Monday, May 15, 2023

Apollo rejects $2.13B Wood takeover / M&A impeded by economics, antitrust / China boosts U.S. business sales

Plus, Vice files for bankruptcy

Inside Business

For May 15, 2023

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Apollo Global Management has opted not to make an acquisition bid of $2.13B for John Wood Group, which has caused Wood shares to fall 41%. Apollo's unwillingness to overpay for assets played a role in the choice.

More:

In a statement, Wood expressed confidence in its strategic course and unaltered expectations for the entire year.
Due to lenders' reluctance to offer considerable leverage, the American global private equity firm needed help obtaining financing for the purchase.
Due to Apollo's caution, it had already missed other U.K. acquisition opportunities.
The British multinational engineering and consulting business reiterated its 2023 projection when it announced its first quarter profits last week, with performance anticipated to be weighted towards the year's second half.

What happened:

In the first quarter of 2023, the world's M&A volume dropped to its lowest level since 2013. With regulatory and funding considerations in flux, the market is experiencing unpredictable and challenging conditions. More expensive financing has replaced cheap loans, and competition regulators in the U.S., Europe, and the U.K. are exercising their authority in ways that challenge conventional antitrust theory. Due to worries about future market competition and expanding markets, antitrust authorities are preventing some mergers, including Microsoft's acquisition of Activision Blizzard and Illumina's acquisition of Grail.

Why it matters:

The number of U.S. megadeals declined by 48% in 2022 due to a combination of macroeconomic, regulatory, and geopolitical factors, resulting in a 40% decrease in deal values. Prospective acquirers find it challenging to proceed confidently with mergers due to the fluctuating regulatory environment and the unpredictability of future market conditions. Antitrust authorities want to avoid dominance in several industries, so businesses must demonstrate that a merger won't hurt competition now and in the future.

Where to see the impact:

As long as there are still regulatory concerns and high-interest rates, the M&A market may struggle. The shareholders of public firms and private equity purchasers, who have a lot of cash on hand, might help the M&A market recover. Companies may explore M&A agreements to react to shifting market dynamics due to ongoing technological disruption and decarbonization, but uncertainty could cause a pause. According to PwC's 26th Annual Global CEO Survey, though 73% of CEOs are pessimistic about global economic growth, 60% plan to pursue M&A in 2023 despite potential volatility.

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The pandemic-related recovery in China is helping American businesses, but travel retail has yet to recover to its pre-pandemic levels. Same-store sales at eateries like Starbucks increased by 3%, while Yum China witnessed an 8% rise in the first quarter.

More:

With first-quarter adjusted earnings of $169M, MGM Resorts International achieved a rapid return to profitability at its Chinese casinos.
In its Asia-Pacific sector, Airbnb saw a substantial YoY increase in the number of nights and experiences booked, notably in China.
The high-end skin-care line SK-II sales from Procter & Gamble increased in China, except for the retail travel market.
With consumer traffic returning to stores and additional flights to Hainan, Coty, the global leader in beauty products, reported a more than 30% boost in travel retail sales in China.

With $350M in assets and $834M in debt, Vice Media has filed for bankruptcy. As the business struggles to compete with Facebook and Google for advertising dollars, it is being sold to creditors for $225M, a stark reminder of the challenges faced by media startups with high valuations.

More:

The sale procedure, anticipated to be completed in the next two to three months, will allow the company to keep creating content.
Traffic on Vice's digital properties has been falling, and the company has previously fallen short of revenue targets.
A&E's TV joint venture and most of the company's foreign subsidiaries are not included in the Chapter 11 petition.

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As part of its entry into the U.S. sports betting industry, Fanatics has agreed to pay $150M to acquire PointsBet's U.S. business, giving it access to at least 15 states. Australia-based PointsBet will continue as a separate entity outside the U.S. The sale is pending a vote of PointsBet's shareholders, anticipated in late June.

More:

Fanatics intends to contribute to a portion of PointsBet's remaining cash burn.
PointsBet anticipates a loss of between $77M and $82M for the second half of the year.
Though it will no longer own equity in PointsBet, NBCUniversal will continue to hold shares of the Australian parent business.
Fanatics has a $31B private valuation and is developing a sports betting segment and growing its sports platform.

Vinfast, the electric car division of Vingroup, will become the first Vietnamese firm to ever list on the U.S. stock exchange after merging with a blank-check corporation for $23B. The announcement caused its shares to increase by 6.2%.

More:

The second half of the year is anticipated to see the completion of the merger with Hong Kong-based Black Spade Acquisition Co.
Vinfast's enterprise value is estimated at around $27B when debt is included.
Vinfast's offering may increase the value for its stockholders, but it also makes it more expensive than rival companies like Rivian, Nikola, Nio, and BYD.
Pham Nhat Vuong, the creator of Vingroup, has a net worth of $3.9B and is the wealthiest person in Vietnam.

Quick Hits:

Jack Bowles, CEO of British American Tobacco, has resigned abruptly after the firm agreed to pay a $635M fine for breaching U.S. sanctions on North Korea.
French prosecutors are investigating whether Apple deliberately planned to make smartphones obsolete by limiting their repairability.
3M fired its president, Michael Vale, who has been employed there for over 30 years, due to "inappropriate personal conduct and a violation of company policy."
ExxonMobil has settled a 20+ year lawsuit brought by Indonesian villagers over human rights abuses committed by guards hired to protect their operations.

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Knowledge Hub

Term of the Day

Demand elasticity: Demand elasticity is calculated by measuring the percentage change in quantity demand for a good or service in response to a change in price.

Question of the Week

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Shriram Jeevakumar

Freelance Writer

Shriram is pursuing Master’s in Business with Marketing at Warwick Business School. He worked as a Senior Consultant in Tech and Political Consultancies before his Masters. He is passionate about Tech, Marketing, Strategy, Anthropology and Politics. He is also the Postgraduate Ambassador for Warwick Business School.

This newsletter was edited by Aaron Crutchfield

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