TheChek News Flow

If all goes as hoped, Cortec Group, with just 20 employees in Midtown Manhattan, could make a profit on paper of about $3.3 billion in the coming initial public offering of Yeti Holdings Inc., according to people familiar with the matter.

The company is seeking a valuation of $5 billion in its IPO, which could come as soon as October, the people said. Cortec bought a roughly two-thirds stake in 2012 for about $67 million, some of the people said.

Yeti, which in July filed to go public, still has to convince investors it is worth the hefty price tag. The marketing process for the IPO has yet to begin, and the company could adjust its projected valuation based on conversations with investors.

A $5 billion valuation would put Yeti at a steep 36 times its 2015 earnings before interest, taxes, depreciation and amortization of $137 million. The company is growing quickly, however, and will be basing its proposed value on newer data and forecasts.

With U.S. stock indexes near all-time highs and economic growth subdued, the companies behind hot products are trading for high prices relative to their earnings. Under Armour Inc. is valued at 67 times its projected profit for this year, while ski-jacket-maker Moncler SpA trades for 20 times this year’s expected income, according to FactSet.

Still, making back 50 times an investment in four years is nearly unheard of in private-equity circles. It is pretty rare even in the high-return world of investing in tech startups. Cortec already has collected a $312 million dividend payment from Yeti earlier this year, according to a regulatory filing.

The gains reflect Yeti’s growth from a niche supplier into a mass-market phenomenon. Texas brothers Roy and Ryan Seiders founded the company a decade ago selling coolers to Gulf Coast hunters and fishermen. It has since expanded into soft coolers and other products such as drinkware, which now account for 62% of its sales.

The company’s stainless-steel mugs were a hard-to-find holiday gift item in 2015, thanks in part to a wave of tweeting by owners marveling at their ability to keep drinks hot or cold for hours. Its ice chests are so popular they have become a favorite among thieves. Coolers start at $250 and run to $1,300 for a model Yeti says “can hold multiple elk.”

Yeti’s sales more than tripled in 2015 to $469 million. The company touts its coolers’ seamless construction and the two walls of stainless steel that give its mugs an insulating vacuum. The company has also benefited from social media, which has made it possible for niche products to get widespread publicity and post explosive growth.

Cortec’s potential windfall comes from a strategy that many of its peers aim to follow. Private-equity firms have their eyes out for hot products, said Jay Sammons, head of the consumer and retail team at Carlyle Group LP. Mr. Sammons helped oversee a roughly $500 million investment in Beats Electronics that made Carlyle a profit of about $1 billion when Apple Inc. bought the headphone maker.

In Yeti’s case, the risk for potential investors—including Cortec, which will continue to own a majority of the company after the IPO—is that sort of popularity can be fickle. For every Under Armour, whose market capitalization has risen to $16.1 billion from about $600 million in its 2005 stock-market debut, there is a GoPro Inc., whose shares are down 29% from their IPO price.

“The real question is can Yeti keep innovating, and how far can they take this brand and broaden it without losing their authenticity?” said Matt Hyde, chief executive of West Marine, a boating-products retailer that carries Yeti products. “Those are tricky waters to navigate.”

Yeti lost $38.2 million in the first quarter as expenses for selling and general and administrative purposes rose to $149.8 million from $13.9 million in the year-earlier quarter, according to a regulatory filing. Igloo Products Corp., Coleman Co. and others have introduced new coolers with features similar to Yeti’s at lower prices.

The Seiders brothers grew up working with their father, Roger, who founded fishing-rod materials company Flex Coat Co. out of his garage in Houston, according to Yeti’s website.

Cortec’s 2012 investment gave Yeti the funding it needed to expand to a more mainstream market of beachgoers, campers and backyard grillers. It began licensing the logos of dozens of colleges to win over football tailgaters, and it rolled out lines of mugs and stainless-steel drink koozies.

Cortec is run by four partners, including a former assistant to the chairman of annuities seller SunAmerica and a former executive of building-supply company Ply Gem Industries Inc. It is currently investing its sixth fund, a $1.1 billion pool of capital. Its other investments include Barcodes Inc. and Community Veterinary Partners, according to its website.

Most of Cortec’s earnings on the stake in Yeti will go to its own investors. The fund Cortec used to buy Yeti has notched annual returns of about 53% through 2015, according to Palico SAS, which operates an online marketplace for fund stakes.

