TheChek News Flow

Albert Bridge Capital says £219m bid ‘fundamentally undervalues’ UK roadside recovery group

The AA’s largest shareholder has urged its fellow investors in the British roadside recovery group to reject a takeover bid from a consortium of private equity firms unless the offer is improved.

Albert Bridge Capital, a London-based hedge fund, wrote a letter to other shareholders at the weekend calling the offer from Warburg Pincus and TowerBrook Capital Partners “derisory” and one that “fundamentally undervalues the equity”.

The intervention sets up a public confrontation between Albert Bridge, which owns just under 20 per cent of the AA, and the group’s board and second-largest shareholder, US hedge fund Davidson Kempner, which back the 35p-a-share offer.

The deal, which requires 75 per cent shareholder support to go ahead, values the company’s equity at £219m.

“This initial 35p bid is insufficient, the terms of this offer are not fair or reasonable, and massive shareholder dilution does not need to be the only alternative to accepting this inadequate bid,” wrote Drew Dickson, chief investment officer at Albert Bridge.

“If the current bid level is rejected by the owners of the company, we hope and trust that management and their advisers will double down and arm themselves to defend vigorously the shareholders they represent.”

The AA has been struggling with a £2.6bn debt burden, on which the £128m annual interest payments alone amount to more than half of the company’s entire equity value.

Under the terms offered by Warburg Pincus and TowerBrook, the private equity groups would invest about £378m to cut the company’s debt burden by refinancing bonds that are due for repayment in 2022.

John Leach, chairman of the AA, said last week that the deal offered “certain cash value to theAA’s shareholders as well as a significant equity injection to reduce indebtedness”. He added that it was “in the best interests of the AA, its shareholders and wider stakeholders”.

Since the AA listed in 2014 its share price has fallen 86 per cent to 33.5p, having hit £4.19 in 2015.

The group’s debt burden dates to its previous period of private equity ownership under CVC and Permira. When it listed in 2014, it carried out an unconventional “accelerated IPO” that allowed it to come to the public markets with £3.4bn in debt, much higher than typical for a company of its size.

Mr Dickson’s letter added: “We encourage other shareholders, management and the board to share our confidence and demand that the consortium make an offer that is more palatable for current shareholders, yet still greatly rewarding for the consortium if they are successful.”

Albert Bridge Capital says £219m bid ‘fundamentally undervalues’ UK roadside recovery group

The AA’s largest shareholder has urged its fellow investors in the British roadside recovery group to reject a takeover bid from a consortium of private equity firms unless the offer is improved.

Albert Bridge Capital, a London-based hedge fund, wrote a letter to other shareholders at the weekend calling the offer from Warburg Pincus and TowerBrook Capital Partners “derisory” and one that “fundamentally undervalues the equity”.

The intervention sets up a public confrontation between Albert Bridge, which owns just under 20 per cent of the AA, and the group’s board and second-largest shareholder, US hedge fund Davidson Kempner, which back the 35p-a-share offer.

The deal, which requires 75 per cent shareholder support to go ahead, values the company’s equity at £219m.

“This initial 35p bid is insufficient, the terms of this offer are not fair or reasonable, and massive shareholder dilution does not need to be the only alternative to accepting this inadequate bid,” wrote Drew Dickson, chief investment officer at Albert Bridge.

“If the current bid level is rejected by the owners of the company, we hope and trust that management and their advisers will double down and arm themselves to defend vigorously the shareholders they represent.”

The AA has been struggling with a £2.6bn debt burden, on which the £128m annual interest payments alone amount to more than half of the company’s entire equity value.

Under the terms offered by Warburg Pincus and TowerBrook, the private equity groups would invest about £378m to cut the company’s debt burden by refinancing bonds that are due for repayment in 2022.

AA’s shareholders as well as a significant equity injection to reduce indebtedness”. He added that it was “in the best interests of the AA, its shareholders and wider stakeholders”.

