WSJ : Uber Wants to Be the Uber of Everything—But Can It Make a Profit? The ride

Uber Wants to Be the Uber of Everything—But Can It Make a Profit?
The ride-hailing company, headed for its IPO next week, aims to dominate the world of transportation, from food delivery to freight. It’s still not making any money.

In Uber’s vision of the future, most people won’t own cars. Riders will hop on electric bikes and scooters for short distances, and summon cars with drivers for longer rides. Takeout dinner will become a vestige, replaced by hand-delivered meals. Garages will empty and parking lots will be ripped up and transformed into grassy parks.

Eventually, robots will rule. Self-driving cars will shuttle people around the roads—and in the air—while drones will make the deliveries. Robotrucks will roam the highways. And Uber will be at the center of it all.

But first, there’s the question of whether Uber will ever make any money.

As Uber gets set to go public next Friday in one of the largest tech IPOs ever, Chief Executive Dara Khosrowshahi is trying to sell Wall Street on his vision that Uber will become the dominant force in all forms of transportation.

That mission is threatened by an onslaught of competition from all sides that has intensified in recent months and caused Uber’s loss to balloon to more than $3.7 billion in the 12 months through March—by far the largest loss ever for a U.S. startup in the year before an IPO, according to S&P Global Market Intelligence.

Startups with deep-pocketed backers are using heavy discounts to overtake Uber’s food delivery services in the U.S., India and Mexico. A well-funded competitor in Latin America has launched an assault on Uber’s ride-hailing business there. In the wake of price wars with competitors, Uber’s once-robust revenue growth has flattened and losses have ballooned.

And Uber’s version of the future is still far from a certainty. Uber’s main markets are in dense cities, but according to some estimates more than 70% of the U.S. population lives in rural or suburban areas—where car ownership tends to be more convenient and cheaper. Ride-hailing has disrupted the taxi-cab industry, but it has also lured people from public transit and helped clog major cities, spurring calls for more regulation that would limit growth.

There is hardly an endless supply of drivers to chauffeur every human around, and it is anyone’s guess when, or if, fully autonomous cars will become a reality. While many young urban workers are going carless, the U.S. car-ownership rate has been ticking up again after falling in the recession, according to Sivak Applied Research.

In the meantime, competitors keep raising large sums of cash--including from Uber’s biggest shareholder, SoftBank Group Corp. —inflaming price wars and making profits stubbornly elusive.

“We’re not going to have predictable profitability,” Mr. Khosrowshahi said at a talk at Stanford University’s business school in November. “We’ll say it to our shareholders and the shareholders can choose.”

“If they want a predictably profitable company--go buy a bank,” he added with a shrug. “Really the long-term is what we’re after.”

Uber executives say privately they believe the renewed bout of cash-burning price wars will ease sooner or later, especially since Uber has shown it will fight back with low prices, say people familiar with the conversations. Mr. Khosrowshahi has been telling investors that the core business works. Uber last year made money on its rides when unrelated costs were excluded, he has said, and there is still healthy growth in the number of rides and meals delivered, even if revenue isn’t growing.

The diplomat
Mr. Khosrowshahi was hired by Uber in August 2017 to be the grownup in the room and ready Uber for the public markets.

His predecessor, Uber co-founder Travis Kalanick, had disrupted entire industries with his hard-charging approach. Mr. Kalanick wanted to break up what he saw as a taxi cartel—and along the way destroy the slew of ride-hailing competitors. He set ever greater goals for expansion—into China, into food delivery, into autonomous cars—and an ethos that money was a critical tool in business battles. An amazingly successful fundraiser, he raised more than $14 billion in equity and debt by mid-2016, far more than any U.S. startup.

The rapid drive for expansion and cutthroat approach to competition accompanied a troubled culture. In 2017, a series of scandals embroiled the company, including allegations of sexual harassment and discrimination, claims from Alphabet Inc. that Uber stole its self-driving secrets and an acknowledgment that it used software to evade local regulators.

Ultimately the board ousted Mr. Kalanick—still one of the largest shareholders today with nearly 9% of the stock—and replaced him with Mr. Khosrowshahi, then the CEO of online travel booking company Expedia Group . Mr. Khosrowshahi was seen as a capable operator who could stabilize a company careening amid the scandals.

The Tehran-born Brown University graduate played the part of diplomat. He restated the company’s cultural values to include the statement: “We do the right thing. Period.” He showed deference to regulators—once viewed with scorn.

Mr. Khosrowshahi soon urged his deputies to stop obsessing about the competition as they did under Mr. Kalanick.

He softened the tone at weekly all-hands meetings previously focused on defeating rivals, and stripped them of charts showing tiny swings in market share, according to several former employees. Competition was here to stay, he often counseled his employees. The focus would now be on the long game.

Mr. Khosrowshahi sought to end fiery price wars where Uber was the smaller player. In Southeast Asia, where Uber and rival Grab had jousted for share of the streets Bangkok, Singapore and Ho Chi Minh City, Mr. Khosrowshahi agreed to sell its operation to Grab for a 27.5% stake in the company there.

He later started talks to buy the main competitor in the Middle East, Careem; Uber struck the deal earlier this year. He scaled back or scrapped other costly endeavors. Self-driving trucks were out, as was a car-leasing unit.

In all, it was a more measured approach at Uber. One former manager described the feeling at Uber under Mr. Khosrowshahi as “optimizing for IPOing” rather than for “global domination.”

“He came in with a little bit more experienced operator’s eye toward what it was going to take to put it on track to get it public,” said Rich Barton, founder and early CEO of Expedia whose tenure briefly overlapped with Mr. Khosrowshahi and who later worked as a partner at Uber investor Benchmark.

The Amazon of transportation
At the same time, Mr. Khosrowshahi prepared Uber for life beyond ride-hailing.

He resisted calls inside the company to sell Uber’s self-driving unit, which cost hundreds of millions of dollars a year in capital, people familiar with the matter said. It was partly shuttered in 2018 after one of its cars struck and killed a pedestrian in early 2018. Mr. Khosrowshahi instead brought the cars back to the road, and recently struck a $1 billion deal with an investor group including SoftBank to fund some of the unit’s costly operations

Mr. Khosrowshahi also made a big push into shared electric bikes and scooters and expanded a freight shipping brokerage that has few apparent synergies with passenger rides or meals, but is growing fast.

