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(Bloomberg) -- In a deal that’s currently at risk of falling apart, a handful of investors would be the main beneficiaries of SoftBank Group Corp.’s plan to buy $3 billion of WeWork stock, according to a person familiar with the matter.As part of the agreement, scheduled to be completed next week, $2.1 billion in proceeds from stock purchases is slated go to five investors, according to the person, who asked not to be identified discussing private information. Benchmark, the venture capital firm that backed WeWork from its earliest days, is seeking to sell up to $600 million worth of shares, said the person, who asked not to be identified discussing private information. That figure puts Benchmark behind only Adam Neumann, WeWork’s co-founder and former chief executive officer, who has the right to sell as much as $970 million in the deal.Representatives for Benchmark and Neumann didn’t immediately respond to requests for comment. WeWork declined to comment.SoftBank, the biggest investor of WeWork parent We Co., has threatened to withdraw from the deal, the proceeds of which would not go to WeWork itself, but rather to its institutional investors and other shareholders. Still, if the transaction falls apart, it will have negative repercussions for the company, which would not receive $1.1 billion in debt from SoftBank.Besides Neumann and Benchmark, other top sellers in the deal include WeWork investor T. Rowe Price Group Inc., former WeWork Chief Financial Officer Ariel Tiger, who served in the Israeli military with Neumann and another venture capital firm, the person said. A spokesman for T. Rowe Price declined to comment. Tiger did not immediately respond to a request for comment.“SoftBank remains fully committed to WeWork’s success as its largest shareholder and is proud of the tremendous progress the company has made over the past six months,” a spokesman for SoftBank said in a statement.SoftBank’s stock buyback was scheduled to close April 1, but the Japanese conglomerate has said that it is not obligated to go through with the purchase. SoftBank has said under the terms of its original agreement, it could withdraw from the offer if certain conditions weren’t met, and that unresolved government investigations into WeWork qualify. Two board members disputed that assertion.SoftBank agreed to the rescue package for WeWork in October, shortly after the company’s plans for an initial public offering dramatically unraveled. SoftBank said it has provided $13.4 billion to WeWork, including $5 billion in working capital since October, and is honoring its obligations as laid out in the agreement.A special committee of WeWork board members has said that it is weighing options including legal action if SoftBank does not follow through with the purchase. That committee has two members: Benchmark’s Bruce Dunlevie and independent director Lew Frankfort. A representative for the committee declined to comment. Other investors slated to sell a large amount of WeWork stock to SoftBank in the deal include JPMorgan Chase & Co., Goldman Sachs Group Inc., Jefferies and Fidelity Investments, according to two people with knowledge of the matter. Spokespeople for JPMorgan and Fidelity declined to comment. Representatives for the other investors did not immediately respond to requests for comment. Less than 10% of the proceeds from the stock buyback would go to WeWork employees, SoftBank has said. Many employees repriced their stock options and thus aren’t part of this stage of the tender offer.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
It's been an insane month for airlines stocks. Legacy carrier United Airlines (NASDAQ:UAL) has been no exception. UAL stock traded for $90 as recently as January. Last week, it sold for a low of just $18, amounting to an 80% loss of value in scarcely two months.Source: NextNewMedia / Shutterstock.com However, United's fortunes are back on the upswing. The Senate recently approved an emergency economic relief package by unanimous vote. The House of Representatives should vote on the bill in coming days as well.This aid package will provide tens of billions of dollars to the airline industry in the form of cash grants and loans. Traders have rushed to buy back into the airlines. United Airlines stock, for example, has doubled from its low point over the past week, though admittedly the current $33 price is far short of the previous $90 peak.InvestorPlace - Stock Market News, Stock Advice & Trading TipsThat said, sometimes when a stock price doubles in a few days, you should take advantage of it and get out while the getting is good. This is one of those cases. While the bailout money will certainly help the airline industry, it's not a cure-all.We're still in the early innings of this economic slowdown, and heavily exposed companies like airlines have plenty more turbulence ahead. Government Bailout and UAL StockThe stimulus package that made it through the Senate is set to give the airlines roughly $50 billion in aid. Bulls have taken that headline number and run with it, bidding up airline , including UAL stock, sharply. * 10 Stocks to Buy That Will Benefit From Coronavirus Mayhem But let's slow down for a second. The actual language around the bailout is not fully hammered out and leaves a lot of leeway. Yes, the $50 billion figure seems set. But it's not clear how much of this will be cash grants, and how much will be loans.It also appears to give Treasury Secretary Steve Mnuchin a lot of authority to set the rules on what happens with the $50 billion. Airlines will have to cap executive pay for two years. And perhaps more importantly for shareholders, all airlines will have to suspend dividends and buybacks for at least a year.In case the government aid isn't big enough, or doesn't arrive soon enough, United has also taken other measures to shore up its finances. On Thursday, for example, it announced that it had secured a $500 million term loan from Goldman Sachs (NYSE:GS). United will have to pay back the loan one year from now, which isn't that far into the future. Still, it's a nice chunk of liquidity to hold the company over until operations start to pick back up, hopefully later in 2020. United's Uneven Competitive PositionCompared to the other legacy carriers, United is in a bit of an awkward position. Of the big three, Delta Air Lines (NYSE:DAL) has the best balance sheet by a significant margin. Delta perhaps would have been able to ride out the current storm even before the stimulus bill passed. On top of that, Delta is aggressively cutting back capacity on its routes to save money.American Airlines (NASDAQ:AAL) is in the worst shape of the big three. However, that comes with a hidden risk to United. There's been a great deal of speculation that American could be the first major U.S. airline to go bust. In fact, its bonds were trading in distressed territory heading into the bailout announcement. Assuming air travel doesn't return to normal quickly, American could easily still