TheChek News Flow

Apple’s abandonment of Imagination in 2017 dealt heavy blow to British technology group

UK chip company Imagination Technologies has reached a new licensing deal with Apple, nearly three years after it was laid low by the tech group’s decision to scrap a previous agreement between the two.

In a brief statement early on Thursday, Imagination said it had reached “a new multiyear license agreement under which Apple has access to a wider range of Imagination’s intellectual property in exchange for licensing fees.” The US company confirmed the agreement, but did not disclose any more details.

Apple’s abandonment of Imagination’s previous generation of graphics technology in 2017 became a symbol of the unhealthy reliance many components makers had developed on the US company.

Apple had come to account for around half of Imagination’s revenues, and the UK company’s share price plunged by nearly 70 per cent on the day it revealed it had lost its biggest customer. Apple went on to focus more on in-house development of graphics processors, or GPUs, for its devices.

The loss forced Imagination to put itself up for sale and it was bought by Canyon Bridge, a China-backed private equity firm, for £550m, little more than a quarter of its peak value five years before.

The new deal with Apple comes a month after Imagination launched a new generation of its mobile GPU architecture that it called its most important in 15 years.

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Expensive few years for natural catastrophes fail to deliver market hikes

An expensive few years for the global insurance industry led by a range of natural disasters from wildfires to storms have failed to result in widespread price increases in the latest reinsurance contract renewals. 

The price of reinsurance — the cover that insurance companies buy to protect themselves from high payouts — often reflects the size of claims. 

The past few years have been costly. There were expensive natural catastrophes in 2017 and 2018, and to a lesser extent in 2019. And in the US, courts have been awarding ever more generous payouts to people claiming for everything from medical malpractice to injuries in motor accidents. 

However, according to new data from Willis Re, the reinsurance broker, prices in the crucial January 1 contract renewal season did not increase significantly across the market. 

Prices for reinsurance have been falling for much of the past decade, as low interest rates encouraged capital to flow into the industry in search of higher returns. Some in the industry have been hopeful that the recent increase in claims would mark the return of a so-called hard market, in which prices rise across the board. 

“We are not in a hard market,” said James Vickers, chair of Willis Re International. “Hard markets are defined by a lack of capital, and there has not been a lack of capital. [Reinsurance] buyers with a good story can still renew.” 

According to Willis Re, pricing for the latest renewals has varied sharply depending on the line of business. Prices for property reinsurance in the US, for example, rose by up to 50 per cent while through most of Europe they were flat or even down.

In casualty reinsurance, which is the area that has been affected by rising court payouts, prices in the US rose by up to 30 per cent. 

There were also steep increases in the UK, where insurers have had to adjust to changes in the way that compensation payments for people seriously injured in motor accidents are calculated. 

The government this year cut the amount that accident victims will receive, but not by as much as the insurance industry was expecting. That has led to increases in reinsurance prices of up to 35 per cent. 

“The UK [motor] market is fragmented and ferociously competitive, and so for some of the smaller insurance companies this is a challenge.” 

Mr Vickers said that, overall, reinsurers were becoming more discerning about which business they wanted to write. 

“In the old days, people’s technological and analytical understanding of pricing was not as good as it is today,” said Mr Vickers. “The days of general market increases have probably gone, although within the market there will be cycles.

“The days of sitting as a reinsurer and enjoying the tide that lifts all boats have gone. It’s a lot more complicated.”

Hedge funds reel in profits from salmon scraps

Stocks in group that converts discarded fish heads into health tablets have soared

An obscure Norwegian company that converts salmon offcuts into healthcare products has netted gains for some big-name hedge funds in recent months.

Shares in Norway-based Hofseth BioCare have soared by nearly 270 per cent since late June, making it one of the best-performing stocks across Europe in the second half of 2019.

That has delivered a profit for investors including London-based Lansdowne Partners, one of Europe’s biggest equity hedge funds, and Mike Novogratz, the former Goldman Sachs partner and Fortress hedge fund manager who now heads cryptocurrency merchant bank Galaxy Digital. Both have bought into the stock in recent months, according to people familiar with the matter.

Hofseth uses enzymes to break down salmon offcuts such as the head, skin and spine — which would normally be wasted when the fish is processed for food — to produce salmon oils, proteins and calcium for human and pet consumption.

It claims its products, which can be taken in capsule or drink form, can have a range of health benefits including improving skin or bone health, weight management and reducing the risk of heart attacks. Marketing videos show a lycra-clad woman slurping the pinkish drink after an aerobic workout.