Since the AA listed in 2014 its share price has fallen 86 per cent to 33.5p, having hit £4.19 in 2015.

The group’s debt burden dates to its previous period of private equity ownership under CVC and Permira. When it listed in 2014, it carried out an unconventional “accelerated IPO” that allowed it to come to the public markets with £3.4bn in debt, much higher than typical for a company of its size.

Mr Dickson’s letter added: “We encourage other shareholders, management and the board to share our confidence and demand that the consortium make an offer that is more palatable for current shareholders, yet still greatly rewarding for the consortium if they are successful.”

Turn in fortunes for borrowers beaten up by coronavirus as yields tumble

Debt investors are betting that some of the companies most damaged by coronavirus will manage to avoid bankruptcy.

Bonds issued by low-rated companies in the US have rallied 7 per cent this month, one index of triple C bonds shows — the biggest jump in more than four years. In Europe, junk bond yields have fallen from over 8 per cent in March to almost 3 per cent as prices have risen, with November providing the bonds’ best performance since April. 

The jump in the Ice Data Services indices erases the losses sustained in the depths of this year’s market tumult to turn them positive for the year — a sharp change of heart for investors who once feared a global wave of defaults.

“It tells you investors are looking through the spike in Covid now,” said John Gregory, head of leveraged finance at Wells Fargo Securities. 

American Airlines, cinema operator AMC Entertainment and cruise company Viking are among those to have benefited most from the rally in bonds, as investors reassess the potential for companies wounded by coronavirus restrictions to survive the economic downturn. 

When coronavirus took hold globally in March and countries imposed lockdowns to try to contain it, the value of corporate debt plummeted, pushing the average yield across triple C rated companies close to 20 per cent in the US, from just above 11 per cent at the start of the year.

But yields pulled back again over the summer, and again in early November as the outcome of the US presidential election became clear. Momentum has gathered speed since November 9, when Pfizer and BioNTech announced they had developed a vaccine that was highly effective at preventing Covid-19. 

The scientific advances raise the possibility that an end to the economic stranglehold of coronavirus is in sight, and the profitability of companies that depend on the normal movement of people may return. Debt markets received another boost a week later, when Moderna announced that it too had developed an effective vaccine.

The more optimistic outlook has helped drag borrowing costs for risky companies below 10 per cent — their lowest in more than two years — prompting a wave of fresh fundraising, as cash-strapped businesses lock in funds in the bond markets from investors starved of high-yielding bets. This should help companies through what they hope will be the final leg of the coronavirus crisis. 

If the vaccine news had not come through, and the latest surge in coronavirus cases had led to greater social restrictions, the market “would be in a different spot”, said Mr Gregory.

S&P Global Ratings has also turned more optimistic, cutting its predicted corporate default rate for next year. It had expected the trailing 12-month default rate to rise to 12.5 per cent by next March in the US but now expects it to reach only 9 per cent by September. In Europe, too, it now anticipates a milder default cycle.

Some investors remain cautious. To withstand a collapse in earnings, companies have rushed to issue debt since the sell-off in March — a debt load that could prove problematic in a future downturn. Now, the extra $230bn outstanding in junk-rated bonds has pushed the total to more than $1.4tn, according to Ice Data Services. 

“We are still going to have to bridge through to mid-year next year,” said Henry Peabody, a portfolio manager at MFS Investment Management. “Still then [the vaccine] most likely won’t get to every American. And we seem to be entering a second wave, with associated pressure on economic growth . . . There is still a lot of wood to chop.”

Boutique investment bank to list via Betsy Cohen’s blank-cheque vehicle by end of 2020

Boutique investment bank Perella Weinberg Partners is in advanced discussions to combine with a blank-cheque vehicle sponsored by Betsy Cohen, a 79-year old commercial banking tycoon, according to people familiar with the matter. 

