Penguin Random House’s $2.2bn Simon & Schuster deal off

BY Richard Summerfield

Paramount Global, the owner of Simon & Schuster, has abandoned its plan to sell the unit to Bertelsmann, the German media group which owns Penguin Random House.

The deal, initially announced in November 2020, had been called into question by the 31 October ruling of Judge Florence Pan of the US District Court for the District of Columbia, which noted that the US Department of Justice (DOJ) had shown that the deal could substantially lessen competition “in the market for the U.S. publishing rights to anticipated top-selling books”.

Initially, Bertelsmann announced its intention to appeal the decision, however that appeal has now been scrapped, a move welcomed by the DOJ. Jonathan Kanter, assistant attorney general, said the department “is pleased that Penguin Random House and Simon & Schuster have opted not to appeal”. As a result of the deal’s collapse, Penguin Random House will have to pay a $200m termination fee to Paramount.

Paramount intended to divest itself of Simon & Schuster as it was a non-core asset, and use the funds raised from the deal to pay down debt. However, the proposed sale attracted scrutiny from the Biden administration, which sued to block it in November 2021 on the grounds it would lead to less competition for blockbuster books and lower advances for authors who earn $250,000 or more. “Penguin Random House and Simon & Schuster are frequently invited by agents to bid in auctions for the rights to these books, and they are often the final two bidders. Competition between Penguin Random House and Simon & Schuster has resulted in higher advances, better services, and more favorable contract terms for authors,” the DOJ said.

“The book business has been part of Bertelsmann’s identity for 187 years, and this will not change: Penguin Random House is part of the Global Content Strategy, one of our five strategic priorities,” said Thomas Rabe, chairman and chief executive of Bertelsmann. “Bertelsmann plans to achieve annual growth of five to ten percent in this area – organically, but also through acquisitions. In total, Bertelsmann will invest between five and seven billion euros in the growth of its businesses in the years ahead as part of its Boost Plan. Significant investment funds will be available to Penguin Random House as well.”

The future of Simon & Schuster remains uncertain. In a statement, Paramount Global noted that: “Simon & Schuster remains a non-core asset to Paramount, as was determined in early 2020 when Paramount conducted a strategic review of its assets. Simon & Schuster is a highly valuable business with a recent record of strong performance; however, it is not video-based and therefore does not fit strategically within Paramount’s broader portfolio.”

News: Penguin Random House scraps $2.2 bln deal to merge with Simon & Schuster

PTC to acquire peer ServiceMax in $1.5bn transaction

BY Fraser Tennant

With the aim of expanding its portfolio of product lifecycle management offerings, US computer software firm PTC is to acquire its peer, cloud-based software platform company ServiceMax, in a transaction valued at approximately $1.5bn.

Under the terms of the definitive agreement, the transaction will be funded in two stages, with $808m paid upon closing and $650m paid in October 2023. The transaction will be funded with cash on hand, borrowings under PTC’s existing credit facility, and a new $500m committed term loan.

The acquisition is expected to strengthen PTC’s closed-loop product lifecycle management offerings by extending the digital thread of product information into downstream enterprise asset management and field service management capabilities.

“The addition of ServiceMax will realise a key part of PTC’s closed-loop PLM strategy,” said Jim Heppelmann, president and chief executive of PTC. “The PLM capabilities PTC has long offered to engineering and manufacturing departments provide the system of record for the digital definition of any product configuration. ServiceMax will complement this by providing the system of record for monitoring and servicing product instances after they leave the factory and move into customer use.

Partners since 2015, PTC and ServiceMax both support manufacturers of complex, highly configured products for the medical device, industrial products, aerospace and related verticals. These manufacturers view field service as a strategic part of their businesses to maintain product performance, extend their products’ lifecycles, increase customer satisfaction, drive revenue growth and expand profitability.

“ServiceMax and PTC have a longstanding relationship rooted in the common profile of our customers, the natural synergies of our products and a shared understanding of the importance of product data at different stages of the lifecycle,” said Neil Barua chief executive of ServiceMax. “PTC has a strong and consistent track record of success, and now following the growth and innovation we have achieved during our partnership with Silver Lake, we are excited for the ServiceMax team to strengthen the service offerings of PTC’s digital thread and closed-loop PLM portfolio.”

Global private equity firm Silver Lake had bought a majority stake in ServiceMax in 2019.

Subject to the satisfaction of regulatory approval and other applicable closing conditions, the transaction is expected to close in early January 2023.

News: Software firm PTC to buy peer ServiceMax for about $1.5 bln

United Rentals to acquire Ahern Rentals for $2bn

 BY Fraser Tennant

In a combination that will add significant branch capacity and expertise to serve customers in strategic US geographies, equipment rental company United Rentals, Inc. is to buy its smaller rival Ahern Rentals, Inc.  

Under the terms of the definitive agreement, United will acquire the assets of Ahern for approximately $2bn in cash – the latest in a series of acquisitions by the Stamford, Connecticut-based company in recent years.

The board of directors of United Rentals has unanimously approved the agreement.

The largest equipment rental company in the world, United Rentals has an integrated network of 1343 rental locations in North America, 13 in Europe, 27 in Australia and 19 in New Zealand. In North America, the company operates in 49 states and every Canadian province. The company’s approximately 22,100 employees serve construction and industrial customers, utilities, municipalities, homeowners and others.

“Our acquisition of Ahern Rentals supports our strategy to deploy capital to grow the core business and drive shareholder value,” said Matthew Flannery, chief executive of United Rentals. “We view ourselves as the ideal owner of these assets within our network, as customers will benefit from the combination of the two organisations moving forward together. We are leveraging our competencies in larger-scale M&A to augment both our near- and long-term earnings power.”