Hofseth’s shares have been trading below NKr3 for most of the past few years, but surged to end the year at NKr9 after the company announced it had signed a letter of intent with a subsidiary of Nestlé for the sale of its products in the US in June and following a capital raising to expand the company’s operations.

Hedge fund Lansdowne Partners, which manages about $12bn in assets, bought the shares during the third quarter of 2019 for its European Absolute Opportunities fund, according to a letter to investors seen by the Financial Times.

Mr Novogratz’s family office bought into the shares during the Hofseth’s summer capital raising at NKr4 a share, according to people familiar with the matter.

“Taking the by-products of the fish and making that into a new product fits with Mike’s belief of a good investment that makes the world a better place,” said a person familiar with Mr Novogratz’s trading.

Lansdowne declined to comment.

Investor interest in the bioscience sector has grown in recent months, helped by International Flavors & Fragrances’ $26.2bn deal in December to buy DuPont’s nutrition and biosciences business to tap the fast-growing meat substitute market.

Chief says company will be open to deals once Iveco is spun out

CNH, the truck and tractor maker backed by Italy’s Agnelli family, hopes that a split of the business into two companies will drive consolidation across its two sectors, the chief executive said.

Hubertus Mühlhäuser said the business would be open to deals once it had spun out truckmaker Iveco and its other road-going brands into a new entity in early 2021.

“One of the reasons why we create two pure plays, one an off-highway, one an on-highway, is of course to be able to actively contribute to industry consolidation,” he said. “Whether we’re going to be the consolidator or consolidatee remains to be seen.

“We have not yet seen a coming together of larger Asian players at large scale with the European or American players . . . I think that’s something to come in the coming years.”

The truck markets and the agricultural equipment sectors are facing upheaval, with the need for investments into electric propulsion and autonomy coupled with tough trading conditions as haulage firms and farmers delay orders because of the global trade war.

Yet the two businesses have very limited spending overlap.

“We looked at that from the synergies and the synergies were not there,” said Mr Mühlhäuser.

CNH will spin out Iveco, Iveco Bus and the Heuliez Bus units, as well as its power train business, in an “on highway” division, which has combined revenues of about $13bn.

It will keep the tractor, agricultural and construction equipment arm, which has revenues of about $16bn, with the aim of raising the values of the two companies by ending CNH’s status as a mini-conglomerate.

The split, which will take place in 2021, is part of a strategy intended to more than double profit margins to 10 per cent by 2024.

The move, announced at an investor day in September, follows a tradition set by CNH’s previous owner Fiat Chrysler, which is also backed by the Agnelli family through their Exor holding company.

FCA, which was formed by the merger of Fiat and Chrysler, spun out CNH in 2011, and subsequently also listed Ferrari, and sold component business Magneti Marelli.

Shorn of non-core businesses, FCA is attempting to merge with France’s PSA to create the world’s fourth-largest carmaker, allowing the two auto groups to pool investments into self-driving technology and electric driving.

Analysts expect CNH’s remaining tractor arm to have a higher value once divided from the truck division, because agricultural equipment businesses such as John Deere tend to attract higher valuation multiples than truckmakers.

Elliott, the activist hedge fund, has built up a lower than 3 per cent stake in CNH, acquiring the shares before the announcement. Mr Mühlhäuser said they were “very supportive” of the company’s strategy.

CNH opted to spin the company out rather than listing the new truck business in an initial public offering, in part because of the experience Volkswagen faced with its own truck division Traton, which houses the Man and Scania brands.

The Traton listing was delayed once, and finally launched at a lower value in June.

Separating the two CNH companies will allow each side to focus on its challenges, from countering slowing farmer orders because of the trade war, to the need for electric investment into haulage vehicles.

Iveco is preparing to launch a hydrogen-powered truck and a battery electric vehicle, having invested in start-up Nikola to help it with both technologies.

Its off-highway division will focus on the agricultural market, which is under pressure as farmers delay replacing older fleet.

Central bank’s sovereign wealth fund for investing foreign reserves has held stake for at least 5 years

China’s main sovereign wealth fund for investing its foreign reserves has emerged as the fifth-biggest shareholder in Euroclear, one of the world’s largest central securities depositories.

The State Administration of Foreign Exchange (Safe), a unit of China’s central bank, owns a 4.26 per cent stake in the Belgian company, according to recently-published filings on Euroclear’s website.

It has held the stake for at least four years but has only come to light in recent weeks because Euroclear is making more information publicly available as a prelude to changing its shareholding structure.

It is currently owned by its users but its board is exploring a trade sale, the sale of a block of shares, or an initial public offering as a way to allow smaller shareholders to sell their stakes.

Euroclear is crucial to the daily operation of financial markets, holding collateral and settling trades on behalf of investors. It holds more than €28tn of assets in custody.

