The Wall Street Journal - 31.10.2019

B2| Thursday, October 31, 2019 *** THE WALL STREET JOURNAL.**

INDEX TO BUSINESSES

These indexes cite notable references to most parent companies and businesspeople
in today’s edition. Articles on regional page inserts aren’t cited in these indexes.

A

Abrams Capital...........B1
Alphabet...............A6, B4
Apple.......B1,B6,B11,B12
AT&T....................A3,B12

B

Banco Santander......B10
Barclays.....................B10
Baupost Group............B1
Bayer...........................B3
Biogen.........................B6
BMW...........................B2
Boeing....................A6,B5
Booking Holdings......B11

C

CoinList.......................B4
Credit Suisse Group.B10

D

Daimler........................B2
Deutsche Bank..B10,B12
Dongfeng Motor Group
B2
E

Edison International...B2
Elliott Management...B1
Exor..............................B1
Expedia Group...........B11

F

Facebook..A1, B1,B4,B11
Fiat Chrysler

Automobiles...B1,B2,B6 Ford Motor..................B6 G Garmin.......................B11 General Electric B1,B11,B12 General Motors.....B1,B6 Grubhub.....................B11 H Hulu...........................B12 J Japan Display..............B6 JPMorgan Chase.......B10 L Lyft..............................B4 M Molson Coors Brewing B6,B11 Morgan Stanley........B10 N Netflix.......................B12 Nissan Motor..............B2 Novartis.......................B6 O 1Malaysia Development Bhd............................A7 P Peugeot.......................B1 PG&E...........A2,A3,B1,B2

Pilgrim's Pride..........B11 PSA Group........B1,B2,B6 R Renault........................B1 S Safran..........................B5 Samsung Electronics..B4 Sanderson Farms......B11 Sony.............................B6 Southern California Edison.......................A3 Sprint..........................A3 Starbucks....................B3 Steadfast Capital Management.............B2 T Third Point..................B6 T-Mobile US................A3 TripAdvisor................B11 Twitter..................A1, B4 Tyson Foods..............B11 U Uber Technologies......B4 V Volkswagen.................B2 Värde Partners............B1 W Walt Disney..............B12 Y Yum! Brands.............B11

INDEX TO PEOPLE

BUSINESS & FINANCE

BYWILLIAMBOSTON

VW Warns of Worsening Downturn

The auto maker is reaping the rewards of an overhaul that followed its emissions cheating scandal.

JULIAN STRATENSCHULTE/DPA/ZUMA PRESS

and Fire Protection. An increase in wildfire claims could jeopardize what had so far looked like a profit- able strategy that Baupost and a handful of other investors have bet on: buying up insurers’ claims against PG&E at a discount. Under a settlement proposed in September by PG&E, Baupost would have stood to gain hundreds of millions of dollars. PG&E has said one of its power lines malfunctioned shortly before the Kincade Fire broke out, but the exact cause and the company’s potential liability remain unclear. The blaze began despite PG&E’s use of rolling blackouts. About $4.4 billion of PG&E bonds changed hands since the start of the Kincade Fire, according to data from Market- Axess, and 296 million shares traded during that period. Holders of the bonds took paper losses of $2.4 billion through Tuesday, then gained about $1 billion Wednesday, according to the Journal’s analysis of price changes in PG&E bonds that traded since the fire began. Shareholders

took paper losses of about $1.7 billion, then gained $590 million, in the respective periods. The biggest price moves hit bonds with high annual interest payments. Funds including El- liott had bought them, betting bondholders would recover as much as 130 cents on the dollar after accounting for past-due interest, analysts said. The pos- sibility of losses from the Kin- cade Fire sent the bonds tum- bling as much as 18% to prices as low as 90 cents on the dollar before the Wednesday rebound. Hedge funds betting on dis- tressed assets have endured a rocky year as popular invest- ments in the debt of Argentina and the telecommunication company Frontier Communica- tions Corp. backfired. Davidson Kempner Capital Management, a hedge fund that according to a court filing held $767 million of bonds as of Oct. 11, was a seller Monday, said people familiar with the matter. Traders said some bondholders were able to off- set losses by shorting PG&E’s stock before the fire and that some funds bought in as prices fell this week.

