After Hours Summary: HPQ +5.7%, JWN +4.5% up nicely on earnings; GPS -10.4%, VMW -1.5%, ADSK -0.6% lower on earnings; MESA +25.4% jumps on new contractAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: VNET +13.7%, HPQ +5.7% (also increases dividend), JWN +4.5%
Companies trading higher in after hours in reaction to news: YJ +38.7% (signs cooperative framework agreement with Douyin), MESA +25.4% (MESA enters into new contract with AAL to operate 40 CRJ-900s), AAL +0.7% (MESA enters into new contract with AAL to operate 40 CRJ-900s), BLCT +0.7% (to acquire Finka), MA +0.2% (provides update on Q4 operating metrics)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: GPS -10.4% (also names new CEO of Banana Republic), PSTG -5.1%, AEO -3.1%, VMW -1.5%, ADSK -0.6%
Companies trading lower in after hours in reaction to news: RETA -8.8% (provides update on omaveloxolone program), MCF -2.4% (stock offering), UROV -2.1% (announces top-line data from Phase 2a study of vibegron; study did not meet primary endpoint), EVOP -1.6% (stock offering), CLGX -0.1% (issues statement in response to Senator/CNNE)
Closing Stock Market SummaryThe major indices rose more than 1.0% on Tuesday in a record-setting session. The Dow Jones Industrial Average (+1.5%) topped the 30,000 level for the first time ever, the S&P 500 (+1.6%) closed at a record high, the Russell 2000 (+1.9%) set fresh all-time highs, and the Nasdaq Composite gained 1.3%.
Value, cyclical, and small-cap stocks retained their leadership roles in this part of the bull market, and the bullish bias carried over to most parts of the market. The S&P 500 energy (+5.2%), financials (+3.5%), and materials (+2.5%) sectors outperformed, while the real estate sector (-0.03%) slipped into the red.
Aside from the obvious momentum and fear of missing out, stocks were supported by incrementally good news that fueled risk sentiment and maintained the market's 2021 recovery optimism.
Specifically, the General Services Administration said it will release funds to help the Biden administration transition into office after President Trump condoned the action, Wells Fargo (WFC 28.60, +2.30, +8.8%) was double upgraded to Outperform from Underperform at Raymond James, and numerous retailers reported better-than-expected earnings reports.
Dollar Tree (DLTR 111.35, +13.74, +14.1%) shares rose 14% following its earnings results, but truthfully, most of the earnings reactions weren't that great since the news may have already been priced in. Shares of Best Buy (BBY 113.54, -8.50, -7.0%) fell 7% despite beating top and bottom-line estimates.
There were also semblances of greed and froth in the market. For example, shares of Tesla (TSLA 555.38, +33.53, +6.4%) surged 6% on no specific news to bring the company's market capitalization to over $500 billion. Hedging interest remained relatively suppressed with the CBOE Volatility Index (-1.02, -4.5%) closing at 21.64.
Longer-dated Treasuries faced selling pressure amid the heightened level of bullishness in stocks, sending yields higher in a curve-steepening trade. The 2-yr yield decreased one basis point to 0.16%, while the 10-yr yield increased three basis points to 0.88%. The U.S. Dollar Index decreased 0.4% to 92.16. WTI crude rose 4.2% to $44.89/bbl.
Reviewing Tuesday's economic data:
- The Conference Board's Consumer Confidence Index dropped to 96.1 in November (consensus 96.5) from an upwardly revised 101.4 (from 100.9) in October.
- The key takeaway from the report is that consumers going into 2021 don't foresee the economy and the labor market gaining strength, as attitudes about business conditions for the next six months have worsened.
- The September S&P Case-Shiller Home Price Index increased 6.6% (consensus 5.5%) following a revised 5.3% increase in the prior month (from +5.2%).
- The September FHFA Housing Price Index increased 1.7% following a 1.5% increase in the prior month.
Looking ahead, investors will receive a massive amount of data on Wednesday, most notably the weekly Initial and Continuing Claims report, New Home Sales for October, Personal Income and Spending for October, and the FOMC Minutes from the November meeting.