The Qatar Investment Authority has abandoned talks to buy London’s Grosvenor House Hotel and two hotels in New York, increasing the likelihood that the trophy properties will be acquired by the UK’s richest men, the Reuben brothers.

The QIA’s withdrawal, confirmed by three people briefed on the situation, prolongs the troubles of India’s Sahara Group, which owns the Grosvenor House and majority stakes in New York’s Plaza and Dream Downtown hotels.

Sahara has been seeking to sell the assets in order to extricate its founder, Subrata Roy, from jail, and had told Indian courts in July it was nearing a deal with the QIA. The Qataris have been eyeing the Grosvenor House for at least five years.

Their departure from the process leaves only one active bid for the venues — that of a consortium of UK and Middle Eastern family offices led by the UK’s 3 Associates, which have submitted a $1.1bn bid for the Grosvenor House and Plaza.

However, the British billionaires David and Simon Reuben own about $750m of debt that is cross-collateralised against the three properties.

While the Reubens have not formally bid for the hotels, the debt — on which a Sahara group company has been in default since early 2015 — is eating into the assets’ equity value and the brothers are understood to be interested in acquiring them. They are the senior creditors, with the only other creditor being a linked Sahara company.

Two people familiar with the QIA’s thinking said the debt situation was a factor in the sovereign wealth fund’s withdrawal.

Deloitte, which are administrators to the company that owns the Grosvenor House, have not opened a formal auction process but may do so later this year, in which case the Reubens are likely to bid.

The Grosvenor House, a London landmark on Park Lane designed by Edwin Lutyens, has lacked investment in recent years because of the troubles of its owners: Roy was jailed in 2014 on contempt of court charges relating to a convertible bond issue.

He was given a week to surrender on Friday after a period of release, and has struggled to raise the $1.6bn bail required to secure his freedom.

Potential buyers of the hotel are eyeing refurbishments that could be carried out to reshape and update one of London’s best-known events and awards venues.

3 Associates, a UK family office, launched its bid for the hotels in July. Together with Saudi and Emirati private wealth funds, it is now seeking to buy the Grosvenor House and Plaza for $1.1bn, having revised an earlier bid that also included the Dream Downtown.

Sahara labelled the offer “absurd” and said the price indicated was too low, but added: “Anybody who shall give us [the] right price is welcome.”

The group also confirmed it was seeking a further loan from the Reubens against the assets.

The sale process could be hastened if India’s Supreme Court, which is hearing the Sahara case, appoints the Securities and Exchange Board of India to bring about disposal of Sahara’s assets. The Reubens could also trigger legal processes of foreclosure in the UK and US.

Other shareholders in the network of companies that own the hotels include Prince Alwaleed bin Talal al-Saud, the Saudi royal and business magnate, who owns a minority stake in the Plaza.

The QIA, Deloitte, 3 Associates and the Reubens declined to comment.

Dow +0.76% S&P +1.19% Nasdaq +1.17% Russell +2.44% Nikkei +0.84% Hang Seng +1.50% CSI +1.14% Shanghai +1.03% Brazil +2.83% EuroStoxx +3.31% Dax +3.41% FTSE +2.97% CAC +3.61% Ibex +2.20% MIB +1.61% SMI +1.75%

Coming into the week, focus was squarely on two key Central Bank meetings. Equities drifted higher and global bond prices stabilized leading into the BOJ and FOMC announcements on Wednesday. The Bank of Japan surprised many observers when it formally changed course introducing yield curve control and inflation overshooting policies. Investors' increased willingness to add risk was evident globally and was only intensified by the US Federal Reserve announcement a few hours later. The FOMC left rates unchanged exasperating some who felt the window was there for the Fed to take the next step in the slow process of normalizing rates. Despite three hawkish dissenters in the decision, markets took solace from the updated forecast that plotted rates staying lower for even longer than they had previously thought.

- With the risk of central bank induced turmoil behind it, the market settled back in to risk on mode for the balance of the week. By Thursday, the NASDAQ was touching fresh all-time highs, and for the week, the S&P500 gained 1.2%, the DJIA added 0.8%, and the Nasdaq was 1.2% higher. Treasury markets rallied in tandem while curves flattened as investors moved back into the long end. The benchmark US 10-year yield fell towards 1.6% after entering the weak at 1.7%.