end up using Chapter 11 to reorganize.That, in turn, would potentially leave United in a situation where Delta has more operational flexibility from the front, while American would be reinvigorated on the other end, putting United in a squeeze.United runs nearly all its routes through hubs, several of which are facing extreme competition. It has relatively little fat to cut in terms of its flying without losing major market share and clientele to the other legacy carriers. Southwest Could Gain At United's ExpenseThere's one more possible risk on the horizon. It appears that Southwest (NYSE:LUV) may reject its bailout funds altogether. Southwest is in fantastic financial shape, and carries hardly any net debt. This would allow it to possibly forego the government aid, and thus avoid the strings attached to it.Southwest could continue operating without having to comply with the higher wages, environmental standards and other regulations attached to the bailout funds. It could also continue to lay off employees -- that's something that the bailout would prohibit.Southwest, you may recall, has been building Denver into its largest hub. This, in turn, is a crisis for United and its own formerly dominant position in the Mile High City. Southwest potentially has a golden opportunity to steal the catbird position at one of United's best hub locations thanks to the coronavirus from China. My UAL Stock VerdictIf you bought UAL stock near the lows over the past week, you got a great entry price. Buying low and selling high is the name of the game. People that bought into last week's panic have earned their reward. But don't overstay your welcome.Bear market rallies, historically, tend to be the most vicious. Traders think all is clear, and then out of the blue, the next wave of selling kicks off. It's too early to say whether we're going to go plunging back to the market lows from a week ago. But if we do, the stocks that are currently riding the bailout-induced sugar high will get crushed.The government's actions are a good first step. However, the economy is still closed for business, and will probably remain that way for quite awhile. The stock market rally this week hasn't cured the virus, nor has it fixed the economy. Travel demand isn't going back to normal levels all that soon, and high-cost levered players like United still have a ton of downside risk.Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he owned GS stock. More From InvestorPlace * America's Richest ZIP Code Holds Wealth Gap Secret * 10 Stocks to Buy That Will Benefit From Coronavirus Mayhem * 5 Bank Stocks to Buy Now Because This Isn't 2008 Again * 12 Stocks to Buy That Are Already Positive The post Sell the Bailout Rally in United Airlines Stock appeared first on InvestorPlace.
(Bloomberg) -- Only the old hands at the Coffeyville oil refinery could remember anything like the prices posted this month. The small Kansas plant in the heart of rural America was offering just $1.75 a barrel for Wyoming sweet crude.With more than two billion people on virus lockdown from India to California, energy demand has plunged. In corners of the U.S., Canada, Russia and China, oil prices at the well-head are collapsing under the weight of an unprecedented glut.And with it, the industry is bracing for something that last happened on this scale 35 years ago: producers shutting down their wells as pumping crude makes no economic sense.“I have never seen anything like this in the markets,” said Torbjorn Tornqvist, the co-founder of Gunvor Group Ltd., a large commodity trading house. “We’ve never seen anything even close to today.”The oil market -- hit by the double blow of a demand slump and a supply surge as Saudi Arabia and Russia wage a price war -- is battling a surplus of as much as 20% of global consumption.The consequences are brutal: prices are now low enough to force a widespread suspension of production, or a shut-in as it’s known in the industry. For those waging the price war, it counts as a victory -- as long as the shut-ins happen elsewhere.Brent and West Texas Intermediate, the benchmarks closely followed in Wall Street, are hovering around $25 a barrel. But in the world of physical oil -- where actual barrels change hands -- producers are getting much less.The industry is navigating what Paul Sankey, a veteran oil analyst at Mizuho Bank Ltd, described as “uncharted waters to unknown lands.”Wyoming Sweet, a landlocked crude with few outlets other than American refineries like Coffeyville, is paradigmatic of how the dynamics of the oil market are forcing output cuts. There are others: North Dakota Light Sweet has traded at $9.97 a barrel. Across the border, Western Canadian Select has plunged to $6.45. In Siberia, Russian crude has changed hands for less than $10 and Chinese domestic prices have fallen to single digits.Ultra-low oil prices are starting to work: Petrobras, the Brazilian state-run producer, is cutting output by 100,000 barrels a day from high-cost offshore platforms. Glencore Plc., the commodity giant, is shutting down its oilfields in Chad. In Canada, Suncor Energy Inc. has partially shutdown its Fort Hills oil sands mine.As the pain spreads, industry executives believe many other companies will stem production in the next few days.“We need to cut crude supply by 10 million barrels a day pretty quickly,” said Russel Hardy, the head of top independent oil trader Vitol Group. “Oil prices will need to go lower, to bring the prices to a level that triggers a response.”The last time the oil industry faced widespread shut-ins was in 1986, when Saudi Arabia also ravaged the market in a price war. During the price battles of 1998-99 and 2015-16 the industry also saw cuts, but not on a large scale.Put simply, the world cannot continue pumping at the current level of about 100 million barrels a day while demand is as much as 20% lower. The surplus would overwhelm storage capacity within weeks.In some emerging markets, where infrastructure is less developed, it’s already happening. Pakistan has told refiners to stop importing gasoline and diesel as the tanks are already brimming.Rush to SeaWhere there’s access to the sea, traders use tankers to store oil -- and wait for prices to go up. Crude is now moving onto ships at a record pace, according to one of the industry’s largest shipowners.But inland, producers are reliant on sending crude to local refineries like Coffeyville and the lack of storage capacity will be decisive.“The surge in inventory in coming weeks will inevitably saturate local infrastructure, in our view, forcing many inland producers to shut-in wells,” said Damien Courvalin, oil analyst at Goldman Sachs Group Inc.Some producers will prefer to take the hit of negative prices -- paying someone to take the oil off their hands -- to the long-term costs of shutting down a well. In the aftermath of the last major downturn, a North Dakota sour crude went to a negative 50 cents.But as storage fills up, production will have to respond. IHS Markit Ltd., a consultant, estimates the Canadian province of Alberta has inland tanks able to store the equivalent of just 3.2 days of daily production. The central U.S., which includes Wyoming, has room for just 12.8 days’ output.