TheChek News Flow

Groups seek support for bids to buy German conglomerate’s prized elevator unit

Private equity firms are engaged in a last-minute charm offensive to win over Germany’s most powerful union as they seek support for their bids to purchase Thyssenkrupp’s elevator unit, the company’s crown jewel.

Three private equity bidders, who value the elevator business at roughly €15.5bn, are prepared to offer job guarantees to IG Metall, according to people familiar with the negotiations.

The race to buy the unit is reaching a climax, after months of deliberations. Final offers in what could be one of Europe’s biggest private equity deals are expected next week, with the company planning to make a decision by the end of the month. It is still also considering a possible float of the elevator division. 

The union represents most of the elevator unit’s 5,000 German employees, out of a total workforce of more than 50,000. Three private equity consortiums — one led by Blackstone and Carlyle, another led by Advent and Cinven, and a third led by Brookfield — have submitted rival bids. Another bid has come from Finnish lift maker Kone, in partnership with private equity group CVC.

The trade union’s views “are being heard” as the company picks a suitor, a person involved in the process said. “It’s important for a big employer in a region, a prominent conglomerate, to protect the workforce.” All of the bidders “will do what they have to do” to win union leaders over, another said. 

Members of the company’s supervisory board, which will ultimately have to approve any buyer, have been advised to consider job security when weighing the bids, alongside price and the certainty that a deal will go through. Bidders have been told they must present their takeover plans to union leaders as part of the process. 

The union has indicated that it is warming to private equity bidders. This marks the latest sign of a profound shift within Germany’s labour movement, which once lambasted the so-called “vultures” vying to take over homegrown companies in the hope of improving their efficiency.

Last year, IG Metall broke with convention by preferring a bid by private equity groups for the ailing lighting company Osram, despite a higher bid from Austrian rival AMS, which eventually won.

Kone has offered about €17bn for Thyssenkrupp’s elevator division in conjunction with CVC. But workers’ representatives are concerned that being purchased by a competitor would lead to another run-in with antitrust authorities in Brussels and Washington, which would demand that the business be broken up.

Thyssenkrupp’s management, led by interim chief executive Martina Merz, would also prefer to avoid a protracted negotiation with the European Commission, and will consider the certainty and speed of any potential offer, according to people close to the company.

The steel and materials conglomerate desperately needs the cash from any sale to fill a €4bn black hole in its finances and fund more than double that amount in pension liabilities. 

IG Metall has stated a strong preference for maintaining a stake in the elevators division, in order to benefit from future profits. 

Thyssenkrupp’s supervisory board, which includes representatives from IG Metall, as well as the activist shareholder Cevian and the Krupp Foundation, will assess the rival bids at a meeting on February 27, the people said.

DoJ fears an FTC case against chipmaker could weaken US in its battle against China’s Huawei

The Trump administration is set for an unusual courtroom showdown on Thursday between lawyers of two federal antitrust agencies who will argue opposite sides of a Qualcomm case that could help shape the race to develop 5G technology.

The Department of Justice has taken the US chipmaker’s side as Qualcomm tries to overturn its loss at trial last year in a Federal Trade Commission lawsuit filed in the final days of the Obama administration.

Lawyers for the DoJ’s antitrust division, headed by Makan Delrahim, a former Qualcomm lobbyist recused from the case, have argued that US national security is at stake, while FTC attorneys have accused the DoJ of interfering with antitrust enforcement.

“This is not just unusual, it’s more directly confrontational than anything I’ve ever seen,” said Bill Baer, a fellow at the Brookings Institution who has headed competition enforcement under Democratic presidents at both the DoJ and the FTC.

The controversial move by the DoJ is just one example of the interventionist approach increasingly taken by parts of the Trump administration as the White House tries to chip away at the lead China has taken in the development of 5G communications.

Qualcomm is accused of overcharging for patents that smartphone makers have to buy to meet industry standards for cellular communications. A district judge ruled in May last year the US chipmaker had “strangled competition” and ordered drastic changes to its sales practices.

The DoJ argued that even if Qualcomm had charged “unreasonably high” prices, that would be allowed under US competition law, saying that to find otherwise could “radically undermine important incentives to innovate”.

Its lawyers have argued that a loss for Qualcomm could damage national security by “potentially undermining US leadership in 5G technology and standard-setting, which is vital to military readiness and other critical national interests”.

