings in favour of each side.

“I do hope we will be able to solve it and put it behind us,” Dombrovskis said. 

Brussels has proposed to the US a broader suspension of punitive tariffs lasting six months — a move that would cover duties linked to Trump-era tariff increases on imported steel and aluminium. The suggestion has so far not been picked up by Washington. 

Dombrovskis said the EU was seeking the suspension for the steel and aluminium tariffs so as to jointly “address the root cause of the problem, which is global steel overcapacity”, notably resulting from Chinese production.

“So far we are awaiting concrete reactions . . . on this proposal,” Dombrovskis said. “From our point of view that would be the best solution.”

He said co-operation with the new US administration, including its trade representative Katherine Tai, was increasing on subjects including reform of WTO and how to address the “challenges posed by the socio-economic model of China”.

Brussels has also submitted proposals to the US for the creation of a Trade and Technology Council to develop standards in cutting-edge areas such as artificial intelligence. 

“I would say that first reactions . . . are broadly speaking positive,” Dombrovskis said. “We are waiting also for more specific reactions from the US. [We’re] ready to discuss and find a solution which fits both sides.”

Very few jabs made in America have gone overseas even though there are no formal controls

Despite leading the world in Covid-19 vaccine production, the US has so far exported very few shots, prompting complaints that Washington has failed to do its bit to help battle the pandemic globally.

The day after taking office in January, President Joe Biden enacted wartime powers to help boost domestic medical supplies, including vaccines. The move has since been described by critics as an “embargo”, hampering supplies in some of the worst-hit countries by limiting the availability of US-made vaccine ingredients.

There is no formal export ban on vaccines or vaccine components, such as syringes, vials and filters. Companies manufacturing vaccines, or items needed by jab makers elsewhere in the world, are free to export them. 

However, Washington has used a wartime power known as the Defense Production Act to compel private companies to fulfil its contracts ahead of other orders. This has prompted manufacturers elsewhere in the world, like the Serum Institute in India, to complain of not being able to buy items they would normally import from the US. In normal times, the US is the top global exporter of syringes and needles, according to the OECD. 

US officials have defended their use of the DPA. “Making vaccines requires a great deal of specialised materials, and there’s just not enough to go around,” one administration official said this week. “There’s just more global manufacturing happening everywhere in the world than suppliers can currently support.”

Separately, the US has a large stockpile of Oxford/AstraZeneca vaccine doses it bought up early in the development process. Until recently, it rebuffed requests from other countries to share those jabs.

So why has the US exported so few doses?

The Biden administration had said it would not send vaccines to other parts of the world until there was a plentiful supply in the US, and that its focus was on getting shots into US arms. 

Biden said during his speech to Congress on Wednesday: “We will become an arsenal for vaccines for other countries, just as America is an arsenal for democracy for the world . . . [But] every American will have access before that.”

As supply has increased, the administration has come under pressure to share some of its stockpile, especially of AstraZeneca vaccines, which are yet to be approved in the US. But some in the administration worry that they will need more doses in the future to combat new strains or to deliver annual booster shots. 

The DPA has been used dozens of times to make sure manufacturers prioritise medical equipment needed to combat the pandemic. N95 masks, gowns, syringes and vials have all been procured under DPA terms, which allow the government to dictate which domestic contracts should be fulfilled first.

One consequence of this is that pharmaceutical companies have warned hospitals to expect shortages of certain drugs later in the year as the equipment normally used to produce them has been diverted to making equipment and drugs to fight Covid-19.

The DPA does not allow the administration to block exports overseas however, and officials said that foreign vaccine makers are finding it hard to source ingredients simply because global demand is so high. As a result, the Biden administration said this week it would send its own supplies to make AstraZeneca’s vaccines to India.

Industry executives and government officials said a clause was inserted into the original contracts signed between Donald Trump’s administration and vaccine makers, which banned the government from exporting the doses it owned. Officials said the drugmakers wanted this clause to protect them from possible lawsuits from people overseas claiming US-made doses had made them ill.

