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Capital Calls

25 August 2021 By Breakingviews columnists


– Delta Air Lines

– Waste M&A

– Tim Hortons China

Delta vs. delta. It was always going to take effort to get some Americans on board with the Covid-19 vaccine. To all the personal and public health carrots, Delta Air Lines boss Ed Bastian on Wednesday added a stick. Unvaccinated U.S. employees on the company’s healthcare plan will face a $200 monthly surcharge.

Bastian noted that 75% of Delta’s staff are vaccinated, that all employees hospitalized with Covid were not fully vaccinated, and that the average hospital stay has cost Delta $50,000 per person. But it goes beyond the direct costs. Delta and other travel businesses need the world to get Covid under control before they can get fully back to business.

It’s also a similar justification to making health cover more expensive for smokers, and an easier argument now that Pfizer’s jab is fully approved by U.S. regulators. Some employers have tried incentives like one-off payments. Others have simply mandated the vaccine in U.S. offices, including Goldman Sachs according to Reuters on Tuesday. Especially for a public-facing business like Delta’s, imposing financial costs on voluntary refuseniks makes sense as the next step. (By Richard Beales)

Herculean task. Britain’s penchant for M&A bidding wars is moving from supermarkets to something rather funkier: hazardous waste. As the battle for grocery chain Wm Morrison Supermarkets heats up, infrastructure funds Ancala Partners and Fiera Infrastructure have bid 341 million pounds for UK-listed specialist waste firm Augean. The cash offer, worth 325 pence a share, is appreciably above a headline 280 pence approach in July by Morgan Stanley Infrastructure.

If the new owners can grow revenue at 8% per year as per Refinitiv forecasts and up the EBITDA margin a few percentage points to 34%, they could secure an internal rate of return of 20% in five years, Breakingviews calculations suggest. Or they could hold it for longer and enjoy Augean’s stable returns. Still, the latest bid values the target at 11 times its forecast EBITDA, above the 9 times Italy-based waste specialist Ambienthesis trades at, and Augean’s shares are trading above the offer price. That implies further M&A fireworks. (By Lisa Jucca)

Percolating problem. Tim Hortons is brewing a solution for the sticky Chinese data quandary, but the final mix is murky. Although a Canadian purveyor of coffee and doughnuts may not be an obvious trailblazer in this space, the matter is pressing because its mainland franchise, THIL, is due to list in New York via a special-purpose acquisition company. The idea is to establish a separate company to house personal information that would provide services to the parent on a “cost-only” basis.

China’s concerns surfaced just last month following Didi Global’s initial public offering, so THIL is starting from scratch. Whether its model can be repeated depends on the details. Who will own the so-called “NewCo” is unknown, but it won’t be THIL. The strength of the agreement also matters, as does who sets the costs and how they’re determined. Given how valuable an ingredient data is these days, Beijing and investors will be keen to know the recipe. (By Jennifer Hughes)


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