In 2018, the US cited national security concerns when it blocked a $142bn bid for Qualcomm by Singapore’s Broadcom.

More recently, the administration had countenanced radical steps such as purchasing direct controlling stakes in competitors to Huawei, the Chinese telecommunications equipment provider, to help secure US 5G capabilities.

The DoJ’s intervention in the FTC’s Qualcomm case has given the chipmaker much-needed support in a lawsuit that could deal a serious blow to its business after a series of similar cases across the world.

But it has also fuelled tensions between the two agencies, which have become more apparent as both the DoJ and the FTC have pursued parallel and sweeping investigations of possible antitrust violations by Big Tech companies

Both the DoJ and the FTC have responsibility for civil enforcement of US competition law. But they have historically avoided interfering in each other’s cases, instead allocating investigations to each other through a clearance process.

Joseph Simons, the FTC’s chairman, who is also recused from the lawsuit because his former law firm worked for Qualcomm, has called the DoJ’s intervention “highly unusual”.

“I’m sure they would not be happy if we did that to their case. So, you can imagine what the reaction was over here,” he told the Financial Times in an interview last year.

The FTC first sued Qualcomm in January 2017, just days before Donald Trump was inaugurated as president, when two of its five commissioner positions were vacant. The vote to file the case was 2-1.

After a trial last year, the DoJ intervened to urge Judge Lucy Koh not to impose tough remedies on Qualcomm. The DoJ also helped Qualcomm secure a partial stay on Judge Koh’s ruling as it supported the company’s appeal to the Ninth Circuit.

FTC lawyers have hit back at the DoJ’s involvement, arguing that its position amounts to giving Qualcomm immunity from “any financial consequences for violating the antitrust laws”.

In filings, Qualcomm has said its negotiations with phonemakers are in effect between equal parties, saying they “negotiate hard” and it “takes steps to preserve its patent rights”.

“There is no basis for the FTC’s attempt to recharacterize this common bargaining between sophisticated companies as federal antitrust violations,” it said in a December filing. The company also seized on the DoJ’s intervention to bolster its position. “The dubious quality of the District Court’s reasoning is also underscored by regulators’ own stark disagreement about this case,” it wrote.

The litigation has highlighted a broader programme of intervening in non-DoJ lawsuits spearheaded by Mr Delrahim, as well a deeper ideological dispute about the proper role of competition enforcement in matters involving patents.

Mr Delrahim, a patent lawyer by training, has argued forcefully that antitrust law has little role to play in disputes over the licensing of intellectual property.

His views are shared by at least one Republican FTC commissioner, Christine Wilson, who wrote in the Wall Street Journal last year that the district court ruling against Qualcomm was “far outside the mainstream”.

“I encourage higher courts to reconsider the wisdom of the judge’s conclusions,” she wrote.

Mr Simons’ recusal has left the FTC in effect deadlocked on the case, unable to signal clear political support for the litigation, nor to reach a settlement with Qualcomm.

Without his vote, the agency is split between the remaining two Republicans, including Ms Wilson, and two Democratic commissioners.

In November, William Rinner, Mr Delrahim’s chief of staff, said at a conference that the FTC’s case was going “forward like a ship without a rudder”.

He argued that history would view the DoJ’s actions as “probably one of the least controversial aspects of the case”.

Spokespeople for DoJ, FTC and Qualcomm had no comment for this piece.

Approach comes as reinsurance industry is undergoing a resurgence

France’s Covéa is in exclusive talks to buy PartnerRe, the Bermuda insurer controlled by Italy’s billionaire Agnelli family, in an all-cash deal that would be worth $9bn, people close to the discussions said. 

A deal would mark the latest example of consolidation in the sector and a return to dealmaking for Covéa, which has been searching for an acquisition in the reinsurance industry for the past two years. 

People close to the talks said the negotiations between the two companies are exclusive and follow an unsolicited approach from Covéa to buy PartnerRe at the start of the year. A tie-up may be agreed within the next few weeks and no deal is guaranteed. News of the talks was first reported by Bloomberg.

Exor’s decision to consider a sale comes less than five years after it acquired PartnerRe for $6.9bn after winning a hostile takeover battle against rival bidder Axis Capital. At the time the move was driven by John Elkann, scion of the Agnelli family, who was seeking to diversify the Italian group’s investments away from heavy industry and into financial services. 

