Translate

Search This Blog

Search Tool




Asian Markets at Close Report

European Markets at Close Report

Jun 21, 2016

DealBook Today's Top Headlines - June 21, 2016: Why Uber Keeps Raising Millions | Credit Suisse Chief Contends With Rising Tensions | Caution and Uncertainty Before Britain's Referendum

 
Tuesday, June 21, 2016
TODAY'S TOP HEADLINES
By AMIE TSANG
WHY UBER KEEPS RAISING MILLIONS It feels like almost every other week there is a new headline about Uber raising more money, Andrew Ross Sorkin writes in the DealBook column.


If you add up all the money the company has raised since it started in 2009, it is on its way to amassing $15 billion and has a valuation of $68 billion - all while remaining a private company.

When Amazon went public in 1997, it had raised $54 million and was valued at $438 million.

Uber has to finance its efforts to grab market share in China and India, but it is also trying to mark its territory. Every time Uber raises another $1 billion, investors find it less attractive to back one of Uber's rivals: Didi Chuxing, Lyft, Gett, Halo, Juno. It is a war of attrition, to starve the competition of cash.

Uber's efforts seem to have had the opposite effect so far, spawning a long list of rivals, but as the smaller competitors run out of cash, venture capitalists should be less inclined to put up more money.

This arms race comes against the backdrop of falling valuations and there is a rush to take the money while it is still available. Bill Gurley, a venture capitalist who has a stake in Uber and sits on its board, warned investors about unicorns seeking funds: "You are not being invited to a special dance, you are being approached because you are the lender of last resort."

The question is whether investors will look at Uber's balance sheet and throw up the white flag. It still has formidable competition from Didi, the market leader in China, which just raised $7 billion. And some of the same investors that have backed Uber are also backing Didi, including BlackRock and Tiger Global. (Some may be hoping that Uber might one day merge its Chinese operation with Didi.)

Uber's most recent fund-raising effort - focused on the leveraged loan market - aims to avoid diluting the current base of shareholders and having to sell itself at an even higher valuation. It will have to pay up for the financing, but if its valuation continues to grow, it would be a bargain compared with the value of the equity. Uber is hoping to sell debt with a yield of 4 or 4.5 percent.

The question between now and the probable initial public offering in a few years is whether it will have starved all of its competitors along the way.
CREDIT SUISSE CHIEF CONTENDS WITH RISING TENSIONS Tidjane Thiam, Credit Suisse's chief executive, is on the defensive again after its stock sank again, Landon Thomas Jr. reports in DealBook.

Mr. Thiam sent employees a memorandum that said hedge funds were betting against Credit Suisse shares with the view that Mr. Thiam would have to raise more capital from investors. Mr. Thiam, who regularly sends updates to employees, called these concerns unfounded.

Shares in Credit Suisse have sunk by more than 50 percent since Mr. Thiam took over last summer. Last week, its stock touched a new low of 11.8 Swiss francs, or about $12.25, but recovered a little and closed at 12.83 Swiss francs on Monday.

Mr. Thiam has been blunt about how the bank needed to shift from its model of riskier, capital-intensive trading and banking business toward providing financial services to wealthy clients in fast-growing emerging markets. But his brusque manner and the perception that he is not making the same sacrifices that he asks of the bankers have created tension.

Mr. Thiam has repeatedly said that he would not backtrack as a result of investment bankers' complaints. He met last week with David Herro of Harris Associates, which owns nearly 10 percent of Credit Suisse. Mr. Herro endorsed the new strategy, but did say it was important for Mr. Thiam to get his message across internally. "If change is going to happen, it has to be done with good communication and empathy toward employees," he said.

Mr. Herro also said that he saw no need for Credit Suisse to raise new funds.
ON THE AGENDA Janet L. Yellen, the chairwoman of the Federal Reserve, will testify on monetary policy before Congress at 10 a.m. The Financial Stability Oversight Council meets at 4:30 p.m. at the Treasury Department.
CAUTION AND UNCERTAINTY BEFORE BRITAIN'S REFERENDUM Asian markets rose tentatively on Tuesday, after a rally on Monday prompted by growing expectations that Britain would vote to remain in the European Union, Reuters reports. The sterling hit a seven-week high against the dollar, while markets were more mixed. Investors were still wary ahead of the vote on Thursday and the testimony of Janet L. Yellen before Congress.

Stocks had soared on Monday after opinion polls and betting markets suggested it was more likely that Britain would stay within the European Union. Investors dumped haven assets like gold and the British pound rose sharply, The Associated Press reports.

There may have been swings in the markets, but in the run-up to the vote, many have chosen to keep their powder dry. Investors have been reluctant to invest in new London listings and companies have delayed announcing their intention to file until after the vote, Chad Bray reports in DealBook.

Britain has been one of the most active markets for initial public offerings in Europe in recent years, but uncertainty about the referendum has kept many on the sidelines. Edward Sankey, the co-head of equity capital markets for Europe, the Middle East and Africa at Deutsche Bank, said he expected little activity in new stocks for a while. European companies have warned that a so-called Brexit could affect their listing plans.

Hedge funds have opted to shy away from making big bets on the referendum, The Financial Times reports. Many have already had a painful first half of the year and are unwilling to risk further losses. With the outcome so uncertain, many large hedge funds have reduced their overall market exposure rather than trying to predict a result.

