The week in investor relations: ‘Unprecedented’ earnings, Nelson Peltz to step down from P&G board and Boris Johnson calls for ‘investment big bang’
– US stocks ‘advanced broadly’ early this week, bouncing back from earlier losses to bring the S&P 500 to a closing high on Tuesday, reported the Wall Street Journal (paywall). A solid earnings season has helped bolster investors’ optimism that stocks can ‘continue to grind higher’ following an already strong 2021 rally, said the paper, adding that money managers are counting on continued support from central banks and economic data that still shows growth to further support markets. ‘It has been a pretty strong earnings season and that justifies the medium-term positive view that we have on stocks,’ the WSJ quoted Justin Onuekwusi, head of retail multi-asset funds at Legal & General Investment Management as saying. ‘Earnings typically always beat the average analyst estimate, but for the second quarter in a row, they are coming in above the highest estimates, which is pretty unprecedented.’
– Activist investor Nelson Peltz will step down from Procter & Gamble’s board at the end of his term later this year, reported Reuters. The consumer goods giant appointed the founder of Trian Fund Management to its board in 2018, following a months-long proxy fight – the biggest ever involving a US company at the time. ‘P&G has created tremendous value for all stakeholders since 2017,’ Peltz said in a statement on Thursday.
– The UK Prime Minister Boris Johnson and chancellor Rishi Sunak have called on Britain’s asset managers to back the country’s long-term potential as part of an ‘investment big bang’ to boost growth, according to The Times (paywall). In a joint letter, they urge institutional investors to shift more of their capital from short-term equity to long-term projects such as unlisted early stage companies, infrastructure and the green transition. ‘We need an investment big bang to unlock the hundreds of billions of pounds sitting in UK institutional investors and use it to drive the UK’s recovery,’ Johnson and Sunak wrote. ‘It’s time we recognized the quality that other countries see in the UK and back ourselves by investing more money into the companies and infrastructure that will drive growth and prosperity.’
– The BBC reported that Vanguard, one of the world's top investment firms, is to pay its US workers $1,000 if they get vaccinated. Staff must prove they have been jabbed by October and will still qualify if they were inoculated before the company made its offer, it said, adding that the news speaks to the different approaches US firms are taking to vaccination as the Delta variant of coronavirus surges across the country. Some, like Microsoft and Google, are mandating that all staff get jabbed, while others such as Walmart and Uber have asked management, rather than frontline staff, to get the vaccine. The likes of Amazon and Apple have no policy in place.
– In related news, CNN Business reported that Goldman Sachs has ‘drawn its line in the sand’ on vaccines. The investment bank is barring employees from using their ID cards to enter the office building if they haven't submitted proof of their vaccination status, a spokesperson for the company told the news agency this week. ‘If you do not report your vaccine status to Goldman, your ID card will not work to enter the building,’ a spokesperson for the company said, adding that ‘entrance of the building is contingent on you reporting your vaccine status’. Unvaccinated employees are required to get a rapid Covid-19 test at the Goldman Sachs office and will be tested regularly, the spokesperson said. Employees who test positive will immediately be asked to leave the building.
– Reuters reported that a tougher regulatory stance on big corporate mergers from US President Joe Biden has fueled a rise in investor bets on some deals not being completed, threatening to put the brakes on a record-setting dealmaking boom. Spreads between deal prices and the share prices of acquisition targets widened this week after the US Federal Trade Commission said a surge in M&A would delay antitrust reviews, and that companies that did not wait for their outcome completed their deals at their own risk. This week it was reported that the US Department of Justice (DoJ) was weighing a lawsuit to block UnitedHealth Group's nearly $8 bn deal to acquire healthcare analytics and technology vendor Change Healthcare. Reuters noted that such a move would follow the DoJ’s lawsuit to block Aon's $30 bn acquisition of Willis Towers Watson, which resulted in the insurance brokerages abandoning their deal last month.
– In other deals news, the BBC reported that Square, the digital payments platform run by Twitter co-founder Jack Dorsey, has agreed to take over the Australian 'buy now, pay later' firm Afterpay. The $29 bn deal is set to be Australia's biggest-ever buyout. The offer is a more than 30 percent premium to Afterpay's stock market closing price on Friday, with the agreement set to create an ‘instalments payment giant’ as the industry sees significant growth. ‘Square and Afterpay have a shared purpose. We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles,’ Square co-founder and chief executive Dorsey said in a statement. The Australian firm said its board has unanimously recommended the deal to its shareholders, who are expected to own around 18.5 percent of the new company.
– China Telecom, the country’s largest fixed-line operator, will raise as much as 54.2 bn yuan ($8.4 bn) from a stock offering in Shanghai, months after it was delisted from the NYSE following a US blacklisting over purported ties to the Chinese military, reported the South China Morning Post. The company is selling 10.4 bn shares at 4.53 yuan each in the listing exercise, according to an exchange filing in Hong Kong. If fully exercised, an overallotment option would take the amount of shares sold to nearly 11.96 bn, matching its previously stated aim of raising about 54 bn yuan of proceeds in the flotation. ‘The issue price was determined based on several factors including the fundamentals of the issuer, valuation of comparable companies, the industry in which the company operates, market conditions, needs for proceeds and underwriting risks,’ the Beijing-based firm said in a regulatory filing.
– China’s liquor and e-cigarette companies have emerged as the latest market casualty in Beijing’s crackdown on ‘vice industries,’ according to the Guardian. Shares in e-cigarette and liquor makers slumped on Thursday after reports in the Chinese media of adolescent e-cigarette use and links between alcohol and cancer spooked investors who fear the state may be planning to broaden its crackdown on digital gaming and technology companies. Earlier this week Tencent, the Chinese tech company, promised to help curb the time children spend playing its flagship video game after state media attacks accusing the gaming industry of peddling ‘spiritual opium’ sent its shares into freefall.
– However, the Financial Times (paywall) reported that retail investors are scooping up funds that track Chinese stocks after sharp falls in recent weeks, even as institutions remain more cautious as Beijing cracks down on key sectors. A US-listed exchange traded fund, which holds big names such as Alibaba, Tencent, JD.com and Meituan, has attracted more than $2 bn of new money since the start of July, the paper said. The $5.3 bn KraneShares CSI China Internet ETF has garnered record daily inflows from retail traders at a time when many institutional investors have backed away from sectors that are deemed vulnerable to tougher scrutiny from Chinese authorities.