FS struggling with compliance-driven tech, claims new report

BY Fraser Tennant

Regulatory compliance is the biggest single factor affecting the adoption of new technologies across the financial services (FS) sector, leaving firms vulnerable to cyber attacks and other risks, according to a new report by CMS.

In its ‘Technology Transformation’ survey of 85 senior counsel and risk managers across the FS sector, CMS found that risk managers remain engaged with digitalisation, citing the top drivers for adoption to be a response to regulatory requirements (40 percent), M&A (38 percent), customer demands (31 percent) and the adoption of transformational new technologies such as artificial intelligence (AI) (31 percent).

“The FS sector is at a crossroads, with traditional firms often having a vast number of legacy systems in place which are particularly difficult to replace or upgrade,” said Alexander von Bossel, a partner at CMS. “With technology becoming increasingly complex, technical failures, vulnerability to cyber attacks and the risk that these systems do not meet customer needs grow proportionally.”

The study also shows that the expected future risks are different to those FS firms face today. The FS sector is currently most concerned with risks related to compliance and regulation (73 percent), IT performance (62 performance) and cyber breaches and data security (51 percent).

The risks that FS firms expect to see in the future, however, include AI (56 percent), smart contracts (53 percent) and cloud migration (53 percent) – new technologies that are generally less well understood.

However, when it comes to addressing these risks, respondents cited internal resistance to change (54 percent), lack of in-house skills or expertise (52 percent) and lack of budgetary sign-off (49 percent) as the primary obstacles to minimising technology-related risks.

“FS firms may have no choice but to face the challenge of upgrading, but in addressing it, they will also reap the wider benefits of new technologies,” added Angela Greenough, a partner at CMS.

Ultimately, CMS finds that FS firms are at a real tipping point, with large incumbents eying smaller firms and FinTechs for their IP and skills to remain competitive, while considering upgrades to legacy systems.

Mr Von Bossel concluded: “Every sector faces emerging threats, but for FS firms, greater risks may lie in inaction rather than action.”

Report: Technology Transformation

Darling Ingredients acquires Gelnex in $1.2bn transaction

BY Fraser Tennant

In a move to boost production of collagen made from grass-fed cattle, US animal food manufacturing company Darling Ingredients Inc. is to acquire Brazilian collagen products maker Gelnex.

Under the terms of the definitive agreement, Darling will acquire all of the shares of Gelnex for approximately $1.2bn in cash.

With 11 state-of-the-art facilities on four continents around the world, Darling is the largest publicly traded company turning edible by-products and food waste into sustainable products, and a leading producer of renewable energy.

The company operates more than 250 plants in 17 countries and repurposes approximately 15 percent of the world's meat industry waste streams into value-added products, such as green energy, renewable diesel, collagen, fertiliser, animal proteins and meals and pet food ingredients.

“Driven by strong growth in demand for collagen products in the global health and nutrition market, we anticipate the collagen peptides market to double in the next five years,” said Randall C. Stuewe, chairman and chief executive of Darling Ingredients. “Gelnex is a well-run business and will be immediately accretive.”

Headquartered in Brazil with five facilities in South America and one in the US, Gelnex has the capacity to produce 46,000 metric tons of collagen products annually, which it exports to more than 60 countries around the world and employs about 1200 employees.

“Collagen is the most abundant protein naturally found in the body, and it plays an increasing role in the health and nutrition market by consumers seeking benefits to their hair, nails, skin, joints, bones and muscles," added Mr Stuewe. “Collagen products can be used in a broad range of applications, including powder blends, capsules, tablets, nutritional bars, drinks, dairy, confectionery and more.”

The transaction is subject to customary regulatory approvals and is anticipated to close in the first quarter of 2023.

Mr Stuewe concluded: “This acquisition will allow Darling to continue to grow its presence in the health and nutrition market and increases our production capacity for grass-fed bovine collagen in South America to help meet the future demand of our collagen customers worldwide.”

