Sunday, November 24

One thing to watch: BHP chief executive Mike Henry met government officials in South Africa last week, fuelling speculation that the Australian miner will resurrect its failed £39bn bid for Johannesburg-based rival Anglo American.

And a big potential tech tie-up: Uber has explored a possible bid for Expedia, the nearly $20bn US travel booking website, in what would be the ride-hailing company’s largest acquisition by far as it looks to diversify further and find new avenues for growth.

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In today’s newsletter:

  • Elliott uses podcast to agitate at Southwest Airlines

  • Private equity secondary deals surge

  • The inside story at battery start-up Northvolt

Even Elliott’s activist campaign has a podcast

“I’m going to take you through something we’ve never done before. We’re making a podcast.”

For months, activist hedge fund Elliott Management has called for Southwest Airlines chief executive Bob Jordan to resign in a steady drumbeat of press releases, slide presentations and updates to its website, StrongerSouthwest.com.

Now, in a move DD believes is as cringeworthy as Kamala Harris considering appearing on Joe Rogan, Elliott has added the Stronger Southwest podcast to its arsenal.

A member of the Elliott engagement and investment stewardship team — a group skilled in using the charm offensive for index funds such as Vanguard, BlackRock and State Street — interviewed one of Elliott’s handpicked directors in a slick, highly produced 20-minute episode.

But Elliott’s Bri Scholtz could use some work avoiding analyst speak. (Interviewee and board candidate Gregg Saretsky was asked to “double click” on his time spent as CEO of airline WestJet.)

Saretsky struck a soft chord when asked what Southwest employees tuning in should take away from the pod.

“It’s a message of hope,” he said. “Employees are going to be sceptical, maybe even fearful or have some anxiety. And my advice to them was, just keep an open mind and go along for the ride.”

That’s in sharp contrast to the venom portfolio managers John Pike and Bobby Xu have saved for their letters. The company’s course is “being charted in a haphazard manner by a group of executives in full self-preservation mode”, the two wrote in September.

Elliott has made it clear it’s on track for its first proxy fight since 2017. That means a full-blown battle for control of the company’s board — and the chief executive role.

We’ll need to wait for another episode to see where it stacks up against the podcasts of Apollo’s chief economist (The View from Apollo) and the lawyers at Sullivan & Cromwell (S&C Critical Insights).

Listeners will be able to follow the latest undulations of the Elliott campaign on Spotify, Apple and wherever else you get your podcasts.

Private equity checks out of Hotel California

The $4tn private equity sector has set itself apart in recent years for its asset-gathering ability — its investment performance, not so much.

As global stock markets hit record highs, the typical PE fund has hobbled along since early 2022. The surge in interest rates seized up deal markets while pummelling leveraged balance sheets.

Thankfully for PE investors, the industry has found new ways to cash out investors who are looking for exits.

So-called secondary deals, in which investors in private equity funds sell their stakes to new investors for cash, or a PE firm arranges the sale of a company stake to a new fund, are expected to smash all-time records.

Matt Swain, an executive at investment bank Houlihan Lokey, predicts a record-breaking $150bn of sales — an increase of more than 25 per cent from 2023, which shatters a previous record of $132bn in deals in 2021.

The deal bonanza is being backed by a bunch of secondary buyers including Ardian, Hamilton Lane, StepStone Group and Lexington Partners.

Main line private capital giants are also getting in on the act. Blackstone, Apollo and KKR are among the groups that are raising money for secondary deals using vehicles targeting rich individuals, or so-called “retail” investors.

Many of these funds can book quick gains buying PE fund stakes at a discount and marking them to par value, a GAAP accounting convention that can help them establish a solid early track record.

Sales of PE stakes, which 18 months ago fetched 80 cents on the dollar or less, according to people familiar with the sales, are now between 93 cents and 98 cents, according to PJT Partners

“Supply is at an all-time high, but pricing is at some of the highest levels it has been across the board. There is more capital coming into the market,” said Darren Schluter, a managing director who handles secondary deals at PJT. 

