The week in investor relations: BHP to delist from London, Ackman’s SPAC gets sued and family feud wipes $2 bn from pork producer
– The UK’s blue-chip FTSE 100 index is set to lose one of its biggest companies after miner BHP said it would unify its dual-corporate structure and shift its primary stock market listing to Australia, reported the Financial Times (paywall). The move was announced as BHP unveiled a deal to exit oil and gas by selling its petroleum business to Australia’s Woodside Petroleum in exchange for shares that will be distributed to investors. The company also declared a record final dividend of $10.1 bn as profits soared on surging commodity prices and strong demand from China.
– Pershing Square Tontine Holdings, the special purpose acquisition company (SPAC) run by the billionaire hedge-fund investor Bill Ackman, was sued this week in ‘a novel case’ that The New York Times said could have far-reaching implications for the SPAC industry. The case, which the paper notes is being argued by Robert Jackson, a former SEC commissioner, and John Morley, a law professor at Yale, contends that Ackman’s SPAC isn’t an operating company, but rather an investment company like Ackman’s funds, and so should be regulated by the Investment Company Act of 1940. If certain SPACs were regulated as investment companies, much of the industry could be affected because it would make it harder for anyone in the investment business to participate in a SPAC.
– Bloomberg reported that a 'bitter family row' between the chairman of WH Group and his son has wiped out more than $2 bn of market value in the world’s largest pork processor. Shares of WH Group in Hong Kong plunged 17 percent over two days this week to the lowest level in almost three years said the news agency, after an article purportedly written by Wan Hongjian, the 52-year-old son of the company’s founder and top shareholder Wan Long, was posted to WeChat accusing his father of financial misconduct. The article alleged that Wan senior failed to disclose $200 mn in taxable income, which WH Group denied. The report came days after the 80-year-old Wan stepped down as chief executive, handing over to chief financial officer Guo Lijun. The group owns US pork supplier Smithfield Foods.
– The SEC approved a new rule this week designed to help ‘to some extent’ with skyrocketing proxy distribution costs as a result of the retail shareholder boom, reported Cooley PubCo. Noting that some companies had faced proxy distribution costs that were much higher than normal, the site said these types of increases have been attributed to ‘the proliferation of small accounts through no-fee trading platforms’. Many retail traders now hold very small numbers of shares of a large number of stocks, some as a result of recent opportunities to buy fractions or ‘slices’ of shares that ultimately add up to one or more whole shares. In some cases, the retail traders didn’t even buy the shares – they were ‘gifted’ by retail brokers as rewards for opening a new account or completing some other action for the benefit of the broker. ‘It can all add up to surprisingly big charges for proxy distribution costs,’ said Cooley PubCo. This week, though, the SEC has just approved an NYSE proposal to ‘prohibit member organizations from seeking reimbursement, in certain circumstances, from issuers for forwarding proxy and other materials to beneficial owners’. These ‘certain circumstances’ refer to free promotional shares awarded to account holders by brokerages. However, writing the post, Cydney Posner asked how the exclusion will be enforceable in practice.
– The FT reported that a boom in US corporate borrowing has ‘laid the foundation for a wave of defaults’ at financially risky companies. Sales of low-rated, ‘speculative-grade’ debt have already reached $650 bn this year, according to S&P Global Ratings, said the paper – putting them on track to surpass all-time borrowing records with more than four months left to go in 2021. The paper added that companies of all types had already borrowed record amounts of cash in 2020 in an effort to ride out the coronavirus downturn. Senior analysts at both Moody’s and S&P said furious demand from investors on the hunt for higher-yielding assets at a time of low interest rates had given less creditworthy companies access to financing with loose lending terms, explained the FT.
– The Wall Street Journal (paywall) reported that financial giant State Street is vacating its two New York City office locations. Executives at the Boston firm told New York staffers they won’t be returning to its Midtown Manhattan offices, said the paper, citing people familiar with the matter. It expects to sublease the two offices near Rockefeller Center to other companies. Many of State Street’s New York employees have worked remotely since the pandemic’s early days and the firm’s New York offices apparently remain sparsely occupied. More than 500 employees across the firm’s custody bank and money-management businesses will be affected.
– ‘It’s déjà vu all over again!’ declared Cooley PubCo, responding to the news that the SEC had announced settled charges against Pearson, an NYSE-listed, educational publishing and services company based in London, for failure to disclose a cybersecurity breach. It is the second such announcement in a matter of months: in June, First American Financial Corporation was charged for failure to timely disclose a cybersecurity defect that led to a leak of data, with disclosure ultimately spurred by imminent media reports. In the latest case, Cooley PubCo notes that there wasn’t just a vulnerability – there was an ‘actual known breach and exfiltration of private data. Nevertheless, Pearson decided not to disclose it and framed its cybersecurity risk factor disclosure as purely hypothetical’. The SEC viewed that disclosure as misleading and imposed a civil penalty on Pearson of $1 mn.
– Swedish oat milk maker Oatly defended its financial reporting as it published its latest results this week, said the FT. Revenues for the three months to June rose 53 percent year-on-year to $146.2 m on a net loss of $59 mn. As a result, the company now expects full-year revenues of more than $690 mn, which would be a 64 percent increase from the previous year and above analysts’ forecasts of $681 mn, according to Refinitiv data cited by the paper. Toni Petersson, Oatly’s chief executive, said the company believed a report in June by hedge fund Spruce Point, which questioned the group’s environmental credentials and financial accounting, to be ‘false and misleading’, adding that a special board committee helped by independent legal counsel and forensic accountants had reviewed the claims. ‘The special committee has completed the review and I’m pleased to say that we continue to stand by the accuracy and ethics of our reporting,’ he said.
– CNBC reported that data analytics software company Palantir bought $50 mn in gold bars in August, according to the company’s latest earnings statement. The move ‘reflects a growing company stashing cash in an unconventional asset in response to economic uncertainty’ spurred by the coronavirus pandemic and governments’ response to it, said the news organization. ‘During August 2021, the company purchased $50.7 mn in 100-ounce gold bars,’ Palantir said in the August 12 earnings statement for its fiscal second quarter. ‘Such purchase will initially be kept in a secure third-party facility located in the northeastern US and the company is able to take physical possession of the gold bars stored at the facility at any time with reasonable notice.’
– UK supermarket chain Morrisons has agreed a £7 bn ($9.5 bn) takeover by the US private equity group Clayton, Dubilier & Rice (CD&R), reported The Guardian, following a fierce fight for control of the country’s fourth largest supermarket chain. The grocer confirmed it had accepted an improved offer of 285p per share from the private equity firm, bettering an offer on the table from rival suitor Fortress. In June, CD&R put Morrisons into play after it emerged its original 230p a share gambit – worth £5.5 bn – had been rejected on the basis that it ‘significantly undervalued’ the retailer. The paper said the new offer is a 60 percent premium to the Morrisons share price on 18 June, the day before news of bid interest in the company was first made public.