The $5.5bn cup of espresso | USAEMALL.com

One thing to start: Elon Musk’s xAI has sued Apple and OpenAI alleging they broke antitrust rules by thwarting competition in artificial intelligence, opening a new front in the billionaire’s feud with the two companies.

In today’s newsletter: 

• What killed Keurig Dr Pepper’s empire dreams?

• New York’s office rebound

• PE’s fundraising struggles continue

JAB’s big coffee exit plan

Most $18bn megadeals are about empire-building. Keurig Dr Pepper’s acquisition of European coffee company JDE Peet’s is the exact opposite.

The all-cash deal, announced on Monday, is an aperitif to the break-up of the company formed from the 2018 merger of Keurig and Dr Pepper.

That merger, orchestrated by European investment giant JAB Holding, aimed to create a food and beverage colossus dominating soft drinks, specialty coffee, tea and beyond.

Now the takeover of JDE Peet’s, which happens to be majority owned by JAB, paves the way to split beverage and coffee into separate companies.

So what killed the empire dream in just seven years?

The coffee market went flat. Brutal competition and soaring bean prices crushed margins. America’s trade war with the rest of the world hasn’t helped either. Keurig Dr Pepper chief executive Tim Cofer cited rock-bottom valuations as reason enough not to simply spin off the coffee division alone.

More crucially, investors now seem to view sprawling conglomerates with scepticism. They want focus. It’s the same force driving Unilever to ditch ice cream and threatening to break up Kraft Heinz.

The big winner here is JAB, which elegantly exits a deflated coffee business, pocketing $12.5bn on its way out to redeploy elsewhere.

Keurig Dr Pepper shareholders aren’t so thrilled. The stock plunged 11.5 per cent, erasing $5.5bn in market cap, as investors questioned the merits of doing an all-cash deal that lumbers the company with a heavy debt load.

We all know that coffee’s expensive these days. But that’s one hell of a price for a cup of joe.

New York’s back-to-office real estate revival

The office is dead. Long live the office.

Big investors are once again opening their cheque books to office property developers, lending billions of dollars to the owners of New York skyscrapers in a sign that return-to-office mandates are providing ballast to this hard hit corner of the estate market.

Owners of four New York office towers have tapped the commercial mortgage-backed securities market to refinance their debts in recent weeks, raising $3bn, according to documents reviewed by the FT and data from Bank of America.

That has lifted borrowing tied exclusively to NY offices in the CMBS market to $11bn this year, with office financings in US securitised markets at their highest level since 2021, before the Federal Reserve began raising interest rates.

“Office is back,” said Mario Rivera, head of asset-backed securities at Fortress, a trend he put down to corporate policies demanding a return to in-person work.

The broadening of debt markets to class A office buildings — a designation indicating a tower is relatively new or modern — doesn’t signal an all-clear for the broader office market, which is still reeling from the pandemic.

But it shows debt investors are comfortable underwriting deals again and that they see durable demand for desirable buildings, especially those that are highly leased.

The buildings that have refinanced this year count tenants including law firms Paul Weiss and Norton Rose, iPhone maker Apple and social media company TikTok. 

What’s more: leverage levels are down and some property developers have put in more equity to get creditors comfortable with the deals.

“People are looking at availability in Park Avenue offices or Central Park view offices and are saying we can lend on this again,” said Ben Hunsaker, head of structured credit at Beach Point Capital. “If you go out two blocks over it gets pretty ugly.”

PE’s dollar-store discounts fail to win investors

Private equity is taking a leaf out of the consumer business playbook, offering early-bird deals and other discounts to woo new investors and lift it out of a fundraising slump.

Unfortunately for buyout firms, the downturn is only deepening.

PE firms raised just $592bn in the 12 months to June: their lowest tally for seven years, according to Preqin.

Buyout groups are promising to return transaction fees that were once charged to their clients and offering volume-based discounts and caps on some legal and travel expenses. Investors who commit quickly to new funds are getting early-bird discounts on management fees.

All in all, sweeteners of this sort have reduced net management fees paid to PE groups by about half since the global financial crisis, according to Bain & Co.

But they’ve done little to convince the sector’s backers in recent years: fundraising has fallen by almost a third since the highs of 2021.

A rise in interest rates globally since 2021 has left buyout groups with a backlog of businesses they simply can’t get rid of, meaning PE backers are continuing to pay eye-watering management fees, but aren’t seeing much in the way of cash returns.

There’s also a longer-term trend at play here: more PE firms are chasing investment than ever before, after a swarm of new players entered the sector in the decade following the global financial crisis.

At the moment, the European market is particularly crowded, with heavyweights including Advent International, Permira and Bridgepoint all seeking billions of euros for new funds.

It’s allowing investors to be especially discerning in their picks, said Gabrielle Joseph, a managing director at PE fundraising adviser Rede Partners.

“The biggest thing that they’re really looking at is [whether] this manager . . . [is] fit for the future.”

Job moves

• JPMorgan has hired Jerry Lee from Goldman Sachs as global chair of investment banking. Lee spent 19 years at Goldman and most recently headed biopharma investment banking.

• Cooley has rehired former US solicitor-general Elizabeth Prelogar as a partner on its global litigation team.

• Davis Polk has named Rob Morrison as a partner in its finance practice. He was previously a partner in debt finance at White & Case.

• Invidia Capital has appointed Matt Bennett as a partner. He was most recently a managing director and operating partner at New Mountain Capital.

Smart reads

When Masa met Donald SoftBank’s Masayoshi Son has struck a string of megadeals in the US since Donald Trump became president. It came after a careful courtship, the FT writes.

Debt maestro Patrick Drahi’s mastery of leverage made him a telecoms billionaire. It brought turmoil and trouble to Sotheby’s, the auction group he bought in 2019, The New Yorker writes.

Rough ride Earlier this month, Trump called for the resignation of Intel’s CEO, sending the chipmaker’s executives into a panic, The Wall Street Journal reports. Here’s how the company navigated the choppy waters and struck a deal with the president.

News round-up

Ørsted shares plunge to record low after US government halts project (FT)

US banks lobby to block stablecoin interest over fears of deposit flight (FT)

Data centres to propel infrastructure securitisations past $110bn by the end of 2026 (Bloomberg)

Venture capital steps up ‘Iron Dome’ air defence investments (FT)

HSBC’s Swiss unit culls wealthy Middle East clients amid regulator scrutiny (FT)

Evergrande delisting marks end of era for China’s property sector (FT)

Publishers race to counter ‘Google Zero’ threat as AI changes search engines (FT)

Oxford university spinout OrganOx sold to Japanese group Terumo for $1.5bn (FT)

KKR-backed music event hit by band boycotts over removal of Palestinian flag (FT)