© Financial Times

One thing to start: Last week we delved into the latest drama at Norway’s $1tn oil fund as political opposition swirled against incoming chief and hedge fund magnate Nicolai Tangen. In the latest development, he’s vanquishing his entire stake in his $20bn fund to avoid a potential conflict of interest. Read more here.

One thing to listen to: We told you last week about how one Marble Ridge hedge fund manager’s slip-up in a bidding war over Neiman Marcus escalated to involve the US Department of Justice. Now, the $1bn fund is winding down. In case you missed it, DD’s Sujeet Indap laid out the debacle on Monday’s FT News Briefing.

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

Spacs on wheels

With his first-ever Spac billionaire private equity investor Alec Gores bought the maker of the golden sponge cake Twinkies in 2016. His fourth has settled on a product that is a little more high-tech. 

On Monday, his investment vehicle Gores Metropoulos announced it would merge with Luminar, a Silicon Valley based start-up backed by tech billionaire Peter Thiel that makes sensors for self-driving cars. The mooted valuation exceeds $3bn.

Luminar chief Austin Russell monitors a 3D lidar map on a demonstration drive © AP

According to US securities filings, Gores Metropoulos was planning to buy something in the consumer products areas (Spac partner Dean Metropoulos, in fact, had sold Twinkies maker Hostess Brands to Gores).

But there has been a feeding frenzy among Spacs buying up companies somehow involved in electric and automated vehicles (and anything related). Luminar, founded by Austin Russell, pictured above, is just the latest.

Spacs used to be about finding diamonds in the rough that traded cheaply. Now, the structure seems to be perfectly comfortable going for highly speculative companies. As the FT recently explained in a Big Read, Spacs can move quickly and can bring in a lot of cash that may not be so easily available in the traditional IPO market. 

As Lex pointed out on Monday, the car tech companies with closed or pending Spac deals — Nikola, Fisker Automotive, Velodyne Lidar, Hyliion, and Lordstown Motors — essentially are telling investors that while they barely have any revenues today, in three years or five years or even seven years, they will be massive enterprises when scale finally arrives.

Bar chart of $ price/share as of 8/24/2020 showing Auto tech companies recently acquired by SPACs

For now, the market is giving them the benefit of the doubt as all are trading well above the standard $10 Spac IPO price. 

Nokia has some catching up to do in the 5G race

It’s little shock that Finland, a nation known for saunas, strong vodka, and universal healthcare, was named the world’s happiest country by the UN for the third year running.

Finnish telecoms manufacturer Nokia may have been a bit too Zen, though, as a power struggle for control over 5G networks envelops both sides of the Atlantic.

Under former chief Rajeev Suri, the company failed to capitalise on escalating trade tensions, which set the telecoms industry ablaze with opportunity as the US, UK and others looked to boost competitors against the Chinese powerhouse Huawei.

Nokia was too preoccupied integrating its €15.6bn acquisition of French rival Alcatel-Lucent in 2016, missing its chance to roll out a line of new products in time for 5G’s global debut. As one insider put it: “5G came a year too soon for us.”

The Finnish group’s overhauled leadership, comprised of its new chief executive Pekka Lundmark, chair Sari Baldauf, and finance director Marco Wiren, have a lot of ground to cover.

Nokia’s mis-steps have led it directly into the firing line of activists and outright takeovers as its share price hovers at the same level it was in 2013 following the sale of its mobile phone unit, valuing the company at €24bn.

The threat of growing consolidation among US and European network operators also looms as a potential threat for Nokia as its customer base is set to shrink.

Column chart of Revenues by customer (€bn) showing Consolidation among telecoms operators could hit Nokia sales

A strategic review of the company’s assets is already under way following the change of leadership, according to insiders, the result of which could include expanding its enterprise unit, where it sells private networks directly to companies, and selling off its IP business, Nokia Technologies.

Scrapping its deadweight won’t be an easy task, however. Many components of its networks business, like Alcatel’s submarine networks, are ageing poorly and have struggled to sell in the past.

Column chart of Revenues (€bn) showing Analysts expect a dramatic shake up at Nokia

One question is whether Nokia could abandon its Finnish values of neutrality and side with the Americans in the US-China trade war.

US attorney-general William Barr stated in February that Washington and its allies should be “actively considering” proposals for controlling stakes in Nokia and its Swedish adversary Ericsson, reflecting the Trump administration’s militant efforts to quell Huawei’s market power.