A deal with FinTech Acquisition Corporation IV, the fourth special purpose acquisition company set up by Ms Cohen, would see PWP list its deal advisory business at about a $760m equity valuation, those people said. The transaction is expected to be announced before the end of the year.

Fintech Acquisition Corp IV raised $230m in its September initial public offering. Most of that cash is to be used to pay down PWP’s existing debt, most of which comes from its 2016 acquisition of Tudor, Pickering, Holt & Co, a Texas energy-focused investment bank.

The rest of the proceeds of the Spac deal, which will also include a further $200m investment from institutional investors, will be used to return cash to PWP founding backers as well as pay some of the firm’s retired partners. 

PWP declined to comment. Fintech Acquisition Corporation IV could not immediately be reached.

PWP was founded in 2006 by the legendary mergers and acquisitions banker Joe Perella and Peter Weinberg, a longtime Goldman Sachs executive whose family had been at the top of that firm for decades. 

The PWP’s partners will continue to own the majority of the investment bank and, once listed, the top partners are likely to have a super majority that will allow them to retain full control over the business. 

The New York-based company’s mooted valuation is set to be roughly 16 times its 2021 forecast net income — in line with peers such as PJT, Evercore, Moelis & Co and Lazard. But PWP’s overall valuation is modest compared with the roughly $1bn it raised at its origin from investors that included wealthy families such as the Weinbergs and the Gettys, as well as large institutions in the Middle East. 

The boutique bank sector became increasingly crowded after the financial crisis, forcing PWP’s deals business to compete against several upstart firms with similar business models. Moelis, the independent investment bank founded in 2007 by former Drexel Burnham Lambert star Ken Moelis, has a current market capitalisation of almost $3bn.

PWP has been planning to go public for several years and hired Goldman Sachs and JPMorgan Chase to advise them on the listing in 2018. It also made key leadership changes in preparation for the IPO, including naming Mr Weinberg chief executive, while Bob Steel, the former Treasury Department official who joined PWP in 2014 as CEO, took over the chairmanship. Mr Perella remains a founding partner.

PWP also has a separate asset management business, with $10bn in assets, that will remain independent of the listed company. 

Ms Cohen, who is a lawyer by training, has had a colourful career as one of the earliest female entrepreneurs in the commercial banking industry. She founded her first bank, Jefferson Bank, in 1974 and later went on to set up businesses in Hong Kong and Brazil.

The first three vehicles sponsored by Ms Cohen merged with CardConnect, Intermex Wire Transfer and Paya, each a payments company, respectively. 

CardConnect was acquired in 2017 by First Data for $15 per share, above the $10 per share Spac listing price. Intermex, similarly is above $10, trading currently at $16 per share. Paya, whose merger closed in October, trades at $11. 

The EV market is poised to enter a decade of robust growth starting 2021 amid the maturing infrastructure for new energy vehicles, prompting Taiwan's automotive PCB vendors including Chin-Poon industrial to step up deployments in the segment, particularly the markets in the US and Europe, according to industry sources.

Global EV sales are likely to reach a maximum of 14 million units in 2025, compared to only two million in 2020 that account for only 2% of total global car sales, the sources said, citing estimates from research bodies. The sales growth for EVs will be much higher than that for the entire car market in the next few years, the sources added.

Chin-Poon opined that the Europe EV market will see the most promising prospects, given that automakers in the region, after making total investments of EUR60 billion in the EV segment in 2019, are ready to carry out 2021 EV production plans that will see total output volume four times that of 2019.

It is natural for Taiwan automotive board makers to deepen deployments in the US and Europe markets, as they have built close partnerships with traditional automakers in the regions and can more easily obtain PCB orders for EVs they are planning to produce, the sources said. Additionally, new EV vendors in the US usually rely on first-tier automotive components suppliers, who have long sourced PCBs from Taiwan partners, the sources added.

