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Capital Calls

11 May 2021 By Breakingviews columnists

Concise insights on global finance.


– Uber’s vaccine drive

– Roblox’s earnings

No free rides. Uber Technologies’ good deed may not go unpunished. The $86 billion ride-hailing app and smaller rival Lyft won’t charge U.S. riders for transport to Covid-19 vaccination sites. It’s a nice gesture. But officials in U.S. President Joe Biden’s administration will still push for labor rules that could hurt them.

The White House touted the partnership on Tuesday, though it won’t be compensating either company for their services. While Uber and Lyft will pay for the free rides themselves, the additional business could also attract more users after both companies saw a drop in first-quarter revenue this year.

But it probably won’t save them from tougher employment regulations. U.S. Labor Secretary Marty Walsh recently told Reuters that in many cases, gig workers should be classified as employees instead of independent contractors, which is how they are categorized by Uber and Lyft.

Biden has also been a longtime ally of organized labor. The companies might be hoping to curry favor. But goodwill doesn’t mean a free ride in Washington. (By Gina Chon)

Robux vs. reality. Roblox, the online games platform that went public in March, is seeing the flip side of the post-Covid recovery. The company’s stock price popped nearly 15% by early afternoon on Tuesday following its first-quarter earnings report the afternoon before, giving it a market value of some $40 billion. The company’s positive cash flow is among its appeals.

Still, boss David Baszucki also revealed how digital-world beneficiaries of the pandemic will suffer, relatively, as society opens up. Roblox said bookings, mainly sales of virtual items that will eventually be recognized as revenue, rose 61% in April – with infections on the wane at least in wealthy countries – from a year earlier when Covid-19 was already confining people to their screens.

Sure, that’s strong growth, enough for optimistic investors to justify Roblox’s market value, according to a Breakingviews calculation. But year-on-year in the first quarter, a clean comparison of pandemic to pre-pandemic conditions, bookings surged 161%. For businesses like Roblox reliant on virtual worlds, the Covid-19 tailwind has turned around. (By Richard Beales)

Revolving door. Carlyle’s political forays are coming full circle. The D.C.-based private equity firm is known for its high-profile Washington hires. Former co-Chief Executive Glenn Youngkin went in the other direction, securing the Virginia Republican gubernatorial nomination on Monday.

The private equity firm’s connections helped open doors, including in defense deals. Back in the 2000s, it hired former President George H.W. Bush and ex-Treasury Secretary/Secretary of State James Baker as advisers. Former British Prime Minister John Major was European chairman.

Those hires are now gone, and it has diversified its portfolio. Still, co-founder David Rubenstein is a Washington fixture. Others in government have ties to Carlyle, like Federal Reserve Chair Jerome Powell, a former partner.

Youngkin, who left in 2020, is the next generation of politically connected alumni. The first-time candidate beat a crowded Republican field to become Virginia’s CEO. His private-equity wealth helped; he loaned his campaign more than $5 million. But his Carlyle resume could be an albatross in his face-off against Democrats. (By Gina Chon)

Soriot saga. The AstraZeneca CEO’s pay is in danger of denting his vaccine victory. Nearly 40% of shareholders who voted at the meeting rejected the $140 billion pharmaceutical giant’s plans to boost Pascal Soriot’s bonus from 200% to 250% of his base salary, and lift his long-term share-based remuneration from 550% to 650%. In all, the Frenchman could net 18 million pounds.

Soriot’s focus on his personal bottom line is at odds with his company’s commendable behaviour during the pandemic. The Anglo-Swedish firm has made and distributed vaccines at cost, unlike rivals Pfizer and Moderna, who are turning a handsome profit. However, it has come under fire for its muddled messaging around the efficacy of its shots, and delivery problems in Europe. If the board had waited a year for the trouble to blow over, Soriot’s desire for a juicy reward would have looked more deserving. As it stands, AstraZeneca’s admirable frugality now appears to extend to everything but its boss’s pay. (By Aimee Donnellan)

Overloaded. Deutsche Lufthansa’s plans for big cash injection from shareholders may not be enough to ensure a stable financial flight. The German carrier is looking to tap equity investors for 3 billion euros, Reuters reported on Monday. That’s nearly half its 6.5 billion euro market value. Chief Executive Carsten Spohr’s primary objective is redeeming the 1.3 billion euros of hybrid equity the German government injected a year ago, as well as repaying loans worth a further billion euros from Austria, Belgium and Switzerland.

If the capital hike goes ahead, Lufthansa’s net debt will fall to 9.2 billion euros. That’s a whopping 21 times expected EBITDA for this year, according to Refinitiv forecasts, and a still-worrying 3 times the figure analysts have pencilled in for next year. Disposals should bring in more cash, but another summer washout could mean more losses. Shareholders may need to cough up again. (By Ed Cropley)

Two of a kind. If the house always wins in both casinos and special-purpose acquisition companies, then Wynn Resorts should be sitting pretty. The $15 billion company plans to merge its online gambling unit with Austerlitz Acquisition Corporation I. Separating the digital assets will reap fees and shares for the SPAC’s architects, and in theory lead to a richer valuation for Wynn’s fledgling internet business. DraftKings and gaming software provider Gan are each valued at around 20 times historical sales, while Wynn fetches less than 7 times.

Wynn shareholders are placing a big bet. Their stake in the interactive business will shrink from 71% to 58%, or less as warrants allow for additional dilution later. Although digital wagers are growing fast, controlling as much as 15% of what Wynn Interactive reckons will be a $45 billion total addressable market sounds ambitious. If it can win that much of the pot, though, Wynn Resorts may not be playing its online cards right. (By Katrina Hamlin)

Serial acquirers. Two South Korean web giants are embarking on their next overseas chapters. Kakao Entertainment said on Tuesday it is buying bite-sized fiction apps Tapas Media and Radish Media, for a combined $950 million. Rival Naver also just completed its acquisition of Toronto-based storytelling platform Wattpad for more than $600 million.

The North American acquisition spree makes sense strategically. The webtoon, or digital comic, producers, are both eyeing potential U.S. initial public offerings. Kakao Entertainment’s boss reckons his business could be worth more than $18 billion in a listing. Demand for niche genres and new formats is on the rise. Sony is forking out $1.2 billion for AT&T’s anime streaming service Crunchyroll, although that deal may be facing regulatory concerns. At $440 million, Kakao is paying an eye-watering 22 times trailing sales for Radish. Some of these new content deals will end up shelved in the financial fantasy section. (By Sharon Lam)

Deals binge. Bain Capital is larder-loading. The buyout group on May 10 announced it’s buying Valeo Foods, which owns brands including Rowse honey and Kettle crisps, for more than 1.7 billion euros, according to a source familiar with the matter, from CapVest. A string of acquisitions has boosted Valeo’s revenue to 1.1 billion euros in the year to March, from less than 200 million euros in 2010. Its new owner is set to extend the deals binge as consumer giants like Nestlé and Unilever dump unfashionable foods.

Still, the purchase price is a punchy 10 times Valeo’s EBITDA, which is running at around 170 million euros a year, according to the Irish Times. Premier Foods, the owner of Ambrosia custard and Angel Delight dessert, trades at around 8 times EBITDA, according to Refinitiv. Despite a pandemic boost, Premier shares are at a fraction of their 2007 peak. It’s a reminder that gorging on unfashionable foods can lead to indigestion. (By Dasha Afanasieva)


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