News: Darling Ingredients to buy collagen company Gelnex for $1.2 bln

Kroger agrees $25bn Albertsons acquisition

BY Richard Summerfield

US grocery firm The Kroger Co. has agreed to acquire Albertsons Companies, Inc. in a deal worth $25bn. The acquisition will create a grocery giant in the US.

Under the terms of the deal, Kroger will pay $34.10 for each Albertsons share, representing a premium of about 33 percent to the stock’s closing price last Wednesday, a day before media reports emerged of a deal between the two.

Kroger and Alberstons, already the number one and two standalone grocers in the US, will combine to create a firm with nearly 5000 stores across the country. The scale of the deal is likely to attract antitrust scrutiny, however, as federal regulators and critics express concern at the creation of a new supermarket mega power at a time of soaring food costs.

To tackle these concerns, the companies have already announced plans to divest some stores and Albertsons is prepared to spin off a standalone unit to its shareholders immediately before the deal’s close, which is expected in early 2024. The new public company is estimated to comprise of 375 stores.

Kroger said it expects to reinvest about half a billion dollars of cost savings from deal synergies to reduce prices for customers. An incremental $1.3bn will also be invested into Albertsons. Kroger will have to pay Albertsons $600m if the deal is terminated.

“We are bringing together two purpose-driven organizations to deliver superior value to customers, associates, communities and shareholders,” said Rodney McMullen, chairman and chief executive of Kroger. “Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores. This merger advances our commitment to build a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food and accelerates our position as a more compelling alternative to larger and non-union competitors.”

He continued: “As a combined entity, we will be better positioned to advance Kroger’s successful go-to-market strategy by providing an incredible seamless shopping experience, expanding Our Brands portfolio, and delivering personalized value and savings. We’ll also be able to further enhance technology and innovation, promote healthier lifestyles, extend our health care and pharmacy network and grow our alternative profit businesses. We believe this transaction will lead to faster and more profitable growth and generate greater returns for our shareholders.”

“We have been on a transformational journey to evolve Albertsons Cos. into a modern and efficient omnichannel food and drug retailer focused on building deep and lasting relationships with our customers and communities,” said Vivek Sankaran, chief executive of Albertsons. “I am proud of what our 290,000 associates have accomplished, delivering top-tier performance while furthering our purpose to bring people together around the joys of food and to inspire well-being. Today’s announcement is a testament to their success.”

Kroger is the largest supermarket operator in the US, with 420,000 employees and more than 2700 stores, including Ralphs, Harris Teeter, Fred Meyer, and King Soopers. Albertsons is the country’s second-largest supermarket company, with 290,000 employees and almost 2300 stores, including Safeway and Vons.

News: U.S. grocer Kroger carts away Albertsons for $25 billion but faces antitrust test

Vital Pharmaceuticals files for Chapter 11 protection

BY Richard Summerfield

Vital Pharmaceuticals (VPX) – the manufacturer behind the Bang Energy drinks brand – has filed for Chapter 11 bankruptcy protection in the Southern District of Florida, a move it claimed would allow it to reorganise and regain market share from domestic rivals.

VPX’s restructuring efforts are being supported by $100m of additional financing from the company’s syndicate lenders to help ensure operations continue uninterrupted during the restructuring process.

“We are excited about our future, and particularly the new distribution system that we have spent the better part of this year assembling,” said Jack Owoc, chief executive and founder of VPX. “Utilizing our new state-of-the-art decentralized direct store distribution (DSD) will allow Bang Energy to get back to our pre-Pepsi meteoric annual success of several hundred percent year over year growth.

“The primary objective of our new DSD network is to regain the massive market share we earned prior to Pepsi and continue to achieve double digit growth and progress vigorously beyond 20% market share in energy drinks,” he continued. “Bang Energy’s new DSD network will launch nationwide and be closer to 100% as it officially completes its exit from the Pepsi relationship this month. This will be a comprehensive transition with no impact to product availability.”