Wagers on PG&E have been popular for the past two years because it has billions of dollars of debt and equity out- standing, allowing hedge funds looking for double-digit returns to bet large amounts on the utility’s fate. The PG&E trade punished early investors including Baupost when the Camp Fire raged, and it rewarded oth- ers including Abrams and El- liott when plans emerged to rescue the troubled utility. On Wednesday, Steadfast Capital Management LP told clients it had lost 1.47% from its investment in PG&E stock in the third quarter. “This is a powerful example of high-degree-of-difficulty investing and one that, in hindsight, we should have avoided,” it said in an investor letter. Steadfast, which was up 14% for the year through Sep- tember, said it had made money investing in PG&E when it came out of bankruptcy in 2004 but it had misjudged the degree to which politics would affect the company’s fate. It described its losses as painful. —Alexander Gladstone contributed to this article.

About $4.1 billion in paper value was lost since the fire began.

PHILIP PACHECO/AGENCE FRANCE-PRESSE/GETTY IMAGES

CreditSights. “The answer is
nobody knows.”
The uncertainty is threaten-
ing negotiations between
PG&E’s investors, insurers and
existing wildfire victims,
which could stymie plans to
bring the company out of
bankruptcy, Mr. DeVries said.
Bondholders pledged to in-
vest billions of dollars in the
company to pay out wildfire
claims but made their commit-
ments contingent on a provision
that damage this fall from fires
where PG&E operates not ex-
ceed 500 buildings, according to
a version of their restructuring
proposal filed in bankruptcy
court in September. The Kincade
blaze destroyed or damaged 246
structures as of Wednesday af-
ternoon, according to the Cali-
fornia Department of Forestry

Continued from page B1

Investment

In PG&E

Takes Hit

in the making with input from Mr. Marchionne, who was an Exor board member. Mr. El- kann’s biggest move came in 2015 when he bought reinsur- ance company PartnerRe. He was often directly involved in the contentious negotiations with PartnerRe that culminated in a hostile takeover of the company by Exor. The collapse of the Renault deal in June could prove costly for Mr. Elkann and his family. Since those failed talks, Peu- geot’s stock has risen sharply, and the French company has surpassed Fiat Chrysler in market value. Before The Wall Street Jour- nal reported the latest talks Tuesday, Fiat Chrysler had a market capitalization of about

€18.5 billion and Peugeot €22.5 billion. Wednesday, Fiat Chrys- ler’s shares rose 9.5% and Peu- geot’s 4.5%. Renault stock fell 4%. Potentially complicating the merger, Fiat Chrysler is in the middle of contract talks with the North American labor union United Auto Workers. However, Peugeot has no pres- ence in the U.S. so the merger plan is unlikely to threaten jobs there. Mr. Elkann had long favored the Renault deal and continued to hold out hope for that merger to be revived. But some analysts argue that Peugeot is actually the better match. The two companies are comple- mentary in most markets and already have several joint ven-

tures, including one to produce commercial vehicles. While Fiat Chrysler has a large business in Brazil, the French company has concentrated its South Ameri- can strategy on Argentina. Both car makers have signif- icant market shares in Europe providing the opportunity for cost cutting. Together they would have a market share of about 23% in the region, just behind Volkswagen. As part of the deal, Peugeot would distribute its roughly €3 billion stake in auto parts maker Faurecia to its shareholders, according to people familiar with the matter. Fiat Chrysler, meanwhile, would pay its shareholders a dividend of €5 billion and would also distribute the pro-

ceeds from the sale of its Co- mau unit, which is valued at about €250 million. The plan is for the combined company to be legally domi- ciled in the Netherlands, the people said. It would maintain opera- tional headquarters in the U.S., France and Italy, the people said. The shareholders of both companies would each have their stakes divided by two as part of the deal, the people said. That means that Exor would have 14.5% in the combined group, while the Peugeot family, the French state and China’s Dongfeng Motor Group Co. would own stakes of a little over 6% each.