According to the filings on the Euroclear website, the Safe stake is owned by a separate company called Kuri Atyak Investments Limited, which is registered in the British Virgin Islands.

Kuri Atyak also has a seat on the board of the holding company, held by Xiaomei Fan. Her biography on the Euroclear website details that she is a graduate from the Beijing Institute of Technology and an authorised representative of Kuri Atyak but there is no mention of Safe. Another Safe representative, Yuxin Du, sits on the board of the operating company. Both Safe and Euroclear declined to comment.

Although Euroclear takes in business from around the world, only 14 per cent of its clients are headquartered in Asia, where it also competes for business with Deutsche Börse’s Clearstream.

Its four biggest shareholders are Sicovam, the French securities manager, Intercontinental Exchange, the London Stock Exchange Group and JPMorgan.

Last spring it appointed Goldman Sachs to research strategic options for smaller shareholders to cash out, after some large holders sold to Intercontinental Exchange and the LSE group.

Euroclear has delayed a decision on its ownership structure until the first quarter of next year after disagreement between shareholders over the future of the company. This has deterred some potential private equity buyers, including Hellman & Friedman, CVC Capital Partners and GIC, Singapore’s sovereign wealth fund.

Nearly 73 per cent of Euroclear is held by the top 20 shareholders, while the remaining 27 per cent is owned by 95 shareholders who own stakes of 1 per cent or less.

Two local Belgian government investment funds and four Belgian insurers are working to create a consortium that could buy a 10 per cent stake in Euroclear, De Tijd newspaper reported earlier this month.

 Stocks were mainly higher across Asia along with U.S. and European equity futures after the latest policy move by China’s central bank to support its economy.

Activity is picking up as most global markets reopen from holiday closures, though Japanese equities remain shut for the remainder of this week. Equity indexes in Hong Kong and China advanced more than 1%, though the yuan showed little reaction, after the People’s Bank of China said it will increase the supply of cheap funding to banks, in line with market expectations. Australian shares posted modest gains, while South Korea declined. Oil edged higher. The Thai baht tumbled.

Nikkei Closed Hang Seng +1.08% CSI +1.32% Shanghai +1.11% Shenzen +1.86%

Eur$ 1.1209 CNH 6.9614 CNY 6.9642 JPY 108.72 GBP 1.3220 CHF 0.9701 RUB 62.1476 TRY 5.9543 WTI$ 61.24 +0.29%

S&P +0.29% EuroStoxx +0.56% FTSE +0.41% Dax-0.15%

Macro :

- *STOXX 600 CLOSES 2019 WITH GAIN OF 23%, BEST YEAR SINCE 2009

- China Tech Inc. Straps in for More Turbulence After a Wild 2019

- Einhorn’s Greenlight Gains 14% for Year After Dip in December

- Tourists Told to Flee as Australia Wildfire Danger Escalates

- ETF Inflows Reach $332 Billion for U.S.-Listed Funds in 2019

- China Suspends Shanghai-London Stock Plans, Reuters Reports

Keep an eye on :

- AIR FP : Airbus Exceeds 2019 Target With 863 Deliveries: Reuters

- APR FP : CVC’s Andromeda Acquired 10.8% Stake in French Insurer April

- ATL IM : Italian Law Tweaking Contentious Road Licenses Enters Into Force

- ATMA LN : Diamond’s Plan to Scale Down in Africa Hits Snag as Talks Waver

- EBK GY : EnBW Shuts Down Philippsburg Nuclear Reactor KKP2 for Good

- IPH FP : Innate Pharma Files Lumoxiti Market Approval Request With EMA

- LHA GY : Trade Union Suspends Strike at Lufthansa’s Germanwings: Reuters

- MC FP : Warren Buffett Rejected Tiffany Approach for Takeover Deal: FT

- MCP PL : Cofina Says Media Capital Deal Still Needs ERC Authorization

- RNO FP : Tokyo Court Grants Request to Revoke Ghosn’s Bail: Kyodo (1)

- RNO FP : French Dec. New Car Registrations Rise 28%: CCFA

- RNO FP : Ghosn-Less Renault and Nissan Were the Worst Car Stocks of 2019

- SLIGR NA : Sligro Full Year Organic Sales -0.9%

- TAST LN : Tasty Sees Earnings in Line With Expectations

- TSLA US : NHTSA to Inspect Crash Scene That Involved Tesla Model S in L.A.

- TSLA US : Tesla’s Massive Month of Dutch Demand Buoys Model 3 Deliveries

* Ceconomy Raised to Buy at Baader Helvea; PT 5.20 euros