“Production is going to have to be reduced or even shut in,” said Jim Burkhard, head of oil markets at IHS Markit. “It is now a matter of where and by how much.”(Adds detail on tankers)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Goldman Sachs and Morgan Stanley received regulatory approval on Friday to take control of their Chinese securities joint ventures, becoming the latest foreign banks to take advantage as China opens up its financial services sector.In separate announcements on Friday night, the American banks said the China Securities Regulatory Commission had approved their bids to own majority stakes in their securities joint ventures, Goldman Sachs Gao Hua Securities Company and Morgan Stanley Huaxin Securities.Following intense lobbying from foreign banks, China said it would raise its cap on foreign ownership limits to 51% in April 2018. The ruling allows foreign banks to compete more effectively onshore and to integrate their mainland business with their global operations.The approvals followed the Office of Financial Stability and Development Committee and the State Administration of Foreign Exchange announcing in July they would ease rules and further open up China's financial sector a year earlier than planned.Goldman Sachs said it would increase its stake from 33 per cent to 51 per cent and began moving business units operating under Beijing Gao Hua Securities to one single corporate entity. The joint venture was started in 2004, but Goldman has operated in the Chinese capital markets since the 1990s."This is a significant milestone in the evolution of our business in China," Todd Leland, co-president of Goldman Sachs for Asia-Pacific, excluding Japan. "We will be seeking to move towards 100 per cent ownership at the earliest opportunity."Morgan Stanley separately said it would increase its ownership stake in Morgan Stanley Huaxin Securities from 49 per cent to 51 per cent. The joint venture was started in 2011, but Morgan Stanley has had a presence in the mainland since 1994."China is a core strategic focus for the firm and a market in which we and many of our clients see significant opportunities", said Wei Sun Christianson, Asia-Pacific co-chief executive officer and CEO of China at Morgan Stanley.Beijing has gradually been relaxing foreign ownership rules against the backdrop of a trade war that has raged between the United States and China for 18 months, as well as a slowing economy.UBS was the first foreign bank to win China's approval under the 2018 rules to take control of its securities joint venture in November 2018, while JP Morgan and Nomura were given approval to set up majority-owned joint ventures in March 2019.In April of last year, Credit Suisse said it plans to take a controlling stake in its securities joint venture, injecting 628.7 million yuan into the company and taking a 51 per cent holding.HSBC won approval to form a majority-controlled securities joint venture, HSBC Qianhai Securities, in the mainland in 2017 under a different set of rules specifically for Hong Kong-based banks. The lender has made a big bet on rising incomes in the Pearl River Delta and plans to shift capital from Europe and the United States to growth markets, such as mainland China, as part of its latest overhaul.China's economy has since slowed further as the coronavirus pandemic has forced cities across the globe to order lockdowns and disrupted the flow of goods and people around the world.The timing of the approvals came soon after Chinese President Xi Jinping and his US counterpart Donald Trump spoke by phone on Friday to try to ease weeks of tension over the pandemic.On Friday, Xi called on the US to cooperate to help contain the pandemic, which has infected more than 536,000 people globally and led to more than 24,000 deaths.Additional reporting by Alison Tudor-AckroydPurchase the China AI Report 2020 brought to you by SCMP Research and enjoy a 20% discount (original price US$400). This 60-page all new intelligence report gives you first-hand insights and analysis into the latest industry developments and intelligence about China AI. Get exclusive access to our webinars for continuous learning, and interact with China AI executives in live Q&A.; Offer valid until 31 March 2020.This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved. Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.
(Bloomberg Opinion) -- At the rate the coronavirus is spreading, car companies won’t be making vehicles or big profits for a while. Who’s going to foot their bills in the event of an economic downturn like 2008? A financial crisis-like bailout won’t be a good look.Heading into this slump, carmakers were hardly exercising restraint, splashing out on big, tech-savvy investments and electric vehicles. Many global brands like Ford Motor Co. botched their bets in China, the world’s largest market, and have struggled to keep up there as it weakened.Now, from the U.S. to India, Vietnam and Thailand and elsewhere, auto giants are shutting down production. It means more than turning the lights off. Sales are expected to fall almost 15% this year to fewer than 80 million vehicles, according S&P Global Ratings. In the U.S., the drop may be the biggest since 2009. Even as China tries to get back to work, auto and parts factories will likely run at low capacity.The pandemic is showing up vulnerabilities on balance sheets. Over the past two days, Moody’s Investors Services downgraded auto manufacturers including Toyota Motor Corp. and BMW AG, and put several others on review, including General Motors Co., citing “weaknesses in their credit profiles including their exposure to final consumer demand for light vehicles.” S&P downgraded Ford to junk status and put Toyota on review.The billions of dollars of cash that car companies are sitting on may give investors comfort that contingency plans are in place. But automakers run cash-intensive businesses, paying suppliers and funding operations. Having a cushion helps in tough times, but not for long.Unlike other cash-heavy enterprises, most also run so-called negative working capital, meaning their current liabilities are higher than current assets. A dollar upfront is better than a dollar in a few weeks. The reason they can do this is because they get paid by their dealers before delivery – especially in the U.S, which is a credit-driven market.That’s all good when the cars are selling. But when things turn down, these companies start burning through cash quickly, as my colleague Chris Bryant has written. Pre-virus sales outlooks were already poor. The trouble with Covid-19 is that no one knows how long it will last or when buyers will return. That makes it harder to say how much cash they’ll need, part of the reason some are proactively drawing down their credit lines.In the current gloom, it’s worth looking at how far every dollar