Meanwhile, the Uber Eats food delivery business started under Mr. Kalanick was sprouting quickly. Mr. Khosrowshahi directed a bigger budget to expand around the world. It emerged as a shining star, so much so that many executives began to think it could ultimately surpass ride-hailing as the company’s main business.

It looked like a profit might even be attainable. Losses were shrinking each quarter as rides and revenue grew. Uber’s operating loss hit $478 million in the first quarter of 2018, narrower than $818 million a year earlier. An important internal metric isolating costs just related to rides flipped from negative to positive. Excluded are costs like stock-based compensation, autonomous driving research and some administrative expenses.

To knit the narrative together for an IPO, Mr. Khosrowshahi began pushing the company as a one-stop shop for disparate categories of transportation. He equates it to Amazon—which went from selling books to become a hub of all things e-commerce—an increasingly common trope in Silicon Valley.

Left unsaid were some significant contrasts between the two companies. Uber has raised far more capital—nearly $20 billion in equity and debt, plus another $9 billion expected in the IPO, compared with Amazon’s less than $3 billion by the time it was 10 years old in 2004.

More critical: the profitability contrast. When Amazon was 10 years old, it completed its second full year as a profitable company—with $588 million in net income—and would stay that way until a small loss in 2012. Uber lost at least $1 billion in the first three months of 2019.

And a decade in, some observers are still skeptical even the basic business makes sense.

“The problem with Uber is, they cannot make money,” said Aswath Damodaran, an NYU corporate finance professor who has been skeptical of Uber’s valuation for years. “Nobody is making money [in ride-hailing]—so it can’t just be a company-specific problem. It is a business model that is not working.”

The slowdown
By the middle of last year, some of Uber’s progress under Mr. Khosrowshahi started to unravel as well-funded competitors moved in.

There are few barriers to enter Uber’s markets, save for capital, say some of its investors. Uber and its rivals all have similar-working apps—ripe conditions for an arms race where riders are lured away with discounted fares and drivers with incentive payments.

And capital is flowing not only to Uber, but also to many of its competitors, from the same source: SoftBank. Led by tech tycoon Masayoshi Son, the Japanese firm and its nearly $100 billion fund has acquired a giant slice of the global ride-hailing and delivery markets, even if meant those companies sometimes fight each other.

The effect was stark in Latin America, a crown jewel of Uber’s business, where competitors had been sparse and margins high. Uber’s old rival in China, Didi, suddenly emerged in the region last year after raising more than $4 billion from SoftBank and other investors. Uber had already yielded to Didi in China, where at its peak, it was losing more than $80 million a week, former executives said. Uber sold its operations in China to Didi in 2016 in exchange for a big stake.

Now, with its newfound SoftBank riches, Didi began fighting Uber in the region considered most profitable, former employees said. It poured money into Brazil to take market share, and then opened up a new front in Mexico. In cities such as Guadalajara, Didi unleashed a torrent of ads to recruit drivers, offering costly guaranteed payments for two or three times what they’d normally earn. Didi promoted rider discounts worth $25 online.

Uber responded with its own discounts, retaking some market share at the cost of smaller revenue and bigger losses.

Latin America went from being Uber’s fastest-growing region to its slowest. Annual growth in revenue fell to 22% in 2018 from 215% the year before.

The fight in the U.S. also heated up late last year when Lyft and Uber both filed for IPOs on the same day. Lyft showered riders with discounts, sparking Uber to do the same. Lyft’s rough entry to the public markets—its stock is down more than 10% from its March IPO—has sparked Uber to temper its ambitions for its own IPO.


In the delivery wars, DoorDash Inc., once thought to be teetering, raised nearly $800 million in capital between March and August 2018, a big chunk from SoftBank.

DoorDash began pummeling U.S. suburbs with salespeople and drivers, rapidly filling its app with more restaurants. Uber Eats, previously second behind GrubHub Holdings Inc. in market share for U.S. on-demand food delivery, fell to third, as DoorDash became the leader in early 2019, according to Edison Trends.

Uber executives wince at DoorDash’s rise. Mr. Khosrowshahi pondered trying to acquire DoorDash early in his tenure when it was valued by investors at less than $1.5 billion, people familiar with the situation said, but never acted on it. DoorDash was last valued at about $7 billion.

Uber faced similar pressures in India. Startups named Swiggy and Zomato have raised a combined $1.7 billion, according to PitchBook, and are spraying the country with discounts and drivers on motorbikes with food backpacks sporting their logos. Zomato pushed a promotion called “No cooking December” that offered 50% off for consumers all month. It repeated the promotion in January.

As competition mounted in India, Eats salespeople there were told they could reduce the 30% cut Uber got from most transactions—sometimes to as little as 15%, a threshold that makes the prospect of profit remote, a former employee said.

An exclusive U.S. deal with McDonald’s —Uber’s biggest U.S. restaurant partner—isn’t exactly a big moneymaker. Uber takes just a 15% to 16% commission of every order, people familiar with the deal said, after it was renegotiated in 2018 from a rate near 20%. Uber has said it discounts some large chain deals as a way to get new customers.

By the end of last year, the damage to Uber’s financials was clear. Revenue from ride-hailing—minus some incentive payments to drivers and other costs—was $2.28 billion in the fourth quarter, barely up from six months earlier. Adjusted revenue for Uber Eats fell 14% in the final three months to $165 million. The internal rides metric that had become positive turned negative again.

The bleeding continued in the first quarter. Uber’s operational loss more than doubled to over $1 billion from a year ago, and its total adjusted revenue has remained virtually flat for three straight quarters, causing anxiety among some former Uber employees who still hold stock awards.

While the barrage of competition has frustrated Uber, multiple investors and former executives say they expect—and hope—it will subside soon. With the billions in IPO money, Uber is signaling it is willing to fight to defend its market share and scare off rivals, these people said.

That placid future may still be a ways off.

On Tuesday, Rappi, Uber’s main foe in food delivery in Latin America had some unwelcome news for Uber. SoftBank was putting up to $1 billion into the company.

