June 30, 2024 | Read Online

June 30th - The Week Ahead

Private Credit > Private Equity, Nike Woes, and Archegos Drama

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Welcome Back!

Please note, we're going to be off this Thursday because it's July 4th, hopefully that means there will be a slow work week and everyone can enjoy the nice weather 🤝

The Week Ahead Of Us 🔍

Earnings are mainly done at this point:

Wednesday: Constellation Brands is the only big earnings story this week.

Copper is up 70%

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The Main Stories 🔍

Private Credit is outperforming Private Equity: MSCI shared 1Q performance results and found that senior private-debt funds are returning 2% YTD, compared to global PE funds which have returned 1.3% YTD.

From MSCI

Rich Handler promptly saved Jefferies from the Archegos debacle while on vacation: Last week, the story of how Rich Handler directed Jefferies traders to quickly exit Archegos exposure broke. While other Investment Banks lost billions of dollars, Handler's quick judgment call (while ordering a drink on a tropical holiday) saved Jefferies potentially hundreds of millions.

Quantіan @quantian1

Margin Call 2 Margs 2 Deep

6:19 PM • Jun 26, 2024

2.38K Likes 135 Retweets

26 Replies

Handler later laid out a thread showcasing his top ten lessons from the Archegos debacle, highlighting the importance of humility, trust in a partnership, and sharing that "time is never your friend when you in the deep end of the pool and don't know how you got there"

Nike stock tanks 20% after missing consensus and a weak guide: Revenue of $12.61B was below expectations of $12.84B - but weak guidance was the real problem for Nike. Next quarter's sales are expected to fall -10% y/y (estimates were -3.2% y/y), while FY 2025 sales are expected to decline by mid-single digits, much worse than initial estimates of ~1% sales growth. Results were caused by more promotions and weakness among core franchises like Air Force 1 and Converse. Management also warned that trends are weakening in China, and there's uneven trends globally. Equity Research Analysts have been promptly downgrading the stock and lowering their price targets.

This may be showing the consumer is weakening, but it also may show that there's real competitive pressures Nike hasn't adapted too. Upstarts like Hoka and On Running, plus Adidas's "Samba" shoes being wildly popular, and are taking share from Nike products that haven't really innovated in a while.

Nike CEO John Donahoe called 2025 a "transition year for our business", laying the groundwork for a disappointing year and a half of results…

Walgreens' poor earnings are showing the impact of fighting shrink: Walgreens first made headlines in 2021 when the company closed five stores in SF driven by a persistent spike in "organized retail crime" (gangs coordinating toilet paper and Axe Body Spray heists). Three years ago, Walgreens wasn't alone in sounding the alarm. Executives at Target, CVS, and Walmart all identified ORC as a multi-billion-dollar headwind. But, in 2023, internal company data and a national survey suggested that shrink had re-stabilized to pre-covid levels.

What's more concerning than a hit to gross margin, though, is the persistent violence associated with thefts. 45% of companies surveyed by the National Retail Federation reported they altered store hours in response to violence against employees and customers. Especially in SF, Oakland, Seattle, and NY, putting Tide Pods behind plexiglass was, unsurprisingly, ineffective against preventing assaults against Duane Reade regulars.

On Thursday, Walgreens CEO Tim Wentworth told investors that 25% of the company's ~8,600 locations add nothing to operating income and will be shuttered over the next few years. Shrink is a flashy driver of failure, but Walgreens back of house retail pharmacy business is also struggling to compete with home-delivery prescription services and aggressive insurers. The company slashed their full-year outlook (adjusting 2024 EPS down from $2.95 to $2.80/share), blaming a weakening consumer and softening demand for Covid products.

From a consumer perspective, the Walgreens shopping experience is miserable. Markets seem to agree. Having cratered ~25% this week, Walgreens will need to come up with some creative strategies (other than adding a few more checked out security guards to store exits) to crawl back from its 27-year low …

A Tombstone on Chevron: This week SCOTUS voted to axe a legal precedent dubbed the "Chevron deference". The Court's opinion marks a huge victory in conservatives' multi-decade campaign against the so-called "administrative state" (a.ka. over-extended/empowered federal government). The decision overturns a 1984 ruling that held that when Congress passed under-specified legislation, courts needed to defer to federal agencies' "reasonable" interpretations of statutes on the books.

In theory, life-long experts like scientists or economists better understood necessary regulations than judges. The doctrine has parried back challenges against laws like the Clean Air Act and ACA in which Congress left government officials wide operating latitude to implement their respective missions. Opponents argued that the doctrine traded far too much power from the courts to "deep-state" bureaucrats.

