One scoop to start: Former Credit Suisse boss Tidjane Thiam has been embroiled in a bitter dispute with his Spac partner Edward Zeng, after the Chinese entrepreneur’s firm sued Thiam’s company for allegedly refusing to pay $6mn in advisory fees.
In today’s newsletter:
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Labouring over carried interest
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Novo drops $11bn on manufacturing sites
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Elliott eyes the Magic Kingdom
Labour’s tax attack gives private equity the jitters
Donald Trump and the UK Labour party’s shadow chancellor Rachel Reeves might not appear to have much in common from an ideological standpoint. But both share one common belief: buyout executives don’t pay enough tax.
In 2021, Reeves joined a long line of politicians on both sides of the Atlantic in pledging to end the so-called carried interest loophole. Her proposal would mean that the tax UK private equity dealmakers pay on successful investments would be treated as income, rather than as a capital gain — and that’s a very important distinction.
In the UK, carried interest payments are charged at 28 per cent, but a designation of income tax would bring that up to 45 per cent. That’s if Labour can take power in elections expected later this year and stick to its guns.
That’s starting to look like an open question as Britain’s left-wing party moves to the centre ground and courts titans of industry and finance, many of whom feel strongly about not being taxed at those levels.
These days some Labour insiders are worrying about what might happen if low-tax-loving billionaires started to leave London for countries such as Italy and France that offer more favourable treatment.
Most people who work in private equity do it for one reason: money. The sums executives make from carry can be astronomical.
A report produced by law firm Macfarlanes found that the 255 highest-paid private equity dealmakers earned nearly £3bn in the 2020 to 2021 tax year. That averages out at just less than £12mn per person, so upping the tax rate they pay on this by almost 20 per cent means giving a significant chunk of that up every year.
For a preview of the extent private equity executives will go to when governments threaten to close the carried interest loophole, look at what happened in Paris.
When then French president François Hollande threatened to increase taxes on carried interest a decade ago, several senior private equity executives moved from Paris to London. It’s a risk Labour will need to consider as they weigh drawing greater tax revenues with the possibility that part of their tax base will flee.
Novo bulks up to boost sales of weight-loss drugs
The Danish pharma giant Novo Nordisk has become Europe’s most valuable corporation by making drugs that help people lose weight.
But the company itself is bulking up through the financial equivalent of complex carbs.
In a three-way transaction announced on Monday, Novo Nordisk — the pharma company behind blockbuster anti-obesity drugs Ozempic and Wegovy — is spending $11bn to acquire three manufacturing sites that will help it expand production amid surging demand.
The twist is that it is acquiring those sites from Novo Holdings, its own controlling investor, as part of an agreement in which Novo Holdings will first buy US-based Catalent for a $16.5bn total price tag including debt.
Catalent isn’t a household name in global business, with nondescript headquarters in a New Jersey suburb between New York and Philadelphia.
But it’s one of the most important companies in the global biotechnology and pharmaceutical industries, relied upon as a manufacturer of novel and often lucrative drugs. For instance, it has been a long-term partner of Novo Nordisk and the drugmaker already contracts some of the sites that it is now buying.
However, Catalent’s plants have been plagued by manufacturing issues. In one instance, quality control problems emerged during the manufacturing of Johnson & Johnson’s Covid-19 vaccine, with employees having to check vials by hand for two weeks, the FT has reported.
Those issues may have attracted the interest of activist investor Elliott Management, which emerged last year as a significant Catalent shareholder. The two sides reached an agreement in August that came with a board shake-up and strategic review.
When Catalent and Novo Holdings announced the deal, it came with Elliott’s support, including a quote in the press release from Marc Steinberg, one of the hedge fund’s new equity partners.
“We commend Catalent’s board and management team for delivering this outstanding outcome,” Steinberg said in the statement.
Given that the deal offers a 39 per cent premium for Catalent’s shares compared to their price before the company announced its deal with Elliott, it appears Steinberg has earned his promotion.
Elliott towers in Japan
While we’re on the topic of Elliott: the activist, which has largely been quiet in Japan for the past year, has roared back by becoming one of the largest shareholders in Mitsui Fudosan, the real estate giant whose skyscrapers loom over central Tokyo and beyond.
The FT broke the news of Elliott’s investment, and of the fund’s suggestion that Mitsui Fudosan undertake a colossal ¥1tn ($6.8bn) share buyback and sell off non-core holdings in the listed company Oriental Land, which runs the successful tourist magnet Tokyo Disneyland.
It comes almost a year after the FT’s report that the US activist fund had taken a big position in Dai Nippon Printing, and was making calls for significant change at the venerable conglomerate.
That move was quite a statement. Elliott’s decision to shake up DNP essentially meant almost any Japanese company could fall into its sights. Shares in DNP, which heeded some of Elliott’s advice, are up 40 per cent since the hedge fund’s investment became public.
Since then, market spectators have been wondering which company Elliott’s Japan-facing team, led by another newly promoted equity partner Nabeel Bhanji, would target next.
The choice of Mitsui Fudosan is further confirmation that pretty much everything listed on the Tokyo Stock Exchange is fair game, in case there was any doubt.
While it is Japan’s largest real estate developer, Mitsui Fudosan has one of the lowest returns on equity in the sector.
The 8 per cent gain in its shares in the three hours that followed the FT’s story on Monday also underscores the new case of FOMO that long-only investors are finding in Japan.
In a market where having a shareholder activist on the register now represents the best chance of a big return, diving into stocks where the likes of Elliott or ValueAct might take a stake has become a strategy in its own right.
Job moves
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Goldman Sachs is shuffling its powerful management committee. Alison Mass and George Lee have left the group but will remain at the bank in their other roles, The Wall Street Journal reports.
Smart reads
Winter of despair Recovering banker Craig Coben looks back on the good times, bemoans the present and manages — just about — to be hopeful about the future for Europe’s morbid equity capital markets, in a must-read IFR piece.
The split The Issa brothers built a retail empire together. But since Mohsin Issa began a romance with the EY adviser Victoria Price (see job moves above), their paths have split dramatically, The Sunday Times reports.
High rollers An investigation by The Wall Street Journal has revealed the close ties Elon Musk has with board members of his electric-car maker Tesla, including the recreational use of drugs. Several have profited handsomely from the relationship.
News round-up
Private equity owners pile on debt to pay themselves dividends (FT)
UniCredit to return €8.6bn to shareholders (FT)
Private equity buys majority stake in US accounting firm Baker Tilly (FT)
ADM’s accounting procedures probed by US prosecutors (FT)
Can Elon Musk derail Delaware? (FT)
Search engine Yandex to sell Russian operations for $5bn (FT)
EQT revives plans for $20bn Galderma IPO (FT)
Thank goodness we’ve reached peak MBA (FT)
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