>>> Bombardier Belfast could attract bids from AVIC, COMAC, Spirit; talk of Melr

Bombardier Belfast could attract bids from AVIC, COMAC, Spirit; talk of Melrose bid downplayed - reports
04 MAY 2019
Bombardier’s [TSX: BBD.B] Belfast, UK-based operations could attract a bid from Aviation Industry Corporation of China (AVIC), The Irish Times reported. The newspaper cited aerospace sector sources who said AVIC, which has had a commercial relationship with Bombardier since 2007, is considered a “credible” potential buyer for the Belfast business.
Bombardier, a Canadian engineering company, announced on 2 May that it is planning to sell its aerostructures operations in Belfast and Morocco.
Avic acquired another Northern Ireland-based aerospace components supplier, Thompson Aero Seating, in December 2016, the item noted.
The report went on to name Commercial Aircraft Corporation of China (COMAC) as another potential bidder for Bombardier’s Belfast operations, but did not attribute the information to a source.
Separately, a report in The Times said GKN, an aerospace and automotive parts manufacturer owned by Melrose Industries [LON:MRO], has been tipped as a potential buyer for Bombardier’s Belfast and Morocco business.
However, the report went on to cite one Melrose source who suggested on Friday, 3 May that the company is not interested in buying Bombardier’s Belfast operations.
Spirit Aerosystems [NYSE:SPR], a Wichita, Kansas-based aircraft manufacturer, is also considered to be a potential bidder for Bombardier Belfast, the item continued.
The report cited an analyst who said this week that Spirit was looking to make acquisitions to lessen its dependence on contracts from Boeing [NYSE:BA].
Analysts cited by a Financial Times report, estimated that Bombardier’s Belfast business could sell for up to USD 1bn (EUR 892m).
The FT report also named GKN and Spirit as potential buyers for Bombardier’s Belfast operations. Spirit said it does not comment on market speculation, while Melrose also refused to comment, according to the newspaper.
The item also mentioned the Spanish aerospace company Aernnova, backed by the buyout group TowerBrook, and Berwyn, Pennsylvania-based aerospace group Triumph [NYSE:TGI] as potential bidders for Bombardier’s Belfast arm.

>>> XXL Horeca to be acquired by Takkt Group 03 MAY 2019 The TAKKT GmbH [TTK:ETR

XXL Horeca to be acquired by Takkt Group
03 MAY 2019
The TAKKT GmbH [TTK:ETR] has agreed to acquire XXL Horeca, the Dutch e-commerce business specializing in food service supplies. The company generated sales of approximately EUR 14m and recorded EBITDA margin in the double-digit percentage range.
The purchase price amounts to EUR 19.5m.
Press release:
The TAKKT Group company newport.TAKKT GmbH has entered into a purchase agreement for the acquisition of 100 percent of the shares of XXL Horeca. The signing of the contract and closing of the transaction took place today. In the 2018 fiscal year, the company generated sales of approximately EUR 14 million and recorded EBITDA margin in the double-digit percentage range. XXL Horeca wants to be part of the Newport group within the TAKKT EUROPE segment.
XXL Horeca is an e-commerce business specialized in food service supplies. Business customers, such as hotels, restaurants, cafeterias and catering companies. Established in 2013, the company is based in the Dutch city of Wormerveer, has over 20 employees and sells catering supplies - especially kitchen utensils and equipment as well as utensils. Their product range includes around 21,000 items, which are exclusively sold online. The majority of products are delivered directly by the supplier to the customer via drop shipment. XXL Horeca relies heavily on private label brands, has a high level of product expertise and offers attractive value for money. TAKKT Management Board member Heiko Hegwein, responsible for the Newport group, said: "XXL Horeca wants to benefit from the Newport network,
The catering supplier is active as a one-stop shop in the Netherlands, Belgium and France, and therefore has been selling in Germany and Austria since February 2019. Founder Julian van Vliet and his management team want to remain in charge of operations. "We are very happy that from now on, we will continue to promote the strong growth of recent years together with TAKKT," said van Vliet.
The purchase price amounts to EUR 19.5 million. TAKKT is the acquisition using free credit lines. In addition, a further two-level potential and variable purchase price share (earn out) was agreed. The amount of the payout depends on whether or not it is payable in 2020 and 2022.

(TechCrunch) Trump’s tariffs could knock Tesla’s Autopilot off course Trade war

Trump’s tariffs could knock Tesla’s Autopilot off course
Trade war might prompt Elon Musk to ditch Chinese factory for self-driving tech

The White House has refused to exempt the “brain” of Tesla’s Autopilot technology from punitive import tariffs, a decision that could delay or disrupt the company’s self-driving ambitions, TechCrunch has learned.

At a special “autonomy day” event last week, Tesla CEO Elon Musk unveiled advanced Autopilot 3.0 hardware, including a new custom chip intended to enable full self-driving (FSD) operation for all of its new vehicles. This hardware is now standard in all new Model 3, S and X vehicles. Customers pay an additional $6,000 for the software upgrade called FSD.

The self-driving hardware lives within the Autopilot ECU (or engine control unit), a module that Tesla describes as the “brain of the vehicle.” This module is assembled in Shanghai, China, by a company called Quanta Computer.

Tesla’s plans could be affected by a previously unreported decision last month by the White House not to grant the automaker an exemption from 25% tariffs. President Trump imposed these tariffs last year on a range of imports, including electronics, in an effort to reduce the U.S. trade deficit with China.

Tesla has suggested that the tariffs could force it to cease making its self-driving computers in China, thus delaying their introduction and even reducing vehicle safety.

“The imposed tariffs are forcing us to either source a new supplier, pass the cost increase to the end customer, or reduce operational costs within our internal operations, all having a reverse impact for what [we believe] to be the intention of the tariff,” the company wrote in an application to the United States Trade Representative (USTR) on November 16, requesting relief from the tariffs.

But on March 15, the USTR’s general counsel informed Tesla that it was denying the company’s request because it “concerns a product strategically important or related to ‘Made in China 2025’ or other Chinese industrial programs.” The USTR also rejected a retroactive exemption request for legacy Autopilot 2.5 hardware, for the same reason.

Made in China
Made In China 2025 is China’s strategic plan to move away from manufacturing to produce higher value goods, particularly in the areas of AI, electric vehicles and robotics. The White House sees the effort as a direct threat to U.S. domestic technology and automotive companies.