- Nasdaq Composite +34.2% YTD
- S&P 500 +12.5% YTD
- Russell 2000 +11.1% YTD
- Dow Jones Industrial Average +5.3% YTD
AA agrees sale to private equity groups
Warburg Pincus and TowerBrook to take control of debt-laden roadside recovery group
AA, the motorway emergency service, is to return to private equity ownership after just six years in the public markets, as it seeks to pay down the massive debts that are a legacy from the previous time buyout groups owned the business.
The motoring company has agreed a 35p-per-share deal with Warburg Pincus and TowerBrook Capital Partners, two people familiar with the matter said. The deal values the company's equity at £218m.
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.
Those close to the company said that the latest refinancing round had left interest payments dangerously close to what the company made in cash flow, meaning that the group was being prevented from undertaking necessary investment.
Under the deal, the private equity firms will invest about £380m to cut the company’s debt burden by refinancing bonds that are due for repayment in 2022.
The AA’s debts date back to its ownership by private equity firms CVC and Permira, which bought the company from Centrica, the owner of British Gas, in 2004 before loading it with extra debt to take back most of the equity used to buy it.
Companies owned by private equity firms normally reduce their debts either before being listed or during the process of an initial public offering. However, in 2014 the AA carried out an unconventional “accelerated IPO” that allowed it to come to the public markets with £3.4bn in debt, far higher than would normally be tolerated for a company of its size.
The process involved a group of 10 institutional investors, including Aviva, BlackRock and funds run by Neil Woodford, buying a 69 per cent stake, then quickly listing the business.
The new take-private marks the latest in a series of bets on distressed companies by TowerBrook.
In July, it took over Azzurri Group, which runs the Ask and Zizzi casual dining chains, from the private equity group Bridgepoint. In May it bought CarTrawler, which connects airlines and travel agents to car hire, airport transfer and car-booking services, from private equity groups BC Partners and Insight Venture Partners after an emergency debt restructuring.
We expect European equities to reach new highs in 2021. High-efficacy vaccines should bring COVID-19 under control, allowing a gradual return to normality for economies and markets. The reflation trade has become more consensus of late and many unknowns remain. Yet we believe a strongcyclical upswing will fuel further rotation out of still-crowded relative safe havens, into less-owned riskier assets.
French Hotel Giant Targets U.S. With New Lifestyle Operator
Accor to combine boutique brands with London-based Ennismore, eyeing growth in design and dining-focused properties as pandemic continues to crimp industry
European hotel giant Accor SA is betting big on lifestyle hotels, agreeing to merge its boutique properties with a U.K. company to create what it says will be the world’s largest operator of lifestyle hotels.
Accor said it has agreed to form a new venture in an all-share transaction with Ennismore, a London-based hotel operator, that will include more than 70 properties. It will feature a dozen lifestyle brands, including Mama Shelter, SLS and the 21c brands that operate hotels in the U.S.
Under the proposed deal, the combined company would have about another 180 hotels either in the pipeline or in advanced discussions with hotel owners, Accor said. That size and scope could give the new division—which will operate under the Ennismore name but would be majority-owned by Accor—enhanced global clout in this popular lodging segment.
“Lifestyle is the fastest-growing hotel segment on the planet,” said Accor Chief Executive Sebastian Bazin. “Guests want it, and hotel owners want it.”
While the lifestyle label is sometimes ambiguous, it usually refers to hotels that emphasize design and feature an active bar and restaurant scene. Mr. Bazin said he defines a lifestyle hotel as one that derives at least 40% of its revenue from food and beverage and other entertainment services.
Lifestyle properties, which have also been called boutique hotels, took off in the 1980s when nightclub impresarios Ian Schrager and Steve Rubell founded Morgans Hotel Group Co. That pioneering brand featured popular spots like the Royalton hotel in Manhattan and the Delano hotel in Miami Beach. Morgans’s brands have since changed hands and will be part of the new Accor lifestyle unit.
