Closing Market SummaryThe major averages began the week on a very quiet note. The S&P 500 shed 0.1% after spending the day in a ten-point range while the Dow Jones Industrial Average (-0.1%) and Nasdaq (-0.1%) also settled just below their flat lines. The Russell 2000 lost 0.4% after showing relative strength on Friday.
Last week featured a torrent of headlines related to trade negotiations between officials from China and the U.S., so it wasn't too surprising that the market remained focused on what was and wasn't accomplished during Friday's talks.
Overnight reports in Chinese media spoke about last week's negotiations in conservative terms, prompting worries that the signing of the "phase one" deal will remain elusive. These worries weighed on equity futures in early-morning trade, but a recovery took place after President Trump and Treasury Secretary Mnuchin reiterated that the partial deal will be finalized and signed in time for the Asia-Pacific Economic Cooperation summit in Chile in mid-November.
The comments from top U.S. officials helped the major averages start near their flat lines, but investors who took part in today's holiday session were not eager to push the market in either direction. As a result, fewer than 650 million shares changed hands at the NYSE floor.
Nine out of eleven sectors settled in the red, but only three sectors—materials (-0.8%), utilities (-0.7%), and consumer staples (-0.4%)—lost more than 0.2%. On the flip side, financials (+0.1%) and real estate (+0.1%) eked out slim gains.
Bank stocks like Citigroup (C 70.24, +0.14, +0.2%), Goldman Sachs (GS 205.82, +1.14, +0.6%), JPMorgan Chase (JPM 116.45, +0.31, +0.3%), and Wells Fargo (WFC 49.27, +0.06, +0.1%) outperformed modestly leading up to the release of their Q3 results tomorrow morning.
Market participants did not receive any economic data today, and tomorrow's data will be limited to the 8:30 ET release of the Empire State Manufacturing Survey for October (consensus -1.0).
- Nasdaq +21.3% YTD
- S&P 500 +18.3% YTD
- Dow Jones Industrial Average +14.8% YTD
- Russell 2000 +11.6% YTD
KKR buys majority stake in UK ‘altnet’ Hyperoptic
US fund’s acquisition of full-fibre operator marks first foray into UK telecoms sector
KKR has entered the UK telecoms market, acquiring a majority stake in full-fibre “altnet” company Hyperoptic to join broadband battle against BT and Virgin Media.
The US private equity fund bought the stake from Newlight Partners, a buyout firm spun out of George Soros’s family office last year that has backed Hyperoptic since 2013, and Mubadala, the Abu Dhabi sovereign wealth fund that bought into the business less than a year ago.
No value was put on the deal but one person with direct knowledge of the investment said Hyperoptic would be valued at about £500m.
While the transaction marks the first investment by KKR in British telecoms infrastructure, the firm has spent $3.5bn acquiring European telecoms assets including Deutsche Glasfaser, a German equivalent to Hyperoptic that is up for sale, 40 per cent of Telefónica’s towers company Telxius and 49 per cent of Altice’s French tower company SFR TowerCo.
Mubadala’s brief foray into UK telecoms appears to have been lucrative. Megabuyte, the technology research company, calculates that the sovereign wealth fund acquired a 21 per cent stake in Hyperoptic in 2018 at a £80m valuation.
The Abu Dhabi fund sold out as KKR wanted to take a majority stake in the British telecoms company, according to Dana Tobak, chief executive of Hyperoptic.
“This is less about Mubadala wanting to move out and more about KKR wanting to move in,” she said.
KKR is the latest fund to tap into the UK’s “altnet” scene looking to build full-fibre networks to compete with BT’s Openreach and Virgin Media, which is looking for partners to build a new fibre network outside its existing cable infrastructure.
In June Australia’s Macquarie acquired KCom, the Hull-based telecoms company that has just completed a fibre build in the city that KKR came close to bidding for, according to three people with direct knowledge of the talks.
Last year West Street Infrastructure Fund, managed by Goldman Sachs, jointly acquired CityFibre alongside Antin Infrastructure Partners and committed to pumping £2.5bn into a network build.
Hyperoptic initially concentrated on metropolitan areas by kitting out housing blocks with full-fibre lines, a plan labelled “Project Cherry Picking” by its founders who are veterans of the UK telecoms sector and founded the business in 2011.
It has since built out to 43 cities and towns, passing 400,000 homes and businesses. Hyperoptic has targeted 2m homes by 2021 but KKR is expected to back a faster buildout.
The KKR deal could intensify the race to build fibre against BT and Virgin Media.
“As the relationship grows, it gives us an opportunity to assess whether we can be more aggressive,” Ms Tobak said.
The investment coincides with UK prime minister Boris Johnson’s pledge to roll out “gigabit speed” broadband to the entire country by 2025.
Sophos/Thoma Bravo: cable tie
US buyer’s offer is attractive and UK fears of losing local tech expertise are overdone
Europe has few local heroes in tech. So when a US buyer snaps up a homegrown success story, hand-wringing is guaranteed. Monday’s £3.1bn agreed bid for UK cyber security company Sophos by US private equity firm Thoma Bravo was no exception. It is a good deal, all the same.
Chicago-based Thoma Bravo is a savvy investor. It was the world’s best-performing buyout fund between 2005 and 2014, one study found. It has invested heavily in the cyber security industry over the past decade. In Sophos, it spotted a business with good prospects, on the cutting edge of next-generation products.
Thoma Bravo also saw a business it could snap up at a good price. That is not just because Brexit has tilted “cable” — the pound/dollar rate — advantageously. It is also because investors have been bruised by volatile earnings. In January, Sophos shares dropped 25 per cent in a day after its third profits outlook downgrade in five months. Before the shares jumped on Monday’s announcement, they were down 7 per cent over a year and 36 per cent since a January 2018 high.
The premium is attractive. Thoma Bravo’s 583p cash offer is 37 per cent above Friday’s price and 46 per cent above the average of the last six months. The £3.1bn enterprise value is 5.6 times the last 12 months’ sales. That is significantly ahead of the 4.5 times multiple paid by Broadcom for Symantec in August. It also beats the 3.8 turns paid by Thoma Bravo in its $1.6bn bid for security firm Barracuda last year. No wonder the Sophos offer has sparked hopes of more consolidation in the fragmented cyber security market.
Fears of losing local tech expertise are overdone. Thoma Bravo wants to use Sophos as a platform for further acquisitions. It intends to keep Sophos as a standalone business. There are no plans to move its headquarters out of Oxfordshire. Indeed, Sophos is already a global business, run by a US boss. Another cyber security specialist remains on the London market, Avast. While the market is subdued, there are more British tech IPO candidates waiting in the wings.
Sophos’s sojourn on the stock market should be counted as a success. Investors who bought the shares at 225p in the 2015 IPO have more than doubled their money. Sophos software is designed to protect against opportunistic predators. There is little sign it has let its guard down this time round.
Disney to split nearly $3B media business with Publicis and Omnicom
It draws a close to the biggest media pitch in recent years.
China Global Times Editor-in-chief Hu Xijin: Based on what I know, China-US trade talks made breakthrough last week and the two sides have the strong will to reach a final deal. Initial statement of the Chinese side is moderate. This is China's habit. It doesn't mean China's real attitude is not positive.