However, U.S. firms have long been among the largest beneficiaries of Chinese manufacturing expertise. Tesla’s Autopilot manufacturing partner in Shanghai, Quanta, has also worked with Apple, Amazon and Verizon.

“Tesla was unable to find a [U.S.] manufacturer with the requisite expertise to produce the Autopilot ECU 3.0 with the required specifications, at the volume requested and under the timelines necessary for Tesla’s continued growth,” the company wrote.

Tesla claimed that using Quanta would not help China reach a goal for 80 percent of domestic EV sales to come from Chinese companies by 2025. “To the contrary, if granted, the exclusion request would ensure that Tesla is able to maintain its technological and competitive advantage gained by manufacturing EVs and finished lithium-ion batteries in the United States,” it wrote.

Tesla also pointed out that more than 75 percent of the value of the new computer’s printed circuit board actually originates from outside of China. For instance, Tesla’s new cutting-edge neural network chips, which are a critical piece of Autopilot 3.0, are being made by Samsung in Austin, Texas.

The Tariff Effect
But the White House wasn’t buying it, and the USTR’s rejection is likely to hit Tesla hard. The company has already told investors that it could not guarantee hitting its gross margin targets on its cars, including the lowest-priced Model 3 variant.”

“These tariffs detract from our continuous growth and sustainability in a very difficult industry,” wrote Tesla.

Last week, the automaker posted a $702 million loss in the first quarter of 2019, on the back of lower than expected deliveries, and it just announced its intention to raise about $2.7 billion by selling a mix of debt and equity. The company originally said it intended to raise $2.3 billion in convertible notes and equity, then upped the total offering just a day later, according to regulatory filings.

Tesla is selling 3.1 million shares at a price of $243 per share through underwriters Goldman Sachs and Citigroup and boosted its convertible notes offering to $1.6 billion, according to filings. Musk is also doubling down on his own investment and now intends to buy up to 102,880 shares in stock worth $25 million.

With limited ability to increase prices or reduce costs, Tesla’s other option would be to relocate manufacturing to the United States. But that comes with its own difficulties, according to the company.

“Tesla’s decision to begin production [of the new Autopilot computer took] six months from development to production,” it wrote in its application. “With condensed timelines such as this, there is no leeway to test out a supplier that does not already have considerable experience … Choosing any other supplier would have delayed the program by 18 months with clean room setup, line validation, and staff training.”

Safety concerns
Even more critically, the company believes that such a move would also have safety implications: “Sourcing a new supplier increases the risk of poor part quality leading to possible quality issues that would impact the safety of our vehicles and the final product… We cannot risk our customers’ lives due to a defect from a supplier.”

The tariffs could even disrupt Tesla’s ongoing research into artificial intelligence, machine learning and computer vision, it fears.

“Tesla’s leadership position is contingent on our ability to deploy these advancements and components at volume, which we would be unable to do under the current tariff structure,” stated its application. Musk told investors yesterday that autonomy would eventually make Tesla a $500 billion company, a more than ten-fold increase to its valuation today.

Despite its strong wording to the USTR, Tesla has only mentioned the tariffs in investor filings in passing, where it focused on their impact on its bottom line: “Recently increased import duties on certain components used in our products that are sourced from China may increase our costs and negatively impact our operating results.”

Tesla declined to comment on this story.

Greg Linden is an economist at the University of California, Berkeley, specializing in the global supply chain for electronics. “For speed and high-volume, China is the place,” he told TechCrunch in a recent interview. “U.S. companies headed down the China road for board assembly about 25 years ago and never looked back. Component suppliers followed, and now China has a heft for high-volume electronics that no country can match.”

Linden has calculated that a U.S.-assembled Apple iPhone could add up to $40 per unit in cost, and estimates that building Autopilot 3.0 hardware in the U.S. would result in an increase of the same order of magnitude.

Lingering exemption requests
Tesla has several more tariff exemption requests outstanding with the U.S. government. A request to exempt the Model 3’s car computer, including its media control unit, connectivity board and advanced driver assistance system (ADAS) hardware, was filed at the end of December. Most recently, Tesla last week asked to be excluded from tariffs for specialized aluminum sheets from Japan, needed for lithium-ion battery cell manufacture at its Gigafactory in Sparks, Nevada.

But it is not all bad news for Musk on the trade front. Last July, The Boring Company requested relief from tariffs on Chinese-made tunneling machinery. It claimed that an inability to source tunnel boring machine parts from China would cost jobs and delay its proposed underground Loop transit system between Baltimore and Washington DC by up to two years.

On March 19, the USTR granted a retroactive exemption for imports of tunneling machinery.

Ironically, the autonomous electric vehicles intended for the Baltimore to DC Loop are based on Tesla cars that will likely rely on new Autopilot systems being built, at least for the moment, in China.

FT : Investors dive into high-quality US corporate debt once more Latest stretch

Investors dive into high-quality US corporate debt once more
Latest stretch of inflows extends a hot streak that now runs to 28 consecutive weeks

Investors have upped their bets on high-quality corporate debt in the US, as dovish central banks and nagging concerns over global growth appear to make the sector an ideal place for refuge.

Flows into US “investment grade” bond funds came to $600m for the week ending Wednesday, bringing the total to $62bn for the year, according to EPFR Global data. The latest seven-day stretch of investor inflows extends a hot streak for the sector that began in October and now runs to 28 consecutive weeks.

High-quality corporate bonds, rated at least triple-B by credit rating agencies, have emerged as a sweet spot for investors. By buying the safe-seeming debt of the world’s largest companies, investors can hedge against the threat of a slowdown in global growth while reaping returns from a very strong start to the year for asset prices.

“There is really nowhere else to go,” said Fraser Lundie, head of credit for Hermes Investment Management in London. He noted that corporate debt became more attractive as the difference in the yield offered by government bonds compared with companies’ bonds — the “spread” in industry jargon — widened as a result of central banks’ keeping interest rates low.

Fears that developed countries will grow at a slower pace has triggered a recent push among central banks toward more accommodative monetary policy, which has bolstered bond prices around the world. The Federal Reserve led the dovish push in January with a pivot away from hiking interest rates after a dramatic fourth-quarter sell-off in the stock market. Now, the top band of the Fed’s target funding rate is 2.5 per cent, while the European Central Bank’s deposit rate sits at minus 0.4 per cent, increasing the allure of corporate bonds.


