© Financial Times

One big event to start: Don’t miss the FT Dealmakers Summit. A full-day virtual conference put on by FT Live and the Due Diligence team on November 10. 

Read up on the full event agenda here, which includes speakers from top banks, law firms, corporations, private equity groups, and a keynote interview with Hellman & Friedman chief executive Patrick Healy. FT Live is pleased to offer a complimentary professional pass to all Due Diligence newsletter subscribers. Use this link to register. 

Welcome to the Due Diligence briefing from the Financial Times. Not a subscriber? Sign up here. Drop us a line and join the conversation: Due.Diligence@ft.com.

The travails of a whistleblower

“I just got word from the Securities and Exchange Commission that I am to receive half of a $16.5m whistleblower award. But I refuse to take my share,” Eric Ben-Artzi (pictured below) wrote defiantly in a 2016 op-ed for the Financial Times.

But as he planted his flag on the moral high ground four years ago, the Deutsche Bank whistleblower, who alongside two others accused his former employer of false accounting, could never have realised he was standing atop financial quicksand.

The former risk officer, a nephew of Israeli prime minister Benjamin Netanyahu’s wife, spurned the US regulator’s $8m payout for laying bare the bank’s questionable accounting. It belonged to Deutsche’s duped shareholders, he said.

But the years to follow would burn a sizeable hole in his pocket — the proceedings of a bitter seven-year divorce racking up hundreds of thousands in court funds and child support debts — not to mention equally contentious court battles with two separate sets of advisers.

His former lawyers at Labaton Sucharow sued him in 2015, worried they’d never see their agreed-upon 18 per cent fee of the pot. The Canadian group Kilgour Williams also began proceedings to claim their share, whose principals provided expert testimony to the SEC.

“I would need a near miracle to avoid bankruptcy at this point,” he said in a quarantine dispatch to the FT from Tel Aviv, after a trip to the US.

Let’s rewind. Our FT colleagues revealed the German lender’s financial misstatements back in 2012, thanks to help from Ben-Artzi and his fellow whistleblowers.

The employees asserted Deutsche hid significant losses at the height of the financial crisis by inflating the value of a massive derivatives portfolio, a theory backed by accounting experts.

And the SEC seemed to agree with the whistleblowers’ allegations, sticking the bank with a $55m fine, a relatively small settlement in the greater scope of penalties imposed on banks for their conduct leading up to the market crash of 2008.

Deutsche maintains that it did not suffer any losses, and cut the derivatives position by more than 90 per cent at the time. “The bank does not admit or deny the charges outlined in the order,” it stated upon accepting the regulatory fine.

Today, straddling three separate courtroom dramas before the backdrop of a second calamitous recession, the whistleblower payout has been used to satisfy some of the various legal claims. The problem is, it isn’t enough.

Read the full report from the FT’s Tom Braithwaite.

Deloitte ditches EG Group at a critical moment for its owners

DD’s been following the tale of EG Group for a while now — and it is getting more interesting by the day. 

If you’re not familiar with the back-story: it’s a petrol station empire that grew from a single site in Greater Manchester to 6,000 across Europe, the US and Australia, the result of an aggressive acquisitions spree fuelled by junk bonds and leveraged loans. It’s racked up €8bn in debt along the way.

Its joint owners, the private equity group TDR Capital and the billionaire brothers Mohsin and Zuber Issa (pictured above, left to right), made their most audacious acquisition yet — by a very, very long way — when they agreed to buy Asda, the UK’s third-largest supermarket chain, from Walmart this month in a £6.8bn deal. (EG Group itself isn’t a party to the deal.) 

Just as the brothers were basking in the glory of an approving tweet from UK chancellor Rishi Sunak, below, and making the Queen’s Birthday Honours list, Deloitte brought them down to Earth. 

DD’s Kaye Wiggins, Robert Smith and Arash Massoudi, and the FT’s Tabby Kinder, broke the news on Wednesday night that the Big Four firm had resigned as their auditor because of concerns about governance. 

One concern was that despite having €20bn in revenues last year, EG Group’s board has no external members. It’s just the brothers, plus TDR’s Manjit Dale and Gary Lindsay and EG’s general counsel Imraan Patel

Debt markets responded quickly after the scoop. EG Group’s bonds fell as much as 5 cents on the euro on Thursday morning, with one tumbling to 89 cents on the euro. 