Paul Mango, the former deputy chief of staff at the health department during the Trump administration, said: “Even the president cannot export those without somehow ensuring that the pharmaceutical companies don’t become liable when they leave the country.”

Biden officials would not say how they had overcome this legal hurdle when agreeing to export 4m doses of AstraZeneca’s vaccine to Canada and Mexico, and another 60m to the rest of the world. But the answer may lie in the complex arrangement for both Canada and Mexico, where the doses are technically being “loaned” on the basis that both countries will return doses made in their own countries at a later date.

India and South Africa have introduced a proposal at the World Trade Organization in Geneva to allow countries temporarily to override patent rights for pandemic-related medical products. The proposal has since been backed by 60 countries.

While Trump’s administration firmly opposed the waiver to intellectual property rules, along with the UK, EU and Switzerland, Biden’s top trade official Katherine Tai has rattled US pharmaceutical companies by appearing to put that position under review.

Her office has said the agency is “exploring every avenue” and “evaluating the efficacy” of the waiver, and Tai has told the WTO that she is interested in hearing more on “how the market once again has failed in meeting the health needs of developing countries”.

Proponents of a waiver to the WTO’s IP rules, known as the Trade-Related Aspects of Intellectual Property Rights, or Trips, said that temporarily suspending the rules would allow more developing countries to make their own copies of the vaccines without fear of being sued for IP infringements.

Pharma companies, however, strongly oppose such a waiver, arguing that a lack of available manufacturing capacity is causing bottlenecks, rather than IP protections.

Experts warn that even if a waiver is granted, it will take much more to make sure the rest of the world has enough vaccines. Many people are calling for makers of mRNA vaccines in particular to help set up manufacturing centres abroad, given their technology appears to be the best at tackling new variants.

“We need to establish vaccine manufacturing hubs, with technological transfer, to get the mRNA vaccine up and running elsewhere,” said Tom Frieden, the former head of the US Centers for Disease Control and Prevention. “The mRNA vaccines are much less susceptible to production delays, they’re much easier to tweak for variants, they’re probably both safer and more effective, and they’re quicker to start production. Something like that needs to be done today.”

The Big Apple has taken a back seat to Beijing as the world’s billionaire capital, and that’s before a new state tax hike possibly pushes more fat cats to leave.

The Chinese capital has exactly one more billionaire than Gotham, 100 to 99, according to Forbes’ recently released list.

The number of billionaires worldwide increased 32 percent to 2,755, or 660 more than a year ago, as many cashed in on a surging stock market. Beijing saw an uptick of 33 billionaires during the worldwide COVID catastrophe that began in China, while NYC’s roster increased by only seven.

“I personally know countless millionaires and billionaires who have left,” said Ronn Torossian, founder and CEO of 5W Public Relations, who is considering moving and relocating his 200 employees from Manhattan to Miami.

Manhattan supermarket magnate John Catsimatidis, worth a cool $3.3 billion, agreed: “New York is being destroyed. I was in Palm Beach last weekend, and I met more millionaires and billionaires who have moved recently than you have hair on your head. The key is they stay in Florida enough days each year to avoid New York taxes.”

He warned, “New York will continue to go downhill — and our billionaires and wealthiest will just get up and leave — unless the city improves.” While he continues to contemplate a run for governor, the Republican mogul told The Post he’s also mulling moving his official residence out of state to reduce his tax bill.

“Billionaires can buy a new corporate jet and live in Florida, and easily fly back and forth between New York City and Miami with the money they can save by moving to lower-taxed states like Florida,” added Catsimatidis.

While Beijing eclipsed NYC billionaires in number, its supperrich fall far behind in net worth — city moguls are worth $550 billion to Beijing’s $490 billion.

Former Mayor Bloomberg was once again the city’s wealthiest person, and the world’s 20th richest, with $59 billion. TikTok titan Zhang Yiming, with a $35.6 billion fortune, was Beijing’s top billionaire, and 39th in global rankings.