Buying PartnerRe would allow Covéa, led by chief executive Thierry Derez, to diversify its earnings. The company is mostly focused on personal and business cover in France, although it also has operations in the US, UK and Italy. Partner Re would give it access to a new multinational customer base.

The French insurer, which is owned by its customers, made a hostile takeover bid for Paris-based reinsurer Scor in 2018. That move was forcefully rebuffed by Scor and a bitter battle that ensued led to multiple lawsuits being filed. 

Covéa did not respond to requests for comment. Exor confirmed the talks in a brief statement. “There is no certainty that they will result in a transaction,” it said. “Exor will refrain from further comment until the final outcome of the discussions is known.”

The approach for PartnerRe comes as the reinsurance industry — which sells insurance to other insurance companies — is undergoing a resurgence. Several years of expensive natural disasters have led to rising prices for cover. 

Share prices of companies such as Swiss Re, Munich Re and Scor — all rivals to privately held Partner Re — have been rising since the middle of last year. 

The specialist insurance and reinsurance industry has been consolidating during the past few years. In 2018 Axa spent $15bn buying XL Group, which operated in some of the same markets as Partner Re. Axa’s shareholders initially had some reservations about the deal. 

A strong return on Exor’s purchase of PartnerRe would represent a big win for Mr Elkann, whose decision to pay a lofty premium to acquire the reinsurer was greeted with some scepticism at the time of the takeover. 

The 43-year-old Mr Elkann, who runs Exor on behalf of his family, has been transforming the holding company during the past several years and moving it out of capital-intensive, industrial businesses. In December, Exor agreed to a deal that will see Fiat Chrysler Automobiles merge with French rival Peugeot, creating the world’s fourth-largest carmaker. 

Barron’s Weekend Summary: Cover story says the companies on Barron’s third annual ranking of America’s Most Sustainable Companies beat the S&P 500 in 2019; Tech Trader says the coronavirus outbreak could dent the global tech supply chain

NYT (Saturday): In the wake of his impeachment trial, Trump ordered Gordon Sondland recalled from his post as the ambassador to the European Union on the same day that lieutenant colonel Alexander Vindman, a decorated Iraq war veteran on the National Security Council staff, was marched out of the White House by security guards; In China, a deluge of mourning and anger at the death of doctor Li Wenliang—who first warned of the conoravirus and then died from it—has overwhelmed the country’s sophisticated censorship and propaganda systems and made Dr. Li a martyr and a hero; Karen Pierce, a senior career diplomat, will become Britain’s next ambassador to the US, inheriting the task of strengthening the country’s “special relationship” with the US at a time when London is at odds with Washington over several critical policies; For more than a month, the Centers for Disease Control and Prevention and World Health Organization have been offering to send experts to China to observe the coronavirus outbreak and help if it can—but the offers have been refused, with no reasons given; With an intense flu season in full swing, hundreds of thousands of patients overwhelming emergency rooms in the US, and the hospitals are bracing for a spread of coronavirus that could bring another surge of patients; Security analysts are now scrutinizing a range of Chinese talent programs and the foreign scientists who have applied to them, based on concerns about the theft of US technology; New York state plans to sue the Trump administration over its decision to ban thousands of New Yorkers from enrolling in programs that allow travelers to circumvent long lines at airports and borders; Wages for black workers in the US are rising—a Times analysis of government data found that wage growth for black workers has accelerated recently after lagging for much of the decade-long economic expansion; (Sunday): Front page story reports “Buoyed by his impeachment acquittal and the muddled Democratic primary race, Donald Trump and his campaign are turning to address his re-election bid’s greatest weaknesses with an aggressive, well-funded but uncertain effort to win back suburban voters turned off by his policies and behavior”; A colossal hydroelectric dam being built on the Nile 2,000 miles upriver from Egypt, in the lowlands of Ethiopia, threatens to further constrict Egypt’s water supply, and construction, planned for this summer, has stoked concern about the fallout, including a potential war to stop the project ; Some Democrats warn that a week showing in New Hampshire could undermine presidential candidate Joe Biden’s electability argument and accelerate a flight of donors and voters to his rivals; After decades of dominating its oil industry, Venezuela is quietly surrendering control to foreign companies in a desperate bid to keep the economy afloat and help the socialist government of Nicolás Maduro retain power; Antarctica, the coldest, windiest, and driest continent on Earth, set a record high temperature on Thursday, underscoring the global warming trend; Sunday Business: Algorithms are increasingly being used in the criminal justice system: Local authorities around the world use “predictive” algorithms to set police patrols, prison sentences, and probation rules, as well as flag welfare fraud risks and rate which teenagers are most likely to become criminals.