One hedge fund manager controlling a multibillion-dollar fund told The Financial Times that traders were finding it hard to find a clear edge: "There is a lot of defensive positioning," he said. "Most people think it is too close to call. It would be crazy to make any large bets on it due to the poor start to the year."

Stan Miranda, the chief executive at Partners Capital in London, said his fund had put on smaller trades and expected sterling to fall as much as 15 percent on an exit vote.

George Soros, who earned fame with a bet against the British pound in 1992, warned in The Guardian that a vote to leave the European Union would be worse than "Black Friday" for Britain, referring to the day in September 1992 when it dropped out of the European Exchange Rate Mechanism because the pound fell lower than its minimum level. Mr. Soros argued that while the devaluation was healthy then, a large devaluation would be much more damaging for Britain now.

"A vote for Brexit would make some people very rich - but most voters considerably poorer," he wrote.

It may look as if there are big profits to be made, but industry changes mean that even market makers could struggle to ensure normal service, Swaha Pattanaik writes in Breakingviews. Banks and stock exchanges have warned their clients about difficult and volatile trading conditions, in which there will be risk of gaps in the pricing of assets. There are also potential problems with one-way traffic and illiquidity. There has been huge appetite for options to sell the pound and little for ones to buy it. The skewed demand leaves market makers saddled with more risk and they have reacted by pushing up the price of such options.

Banks have also scaled back risk limits, partly because of postcrisis regulations, and market makers have been scarred by the sharp moves that came after the Swiss National Bank's decision to ditch its currency cap in 2015.

The Financial Times reports that banks in the United States taking part in the Federal Reserve's annual stress tests had included the risk of Brexit in their submissions. Concerns have mounted on Wall Street about Brexit and a KBW report estimated that if Britain left the European Union, it would knock 5 to 9 percent off the profits of the five largest banks in the United States next year.

All this makes life a lot less fun - and profitable - for traders today than in 1992, Ms. Pattanaik writes.
MERGERS & ACQUISITIONS »
Paul Singer, founder of the hedge fund Elliott Management.
Elliott and Private Equity Firm to Buy Dell's Software Unit The buyers are getting a mix of software makers that Dell acquired over the years, including SonicWall and Quest Software.
McKesson Said to Consider Merging I.T. Unit With Change Healthcare McKesson, one of the largest drug distributors in the United States, has held talks about merging its information technology unit with the health care technology company Change Healthcare to create a company that could be worth more than $10 billion, Reuters reports, citing people familiar with the matter.
Walmart Sells E-Commerce Site in China, Forging Strategic Alliance Walmart is selling its Chinese online business, Yihaodian, to China's No. 2 e-commerce site, JD.com, in an effort to bolster its presence there.

For the latest updates, go to NYTimes.com/DealBook
ADVERTISEMENT
PRIVATE EQUITY »
LVMH-Backed Private Equity Fund Sued by Former Executive L Capital Asia Advisors, an Asian private equity unit backed by LVMH, is being sued by Uday Mehra, a former executive, who says that he was fired for revealing wrongdoing at the business.
Carlyle Group Hires Former Johnson & Johnson Executive to Advise Asia Buyout Fund Carlyle Group has hired Jesse Wu, a former senior executive at Johnson & Johnson, to advise on investing in China's health care sector, as a series of measures attracts more private equity firms to the industry.
VENTURE CAPITAL »
Deutsche Börse to Create Financial Technology Venture Fund Deutsche Börse, Europe's largest exchanges operator, plans to make investments in emerging technology and offload some of its existing minority shareholdings in start-up companies.
LEGAL/REGULATORY »
The European Union accused RJR Nabisco and several associated companies of being part of a sprawling cigarette smuggling enterprise.
Supreme Court Sides With R.J. Reynolds in RICO Case The Supreme Court ruled 4 to 3 that the tobacco company could not be sued for money-laundering by the European Union under an American racketeering law.
Martin Winterkorn resigned as Volkswagen's chief executive in September, after the Environmental Protection Agency publicly accused the company of manipulating results of emissions tests.
Former Chief of Volkswagen Is Under Investigation The chief, Martin Winterkorn, who resigned in September, is the first member of the carmaker's top management to be identified as a suspect in the emissions scandal.
Eliot Spitzer, the New York State attorney general, sued Marsh & McLennan Companies in 2004, accusing the company of of bid-rigging and price-fixing.
Message to Workers Under Scrutiny: Cooperate or Get Fired A recent court decision makes it clear that a company under government investigation can fire uncooperative employees with little fear of reprisal, Peter J. Henning writes in White Collar Watch.
A training room at a Flipkart, an e-commerce company in India, in August.
Hoping Jobs for India Follow, Modi Clears Investors' Path The changes are the most significant loosening of market restrictions since India began economic liberalization, with foreigners now permitted to own 100 percent of many companies.
AR-15 rifles at the gun library at the Bureau of Alcohol, Tobacco and Firearms National Tracing Center in Martinsburg, W.Va.
Supreme Court Turns Away Challenge to Connecticut Ban on Semiautomatic Weapons The justices on Monday refused to hear a Second Amendment challenge to gun-control measures put in place after the Sandy Hook Elementary School massacre.
Harvard Shifts More Investment to Outside Money Managers Harvard University trimmed staff at its $37.6 billion endowment and will redirect more investment to outside money managers while the chief executive is on temporary medical leave, Bloomberg reports, citing an internal email.