Return to growth: new UK GDP figures allay recession fears – for now

BY Fraser Tennant

The UK economy grew by 0.5 percent in May 2022 after a decline of 0.2 percent in April, according to new figures from the Office for National Statistics (ONS).

Economists had expected zero growth in May alone, and in the three months to May, amid the UK’s cost of living crisis.

The ONS reports that the services sector was responsible for the majority of the increase in growth, with a particular emphasis on human health and social work activities. A surge in GP appointments has also aided the UK economy, helping to prop up health service activity, despite a huge drop in test and trace vaccinations.

Less positively, the ONS figures provide proof that the UK consumer base is on shaky ground, with consumer-facing services such as retail trade, food and beverage, travel and transport, and entertainment and recreation, seeing output fall 0.1 percent. In addition, consumer-facing services were 4.7 percent below pre-coronavirus (COVID-19) levels.

“While it is positive to see a small nudge upwards in overall GDP, these figures are hardly shooting the lights out,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown. “It will take something strong to fully reverse fears the UK’s heading towards a recession in the coming year. Until there is a clear path out from political turmoil, the energy crisis, cost-of-living squeeze and the UK’s far-reaching productivity problems, it is hard to see where the economy will find its take-off point.”

Sharing the fear that the risk of recession has only been temporarily allayed is James Brown, a managing partner at Simon Kucher & Partners, who suggests that UK businesses may respond to a looming recession by raising prices.  

“It is looking increasingly likely that a meaningful price adjustment will be one of the few tools remaining at the disposal of UK businesses,” he concludes. “While the surprise increase in growth comes as welcome news, the possibility of the UK entering a recession during the second half of 2022 and beyond still looms large.”

News: UK economy returns to growth aided by travel rebound and haulage

Legal fight looms as Musk abandons Twitter takeover

BY Richard Summerfield

Elon Musk has sought to abandon his $44bn takeover of social media giant Twitter Inc.

“Mr Musk is terminating the merger agreement because Twitter is in material breach of multiple provisions of that agreement, appears to have made false and misleading representations upon which Mr Musk relied when entering into the merger agreement, and is likely to suffer a Company Material Adverse Effect,” wrote lawyers for Mr Musk to Twitter.

Mr Musk has claimed that Twitter had failed to respond to multiple requests for information on fake or spam accounts on the platform, he also noted that he was walking away from the bid because Twitter had removed a number of high-ranking executives and one-third of the talent acquisition team, which was in contravention of the company’s obligation to “preserve substantially intact the material components of its current business organization”.

To walk away from the transaction, as per the merger agreement filed with the US Securities and Exchange Commission (SEC), Mr Musk must be able prove that Twitter breached the original agreement or risk being sued for a $1bn breakup fee.

In response to Mr Musk’s claims, Twitter said that it planned to sue Mr Musk to complete the $44bn merger and that it was “confident” it would prevail. “The Twitter board is committed to closing the transaction on the price and terms agreed upon with Mr Musk and plans to pursue legal action to enforce the merger agreement,” said Bret Taylor, chair of the board at Twitter, in a tweet.

The ‘on again, off again’ relationship between Twitter and Mr Musk, at one point the company’s largest shareholder, has played havoc with the company’s share price in recent months. Mr Musk announced an agreement to acquire the company on 25 April, having offered to purchase all of the company’s shares for $54.20 each; the company’s stock is currently trading at around $36.81 per share. Twitter’s share price fell by 7 percent in extended trading after the announcement that Mr Musk was planning to walk away from the deal.

The likelihood of the deal being completed has been in question for some time. On 13 May, Mr Musk said the deal was “on hold” while he awaited details supporting Twitter’s assertion that fewer than 5 percent of its users were spam or fake accounts. Mr Musk claimed that the true figure was 20 percent and said Twitter would need to show proof of the lower number for the purchase to go through.

News: Twitter vows legal fight after Musk pulls out of $44 billion deal

Voyager Digital files for Chapter 11 bankruptcy protection

BY Richard Summerfield

Amid considerable difficulty within the cryptocurrency market, Voyager Digital, a cryptocurrency broker, has filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court of the Southern District of New York.

Last week, Voyager, which is based in New Jersey, suspended all withdrawals and trading and said “volatility and contagion” in the crypto markets had forced it into a Chapter 11 filing.

The wider cryptocurrency market has experienced a significant slump of late. Today, the industry which was valued at $3 trillion at its peak last November, is now valued at less than $1 trillion, with the decline accelerating in May when a multibillion-dollar cryptocurrency, Terra, collapsed.

In its Chapter 11 bankruptcy filing on Tuesday, Voyager estimated that it had more than 100,000 creditors and somewhere between $1bn and $10bn in assets and liabilities. Alameda Research – a cryptocurrency trader – was Voyager’s largest single creditor, with unsecured loans of $75m. Alameda holds a stake of over 9 percent in Voyager.

“This comprehensive reorganization is the best way to protect assets on the platform and maximize value for all stakeholders, including customers,” said Stephen Ehrlich, chief executive of Voyager. “Voyager’s platform was built to empower investors by providing access to crypto asset trading with simplicity, speed, liquidity, and transparency. While I strongly believe in this future, the prolonged volatility and contagion in the crypto markets over the past few months, and the default of Three Arrows Capital (‘3AC’) on a loan from the Company’s subsidiary, Voyager Digital, LLC, require us to take deliberate and decisive action now. The chapter 11 process provides an efficient and equitable mechanism to maximize recovery.”