China's EV market is developing at a faster pace than other regions under the subsidy policy of the government, but the policy has also led to adoption of more components by homegrown suppliers while fueling price-cutting competition. As a result, Taiwan automotive PCB makers can hardly secure profitable shipments if they want to tap the China market, the sources noted.

Total value of PCBs used in an EV is estimated at over US$100, compared to around US$60 for a traditional car, and thick copper boards will be massively needed for EV applications to support high heat dissipation and power capacity requirements, apart from traditional multi-layer rigid boards as mainstay offering, the sources said.

SINGAPORE (Reuters) - A Singaporean woman, who was infected with the novel coronavirus in March when she was pregnant, has given birth to a baby with antibodies against the virus, offering a new clue as to whether the infection can be transferred from mother to child.

The baby was born this month without COVID-19 but with the virus antibodies, the Straits Times newspaper reported on Sunday, citing the mother. bit.ly/33I0liL

“My doctor suspects I have transferred my COVID-19 antibodies to him during my pregnancy,” Celine Ng-Chan told the paper.

Ng-Chan had been mildly ill from the disease and was discharged from hospital after two-and-a-half weeks, the Straits Times said.

Ng-Chan and the National University Hospital (NUH), where she gave birth, did not immediately respond to a request for comment.

The World Health Organisation says it is not yet known whether a pregnant woman with COVID-19 can pass the virus to her foetus or baby during pregnancy or delivery.

To date, the active virus has not been found in samples of fluid around the baby in the womb or in breast milk.

Doctors in China have reported the detection and decline over time of COVID-19 antibodies in babies born to women with the coronavirus disease, according to an article published in October in the journal Emerging Infectious Diseases.

Transmission of the new coronavirus from mothers to newborns is rare, doctors from New York-Presbyterian/Columbia University Irving Medical Center reported in October in JAMA Pediatrics.

Warning lights are flashing for Big Tech as they did for banks

How the risks of financial services were managed can provide a model for the digital economy

When bankers got too clever and our businesses too complex, we all suffered the consequences. The 2008 financial crisis touched so many of us because the banks were woven into all our lives. Society was exposed to risks it didn’t understand, and we all paid the price via government-backed bailouts.

Today, warning signs are flashing again. Some of the elements are familiar: huge, growing companies relied on by the rest of society that will do grave damage if they fail, or deliver poor outcomes for their customers. But this time it is the technology sector rather than the financial that is leaving us all exposed.

The risk for consumers if tech companies deliver bad outcomes — what is called “conduct risk” in the jargon of my trade — is now just as grave as that from financial services. But we are not organised to deal with it. The digital economy is consuming the old economy and the governance structures we have in place to deal with this transition are inadequate.

So, who does regulate Big Tech? The government promises a new Digital Markets Unit inside the Competition and Markets Authority, but its remit will be largely limited to stemming anti-competitive behaviour, and details are scant. A promised Online Harms Bill is long delayed. It all sounds worryingly vague

My 30 years as a banker required me to look into the future and anticipate risks. I can confidently say that for tech firms the warning signs are showing. We must act now.

The pandemic has emphasised our reliance on technology. It’s not just the interminable video calls or the technology that underpins deliveries to our locked-down doors. It is the mountains of data that dictate the ads we see as we scroll through coverage of the latest coronavirus briefing. Digital transformation is sweeping through my industry, too. Consumers have squeezed years-worth of adoption of apps and online banking into just a few months.

Yet the risks go much deeper than the risk of hastily managed change. The algorithms that determine how much work delivery drivers get and what we see when we go online are no better understood than the structured credit products that brought the banking system to its knees in the financial crisis.

We need to manage the risks of disinformation and learn how to moderate content. We need to understand how bias is confirmed and then cultivated by algorithm. And when we understand how this works, we need to be clear who is accountable for it all. You can’t sack an algorithm.

None of this is to say a crisis on the scale of 2008 lies around the corner. But it does add up to a significant risk, and one that we should not ignore. The sheer complexity of the risk presented by Big Tech makes the challenge of tackling it daunting, but we can get off to a good start if we use the work done in financial services as a model.