Over time, larger hotel companies like Marriott International Inc. and Hilton Worldwide Holdings Inc. entered the segment by creating their own lifestyle brands. InterContinental Hotels Group PLC acquired Kimpton Hotels & Restaurants in 2015, putting another of the original boutique operators inside the portfolio of a global hotel company.
The lifestyle segment has suffered along with most other hotels that tend to cluster in or near large cities, where both business travel and tourism have dwindled during the pandemic. With much of Europe reimposing lockdown orders in recent weeks, the environment has been tough.
The current Ennismore properties have been struggling with occupancy levels between 30% and 50%, and the hotels have cut room rates by 20% to 30%, said Sharan Pasricha, founder of the original Ennismore who will be a co-CEO of the merged company.
Gaurav Bhushan, who runs Accor’s lifestyle business and will be the new unit’s other chief executive, said he expects activity at the properties to ramp up next year even if travel remains subdued. That is because the hotels draw heavily from their own neighborhoods as a place to eat or drink, he said.
With more than 750,000 rooms world-wide, Accor is Europe’s biggest hotel operator and one of the world’s largest. Still, the Paris-based company has struggled to gain traction in the U.S. market. Only about 5% of its rooms are in North and Central America.
But those regions’ hotels account for 14% of Accor’s earnings before interest, taxes, depreciation and amortization, or Ebitda, and the company is eager to expand further in the U.S. through the Ennismore brand.
“We have a strong pipeline in the U.S., and it’s going to be a big focus for us,” Mr. Bhushan said.
Credit Suisse/York Capital: hedge dredge
Latest setback won’t derail bank but closing the valuation gap with rival UBS looks tough
In February, when Thomas Gottstein took the command at Credit Suisse after a corporate spying scandal, most expected balance to be restored. In fact, the waves had only started to swell beneath Credit Suisse and all its peers, as the pandemic washed in. This week came the latest lurch, an estimated $450m writedown for its decade-old 30 per cent minority stake in US hedge fund group York Capital Management. While that will no doubt jolt management, it hardly means the Swiss bank will founder.
A letter from York Capital to investors on Monday evening forced Credit Suisse’s hand. The group announced it would move away from managing hedge funds specialising in listed securities to focus on private investments. York’s key funds had lost their way on performance. In October, Credit Suisse’s chief financial officer David Mathers had darkly hinted at restructuring charges to come with the bank’s portfolio of alternative investment managers.
Bought back in 2010 for $425m, Credit Suisse argues that York paid for itself with fees it threw off in the first five years. The impairment accounts for just over half of York’s value on Credit Suisse books. The charge only erases about 7 basis points of its common equity tier one capital, leaving plenty for 2020 dividends.
Still, closing the valuation gap with larger local rival UBS, trading half again above Credit Suisse’s 0.6 times tangible book value, looks tough. Assets under management are half of UBS’s. And other flotsam threaten Credit Suisse. It suffered reputational damage having worked on deals with Wirecard in Germany and Luckin Coffee in China. The bank’s involvement in creating supply chain finance investment funds with SoftBank-backed Greensill Capital are another reason due diligence procedures need explaining. Greensill has struggled to find an auditor ahead of a potential stock market listing.
These will cloud the horizon during the bank’s investor day on December 15. Credit Suisse has more to do to close the gap with its main rival.
Accor and Hoxton hotel chain to merge boutique brands
Groups seek ways to make money beyond traditional overnight stays
Accor, Europe’s largest hotel company, is merging a quarter of its brands into a new $1bn company with the owner of the Hoxton hotel chain in a bid to move away from a traditional overnight accommodation model that was already being shaken up before the pandemic.
The new entity, which will operate under the Hoxton owner Ennismore’s name, will be two-thirds owned by Accor and a third by Sharan Pasricha, Ennismore’s founder, following the cash-free merger.
It will operate as an umbrella company for Accor’s 10 lifestyle brands including Mondrian and SLS as well as the Hoxton, which owns nine hotels, the luxury Gleneagles estate in Scotland and Working From_, a shared workspace company.