But higher taxes and dwindling quality of life could trigger an exodus from NYC.

“Wealthy people are now afraid to walk the streets in New York,” said Torossian. “A few of my hedge fund friends moved quietly to Palm Beach, and won’t return.”

Michael Heller — founder and CEO of Talent Resources, a fast-growing digital “influencer” marketing agency which works with celebrities and brands like Dunkin’ Donuts — ditched his home in lower Manhattan six months ago and moved with his wife and 5-year-old son to London’s Notting Hill.

It could save him millions.

“I am not a billionaire today, but I could be someday,” said the former New Yorker.

The last time Gotham lost its No. 1 ranking was in 2016, when it slipped behind Beijing for a year.

How Farfetch, The Folklore Are Rewriting Fashion’s Big Issues

The Folklore’s Amira Rasool and Farfetch’s Thomas Berry unpack the environmental and social issues plaguing fashion.

There’s something to be said about how fashion is starting to air out old truths and rewrite the narratives with more sustainable outlooks.

With a surplus of stuff and sustainability claims cluttering the market — a wedge is still placed between clothing and its origins.

But sustainability is inherent for some communities.

“One of the main things that a lot of our designers do is they upcycle fabrics — denim, in particular. They are going to actual markets to find their fabrics. They’ll buy whatever the market has, and once it runs out — it runs out,” Amira Rasool, chief executive officer and founder of The Folklore, a designer platform focused on bridging access to African design talent, said in a session last week at the Fairchild Media Group Sustainability Forum.

Rasool continued to share the leading edge: “When you have people that come from different circumstances, it’s so great to see how they work. It’s something that I think designers outside of Africa should actually be looking at because Africa is the future. They’re moving and producing in the way that the rest of the world should be.”

Finding inspiration through her travels to West Africa, Rasool looks for brands that are creative, scalable (within reason) and offer “statement styles,” that stand to outshine a bride at a wedding.

The Forum discussion was framed on tough truths in fashion, including issues like overproduction and inclusivity.

Pointing overproduction back to economics, Rasool said, “Capitalism is the reason why sustainability is going to have a hard time being introduced in certain sections of the market, particularly fast fashion,” noting how individuals should be able to take pride in the business they’re building. “You can build a big company that actually cares and is ethical and sustainable, and that’s my goal with The Folklore.”

To that point, Thomas Berry, global director of sustainable business at Farfetch, reaffirmed the business case. “[Companies] shouldn’t see sustainability and business success as two opposing lenses. There is a way you can drive real growth, reduce cost, reduce risk — all of the things you focus on as leaders in a business — but also by doing good.”

By Berry’s account, doing good also means doing more to help consumers understand what Farfetch calls conscious luxury.

Criteria for conscious products means that a product boasts independent textile certifications (organic, recycled, upcycled or low-impact cellulosic), has a certified production process, is pre-owned or earned a high score on ethical rating platform Good on You.

As for diversity and inclusion, Berry shared of Farfetch’s more holistic vision. “That’s part of our commitment to bring more Black-owned brands, Black designer brands onto the Farfetch platform. The other pillar of the Positively Farfetch strategy is to be positively inclusive and that’s both working internally on our own D&I initiatives but also now looking at the impact we can have on the industry,” he said.

Efforts, so far, are paying off.

Farfetch released its conscious luxury consumer trends report last week and showed how the category skyrocketed, selling 3.4-times faster than the marketplace average over the past year, with Mexico being a key growth market. In a celebration of circular fashion, Farfetch’s Second Life program grew 527 percent last year.

What comes after collaboration? Rasool said The Folklore was prompted to lean into technology further while Berry said it reinforces Farfetch’s stance on broadening access to incredible fashion everywhere.

However, Rasool still affirmed there is work yet to be done by the industry.

“When you look at D&I, and you continue to ignore certain parts of the world, you’re then ignoring that there are clear answers to your problem,” Rasool reiterated, saying “it’s going to take you leaving the boardroom or leaving what you’re used to to go and find that.”