The next step, in the short term, is keeping EG’s lenders — who’ve had questions but few answers about the implications of the Asda deal since it was announced two weeks ago — onside. 

EG’s owners cancelled a call to brief them last week, but since the FT’s story broke it has been rescheduled for Friday. Given that they’ll need debt investors’ backing to raise £4bn for the Asda deal, it’ll be pretty crucial. 

A French revolution at Europe’s biggest mall owner

Something very strange happened in the usually cozy club of French business on Thursday: one of France’s richest men launched an activist campaign against one of the nation’s blue-chip companies. But then again Xavier Niel (pictured), the billionaire in question, has always been somewhat of a rebel. 

The self-taught tech geek built his fortune by prising open the French telecoms market in the 1990s with his cheap and cheerful phone and broadband provider Iliad. In recent years, he’s become a prolific start-up investor and godfather to the French tech scene. 

Now Niel is turning his hand to agitating for changes at Europe’s biggest mall owner Unibail-Rodamco-Westfield. He’s teamed up with Leon Bressler, a well-known real estate investor, to buy a 4.1 per cent stake in the heavily indebted commercial property group. 

The pair outlined their mission in an interview with the FT — and in classic activist fashion — with a strongly-worded letter to the board and damning slide deck charting the value destruction at the company. 

They think Unibail’s plan for a €3.5bn rights issue is misguided and instead are urging for the company to sell its US business and focus on Europe. 

Doing so won’t be easy, as Lex points out. American malls began to clear out well before Europe, with even lower valuations than their cross-Atlantic counterparts. But pulling off the sale will help reduce leverage significantly.

Niel and Bressler insisted to the FT that they’re not activist investors — they just want to help revive a fallen European champion that lost its way and has been pummeled by the pandemic. 

Tell that to Unibail-Rodamco’s board and chief, who must now be worried about a crunch vote on the rights issue set for November 10. Even if Niel loses that vote, he may still win by fighting his way on to the board.

Job moves

  • Global Infrastructure Partners has hired Jim Amine as a partner. He previously led investment banking and capital markets at Credit Suisse.

  • L’Oréal has appointed company veteran Nicolas Hieronimus as its next chief executive. Most recently deputy chief of the group’s luxury, skincare and professional divisions, he will succeed Jean-Paul Agon, who has held the role since 2006. More here.

  • Goldman Sachs banker Andrew Gordon is leaving to head up the West Coast operations at RedBird, the New York-based investment group founded by former Goldman partner Gerry Cardinale.

  • MUFG launched a new capital markets strategy group to be led by Tom Joyce, who joins the company in New York from Deutsche Bank, where he similarly headed up capital markets.

  • British American Tobacco has picked Luc Jobin as its new chairman, succeeding Richard Burrows. Jobin joined the company’s board as a non-executive director in 2017 and was previously president and chief executive of the Canadian National Railway Company.

Smart reads 

Off to the races Ray McGuire is leaving Citigroup for a New York mayoral run, trading a career as one of Wall Street’s most accomplished executives for the political sphere, compelled by the plight of black Americans against systemic racism and the disparate effects of the coronavirus pandemic on diverse communities. (NYT)

Finance takes flight The pandemic has grounded an army of airline captains. Amplify Trading saw a new flight path for their pilot’s intuition — navigating the highs and lows of the financial markets. (FT)

Mumbai motors Royal Enfield successfully brought bike culture to India’s half-a-billion millennial and Gen-Z population. Now, its engines can be heard across the globe as it revs up to take on Harley-Davidson. (BBG)

Tired of second-best European tech companies have always looked measly next to their across-the-pond peers. To compete against Silicon Valley titans, EU regulators need to rewrite the rules. (FT)

News round-up

Gupta’s Liberty House draws up bid for Thyssenkrupp steel unit (FT) 

Billionaire Robert Brockman charged in $2bn tax evasion case (FT)

Nikola boss plays down importance of Badger pick-up truck (FT)

Vista Equity Partners founder reaches $140m settlement with DoJ (FT) 

Morgan Stanley profits jump 25% on Wall Street trading bonanza (FT + Lex)

Electric truck start-up’s Hummer-like pickup draws Spac interest (BBG)

Tata Group chases ecommerce deals to bolster retail (BBG)

Crédit Agricole, Banco BPM ramp up study of possible Italy deal (BBG)

LVMH offers glimmers of hope to luxury sector (FT)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com


Get alerts on Mergers & Acquisitions when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article