Thursday 11 October 2018
C002D5556
BUSINESS DAY
FINANCIAL TIMES
A7
COMPANIES & MARKETS
@ FINANCIAL TIMES LIMITED
SoftBank in talks to invest $10bn in WeWork Investment could lead to the Saudi-backed fund owning a majority of US office group ARASH MASSOUDI AND KANA INAGAKI
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apan’s SoftBank and its Saudi Arabia-backed Vision Fund are in talks to invest a further $10bn in office space and co-working group WeWork, a deal that would provide fresh capital to the lossmaking business and delay a stock market listing. Negotiations between US company WeWork and SoftBank’s Vision Fund have been going on for months and initially revolved around a smaller investment round led by SoftBank that would have valued the New Yorkbased start-up at up to $40bn. People close to the matter said those discussions have shifted to talks about a much larger investment, which could reach as much as $10bn. The SoftBank investment would be phased over a two-year period, one of these people said. The valuation being discussed was not immediately clear, though one person added that SoftBank would seek to make the deal at a favourable valuation. People close to the matter said the investment discussions are serious but no deal is guaranteed. Shares in SoftBank fell 5.4 per cent on Wednesday in Tokyo trading, after the Wall Street Journal reported that the company was in talks to invest $15bn-$20bn to obtain a majority stake in WeWork. SoftBank and WeWork declined to comment. An investment would mark a significant expansion of SoftBank’s bet on WeWork, with the Japanese group and its $93bn Vision Fund having agreed to place $4.4bn into the company last year at a $20bn valuation.
Depending on the investment size, SoftBank would control a large minority stake in WeWork and may even gain control of more than half of the company’s equity. It would also delay discussions over a potential listing of WeWork. One person close to the company said that WeWork has been receiving pitches from investment bankers about a deal to go public as soon as late next year. Meanwhile, WeWork’s net losses continue to grow as it focuses instead on aggressive overseas expansion and the acquisition of new properties and leaseholds. In the first half of 2018, losses at WeWork rose more than fourfold from the same period a year ago to $723m. Its rapid pace of expansion has raised concerns about the company’s frothy valuation as WeWork grapples with a jump in costs and large fixed investments in office buildings. The negotiations on the SoftBank side are being led by Ron Fisher, vicechairman of the Japanese group and one of a handful of executives who have worked by the side of SoftBank’s founder Masayoshi Son over the past two decades. Mr Fisher and Mark Schwartz, a former Goldman Sachs executive who is also on the SoftBank board, became WeWork directors last year as part of the $4.4bn investment. For SoftBank, an investment of a near majority stake in WeWork would mark a departure from Mr Son’s strategy of taking 20-30 per cent stakes in technology start-ups through the Vision Fund without the Japanese group itself having to manage the individual companies.
Competition and Markets Authority launches investigation into audit sector Fevertree shares dip as investors sour on tonic-maker NAOMI ROVNICK
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hares in Fevertree, the British premium soft-drink maker whose stock market value long ago eclipsed that of its larger rival Britvic, fell as much as 7 per cent on Wednesday, continuing a steep sell-off of the popular share that has run for five trading sessions. The drop in Fevertree’s share price came after data released last week showed that rapid growth of the group’s products had started to stall, while investors also sold out of other consumer companies valued at high multiples of forecast earnings, such as Games Workshop. Shares in Fevertree, whose bottled tonics and other mixers have grown in popularity alongside the trend for British pubs and bars to sell new ranges of premium and artisan gins, hit an all-time high of £41.20 on September 12, which was more than 30 times their November 2014 IPO price. The stock fell as much as 6.8 per cent on Wednesday and was still down 6 per cent at £27.72 by lunchtime in London. Over the past five trading sessions, Fevertree has
fallen by 23 per cent. “A lot of it is do with a market sell-off of high-multiple stocks,” said Berenberg analyst Ned Hammond, who recommends investors continue buying Fevertree shares. Shares in fast-growing fantasy figurines retailer Games Workshop have also fallen 12 per cent in the last week. Mr Hammond added investors were spooked by data from market researcher Nielsen showing Fevertree’s sales to so called off-trade customers, such as grocery chains and off-licences, had slowed to 38 per cent in the four weeks to early September, compared with 75.2 per cent growth in the previous four weeks. The premium mixers maker is still valued at around 56 times forecast earnings for next year, however, compared to 13 times for traditional soft-drink maker Britvic. Fevertree, whose market capitalisation remains £1.4bn higher than Britvic’s £2bn valuation, reported an operating profit of £56.4m for the year to last December. Britvic made £163m, although this represented an earnings decline while Fevertree’s profits grew by 64 per cent.
