TheChek News Flow

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* AIB Group Raised to Equal-Weight at Barclays; PT 1.50 euros

* Acciona Raised to Hold at Grupo Santander; PT 95 euros

* Iberdrola Raised to Buy at Goldman; PT 10 euros

* Inficon Raised to Buy at Berenberg; PT 840 Swiss francs

* Kone Oyj Raised to Overweight at JPMorgan; PT 63 euros

* Siemens Healthineers PT Raised to 52 euros at Berenberg

* SKF Raised to Hold at Handelsbanken; PT 165 kronor

* VAT Raised to Buy at Berenberg; PT 195 Swiss francs

>>> Down

* Ascential Cut to Neutral at Goldman; PT 289 pence

* Akasol Cut to Hold at Deutsche Bank; PT 45 euros

* Bank of Ireland Cut to Equal-Weight at Barclays; PT 2.40 euros

* BMW Cut to Sell at Citi; PT 45 euros

* DiaSorin Cut to Underperform at Jefferies; PT 120 euros

* Equinor Cut to Sector Perform at RBC; PT 150 kroner

* Maersk Cut to Hold at Jefferies; PT 7,500 kroner

* Rockwool Cut to Hold at Handelsbanken; PT 1,850 kroner

* Salmar Cut to Hold at Berenberg

* Sika Cut to Hold at MainFirst; PT 185 Swiss francs

* Telefonica Cut to Equal-Weight at Barclays; PT 5 euros

* UniCredit Cut to Neutral at JPMorgan; PT 9 euros

* Zooplus Cut to Hold at Berenberg; PT 150 euros

>>> Initiation

* Inventiva Rated New Neutral at Chardan Capital Markets

>>> Call

* BMW’s Leasing Risks Being Overlooked, Downgrade to Sell: Citi

* DiaSorin Downgraded, Valuation Can’t Be Justified: Jefferies

* Maersk Faces Oversupplied Container Market, Jefferies Says

* Norsk Hydro May Face Hard Capital-Allocation Decisions: MS

* Zooplus 1Q Flattered by One-Time Effects, Cut to Hold: Berenberg

Renault (RENA.PA) and Nissan (7201.T) have shelved plans to push towards the full merger former leader Carlos Ghosn craved and will instead fix their troubled alliance to try to recover from the coronavirus pandemic, five senior sources told Reuters.

Nissan has long resisted Renault’s proposals for a full-blown merger as executives felt the French carmaker was not paying its fair share for the engineering work it did in Japan, sowing discord that some feared could wreck the partnership.

Now, with carmakers around the world reeling from the pandemic, the partners are planning to overhaul an alliance that largely failed to convert its global scale into a competitive advantage beyond the joint procurement of parts.

Both struggling carmakers are set to announce mid-term restructuring plans this week that will serve as a peace treaty designed to resolve the long-standing tensions, the five people familiar with the overhaul told Reuters.

“After the rain, the earth hardens,” said one senior Nissan source, citing a popular Japanese proverb that means relationships become stronger after a period of strife.

All five sources within the alliance, which also includes Mitsubishi Motors Corp (7211.T), declined to be named because they are not authorised to speak with media.

Nissan and Renault are each planning substantial restructuring and cost cuts that could affect tens of thousands of jobs, with the Japanese company to announce its measures on May 28 and its French partner likely to follow the next day.

Before that, Mitsubishi, Nissan and Renault are holding a joint news conference on May 27 during which they are expected to outline the philosophy behind their new “leader-follower” approach to the alliance.

The sources said the companies were unlikely to disclose many details at the events this week of how the new approach will be used to share costs as the companies were still working on specific projects.

However, the crisis at both carmakers has accelerated efforts to resolve the disagreements that have stymied collaboration and cost-sharing in technology and product development for five years, the sources said.

Mitsubishi, Nissan and Renault all declined to comment officially about alliance plans.

‘LEADER-FOLLOWER’

The alliance has steadily ramped up output over the years, delivering over 10 million vehicles for the first time in 2017, the first full year after Mitsubishi joined the partnership.

But persistent quibbles over sharing the costs of innovation and new vehicle development soured relations and stalled plans to forge an even tighter alliance.

Nissan executives believe their engineers are substantially more productive than their Renault colleagues and the way the French carmaker proposed to combine technology and product development did not properly account for Nissan’s intellectual property, three of the sources said.

“Nissan engineers on average produced 40% more than their Renault counterparts in a given amount of time spent on a job,” one insider told Reuters in January.

After his arrest in 2018 in Tokyo on charges of financial misconduct, former alliance head Ghosn said his detention was part of a plot by Nissan executives to bring him down and block any merger.

