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Capital Calls

21 September 2021 By Breakingviews columnists


– Zoom/Five9

– Pret A Manger

– Xi’s coal pledge

Zooming out. Zoom Video Communications’ acquisition of Five9 is unraveling. Washington watchdogs are probing the transaction and Five9 investors may not vote for the all-stock deal. The value of what Zoom is offering has fallen from $13.6 billion to about $10.4 billion in roughly two months and is now below Five9’s market capitalization. Zoom should see this as an opportunity.

True, the company run by Eric Yuan could offer more stock or add cash. It has $5 billion on its balance sheet. But it was already paying a pretty penny, about 28 times Five9’s sales for the 12 months ending June. That’s above what fellow communications-software hotshots Twilio, Nice and LivePerson command, according to data from Refinitiv.

Zoom hoped to cross-sell its offering with Five9’s to boost growth as things return to normal, which makes strategic sense. But not at any price. In any case, analysts still reckon Zoom’s top line will increase nearly 19% to $4.7 billion at the end of January 2023, and it still trades at 17 times forward sales. Staying solo a while longer isn’t so bad. (By Jennifer Saba)

Pano raisin. Coffee chain Pret A Manger is cooking up a major post-pandemic strategy shift. Chief Executive Pano Christou hopes to double 2021 revenue over the next five years, based on his new 20 pound per month coffee subscription, home deliveries and more regional stores. The latter should compensate for fewer bankers chomping on almond croissants in the City of London. Yet the 100 million pound investment by majority shareholder JAB and Pret founder Sinclair Beecham is a big gamble on an untested formula.

The pandemic more than halved sales to 299 million pounds last year. JAB will be looking for proof Christou’s recipe is working, particularly in the face of food price inflation and labour shortages. An initial public offering – the exit strategy JAB deployed last year at its JDE Peet’s coffee group – looks a long way off. (By Dasha Afanasieva)

Helping hand. President Xi Jinping has promised that China will no longer build coal-fired power stations abroad. As the largest financier of such projects, Beijing’s announcement at the United Nations General Assembly on Tuesday is a significant boost to efforts to reduce carbon emissions. It should also bolster a nascent plan to set up an Asian coal bad bank fund.

Led by the Asian Development Bank and UK insurer Prudential, the scheme would raise concessional equity from governments, development banks and the like, leverage that perhaps five-fold in the bond markets and then use the proceeds – as much as $120 billion – to buy and close coal plants in places like Indonesia and Vietnam earlier than currently planned. It has plenty of challenges, not least ensuring enough renewable energy replacement. Another was China’s willingness to bring new coal plants into operation. Xi’s pledge takes that risk off the table. (By Antony Currie)


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