Financial Times Europe - 04.03.2020

10 ★ FINANCIAL TIMES Wednesday4 March 2020

The Big Mac is used to measure

purchasing power worldwide. The

sausage roll might equally serve as a

pastry-encased barometer for life in

the UK.Greggs, the biggest purveyor, is

buffeted and buoyed by the economy, a

whimsical tax regime and the variable

weather. Like the stoic Brits it serves, it

soldiers on.

Coming off a strong year, with

pre-tax profits up 27 per cent before

exceptionals to £114.2m, the

fast-growing food retailer has had a

flaky start to 2020. Comparable sales in

stores it manages grew just 7.5 per cent

in the first two months of the year.

ebruary storms and flooding,F

which temporarily closed a plant in

Wales, were among the culprits. This

year will see a spike in input costs.

Wages are due to rise about 4 per cent.

Pork is set to drive a 7 per cent increase

in ingredient costs, which account for

almost a third of the total.

Coronavirus, which has taken a

swipe at everything from airlines to

fashion, will not leave sausage rolls

unscathed. The very concept of “food-

to-go” is at odds with a virus-fearing

world where no one goes anywhere.

Fear not. The ride may be bumpy.

But the secret sauce of this vendor of

cheap snacks is a northern trait: thrift.

The company is spending on new

plants and shops. It opens stores at a

rate of about 100 a year. The company

will invest around £90m a year as it

upgrades older outlets.

To ease the burden, Greggs aims to

claw back about £20m from site

disposals. The investment should

deliver recurring savings of £9.5m off

the 2015 base. Investors can take

further comfort from the group’s

progressive dividend policy. Last year’s

44.9p dividend was up by a quarter.

This year’s payout could be

accompanied by a special distribution.

The shares, down 5 per cent this

year, have outperformed the FTSE 250

over one and three years. There is

Greggs:

stormproof sausage role

nothing fancy about Greggs or its

sausage rolls. But in both cases,

familiarity breeds content.

Sporting events account for

three-quarters of the most-watched TV

broadcasts of all time. Football features

heavily. That has spurredFifa ot

propose expansion of the Club World

Cup, a sideshow in the global game.

Gianni Infantino, president of the

governing body, thinks this is a great

idea. Others do not. The key question is

what thetournament might be worth.

If the value is high, financing should

follow, justifying his optimism. The

Fifa/Club World Cup:

Gianni come lately

project would mean expanding an

eight-team event into a 25-club

competition. Mr Infantino thinks he

can raise $1bn for this, a third less than

the figure he floated two years ago.

The problem is that football is a

mature industry. Much of its revenue

comes from selling media rights.

Broadcasters are reluctant to spend

more. They have already made some

club owners and players wealthy,

notably in the English Premier League.

This generated nearly £5bn of revenue

in the 2017-18 season.

The Premiership and the Champions

League do not welcome outside

investors. Some clubs do, providing a

gauge of what an expanded Club World

Cup might be worth.Arsenal nda

Manchester United re valued at justa

over 4 times revenues.CVC olds

control of theFormula One acingr

franchise in a deal worth $8bn, also

about 4 times annual sales. The firm

plans to recycle its profits into rugby.

Having bought a stake in Premiership

Rugby it wants to take a stake in the

Six Nations contest for £300m.

That suggests a £2.1bn valuation.

Mr Infantino’s venture might be in the

same ballpark, supposing he got $1bn

for a stake in the club tournament, say

40 per cent. Projected annual sales

would need to be about $500m to align

with F1 and famous football clubs.

But hold hard. We are comparing

apples with pears — or perhaps football

and rugby balls. A contest sketched on

the back of a programme is worth far

less than established teams and

tournaments. Mr Infantino looks set to

revise his numbers down yet again.

