Term Sheet — Monday, July 27
Cyrus Sanati here filling in for Dan who remains missing. He was last seen in the streets of Boston holding a sign that read: "The End Is Near: Raise as much capital as you can before it's too late!!" - whatever that means. If you see Dan, please don't approach him - just email me at email@example.com or hit me up via twitter @BeyondBlunt and I'll send out a team of summer interns to pick him up.
• Clinton goes after the "Activists"
In a bid to pump up her progressive cred, Democratic Presidential hopeful, Hillary Clinton went after Wall Street on Friday in a speech taking on the evils of what she calls "Quarterly Capitalism." By that Ms. Clinton is referring to the quarterly earnings cycle, which she says is "neither legally required nor economically sound." She believes the fact that companies have to report four times a year makes them short-term focused and thus unable to adequately invest in long-term projects.
So how does Ms. Clinton hope to tackle this issue and force companies to think more long term?
By hiking taxes on capital gains, of course!
Specifically, Ms. Clinton proposed extending the time by which investors can claim a discount on their earnings on an investment from the current one-year holding period to a six-year sliding scale system that rewards longer-term holders with progressively lower tax rates.
"The current definition of a long-term holding period—just one year—is woefully inadequate," Clinton said on Friday. "That may count as long term for my baby granddaughter, but not for the American economy. It's no way to run a tax system."
Is this really the best way to tackle the nearsighted investment view of corporate America? Or is this simply an attack on activist shareholders in a bid to raise funds for the Treasury?
Every CEO will tell you they hate having to "make their numbers" every quarter. It's a regulatory pain in the butt and can lead some companies to focus solely on the quarter instead of the long term. But which companies? Energy companies, for example, invest in megaprojects that take a decade or more to come online. They won't see a return on their investment for years, yet, somehow, their investors have allowed them to make long term bets. A tech company, like Apple is on the opposite side of the spectrum. Instead of plowing its tons of cash into R&D, the company is just sitting on it. Is it because Apple is being a slave to the quarterly earnings cycle?
Every company is different. Their management and their investor base will determine how they plan for the future. Apple was bullied by Carl Icahn to return money back to shareholders. Was that wrong of him? Did that cause Apple to stop investing in new products? Doubtful. Icahn started his bullying because Apple's cash pile was growing - it was the company that made him react, not the other way around.
Apple's decision to hold on to their cash has more to do with not wanting to have its foreign earnings taxed by the US government then it does because it needs to meet its numbers - or because of Carl Icahn's bullying. The company hasn't come out with an innovative product in years, not because it is a slave to the earnings cycle, but because of a serious deficit in creativity and leadership with the company's management. A change in the capital gains tax won't make Apple innovative - it'll just cause investors to seek their returns elsewhere.
What do you think? Tweet at me @BeyondBlunt
• Now the Economist goes on the block...(half of it, at least).
Pearson confirmed over the weekend that it has entered into talks to dispose of its 50% stake in the Economist Group, which publishes the Economist magazine. The moves comes after the company agreed to sell the Financial Times last week to Nikkei, the Japanese business publication, for $1.3 billion.
• Chinese Stock Market crash?
Is China's stock market crashing or just correcting? Today's move to the downside seemed pretty crash-worthy. The Shanghai Composite ended down 8.5% on Monday, which is the worst daily percentage fall for the equity index since February of 2007. Meanwhile, the small-cap ChiNext index, which some call the "Chinese Nasdaq," ended down 7.4% on the day.
Since it peak back in June, the Shanghai Composite has now lost 28% of its value. That's a pretty steep decline.
But compare this to the great crash of 1929. It lost 13% on Black Monday and 12% on Black Tuesday. By 1931, the market had lost 89% of its value.
The Shanghai Composite is still up 10% on the year. I think it will take a much deeper dive before we have to worry about a major #ChineseMeltdown
• Bright spot for European VCs?
Europe-based venture capital firms hoovered up more than €2 billion ($2.2 billion) in cash during the second quarter of 2015, according to Dow Jones VentureSource. That's double what was raised in the first quarter and 30% more than what was raised during the same time last year. Around half of the cash raised went into "early stage startups" with around one-third allocated to later-stage startups.
THE BIG DEAL
• Teva Pharmaceuticals, the big Israeli drug maker, acquired the generic pharmaceuticals unit of Botox kingpin Allergen for $40.5 billion in cash and stock. The deal will make Teva the largest maker of generic drugs in the world. Teva subsequently dropped its $40 billion bid for rival generics maker Mylan, which the drug maker had been pursuing in vain since for several months.
Teva anticipates 2016 pro forma (combined) revenues will be approximately $26 billion, while the pro forma EBITDA will come in at around $9.5 billion. Fortune's Geoffery Smith writes that the deal:
"...is a response to increasing pressure from cash-strapped health systems around the world that are trying to keep costs under control. It’s also the biggest ever acquisition by an Israeli company. It’s also another dramatic twist in the battle for control of Botox-maker Allergan, which agreed in March to be acquired by Actavis Inc. ACT 0.00% rather than fall into the hands of Canada’s Valeant Pharmaceuticals VRX -0.76% . Valeant’s bid had been backed by activist investor Bill Ackman. Actavis subsequently renamed itself Allergan." READ MORE
AND (at least to me)
• McGraw Hill Financial Inc. acquired SNL Financial, the banking news and data service, from New Mountain Capital for around $2.23 billion. McGraw Hill, the parent of the Standard & Poor's ratings agency, is positioning itself to be a powerhouse in the data analytics business. New Mountain took a majority stake in SNL back in 2011 in a deal that valued SNL at $450 million - that's quite a nice return for a media and analytics company.