of sales goes toward meeting operational expenses and paying down short-term debt, or the ratio of working capital to sales. Companies still have to meet their payables, but inventories aren’t being drained. During the financial crisis a decade ago, Bloomberg Intelligence’s Joel Levington notes the ratio started slightly negative and rose to 5%. If that occurred again, he estimates, an average automaker would need an additional $6.9 billion of capital. With cash needs cropping up across the economy, it’s unclear where that money would come from.The descent can be quick: At the height of the crisis, Japanese automakers in the U.S. ran negative free cash flows of 830 billion yen ($7.7 billion), according to Goldman Sachs Group Inc., dropping from close to positive 2 trillion yen. In China, cash flows are highly correlated to profitability. If you’re running losses, working capital will bite. The cascading effect of a cash crunch could run far and wide. Some large Chinese auto parts manufacturers rely on international automakers for 30% to 50% of their business to generate positive operating cash flow. “This could change quickly,” says Jefferies Financial Group Inc. analyst Alexious Lee.Then there’s the debt coming due. Automakers haven’t piled on large amounts except for their financing arms. But, per Levington, as of last week $179 billion of debt had a 30%-plus chance of default. The convulsions in markets will make it more expensive to pay. The likes of Tata Motors Ltd.-owned Jaguar Land Rover Automotive Plc have seen their bonds trade down to as low as 59 cents on the dollar. Across the sector, more than $100 billion matures this year with almost 40% rated below A, he notes.Financing arms, a big source of problems in 2008, have again become major drivers of operating profits. If China is any indication for how quickly things can sour, defaults on auto loan-backed securities rose sharply last month and prepayments fell to a record low.The position of car giants is now reminiscent of the pre-financial crisis years. When Detroit’s automakers were on the verge of collapse, the U.S. government braved public rebuke and stepped in with $82 billion in various forms to avoid the economic pain of collapse. The bailout remains debated, but one thing is clear: Carmakers will need help this time, too. While Washington’s new $2 trillion stimulus could indirectly benefit the sector, prolonged pain would need more support.Cars may have gotten better since the last crisis, but automakers haven’t readied their balance sheets or operations for one as severe as this is turning out to be.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Crude prices fell almost 8% on Thursday after the $2 trillion U.S. Covid-19 fiscal rescue left out the Trump administration’s plan to top up the country’s oil reserves in a bid to throw a lifeline to shale drillers. Also weighing on crude were record jobless claims filed by Americans and signs of no ceasefire yet in the crude production-and-price-war between Saudi Arabia and Russia. West Texas Intermediate, the New York-traded benchmark for U.S. crude prices, settled down $1.89, or 7.7%, at $22.60 per barrel.
(Bloomberg Opinion) -- A tiny country that’s long been the barometer of global commerce is sending up distress flares. How big a blow the Covid-19 pandemic inflicts on Singapore’s economy will depend much on events outside its control.Gross domestic product fell an annualized 10.6% in the first quarter, the Singapore government reported Thursday in an advance reading. That's worse than many economists — already bracing for a bad number — had forecast. Officials project a contraction of 1% to 4% for the year; GDP hasn’t hit that lower boundary since Singapore split from Malaysia five decades ago.As grim as all this sounds, Singapore's economic performance since January has echoes in the swings of global and regional capitalism. The city-state took a big hit during the Asian financial crisis, the aftermath of the Sept. 11 terrorist attacks (which also constrained international travel) and in the Great Recession. Growth shrank 10% in the first quarter of 1998 as regional markets cratered and neighboring Indonesia seethed with political upheaval. It contracted 10% from April to June in 2001 and 8.6% the following quarter. In the first quarter of 2009, the economy declined 9.9%. Singapore pulled through, as did the world, despite what many called “unprecedented” crises.To be sure, Thursday’s numbers are inauspicious, particularly in a landscape cluttered with downgrades. Few economists anticipate the pandemic causing anything less than a global recession. Morgan Stanley tips a drop of 30.1% in U.S. GDP during the second quarter; Goldman Sachs Group Inc. expects a dip of 1% for the world in 2020.But there’s plenty Singapore is doing to stave off the worst of outcomes. The government, praised at home and abroad for its response to the virus, has been frank with its citizens, and has responded with ample fiscal stimulus and the promise of more to come. An easing by the central bank appears all but certain next week. The mix of fiscal and monetary policy is correct.For a city reliant on tourism, Singapore’s steps to curb the flow of people also shows seriousness. Short-term visitors have been barred while citizens and residents returning are required to self-isolate. Bars and cinemas will close. Yet schools remain open and there's no lockdown or state of emergency resembling that in Malaysia, the Philippines or parts of Indonesia. Authorities are trying to thread the needle. To its credit, the death toll is among the lowest in the Asia region.Since its inception, Singapore has been a locus of capital flows, trade and international labor markets. What happens to the world's major commercial powers is often reflected in its economic data. With much of the global economy powering down, it will be tough for Singapore to push ahead.This downturn is unique in that the world's major economies have all been dented at more or less the same time. China and Japan, two of Singapore’s biggest trading partners, are trying to restart after effectively grinding to a halt. Whether the U.S. is open for business next month or next quarter, America will be slower to restart than Asian powers.In the past, bounces in the U.S. and China’s unstoppable growth trajectory helped Singapore regain its footing. With China in a long-term slowdown before the virus outbreak, that will be difficult to replicate. But, in time, both poles will revive, albeit with scars. The tides of global economics have buffeted the city-state before. For signs of eventual recovery, look here first.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Investors might have noticed something bizarre during the stock market’s brutal selloff over the past two weeks. Gold, the commodity usually considered a haven asset, saw its price tumble by more than 10%, from $1,675 per ounce on Mar. 9 to $1,484 as of last Friday. Already, gold prices rallied this Monday and Tuesday after stabilizing a bit last week.