WSJ: US hiring strengthened in January as more Americans hopped into the labor market, boosting the economy at the start of the year—employers added 225,000 jobs and the unemployment rate ticked up to 3.6% from 3.5% in December, a sign more people are looking for work, according to the Labor Department; related story says “Nearly three of four Americans who were newly employed in recent months came from outside the labor force—meaning they weren’t actively looking for work prior to the month they accepted a job, the highest ratio in three decades of records”; The solid employment report should comfort Federal Reserve officials about the state of the US economy, though the recent threats to global growth from the outbreak of the coronavirus in China could change things; Faced with an outbreak that so far has killed 630 people and infected more than 31,000 world-wide, China’s President Xi Jinping has mobilized the vast state machinery to fight the coronavirus and battle the most intense public anger since he took power in 2012; + F, HMC, BMW, Volkswagen: The Justice Department closed its antitrust investigation of four auto makers that had reached a tailpipe-emissions deal last summer with the state of California, finding no evidence of collusion among the companies; Under pressure from the Trump administration, Mexican president Andrés Manuel López Obrador is taking on a new strategy to fight drug cartels, including bringing the marines, Mexico’s elite security force, back to the front lines of the drug war; For more than half a century, the Mormon Church quietly built one of the world’s largest investment funds—called Ensign Peak Advisors, it had stockpiled almost $100B—but almost no one outside the church knew about it; Chinese tourists are disappearing from major shopping capitals across the US and Europe because of the coronavirus, exposing how dependent high-end retailers in cities such as New York, Paris, and Milan have become on Chinese money; Investors are diving into the bond market like never before, says Intelligent Investor columnist Jason Zweig, but it’s a sign of prudence, not folly; A yearslong crackdown on cheating in futures markets is yielding new wins for the government, but several trials to come will show whether the Justice Department’s focus on a tactic known as “spoofing” is ultimately successful; H.O.T.S.: Some already struggling energy companies may not be able to weather the drop in oil and gas demand stemming from the coronavirus outbreak; Fundamental change at SoftBank is a long shot, but may not be necessary to give Elliott a return on its $2.5B stake in the conglomerate; The job engine looks unlikely to sputter for now, which should keep consumer spending going and push the economy along.

FT (Weekend): Front page story reports on CS chief Tidjane Thiam’s resignation, noting he was ousted despite a high-profile campaign to support him by the bank’s largest investor, Harris Associates; second piece says leaders in Finland and Sweden say a possible US plan to acquire NOK and ERIC to counter Huawei should be a wake-up call; David Lipton will step down as first deputy managing director of the International Monetary Fund at the end of the month, paving the way for the Trump administration to choose a successor for the second-most powerful position at the lender; The Antarctic Peninsula is heating up faster than the rest of the continent, exacerbating fears about the devastating effects on glaciers and ice caps; Big Read: “TSLA’s legions of supportive investors believe it will become the iPhone of the electric vehicle era, but as competition starts to intensify and rivals invest heavily, it could also end up as just another car company”; Lex Column: Former CS chief Tidjane Thiam’s leadership will be missed, but the bank suffered from reputational woes, and his departure should at the very least support the share price; TWTR could introduce stronger privacy measures by charging a subscription fee, but many casual users would leave; Comment: Tom Mitchells says the death of Dr. Li Wenliang, who first raised the alarm in China about the coronavirus, poses dangers for Beijing, which at this point may have to appropriate his heroism instead of condemning it.

NY POST (Saturday): AMZN chief Jeff Bezos, the world’s richest man, sold close to $5.3B in shares since January 31 to fund Blue Origin, his space flight company, which recently posted job listings for its lunar lander program; By selling almost all of his UBER shares three months ago, when they were down, founder and former chief executive Travis Kalanick left $1.2B on the table, following a recent rise in the share price; (Sunday): The total, worldwide death toll from the coronavirus rose to 813 on Saturday, a number that now exceeds the number of people killed by SARS in 2002 and 2003, which claimed 774 lives worldwide.