A

Acevedo, Sylvia...........B5

C

Cook, Tim....................B1
Cox, Jamie.................B11
Culp, Larry...................B1

D

Dorsey, Jack.........A1, B4

E

Elkann, John...............B1

G-H

Granet, Jason............B10

Hamilton, John...........A6

J Johnson, Kevin............B3 L Lee, Stephen...............B4 Loeb, Daniel................B6 Lorenzen, Mark...........A3 M Maestri, Luca..............B1 Markopolos, Harry....B12 Muilenburg, Dennis....A6 O-P Olson, Mike.................B4 Pai, Ajit.......................A3

Powell, Simon...........B11 S Stam, Adam..............B10 T Tarbert, Heath............B5 Tavares, Carlos...........B1 Tusa, Steve.................B1 W Welford, Peter............B6 White, Noel...............B11 Z Zaccarelli, Chris........B11 Zuckerberg, Mark.......B1

BERLIN— Volkswagen AG warned that the downturn in the global car market was worsening but maintained its outlook for profit and revenue as the world’s biggest auto maker by sales continued to sell more higher-price sport- utility vehicles. Volkswagen’s warning fol- lows several profit revisions and downbeat assessments of the industry by major players such as General Motors Co., Ford Motor Co. and Renault SA, citing trade conflicts, Brexit and economic uncertainty in China, the U.S. and Europe. Auto sales world-wide are expected to decline 4% this year after a 0.5% decline in 2018. Pressure is mounting on manufacturers to achieve scale, cut costs and generate more cash to finance investment in electric vehicles and new self-driving technology. Underscoring this, Fiat Chrysler Automobiles NV and PSA Group , maker of Peugeot and Citroën cars, have agreed on merging to create a trans- Atlantic heavyweight better able to absorb the rising costs of industry transformation, according to people familiar with the situation. Volkswagen, whose automo- tive brands range from pas- senger cars and luxury sports cars to vans and long-haul tractor-trailer trucks, is reaping the rewards of an overhaul of its business that followed its 2015 diesel-emissions cheating scandal. “The best days of the party are over, but I wouldn’t want to drown in worries about re- cession,” Volkswagen finance chief Frank Witter said of his

industry’s prospects. Despite delivering fewer new vehicles, Volkswagen posted a 42% rise in third- quarter profit to €3.8 billion ($4.2 billion), while revenue rose 11% to €61.4 billion. It attributed the improve- ment to cost cuts and an increase in the share of higher- price SUVs in its product mix. Overall, its new-car sales fell 1.7% in the first nine months of the year because of a falloff in Europe and China. Mr. Witter said the company’s finances were improv- ing, pointing to €8.6 billion in cash flow in the first nine months, up from €3.5 billion the year before, as the ratio of capital expenditure to revenue remained steady at around 5%. Volkswagen shares rose 0.6% in Frankfurt, giving up earlier gains in the session. As industry consolidation

accelerates, global scale could decide the winners and losers in the race to dominate the sector. Big players such as Volks- wagen, Toyota Motor Corp. and GM have long been seen as favorites, with the size and financial firepower to shoulder the costs of change. A merger of Peugeot and Fiat Chrysler would add to the mix in creat- ing a $50 billion company with solid footing in the U.S. and Europe and the potential to grow in China. Smaller players, such as the German luxury brands Daim- ler AG and BMW AG, are struggling to maintain profits. Daimler reported higher overall earnings last week, but its flagship Mercedes-Benz luxury car division is struggling, with a 1% decline in sales to 1.74 million vehicles in the first nine months of this year and a