Investors that have dived into US corporate debt this year have been rewarded. High quality US bonds returned 5.14 per cent in the first quarter while US high-yield bonds have returned 7.26 per cent — the best three-month stretch for both asset classes since 2009.

“People are trying to earn yield — given the depth of liquidity in the US investment grade bond market, you can’t ignore it,” said Scott Freedman, head of credit for Insight Investment Management in London. “As growth slows, spreads are more vulnerable. We’re not calling for a recession …but weaker growth means wider spreads.”

The same EPFR data showed that US high-yield bonds (rated below triple-B) attracted $64m for the week, bringing the total that has flowed into the sector to $15.9bn for the year. That suggests that investors have grown more comfortable with the credit profile of such borrowers — and also those triple B-rated borrowers on the lowest rung of investment grade.



“Triple-B risks were overplayed,” said Mr Lundie, pointing to Ford, GM and GE as companies with triple-B rated debt that have recently sought to allay investor worries by cutting leverage. “They have heard from investors about these fears and have responded by strengthening their balance sheets.”

FT : Why Tesla is taking a different approach to self-driving cars Electric carm

Why Tesla is taking a different approach to self-driving cars
Electric carmaker has faith that AI will beat Lidar and maps in steering vehicles

Elon Musk does not mince words when rejecting the technologies that other companies are relying on to control their driverless cars.

“The two main crutches that should not be used — and, in retrospect, will be obviously false and foolish — are Lidar and HD maps. Mark my words,” the Tesla chief executive said recently. 

Going against conventional wisdom and jettisoning things most of his rivals see as essential sounds risky. But Mr Musk has never been one to follow the herd, or to under-promise.

The electric car maker says its new cars already have sufficient sensors and computers to drive themselves, and that it will send out an over-the-air software update before the end of the year to complete the picture (although it might take some time before insurance companies and regulators are willing to allow the cars to be used in fully autonomous mode.)

The “crutches” that Mr Musk complained about involve two of the most common ways for autonomous vehicles to understand the world around them.

Lidar sensors, which use lasers to send out pulses of light and measure the time it takes for a reflection to come back, are currently one of the best ways to measure the shape and distance of other objects. But they are expensive, with today’s mechanical models costing several thousand dollars.

Reducing their workings to a silicon chip might help. The world has become used to the cost of silicon components like this falling rapidly over time. But big cost reductions depend on producing in large volume.

Sharp reductions in the cost of smartphone components, for instance, reflect the scale of the market, with 1.5bn handsets sold in 2018. By contrast, only around 82m cars were sold around the world last year, and it is likely to be years before a significant fraction of new vehicles are equipped to be driverless.

High-definition maps, meanwhile, are used to help driverless cars understand their surroundings, reducing the amount of raw data they need to collect and process. This makes it necessary to “geofence” them, only allowing them to travel in areas that have been very precisely mapped.

The problem with this, according to Mr Musk, is that when the real world changes in a way that is not reflected in the map, it can cause the system to fail, and if you cannot count on the map to be 100 per cent accurate, it loses its value.

Instead of techniques like these, Tesla’s autonomous driving technology relies almost entirely on teaching its cars to “see” using an array of cameras. As a back-up, its cars also use a forward-facing radar, along with a dozen ultrasonic sensors around the vehicle to help detect objects that are close by.

Improvements in computer image recognition have already been among the biggest recent advances in artificial intelligence. As with much about AI, however, tasks that seem deceptively easy for humans can floor even the best computers.

Tesla has developed a combination of hardware and software to handle the task. Two weeks ago it revealed a computer chip it designed in-house to process the massive amounts of image data needed to enable its cars to interpret their surroundings. Even Nvidia, whose chips are widely used in the AI systems in other driverless cars, credited the company with “raising the bar” for the industry.

To make sense of all the data it is processing, Tesla relies on an AI technique called deep learning. This employs artificial neural networks, systems that were originally modelled on the visual cortex of animals. 

This is where things get hard. Neural networks need large amounts of data to train on: only when they have been fed many different examples of the same thing, each painstakingly labelled by humans, can they learn enough to identity the same object in the real world.

For this, Tesla is counting on having a better real-world data set than any other company. It can draw on images captured by 400,000 or so cars that are already on the road (it hopes to get to 1m by around the middle of next year). With a piece of software it calls “shadow mode” operating in the background, it can track the behaviour of cars being driven by humans, using this to feed its learning systems.

But even this may not be enough. Neural networks are notoriously “brittle”: they can fail unexpectedly when, say, the image of an object does not match any of the variations they have been shown before. And there is always a risk that they will encounter a real-world situation they have not been trained for.

Despite this, Tesla is taking a defiantly purist approach. Feed the network enough real-world data about all the situations it could possibly encounter, it says, and the machine can match and surpass human drivers.

Take driving in snow, a notoriously difficult skill for driverless cars to master. Humans are surprisingly good at anticipating where lane markings are on snowy roads, says Andrej Karpathy, Tesla’s head of computer vision. Feed enough human-labelled images of snowy roads into an AI system, and the computer will eventually be able to interpret a similar scene, he says.

Others in the AI world question whether it is as straightforward as this makes it sound. According to one expert who recently had a close-up view of Tesla’s AI, the technology is still far short of being able to do what Mr Musk has promised for the end of this year, although this person adds that Tesla could well reach its goal in the next two to three years.

To judge from frequent delays with other Tesla products, Mr Musk often views deadlines as moveable commitments. But if he can reach full autonomy before others using a different technology, any delays may not matter.

FT : Berkshire Hathaway surges to $22bn first-quarter profit Warren Buffett’s gr

Berkshire Hathaway surges to $22bn first-quarter profit
Warren Buffett’s group bolstered by equity rally and portfolio improvements

Berkshire Hathaway reported a surge in profits in the first three months of the year, as a rebound in the stock market and improvements across the conglomerate’s sprawling businesses bolstered its bottom line.

The company, led by billionaire investor Warren Buffett, said it swung to a net profit of $21.7bn from a loss of $1.1bn the year before, in the three months to the end of March. 

The gains were supercharged by a rally in equity prices following the volatile end to 2018, with US stocks — as measured by the benchmark S&P 500 index — posting their strongest start to a year in more than two decades.