Exchange traded funds have exploded

in popularity in recent years. So have

warnings on thesystemic risks heyt

may pose. Michael Burry, one of the

investors made famous by Michael

Lewis’s bookThe Big Short, caused a stir

last year byarguing hat the $4.4tn USt

ETF industry is a massive bubble.

He likened ETFs to toxic

collateralised debt instrument that he

shorted ahead of the financial crisis.

Coronavirus-induced market turmoil

has put the mechanics of ETFs to the

test. The fear was that investors would

panic and sell all at once. Huge

concentrations of securities within

certain funds could then make markets

seize up, trapping investors. The

largest US stock and bond ETFs have

experienced some of theirmost active

trading days n record in recent days.o

No large funds imploded.

One reason: money was shuffling

round ETFs rather than pulling out.

Investors ditched equity funds and

bought into fixed-income funds.

Over 80 per cent of outflows in the

first four days of last week came from

just one ETF, according to data

provider First Bridge. This wasState

Street’s SPY, which tracks the S&P 500.

It is the world’s biggest ETF and has

one of the most liquid shares. No

danger of an implosion there, it turns

out. A disorderly sell-off seems more

likely if the pattern was reversed and

there was an exodus from ETFs holding

illiquid bonds into equities.

But the bigger risk to investors, it

turned out, was a systems failure at a

financial services business. Upstart

zero-fee trading platformRobinhood

went offline for 17 hours on Monday. Its

server infrastructure appears to have

struggled with the massive trading

volume. The system crash meant its

more than 10m users could no longer

use it to buy or sell stocks. Hardly ideal

given that the S&P 500 clocked up its

biggest rally since December 2018.

The danger of systemic financial

collapse gets doomsayers like Mr Burry

excited. Prosaic IT glitches are a more

dependable source of disruption.

ETFs/coronavirus:

Robinhood’s big misfire

The nice thing about having an

ex-investment banker as chief financial

officer is that she can advise you on the

benefits of external capital.Google

parentAlphabet its on a cash hoard ofs

$120bn. So the business and its

affiliates hardly need third-party

funding. It has nevertheless assembled

$2.25bn from a consortium for its

autonomous vehicle unit,Waymo.

For Google CFORuth Porat t musti

feel quite like old times. Until now,

Alphabet had used only its balance

sheet to fund Waymo. Taking funds

from others makes sense. It is a

formula that the tech giant can apply

across its portfolio of “moonshots”.

Driverless cars will not beviable for

years. Technology, regulation and

customer acceptance are among the

barriers. Huge capital investment is

required. It is smart not only to share

the costs but also to tap the expertise of

other sophisticated investors.

Like any task force in an action

movie, the partners bring different

capabilities to the mission. US car

retailerAutoNation nd parts makera

Magna ontribute knowledge of thec

automotive supply chain.Silver Lake

Partners knows its way round tech

investment whileMubadala nd thea

Canada Pension Plan nvestment BoardI

have deep pockets and the willingness

to wait years for returns.

Waymo did not disclose an implied

valuation of the business. Last year’s

fundraising byCruise ffers some clueso

with the round featuringSoftBank nda

T Rowe Price, valuingGeneral Motors’

autonomous vehicle unit at $19bn.

Analysts have pegged a similar number

for Waymo. But such valuations risk

creating false certainties when

commercial prospects are so distant.

Strategic investors simply want a place

at the table if and when a market

develops. As for financial investors,

with US benchmark interest rates now

teasing zero, deeply speculative

prospects suddenly look tame.

There is no doubt that autonomous

vehicles are a potentially

transformational technology. The

contrast, naming no names, is with

companies that sublet office space or

sell mattressesonline. Alphabet

investors should meanwhile welcome

proof of the clout their company’s cash

Google: carpool for a

driverless moonshot

balance and technical knowhow

creates. Co-investors increase the

chances its ventures will succeed.

Equally,external investors validate

moonshots that might otherwise look

like billionaires’ vanity projects.