- Crude prices stabilized early in the week helped by a deluge of press reports surrounding producers. OPEC members met in Vienna ahead of next week's Algiers meeting and there was no shortage of jawboning by officials. Momentum appears to be building for some kind of agreement on a production freeze, but Iran and Saudi Arabia remain at odds on what yardstick will be used in determining high water output marks. On Friday, the price of WTI slipped back below $45 after the Saudis said they do not to expect any formal decision from Algiers next week.

- In corporate news there was intrigue around Apple's plans for the auto market again, with a report that it could consider buying supercar maker McLaren. Later in the week Apple shares were dragged lower on more concerns about interest waning in the iPhone 7. Shares of Twitter jumped 20% on Friday after a report that the social media firm was stepping up efforts to sell itself and had attracted some early interest from Google and Salesforce.com. The IPO market was seeing a renaissance with several notable deals pricing favorably and posting big first day gains including Apptio Inc. and Elf Cosmetics.

Macro :

- Corbyn Is Re-Elected as U.K. Labour Leader, Urges Party Unity

- BOE Easing Makes Gilts Best Place to Be for Frankfurt Investor

- OPEC Deal Still Elusive Even After Saudis Offer Oil Cuts to Iran

- S&P 500 Bull Trend Versus EM at Risk as Curve Flattening Resumes

- Credit-Equity Correlation Marks Risk Perception Shift: Analysis

- EU Commissioner Moscovici to Propose EU Blacklist for Tax Havens

- Star trader Rokos eclipses his old Brevan Howard fund - FT - http://on.ft.com/2dtUViO

Keep an eye on :

- ABBN VX : Cevian May Seek Seat on ABB Board, Schweiz am Sonntag Reports

- ABG SM : Abengoa Says Acceptance Period Opens for Restructuring Plan

- AKZA NA : Akzo Nobel Committed to U.K. Business, CEO Tells Guardian

- AAPL US : Apple Falls; IPhone Sales May Disappoint, GFK Report Says: CNBC

- AREVA FP : Areva: ASN Probing 87 Irregularities in French Nuclear Reactors

- AZN LN : Impax, AstraZeneca Sue Par Pharma Over Generic Migraine Drug

- CRG IM : Banca Carige Seeking to Sell EU900m of NPLs: Il Sole

- BMPS IM : Qatar Funds May Be Interested in Paschi Cap. Increase: Corriere

- BAS GY : BASF Plans to Make Further Cuts in Asia Amid Slowdown in Demand

- COIC SS : Concentric could be a takeover target - Dagens Industri

- CSGN VX : Credit Suisse’s Grigg Quits to Start Independent Firm: Sky News (he was bank rescue advisor)

- AM FP : Rafale Deal to Create Jobs in France, Dassault Aviation CEO Says

- DBK GY : Merkel Unwilling to Help Deutsche Bank in U.S. DOJ Case: Focus

- DUFN VX : Airport Vendor Dufry Could Rise 20% or More - Barron's

- GLPG NA : Gilead could place takeover bid for Galapagos - tijd

- GKN LN : SAIC could be interested to bid for Company, 7bil price tage mentionned

- GS US : Goldman Said to Plan 25% Cut of Asia Investment-Banking Jobs

- HSBA LN : HSBC Hires Headhunting Firm to Strengthen Management Team: FT

- INGA NA : ING Belgium Poised for Major Restructuring, L’Echo Reports

- KTM IPO : KTM Industries, the Austrian motorcycle company, is to list in Switzerland soon, Finanz und Wirtschaft

- LHA GY : Lufthansa Has Right to Buy Brussels Airlines for EU2.6m: De Tijd

- MS IM : Mediaset Board to Meet Tuesday as Vivendi Offer Looms: JDD

- PBR US : Petrobras Rig Bids Could Bring $6b in Investments: Globo

- PFC LN : Tunisia Reaches Deal W/ Petrofac Protesters Over Jobs: Reuters

- SBRY LN : J Sainsbury shareholder Qatar Investment Authority could attract offer for 22% stake from Chinese bidder

- SNAPCHAT IPO : Snapchat to Release ‘Spectacles,’ First Hardware Product: WSJ

- SWEDA SS : Swedbank Open to More Acquisitions in Baltic Region: DI

- TEF SM : Telefonica Plans for IPO of O2 Advancing, Telegraph Reports

- TUI LN : Tuifly subject of sale talks with easyJet, other airlines - Boersen-Zeitung

