One update to Thursday’s lead item: We should have said that Michael Jensen, the Harvard Business School professor, popularised the phrase “the market for corporate control” in the 1980s. A dedicated reader pointed out that it was actually Henry Manne who coined the phrase in 1965.
Saudi Arabia’s football dreams come undone
It turns out there are some things money can’t buy, even for the Crown Prince of Saudi Arabia.
Prince Mohammed bin Salman has been on a well documented shopping spree over the past few years with cash from the kingdom’s sovereign wealth fund.
The Public Investment Fund, which is controlled by Prince Mohammed, has been snapping up stakes in everything from troubled cruise operator Carnival to the US-based entertainment company Live Nation. Some have started to look more like vanity projects than well-thought out investments.
We told you about PIF’s big spending spree during the March coronavirus crisis meltdown, when it snapped up large stakes in travel and oil companies, two of the most severely affected sectors.
As Yasir al-Rumayyan, governor of Saudi Arabia’s sovereign wealth fund, said: “You don’t want to waste a crisis.”
The icing on the cake though was the purchase of English football club Newcastle United, a £300m deal that was inked in April after a years-long pursuit. Jubilant fans were reaching for “cans” — slang for beer — to celebrate the arrival of a deep-pocketed owner with a reputation for splashing cash.
The deal was structured and led by Amanda Staveley, the British financier who has experience working with Middle Eastern investors and football executives. Staveley also seems to manage to always find herself in the press, most recently entangled in a legal battle with her former client Barclays.
Under the terms of the deal, Staveley’s PCP Capital Partners vehicle would be the entity buying the club but the bulk of the funding — 80 per cent — was coming from the PIF.
For Mike Ashley, the chief executive of retailer Sports Direct and owner of the English Premier League team, the sale was intended to relieve him of the headache that had come with ownership.
Such was the disdain for the British retail tycoon among Newcastle fans that many of them turned to social media to praise Prince Mohammed and Mr Rumayyan for the expected spending that would come when they took over.
But the celebrations had kicked off a little too early. The deal first needed to get approval from the Premier League.
One of the decisions the football body had to make was whether the investor group passed its Owners’ and Directors’ Test. One of the conditions is that owners can be barred owning a club if they have committed an act in a foreign jurisdiction that would be considered a criminal offence in the UK, even if not illegal in their home territory.
Critics of the deal wanted it called off on human rights grounds following the 2018 murder of journalist Jamal Khashoggi. Also in opposition to the deal was Qatar-based beIN Sports, which is the Premier League’s biggest broadcaster. It has accused Saudi Arabia of backing television piracy and is locked in a legal dispute with it over the alleged infringement of international trade agreements.
On Thursday, after it became apparent the deal wasn’t getting approval anytime soon, the consortium decided to walk away.
“It’s 17-plus weeks into the process, they [the Saudis] feel frustrated by the level of inconsistency and the extent of the delays,” said a person familiar with the matter. “A huge amount of information was provided to the EPL without a timeline to complete the deal provided by the league.”
Newcastle fans, or the magpies as they’re known, are devastated. “The club is dead,” crushed Newcastle supporter Matt Renton said. “Nobody wants to face another season under Mike Ashley.” Put those cans on ice.
And keep an eye out for Scoreboard, our business of sports briefing on Saturday, which will feature more analysis on the deal’s demise.
What crisis? Private equity is doing just fine
The US has suffered its worst economic contraction in postwar history, unemployment claims have surged to historic highs, but amid the destruction, one corner of the finance industry has cause to celebrate.
Big private equity groups have reported a stunning return to moneymaking form since the end of March, when the pandemic unleashed torrents of red ink that often ran into 10-figures.
Take Apollo Global Management, which recorded a $2.3bn loss in the quarter ended March 31.
That, of course, was a few days before Federal Reserve chairman Jay Powell promised to use his powers “forcefully, proactively and aggressively” until the economy recovered from the coronavirus shock.
With unprecedented central bank intervention now in full swing, and asset prices surging, the second quarter was a totally different story. Announcing a $1bn profit for the three months ended June 30, Apollo’s billionaire founder Leon Black toasted the firm’s “strong growth” against “a continued volatile market backdrop”.
Meanwhile, Black’s co-founder Marc Rowan, pictured above, “has decided he will take a step back from his day-to-day oversight of the [insurance] business and enjoy a semi-sabbatical”, Apollo said on Thursday. That marks a change in leadership at one of Apollo’s most important fee-generating franchises.
The insurance unit hauled in a big deal with Prudential as recently as June, contributing a big chunk of the $100bn that Apollo added to its investment war chest in a record-breaking three months that took the total to $414bn. All of which means Rowan is arguably overdue some R&R.
Gupta’s bank faces potential losses
It has been a while since DD checked in on Sanjeev Gupta, the commodities trader turned industrialist, who has built up a privately owned metals empire with $20bn in annual revenue and 35,000 employees through a string of acquisitions.
A recurring question around the so-called Man of Steel is this: where does he get all the money from for this relentless dealmaking?
A big part of the answer involved the Australian financier Lex Greensill and his eponymous SoftBank-backed firm Greensill Capital. Lex is the financial Wizard of Oz whose complicated funding techniques have propelled Gupta’s rise.
But an FT investigation earlier this year also revealed another piece of the puzzle: a bank Gupta controls, which offers attractive deposit rates to UK savers, had financed the British entrepreneur’s GFG Alliance business empire through a network of shell companies, drawing regulatory scrutiny.
And now Wyelands Bank, which is named after the Welsh country estate the metals magnate owns with his wife, faces a new problem: it could be in line to book tens of millions of pounds in losses, after providing more than $100m of funding to a Dubai-based rice trader that recently collapsed.
If you want to learn how Wyelands, which said it would primarily support small and medium-sized industrial businesses, ended up heavily financing a Middle Eastern commodities trading group that claimed to employ 2,500 people before it collapsed, read the full story here.
HSBC has appointed Eric Bai and Alexander Paul global co-heads of financial institutions group, investment banking coverage. They are based in Hong Kong and London respectively.
As part of a restructuring, Credit Suisse has launched a new division that combines its global markets, investment banking and capital markets as well as Asia-Pacific markets business under a new investment banking umbrella led by Brian Chin. David Miller will head the capital markets and advisory businesses within the investment bank. Credit Suisse also combined its risk and compliance divisions, headed by former chief risk officer Lara Warner. Lydie Hudson, formerly the chief compliance officer, is staying on the executive board to lead a new sustainability, research and investment unit. More here.
In Dubai, Credit Suisse is hiring Morgan Stanley dealmaker Tara Luthra to expand its investment banking business in the Middle East, Bloomberg reported.
Blow-by-blow Bloomberg has a crack at taking you inside the negotiations that led Goldman Sachs to strike a historic settlement with the government of Malaysia over the bank’s role in the 1MDB scandal. (Bloomberg)
Safe to fly? We are all itching to go on holiday or for that visit to a favourite destination. But how safe is air travel? Our colleagues take a look here. (FT)
Wall Street workaround The Federal Reserve’s taxpayer-backed rescue programmes were supposed to be for borrowers in the US. But Wall Street companies with offshore funds still found a way to profit from the coronavirus misery. (New York Times)
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