Berkshire put $16.1bn of its $21.7bn of profits in the quarter to the rise in the value of its multibillion-dollar stock market and derivative portfolio, which includes stakes in blue-chip companies like Apple, Bank of America and Coca-Cola, as well as the sale of some securities. 

This week Mr Buffett disclosed that Berkshire had added ecommerce giant Amazon to its portfolio as it seeks to put its more than $100bn cash pile to work.

Stripping out the gains generated by its stock and derivatives portfolio — which Berkshire has said are “usually meaningless” given the gyrations in financial markets — the company reported operating earnings of $5.6bn, or $3,388 per class A share.

The rise in operating profits from the year before was driven by better results in the company’s unit that includes its BNSF railroad and its energy and utility businesses. Profits from its business underwriting insurance fell 4 per cent from the year before.

The figure was roughly in line with analyst expectations for operating earnings of $5.7bn, or $3,390 per class A share, according to data provider Refinitiv.

The results come hours before Mr Buffett and Charlie Munger, the vice-chairman of Berkshire, take the stage for more than five hours at the company’s annual meeting in downtown Omaha.

Tens of thousands of Berkshire investors have descended on the Midwestern city for the meeting to listen to the two men wax on their investment philosophies and wider world views, as well as to spend the weekend shopping from the dozens of companies that Berkshire has purchased over the past five decades.

Management teams from peanut brittle and chocolates confectionery See’s Candies, the Borsheims jeweller, paint maker Benjamin Moore and railroad BNSF walked the convention centre on Friday introducing themselves to shareholders. 

Earlier in the week Berkshire hosted the chief executives of its portfolio companies for a dinner and a presentation on its healthcare joint venture with JPMorgan Chase and Amazon, known as Haven. 

Greg Abel and Ajit Jain, who last year were promoted to vice chairmen of the company and are seen as potential successors to Messrs Buffett and Munger, also led their first town hall for the assembled executives. 

While the focus in recent years has been on succession, Mr Buffett is likely to take repeated questions on the company’s performance and its struggle to clinch the kind of mega-takeover for which he is known.

The company earlier this week said it would spend $10bn to help finance oil and gas producer Occidental Petroleum’s $55bn bid to purchase rival Anadarko Petroleum. But the deal, while going some way to put a dent in the $100bn-plus of cash and cash like securities on the Berkshire balance sheet, does not exactly snare an elephant for the company: it is not gaining management control.

The Berkshire class A stock price has also lagged the stock market this year, rising 7 per cent to $327,766. The S&P 500 has gained nearly 18 per cent since the end of 2018.

Mr Buffett has lamented his recent inability to find high quality companies to add to the Berkshire portfolio, pinning the blame on high prices in the stock market and well-funded private equity groups which have intensified the fight for such assets. Berkshire’s last major takeover was its $37bn purchase of industrial goods company Precision Castparts in January 2016.

“Prices are sky-high for businesses possessing decent long-term prospects,” he wrote to shareholders earlier this year. “2019 will probably see us again expanding our holdings of marketable equities. We continue, nevertheless, to hope for an elephant-sized acquisition.”

Other recent bets have not panned out. The company was forced to take a near $3bn impairment charge over its stake in Kraft-Heinz in the first quarter, after the company behind Capri Sun and Oscar Mayer hot dogs said it would take a $15bn writedown to reflect the lower profitability prospects of some of its best-known products.

The company said that the operating results did not include figures for its share of the earnings at Kraft Heinz. The company, which counts Berkshire has its largest shareholder, has not yet disclosed its quarterly report to US securities regulators.

Instead Berkshire has ramped up purchases of its own stock. The company bought back $1.3bn of its shares last year and in an interview with the Financial Times last month Mr Buffett said the time may come when Berkshire buys back as much as $100bn of its stock.

FT : US wealth management becomes hotbed of M&A Buyout groups drive record dea

US wealth management becomes hotbed of M&A
Buyout groups drive record dealmaking in fragmented industry catering for the rich

Private equity managers are driving rapid change across the US wealth management industry by turning multiple small providers into a few multibillion-dollar players.

America’s dynamic and entrepreneurial economy has produced a huge number of rich private investors who require sophisticated financial advice, which has led to the development of a vast but fragmented wealth management industry.

About $83tn is overseen by 12,578 wealth management companies, also known as registered investment advisers (RIAs) and including the likes of BlackRock and Vanguard, all authorised by the Securities and Exchange Commission, the US financial regulator.

Most RIAs are small businesses employing 50 or fewer non-clerical staff, according to the Investment Adviser Association.

“It has proved challenging for many RIAs to build businesses of real scale. Many have remained small franchises built around a single individual or a tight team,” says Allen Thorpe, a partner with Hellman & Friedman, the private equity manager.

Hellman & Friedman paid $3bn last year to buy Financial Engines, the largest US independent investment adviser with assets of $169bn. Financial Engines has been integrated with Edelman Financial Services, a $21.7bn provider of financial planning services to more than 35,000 clients which is majority owned by Hellman & Friedman.

“Wealth management is a growth area. There is more to do,” Mr Thorpe says in a clear signal more deals are likely.

More than 500 US wealth managers have assets of at least $1bn and most of these companies generate annual underlying earnings of at least $3m, according to Echelon Partners, a California consultancy.

“Given wealth managers’ ability to generate consistent cash flows and high rates of [asset] growth, private equity interest in the industry should continue to drive large scale M&A activity,” says Daniel Seivert, Echelon chief executive.

Many wealth management companies have been constrained over decades by a shortage of financing. Many banks avoided RIAs that own few in-house assets to pledge as security in the event of a default.

Banks also tended to overlook the recurring revenue streams provided by wealth managers and this allowed private equity managers to move in.

“Scale matters more than ever,” says Mr Seivert, adding that larger wealth managers benefit from cost savings and can afford better technology. They can also hire and better retain management talent.

The client base of the US wealth management industry is also growing rapidly. The number of investors receiving advice from RIAs has swelled by a fifth in five years, according to the IAA.

“Wealth management is an industry where we expect to see steady growth,” says Mark Vassallo, managing partner at Lightyear Capital, a private equity manager. “Retirement challenges, healthcare expenses and educational costs are all issues where Americans need financial advice.”