The financial crisis taught us that careful oversight is needed when the public interest is dependent on businesses that exist to meet the needs of private capital providers. Before 2008, regulators’ approach to conduct risk in banking was what they called “principles based” — deliberately light touch. It relied too much on banks’ abilities to govern themselves and it failed. The similarities with our current approach to Big Tech are striking.

In the years after the crisis, regulators and politicians in the UK did not sit back. Instead, they created the Financial Conduct Authority, which has established itself as a top conduct regulator for financial services.

The FCA has made a significant impact in two key areas that are relevant to the tech firms driving the new economy. It forced banks to communicate in a clearer way, particularly about their charges. This allowed consumers to make informed decisions about the exchange of value between themselves and their bank. It also made it easier to identify who was accountable if things went wrong. This had a positive impact on companies’ diligence and appetite for risk, which improved the outcomes for their customers. Not an easy journey, but the FCA showed that it can be done.

We need the same ambition to address the risks posed by technology now. In other words a new, world-leading Digital Conduct Authority. This would strip away a complex mesh of interlocking institutions, and become a powerful, reliable regulator that could hold individuals to account. Its purpose would be — quite simply — to ensure good outcomes for customers, and a fair exchange of value for those who use technology platforms.

That would be good for consumers, and — ultimately — for Big-Tech too.

Rates commanded for access to investment insights slashed by shift to digital meetings

Fund managers have slashed the amount they are willing to pay for sellside research analysts’ insights during the pandemic, as the shift to digital meetings has reduced the value placed on these interactions.

One-to-one analyst meetings are a long-established and lucrative part of the investment research market. Spanning activities including breakfasts, presentations or an analyst-brokered introduction to company management, they make up the bulk of the budgets asset managers set aside for sourcing investment ideas. The price varies but can run into several thousand dollars. 

But the move to online meetings due to coronavirus has upended what investors are willing to pay for access to research analysts, according to a survey of fund groups with a combined $4.9tn in assets.

The average price of a one-to-one meeting has almost halved since the start of the pandemic due to a perception that digital versions lack intimacy and offer less value.

“Asset managers do not rate virtual meetings the same as face-to-face interactions,” said Mike Carrodus, chief executive of consultancy Substantive Research, which carried out the analysis. “They lack the value derived from the informal side of physical meetings, where questions and analysis that were unscheduled would still be addressed.”

Video calls also tend to be shorter than in-person meetings which reduces their price tag, he added. Fund managers are also paying out less for group analyst meetings, with the value of these interactions falling 35 per cent since January.

The findings underscore the intense pressure facing sellside research providers, which are already reeling from a shake-up triggered by sweeping EU rule changes three years ago.

Mifid II aimed to curb conflicts of interest and rationalise the supply of research by forcing asset managers to pay for analyst insights separately to trading fees. This resulted in fund managers slashing their research budgets by 20-30 per cent, according to the Financial Conduct Authority, straining providers’ revenues.

While Mr Carrodus predicted a temporary “frenzy” of in-person analyst meetings once a vaccine became available, he said in the long term fund managers would seek to preserve the cost savings gained from digital engagements.

“We’ve all learnt that there are some things we don’t have to do physically,” he said. “Now that fund managers pay for research from their P&L account, the opportunity to make savings is tempting.”

Yet appetite for research this year has not let up, Substantive found, as investors sought ideas to help them navigate choppy markets during the health crisis.

“Fund managers’ budgets are capped yet consumption is up. Something has to give and that is price,” said Mr Carrodus.

Daniel Murray, deputy CIO and global head of research at private bank EFG, said that the acceptance of digital meetings during the pandemic would put pressure on fund groups to justify their spend on gaining physical access to analysts.

But he added that there would always be a place for in-person analyst meetings. “Seeing the whites of someone’s eyes cannot easily be replicated virtually,” he said.