CROSSWORD

No. 16,416 Set by JULIUS

 

 

 

  



   



  

 

 

JOTTER PAD

ACROSS

1 Spooner’s resentful convicts

found down in the dumps (6,4)

7 Nobleman almost naked (4)

9 Creature seen in our ocean

frequently (4)

10 Toxic, explosive articles stirring

up Brits by Dom (5,5)

11 Energy saved by support bod

working in IT (6)

12 Strongly criticise Ms Moore,

about to become viral

worldwide? (8)

13 Notorious individual describing

one stuffed with 1? (3,5)

15 Leader of Italian resistance unit

retired, giving modest address

(4)

17 Sun’s leader, page 4, such a

disreputable character! (4)

19 Discuss loftier garret of priests

(8)

22 The Duke of Milan’s quite

correct to defend son, Oscar (8)

23 France pitching in to recycle

garbage (6)

25 Bra – letter G – tailored item of

ladies underwear (6,4)

26 Hear end of story (4)

27 At a knockdown price, Charlie

shifted pile (4)

28 Participates vocally in

hairdressing salon gossip (5,5)

DOWN

2 National Inquirer’s no.1 serial

criminal (7)

3 Waste time being over-hasty (5)

4 Embarrassed leaders such as

Kinnock and Kennedy? (8)

5 Insignificant event preceding

tsunami (1,4,2,3,5)

6 Working with intelligence, start

to plant yard with grass border

(6)

7 I see actor throwing out

collection of arcane items (9)

8 Poor Bobbie regularly given the

run around (7)

14 Copies Riley doing real-time

tummy exercise? (5,2,2)

16 Litter? New duster will collect it

(8)

18 Rising salesman Dave

struggling to spread effectively

(7)

20 Puttin’ down timeless drug (7)

21 Conclude Bristol is packed with

dross (6)

24 Deadly river claiming reserves

(5)

32 ( 75 < , 1027 , 21

( ; 2 % , 3 ' ,

$*,7$7,1* 35 ,6 0

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75 ($ 685 ( , 6 /$ 1 '

Solution 16,

Wind speeds in KPH Scale:

x = 55.

y = 50.

