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Capital Calls

9 February 2021 By Breakingviews columnists

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


– KKR, the investment bank

Barbarian meet wolf. If there are fees to be made, KKR will get some. The private equity firm run by Henry Kravis said revenue in its capital markets business – effectively the desk that competes with investment banks – increased almost a fifth in the fourth quarter of 2020 and around 17% in the year. That’s in part because private equity activity was strong. But KKR also drummed up clients outside of its own firm.

Almost half of its transactions completed last year – 98 of 210 – were for third parties, according to the firm. The remaining deals may have amounted to KKR reaching into one pocket to put money in another, but still its capital markets desk has become a useful business. The group’s revenue of $480 million now contributes more than 10% to KKR’s overall sales.

After beefing up its permanent capital buying an insurance business, the firm’s shares have increased almost 40% in the past year, far outperforming peers. The barbarians are headed in the right direction. (By Lauren Silva Laughlin)

Snowballing. CD Projekt’s winter of discontent continues. The Polish developer of video game “Cyberpunk 2077” tweeted on Tuesday that it had been the victim of a cyberattack. The $7 billion company said that, to the best of its knowledge, the compromised systems did not contain players’ personal data. The shares still fell as much as 6%.

CD Projekt’s market value tumbled by almost a third in December, after gamers discovered that “Cyberpunk” was riddled with bugs. But despite Tuesday’s fall, short-squeeze mania and promises from management to fix the game have lifted shares by almost 15% from January lows. The developer is now valued at 11 times next year’s revenue, according to forecasts compiled by Refinitiv and taking into account $150 million of net cash. U.S. rivals Electronic Arts and Take-Two Interactive Software trade on average at around 6 times. CD Projekt’s turnaround plan will need to come off without any more hitches to justify that. (By Oliver Taslic)

False positive. Surging demand for Covid-19 tests is awakening animal spirits. That may explain why U.S. diagnostic firm Quidel is eyeing a potential $12.8 billion combination with German peer Qiagen, according to a Bloomberg report.

The two businesses are not obvious bedfellows. The $10 billion Quidel specialises in infectious diseases diagnostics while Qiagen mainly makes genetic testing kits, meaning few synergies. Given the two companies’ similar sizes, a merger of equals looks likely. But Qiagen shareholders, led by hedge fund Davidson Kempner, only last year rejected Thermo Fisher Scientific’s cash offer, which was close to the current share price. They may also be wary of ending up shareholders in a more cumbersome, complex group. However, Quidel’s share price has nearly trebled since the pandemic started, as demand for its kits has caused revenue to soar. Chief Executive Douglas Bryant may struggle to pull this deal off, but he can’t be faulted for looking to make the most of such a rich acquisition currency. (By Aimee Donnellan)

Fly higher. Europe’s best-known incubator looks to have taken Samuel Beckett’s adage of “fail again; fail better”, famously co-opted by wannabe techies, to heart. Rocket Internet and serial entrepreneur boss Oliver Samwer may cash in on the mania for special purpose acquisition vehicles – only in the U.S. rather than Europe, according to a German media report.

A move across the pond – where 248 SPACs listed last year, according to Dealogic data – is unsurprising given Rocket’s SPAC-like characteristics: it raised around 1.4 billion euros in 2014 at a price of 42.50 euros to invest in fast-growing startups. It nevertheless underwhelmed European investors: dismal share performance saw Samwer offer to buy out minorities and pull the plug on Rocket’s German stock market listing last September. In keeping with Beckett’s adage, however, Rocket has not yet succeeded even in this modest aim: Shares traded at 23.80 euros on Tuesday morning, a 28% premium to Rocket’s offer, implying holdouts are pushing for a higher price. (By Christopher Thompson)

Total eclipse. A week after BP disclosed weak results to go with its radical green energy pivot and Royal Dutch Shell did the opposite, Total has found a happy medium. The French oil major’s annual figures on Tuesday showed 2020 net income down 66% on 2019. But its debt was only 22% of total capital, despite the group maintaining its dividend as its UK rivals cut theirs.

That shows up in its performance. Over the last tumultuous year, Total has handed shareholders a loss, including dividends, of around 15%, handily beating BP and Shell, and nearer Exxon Mobil and Chevron, which also clung on to their payouts. Unlike the Americans, Total has a credible-sounding plan to turn into a green energy company. Okay, so boss Patrick Pouyanne blotted his copybook a tad by a proposal to change his company’s name to the clunky TotalEnergies. But in a ropey peer group, it looks best positioned. (By George Hay)

Not too foul. Macquarie gave investors some good news on Tuesday. Australia’s largest investment bank unveiled a relatively decent set of quarterly earnings thanks to commodities trading and dealmaking. Chief Executive Shemara Wikramanayake also said that its fiscal-year results to the end of March are likely to be only “slightly” lower than for the previous year – just three months after feeling Covid-affected markets were too murky to provide any outlook.

The resulting 7% jump in Macquarie’s share price still leaves the bank trailing the recent market surges of local commercial banks like ANZ, plus Goldman Sachs and Morgan Stanley. The latter two are up more than 40% over the past six months, compared with 13% for Wikramanayake’s firm.

On the other hand Macquarie trades at almost 2.3 times book value, more than double Goldman’s multiple and a full turn better than Morgan Stanley’s. There’s no need to rally when you’re already on top of the heap. (By Antony Currie)


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