(Bloomberg) -- As the coronavirus roils markets, dealmakers are pulling out all their tricks to get transactions done. Auctions are accelerating in case conditions worsen. Sellers are choosing cash upfront over higher offers; and they’re doing it all over video chat while pets and children roam in the background.Welcome to M&A during a pandemic.“I think people are grasping the fact they need to do their jobs when everyone is home, and you have to deal with your family and chores,” said David Gandler, chief executive officer of FuboTV Inc., which agreed on Monday to merge with FaceBank Group Inc. “This is creating some chaos but not too much. We all understand the situation.”Indeed: Deals are still getting done, despite market turmoil whipsawing stocks, threatening liquidity and muddling valuation predictions. Companies have announced $67.5 billion of mergers, acquisitions and investments since the virus was deemed a pandemic on March 11, according to data compiled by Bloomberg.To be sure, that’s less than half the amount during the same period a year earlier, meaning 2020 could be one of the worst years for M&A in a decade if that pace holds. And some transactions coming together now will have been percolating since before the outbreak.Still, private equity buyers in particular have been snapping up assets despite the volatility. Buyout firm KKR & Co.’s 4.2 billion pound ($4.9 billion) deal for Pennon Group Plc’s waste-management arm Viridor Ltd. came together much faster than a regular auction, people familiar with the negotiations said.In the early stage of the process, KKR leapfrogged the request for non-binding bids and instead came to Pennon with a fully financed proposal on March 13, said the people, who asked not to be identified as the details aren’t public. KKR was betting that the company would prefer the certainty of a firm offer instead of risking additional bidding rounds. It was right: the parties entered negotiations within hours and announced a deal five days later.In the age of social distancing, most of the hurried negotiations took place over video conferences, the people said, with the associated technological glitches and unpredictable interruptions that those interactions entail.The team advising gold miner Endeavour Mining Corp. on its $690 million all-share deal for Semafo Inc., announced Monday, ran into similar issues, according to Jan Sanders, a partner with Endeavour’s advisory firm Gleacher Shacklock LLP.On-site visits and other physical due diligence took place before the pandemic ruled out in-person meetings, Sanders said. That made it possible for the deal to still come together.Special care was taken as Endeavour Chairman Michael Beckett is 83 years old and so considered higher risk if he were to catch the virus, CEO Sebastien De Montessus said in an interview.“What’s going to be challenging, to be frank, will be if we need to start the integration by video conference,” De Montessus said. “That’s unprecedented.”For some advisers, working from ‘home’ doesn’t always mean exactly that. With financial hubs such as London and New York City at the center of national outbreaks, dealmakers are leaving big cities for more remote locations. One top bulge-bracket M&A banker said he’s fled London to work from the coast of Cornwall, while a U.S. private equity executive has holed up on a friend’s farm.Goldman Sachs Group Inc.’s co-head of investment banking, Gregg Lemkau, is logging on from Hawaii, according to a tweet he sent Monday. Though his remote workstation has a great view, Lemkau is grappling with being six hours behind his New York-based colleagues.Accelerated AuctionPrivate equity firm Nordic Capital’s recent agreement to buy U.K. eye-treatment provider SpaMedica shows how it’s becoming a buyer’s market. Nordic won an accelerated sales process because the seller determined it had the best chance of closing the deal, according to people familiar with the matter.“For a long time we’ve been in a seller’s market,” said Chris Abbinante, a partner with law firm Sidley Austin LLP, which wasn’t involved in the SpaMedica deal. “In the current environment, I expect that dynamic to shift.”For example, on some deals bidders are adding so-called earnouts, or clauses that give sellers more money after the deal closes if the target company hits certain performance metrics. Long popular in the energy and technology industries they’re now popping up in other sectors to bridge pricing expectations, dealmakers said.FaceBank and FuboTV executives wrapped up their final rounds of negotiations last week on Zoom, the popular video conferencing application from Zoom Video Communications Inc., according to FaceBank CEO John Textor.They signed a deal on Thursday and debated delaying the announcement.“The merger timeline is now,” Textor said in an interview. “When you get through all of that work, the last thing you want do is leave an attractive transaction on hold. Even before the pandemic, windows open and shut all the time.”(Updates with remote work situations in 13th paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- In response to the coronavirus pandemic, many state and local governments have shut down restaurants and other businesses, and some have issued orders for people to stay home. These measures will eventually suppress the virus but come at a huge cost to the economy. Forecasters expect gross domestic product to fall by as much as 30% in the second quarter, a much steeper drop than ever happened during the Great Recession. Jobless claims will be in the millions.President Donald Trump, seeing these economic costs, has declared that he wants the shutdowns ended by Easter (April 12). In a recent briefing, Trump declared that the U.S. “will be back in business pretty soon,” and that the country “wasn’t built to be shut down.”A small handful of commentators have expressed similar sentiments. Former Goldman Sachs Chief Executive Officer Lloyd Blankfein has called for many workers to return to their jobs after “a very few weeks.” Longtime Republican policy advisers Arthur Laffer and Stephen Moore have made similar recommendations.Trump, obviously, is taking these calls seriously. But his plan to reopen by Easter would only make matters worse.True, Trump doesn’t have the authority to rescind the shutdowns and shelter-in-place orders that state and local government have issued, but he could push the Centers for Disease Control to advise reopening businesses by Easter. Some Republican governors, mayors and state legislatures might follow Trump’s advice and reopen.This not only would be a huge mistake, it probably would be ineffective. As my colleague Michael Strain points out, letting people go back to work now wouldn't simply restore the economy to its former health. The disease would come roaring right back. Infections would soar in city after city, overwhelming the health-care system. Mass panic would be enough to keep people huddled in their homes, possibly for months, causing restaurants, stores and other businesses to go bankrupt