Following the overturning, environmental activists and others are especially concerned that recent regulations, especially ones aimed at curbing GHG emissions, are in danger. The ruling, notably, could put both parties' agendas in jeopardy. Legal experts report that whether Trump or Biden ends up in the White House, the next Administration will have a harder time exercising executive prerogative.

More Headlines 🍿

SpaceX is now valued at $210B. The secondary sale for insiders and employees makes Musk's company the second most valuable in the world (behind TikTok parent ByteDance at $270B) and marks a ~15% boost from a December valuation.
beehiiv acquireed the ai-based website builder, Typedream. Congrats to beehiiv cofounder & ceo (and Wall Street Rollup reader) Tyler Denk on the deal 👋
Blackrock is nearing a deal to acquire Preqin, a PE and credit data provider, for $2.5B
MidOcean Partners raises $765mm for an opportunistic credit fund. MidOcean has over $10B of AUM and is targeting participating in liability management exchanges
Chinese Automaker market share is expected to reach 33% by 2030, up from current levels of 21%, according to AlixPartners
Retail chain Tractor Supply eliminates DEI roles, Pride support and carbon emissions goals. The move comes in line with reports from across corporate America of rollbacks of diversity recruiting efforts at banks, law and consulting firms, and elsewhere.
Per Bloomberg, Consumers are starting to run out of pandemic savings, causing parts of the economy to start losing steam.
Paramount's Three Co-CEOs have hired bankers to evaluate asset sales. The three-headed C-Suite also let employees know they've identified areas to cut headcount. Apparently no one has asked the question why there needs to be three CEOs…

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M&A Transactions💭

Salt Labs, developer of an employee reward platform, was acquired for $173.0M by Chime.

The merchant services business division of i3 Verticals has entered into a definitive agreement to be acquired for $440.0M by Payroc. Raymond James advised on the sale.

The Nicotine Replacement Therapy Business Outside of the US of Haleon (LON: HLN) has entered into a definitive agreement to be acquired for $636.09M by Dr Reddy's Laboratories (BOM: 500124).

Arogo Capital Acquisition (NAS: AOGO), a blank check company, has reached a definitive agreement to be acquired for $210.0M by Ayurcann (CNQ: AYUR). EF Hutton advised on the sale.

Tokyo Century (TKS: 8001) reached a definitive agreement to acquire 20% of Yoma Fleet, provider of auto leasing and vehicle rental services, for $185.0M. After the transaction, Tokyo Century will own 100% of the company.

Model N, provider of cloud revenue management, was acquired for $1.25B by Vista Equity Partners. Jefferies advised on the sale.

Kitchens@, provider of ready-to-occupy kitchens, was acquired for $145.0M by Invesdor.

Infinera (NAS: INFN), a global supplier of networking solutions, has reached a definitive agreement to be acquired for $2.3B by Nokia (HEL: NOKIA). Centerview Partners advised on the sale.

Griid, a vertically integrated bitcoin mining company, has reached a definitive agreement to be acquired for $155.0M by CleanSpark (NAS: CLSK).

Fosroc International, manufacturer of high-performing chemicals, has reached a definitive agreement to be acquired for $1.02B by Saint-Gobain (PAR: SGO).

Celsius, developer of medicines designed to teat complex diseases, was acquired for $250.0M by AbbVie (NYS: ABBV). Centerview Partners advised on the sale.

Altimetrik, provider of business transformation and technology consulting services, has entered into a definitive agreement to be acquired for $900.0M by TPG (NAS: TPG). Jefferies advised on the sale.

Alcatel Submarine Networks, manufacturer of optical systems, reached a definitive agreement to be acquired for $377.19M by the French Government.

U Square, operator of a commercial property facility, the company reached a definitive agreement to be acquired for $340.63M by Gwangjushinsegae (KRX: 037710).

Private Placement Transactions💭

Sila, manufacturer of supercharged car batteries, raised $375.0M of Series G venture funding led by Sutter Hill Ventures.

LongBridge Security, provider of social security brokerage services, raised $100.0M of venture funding led by Singaporean Consortia.

Noteworthy Chart 🧭

The Biggest Tech Layoffs So Far In 2024:

From Carbon Finance

Best of YouTube ⌚️

TD Cowen's President breaks down private credit risks

TD Cowen President breaks down private credit risks

Meme Cleanser 😆

High Yield Harry @HighyieldHarry

The Wells Fargo Analyst they made eat 75 chipotle bowls

tw profile: Random Muppet Random Muppet @MuppetTrading

"To put the 'weight debate' to rest, we consumed 75 like-for-like $CMG burrito bowls in NYC (half in store, half digital, various locations)." - Zachary Fadem and his Wells Fargo team

This is the hard work we'd expect from the sell-side into the final days of II voting.