Wall Street bankers are a lot less busy these days, what with the pandemic-induced drop-off in mergers and acquisitions and initial public offerings.
But there’s a gritty, less glamorous dealmaking realm that has held up, and it’s helping banks offset some of that lost M&A and IPO revenue. A variety of companies, looking for liquidity in the weak economy, are selling off big stakes they’ve long held in public corporations.
The latest came last Monday when French pharmaceutical giant Sanofi launched a $13bn sale of its 16-year-old, 21% stake in Regeneron Pharmaceuticals Inc. Regeneron, a New York-based biopharmaceutical firm, agreed to buy back about $5bn of stock while the remaining $7bn was sold to public investors in the largest public equity offering in the heath-care industry on record, according to data compiled by Bloomberg.
Sanofi’s move came a few weeks after the pandemic’s first big deal of this kind, PNC Financial Services Group Inc’s sale of its quarter-century-old stake of more than $13bn in BlackRock Inc. The sale was the second-largest equity offering in the US since Alibaba Group Holding Ltd’s $25bn IPO in 2014, according to data compiled by Bloomberg.
PNC’s BlackRock stake was picked up by existing investors including Wellington Management, Capital Group Cos and Fidelity Investments, according to people familiar with the matter. At least four state investment vehicles from the Middle East also took part in the offering, the people said.
More such sales are coming. SoftBank Group Corp raised $11.5bn from transactions related to its stake in Alibaba Group Holding Ltd which it bought in 2000, and another $2.9bn capitalising a 5% stake in its wireless arm. It is also closing in on a deal to sell its roughly 25% T-Mobile US Inc stake, worth about $20bn, with a portion being sold to Deutsche Telekom AG, people familiar with the matter have said.
These transactions so far account for some of the biggest-ever announced of their kind. All told, there’s been $80.6bn over 21 secondary offerings announced this year, which beats $53.1bn over 36 such deals during the same period last year, according to data compiled by Bloomberg.
That compares with a 33% drop to $22bn in volume this year for IPOs in the US, the data shows. M&A activity involving US-based targets plummeted 62% during the same period, sinking to $241bn, according to the data.
For Wall Street, the secondary offerings aren’t as lucrative as other dealmaking but they require less work. Banks usually receive about 1% to 2% of the deal size for advisers fees, compared with 5% to 7% for handling an IPO. But IPOs often involve intensive road shows lasting weeks.
Jim Cooney, head of equity capital markets for the Americas at Bank of America Corp, said selling stakes can make sense in the current economy. “The market prefers that companies stick to their core mission and monetise non-strategic assets before selling their own equity,” he said.
The offerings mark another way that companies, distressed or not, have been hunting for liquidity since the beginning of the pandemic. Some have drawn down revolving credit lines, sold bonds or new shares and sold stakes to private equity firms. Investors have been willing buyers of shares, attracted by the discounts since shares are marketed at prices below where the stock is trading.
These stake sales have investors speculating on what holdings could be unwound next. Here are some sizable ones to watch based on Bloomberg’s data. Bloomberg News isn’t aware of talks about potential sales of these stakes.
SoftBank, Uber: SoftBank is Uber Technologies Inc’s largest shareholder with a 13% stake worth $7.7bn. The Japanese conglomerate, led by founder Masayoshi Son, forecasts an operating loss of 1.4tn yen ($13bn) for the fiscal year ended in March after writing down values of the Vision Fund’s investments including WeWork and OneWeb, a satellite operator that filed for bankruptcy.
While it isn’t SoftBank’s oldest or most sizable investment, it could help to recoup some losses.
Walgreens Boots: Walgreens Boots Alliance Inc is the largest shareholder in AmerisourceBergen Corp with a 28% stake, worth about $5.3bn. AmerisourceBergen recently made an offer to buy the Walgreens pharmaceutical wholesale division, Reuters reported earlier this month.
The news had analysts speculating it could be part of a transaction related to Walgreens exiting part of its stake in AmerisourceBergen. The two companies first saw their paths intertwine in 2013 through a $400 million distribution deal that was supposed to last a decade.
Nestle, L’Oreal: Sanofi’s deal to sell Regeneron stock also had analysts speculating it could buy back L’Oreal SA’s 9.4% stake in the drug company.
That, in turn, raises the possibility that L’Oreal would buy back a 23% stake worth $35.5bn that Nestle SA holds in the French cosmetics maker. Since this is a 40-year plus relationship, the deal idea has been long pitched by bankers. Over the years, both sides have said that the investment is long-term.
HKEx, Kweichow Moutai: Hong Kong Exchanges & Clearing Ltd, owner of the Hong Kong Stock Exchange, has a 8.5% stake worth $20bn in distiller Kweichow Moutai Co.
Kweichow Moutai has become a favorite stock in mainland China, and is up 15% this year, while the Shanghai Shenzhen CSI 300 Index fell 6.7%. Cashing out could help fuel HKEx’s ambitions as a dealmaker. It made a surprise bid for the London Stock Exchange last year.
Mondelez, Dr Pepper: Mondelez International Inc, the maker of Oreo cookies and Triscuit crackers, holds about about 13% of Keurig Dr Pepper, following a deal in 2018 when Keurig took control of the soda maker.
In early March, right as the pandemic led to lockdowns in North America, Mondelez, and another investor connected to JAB Holdings BV called Maple Holdings BV,sold a $1.1bn stake in Dr Pepper.
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