anyway. The economy would still take a huge hit, but now many more people would die.How many people? It’s hard to say, but the numbers might be large. The website covidactnow.org, which has been endorsed by a number of public-health experts, suggests that the death toll without shelter-in-place orders will be in the millions. That’s in line with the predictions made by a group of British experts at Imperial College London. The reasoning is that as caseloads rise and hospitals are swamped, access to crucial life-saving therapies such as mechanical ventilators and antibiotics (to fight secondary infections) will halt, sending the death rate -- which with proper treatment is probably about 1.3% -- soaring.Some have attempted to put a price tag on this death toll, using figures of as much as $10 million per life. There have also been suggestions to use quality-adjusted life years, which would reduce the cost estimate because most of the people who die of coronavirus tend to be older. But this sort of cold calculation -- which in a twist resembles the “death panels” that conservatives have warned would be a result of socialized medicine -- leaves out a number of important aspects of the question.First, it’s not clear that societies actually value lives at a certain dollar amount when making decisions. The sweeping response to terrorism, or the strict safety regulations for air travel, have garnered substantial public support despite probably not being able to pass this sort of cost-benefit calculation in terms of lives saved.Second, these calculations tend to be very good at estimating economic numbers but bad at anticipating human costs. Even if coronavirus doesn’t kill you, it can do lasting damage to your lungs. This sort of permanent injury could be incorporated into cost-benefit models, but it often isn’t. And then there’s the small but real possibility that if left unchecked, the virus could mutate into a much deadlier form, as the Spanish flu of 1918-19 may have during its catastrophic second wave. Economists have long known that so-called tail risks such as these should loom large in cost-benefit analyses, but somehow this fact rarely makes it into pundits’ back-of-the-envelope calculations.For all of these reasons, most economists themselves have not been recommending an end to shutdowns. Instead, they have urged the federal government to broaden its economic support for businesses and households.So how long will shutdowns last? China’s lockdowns began reducing new infections after a few days and cut infections to a relatively low level after about three weeks. But confirmed cases tended to lag true infections by one to two weeks. So it will probably be almost two more weeks before the U.S. can know if its much less restrictive shutdowns are having a similar effect, and a month or more before Americans can start coming out of their houses. Because shelter-in-place orders have only been in effect for a few days, this means Easter is probably at least two weeks too soon.Furthermore, Americans won’t be able to come out of their houses safely until their cities and states have test-and-trace programs in place. These are the systems successfully used by South Korea and other countries to suppress viral outbreaks quickly. They require a big investment in widespread symptom screening, large-scale rapid testing, contact tracing and strict isolation of infected individuals.Test-and-trace systems can work in the U.S., but they will take a lot of investment and concerted government action to put in place. If the Trump administration wants to get Americans back to work as quickly as possible, it should focus on developing high-quality testing systems in every city and state during the next month. Otherwise, the country could be in and out of shutdown for a very long time, and the economic collapse will drag on longer than it otherwise would.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Gold extended its rally on fresh waves of stimulus measures, with Goldman Sachs Group Inc. saying bullion’s probably at an inflection point and it is time to buy.The precious metal is rising along with risk assets, amid renewed hopes that the U.S. Congress will pass a spending package that, together with the Federal Reserve’s massive stimulus program, could ease the impact from the coronavirus.The traditional haven is seeing a resurgence after declining over the last two weeks, when investors had favored the dollar and sold the precious metal to raise cash. Goldman said the Fed’s move would help alleviate the funding stress that’s driven gold lower, and investors would now pivot to focus on the expansion of its balance sheet, just as they did in 2008. Goldman also highlighted the rise in deficits in developed economies, as well as “issues around the sustainability” of European monetary union, according to a note.Spot gold climbed as much as 4.2% to $1,618.20 an ounce, before paring some of the gains. Futures in New York surged to as high as $1,693.50 an ounce.“We believe this will likely lead to debasement concerns similar to the post-GFC period,” Goldman analysts including Jeffrey Currie and Mikhail Sprogis wrote in the March 23 note, referring to the global financial crisis. “Accordingly, we are likely at an inflection point where ‘fear’-driven purchases will begin to dominate liquidity-driven selling pressure, as it did in November 2008.”Other precious metals also extended gains. Silver was up 4% by 12:01 p.m. in London and platinum rose 6.8%. Palladium jumped as much as 16%, the biggest intraday increase since 1998. South Africa, which accounts for 75% of the world’s platinum and 38% of palladium supply, said it will close its mines for 21 days as part of a nationwide lockdown.Goldman reaffirmed its 12-month target for bullion to advance to $1,800 an ounce; spot gold hasn’t traded at that level since 2011, the year prices hit an all-time high. The lift from the Fed’s move would also offset the negative impact of weaker emerging-market demand for bullion, the bank said.There was also a vote of confidence in bullion from veteran investor Mark Mobius. The haven’s recent sell-off alongside risk assets such as stocks and oil was a sign of pure panic, with investors selling everything as the pandemic spread, Mobius told Bloomberg TV in an interview.“I think it’s a mistake,” he said. “People should have gold and this may be a good time to increase holdings in gold -- in fact I’m thinking that myself.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
U.S. stock index futures jumped 5% to their daily upper trading limit on Tuesday, rebounding from a brutal coronavirus-driven selloff on signs that Washington was nearing a deal on a $2 trillion economic rescue package. The S&P 500 and Dow Jones indexes closed about 3% lower on Monday, as a rise in U.S. infections and lockdown in several states overshadowed historic measures by the Federal Reserve to boost credit in the economy. The benchmark S&P 500 has now lost about $10 trillion in value since hitting a record high last month.