HIGH

HIGH

LOW
OCCLUDED FRONT LINE

WARM FRONT LINE

COLD FRONT LINE

ISOBAR BRUSH FRONT SYMBOLS

PRESSURE LABELS

1040 1040

1030 1030

1020

1020

1020

1020

1010

1010

1010

1000

1000

1000

990

990

990

980 980

970 970

960 960

950 950

940 940

xxNAMExx

LOW

LOW

Malta Shower 16

Manila Fair 32

Miami Fair 30

Milan Sun 15

Montreal Fair 5

Moscow Cloudy 8

Mumbai Sun 30

Munich Cloudy 7

Naples Fair 14

New York Sun 14

Nice Fair 14

Nicosia Sun 22

Oslo Snow 3

Paris Rain 7

Prague Fair 7

Reykjavik Snow 1

Riga Drizzle 8

Rio Rain 27

Rome Sun 16

San Francisco Sun 21

Singapore Fair 33

Stockholm Sleet 4

Strasbourg Cloudy 10

Sydney Rain 25

Tokyo Shower 9

Toronto Cloudy 6

Vancouver Fair 9

Vienna Fair 11

Warsaw Cloudy 9

Washington Sun 17

Zagreb Cloudy 12

Zurich Fair 8

Amsterdam Cloudy 9

Ankara Fair 18

Athens Shower 17

Bahrain Sun 21

Barcelona Fair 17

Beijing Sun 7

Belfast Shower 7

Belgrade Shower 9

Berlin Cloudy 8

Brussels Rain 9

Budapest Cloudy 9

Cairo Sun 27

Cardiff Rain 8

Chicago Fair 8

Cologne Cloudy 10

Copenhagen Shower 7

Delhi Sun 27

Doha Sun 24

Dubai Sun 23

Dublin Rain 6

Edinburgh Cloudy 7

Frankfurt Cloudy 9

Geneva Cloudy 10

Hamburg Shower 8

Helsinki Snow 4

Hong Kong Rain 22

Istanbul Fair 18

Lisbon Cloudy 18

London Rain 8

Los Angeles Sun 21

Luxembourg Cloudy 7

Madrid Fair 19

Today’s temperatures

Forecasts by

Wind speed

in KPH

16

24 32

7

6

8

(^1819)
25
21
19
14
7
7
9
3
3
4
8
16
20
13
15
16
12
8
6
8 9
9
17
(^2026)
22
17
16
Lex on the web
For notes on today’s breaking
stories go towww.ft.com/lex
Twitter: @FTLex
You could assume coronavirus
nudgedThermo Fisher cientific intoS
bidding forQiagen. You would be
wrong. TheEuropean target has just
released a new test for Covid-19. But
Qiagen was the subject of takeover
rumours well before the outbreak.
Thermo Fisher of the US was already
top of the list of suitors.
Big US scientific equipment groups
such as Thermo Fisher andDanaher
are on a consolidation spree, buying
small, specialised bolt-ons. Qiagen,
whose real métier is DNA testing, fits
that bill. It has scarcity value and
little overlap with its purchaser. This
should ease regulatory scrutiny.
The offer of €39 per share values
Qiagen at just over €10bn, including
net debt. That is 20 times forecast
ebitda and includes a 23 per cent
premium to the undisturbed share
price. It is a fancier valuation than the
shares have ever commanded.
Planned annual cost savings of
€135m fall short of covering the €1.6bn
premium by about €400m, once taxed
and capitalised. That probably reflects
a lack of public targets in a
fast-consolidating sector rather than a
pandemic-induced bid. Qiagenis
unlikely to get a better offer.
The paucity of potential cost savings
reflects Qiagen’s efficiency. Its ebitda
margins before exceptionals hit 36 per
cent last year. The company still
wound up with a €37m net loss, as a
result of €273m in writedowns related
to DNA sequencing research.Peer
Schatz tepped aside as chiefs
executive. Those problems aside,
Qiagen is a sound proposition. The
bulk of revenues come from lab
equipment that drug and biotech
researchers rely on. he strategicT
value of Qiagen helps justify the
steep price.
The recommended tender offer
nudges the spotlight on to Europe’s
remaining independent mid-cap
medical equipment groups. These
includeDiaSorin f Italy and France’so
BioMérieux. Shares in both received
a 4 per cent bump from news of the
Qiagen’s deal.
Providing the tools and equipment
to fight the world’s diseases and
infections has long been about scale.
At most, coronavirus may have
hastened consolidation.
FT graphic Sources: Dealogic; FT Research; S&P Global
Qiagen bid
bn
Premium
Cost savings
taxed and
capitalised
    
Qiagen valuation
Enterprise value to forward ebitda

















     

Apr 

Feb 

May 

Mar 

Feb 

May 

May 















Deal

value

(bn)

Announcement

Date

Acquiror Target

Medical equipment related M&A deals -

Becton Dickinson

Danaher

Danaher

CR Bard

GE Biopharma

Pall

Qiagen

Alere

Patheon

VWR















Thermo Fisher Scientific

Avantor Performance

Materials

Thermo Fisher Scientific

Abbott Laboratories

Enterprise

value/ebitda

Qiagen/Thermo Fisher: white-coat wedding

Scientific devices group Thermo Fisher is buying Qiagen, which makes lab-testing kit. The deal follows

a consolidation wave in the sector as big groups buy smaller specialists. The premium fully values Qiagen —

a reflection of its scarcity value — and is unlikely to be covered by the expected cost savings.

MARCH 4 2020 Section:FrontBack Time: 3/3/2020- 19:00 User:nick.miller Page Name:1BACK, Part,Page,Edition:EUR, 10, 1