- UBI FP : Ubisoft to Buy Bpifrance’s 3.2% Stake in Co. for $138 Million

- UBI FP : Ubisoft CEO Says Sees ’Very Few’ Synergies With Vivendi

- UCG IM : UniCredit Said to Pick 4 Cos. in Pioneer Bidding Process: Rtrs

- VIE FP : French state bank CDC plans run of share sales - http://on.ft.com/2d1oVzX

- VIT CN : Victoria Gold could be a takeover candidate, analysts say

- VIV FP : Ubisoft CEO Says Sees ’Very Few’ Synergies With Vivendi

- VOW3 GY : Audi CEO Stadler to Help Clarify Emissions Scandal: Rheinische

- VOW3 GY : Audi Recalls 79,895 Cars, SUVS for Side Light Software Errors

What to watch on Monday in the US:

• New home sales, Aug.; Dallas Fed manufacturing index, Sept.
• Fed’s Tarullo Speaks on Next Steps in Bank Stress Testing
• Fed’s Kaplan Speaks in San Antonio in Moderated Q&A
  • No S&P 500 earnings scheduled
• Pre-Market Earnings:
  • Vail Resorts (MTN) 6:45am, ($1.67)
  • Carnival (CCL) 9:15am, $1.89

Perverse logic behind National Grid revamp

Deal that serves little industrial purpose will not help investors

At a time when investors everywhere are engaged in a frantic hunt for yield, it might seem odd that the listed owners of some of Britain’s biggest income-generating assets should be looking to sell them.

Yet try telling that to National Grid and SSE, two of the UK’s largest energy utilities. In the past few months, their executives have been considering the sale of stakes in their gas distribution networks. These pipeline systems that run gas to the nation’s households and businesses produce stable index-linked returns on their massive pile of assets. That means cash flows — and ultimately dividends — worth many hundreds of millions of pounds every year.

Last week, it emerged that National Grid was close to a sale, at a value that would represent a premium to the £8.5bn that the energy regulator appraises as the network’s asset value. A disposal of a majority stake is expected soon, at a price equivalent to an enterprise value of £10bn-£11bn.

The sale will reduce the size of National Grid’s regulated business, which spans both gas and electricity, and hence the cash returns available to fund dividends for investors. The group has already told shareholders that it does not need the proceeds to invest in its other activities. National Grid is proposing to return the cash to them to do with it what they will.

So why is National Grid trying to shrink its business? Apparently the reason has to do with the differential growth rates it expects from its gas and electricity networks. Gas consumption has fallen, partly because of high consumer prices (although these have now tumbled) and the widespread adoption of more fuel-efficient systems. There is also the longer-term thrust of UK energy policy, which favours alternative technologies such as renewables over gas when it comes to generating power.

Reducing the company’s exposure to gas could conceivably hoist reported growth rates by allowing the group to focus on faster-growing electricity networks. In effect, it is a bet that power is likely to need more new infrastructure in future years than it will gas.

Profits in these utilities are ultimately tied to the cash level of net new investment that is required to build the pipes or wires that comprise the regulated asset base. Put crudely, increase the amount of cash you are pumping in at a faster rate and that should make the profits go up quicker too.

Now this may sound plausible enough on the surface. But step back, and it bears the hallmarks of an act done not to make the underlying business run any better, but rather to manage the company’s stock price. Granted, the move may achieve what National Grid’s chiefs hope, which is to grow the company’s regulated asset base at close to 7 per cent rather than the 3-4 per cent growth rare it might otherwise achieve.

But it is far from obvious how these faster growth rates compensate investors for the decline in cash returns from the gas operations, which could ultimately reduce what will be a far less well-covered total dividend. The principal beneficiaries are more likely to be the management themselves, who may benefit from a more volatile stock price in the form of valuable equity based incentives. Then, of course, there are the bankers who will receive large fees from the deal.

True, there will be an immediate and sizeable influx of cash, but this will not assist the income investor. It simply presents them with a pressing problem, which is how to reinvest it to achieve comparable returns.

Nor will it be easy for UK pension funds to buy the asset from National Grid directly — assuming they wanted to. A swift glance confirms that most of the British infrastructure assets sold in recent years have been bought by specialist foreign buyers, whether Canadian pension funds, sovereign wealth vehicles, or private sector players such as the Li Ka-shing vehicle, CKI. All these have their eyes on National Grid.