What’s gone wrong with Europe’s best-funded start-up? 

Northvolt, the Swedish battery maker, is fighting for its life despite having raised about $15bn in debt and equity from the likes of Goldman Sachs, Volkswagen, Citigroup, BNP Paribas and Deutsche Bank

So what went wrong? The FT’s Richard Milne, Jamie John and Mari Novik spoke to 10 current and former workers at the company meant to be Europe’s great hope in fighting back against the Chinese groups that dominate the battery industry. 

The answer: a lot. Mismanagement, poor safety standards and problematic Chinese machinery are just some of the problems they said were dogging the company. 

Some of these are typical troubles for a start-up. But Northvolt is a different beast from many young companies in tech that are run on a bootstrap. 

Even as the company grew at a blistering pace, production couldn’t keep up. 

It spent heavily on equipment, but has produced relatively few batteries, last year making less than 1 per cent of the capacity of its sole factory in Skellefteå in northern Sweden.

For all the money it has raised — including $3.8bn in subsidies from Canada and Germany for factories yet to be built — Northvolt needs fresh capital to keep operating. It initially tried to raise about $7bn in a mixture of equity and debt this year but has now scaled back its demand reportedly to just $200mn.

Northvolt said it had “always underlined that building up a European battery cell landscape is one of the most complex tasks in industry today”. It said a recent strategic review would “further increase focus on cell production”, and it had strengthened its management team. 

“We clearly see positive developments, and will continue to improve,” it added. The group also said it “has to meet highest safety standards by law”.

Executives sell the company as essential if Europe wants to keep crucial auto technology on the continent rather than becoming more dependent on China.

But investors need to decide whether to risk pouring more money into a company where workers describe a litany of problems. 

Major European companies involved in the green transition will be looking on anxiously to see how it all pans out. 

Job moves

  • Goldman Sachs’ chief executive for Saudi Arabia, Khalid Albdah, is leaving the firm, Bloomberg reports. He previously worked at Al Rajhi Capital.

  • IBM has hired Neil Dhar, the former co-head of PwC’s US consulting business, as global managing partner of IBM Consulting. Dhar retired earlier this month after more than three decades advising clients, including private equity firms, such as Blackstone.

  • Boutique investment bank LionTree has hired Ankur Luther as a managing director to focus on tech, entertainment and media. He previously worked at Morgan Stanley.

  • Skadden has hired Luke Ferrandino as chief business development and marketing officer. He previously held a similar position at Paul Weiss.

Smart reads 

Harvard guru Rich parents will pay almost anything to get their kids into an Ivy League school, The Wall Street Journal writes. A 29-year-old claims to have cracked the code to getting into the schools — and has made a $554mn company in the process.  

Rein it in Saudi Arabia has spent lavishly on a grand vision to modernise the kingdom with infrastructure projects throughout the country, the FT reports. But now, there might be a need for prudence.

Feedback pitfalls The 360-degree performance review is a hallmark on Wall Street this time of year, FT Alphaville writes. It’s also easily gamed and frequently undermined. 

News round-up

Advent International prepares takeover bid for Tate & Lyle (FT)

Wall Street banks enjoy bumper fees as debt issuance and deals activity rebound (FT)

BHP chief sparks fresh Anglo bid speculation after South Africa trip (FT)

Starmer and Reeves face down cabinet revolt over spending cuts (FT)

Amazon buys stake in nuclear energy developer in push to power data centres (FT)

GM raises investment in lithium mine to nearly $1bn (FT)

London Underground workers to strike over pay (FT)

Due Diligence is written by Arash Massoudi, Ivan Levingston, Ortenca Aliaj, and Robert Smith in London, James Fontanella-Khan, Sujeet Indap, Eric Platt, Antoine Gara, Amelia Pollard and Maria Heeter in New York, Kaye Wiggins in Hong Kong, George Hammond and Tabby Kinder in San Francisco, and Javier Espinoza in Brussels. Please send feedback to due.diligence@ft.com

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