Cevian Capital, Europe’s largest activist investor and one of Ericsson’s biggest shareholders, has urged Ericsson to take Barr up on his proposal, as neither Nordic company has achieved much headway in Huawei-dominated China anyway. 

It remains to be seen whether Lundmark would be as receptive to US intervention.

Nvidia’s ploy for chip industry domination

Nvidia chartered its rise to the top of the chip industry by developing cutting-edge technology in-house. But its latest use of M&A to conquer one of the most profitable chip markets — the data centre — has placed it on the radars of some of the tech world’s most powerful players.

© REUTERS

First came its $7bn purchase of data centre networking company Mellanox, completed in April. 

A subsequent purchase of chip design group Arm from SoftBank, which has been under discussion but is yet to be confirmed by the parties involved, would further enhance its position thanks to the inroads Arm’s chip designs have forged with big data centre operators such as Amazon.

Foremost among the companies threatened by the pending alliance is Intel, which makes more than half its profits from data centre chips. After using a number of deals to diversify into new areas, Intel now faces a crisis in its core market after bungling a move to new processing technology. 

A spin-off of Intel’s manufacturing operations, mirroring the unbundling of AMD that led to the formation of GlobalFoundries 11 years ago, would have been unthinkable until recently. Now, with Nvidia breathing down its neck, it has become a subject of open debate on Wall Street.

SoftBank chairman and chief executive Masayoshi Son

Arm’s central position in the smartphone market also increases risks to companies such as Qualcomm and Apple, which rely on its designs for low-power processors. As a chipmaker that both supplies and competes with a wide range of other tech companies, Nvidia may be less neutral in how it handles the licensing of Arm’s technology than SoftBank has been.

The potential deal highlights the value of foundational intellectual property in chips. Owning all the IP for the silicon that powers huge data centres would give Nvidia a competitive advantage even Intel couldn’t match.

By selling silicon and licensing foundational IP to its own competitors, Nvidia would be putting itself in a precarious position, but not one the industry hasn’t seen before. Qualcomm’s own business model is built on selling IP licences and its own chips, a strategy a US appeals court deemed “hyper-competitive”, but not illegal.

Needless to say, Nvidia’s rivals won’t be thrilled to depend on it for critical IP should the acquisition prove successful. The sale could trigger unpredictable competitive M&A responses across the industry.

Job moves

  • Pearson tapped former Disney executive Andy Bird as its new chief. He replaces John Fallon, who announced his retirement last year following a series of profit warnings. Get the full story.

  • Amazon consumer business head Jeff Wilke, once speculated as a potential successor to Jeff Bezos, announced he would retire early next year. More here.

  • Hakan Björklund resigned from his post as chairman of Dutch diagnostic group Qiagen’s supervisory board with immediate effect. He is replaced by existing board member Lawrence Rosen.

  • Barclays has hired Manuel Esteve as head of European equity capital markets. He joins the London office from JPMorgan.

  • Law firm Paul Hastings hired Derwin Jenkinson as a partner in its finance practice. He was previously a partner at Ashurst.

Smart reads 

Lonely landlords A coalition of New York’s top property owners, who are facing a significant slump in asset valuations, are urging the city’s biggest employers, among them Goldman Sachs, Blackstone, and BlackRock, to return to the office in the name of patriotism. (BBG)

Goldman Sans In efforts to cultivate a more approachable image, Goldman Sachs has commissioned an eponymous font. The bank says it’s “neutral, with a wink”. Critics say it’s boring. (NYT)

False advertising ESG investing and stakeholder capitalism ought to be met with scepticism, both for investors who want significant returns and concerned citizens seeking real change rather than performative activism. (FT)

News round-up

Peter Thiel-backed startup Luminar to go public in $3.4 billion merger (BBG)

Pandemic triggers wave of billion-dollar US bankruptcies (FT)

Alphabet weighed buying small TikTok stake as part of group bid (BBG)

Blackstone buys Takeda’s over-the-counter business for $2.3bn (FT)

LVMH and Tiffany push back deal deadline by three months (Reuters) 

Restructuring experts prepare for fresh wave of UK company failures (FT)

Accor-IHG: the hotel tie-up that never gets booked (FT)

Mike Ashley’s Frasers strikes £37m deal for DW gyms (FT)

Nippon Paint agrees $12bn tie-up with its largest shareholder (FT)

Hedge fund Gammon gains 600% with well-timed bets on volatility (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

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