(Bloomberg) -- Goldman Sachs Group Inc. and JPMorgan Chase & Co. are demanding that managers of collateralized loan obligations put up more cash to finance the deals after prices on the underlying corporate debt went into a freefall.The banks provide financing facilities called warehouses, which CLO managers use to buy risky debt known as leveraged loans before they package and sell them as bonds. JPMorgan and Goldman, which are among the biggest providers of warehouse financing on CLOs that have market-value triggers, demanded the extra collateral after average loan prices tumbled last week, according to people familiar with the matter, who asked not to be identified discussing a private matter.Wall Street banks have roughly $10 billion to $12 billion of exposure to the CLO warehouses, according to analysts at Wells Fargo & Co. The managers have come under pressure as loan prices have tumbled to about 76 cents on the dollar, eroding first-loss protections. With mark-to-market warehouses, the onus is on investors in the riskiest part of the CLO, the equity, to decide whether to put in more collateral or cash to raise the assets’ weighted average value above a required threshold. Some equity investors may choose to cut and run. Often, the CLO manager is also the equity investor.Representatives for Goldman and JPMorgan declined to comment. Other banks have also sent around such notices, another person familiar said.Only a handful of managers still have mark-to-market warehouses, meaning that while they may come under pressure from the drop in most leveraged loan prices to distressed levels, mass liquidations are unlikely.Most CLO warehouses have no covenant triggers based on the secondary trading levels of their portfolio and low loan prices can simply freeze buying of new loans.Warehouse financing is a critical part of the CLO-formation process and there are at least 60 of the facilities.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The U.K. will go into lockdown after Prime Minister Boris Johnson ordered sweeping measures to keep people from leaving their homes for at least three weeks.Governors of Michigan, Massachusetts, West Virginia and Wisconsin implemented stay-at-home policies. The Federal Reserve announced a second wave of initiatives to support the U.S. economy after Democrats blocked the Senate from advancing a rescue plan.Deaths in Italy, the epicenter of the outbreak in Europe, slowed for a second day. Germany was ready to approve aid to Italy, and Chancellor Angela Merkel’s first coronavirus test came back negative. Key Developments:Cases top 372,000 and 16,000 dead: Johns Hopkins tallyCrisis in aviation industry deepensIOC member says Olympics will be postponedCVS to hire 50,000 workers to meet demandCases in New Jersey rise almost 1,000 overnight to 2,844Fed’s Bullard says U.S. unemployment may hit 30% in 2QRhode Island postpones its presidential primary from April 28 to June 2Subscribe to a daily update on the virus from Bloomberg’s Prognosis team here.Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts. For analysis of the impact from Bloomberg Economics, click here. To see the impact on oil and commodities demand, click here.Florida Orders Self-Isolation for Travelers From N.Y., N.J. (5:34 p.m. NY)Florida Governor Ron DeSantis said he will issue an executive order making it mandatory for all arrivals from New York and New Jersey to self-isolate for two weeks upon entering the state.Trump Administration May Reopen Obamacare Exchange (5:20 p.m. NY)The Centers for Medicare and Medicaid Services is considering reopening enrollment for health insurance under the Affordable Care Act in response to the outbreak. Americans who don’t currently have coverage may see if they qualify for “special enrollment periods” if they’ve lost their job or have been subject to other life-changing circumstances, a CMS spokesperson said.CMS is working closely with the states and health plans to assess other necessary actions to ensure Americans have coverage and access to services during the pandemic, the spokesperson said. Boris Johnson Puts U.K. on Three-Week Lockdown (4:38 p.m. NY)U.K. Prime Minister Boris Johnson approved radical measures to ban all unnecessary movement of people for at least three weeks. Police will break up gatherings and have the power to fine individuals who break the tough new laws. Shops selling non-essential items, playgrounds, libraries and places of worship will be closed.Read the full story hereWork to Begin on Hospital at Javits Center (3:33 p.m. NY)Construction will begin this week to turn the Jacob K. Javits Convention Center in Manhattan into a 1,000-bed hospital, New York Governor Andrew Cuomo said.The main showroom of the center will be broken up into four 250-bed hospitals each about 40,000 square feet in size, Cuomo said at the center. The state is hoping to add an additional 1,000 beds at the center for less-intensive medical care, for a total of 2,000 new beds, Cuomo said.New Jersey, too, expects to increase patient capacity and is asking the Federal Emergency Management Agency to operate four pop-up hospitals, a step that has support from President Donald Trump, Governor Phil Murphy said.Read the full story hereFrance Advises Against Test Drug (3:03 p.m. NY)As deaths climbed almost 30% in France, Health Minister Olivier Veran said the government recommends against prescribing the anti-malaria drug hydroxychloroquine or using it for anything other than severe cases. France is participating in a multi-country study looking at the efficacy of four experimental treatments, including hydroxychloroquine.New Deaths Fall in Italy for Second Day (2:27 p.m. NY)Italy reported 601 new deaths from the coronavirus on Monday, posting a decline for a second day, as the country enters its third week of lockdown measures designed to keep the spread of the disease in check.Total cases in the country rose to 63,927, civil protection officials said, while the hard-hit Lombardy region around Milan, which accounts for about half of the nation’s infections, registered a decrease in the number of hospitalized virus patients, top health official Giulio Gallera said Monday.Read the full story hereIMF Predicts Recession (1:30 p.m. NY)The International Monetary Fund said it expects a global recession this year that will be at least as bad as the downturn during the financial crisis more than a decade ago, followed by a recovery in 2021.Nearly 80 countries have asked the Washington-based IMF for emergency finance, Managing Director Kristalina Georgieva said in a statement Monday following a conference call of Group of 20 finance ministers and central bankers. Georgieva said the fund strongly supports extraordinary fiscal actions already taken by many countries and welcomes the moves of major central banks to ease monetary policy.