Last week, Voyager said it had issued a notice of default to Singapore-based crypto hedge fund 3AC for failing to make payments on a crypto loan totalling over $650m. 3AC filed for Chapter 15 bankruptcy in a federal bankruptcy court in the Southern District of New York last Friday, in hopes of shielding its US assets after a court in the British Virgin Islands reportedly ordered the firm into liquidation.

According to the statement announcing Voyager’s filing, the company’s reorganisation plan, upon implementation, would resume account access and return value to customers. Under the terms of the plan, which is subject to change given ongoing discussions with other parties, and requires Court approval, customers with crypto in their accounts will receive in exchange a combination of the crypto in their accounts, proceeds from the 3AC recovery, common shares in the newly reorganised company, and Voyager tokens. The plan contemplates an opportunity for customers to elect the proportion of common equity and crypto they will receive, subject to certain maximum thresholds.

News: Crypto lender Voyager Digital files for bankruptcy

Kohl’s and Franchise Group deal dead

BY Richard Summerfield

Following a strategic review, department store chain Kohl’s Corp has announced that it has decided against selling itself to the Franchise Group.

According to a statement from Kohl’s announcing the decision, the company’s board and management team remain committed to creating value for shareholders and are exploring further opportunities in the near and long term. Kohl’s board also reaffirmed its commitment to executing a $500m accelerated share repurchase programme, to commence immediately following the company’s Q2 earnings results. This programme is part of Kohl’s previously announced $3bn share repurchase authorisation.

The company also confirmed that its board also currently reviewing other opportunities to unlock shareholder value, including re-evaluating monetisation opportunities for portions of the company’s real estate portfolio.

“Throughout this process, the board has been committed to a deep and comprehensive review of strategic alternatives with the goal of selecting the path that maximizes value for shareholders," said Peter Boneparth, chair of the board at Kohl’s. “After engaging with more than 25 parties in an exhaustive process, FRG emerged as the top bidder and we entered into exclusive negotiations and facilitated further due diligence. Despite a concerted effort on both sides, the current financing and retail environment created significant obstacles to reaching an acceptable and fully executable agreement. Given the environment and market volatility, the Board determined that it simply was not prudent to continue pursuing a deal.”

He continued: “As always, the Board remains open to all opportunities to maximize value for shareholders, and we look forward to actively engaging with our shareholders as we move forward to ensure we are considering their perspectives in our plans. Kohl’s is a financially strong Company that generates substantial free cash flow and has a clear plan to enhance its competitive position and improve performance over the long term. Highlighting the Board’s confidence in the Company’s strategic plan, the Board reaffirms its commitment to an accelerated share repurchase program following the Company’s Q2 earnings results announcement.”

In June, the companies announced they had entered an exclusive three-week negotiation period, with Franchise Group expected to acquire Kohl’s in an all-cash deal worth $60 per Kohl’s share held, valuing the company at around $8bn. The bid of $60 per share constituted a premium of around 42.5 percent to Kohl’s closing price on the last day of trading before the deal was announced.

Kohl’s has faced significant activist unrest in recent months, with activist investors pressing for the sale of the company and a shakeup of the board.

Kohl’s recently lowered its profit-and-revenue forecasts for the full year, which is also believed to have further complicated the potential deal with Franchise Group. Kohl’s sales for the three-month period to 30 April 2022 fell to $3.72bn from $3.89bn in 2021.

News: Kohl's abandons talks to sell itself to Franchise Group

Siemens acquires Brightly in $1.6bn transaction

BY Fraser Tennant

In its latest move to broaden its software credentials, German engineering group Siemens – through its Smart Infrastructure (SI) business – is to acquire US-based software-as-a-service (SaaS) provider Brightly Software in a deal valued at $1.6bn.  

Once complete, the acquisition is expected to elevate Siemen’s to a leading position in the software market for buildings and built infrastructure by adding Brightly’s well-established cloud-based capabilities across key sectors, including education, public infrastructure, healthcare and manufacturing.

The transaction also accelerates the build-up of Siemens’ SaaS business and enables Siemens and Brightly together to deliver superior performance and sustainability.  

“This acquisition is another important step in our strategy as a focused technology company,” said Roland Busch, president and chief executive of Siemens AG. “By combining the real and digital worlds, we provide our customers with the technology required to drive their digital transformation to create the most sustainable and human-centric buildings.”

According to Siemens, it is estimated that 7 billion people will live in urban areas by 2050 – a trend which, when coupled with the urgency of tackling climate change, highlights the need for smart and sustainable communities and infrastructure.

“With digital transformation and sustainability high on agendas, coupled with a challenging regulatory environment, the need for connected assets and real-time asset data is driving greater demand for intelligent asset management solutions across the globe,” said Kevin Kemmerer, chief executive of Brightly. “We see an incredible opportunity to combine our knowledge and software with Siemens to accelerate the digitalisation and optimisation of the built environment. “

Headquartered in North Carolina, Brightly has around 800 employees serving around 12,000 customers, mainly across the US, Canada, the UK and Australia. The company has been owned by private equity firm Clearlake Capital since 2019.

The transaction is subject to regulatory approvals, with closing expected by the end of 2022.

Mr Kemmerer concluded: “Together, we have the experience to help clients across the world transform the performance of their assets and create safe, sustainable and thriving communities.”

News: Siemens to buy U.S. software company Brightly in $1.58 bln deal