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Capital Calls

10 February 2021 By Breakingviews columnists

Concise insights on global finance in the Covid-19 era.


– Patient Powell

Jay vs. Larry. Jerome Powell is not worried about inflation. In a speech on Wednesday, the U.S. Federal Reserve chair said he planned to keep monetary policy loose long enough to let the labor market regain its pre-pandemic health. Before Covid-19, employment gains squeezed the jobless rate to its lowest in half a century, finally benefiting usually left-out minorities.

Powell said the real-world unemployment rate might be around 10% rather than the official 6.3% in January, calling for a nationwide effort to get people working (Full Story). After all, the long economic recovery and tightening labor market through February last year produced no inflation sustained enough to trouble the Fed’s 2% target.

Former Treasury Secretary Larry Summers recently suggested President Joe Biden’s $1.9 trillion stimulus plan could overheat the economy and cause runaway price increases (Full Story). Powell, though, blessed continued policy support for workers, households and small businesses. As far as inflation goes, his position is consistent with experience over the decade since Summers was last in government. (By Richard Beales)

SPAC-IAL treatment. The skewed incentives in special-purpose acquisition companies are becoming clearer. According to research from JPMorgan Asset Management, the managers of blank-check companies over roughly the last two years have on average collected a more than sevenfold net return on their investments. Meanwhile, investors who buy and hold SPAC shares have underperformed a red-hot IPO market.

Those investors have still made a 90% gain, on average, in JPMorgan’s sample. That isn’t bad considering the S&P 500 Index has returned roughly 56% over the same period. That helps explain why the enthusiasm for SPAC shares has accelerated into 2021, even if indexes that track initial public offerings would have done better still.

It also explains why there are so many repeat SPAC sponsors like ex-Citigroup banker Michael Klein, on his seventh vehicle, and why improbable newbies like former National Football League quarterback Colin Kaepernick keep climbing on the bandwagon. Goldman Sachs boss David Solomon recently noted that excesses in the market risk blowback. A governance overhaul might help. But for now, little is standing in SPACs’ way. (By Lauren Silva Laughlin)

Iron lady. Thyssenkrupp’s steel unit has chosen the perfect moment to get back into the black. Thanks to renewed demand from Europe’s carmakers, the ailing German industrial giant’s core division reported 20 million euros of adjusted operating profit for the final three months of 2020, and could almost break even in the financial year ending in September. In Thyssenkrupp terms, that’s epic. In the last two years, operating losses totalled 1.8 billion euros. Thyssenkrupp shares jumped 8%.

Liberty Steel boss Sanjeev Gupta is unlikely to be cheering. His October bid for the unit, at an undisclosed price, may now need an overhaul. Failing that, Chief Executive Martina Merz has more to work with in terms of an internal turnaround. Hence her announcement of hefty steel investments. Yet the revival has a catch: Any long-term refit will entail job losses for the unit’s 27,000 workers. Merz will have to ensure her steel case is ironclad. (By Ed Cropley)

Pairing up. Match is adding some extra spice. The $42 billion online-dating group has agreed to buy South Korea’s Hyperconnect for $1.7 billion, its largest deal yet.

Its latest target owns Millennial- and Gen Z-friendly live-video and chat app Azar and a social live-streaming app Hakuna Live, whose features include virtual gifting. Asia accounts for more than 75% of Hyperconnect’s revenue – some $200 million last year – which should help Match Chief Executive Sharmistha Dubey reach her target of 25% in sales from the region.

At nearly 9 times 2020 sales, she’s paying more than four times the enterprise value multiple similar companies like China’s Momo or Joyy trade at, using Refinitiv Eikon estimates. But the price tag is also less than half the almost 23 times revenue that Kuaishou Technology sports after its stock market debut last week. Dubey will be hoping she has snagged a more than average match. (By Sharon Lam)

Boxed goods. SF Holding’s $2 billion delivery deal packs a big punch. The $75 billion Shenzhen-listed company is buying a 51.8% stake in Malaysian tycoon Robert Kuok’s Kerry Logistics Network. Minority shareholders get a decent premium, while the buyer adds a fast-growing Southeast Asia business to its ambitious international expansion plans.

As part of the deal, Kerry will offload to its parent a Taiwan unit and some warehouses. Proceeds from the latter will fund a special dividend. In total, those selling will receive HK$26.08 per share, 60% above the stock’s average price in January.

The tie-up will create Asia’s largest logistics operator. For SF, the bigger appeal may be Kerry’s Hong Kong listing, which would allow it to tap foreign investors. New sources of funds will be welcome as the company prepares to open a long-awaited cargo airport in China next year. This deal could make for a less turbulent ride. (By Robyn Mak)

Cargo pants. Moller-Maersk’s moment in the sun may be over. The $39 billion Danish shipping giant, whose shares are up nearly two-thirds since March, said last year’s spike in freight rates would extend into the first quarter of 2021, but not much beyond that. That’s a big reality check, given that Maersk was sailing full steam ahead in the fourth quarter, with EBITDA up a whopping 85% year-on-year at $2.7 billion. Shares fell 8% as investors twigged that expected 2021 EBITDA of $11 billion could be as low as $8.5 billion.

The main current boost was an 18% spike in ocean freight rates as locked-down Westerners ordered running machines and flat-pack furniture. Fewer shipping containers in the right place after lockdowns disrupted ports early last year also helped. After months cooped up at home, consumers have plenty of savings. But vaccines mean they may soon want to spend them going out instead. (By Ed Cropley)

Brinkmanship. The pandemic has sharpened new Heineken Chief Executive Dolf van den Brink’s focus on cost. On Wednesday, he committed to finding 2 billion euros of cost savings. His shakeup will cut 8,000 jobs – around a tenth of the workforce. The hope is that it will boost the brewer’s operating margin to 17% by 2023 from 12.3% in 2020 when bar and restaurant closures hampered profitability.

The reopening of public drinking holes will deliver a bump. But analysts were already expecting an operating margin of 16.3% in 2022, according to Jefferies, making van den Brink’s goal look non-taxing. He’s also failed to explain how much reinvesting some savings will boost long-term top-line growth. Heineken is trading at almost 26 times 2021 earnings: a premium of almost 20% on Danish rival Carlsberg. The new guy’s honeymoon period could be brief. (By Dasha Afanasieva)


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