Lightyear acquired a majority stake in Wealth Enhancement Group in 2015.

Jeff Dekko, Wealth Enhancement Group chief executive, expects to see several $100bn national players emerge.

“The future growth opportunity is enormous and the runway is long,” says Mr Dekko. Wealth Enhancement Group has completed 10 deals and expects to close an 11th — Wiley Group in Philadelphia — in early June.

The number of acquisitions of US wealth managers rose from 57 in 2017 to 77 last year, according to Sandler O’Neill, the New York investment bank that maintains a proprietary mergers and acquisitions database. Smaller deals made up a bigger share of M&A activity — transactions involving RIAs with more than $1bn in assets fell to 19 from 24 in 2017.

Chris Shutler, an analyst at William Blair, the Chicago financial services provider, says that ageing leaders of wealth management businesses will look for ways to cash out of their business.

“We do not expect a tidal wave of activity but consolidation should be a consistent, gradual tailwind,” says Mr Shutler.

Mercer Advisors was bought in 2015 by the San Francisco-based private equity manager Genstar Capital. Since then, Mercer has acquired 21 wealth managers and boosted assets to about $15bn. Genstar has provided Mercer the capacity to acquire eight to 10 more RIAs annually.

Dave Welling, chief executive of Mercer Advisors, says that a larger RIA firm can provide in-house services that are unavailable at smaller boutiques, such as tax and estate planning. They can also secure lower transaction costs for clients when placing orders with broker dealers.

“One of the biggest constraints on growth for wealth managers is retaining talented people. We can offer better career opportunities so employees can move across the country to join other teams or to run new offices,” he says.

The most active acquirer is Focus Financial Partners, which was majority owned by Stone Point Capital and KKR until its stock market listing in 2018. Focus has completed more than 160 deals, including transactions in the UK, Canada and Australia, since it was founded in 2006. It has already closed 12 deals this year and signed a further 10 agreements. Focus has a $650m war chest after raising fresh capital during last year's market listing.

Rudy Adolf, Focus co-founder and chief executive, says it has identified about 1,000 new potential partners and these companies together could pursue about 5,000 mergers.

Although KKR and Stone Point helped Focus grow, Mr Adolf questions whether marriages between private equity and wealth management companies are stable long-term relationships.

“The wealth management company has no control over the transaction when the private equity manager decides to sell. Focus is providing permanent capital. This ensures an alignment of interest and allows Focus and our partner firms to share in the rewards of future growth,” says Mr Adolf.

Mr Shutler says potential partners could be attracted to Focus as a publicly traded company because they know they will not be sold on at a later date.

“As one of the best-known acquirers of RIAs, Focus is positioned to at least get a look from most sellers and has plenty of room to grow from here,” he says.

Private equity-backed acquirers face competition from specialist strategic buyers such as Captrust Financial Partners, Wealth Partners Capital, Mariner Wealth Advisors, Savant Capital, Bronfman Rothschild and Dakota Wealth Management.

These players can lack PE’s financial firepower but they can offer deal terms that may appeal more to sellers.

Captrust has acquired 33 small wealth managers in 12 years, taking its assets under management close to $10bn. Wealth Partners Capital has teamed up with California-based EP Wealth Advisors to do four deals. EP Wealth, which has about $4bn in assets, aims to reach $20bn by 2022 through a combination of organic growth and acquisitions.

Most transaction prices stay secret as number of deals soars
Frenetic deal activity has raised questions about the valuations being put on wealth management companies but detail about transaction prices is rarely disclosed.

In the largest RIA acquisition of last year, Hellman & Friedman paid $45 a share when it bought Financial Engines, a 32.5 per cent premium to the stock’s closing price just before the bid was announced. This translated into an enterprise value multiple to earnings before interest, tax, depreciation and amortisation of about 16.2 (based on 2018 consensus earnings forecasts) — a high valuation.

Mr Vassallo says deal prices have definitely gone up, materially cutting the prospect of immediate value creation from acquisitions.

“Given higher valuations, buyers need to think more strategically now about how to achieve economies of scale,” he says.

Higher valuations have also helped attract more sellers into the market.

“It is more challenging to make the deal numbers work now,” Mr Thorpe says.

But Mr Dekko counters it is “not clear” that valuations have risen to unreasonable levels.

“Deal multiples today are more consistent with the intrinsic value of wealth management businesses which command high levels of client loyalty and produce solid recurring revenues,” he says.

>>> Fintech alliances and partnerships temper M&A – Analysis Analysis 04 MAY 201

Fintech alliances and partnerships temper M&A – Analysis
Analysis04 MAY 2019
  • Partnerships facilitate new customers at pace and low cost
  • Product and geographic alliances in action
  • Tech giant and banks partnerships threaten unicorns

Commercial partnerships between fintech players and banks, as well as being struck purely between fintechs, has in some quarters shifted slight attention from mergers and acquisitions.

