TheChek News Flow

Investment group becomes fifth largest shareholder in US electric carmaker

Chinese investment group Tencent Holdings — which is involved in a range of ventures from social media and e-commerce to mobile games — has revealed its latest holding: a stake in US electric carmaker Tesla.

Tencent said in a regulatory filing with the US Securities and Exchange Commission on Tuesday that it holds 8,167,544 shares in Elon Musk’s Tesla, translating to a 5 per cent stake in the company. The move makes it Tesla’s fifth-largest shareholder, behind others including Mr Musk himself, according to Bloomberg data.

Tencent, along with Chinese peers Baidu and Alibaba, is a prolific dealmaker, and one of the most highly valued emerging market stocks.

Tesla shares were up 2.5 per cent in pre-market trading following the news.

The reporting of Tencent’s stake comes after Tesla turned to Wall Street in search of a $1bn cash injection as it seeks a bigger financial cushion for the forthcoming launch of its mass-market Model 3 later this year.

Mr Musk — whose other ventures include solar-energy company SolarCity, which has since been acquired by Tesla, as well as SpaceX, which specialises in space travel — has said that the ambitious plan to launch the first mass-market electric vehicle later this year would put Tesla’s finances “close to the edge”.

SoftBank’s Vision Fund Will Keep Tech Unicorns Happy

SoftBank buying into Didi at this stage isn’t a particularly innovative move—outlining the difficulty of managing a $100 billion fund

SoftBank is flexing its muscles as the technology industry’s 800-pound gorilla in the room.

The Japanese conglomerate, which controls U.S. carrier Sprint, has approached Didi Chuxing, China’s ride-hailing giant, to invest around $6 billion, according to The Wall Street Journal. The investment will likely come from the soon-to-be-launched $100 billion SoftBank Vision Fund, which counts Saudi Arabia, Apple and Qualcomm among its investors.

Investing in Didi Chuxing is a not a tough decision for SoftBank, which is already an investor in the private company, valued at $36 billion as of August. It is precisely access to deals like this that attracted the fund’s core Saudi backers. Didi is the anointed winner in China’s ride-hailing market—among its investors are China’s sovereign-wealth fund and state-owned China Life Insurance. The three biggest internet giants in China—Alibaba, Tencent and Baidu—as well as Apple, are all investors. Uber, once Didi’s biggest rival, capitulated last year and sold its China’s business to Didi.

But buying into Didi at this stage is also not a particularly innovative move—outlining the difficulty of managing a $100 billion fund. Total global venture capital investment was merely $127.4 billion last year, according to KPMG. That means SoftBank would likely have to put a significant chunk of the fund in consensus ideas like Didi or WeWork, the New York-bases shared office company that has $300 million of SoftBank money with another $3 billion likely on its way. The $6 billion investment would have been enough to buy all of Didi two years ago, around the time SoftBank made its investment into the company.

This is good news for these “unicorns,” which likely could enjoy higher valuations and delay tapping the public market for a further while. But for investors who are expecting SoftBank to pull off another masterstroke like its investment in Alibaba, which has turned $20 million into $80 billion, the deal could be disappointing.

Luxury Giant Kering May Be Shuffling Retail Real Estate Deck

Prices on avenue that's seen rise in vacancies may be coming down.

NEW YORK — It’s been more than a year since Gucci closed its doors at 840 Madison Avenue here and parent Kering still hasn’t divulged its plans for the 10,298-square-foot space. Gucci holds the lease and has the right to sublet through September 2018, according to real estate sources.

Persistent reports have Kering installing Gucci sister brand Balenciaga in all or part of the store. When asked whether Balenciaga will open at 840 Madison Avenue, a spokeswoman at the brand’s Paris office didn’t deny the possibility, but said it was too early to talk about any plans.

Real estate brokerage RKF is subleasing the former Gucci site on Madison Avenue between 69th and 70th Streets. The bi-level store has 2,801 square feet on the ground floor and 7,487 on the balcony. RKF noted that the space can be divided into two units, each with 1,400 square feet on the ground floor.

Reportedly, finding a tenant has been difficult. Madison Avenue has suffered from a surfeit of empty storefronts in recent years. High asking rents are one reason, according to experts. However, the rise in inventory in the fall encouraged landlords to lower their asking rents by 11 percent to $1,433 a square foot, from $1,613 a square foot the previous year.

Asking rent for the retail space at 840 Madison Avenue is $1,400 a square foot for the ground floor and $200 a square foot for the second level. Neighboring stores include Chloe, Prada, Cartier, Dolce & Gabbana and Proenza Schouler. The location is steps from the new The Met Breur, which recently celebrated its first anniversary.

“I suspect that they put it on the sublet market and didn’t get any bites,” said a real estate source, adding that the mid-block address is “meh.”

With Kering on the hook for the remainder of the lease, the company may see 840 Madison Avenue as an inexpensive way to experiment with a Balenciaga store uptown since the former Gucci space wouldn’t require a costly buildout. Balenciaga operates a store in SoHo. The brand’s price points are well-suited for Madison Avenue.

“It’s a very busy time on Madison Avenue with some new openings in the last few weeks,” said Matthew Bauer, Ph.D., president of the Madison Avenue Business Improvement District, citing new stores from Elie Saab at 860 Madison Avenue, Caudalie at 819 Madison Avenue, and Edie Parker, No. 781.

“We’re expecting a lot more new names. A lot of buildings have gone through some changes,” Bauer said, mentioning Bottega Veneta, opening soon at 740 Madison Avenue, Tom Ford moving to No. 680 and Max Mara “undergoing a complete redo at 813. There are certainly vacancies on Madison Avenue. But the avenue is so large, it goes from 57th to 86th Street. With a district this size, you’ll see different pockets and changes. It’s still about the residential neighborhood that it interacts with.”