Earlier this year, relations looked strained to a point where the 21-year alliance was at risk of collapse.

However, the turnaround plans due are now likely to be combined to forge what the sources described as a more equitable way of sharing technology and resources, while preserving the distinctiveness of the alliance brands.

Nissan Chief Operating Officer Ashwani Gupta and Renault Chairman Jean-Dominique Senard are both key advocates of the new approach that they’re calling a “leader-follower” system, the sources told Reuters.

The plan is for one company to lead the development of a type of vehicle or technology with the other following, taking a page out of the play-book Gupta used to revive Renault’s commercial vehicle business, as well as reinvigorate Nissan’s.

When he was in charge of the French business, Nissan used Renault’s vehicle architectures as the building blocks for its city delivery vans while Nissan in turn provided the Renault group with technology for pickup trucks.

OFF THE TABLE

A test of the new approach could come in a several places around the world, such as how Renault and Nissan work together in Europe and perhaps South America, as well as how Nissan and Mitsubishi cooperate in Southeast Asia and Japan.

Under the new working relationship, Nissan could take the lead in Europe on crossover sport-utility vehicles (SUVs), while operating as a “follower” in commercial vans and small city cars, using versions produced by Renault, the sources said.

Nissan’s factory in Sunderland in the United Kingdom is of particular importance, they said.

Renault and Nissan are planning to turn the assembly plant into a hub for sport utility vehicles such as Nissan’s Qashqai and Juke, and potentially their Renault counterparts, the Kadjar and Captur. The companies are working on the plans, though it’s not clear when a final decision will be made, the sources said.

Whether Renault vehicles could be built profitably at the plant is unclear, given the uncertainty over tariffs as Britain leaves the European Union, according to one of the sources.

“It should be a pure economic transaction, but it’s also likely a political decision, too,” he said.

In the Philippines, Mitsubishi will likely help make cars for Nissan as it already has a plant there while the two will beef up cooperation in Japan’s micro mini car business, which makes up about half the country’s passenger car market.

The latest effort to salvage the Renault-Nissan alliance comes at a time of rising global economic nationalism and protectionism that represent a risk to the partnership.

But for now, the new approach means the two companies will sideline any discussion of a complete merger, the sources said. Renault owns a 43.4% controlling stake in Nissan, which owns non-voting 15% stake in the French carmaker.

“Will merger talk be revived in the future? No one knows. Everybody has to be prepared for that. But as far as I know, it’s not being pursued anymore,” said one of the senior alliance sources. “It is totally out of our sight today.”

Inside the ‘long-term’ Carlyle bet that coronavirus cut short

Private equity firm now wants to walk away from investment in corporate travel business

Last December, about a fortnight before officials in Wuhan began telling of a strange sickness that was filling the city’s hospitals, executives at the Carlyle Group worked into the night to sign what they imagined would be one of the private equity firm’s most enduring deals.

They were buying a stake in the corporate travel business of American Express, and promising to hold on to it for at least a decade — a departure for a firm that was founded in the 1980s on the industry playbook of buying companies cheap and selling fast. Like other big Wall Street firms, Carlyle had taken to promising investors stability instead of trying to wow them with the prospect of profits that came in spectacular bursts.

In 2020, however, there may be no such thing as a stable business, and Carlyle is now trying to walk away from the Amex deal before any money has even changed hands. The ensuing legal row has become a financial flashpoint of the crisis — one with far-reaching implications for a private equity industry that is sitting on $1.4tn of “dry powder”, according to data from Preqin, and facing pressure from investors to put that money to work.

At the heart of the dispute is a transaction that valued Amex Global Business Travel at $5bn. During a decade-long spell of economic growth, the agency’s 10,000 “travel counsellors” reaped hefty incentive fees from airlines by providing them access to a corporate clientele that wanted to travel in style. Carlyle struck a deal to replace some of the investors who bought in when American Express spun off the business in 2014, agreeing to pay $450m, according to people familiar with the terms — a fivefold increase on the valuation in the original deal.

A 33-page presentation persuaded Carlyle’s top executives to approve the transaction. The document, described to the Financial Times by multiple people who have seen it, was a catalogue of seemingly safe assumptions. As the travel agency grew, Carlyle reasoned that airlines would pay even more generous incentives. That process might be accelerated if one or two large competitors could be acquired from their ageing owners. Carlyle would itself become a loyal client; shuffling executives between offices in 21 countries, and signing up portfolio companies around the world as well, the firm reckoned its business could be worth tens of millions of dollars.

