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Fear and Loathing at the Milken Conference

One Adam Neumann sighting to start: the WeWork co-founder partied with early employees and celebrated a $1bn windfall as shares in the office-sharing group started trading on Thursday.

Here’s a photo of Neumann wearing a “Student For Life” T-shirt just before he and the employees of the co-working business chanted “We . . . Work”:

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Dispatch from the Milken Conference 

The world had yet to descend into a pandemic last year when then president Donald Trump pardoned the former junk bond king Michael Milken for violations of US securities laws.

At the time, it looked like Milken would need to wait only a few months for a victory lap at his annual Milken Institute Global Conference, a confab ostensibly dedicated to finding solutions for the world’s biggest issues.

As it turned out, coronavirus got in the way — until this week, that is, when titans of finance and a smattering of elder statesmen finally reconvened at the sunny Beverly Hilton Hotel in Los Angeles.

Booming asset prices have lifted the performance of many investment strategies, making already rich individuals even more wealthy.

Trump has exited the White House and President Joe Biden’s administration has begun targeting private capital more aggressively than ever, an attitude that had many of the attendees, including Orlando Bravo of Thoma Bravo and Cathie Wood of Ark Investment, on edge.

Michael Milken © Joe Cummings

DD’s James Fontanella-Khan, Sujeet Indap and Miles Kruppa attended, and they were mostly struck by the discussion around another hot-button issue: “cancel culture”.

Bari Weiss, the former New York Times writer, commanded one of the most engaged audiences of the event, drawing lines between her experience of being ostracised for criticising the “philosophy of woke” to the lives of Galileo and George Orwell.

Weiss captured what appeared to be a huge fear among the predominantly white, male and wealthy crowd gathered in LA: that they too could be cancelled if they stepped out of line with mainstream liberal thought leaders.

Outside the conference walls, investment managers spread out to neighbouring hotels for rapid-fire sessions where they pitched investors on new funds. Near a side entrance to the Beverly Hilton, anti-vaccine protesters heckled attendees, who mostly declined to engage in debate.

Milken organisers said more than 2,000 people gathered at the conference, compared to about 5,000 in past years. Attendance had been capped at half the normal limit.

Cathie Wood of Ark Investment
Cathie Wood of Ark Investment © Reuters

On site, organisers implemented strict anti-coronavirus measures, requiring that all attendees be vaccinated and test negative for Covid-19 within days of the event. Hired staff enforced indoor mask-wearing with red stop signs.

“Mike got the most restrictive N95s I think I’ve ever seen in my life,” said Josh Friedman, co-founder of the credit investing firm Canyon Partners, speaking on a panel.

Titans of finance eagerly stripped off the masks at after-hours parties.

At one cocktail gathering high up in the hills, Oaktree Capital co-founder Howard Marks briefly mixed with bankers and other hangers on, including the Ukrainian former heavyweight champion Wladimir Klitschko and the son of Apollo Global Management co-founder Leon Black.

Black himself also made a guest appearance on the conference sidelines, months after he was forced out of Apollo following revelations that he had made far larger payments than known to the late paedophile Jeffrey Epstein.

Most people seemed eager for more Milkens following the deprivations of the pandemic’s darkest days. “We’ve got to get on with it,” said one banker, echoing a common refrain.

Sorry Chamath, Trump is the new Spac king

The former Facebook executive turned serial Spac issuer Chamath Palihapitiya had a nice run as Wall Street’s “Spac King”. 

The crown now falls on to the head of former US president Donald Trump, who in the span of just one trading day, stormed the clubby world of special purpose acquisition companies and took the throne.

Donald Trump
Donald Trump aims to compete against the likes of Facebook and Twitter, creating a platform for his rightwing supporters ahead of a potential run for office in 2024 © AFP via Getty Images

On Wednesday evening Trump revealed he was launching a social media platform called Truth Social, which will go public through a merger with a blank-cheque company named Digital World Acquisition Corporation at a valuation of $875m. 

Trump’s brands, Truth Social and Trump Media & Technology Group, are designed “to stand up to the tyranny of Big Tech”, he said.

Since the January 6 insurrection on Capitol Hill, Trump has been banned by major social media platforms including Twitter, Facebook and YouTube. Most banks are loath to finance his ventures, both because of the terrible public relations and because of his tendency to run businesses into the ground.

But there are few gatekeepers in Spacs.