Sébastien Bazin, Accor’s chief executive, said that the venture was “not related to Covid”, but reflected increasing interest from customers for boutique hotels that acted as desirable destinations in their own right.
He defined these as hotels in which more than 40 per cent of revenues came from food, drink and entertainment and where the majority of clientele were locals — something that the Hoxton has pioneered by focusing its efforts on attracting young city dwellers to its ground-floor bars and restaurants.
Mr Pasricha will head up the company as co-chief executive alongside Accor’s chief development officer Gaurav Bhushan.
The group will start out with 73 hotels and an enterprise value of about $1bn, with deals signed to develop 110 other sites, mostly under the Hoxton and Mondrian names. It will also run more than 150 restaurants and is expected to achieve earnings before interest, taxes, depreciation and amortisation of more than €100m “in the mid term”, according to Accor.
To create the new company, Accor also announced on Tuesday that it had spent €300m taking full ownership of sbe, which owns four of the brands that will now operate under Ennismore. Including the sbe transaction, Mr Bazin said Accor had spent less than $500m in total buying the remaining stakes in its lifestyle hotel brands over the past few years.
Last month, Accor said that it had €4bn liquidity to see it through the remainder of the crisis.
Large hotel chains such as Accor and rivals IHG, Marriott and Hilton have accelerated efforts to diversify their operations away from business travel and corporate events fearing that a new-found familiarity with remote conferencing will last beyond the pandemic.
Hilton has rented several of its hotels out as student accommodation, while Marriott, Accor and Radisson have all stepped up efforts to encourage consumers to use their hotels as co-working spaces.
Mr Bhushan said that the pandemic had made Accor “look at a cold hard level about how to drive revenue from every square metre of space”, something that Mr Pasricha added that lifestyle brands such as Hoxton, which derives about 60 per cent of its sales from food and drink, were better suited to.
Mr Pasricha said that he expected about 10 per cent of corporate travel would not return but that hotels such as Gleneagles had “an amazing summer” because it benefited from holidaymakers taking domestic trips.
The company will have its headquarters in London.
Bertelsmann in pole position to acquire Simon & Schuster
German media group outbid News Corp to create supposed ‘behemoth of books’
Bertelsmann is in pole position to buy Simon & Schuster, outbidding Rupert Murdoch’s News Corp to strengthen its position as the world’s biggest books publisher.
The German owner of Penguin Random House was the highest bid in a fiercely fought auction for the ViacomCBS publishing arm, which fetched a price far in excess of initial estimates. Two people familiar with the process said Bertelsmann offered more than $2bn.
A person close to Mr Murdoch said the octogenarian media tycoon was not willing to top Bertelsmann as he is convinced the deal will face significant regulatory hurdles, while a deal with News Corp would provide greater certainty of closing.
The acquisition will entrench Bertelsmann’s position as the world’s biggest and most powerful book publisher, with close to a third of the US market by revenues, a share that is more than double its nearest rival.
Robert Thomson, the News Corp chief executive, last week warned that a Bertelsmann acquisition would create an anti-competitive “behemoth of books”. News Corp’s HarperCollins, the third biggest publisher in the US, has long sought opportunities to expand its share of the US market.
Thomas Rabe, the Bertelsmann chief executive, publicly signalled his interest in buying Simon & Schuster earlier this year and mounted the bid alone, eschewing an option to partner with the private equity group.
Competition authorities rarely block five-to-four mergers and Mr Rabe has said he is confident they would use a broad view of the competitive players in a market that has been transformed by the rise of Amazon and self-publishing.
Simon & Schuster, one of the top five publishers in the US and a prized asset of the late Sumner Redstone, is no longer viewed within ViacomCBS as central to its strategy as the company launches into Hollywood’s streaming battle.
French media group Vivendi, which owns a stake of roughly 27 per cent in the world’s second biggest book publisher Lagardère, is also understood to have bid in the auction. However, the offer made by the French group lagged the other two on the table as of Tuesday afternoon, said one person.