Sony chief executive Kenichiro Yoshida: ‘We need to change to become flatter, speedier and more collaborative’ © Tokuyuki Matsubuchi/FT
Yoshida promises a speedy Sony
Fifth PlayStation on the way, Goodbye Google+, Microsoft grabs a stake in Grab SIMON MUNDY
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enichiro Yoshida faced a daunting challenge when he became Sony’s chief executive earlier in April. The Japanese group had sustained cumulative losses of $8.8bn during a “lost decade” in which it shed 35,000 employees, as well as its laptop and battery businesses. In his first one-on-one interview as chief executive, Yoshida told the FT that Sony is working on a successor to the PlayStation 4, in defiance of those who are reading the last rites for gaming consoles. There had been rumours that Sony would instead create a tablet that could connect to other devices. His update on the console business came amid a broader discussion of Sony’s future, which Yoshida says needs to change its culture and become “flatter, speedier and more collaborative”. This will mean breaking down the barriers between business divisions, which he says have long operated in silos. “There is a sense of urgency,” Mr Yoshida said, insisting that improving earnings must not lead
to complacency within the group. Flag as Important Goodbye Google+ It was once billed as a potential rival to Facebook, but the Google+ social network has been shut down after news of a security flaw that gave outside developers access to private user data for three years. Meanwhile, it emerged that a Google employee had argued internally that disclosing the leak would cause political problems. The state of AI Today’s Big Read looks in depth at the current state of artificial intelligence. A fatal crash earlier this year showed the risks inherent in relying on humans as backups for autonomous vehicles. Some experts warn that expectations around the pace of AI development have become overheated. But others note that the only thing stopping the deployment of fully autonomous weapons systems, destroying targets without human control, is our discomfort with the idea. ““You can’t say the technology itself can only be used in a defensive way and under human control,” says
one. “It’s not true.” Microsoft invests in Grab Microsoft is joining the ridehailing revolution, by taking part in a $500m funding round by Singapore-based Grab. The US group contributed about $200m of that. The remainder came from other investors including SoftBank — which already has big stakes in Grab’s peers Uber and Ola. Forwarded The Stripe story Wired UK takes a deep look at Stripe, the payments company founded by two brothers from a small Irish village, and now valued at $20bn, handling payments for some of the biggest groups on the web. Amazon’s growing AI clout Artificial intelligence has played a key role in making Amazon a trillion-dollar company, and will be central to its future growth, says this report from Fast Company. Its innovations range from Deep Lens, a video camera system that users can programme to automate basic tasks, to incremental improvements to warehouse efficiency that are adding to the company’s formidable logistical strengths.
Stocks to watch: Sophos, Smurfit Kappa, Dixons Carphone, LVMH Packaging makers slump on fears of oversupply and Chinese competition BRYCE ELDER
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ophos led the FTSE 250 gainers after hosting a customer event in London on Tuesday, where the security software group launched its Endpoint Detection Response suite for spotting and analysing malicious code. The stock had dropped last month on worries that a recent slowdown in billings was due to increased competition and pricing pressure, which would force a reset of guidance when Sophos delivers thirdquarter results later this month. Credit Suisse left the meeting “feeling confident in the continued structural growth of the industry and in Sophos’s ability to capitalise upon this through ongoing cross-selling and the introduction of new . . . products”. The bank was “encouraged that, despite the recent slowdown, new business growth is still double-digit and customer enthusiasm for Sophos remains high. As such, we are confident that Sophos remains one of the best medium-term growth stories in the sector.”
Packaging makers including Smurfit Kappa, Mondi and DS Smith slumped for a second day on worries that a glut of containerboard would drive prices sharply lower. The retreat follows Nine Dragons, the largest Chinese containerboard producer, saying on Monday that it would acquired a paper mill in Wisconsin to making containerboard. Goldman Sachs downgraded US-listed International Paper to “neutral” from “buy” as it cut target prices across the sector. The broker said it had “underestimated the speed and severity” of containerboard supply coming on to the market in response to the ecommerce boom, and was “incrementally concerned by the pace of recent new supply announcements as well as the fact that Chinese entrants are now entering the US market for the first time”. “Over the past 15 months we have had 12 new capacity projects announced with another seven companies . . . exploring further new capacity additions. Each of these projects is relatively small
(around 1 per cent of North American capacity), but in aggregate they are likely to result in oversupply at some point in the 2020-2022 time period even if demand growth remains at recent circa 2 per cent rates” Goldman Sachs LVMH was the Stoxx 50’s sharpest faller after third-quarter results from the luxury goods giant showed slowing growth across all sectors apart from its wine and spirits divisions. Quarterly sales growth for the group was 9.6 per cent, slightly below a 9.8 per cent consensus. “The quarter is likely to mark the beginning of the cyclical sales growth slowdown for LVMH and for the sector,” said Société Générale. Sellside stories HSBC upgraded Dixons Carphone to “buy” from “hold” with a 195p target price. A new bonus structure tied to free cash flow rather than earnings per share suggests management under new chief executive Alex Baldock is more ambitious than the current price suggests, HSBC said.