Weekly Banking Insight: Deal momentum, bond struggles and more

Greetings and welcome back to this weekly global investment banking update where we talk about the top transactions, themes, and narratives in the investment banking world.

This week saw a lot of confusion regarding the Fed rate cut expectations because of the inflation data and Middle East tensions while the ECB is still positive on a possible June cut. Deal activity however is gaining momentum as it seems the market is tired of waiting for clarity and adjusting to the uncertainty.

Bond struggles

Federal Reserve Chair Powell’s acknowledgment of lingering inflation concerns sparked bond sell-offs, pushing the 2-year Treasury yield to 5%. Investors recalibrated expectations on Fed rate cuts, with some policymakers considering rate hikes if inflation persists. Market volatility sharpened concerns over large hedge funds’ influence, particularly in the basis trade. Meanwhile, tensions in the Gulf, spurred by a missile strike on Iran, added to market jitters. Outside the US, central banks are contemplating rate cuts, but a hawkish Fed stance could complicate their easing efforts. Despite policy uncertainties, corporate bond issuance remains robust, testament to the strong demand and underwriting fees.

The Coventry Building Society to acquire Co-Op Bank for £780m

The Coventry Building Society has agreed to acquire the Co-operative Bank for £780m, potentially returning the private equity-owned lender to mutual ownership. This move, creating a merged entity with £89bn in assets, follows Nationwide’s acquisition of Virgin Money for £2.9bn. Despite the agreed heads of terms, completion is uncertain pending regulatory approval. Up to £125m of the acquisition price could be deferred based on Co-op Bank’s performance over three years. Coventry aims to expand its current account market share, branch network, and enter business banking through the merger, anticipating several years for full integration. CEO Steve Hughes views the deal positively, highlighting the financial stability and shared heritage of the acquired entity.

Concord Chorus takes over Hipgnosis Songs Fund for $1.4bn

UK music rights investment company, Hipgnosis Songs Fund, agrees to a $1.4bn takeover by US rival Concord Chorus, following a shareholder vote loss in October. Each Hipgnosis share is valued at 93p, a 30% increase, with top shareholders representing 29% support. Concord plans to integrate Hipgnosis’ catalog into its 1.2mn song portfolio. Blackstone, owning Hipgnosis Song Management, offers $1.24 per share, challenging Concord’s bid. The board considers options amidst concerns over valuations and debt. Blackstone’s offer could trigger a bidding war, potentially altering the fund’s management under new leadership.

International Paper acquired UK-based DS Smith for £7.8bn

US-based International Paper acquires UK competitor DS Smith in a £7.8bn deal, surpassing Mondi’s bid. DS Smith’s board recommends shareholders accept International Paper’s 415p per share offer, granting them a third of the combined entity. The move follows industry consolidation amid pandemic-driven parcel demand. International Paper plans a secondary listing on the London Stock Exchange. DS Smith’s directors commit to vote in favor of the transaction. Mark Sutton, International Paper’s CEO, views the merger as strategic for global packaging growth. The offer represents a 48% premium to DS Smith’s pre-Mondi valuation. DS Smith shares declined to 403p post-announcement.

Schneider Electric in talks to buy Bentley Systems

French company Schneider Electric is in talks with US software specialist Bentley Systems for a potential strategic transaction. The deal, if realized, would mark Schneider’s largest acquisition under CEO Peter Herweck. Schneider’s move contrasts with its previous stance of “evolution not revolution.” Analysts express surprise but note Schneider’s history of successful deals. Schneider’s shares dipped 2.25% in Paris, while Bentley’s rose 5% in New York. Schneider, known for energy management software, has a market value of €120.5bn. Bentley, valued at $15.6bn, has ties with Siemens, which was previously reported to consider acquiring Bentley. Talks aim to keep both companies listed.

Adam Newmann investing in WeWork

Adam Neumann seeks to regain control of WeWork amidst the company’s bankruptcy restructuring efforts. WeWork aims to raise up to $400m to emerge viably, with a potential pivot to sale if funding falls short. Neumann’s Flow offers $600m, pledging to outbid other offers by 10%. WeWork anticipates emerging from bankruptcy by May’s end, prioritizing financial stability. Discussions with lenders, including SoftBank and Yardi Systems, continue. Potential buyers, like Rithm Capital and Leonard Blavatnik’s Access Industries, express interest. WeWork’s aggressive lease renegotiations aim to reduce long-term obligations, but funding challenges persist, complicating creditor arrangements.

Other key highlights:

1. Arctos Sports Partners, co-owner of Paris Saint-Germain, shifts focus to the US market due to financial unpredictability in European football, aiming to capitalize on North American sports’ predictability and reliability for generating returns.
2. Leading shareholders of Royal Mail’s parent company criticize Czech billionaire Daniel Křetínský’s £4.5bn offer, with one investor labeling it an “absolute joke,” as his investment group, EP Group, seeks to acquire the former British postal monopoly, rejecting an initial approach valuing the company at 320p per share, citing it as opportunistic and substantially undervaluing the business.
3. US private equity group Apollo Global is in early discussions with Sony Pictures Entertainment regarding a potential joint bid for Paramount Global, challenging ongoing talks between controlling shareholder Shari Redstone and Skydance, the film studio behind Top Gun: Maverick; Apollo’s previous $26bn takeover offer was rejected by Paramount, questioning its financing, while Sony’s “arms dealer” approach to streaming leaves it with a relatively healthy balance sheet.
4. CVC Capital Partners has expressed interest in acquiring EY’s Italian consulting arm, sending a preliminary letter to EY, which stated there are no current plans to sell any part of the business; this move underscores private equity’s growing interest in the professional services sector.
5. Inchcape, the UK’s largest automotive distributor, is set to sell its British dealerships for £346m in cash to US-based Group 1 Automotive, completing a strategic review aimed at simplifying its business and improving profitability; the move will leave Inchcape primarily as a “pure-play” car distribution company, with plans to use £100mn of the sale proceeds for share buybacks.
6. ADNOC planning to acquire AmeriGas

Parting thoughts

While the stock markets adjust to the rate cut uncertainty, deals seem to be resilient, though in an unconventional way with selling still extremely tough.

Stay tuned for the summary next week to stay upbeat in this fast-paced sector!

Sources: Bloomberg, Financial Times, Desktop Research

Disclaimer: This weekly global investment banking update provides insights into recent transactions and market trends for informational purposes only. It does not constitute financial advice, and readers are encouraged to verify information independently before making investment decisions. The content reflects the views of the respective sources mentioned, and while efforts are made to ensure accuracy, completeness, and reliability, we do not guarantee it. Investing involves risks, and past performance is not indicative of future results. The mention of specific companies or transactions does not imply endorsement. Stay informed about regulatory changes and market conditions, and consider seeking advice from qualified financial professionals for personalized guidance.