“Even more will be needed, especially on the fiscal front,” she said.Read the full story hereBoeing Closes Washington Plants (1:15 p.m. NY)Boeing Co. is temporarily shuttering its Seattle-area factories, compounding hurdles for a company already reeling from the grounding of its top-selling plane.The shutdown will begin March 25 and last 14 days. The company will conduct deep cleaning at affected sites and establish “rigorous criteria for return to work.”The closing leaves Boeing with just one fully functioning jetliner factory.Read the full story hereGermans Offer to Help Stricken Italy (1:10 p.m. NY)German officials are ready to help Italy get through the coronavirus pandemic and are prepared to support an emergency loan from the euro area’s bailout fund.The preferred option in Berlin would see Italy granted an enhanced credit line by the European Stability Mechanism with minimal conditionality, according to a German official with knowledge of the government’s thinking. While Chancellor Angela Merkel has said she’s happy to discuss Italy’s request for jointly issued coronavirus bonds to shore up euro members’ finances, the official said Germany isn’t ready to move forward with that idea.Read the full story hereDow Loses Gains Under Trump (12:02 p.m. NY)The Dow Jones Industrial Average has lost more than 30% of its value in just over a month, wiping out all of its gains since Donald Trump was elected on Nov. 8, 2016. The S&P 500 Index isn’t too far behind, while the Nasdaq Composite Index’s return remains in the green -- albeit on a downward trajectory with the rest.New Cases May Be Slowing in Germany (10:25 a.m. NY)Germany’s public health authority has seen a trend toward the exponential growth in new cases flattening out and expects to see by Wednesday whether this is the case, Lothar Wieler, president of the authority, said at a press conference earlier on Monday. “I am optimistic.”RKI repeated that many local health agencies don’t report over the weekend and that those numbers will trickle in during the course of the week.NYC May Lose $6 Billion in Tax Revenue (10:21 a.m. NY)New York City is “staring down a fiscal emergency” and may lose as much as $6 billion in tax revenue over the next 15 months, as the the Covid-19 epidemic shuts down a broad swath of the city’s economy, comptroller Scott Stringer said.Moderna’s Vaccine May Reach Some This Fall (10:10 a.m. NY)Moderna Inc.’s experimental vaccine for the new coronavirus could be available to a select few as soon as this fall. That’s ahead of expectations for a commercial launch in another year.Stephane Bancel, the biotech’s chief executive, told Goldman Sachs representatives on Friday that the vaccine could be made available to a few, potentially health-care workers under emergency-use authorization. Moderna has been working with the National Institute of Allergy and Infectious Diseases on the vaccine and just started testing in humans earlier this month.A potential vaccine isn’t expected to be commercially available for at least a year. Moderna is also scaling up manufacturing so that the company can produce millions of doses each month, according to a company statement.GE Aviation to Cut About 10% of U.S. Workforce (9:27 a.m. NY)GE Aviation plans to cut about 10% of its total U.S. workforce, its chairman said in a message to employees. There will be a temporary lack of work impacting approximately half of its U.S. maintenance, repair and overhaul employees for 90 days.Merkel Is Tested, Awaiting Results (9:16 a.m. NY)German Chancellor Angela Merkel was tested today for the coronavirus and is awaiting the results, her spokesman said at a news conference. He said the chancellor is in good health and continuing with her work. The German leader quarantined herself at home on Sunday following earlier contact with a doctor who later tested positive.The government has signed off on taking on billions in new debt as part of an unprecedented package totaling 750 billion euros ($800 billion).Trump Weighs Easing Curbs (8:50 a.m. NY)President Trump began talking privately late last week about reopening the nation, despite the swiftly rising number of coronavirus cases and against the advice of health professionals, because he’s worried about the economic damage from an extended shutdown, according to people familiar with his thinking.He earlier retweeted several posts calling for healthy people to return to work after 15 days of precautions. “The fear of the virus cannot collapse our economy that President Trump has built up,” says a post retweeted by Trump. “Flatten the curve NOT the Economy,” another says.Russia Expects 10% Slump This Year in Worst-Case Scenario (8:45 a.m. NY)Russia’s economy could shrink by as much as 10% this year if the spread of coronavirus requires a full lockdown, according to a worst-case scenario being discussed by the government.Forecasts show the contraction could be around 5%-10%, according to people familiar with the estimates, who asked to remain unidentified since discussions are ongoing. That would be as deep as the 7.8% contraction Russia suffered in 2009.Singapore Sees Largest Daily Increase (8:35 a.m. NY)Singapore reported its biggest one-day jump in coronavirus infections with 54 new cases, of which 48 were imported. Earlier, Malaysia confirmed 212 new cases, the biggest daily jump, bringing the total to 1,518 despite imposing a lockdown that began on March 18.U.K. Won’t Hesitate to Take Further Measures (8:22 a.m. NY)U.K. will take further measures “quickly” to restrict movement of people if there’s evidence current steps aren’t working, Prime Minister Boris Johnson’s spokesman, James Slack tells reporters on a conference call on Monday.The U.K. economy will contract at least 10% in the first half of the year as the fallout form the coronavirus hammers output, according to Bloomberg Economics’ estimates. In a report released Monday, senior U.K. economist Dan Hanson said support provided by the Bank of England and the Treasury should prompt a turnaround in the second half of the year if the outbreak is contained by the summer.H&M Warns It May Need to Cut Thousands of Jobs (8:22 a.m. NY)H&M has already temporarily closed all stores in several of its biggest markets including Germany and the U.S. and during the last few days also closed all its stores in the U.K. That means 3,441 of the group’s 5,062 stores are now shuttered. The Swedish fashion retailer said its response to the crisis is “likely to affect tens of thousands of employees in all parts of the business” across the globe.U.K. in Talks to Increase Delivery of Virus Tests (8:05 a.m. NY)The U.K. is in talks with firms to boost delivery of coronavirus tests to front line health and social care staff, the FT reports, citing two people familiar. Sending test kits to people at home is also being explored, the paper said.Fed Signals Unlimited QE (8 a.m. NY)The Federal Reserve on Monday announced a second wave of initiatives, including buying an unlimited amount of bonds to keep borrowing costs low and setting up programs to ensure credit flows to corporations and state and local governments.The Fed will buy Treasuries and agency mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy,” and will also buy agency commercial mortgage-backed securities, according to a statement.CVS Health to Hire 50,000 (8 a.m. NY)CVS Health Corp. said it plans to hire 50,000 people in full-time, part-time and temporary jobs to tackle surging demand for drugstore services and health goods. The drugstore chain said it plans to hire store workers, delivery drivers, distribution center workers and customer service employees. Rival drugstore chain Walgreens Boots Alliance Inc. on Sunday said it plans to hire more than 9,500 people, while Amazon.com Inc. plans to hire 100,000, and Walmart Inc. 150,000.New Jersey Unemployment Has ‘Gone up Dramatically’ (7:41 a.m. NY)New Jersey unemployment has “gone up dramatically” as a result of the coronavirus pandemic, Governor Phil Murphy said. The state will report labor statistics today, according to an interview on CNN. States need a “huge amount” of direct cash assistance, and they’re also looking for equipment and other help from the federal government, Murphy said.(A previous version of this story corrected new number of cases in New Jersey.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.