Technology-enabled companies find that partnerships allow them to reach new customers faster and cheaper than M&A, without losing any of their autonomy, according to industry experts. Drill this down further specifically to the financial services space and partnerships among tech companies make further sense because they allow such players to access a broader base of clients, a sector banker said, adding that an acquisition cost per client is far less expensive when reached via partnerships compared to M&A.
Throughout 2018, technology M&A accounted for 15% of the USD 3.6tn worth of deals conducted globally, according to Mergermarket data. This has risen throughout the last decade as IT spans almost every facet and sector of business.
Technology has become an inescapable science, assisting how daily routines are undertaken and more specifically, how business is conducted.
And fintech has become a cornerstone of this latest tech boon. Yet those service providers that make up a significant element of the fintech sphere are often more inclined to find alternative paths to M&A as an avenue to expand.
Cost is not the only driver behind this thinking. Fintech players tend to specialise in niche products. Diversifying their offering and services through product partnerships has become more commonplace. New products help fintech companies reach new clients.
Alliances in action
In February 2016, Berlin-based mobile bank N26 joined forces with London-based peer-to–peer money-transfer firm TransferWise, allowing N26 to provide fair overseas transfers.
These agreements span fintechs of all shapes and sizes. UK unicorns valued at more than GBP 1bn, such as Monzo and OakNorth, have experience engaging in partnerships. In March 2019, UK challenger bank Monzo launched a savings account powered by London-based online lender OakNorth. OakNorth is more likely to acquire talented teams or strike commercial partnerships with other fintech players than make acquisitions, Chief Financial Officer Cristina Alba-Ochoa told Mergermarket in March. Bankers sometimes bring partnership opportunities, Alba-Ochoa said. To develop relationship with unicorns, bankers propose such opportunities, the sector banker said.
In May, Monzo also announced a new multi-year agreement with Palo Alto, California-based digital ID verification company Jumio to simplify the customer onboarding experience.
Curve, a London-based application linking multiple bank cards into one, which is about to close USD 50m round, is also more interested in partnerships than M&A activity for its expansion drive in the near future, according to the CEO and co-founder Shachar Bialick.
A recent survey conducted by Mergermarket and Pinset Masons reveals that 74 of the 100 fintech companies have entered into licensing or franchising agreements, while 72% of those surveyed had engaged in equity-based joint ventures. This number swells to 84% when questioned whether more of these deal types are expected in the next three years.
Legal and regulatory barriers were cited by 39% of respondents as M&A obstacles; agreeing on valuations was a further hurdle named by 37% and an unstable political environment checked by 36%.
Partnerships are largely influenced to address product concerns rather than geographical spread as new products help achieve greater customer reach. Yet, partnerships aimed at entering new territories also take place. In November 2018, London-based challenger bank Tandem announced a strategic partnership with Hong Kong-based financial services group Convoy. The deal was structured such whereby Convoy invested GBP 15m into Tandem and provided its Asian customer base; in return Tandem provided access to its technology.
Elsewhere, OakNorth licenses its technology to nine large institutional banks outside of the UK to reach new clients.
While partnerships struck between fintech companies and banks and other traditional financial fields forged the majority of such alliances, there are now increasingly more of these being conducted between fintech and fintech, Managing Partner of Singapore-based venture capital firm Life.SREDA Vladislav Solodkiy said. This is especially so among start-ups. Partnerships between corporates and start-ups and can prove difficult because of corporate culture clashes, technology variances and conflicts of interest that can rise when new products are launched, Solodkiy said.
Life.SREDA has developed and will shortly launch its“fintech bank” Arival, which is based on partnerships, Solodkiy said adding that Arival will have 12 products. Each is based around a partnership with other specialist fintechs in that specific product stream, he said. Partnerships are based on a revenue share mode. “The idea is not to reinvent the wheel or compete with other fintechs, but rather develop meaningful partnerships to produce a relationship with customers long-term.” according to Solodkiy’s “The First Fintech’s Arival” book.
According to the Mergermarket and Pinsent Masons survey, 74% of businesses have entered into licensing or franchising agreements, while 72% have engaged in equity-based joint ventures. “[These] can be a way to harness the innovative and entrepreneurial spirit of a smaller company whilst allowing it to retain its independence, or to access a specific tool or technology whilst leaving the business free to continue developing it,” Pinsent Masons’ Hannah Brader said.
For businesses able to harness the innovative and entrepreneurial spirit of Fintechs, the value of such alliances can be immense, the report adds.
Whether partnerships are deemed successful or not will become clear in several years, according to fintech experts.
Fintech large and small
Some partnerships already proved a success, a CEO of a fintech company said. N26 partnership with Transferwise helped the digital bank to increase its customers from several hundreds of thousands in 2016 to over 2m users in 2018 by removing one of the main barriers to its expansion, forex costs.
In nine months that followed July 2015, when UK challenger bank Revolut launched its partnership with London-based B2B cross-border payments company, Currencycloud, the bank received more than 160,000 new customers. On average these customers saved between EUR 30 and EUR 40 on each EUR 500 spent, according to Currecycloud.
Fintech unicorns may find partnerships between large tech players and large banks threatening, an industry source said. Such pairings as JPMorgan [NYSE:JMP] and Amazon[NASDAQ:AMZN] as well as Goldman Sachs [NYSE:GS] and Apple [NASDAQ: AAPL] bring together companies with immense expertise and scale. Despite having the obvious financial clout to undertake M&A at a vast scale, again alliances have become de rigour.

In March, apple announced its partnership with Goldman Sachs and Mastercard to deliver the Apple Card. The credit card is designed to work with the Apple Wallet.
Amazon and JPMorgan are meantime reportedly considering launching checking accounts. And even further competition is expected from Google [NASDAQ: GOOGL], Apple and Facebook [NASDAQ:FB] rather than big global banks, the CEO of a fintech company said.
M&A is vital and fintech takeovers will continue to parade impressive dealmaking numbers each year, but innovative alliances and partnerships matching the inventiveness of such companies offer growing upside alternatives

>>> Share receives takeover approach from Interactive Investor Services 04 MAY 2

Share receives takeover approach from Interactive Investor Services
04 MAY 2019
Share [LON:SHRE], a UK-based retail stockbroker, has received a takeover approach from the UK-based trading platform operator Interactive Investor Services. Share confirmed the approach in a stock exchange announcement on Friday, 3 May.
Stephens Europe Limited is financial adviser to Share, while Cenkos Securities is Share's broker. KTZ Communications is acting as public relations adviser to Share.
Share’s share price closed 4.0p up at 34.5p in London on Friday, giving the company a market capitalisation of GBP 49.5m (EUR 58.1m).

Link to original source
Stock exchange announcement
Statement re. Possible Offer and Rule 2.9 announcement
The board of directors of the Company (the "Board") notes the recent rise in the Company's share price. The Board can confirm that it has received a preliminary approach which may or may not lead to an offer being made for the Company. The preliminary approach for the Company is from Interactive Investor Services Limited ("Interactive Investor"). There can be no certainty that an offer will be made for the Company, nor as to the terms on which an offer may be made.
Rule 2.6(a) of the Takeover Code, requires that Interactive Investor, by no later than 5.00 p.m. on 31 May 2019 (the "relevant deadline"), either announce a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Takeover Code or announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Takeover Code applies. This deadline will not be extended other than with the consent of the Takeover Panel.
This is an announcement falling under Rule 2.4 of the Takeover Code and does not constitute an announcement of a firm intention to make an offer under Rule 2.7 of the Takeover Code.
A further announcement will be made as and when appropriate.