Shares of Carlsberg fell on news of its proposed deal for Britvic © Bloomberg Dear reader, The markets seem to be in an unforgiving mood, as is the UK electorate judging by the polling numbers in favour of Labour ahead of next week’s election. The chances of a big surprise on polling day started low, have diminished further and are unlikely to change the overall outcome. Spring a surprise in this market, however, and you���ll get slammed — at least on the evidence of the past week. Before we get started, a programming note: the Lex newsletters will be going on to their summer schedule after this week, with no Friday mailing and a bumper newsletter on a Wednesday. Normal service will resume in September. You know it is bad when one piece of analyst research on your deal has the title “We don’t get it”. The news last week that Carlsberg had made two unsuccessful takeover approaches to Britvic prompted the usual comments about another company disappearing from the London market. Not so fast. The important reaction came in the Danish brewer’s share price: the prospect of the cash deal, which at the last approach valued Britvic at £3.8bn including debt, sent Carlsberg shares down 8 per cent. Financially, Lex thought, the takeover approach looked sensible, with cost cuts justifying a modest premium. Strategically, however, the wisdom of buying a mature northern European business in a near-stagnant market looks questionable — even before the additional debt required threatens to put pressure on share buybacks. Overall, thought Lex, the idea lacks fizz. Find out more. We are all armchair psephologists now. Yet the nation’s fascination with MRP polls, or the difference between a “squeeze” and a “non-squeeze” pollster, hasn’t helped YouGov. The company’s experience figuring out what people think didn’t help last week, when a profit warning sent its shares down by a third. Political polling — even in this record year for democracy — isn’t a large business for YouGov financially. But the political uncertainty hasn’t helped belt-tightening by its biggest clients. And the pollster is suffering from the broader slowdown in demand for consultancy services — particularly the business of offering instant insight on trends or projects. Read more. Really, if you’re the strongest company in a two-player market, times should be good. Not so for Airbus, despite the grounding of rival Boeing because of operational, financial and cultural difficulties. Shares in the European aircraft maker plummeted more than 10 per cent this week after it warned about the pace of its aircraft deliveries and continuing troubles in its space division. The company should be reaping the benefits of Boeing’s woes — and to some extent it has, pulling ahead of its arch-rival in terms of new orders. But duopoly power has its limits. Airbus finds itself hamstrung by an inelastic supply chain, with bottlenecks in aerostructures, cabin equipment and, most recently, engines. This is likely to push up airfares further as capacity remains constrained by a lack of aircraft. Meanwhile, the expectations for how much Airbus can benefit from Boeing’s troubles have certainly returned to earth. Read more. A company that knows a thing about riding high before repeated disappointments is Peloton. The story of the fitness group’s fortunes can be charted in its convertible bond deals — with a 2021 issuance meant to propel the exercise bike maker to new highs and another deal last month looking like more of a life raft. The terms of the two deals could not be more different. The latest has Peloton paying annual cash interest of 5.5 per cent to raise its latest $350mn, while the shares underpinning the equity portion amount to a staggering 17 per cent of Peloton’s total outstanding. The equity option becomes exercisable if the stock trades at just $4.58, compared with its deeply depressed $3.37 price. Peloton is desperate for cash and wants some clever financing to keep it on the road. With even a modest turnaround, the new convertible holders will be in for a windfall. Find out more. No sooner does the IPO market threaten to take off than along comes a float to stop it in its tracks. Golden Goose failed to create the illusion of desirability in its own share sale, forcing a shock postponement last week. The “youniqueness” of the group’s distressed trainers wasn’t enough to generate a robust order book — not helped by toppy price expectations and market volatility. Arguably, this story tells a tale of another kind of unforgiving market: one where investors have rather longer memories than is typical as cycles come and go. Golden Goose owner Permira had scorched investors with the 2021 listing of Dr Martens in London and couldn’t afford another flop. Or perhaps investors were rightly cautious that the trainer company was just the next Permira shoe to drop. Read more.
And on a more positive note — not all sale processes are born out of weakness or financial strife. Leading producer of English sparkling wine Chapel Down has put itself up for sale as part of a strategic review. Find out why this is, if anything, a positive sign for the fortunes of the English wine sector. Best read in Lex Catch up on the best-read pieces from Lex this week. No one likes to pay extra at the rental car counter. But that is the situation that the private equity owners of Hertz find themselves in as they try to avoid a second bankruptcy. Read more. There isn’t a good time to be sued by US regulators. But the timing of a Federal Trade Commission lawsuit against Adobe looks particularly poor for the design software company. Find out why. Being the buyer of last resort is a recipe for getting a good deal. Take Carlyle’s latest foray: a good, old-fashioned private equity roll-up in oil and gas. Read more.
Have a good week,
Helen Thomas Head of Lex
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