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Capital Calls

23 March 2021 By Breakingviews columnists

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


– Chubb/Hartford

– GoPuff raises capital

Insurance at a premium. If the insurance industry is about assessing risk, Hartford Financial Services had an easy task. On Tuesday, the board of directors at the $24 billion Connecticut-based property and casualty firm unanimously rejected a takeover offer from larger rival Chubb. It’s not hard to see why Hartford plans to take its chances on its own.

At $65 per share, Chubb’s proposal was measly. Since the news was confirmed last Thursday, Hartford’s stock has been trading a few bucks above the offer making the board’s calculation a no-brainer. Besides, the global insurance industry is poised to come back from the depths of the pandemic, with non-life insurers’ premiums forecast by Deloitte to go up 3% in 2021. Hartford can capture some of that upside too. It is currently worth 1.3 forward book value. That’s a vast improvement from last spring but still below its five-year peak at more than 1.5 book value in January 2018, according to Refinitiv. Hartford can afford to give Chubb the snub. (By Jennifer Saba)

Kozmic reincarnation. In Silicon Valley, sometimes a bad idea is just a premature good one. GoPuff’s ascent puts that to the test. The company, which on Tuesday said it had raised over $1 billion in new funding, reincarnates an idea tried out by dot-com flameout Kozmo.com two decades ago: quick delivery for the lazy, impatient and possibly stoned. The company’s investors, including Japanese tech magpie SoftBank, have helped bring GoPuff’s valuation to $8.9 billion, double what it fetched in October.

GoPuff delivers snacks, alcohol, condoms and other items round the clock, usually within 30 minutes. The prices are basically the same as a convenience store, plus a $2 delivery fee. That’s an improvement over Kozmo’s half-baked – and ultimately doomed – combination of low prices and no fees. The rising valuation is a combination of actual growth, aided by the pandemic and cannabis boom, and rising demand among investors for risky companies.

GoPuff plans to expand and open up more micro warehouses close to customers. Uber Technologies’ purchase of booze-courier Drizly shows there’s a market for disrupting the convenience store model. At the very least, it shouldn’t be hard to do better than Kozmo. (By Robert Cyran)

Deal chatter. Microsoft is in talks to acquire gaming chat service Discord as usage soared during the pandemic. In December, Breakingviews predicted that would be a good fit for the software giant since it complements Xbox and other offerings. Given frothy markets, Microsoft may have to pay up to woo Discord away from going public.

Bloomberg reported on Tuesday that Microsoft may acquire the startup for more than $10 billion, about a 40% bump from its valuation in December from a fundraising round. Online video-game platform Roblox had a similar jump in value from when it raised money in January to its March direct listing, which valued it at around $42 billion. It stood at $38.5 billion on Monday.

Discord’s growth, social network and subscription service make it attractive to investors. But Microsoft could offer more autonomy to the company’s co-founder Jason Citron than the scrutiny of a public company allows. Discord has a lot to talk about. (By Gina Chon)

Migration risk. Abu Dhabi is sending money to keep Telegram clicking. Funds under the control of the emirate’s ruler Mohammed bin Zayed al-Nahyan on Tuesday said they’re wiring about $150 million into the communications app rival to Facebook’s WhatsApp. Mubadala and Abu Dhabi Catalyst Partners will get five-year bonds that can convert to shares in an initial public offering, at a discounted price.

Telegram has had a good ride since January, when Facebook changed its messaging app’s policies, sending users, mainly in Asia, to dump WhatsApp for Telegram and another rival, Signal. Telegram has now surpassed 500 million active users. It’s also in the process of returning $1.2 billion to investors due to U.S. regulatory worries about a digital token coin offering. Co-founder Pavel Durov is sure moving fast, but making money from the momentum is his next trick. (By Karen Kwok)

Bancassurance. Bankinter is floating where other lenders fear to tread. Shares in the $6 billion Spanish bank rose on Tuesday following an announcement that it would list its insurance unit next month, retaining a 17.4% stake and handing the rest to shareholders. The move takes cojones given Linea Directa’s 2020 earnings – which grew 26% in the year – helped offset weaker lending income.

But if Bankinter’s reckoning is right, and the unit fetches 1.4 billion euros, it may persuade bigger banks with insurers – including Intesa Sanpaolo, BNP Paribas and Société Générale – to follow suit. That value is equal to 12 times forward earnings, using Barclays estimates, above the French lenders and ahead of euro zone insurers on an average of 8 times, according to Refinitiv. The latest share bump means Bankinter trades 10% above tangible book value, compared to most rivals hovering at discounts. Offloading insurance should maintain that premium. (By Christopher Thompson)

High-fibre diet. The chances of a take-private bid for KPN may be receding. The Dutch telecommunications operator on Tuesday announced a joint venture with APG to speed up its fibre optic network rollout beyond towns and cities. The pension fund, which has 575 billion euros under management, had been linked to a possible approach for the 12 billion euro group. Forging a long-term partnership instead makes such hostile action less likely.

That explains the 4% decline in KPN’s share price on what should otherwise be positive news. APG is basically paying KPN 440 million euros for half of a yet-to-be-built high-speed broadband network, underscoring the hot demand from infrastructure investors. Without the extra cash, KPN’s fibre rollout, which should now hit 80% of Dutch homes by 2026, would have overstretched its balance sheet, potentially putting its dividend at risk. Shareholders still have something to cheer. (By Ed Cropley)

Coughing it up. Just two months after electronic-cigarette maker Rlx Technology’s $1.4 billion debut in New York, Beijing has quite predictably cracked down further on vaping. Having banned e-cigarettes’ online sales in 2019, on Monday the Ministry of Industry and Information Technology proposed to govern the industry similarly to the tightly state-controlled tobacco sector, citing unspecified “new problems” in current regulations. That could mean special licensing requirements and much higher taxes of up to 65%, instead of the 13% value-added rate companies currently pay.

That might ease some fiscal stress amid Covid-19, but it could also put companies out of business. The news wiped $14 billion off Rlx’s market value overnight, halving its capitalisation. Rival Smoore’s Hong Kong-traded stocks plunged 27% on Tuesday. Given the lack of details, it’s possible markets have overreacted, but Rlx still trades at 81 times forecast earnings even after news. This could be bad for investor health. (By Yawen Chen)

Wheels of fury. Volvo’s axle has taken a knock. Shares in the $55 billion Swedish truckmaker fell by 7% on Tuesday morning after the company run by Martin Lundstedt warned that a shortage of semiconductor chips would hit production for up to a month, with a “negative impact on earnings”. True, Volvo had previously flagged chip shortages only for the first quarter. But a market capitalisation loss of $3.9 billion (33 billion Swedish crowns) looks excessive.

Deutsche Bank thinks factory downtime could mean 16,000 fewer trucks, knocking 7% off projected annual earnings of 29.1 billion Swedish crowns, using Refinitiv data. That would entail a decline of only 2 billion Swedish crowns. Investors seem to be fretting that the chip problem endures a lot longer, and that Lundstedt will struggle to make up lost revenue in the second half. Given that LMC Auto reckons overall truck sales in Volvo’s key U.S. and European markets will expand by nearly a fifth year-on-year, they may be too pessimistic. (By Christopher Thompson)


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