Real Estate

The SoftBank story takes a sharp negative turn


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One scoop to start: Advent International, Cinven and the Abu Dhabi Investment Authority are teaming up to bid for ThyssenKrupp’s lifts business, setting the stage for a multibillion-euro battle. Read the full story here.

This was meant to be the moment that SoftBank’s Masayoshi Son would confirm his investment genius to the world.

Critics of his $97bn Vision Fund and its subsequent technology spending spree were supposed to be silenced by the conviction of public markets. A handful of the fund’s biggest bets were set to list, allowing SoftBank to finalise plans to raise an even larger second Vision Fund.

But markets have not proven kind to several of Son’s investments this year. Even with the troubled stock market debuts of some of SoftBank’s bets — think ride-hailing app Uber — investors have zeroed in on one company that has drawn billions of dollars in seed money from the Japanese telecoms-to-technology group: WeWork.

On Monday the market scepticism over WeWork reached unseen heights, prompting the company’s executives and board to meet to shelve its hotly anticipated initial public offering. Advisers at JPMorgan Chase and Goldman Sachs were not-so quietly warning the company that it was in for a particularly painful listing process, DD has learnt.

Now, we’ve focused quite a bit on the travails at WeWork in recent days. But the company is invariably linked to SoftBank and the Vision Fund, and several of the investments that the two have backed have struggled this year. Slack shares, which surged as high as $42 a share after its IPO, are now back down at $26. Uber remains below its IPO price and WeWork, as you already know, was targeting a cut-price valuation of between $15bn and $18bn in its IPO, a far cry from the $47bn it earned earlier this year.

You wouldn’t know by looking at SoftBank’s public statements, which show the Vision Fund investments performing strongly, that the company could be forced to swallow huge writedowns:

Looking deeper into the SoftBank Vision Fund portfolio, there are more questions to be asked. Critics say it’s impossible to verify how SoftBank attributes valuations to companies it invests in.

Consider Oyo, the fast-growing Indian hotel chain founded by Ritesh Agarwal. In the first quarter, SoftBank attributed part of its near-$4bn valuation gain in the Vision Fund to its investment in Oyo, which doubled in value from $5bn to $10bn.

The biggest investor at the higher valuation was none other than Agarwal, whose share purchase had been funded by a consortium of Japanese financial groups that count SoftBank among their biggest clients.

All of this puts serious doubts on Vision Fund II. Bloomberg News reports that Saudi Arabia’s sovereign wealth fund, which put up $45bn for the first fund, is only planning to reinvest profits into the new fund.

However, DD understands that is premature and no decision has yet been taken by Riyadh.

The derailment of WeWork’s IPO has only compounded issues for Son and his plans for Vision Fund II. After all, many of the initial backers of the new technology fund made non-binding commitments to invest. The question on everyone’s mind: are those investors still standing by Son’s side? Stay tuned.

Chinese dealmaking comes full circle

What happened to the European software developer hoovered up by the Chinese wire maker? Or the gaming group bought by the Chinese iron miner?

Many of the international assets caught up in China’s unyielding global dealmaking binge in 2016 have returned to the market this year.

At the peak in 2016, Chinese groups struck more than $200bn in overseas deals, according to Dealogic data. So far this year, China Inc has agreed to buy a paltry $35bn in international assets, yet it has disposed of about $40bn, becoming a net seller of overseas assets for the first time since it began buying in a big way. Check out the FT story here.

Is anyone surprised? The investment bankers and lawyers that designed many of the original deals certainly aren’t.

Back in 2016, it appeared that Chinese companies were scooping up companies for the sake of buying rather than anything else. Mining groups were snapping up foreign gaming companies; chemical producers were looking at film studios in Los Angeles; one provincial airline, HNA Group, was purchasing tens of billions of dollars in hotel and banking assets; a handful of tycoons were buying European football teams — and the binge was fuelled by unsustainable debt.

There are some familiar brands landing on the market as part of the $40bn worth of asset sales this year. The ocean theme park Seaworld and the UK travel company Abercrombie & Kent were both exited by property developer Zhonghong, which has defaulted in China. Famously, Zhonghong also looked at DreamWorks Animation and elderly care group Brookdale.

