Aug 20, 2018

Axios Pro Rata

Top of the Morning

Source: Giphy

The markets aren't even open yet, but already it's been a rough morning for Tesla:

  • J.P. Morgan slashed its price target for Tesla shares from $308 to $195, which is where the bank had it targeted before Elon Musk's initial tweet. A bit surprised it took them this long to conclude the funding wasn't secured.
  • Saudi Arabia's Public Investment Fund is weighing what could become a $1 billion investment for a majority stake in upstart Tesla rival Lucid Motors, according to Reuters. Traders might be over-weighting this one a bit, since PIF could conceivably participate in buyouts of both Lucid and Tesla — given that it has enough cash and a broader secular interest in batteries and electric vehicles (think SoftBank's many bets on ride-hail).
  • Shares are down more than 5% in pre-market trading to around $290, as of this writing.

All of this comes on the heels of Musk's NY Times interview, which mostly made headlines for his apparently mental fatigue (even though that seemed a bit contradicted by this contemporaneous YouTube video).

The NYT piece also had this reported tidbit:

Another possibility under consideration is that SpaceX, Mr. Musk’s rocket company, would help bankroll the Tesla privatization and would take an ownership stake in the carmaker, according to people familiar with the matter.

I've spoken to several SpaceX shareholders, and have heard the following:

  • They will go nuts if SpaceX itself tries to finance the Tesla buyout, at least in any meaningful way.
  • They have the Musk company with profits and a deep management bench, and see no reason to marry it with the opposite. Particularly given all the conflicts of interest and possible regulatory headaches.
  • Yes, SpaceX is profitable, but EBIT is quite narrow and could could blow up if a rocket or two does. One shareholder estimates that the company will do over $2 billion in 2018 revenue (based on expected launches), and that it has around $1 billion of cash on hand. SpaceX also has plenty of access to new capital, both equity and debt.
  • So how would SpaceX actually help finance a Tesla buyout? The most common explanation is that Musk could pledge some of all of his stake in SpaceX, which was last valued in mid-2017 at $21 billion. He's believed to hold a very large stake in SpaceX — possibly around half — and has a history of betting big on himself. And, as Tesla stock continues to sink, Musk may be able to get a much lower price than $420 per share.

Outlier: TPG Capital has decided that it will not go public, ending the "will they or won't they" chatter that has been ongoing for more than a decade, according to Bloomberg.

  • Don't be surprised to see TPG pursue the sale of a passive minority stake in the firm, which is something it first did back in 2011 to a pair of sovereign wealth funds.

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Source: Giphy

PepsiCo (Nasdaq: PEP) agreed to buy SodaStream (Nasdaq: SODA), an Israeli at-home soda machine maker, for $3.2 billion, or $144 per share in cash.

  • Why it's the BFD: Because this plays into two ground-shaking trends within the beverage space: One toward less sugary carbonated drinks, and another away from single-use plastic bottles. Plus, this is literally a bubble deal.
  • ROI: The price represents nearly an 11% premium on Friday's closing price for SodaStream shares, and a 32% premium to the 30-day volume weighted average price.
  • Bonus: Outgoing Pepsi CEO Indra Nooyi gave Trump the idea to scrap quarterly financial reporting, in favor of semi-annual. She explains further.
  • Bottom line: "On August 1 SodaStream reported its strongest results in the company's history... a 31% year-over-year jump in revenue to $172 million, an 89% leap in operating profit to $32 million and an 82% climb by net profit to $26 million." — Eran Azran, Haartetz
Venture Capital Deals

Tongshifu, a Chinese copper crafts e-commerce company, raised $44 million in Series B funding. Cathay Capital led, and was joined by GX Capital, Yunmu Capital and return backers Shunwei Capital and Xiaomi Ventures.

Private Equity Deals

Accel-KKR acquired a majority stake in SugarCRM, a Cupertino, Calif.-based enterprise CRM platform that previously raised over $100 million from firms like DFJ, NEA, Goldman Sachs and Walden VC.

China Automotive Systems (Nasdaq: CAAS) said that a $172 million take-private offer led by chairman Hanlin Chen and North Haven Private Equity has been withdrawn due to “market conditions.” Chen’s consortium also included North Haven Private Equity.

🚑 DW Healthcare Partners invested in California Psychcare, a provider of behavioral services for children and adults with an autism spectrum disorder.

Global Infrastructure Partners is among those prepping bids for a majority stake in airport operator Aeroports de Paris (Paris: ADP), which the French government is expected to auction off next year, per Reuters.

• Oaktree Capital Management told a bankruptcy court that it is working to raise $1.5 billion to bid on fashion accessories retailer Claire's Stores, which already received a $1.4 billion debt-for-equity swap offer from senior lenders like Elliott Capital and Claire's private equity sponsor Apollo Global Management.