If cable television helped to make Trump president, it may be that Spacs are a cynical enough product to finance a post-presidency resurgence.

On Thursday, Digital World was bid up by the day traders that had the over $200bn Spac market humming earlier in the year. Digital World rose 357 per cent yesterday, implying Trump’s almost non-existent media business is worth billion of dollars.

A slide from a presentation for Trump’s new media company, TMTG

Hedge funds, who’ve found the perfect arbitrage in Spacs, once again showed the upside is unlimited. DD’s Arash Massoudi, James Fontanella-Khan and Antoine Gara have a look at the funds who struck it big on Trump’s Spac circus.

Others weren’t celebrating what might be the best Spac trade in history.

“The idea that I would help [Trump] build out a fake news business called Truth makes me want to throw up,” says one large hedge fund investor who owned almost 10 per cent of Digital World. He sold every share he could early on Thursday morning, before the shares really got moving.

Britain’s supermarkets lever up 

DD readers might remember the intricate series of debt deals and asset sales that the billionaire brothers, Mohsin and Zuber Issa, and their private equity backers TDR Capital lined up in order to buy the UK supermarket Asda for £6.8bn while using only £780m of their own money.

This week, one of the links in that complex chain broke.

The Issas and TDR were going to raise £750m towards the Asda purchase by selling the supermarket’s petrol stations to the other company they own, the highly leveraged petrol-pump business EG Group. On Monday, they said they were calling it off.

Mohsin and Zuber Issa had intended to sell the petrol station sites to their other business EG Group, but the sale was called off this week © FT montage; Jon Super/FT; Reuters

The UK’s third-largest grocer will make up the £750m with £500m in fresh debt and £250m in cash from its balance sheet.

Moody’s promptly downgraded Asda’s debt in response, warning that under the rating agency’s definition, gross debt would be almost six times earnings. (On Asda’s numbers, net debt is 3.5 times earnings.)

Still, the good news for Asda’s bankers is that it expects to spend £12m on fees to raise the new debt.

So why did the deal fall through? Asda told its investors that fuel suppliers wouldn’t give EG Group the same terms that were available to the supermarket group. Catch up on the latest from DD’s Kaye Wiggins and the FT’s Jonathan Eley.

Column chart of Ebitda margin (%) showing Asda under pressure

It’s perhaps unsurprising if suppliers are more wary of a highly leveraged petrol-pump roll-up.

But bondholders are wondering why nobody realised this a long time ago, since the Asda purchase was agreed a year ago and the forecourts sale and its £750m price tag were announced back in February.

They’re also wondering just how much worse EG Group’s supplier terms would have to be in order to merit calling off such an important transaction.

The upshot is that Asda will take on even more debt than it already planned to, at the beginning of a new era of leverage in the world of UK supermarkets.

Job moves 

  • Tiger Global has hired Martin Schimmler to help boost its presence in European private markets, according to Bloomberg. Schimmler is a former executive at private equity firm CVC Capital Partners.

  • Brunswick has added Ken Shibusawa as a senior adviser in its Tokyo office. Shibusawa is chief executive of Shibusawa and Company.

  • BAE Systems said that Ian Tyler would retire from the board in May 2022 after nine years.

  • White & Case has hired Xavier Petet as a partner in its M&A practice in Paris. He joins from Clifford Chance.

Smart reads 

The GRAT game Nike founder Phil Knight passed a fortune on to his family while avoiding billions in tax, and he’s not alone. Here’s a detailed and creatively illustrated look at his legal tax-avoidance tricks. (Bloomberg)

Losing the faith John Lewis is as much a part of Britain’s upper-middle class experience as Wimbledon, Pimm’s and over-apologising. But the nation’s love affair with the retail group is at risk. (FT)

News round-up

FTX lures blue-chip investors in funding round, valuing crypto group at $25bn (FT)

Blackstone braces for higher inflation as earnings hit record (FT)

Barclays’ profit more than doubles as investment bank fees surge (FT)

Mastercard bets on supply chain finance despite Greensill collapse (FT)

Altice Portugal Draws Interest from Blackstone, CVC (BBG)

Starboard Discloses Willis Towers Stake, Says Broker Undervalued (BBG)

Greyhound Swaps Hands Between European Companies (Wall Street Journal)

More than 100,000 people have had their eyes scanned for free cryptocurrency (FT)

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