VPX has endured a difficult period of late. Recently, the company lost a lawsuit against Monster Beverage Corp. In September, the company was ordered to pay Monster nearly $293m for interfering with its rival’s dealings with retailers and falsely advertising the mental and physical benefits of Bang drinks. The filing brings Monster’s lawsuit against VPX to an immediate halt.

The brand was previously distributed by the carbonated soft drinks (CSD) giant PepsiCo, until a disagreement between the two companies ended with Mr Owoc claiming PepsiCo “engaged in a premeditated plan to destroy Bang from day one”. PepsiCo has since bought into another energy drinks company, Celsius Holdings.

Immediately prior to VPX switching to Pepsi in early 2020, Bang’s share of the energy drink market was roughly 9.7 percent. Under Pepsi’s distribution, roughly 3.4 percent of that market share was lost. At $200m per share point, that equates to $680 million in today’s energy drink market, according to a VPX statement. Bang Energy’s newly orchestrated and soon-to-launch direct DSD network currently covers nearly 95 percent of the US market.

In August, speculation was rife that another CSD company – Keurig Dr Pepper (KDP) – was in talks to buy the VPX, with a deal worth $2-3bn being suggested in the press. Mr Owoc later confirmed no deal was in the pipeline, adding he “would never sell Bang Energy” for that amount.

News: VPX Seeks Chapter 11 Protection as It Transitions to World Class Distribution Network

EIG buys Tokyo Gas’ Australian LNG portfolio for $2.15bn

BY Fraser Tennant

Marking the launch of a strategy to build a diversified, global integrated liquified natural gas (LNG) company, MidOcean Energy, a unit of private equity firm EIG, is to buy four Australian LNG projects from Tokyo Gas Co., Ltd in a transaction valued at $2.15bn.

The acquisition will see EIG acquire Tokyo Gas’ interests in Gorgon LNG, Ichthys LNG, Pluto LNG and Queensland Curtis LNG – integrated projects that span Australia’s western and eastern seaboard and are major suppliers of LNG to Asia.

The Tokyo Gas portfolio is expected to generate approximately 1 million tonnes per annum of LNG net to MidOcean, production that is underpinned by long-life reserves and a globally competitive cost structure.

The transaction is also in line with the Tokyo Gas Group’s Management Vision, ‘Compass 2030’, where Tokyo Gas continues to demonstrate leadership in the transition to net-zero CO2 emissions.

“Since 2003, our company has participated in five Australian LNG projects and expanded its business holdings in upstream LNG interests,” said Tokyo Gas in a statement. “Four of those projects, excluding the Darwin LNG project, will be transferred to MidOcean. “Under the Compass Action plan, our company will review its asset portfolio in order to allocate resources to growth areas.”

Tokyo Gas, Japan's biggest city gas supplier, did not disclose the terms of the transaction.

“The launch of MidOcean reflects our deep belief in LNG as a critical enabler of the energy transition and the growing importance of LNG as a geopolitically strategic energy resource,” said Blair Thomas, chairman and chief executive of EIG. “We believe this transaction provides MidOcean with a foundational portfolio of cost-advantaged integrated LNG assets in a low-risk jurisdiction, ideally positioned to supply key customers in Japan, Asia and across the globe for decades to come.”

During its 40-year history, EIG has committed over $41.5bn to the energy sector through over 387 projects or companies in 38 countries on six continents. EIG’s clients include many of the leading pension plans, insurance companies, endowments, foundations and sovereign wealth funds in the US, Asia and Europe.

The transaction is expected to close in the first half of 2023, subject to customary closing conditions, including Australian regulatory approvals.

De la Rey Venter, chief executive of MidOcean, concluded: “We see a number of opportunities to further expand MidOcean’s position in supplying LNG markets around the world and look forward to working with our new partners and customers.”

News: EIG unit to buy Tokyo Gas's stakes in Australian LNG projects for $2.15 billion