The investment team had even prepared for a recession — although, like many in finance, they seemed to view the chance of a big downturn as remote. (“If you thought 2008 was coming,” an executive at one of Carlyle’s rivals confided last autumn, “you probably wouldn’t look at a single deal we’re doing.”) Travel agencies can readily shed jobs or find other ways to cut costs, and the Carlyle executives calculated that their investment could withstand a downturn that was about 40 per cent the strength of 2008, according to multiple people who requested anonymity to discuss an internal document.

Carlyle’s assumptions were unable to survive February. On the last Wednesday of the month, federal officials warned that coronavirus-related disruption was coming to the US, and stock indices plunged. Within hours, the Carlyle team was reconsidering a leveraged bet on corporate travel that had been intended to carry them through the decade.

Their early moves seemed to aim at shunting risk on to Credit Suisse and other lenders who were being asked to sign on to the deal. One Carlyle executive asked whether pandemic-related losses could be excluded from the travel agency’s earnings calculations, a contractual change that could have prevented lenders from calling in their debt even if bookings deteriorated rapidly. Rather than refer to the virus by name in legal documents, the executive suggested negotiating a catch-all exclusion that would cover any unusual or extraordinary event, according to people with knowledge of the conversations.

Ultimately, Carlyle, which declined to comment for this article, decided on a more drastic course. The scene was set at the end of March, GBT sent out a financial update that the private equity firm found “shocking”. Nine days later, Tyler Zachem, a New York-based managing director who leads the firm’s long-duration funds, told executives at the travel agency that an “adverse event” appeared to have occurred, which, if true, could allow Carlyle to walk away without penalty.

The dispute is now in the courts. Carlyle says the sellers have violated several terms of the purchase agreement; the sellers retort that Carlyle and its co-investor, the Singaporean sovereign wealth fund GIC, reneged on their commitments after suffering buyer’s remorse.

In any case, the deal is unlikely to be completed. On June 30, an international syndicate of lenders are entitled to pull the transaction’s financing. This month, a Delaware judge declined to intervene in the case before the deadline, dashing the sellers’ hope of securing a legal victory in time to save the transaction.

“I cannot order time to stop . . . and I cannot, obviously, end the Covid-19 pandemic,” said Joseph Slights of the state’s chancery court, which resolves disputes involving the large number of companies based in Delaware.

For the AMEX travel business, the collapse of the deal means losing access to $1.1bn of debt financing at an ominous moment. US airlines are eyeing a second government rescue, and AMEX had been planning to keep some of the borrowed cash in case it needed it, instead of distributing it to shareholders as originally planned. Carlyle calls that a backdoor bailout — another reason, it says, why it is not obliged to go ahead with the deal.

The acrimonious ending to the partnership also complicates Carlyle’s plans to show that private equity firms — having attained fame as corporate raiders — can be a force for stability. Five years after launching its “long-term capital” platform, Carlyle is trying to sign up investors for CGP II, its second fund dedicated to the strategy, which was to have supplied some of the cash for the AMEX deal. Other firms with private equity vehicles dedicated to longer-term deals include industry leader Blackstone, and KKR, which has nearly $10bn earmarked for the strategy.

It will take months before a court decides whether CGP II must bear any liabilities related to the AMEX deal. Walking away at least means that any new investors who sign up will not be forced to pay full freight for a travel agency whose value would almost certainly have been impaired the instant the deal had closed. Meanwhile, Carlyle’s earlier long-duration vehicle, CGP I, which has put money into coronavirus-hit sectors such as jet leasing and events, has seen its value fall sharply enough to wipe out the performance fees that Carlyle had booked from the fund’s past gains.

Questioned about the poor performance on an investor call last month, Carlyle’s chief financial officer, Curtis Buser, tried to sound hopeful. “The long-dated fund’s got a long time for this to play out,” he said.

The sovereign wealth fund everyone is talking about

Pandemic has not stopped Saudi Arabia’s Public Investment Fund from going on a shopping spree

Hurting at home, Saudi Arabia splashes money abroad

There are certain things that investors think but don’t say during a crisis, especially one triggered by a global pandemic that has claimed almost half a million lives worldwide. 

One of those phrases may be: “You don’t want to waste a crisis.”

That was the message delivered by Yasir al-Rumayyan, governor of Saudi Arabia’s $325bn sovereign wealth fund, in April as more than 2,000 bankers and executives listened into a virtual conference. 

He wasn’t kidding. Depending on your definition of “waste”, Rumayyan and Saudi’s Public Investment Fund spending record over the past two months speaks for itself. 

What isn’t entirely clear is the strategy behind the multibillion-dollar shopping spree. That is the topic of this big read by the FT’s Andrew England and DD’s Arash Massoudi.

For years we have been told that the aim of the PIF is to diversify the Saudi economy away from oil. So how does one explain the long-term vision behind snapping up stakes in US and European oil majors during the market rout in March?

