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Corona Capital

7 August 2020 By Breakingviews columnists

Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.

Latest

– U.S. jobs

– MAGA drugs

Half full or half empty? The U.S. economy added 1.8 million jobs in July, the Bureau of Labor Statistics said on Friday. Normally, that would be huge. But it’s a slowdown in the rebound from coronavirus-induced layoffs. In June, 4.8 million positions came back.

There are still around 13 million fewer Americans with nonfarm jobs than six months ago. The headline unemployment rate, although it dropped to 10.2% last month from a peak of nearly 15% in April, stood at just 3.5% earlier in the year.

Congress is arguing over the next round of help for people who are out of work. As long as the recovery remains incomplete, Washington has a crucial role to play in limiting the long-term damage. The earliest and most deserving victims of job losses have tended to be low-paid, front-line workers. The cuts could, though, shift toward white-collar employees – and that in turn could change what kind of stimulus is most effective. (By Richard Beales)

Pick one. President Donald Trump’s executive order to boost U.S. production of medicine and medical supplies has too many aims. There’s reason to be concerned about the nation’s vulnerability. Less than a third of manufacturing facilities for making ingredients for drugs are located domestically according to the Food and Drug Administration. In reality, the picture is even less rosy – 80% of low margin but crucial antibiotics are made overseas. When pandemics strike, the worry is exporting nations may focus on their own needs first.

Trade adviser Peter Navarro said in a call with reporters that overseas rivals like China and India had advantages because they operated in tax havens and ran sweatshops. He also said it was critical to keep prices down. The bill doesn’t say there will be any additional investments or tax benefits for U.S. producers. Encouraging safe domestic production is desirable. So is getting the cost of drugs lower. It’s hard to see how this does both. (By Robert Cyran)

Terms and conditions apply. A new bar has been set for Covid-19 deal clauses. After extending exclusive talks four times, BGH Capital, the fledgling buyout firm founded by former TPG rainmaker Ben Gray, finally agreed on Thursday to buy Australian cinema and theme-park operator Village Roadshow for an enterprise value of up to A$758 million ($547 million). The devil is in the words “up to”. In a 135-page filing, the company listed a complex set of options for shareholders based on two transaction structures.

The first is a web of cash and stock offers beginning at A$2.20 a share, which will increase to A$2.45 contingent on the reopening of theme parks, cinemas and Queensland’s borders. If that structure is voted down, a fallback offer gives investors a lower price with the same coronavirus-related caveats, but also gives them the option of reassessing the deal in six months’ time. While convoluted, the setup could become a model for other pandemic-hit buyouts. (By Alec Macfarlane)

Grapes of wrath. Distiller Diageo said this week it still hadn’t received a dividend payment from its 34% investment in Moet Hennessy, a joint venture with French luxury house LVMH. The maker of Gordon’s gin has begun arbitration proceedings over the payment of 181 million euros. LVMH declined to comment.

It’s not the only booze-related headache for the maker of Moet & Chandon. LVMH’s wines and spirits sales fell 23% on an organic basis to just below 2 billion euros in the first half of 2020, mainly because pandemic lockdowns meant fewer opportunities to crack open the bubbly. Now, vineyard owners and champagne houses are in dispute over how much of the crop should be left to wither, the Guardian reported. The wine is in danger of losing its fizz. (By Dasha Afanasieva)

Last-minute winner. One of the proudest moments in AS Roma’s recent history was overturning a 4-1 deficit against FC Barcelona in the 2018 Champions League. The Italian soccer club has pulled off the financial equivalent by selling to U.S. billionaire Dan Friedkin for a Covid-defying enterprise value of 591 million euros.

The deal, whose details were announced on Friday, values Roma at 2.6 times revenue for the season that ended in 2019. That’s close to the average 3.1 times multiple for listed clubs Manchester United, Juventus FC and Borussia Dortmund. Not bad for a team that’s groaning under 400 million euros of debt, and which has finished outside the top four in Italy’s Serie A league for two consecutive seasons. Soccer clubs are often priced as trophy assets, rather than financial investments. Friedkin’s punt suggests this trend will outlast the pandemic. (By Liam Proud)

 

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