Many lawyers argue today that Chinese companies and the government have learnt some important lessons over the past half decade, and that Chinese global dealmaking, although at a low not seen in a decade, is returning to a sustainable pace.

Court crowns Saudi prince winner of Sheffield United

It was a match that had to be settled off the pitch.

A Saudi prince has secured full ownership of Premier League club Sheffield United after a two-year legal battle that was put to an end by a ruling from the UK High Court on Monday.

Prince Abdullah Bin Mosaad Bin Abdulaziz al-Saud, a grandson of the late King Abdulaziz, and Kevin McCabe, an English property developer and boyhood fan — each with a 50 per cent stake — have been locked in a dispute over the Yorkshire club’s ownership.

Back in 2013, McCabe sold a 50 per cent stake in the club for £1 to UTB LLC — a company controlled by Prince Abdullah, a member of the Saudi royal family.

Prince Abdullah agreed to inject £10m into the football team over two years as part of an investment strategy designed to turn the lossmaking club round and reach the Premier League. The original contract also stipulated that he could acquire the rest of the shares owned by McCabe’s family for £5m.

Sheffield returned to the Premier League this season, but the two co-owners had fallen out over a “disagreement about funding”, which led to further disputes. McCabe wanted the deal struck in 2013 to be voided and for the Saudi prince to sell his shares back to the English businessman.

The High Court decided that the contract should be enforced. McCabe, who said he was “bitterly disappointed”, hasn’t ruled out an appeal.

Full story here from the FT’s Murad Ahmed.

Job moves

  • John Cryan, former chief executive of Deutsche Bank,is to take over as chairman of Man Group after Ian Livingston announced his intention to quit the world’s largest listed hedge fund group after less than four years in the role. Full tale here.

  • Walt Disney’s chief executive Bob Iger has stepped down from Apple’s board as the rivalry between the two groups intensifies with the launch of Apple’s streaming service, TV+. More here.

  • Robin Vince is leaving his role as chief risk officer at Goldman Sachs, adding to a string of senior exits, according to a Bloomberg report. Vince will be replaced by Brian Lee, the bank’s controller and chief accounting officer.

  • Moelis & Company has hired Will Petersas a managing director focused on tech, media, and telecoms. Peters, a former managing director at Barclays, will join the group’s London office in December.

  • PJT Partners has added Antonin Baladi, a former Bank of America dealmaker, to its European TMT investment banking group, Bloomberg reports.

  • Two corporate partners at Allen & Overy have departed for Skadden Arps, Slate, Meagher & Flom. Simon Toms and George Knighton quit the magic circle firm just days after the collapse of its merger talks with US firm O’Melveny & Myers.

Smart reads

Brokering sexism A former bond saleswoman at Cantor Fitzgerald has described a sexist work culture where she says bosses openly watched lewd videos and male employees bragged about sex. Her complaints echo those brought by Lee Stowell, another former managing director at the brokerage firm. (Bloomberg)

Search engineered Just as European regulators are in the process of investigating Amazon’s dual role as platform and retailer, a report by the Wall Street Journal reveals that the ecommerce giant changed its search engine algorithm to favour products that are more profitable for the company, despite objections from its lawyers and engineers. (Wall Street Journal)

Going off the curriculum In his convocation speech to this year’s graduating class at the University of Chicago, Luigi Zingales, a finance professor at the university, warned that the Chicago School had a blind spot when it came to Big Tech and antitrust laws. (New York Times)

News round-up

Blackstone is said to be in talks to buy Bellagio and MGM Grand (BBG)

Elliott invests in CNH Industrials ahead of Iveco truck split (FT)

Media group Endeavor plans to raise as much as $712m in IPO (FT)

Blackstone seals $4.7bn deal to buy Canada’s Dream Global Reit (FT)

DSM to explore bid for $25bn DuPont nutrition unit (BBG)

Private equity returns are not all they seem (FT)

China Mengniu offers $1bn for infant formula maker Bellamy’s (FT)

Private equity secondary deals soar (FT)

Kazakh fintech group plans London IPO (FT)

Saudi officials consider delaying Aramco IPO after attacks (WSJ)



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