June 15, 2020 / 7:13 PM / 2 months ago

Breakingviews - Corona Capital: Frequent fliers, Folies Bergeres

LONDON/DALLAS/HONG KONG (Reuters Breakingviews) - Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.

United Airlines passenger jets taxi with New York City as a backdrop, at Newark Liberty International Airport, New Jersey, U.S. December 6, 2019. REUTERS/Chris Helgren

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- MileagePlus minus

- Lagardere’s folly

FLYING CLOSE TO THE SUN. United Airlines is reaching deep. The Chicago-based carrier is using its loyalty program to back a $5 billion loan led by Goldman Sachs, the company said on Monday. The MileagePlus program, which has over 100 million members, brings in some $2 billion in EBITDA annually through partnerships with hotels, rental car companies, and others.

Added to funding from the U.S. CARES Act, United said it should have $17 billion in liquidity at the end of next quarter. The good news: its $40 million in daily cash burn should slow by then. The bad news? It will still be roughly $30 million a day, or $2.7 billion a quarter. That eats up more than half the new loan, before cash can even be put to good use. The company lost less than $500 million of market value on the news, proving hope continues to depart from reality. (By Lauren Silva Laughlin)

FOLIE DE GRANDEUR. Showbusiness is all about timing. Unfortunately for shareholders of $1.8 billion Lagardere, eponymous boss Arnaud appears to have precious little of it. On Monday Les Echos reported that the French media conglomerate-cum-travel-retailer has offered to sell concert venues including Paris’s famous Les Folies Bergeres cabaret and the Bataclan for 70 million euros. Notwithstanding the latter’s association with terrorist attacks in 2015, a sale couldn’t come at a worse occasion.

Even though President Emmanuel Macron has announced the lifting of many lockdown measures, large gatherings remained banned. No wonder potential buyers such as rival Vivendi and concert organiser Live Nation Entertainment – the latter nursing a 32% year-to-date decline in its shares – dismissed the price as too high, the paper reported. Still, if live music does return, the venues could fit nicely with Vivendi owner Vincent Bollore’s existing portfolio. Given his 16% stake in Lagardere, he’s got a front-row seat. (By Christopher Thompson)

VACCINE VETO. Germany is using the coronavirus crisis as an excuse to flex its protectionist muscles. Europe’s largest economy said on June 15 it had acquired a 23% stake in privately held biotech CureVac for 300 million euros. The funds will help the Tuebingen-based group accelerate development of a potential vaccine for Covid-19, which is expected to start trials this month.

Securing access to a vaccine is probably only part of the story. CureVac is one of several companies working on Covid-19 treatments, and is arguably behind some rivals. Germany’s Minister for Economic Affairs and Energy Peter Altmaier may have been spooked by reports that U.S. President Donald Trump tried to lure the company to America in March. Altmaier’s real aim, however, seems to be to build up Germany’s life-sciences sector, and reduce the country’s reliance on foreign companies. UK and French politicians have voiced similar aspirations. It’s good news for fledgling European biotechs. (By Aimee Donnellan)

SOFT SKILLS MEET HARD TIMES. Not all e-learning companies are getting a bump from pandemic-induced lockdowns. Skillsoft, an online teaching company that offers courses on management and communication, has filed for Chapter 11 to reduce about $2 billion of debt. The company, owned by private equity firm Charterhouse Capital, has a mission that believes “every person has the potential to be amazing. And that there’s a better way to bring out what they already have in them.”

The company boasts it serves 65% of the Fortune 500, slicing and dicing data as users engage in 25 million hours of courses. One class the company teaches: forging ahead with perseverance and resilience when working from home. The 21-minute course is meant to help people build a work-life balance, it says. With creditors cutting some $410 million of the company’s debt, according to Reuters, Skillsoft is getting the kind of crash course they don’t teach in classrooms. (By Lauren Silva Laughlin)

PAYING IT BACK. Reimbursing governments for furlough support points to hidden strings. IKEA and distribution company Bunzl plan to hand back cash they received to keep staff on payrolls during the pandemic. The intention appears noble. Tolga Oncu, retail operations manager at IKEA retailer Ingka Group, told the Financial Times that after forecasting sales declines of 70%-80%, the flatpack furniture giant was reaping the rewards of pent-up demand. Bunzl’s revenue is forecast to rise 6% in the first half of the year.

There’s no onus on businesses to return the cash. So the largesse suggests companies are keen to end any perceived obligation to governments. Airlines that furloughed staff only to make them redundant and grocers like Britain’s Tesco, which took rate relief and then paid dividends, got an ear-bashing. For those that really need support and cannot pay back the cash, the acts of conscientious rivals are the last thing they need. (By Aimee Donnellan)

PLOT TWIST. British cinema group Cineworld’s pursuit of Canadian peer Cineplex for $2.1 billion has taken a nasty turn. Friday’s announcement pulling the plug on the deal cited a Cineplex “material adverse effect”. Cineplex, which has lost 60% of its market value this year, denied it had breached any deal terms and accused the buyer of doing the same.

The British acquirer did not specify the broken conditions. December’s agreement excludes “outbreaks of illness” as a material adverse effect. So Cineworld, which has also been hit by the lockdown, will have to prove the pandemic had a disproportionate effect on Cineplex compared to peers. Under the agreement, the target’s debt must not exceed $725 million. But investors may have to wait until June 29 to see if this has been breached, because Cineplex has delayed its quarterly results. Legal battle scenes are likely in the sequel. (By Dasha Afanasieva)

PEER TO FEAR. It can’t be the ending that RateSetter founder Rhydian Lewis had envisaged. The UK marketplace lender, which hooks up credit investors with retail borrowers for a small fee, is in talks about a sale to Metro Bank, the loss-making 180 million pound lender. It’s ironic that Lewis’ startup, which along with its peers generated a huge amount of dubious hype about disrupting traditional banking, may be absorbed by the system it intended to overthrow. But investors have started to pull money from RateSetter amid the pandemic, leaving Lewis in a tight spot.

Metro Bank’s own troubles, encapsulated by a 97% share-price fall over the past two years, add a further wrinkle. The lender’s chief executive and chairman were forced out after an accounting blunder last year. New boss Dan Frumkin is hardly in a position to offer Lewis a generous price. RateSetter must be desperate. (By Liam Proud)

A SWEATY AFFAIR. The masses have spoken. Casualwear chain Uniqlo is set to launch face masks made of the smooth, breathable and sweat-wicking material used in its highly popular “AIRism” underwear line after it was inundated by consumer requests. The brand owned by $60 billion Tokyo-listed Fast Retailing is not the only company sensing a new business opportunity in personal protection wear: Under Armour’s water-resistant face masks for working out sold out in less than an hour.

Uniqlo’s operations are in less fine form, of course. Including online sales, same-store sales and total sales fell by 18% and 20% year-on-year in May, respectively. As long as social-distancing measures remain in place or until there is a vaccine, businesses will strive to make the most of a pants situation. (By Sharon Lam)

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