Kering’s large portfolio of brands includes Saint Laurent, Alexander McQueen, Stella McCartney, Bottega, Boucheron, Brioni and Pomellato, among others. While Saint Laurent, for example, has a developed store network with units on East 57th Street and SoHo’s Greene Street, it’s conceivable that Kering would divide the former Gucci space into two stores for Balenciaga and another brand that might be a fit for part of the 840 Madison Avenue retail space.

Kate Spade, Coach and Kors Shares Rise on Final Bidding Speculation

Final bids were due on Monday for Kate Spade.

NEW YORK — Shares of Kate Spade & Co., Coach Inc. and Michael Kors Holdings Ltd. all saw gains Monday following speculation that a decision might be made soon in the sale of Kate Spade.

Financial sources said final bids were due Monday, and the expectation is that Kate Spade will receive at least one bid, from Coach. While Kors is still rumored to be interested, at least one investment banker indicated that Kors might no longer be in the process, although that could change at the last minute.

Spokespeople for Kate Spade, Coach and Michael Kors each declined comment.

Shares of Kate Spade rose 1.5 percent to $23.53, while Coach shares rose 2.4 percent to $40.03. Kors saw its shares rise 0.6 percent to $37.80.

Kate Spade confirmed last month when the company posted fourth-quarter results that it was reviewing its strategic alternatives. The company had been pushed in November to undertake that action by activist investor Caerus Investors, a New York hedge fund.

Coach and Kors are believed to have submitted first-round bids at the end of last month. There’s also been talk since mid-February that private equity had begun kicking the tires.

Bankers and Wall Street analysts have pegged a takeout price at $23 to $25 a share, which implies 13 to 14 times earnings before interest, taxes, depreciation and amortization for the past 12 months.

According to Wells Fargo analyst Ike Boruchow, Kate Spade — once a Wall Street darling — can no longer sell at $40 a share. “They missed their window to really monetize it,” Boruchow said, adding, “Management has done a not-so-great job over the last couple of years of unlocking value.”

The analyst believes Kate Spade has “plenty of runway on the top line,” and there’s potential for higher margins, as well as the generation of “ample synergies for a potential multinational buyer.”

Agathe Blanchon-Ehrsam, chief marketing officer for strategic consultancy Vivaldi, said Kate Spade could be a good operational play for a company such as Coach due to sourcing synergies for raw materials. She said a deal could help Coach because Kate Spade is a lifestyle brand that has done a better job resonating with consumers than Coach “because it is more applicable to life events, such as engagements, weddings and special occasion gifts.” For Kate Spade, the benefit could come in the form of global distribution or support in growing its men’s business.

But even though there’s believed to be some runway growth ahead for Kate Spade, mergers and acquisition experts are divided on whether a transaction will happen.

Mortimer Singer, chief executive officer at Marvin Traub Associates, believes that a deal will happen. According to Singer, there’s always a chance that once a company evaluates the offers that they can turn around and decide to stay as a stand-alone firm. But in the case of Kate Spade, he’s not so sure that would happen. “It does and it has happened, but rarely does it happen with a valuable business — such as Kate — that has great potential and global momentum, notwithstanding some turbulence recently. The company would be valuable to both strategic buyers and private equity firms. It would be a very down-the-fairway type of acquisition for large private equity firms to take private.”

William Susman, founder of Threadstone Partners, isn’t so sure about either Coach or Kors. “There’s been this perpetual discussion, and I continue to believe that there will be no deal. I don’t think that either one of those companies are so desperate that they’re going to make that big of a bet. I would be very surprised.”

Susman said that with the current stock price giving Kate Spade a $3 billion market cap, “Coach at $11 billion can afford it, but the question is ‘Why do they need it?’ And Kors is at $6 billion, but ‘What does [Kate Spade] do for them?’”

He explained that even if one can grow the Kate Spade business and extract out some cost saving from synergies, there’s a real question over “Where’s the value if Kate is trading around 12 times EBITDA? No one is buying this [company] cheap.”

Susman concluded that in the current market, companies might be better off looking at a former client of his, Rebecca Minkoff, which sold a stake to private equity firm TSG Consumer Partners. TSG is said to be looking for a buyer for the minority stake it purchased in March 2012.

He queried why anyone would spend “$3 billion for Kate when they can buy, for $300 million, a [stake in a] firm such as Rebecca Minkoff and get a younger customer.

This week’s focus: We prefer non-US equities

In a world of high valuations, elevated uncertainty about long-term growth and continued questions about politics and policy, investors are asking if there will be any more “happy returns” like those during the last eight-year equity bull market. We think non-US equities should outperform on a 12-month basis. Policy optimism and valuations are high in the US, and non-US equity markets have a better cyclical backdrop, are pricing more political risks (in case of Europe) and have less positioning. We also continue to expect global equities to outperform global bonds, but with lower absolute returns than in previous years.

In the event of a drawdown, we would expect cross-equity market correlations to be high, but in more flat markets (as we forecast for the S&P 500) we think the correlation decoupling we have already seen could continue (Exhibit 1). This is particularly true for MSCI EM, which is cheaper than other equity markets and appears to be entering another growth phase. Key risks to this view are rate risk and commodity prices. Our EM team has highlighted that the impact of higher rates depends on the source of the shock, its tenor and speed, and EM fundamentals; we expect a gradual increase in long-dated rates and see EM fundamentals as improved. Our commodity team also remains confident in higher commodity returns against a backdrop of good global growth. We think MSCI EM calls appear inexpensive, with at-the-money implied vol at its 9th percentile (Exhibit 28).