Sany Group, a Chinese heavy machine maker, is seeking a private equity partner to help it spin off four business units in a deal that could be worth upwards of $2 billion, per Reuters.

• TA Associates and Luminate Capital Partners invested in Fintech, a Tampa, Fla.-based provider of invoicing, electronic payment and analytics solutions to the beverage alcohol industry.

TAS, a Ft. Worth, Texas-based environmental services company owned by TEAM Partners, has acquired two Orange, Texas-based companies: Donovan Industrial Service, a provider of environmental services for both hazardous and non-hazardous materials, and ROTAP, a provider of transportation and rentals of roll-off boxes, tanks and pumps.

TPG is considering an investment in the frequent flier loyalty program of Jet Airways (India), which also has attracted interest from Blackstone, per LiveMint.

Public Offerings

Illustration: Lazaro Gamio/Axios

Zekelman Industries, a Chicago-based steel pipe and tube maker, filed for a $100 million IPO (likely a placeholder amount that will rise). It plans to trade on both the NYSE and TSC under ticker ZEK, with Goldman Sachs as lead underwriter. The company reports $100 million of net income on $783 million in revenue for the 13 weeks ending June 30, up from $48 million on $564 million for the year-earlier period.

  • Key risk factor, from Zekelman's filing: "There is no assurance that the ongoing implementation of trade sanctions against unfairly traded steel in connection with Section 232 or other duties on imports of certain steel products will be continued in the future or that they will not have unintended consequences."

🚑 Entasis Therapeutics, a Waltham, Mass.-based developer of anti-infective products, filed for an $86 million IPO. It plans to trade on the Nasdaq (ETTX) with Credit Suisse as lead underwriter. The pre-revenue company raised around $82 million, and lists such shareholders as AstraZeneca (21.6% pre-IPO stake), Clarus Ventures (14.7%), Novo (13.7%), Frazier Life Sciences (12.2%), Pivotal BioVenture Partners (10.9%), Sofinnova Ventures (10.9%), TPG Biotech (10.9%) and Eventide Funds (6.1%).

Farfetch, a London-based e-commerce marketplace for independent boutiques, filed for a $100 million IPO. It plans to trade on the NYSE (FTCH) with Goldman Sachs as lead underwriter. The company reports a $68 million net loss on $268 million in revenue for the first half of 2018, and has raised over $700 million in VC funding from firms like Advent Venture Partners, Index Ventures and DST.

🚑 Principia Biopharma, a South San Francisco-based oncology drug developer, filed for an $86 million IPO. It plans to trade on the Nasdaq (PRNB) with BoA Merrill Lynch as lead underwriter. The company raised just over $100 million from Morgenthaler Ventures (16.81% pre-IPO stake), OrbiMed (16.81%), SR One (16.81%), New Leaf Ventures (16.81%), Baker Brothers (12.3%) and Sofinnova Ventures (12.3%).

Qutoutiao, a Chinese mobile content aggregator, filed for a $300 million IPO. It plans to trade on the Nasdaq (QTT) with Citigroup as lead underwriter. It reports a $78 million net loss on $108 million in revenue for the first half of 2018. Shareholders include Tencent.

Stone Pagamentos, a Brazilian credit card processor, picked Goldman Sachs, JPMorgan and Citigroup as managers for a New York IPO, per Reuters.

More M&A

Anbang Insurance Group is seeking to sell its entire luxury hotel portfolio, which it purchased for $5.5 billion from Blackstone in 2016, in an effort to “raise cash following its seizure by the [Chinese] government,” according to the WSJ.

California Water Service Group (NYSE: CWT) withdrew its $1.45 billion cash takeover offer for San Jose, Calif.-based water utility SJW Group (NYSE: SJW), which will clear the way for a $1.1 billion purchase of SJW by Connecticut Water Service (Nasdaq: CTWS).

🚑 Novo Nordisk acquired Ziylo, a British blood glucose monitoring company, for upwards of $800 million.

⛽ PTTEP (Thailand) and OMV (Australia) have expressed interesting buying the Southeast Asian offshore gas assets of Hess Corp. (NYSE: HES), which could be worth around $5 billion, per Reuters.


Coefficient Capital, a New York-based VC firm focused on the consumer product sector, is raising $150 million for its debut fund, per an SEC filing.

It's Personnel

Daniel Tu, former head of Ping An Insurance’s venture capital arm, joined Ottawa-based Autonomous_ID as executive advisor to chairman Todd Gray.

Final Numbers
Source: Cambridge Associates Q1 2018 benchmarks report; data through 3/31/18.

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