Energy companies say pricing carbon emissions is “central to the UK’s efforts to decarbonise its electricity system”

That is not an accident: it reflects the fact that most conventional funds are too small — and inexperienced — to compete for such large unlisted entities. There is also the problem posed by risk-averse governance; trustees and investment consultants tend to shrink from such deals.

So, a transaction that serves little industrial purpose will leave income investors scratching around ever harder for yield in a thinner listed market. It shows again the perverse outcomes that can follow when managers forget their job is to run a business that adds value primarily by means of the goods and services it provides to customers.

Churning business portfolios is ultimately an activity that assists only insiders. Until they curb the self-interested activities of these agents, end investors will continue to lose out.

In less than a year since the launch of his eponymous hedge fund, Chris Rokos, the former star trader at Brevan Howard, is outperforming his former colleagues with returns of about 8 per cent in 2016.

His Rokos Capital macro fund was up as much as 10 per cent at one stage this year — a marked improvement on Brevan, whose main fund, managed by Alan Howard, was down about 2.3 per cent for the year, as of the end of July.

Mr Rokos was also one of the few to profit on trading volatility following Britain’s vote to leave the EU. He was up about 2 per cent after the June referendum.

Some of the biggest established names in macro trading — Brevan, Louis Bacon’s Moore Capital, Andrew Law’s Caxton Global and Paul Tudor Jones’s Tudor Investment Corp — have struggled this year while newer macro funds such as Rokos Capital and Guillaume Fonkenell’s Pharo Management have performed better. According to Hedge Fund Research, a data provider, small and midsized managers have outperformed larger, established managers across all strategies this year.

Mr Rokos, the “R” in the Brevan acronym, left the hedge fund in 2012 after helping it to generate $4bn in trading profits since its start in 2003. He was paid about $900m during that period.

A founding partner of Brevan, he sued the hedge fund the following year in order to exit a partnership agreement that barred him from starting his own fund for another five years. The case, filed in Jersey, settled in early 2015, and Mr Rokos’s new fund began trading in October. As part of the settlement, Brevan Howard took a stake in Rokos’s fund.

The launch was the largest of the year in Europe and one of the most closely followed because of Mr Rokos’s history of success. He quickly raised about $3.5bn from investors including Blackstone and soft-closed so as not to grow too rapidly.

Rokos Capital, based on Savile Row, has grown to about 60 employees. Its splashiest hire so far was Seth Carpenter, a former assistant secretary of the US Treasury and a top adviser to Treasury secretary Jack Lew.

The only bigger hedge fund launch in the last year was from Scott Bessent, George Soros’s former chief investment officer. His Key Square fund launched with $4.5bn around the start of the year.

Mr Rokos’s success and Brevan’s struggles come during a difficult year for macro hedge funds, which seek to anticipate global economic trades and profit on them through trading currencies and interest rates. Hedge Fund Research’s macro index is up 2.09 per cent this year, underperforming the industry across all strategies, which is up 3.46 per cent.

Mr Rokos, an art collector and influential Tory donor, lives in London. He did not respond to a message seeking comment.

Swedbank and SEB, the Swedish banks, are both interested in Baltic acquisitions, according to Dagens Industri.

The Swedish business daily reported that Swedbank holds a 47% market share within household loans in Estonia and 30% in both Latvia and Lithuania. The paper cited Swedbank Baltic Manager, Priit Perens, who said that the company is interested in further buys in Latvia or Lithuania if something suitable comes along. Perens said that the bank would likely be hindered from acquiring in Estonia for regulatory reasons.

Meanwhile, SEB's Baltic Manager Riho Unt expressed an interest in acquiring parts of companies but added that organic growth is the main focus.

Concentric, the Swedish pump manufacturer, is seen as a potential takeover candidate, according to Dagens Industri.

The Swedish business daily reported that Concentric was spun off and listed from Swedish brake system supplier, Haldex, in 2011 and is now a market leader within pumps for diesel motors with a 35% market share. The paper wrote, without citing any specific sources, that with the current bidding war going on for Haldex, Concentric also stands out as a possible target. The item pointed to the company's open ownership structure in which the largest shareholder is Lannebo Fonder with 12.5% of the company.

The paper wrote that possible bidders for Concentric could be pump producers wishing to expand into mobile solutions and speculated Swedish Alfa Laval as a possible bidder.

- Becca had been in a tentative deal to be sold to private equity for $200M but that deal never closed, the exclusivity clause has now expired.

- risk that oil prices will fall to $30/bbl