VENTURE CAPITAL DEALS
• DraftKings, a digital daily fantasy sports gaming company, secured a whopping $300 million in a Series D funding round led by FOX Sports. Also participating in the round were several major sports leagues, including, Major League Baseball, the National Hockey League and Major League Soccer; as well as several sports organizations, including The Madison Square Garden Company and Legends. Existing investors, such as Atlas Venture, also participated.
DraftKings says it will use the additional funding to continue building out its web and mobile products, launch its product internationally and explore new opportunities for vertical expansion. The company is expected to award well over $1 Billion in prizes in 2015, up from approximately $300 Million in 2014
This is big business, people. If you want to know more, check this piece I wrote on the explosion of fantasy sports in Fortune last month.
• Oncobiologics, the privately-held biopharmaceutical company, announced the closing of a $31 million financing round. The company says it will use the proceeds to continue development of its proprietary biosimilar platform along with the advancement of its preclinical and clinical programs. The funding round was led by a new investor, Perceptive Advisors, who was joined by several participating new investors, including: Cormorant Global Healthcare Master Fund, Longwood Capital Partners, and venBio Select Fund. Other investors included Proximare Lifesciences Fund, OSSB Pharma Fund and MIH Fund. Citigroup and Jefferies LLC advised Oncobiologics on the transaction. www.oncobiologics.com
• Southridge Partners , an institutional investor, has entered into a new $5 million equity purchase agreement with Fremont, California-based Andalay Solar. www.andalaysolar.com
• AdvisorLoans raised $75 million in commercial conventional lending capital to finance qualified "advisors" for a variety of business purposes, including acquisitions, partner buyouts, working capital, debt consolidation, and recruiting. The company provides mortgage, commercial, consumer, and SBA lending services. www.advisorloans.com
PRIVATE EQUITY DEALS
• North Castle Partners says it made a "growth investment" in SmartyPants Vitamins, which makes gummy vitamins and supplements for kids (and adults). CircleUp Growth Fund provided a co-investment alongside North Castle. North Castle Partners is a private equity firm focused on consumer businesses that promote healthy, active and sustainable living, This deal represents the firm's eighth investment in the dietary and nutritional supplements industry. The terms of the investment were not disclosed. www.smartypantsvitamins.com
• China Railway Signal & Communication Corp. said it will be going public in a bid to raise $1.8 billion from an initial public offering in Hong Kong. The Beijing-based company is apparently the the world’s largest provider of train traffic-control systems. The massive boom in Chinese railway construction makes this a hot stock. Citigroup, Morgan Stanley and UBS are joint sponsors of the listing, while Macquarie Group. will act as financial adviser. READ MORE
• Vizio, the LCD TV and electronics maker, says it is going public in a bid to raise $172.5 million. Bank of America Merrill Lynch, Deutsche Bank Securities and Citigroup were listed as underwriters for the offering. READ MORE
• Rooya, an Egyptian real estate developer, could go public in the third quarter of this year, in an IPO worth as much as one billion Egyptian pounds ($128 million), Pioneers Holding Chief Executive Waleed Zaki told Reuters.
• The Carlyle Group is exiting out of its investment in Telecable, the Spanish telecommunications company, for €640 million. The sale was to an AIM-listed investment vehicle recently launched by two former Virgin Media executives, Eamonn O’Hare, the former CFO, and Robert Samuelson. READ MORE
• Clayton, Dubilier & Rice is exiting its investment in roofing products distributor Roofing Supply Group, in a strategic sale to Beacon Roofing Supply worth $1.1 billion. Roofing Supply shareholders will receive $286 million in cash and $291 million of Beacon stock. Beacon will refinance about $565 million of Roofing Supply's net debt.
• First Majestic Silver acquired SilverCrest Mines in a all-stock deal valuing SilverCrest's equity at approximately C$154 million. The offer represents a premium of approximately 37% to SilverCrest's 30-day volume-weighted average price on the Toronto Exchange. READ MORE
FIRMS & FUNDS
• Village Capital launched a $13.2 million peer-selected fund aimed at making 100 investments in 75 "peer-selected" companies from all over the globe. The fund made the announcement at the Global Entrepreneurship Summit in Nairobi Kenya. What is "peer selected," you say? Glad you asked, here's how it works. www.vilcap.com
MOVING IN, UP, ON & OUT
• Blackstone CFO Laurence Tosi is leaving the private-equity firm to become the CFO of Airbnb . Why on earth would he do that? Well, it isn't (just) because of the nice weather out in Cali. While the terms of his compensation package hasn't been confirmed, I've heard and the WSJ speculates that he was led astray from papa Schwarzman with promises of equity in the the internet startup. Tosi made $15 million at Blackstone last year, which is a pittance to what he could make if AirBnb (successfully) goes public. Latest private placement deals value the internet lodging middleman at $25.5 billion. I know, please stop laughing. To put that into perspective, that's roughly equal to the market cap of Hilton Worldwide. Let's see if he can get the company out the door... before it's too late.
• Blackstone named Michael Chae as the private equity behemoth's new CFO. He has been with the firm for a respectable 18 years in various leadership roles, the company said in a memo on Friday. Chae headed media and telecom and international activities in Private Equity and was Head of Asia for the firm. He was also overseeing the spin-off of Blackstone's Advisory Businesses. He has served on the board of Hilton and numerous other public and private company boards.
His education isn't typical for that of a CFO, but it is super impressive nonetheless. Mr. Chae graduated from Harvard College, received an M.Phil in International Relations from Cambridge University and a J.D. from Yale Law School. Don't see any finance per se, but, meh, who needs all that schooling in numbers, right?
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