Founded in 1953 and based in Las Vegas, family-owned Ahern Rentals is the eighth largest equipment rental company in North America, with approximately 2100 employees and 106 locations in 30 states serving approximately 44,000 customers in the construction and industrial sectors.

“I am proud of what we’ve built at Ahern Rentals over nearly seven decades, and I am extremely pleased that the combination with United Rentals will take the business forward in this next chapter of growth,” said Don Ahern, chief executive of Ahern Rentals. “I want to thank our employees for driving the results that make this transaction possible. This is a strong outcome for both organisations and our customers.”

The transaction is expected to close before the end of 2022, subject to customary conditions.

“Our integration playbook is underway so we can prepare the acquired branches to take full advantage of our systems and operational capabilities and gain from our employee and customer-centric culture,” concluded Mr Flannery. “I look forward to welcoming our new team members upon the closing of the acquisition.”

News: United Rentals to buy Ahern Rentals for $2 bln as tools demand jumps

Cryptocurrency exchange FTX files for Chapter 11 protection

BY Richard Summerfield

Cryptocurrency exchange FTX has filed for Chapter 11 bankruptcy protection in the district of Delaware, the company said in a statement on Twitter. In addition to FTX, its affiliated crypto trading firm Alameda Research and about 130 of its other companies are also included in the filing.

In addition, the company’s founder Sam Bankman-Fried resigned has chief executive, but will “remain to assist in an orderly transition”, the company said. John J. Ray III has been named the company’s new chief executive. Mr Ray said bankruptcy protection will give FTX the chance to “assess its situation and develop a process to maximize recoveries for stakeholders”.

The company’s collapse came shortly after rival cryptocurrency exchange Binance walked away from a proposed acquisition of FTX, a move which left the company scrambling to raise about $9.4bn from investors and rivals amid a rush of customers withdrawing funds from the exchange.

FTX, a top five cryptocurrency exchange before its implosion, is reported by the Financial Times to have $9bn of liabilities and $900m in liquid assets.

The collapse of the company will likely have repercussions for the wider crypto industry, with growing calls for greater regulation of the space.        

FTX’s collapse has been as fast as it has shocking. Last week, crypto news website CoinDesk published an article based on a leaked financial document from Mr Bankman-Fried’s hedge fund, Alameda Research, which suggested that Alameda’s business was on unsure financial footing; namely, that the bulk of its assets are held in FTT, a digital token minted by Alameda’s sister firm, FTX. This was alarming for investors, as the companies were, on paper at least, separate. Alameda’s disproportionate holdings of the token, however, suggested the two were much more closely linked. Binance then announced it was liquidating $580m worth of FTX holdings, a move which sparked a rush of drawdowns that FTX did not have the cash to facilitate.

There will be implications for investor groups, such as the Ontario Teachers’ Pension Plan, which said it invested $95m in both FTX International and its US entity “to gain small-scale exposure to an emerging area in the financial technology sector”. In a statement Thursday, the plan noted that any loss on its investment would have “limited impact” as it represents less than 0.05 percent of its total net assets.

The collapse of the company will also be felt elsewhere in the crypto space. FTX, prior to its filing, had performed a lender-of-last-resort role for crypto firms that were struggling after a marked decline in the digital asset market since November last year – a period over which the collective value of crypto assets fell from $3 trillion to less than $1 trillion.

News: FTX to file for U.S. bankruptcy protection, CEO Bankman-Fried resigns

Once again Galeria Karstadt Kaufhof files for insolvency

BY Richard Summerfield

German department store chain Galeria Karstadt Kaufhof has filed for insolvency for the second time in the last two years.

The company, the last major German department store group still in operation, has announced plans to close more than 40 of its 131 remaining branches. The announcement was made by the group’s chief executive Miguel Müllenbach, in an interview with German newspaper Frankfurter Allgemeine Zeitung (FAZ).

Mr Müllenbach noted that to save the company, the number of its branches had to be “cut by at least a third” and that compulsory redundancies would be inevitable. In a letter to the group’s employees, Mr Müllenbach explained that the company needs to divest itself of branches that, given the slowdown in consumption and rising inflation and energy costs, “would no longer be able to operate profitably in the near future”. This is the only way to avoid the group’s total financial collapse. Galeria currently employs 17,000 people and operates across 97 German cities.

Prior to its insolvency filing, the company had negotiated with the federal government for additional financial assistance, on top of the €680m it had already received.

The company will file for what is known in Germany as protective administrative insolvency, Germany’s equivalent of the US Chapter 11 proceedings. Galeria filed for this kind of insolvency back in April 2020, at the beginning of the coronavirus (COVID-19) pandemic. As a result of this first filing, the company was forgiven more than €2bn worth of debt and 4000 jobs were lost. Galeria’s struggles predated the pandemic, however. In 2019, the company recorded losses of €78m. The company was acquired that year by Austrian real estate company, Signa, for an estimated €1bn.

After the 2020 filing, around 40 locations were closed. Other stores were renovated though and the original restructuring plan was to completely remodel 50 to 60 of the remaining department stores, bringing them back to profitability.

The size of Galeria’s chain of stores has been deemed unsustainable. According to German real estate weekly Immobilienzeitung, only 30 of Galeria’s 131 branches have reassuring prospects.

The company has enjoyed strong support from the German state. Galeria has received in excess of €680m from the government, which argued that the company’s stores have an important place in city centres. However, there is some doubt as to whether the company could be saved with government help – and whether this is even desirable given the current economic climate.

News: Galeria Karstadt Kaufhof Files for Second Insolvency, Inside Two Years