sharp drop in its return on sales. Renault, which is grappling with upheaval in its alliance with Japan’s second-largest auto maker, Nissan Motor Co., reported last week that third- quarter revenue fell 1.6% to €11.3 billion and that vehicle unit sales dropped more than 4%. The French car maker also recently booted its chief exec- utive. GM and Ford face chal- lenges as well. The former lowered its profit outlook this week, say- ing the 40-day United Auto Workers strike nearly wiped out its free cash flow for the year and cost it nearly $3 billion in lost earnings. Ford, in the midst of a global reorganization, slashed its profit outlook for 2019 amid tougher competition in the U.S.

vances were rebuffed, he went
public with a presentation that
set out his detailed arguments
for why the industry needed to
consolidate, including the high
costs of developing technology
for electric vehicles and auton-
omousdriving.
Mr. Elkann preferred to con-
centrate on diversifying Exor’s
holdings away from the car
sector, in a plan that was long

Continued from page B1

Fiat, PSA

Agree on

Merger

Three-monthshare performance

Source: FactSet

25

–15

–10

–5

0

5

10

15

20

%

Aug. Sept. Oct.

Fiat Chrysler

Peugeot

holders and strain its balance sheet. A municipal utility like LADWP has more discretion to pass on liability costs to cus- tomers in the form of rate in- creases for homes and businesses. Proponents of inverse condemnation argue that the standard has the potential to hold utilities accountable for system maintenance and offers some financial protection for property owners and insurers in high-risk areas. California lawmakers have debated changing the legal provision, and utilities have pushed for changes. But so far, legislators have been unwilling to alter it, which would likely require a two-thirds vote of the legislature and state vot- ers’ approval as a constitu- tional amendment. State Sen. Bill Dodd, who represents Napa County, said lawmakers will need to con- sider modifying the liability standard as part of a series of reforms meant to change how utilities invest in their power grids. “We’re going to have to be looking at everything,” the Democrat said. PG&E Corp. has started more California wildfires than its peers in recent years and has also conducted larger pre- emptive blackouts this year, as it races to trim trees and shore up its aging transmis- sion and distribution lines. But all of the state’s utilities are struggling with similar issues posed by the risk of fires. Edison International had previously booked a $1.8 billion after-tax charge related to the Woolsey fire in the fourth quarter of 2018 earnings.

PG&E Corp. isn’t the only California utility facing liability risks because of fires sparked by its equipment, as disclosures this week by two of the state’s other top utilities show. Shares of Edison Interna- tional fell almost 5% Wednes- day a day after it reported that its Southern California Edison arm likely sparked the 2018 Woolsey Fire, which burned nearly 97,000 acres in suburban Los Angeles and killed three people. The disclosure coincided with a Tuesday announcement by the Los Angeles Depart- ment of Water and Power, the city’s public utility, said that the continuing Getty Fire in the Brentwood section likely startedwhenabrokentree limb blew onto one of its power lines. Fires have been burning in Northern and Southern Cali- fornia, prompting mass evacu- ations. To avert the risk of spark- ing further fires during strong winds and avoid potential liability, some of the state’s utilities have shut off power to millions of people under an unusual state legal provision. The standard, known as inverse condemnation, holds that if a power company’s equipment starts a fire, it is responsible for paying property damages, even if they aren’t found to have been neg- ligent. For an investor-owned utility such as PG&E or Edison, a large fire could result in billions of dollars in liability costs that could spook share-

BYKATHERINEBLUNT ANDRUSSELLGOLD

Other Utilities Also

Face Liability Risks

Oct.1 730

KINCADEFIRE KINCADEFIRE

Sources: FactSet (share price); MarketAxess (bond price)

Priceof6.05%bonddue2034 5

9

95

5

cents

Oct

Shareprice

$9

4

5

6

8

The Wall Street Journal - 31.10.2019

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