In other industries, where the PIF would argue its deals have long-term value, the logic requires optimism about our post-pandemic future. It also requires looking beyond the sloppy execution behind some of the transactions, which bankers whisper to DD privately about. 

Those transactions include the PIF’s investments in Live Nation, a US-based concert promotion company, the troubled cruise operator Carnival and a majority stake in Newcastle United football club.

DD has pointed out on other occasions that the purchases resemble flimsy vanity projects for Crown Prince Mohammed bin Salman (pictured below), who is seeking support from his entertainment-starved domestic population.

Better to keep their attention on those deals, rather than PIF’s previous investments, which look worse and worse each day. 

Take its $400m bet on augmented reality start-up Magic Leap, which has just laid off half its workforce. Or its 2016 bet on Uber. The car-booking app is trading below the $62.5bn valuation at which the fund invested a stake of $3.5bn. 

There is also the PIF’s $45bn commitment to SoftBanks’ $100bn Vision Fund, whose performance record is so mixed that Masayoshi Son compared himself to Jesus Christ last week. And the Blackstone infrastructure fund in which the PIF has bet big had an internal rate of return of -18 per cent at the end of March. 

The fact that Prince Mohammed has raised PIF’s profile from what was effectively a sovereign holding company to a global investor with deep pockets is undeniable. There are grand ambitions to increase its assets to $2tn by 2030. 

But as Prince Mohammed keeps his eyes peeled for opportunities abroad, he now also has to face domestic issues, not least Riyadh’s ballooning deficit, the plunge in oil prices and the pandemic.

EU carmakers help close the gap as they race to comply with strict CO2 emissions targets

Europe has outpaced China in attracting investment for electric vehicles and battery development, securing a record €60bn last year largely as a result of Volkswagen’s push into emissions-free cars.

The figure, compiled by Brussels-based non-profit Transport and Environment, is almost 20 times higher than the last calculation, made two years ago.

In the 12 months to mid-2018, Europe had received just €3.2bn in private and public funds for electric transport, while China attracted almost €22bn. For 2019 the respective figures were €60bn and €17.1bn.

“A few years ago Europe was nowhere in the race for electric vehicle supremacy,” said Saul Lopez, who researches electric mobility at T&E. “But EU CO2 targets concentrated carmakers and governments’ minds.”

While the report did not provide specific figures for the US, it lags behind Europe and China in electric vehicle investment. 

Carmakers operating in Europe have been forced to invest in zero-emission technologies to comply with rules phased in at the start of this year.

The EU directive mandates that manufacturers reduce their fleet-wide carbon footprint to an average of 95g per kilometre by 2021, or risk fines amounting to billions of euros.

While the auto industry’s lobby group in Brussels has appealed for leniency in the wake of the Covid-19 outbreak — which brought car sales to a near halt and closed factories for weeks — Europe’s biggest carmakers have said they will comply with the new rules.

The world’s largest carmaker, Volkswagen, has been leading the charge, pledging to invest €33bn into electric technology over the next four years with the aim of having 75 battery-powered models on the road by 2029.

The German group has also invested in battery technologies, including €900m in joint projects with the Swedish producer Northvolt. China’s CATL, meanwhile, is spending €1.8bn on a battery plant near Erfurt, in central Germany.

The Czech Republic, home to VW brand Škoda, also stands to benefit from the Wolfsburg-based company’s electric ambitions, according to T&E, receiving €6.6bn if the carmaker distributes its battery technology investments evenly.

Additionally, Europe’s numbers were boosted by Elon Musk’s Tesla, which is ploughing €4bn into a factory just outside Berlin.

Last year, seven EU countries approved a €3.2bn fund for the development of batteries over the next decade, hoping it would spur a further €5bn in private investment.

While the coronavirus pandemic has led many carmakers to postpone non-vital projects, no major electric investment in Europe has yet been scrapped, and the overall demand for emissions-free vehicles has remained relatively robust.

Despite car sales across western Europe dropping by almost a third in the first three months of 2020, registrations of battery-powered vehicles rose 56 per cent year on year, according to Berlin-based market researcher Matthias Schmidt.

Electric vehicles “are more or less a safe haven” in Europe, he said, because of the EU’s regulatory requirements.

“However, one consequence of the coronavirus pandemic could be manufacturers choosing to buddy-up and create shared electric vehicle platforms,” Mr Schmidt added, “consequentially cutting a large part of their investments and freeing-up vital short-term cash.”

T&E’s report predicts electric vehicle sales will continue to climb in the aftermath of Covid-19, despite sharp declines in petrol prices, as companies take advantage of subsidies to upgrade their fleets.

France, Germany and other European states are discussing whether to introduce further incentives for the purchase of battery-powered cars.