Lex Greensill and the British establishment

One thing to start: Jorge Paulo Lemann, the founding partner of 3G Capital, will step down from the board of Kraft Heinz as part of the 81-year-old billionaire’s plan to reduce his travel commitments. More here.

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Greensill latest and a dive into its government connection

DD’s final words on Greensill Capital on Wednesday were “stay tuned”, and we meant it. 

Since then, there have been a few more enormous twists in the tale of the supply-chain financing business, which previously raised $1.5bn from SoftBank’s Vision Fund and tried to raise funding at a $7bn valuation last year. 

Greensill is now preparing to file for insolvency in the UK, and the German financial regulator BaFin has filed a criminal complaint against Greensill Bank’s management for suspected balance sheet manipulation. 

Catch up on those stories from DD’s Rob Smith and Kaye Wiggins and the FT’s Olaf Storbeck here and here.

Now that that’s out of the way, we’d like to take some time to ponder the role of the British establishment in the company’s rise. 

This newly published FT deep-dive sets out how Lex Greensill, who arrived in the UK from Australia as a 24-year-old sugar cane farmer’s son in 2001, was able to embed himself firmly among the country’s elite — so much so that he was made a Commander of the British Empire in 2017 for “services to the economy” and later hired former prime minister David Cameron as an adviser.

Jeremy Heywood, the former head of the civil service who died in 2018, helped ease his entry into the corridors of power, senior government figures believe. Heywood was co-head of Morgan Stanley’s UK investment banking division from 2003 to 2007, where he worked with Greensill — and for a time took him under his wing. 

Later, Greensill would sometimes use a Cabinet Office pass to “camp” in the economic and domestic secretariat, one of the most powerful parts of the ministry, one official said, adding that his level of access was considered “bizarre”. 

Greensill was involved in high-profile government work, such as teaming up with fintech company Taulia, to help public sector bodies speed up invoice payments. Last year the British Business Bank accredited Greensill Capital to provide financing under the government’s Covid-19 crisis loans programme, which offers lenders an 80 per cent guarantee. 

In the words of Paul Myners, the former financial services minister, who was asking questions about the Greensill business back in 2019, civil servants and ministers sometimes seemed “bewitched” by the Australian. 

“There was a failure to ask basic questions about him and how his business had so quickly become a big player in such a significant market,” Lord Myners said. 

Apollo rolls the dice on Vegas

America’s sports betting gold rush triggered big deals like DraftKings’ Spac debut and Caesars Entertainment’s bid for UK bookmaker William Hill months before the words “social distancing” were uttered. 

But Sheldon Adelson, the late casino tycoon behind Las Vegas Sands, who also played a key role in transforming Macau into a gambler’s paradise, felt no reason to modernise. He was, after all, the richest man on the Strip, thanks in part to SoftBank (yes, them again) — whose $800m purchase of his computer trade show, Comdex, helped birth an empire.

And he defended that empire vehemently, spending millions lobbying in Washington against the loosening sports betting laws he saw as a threat to more established brick-and-mortar operators like his own.

However, since Adelson’s passing in February, change has been unfolding at Sands. 

The company is parting ways with its marquee resort the Venetian — agreeing to sell its operations to private equity group Apollo Global Management for $2.25bn and its real estate and land to a lesser-known party, Vici Properties, for $4bn. Apollo plans to enter a long-term agreement with Vici to lease the property and land. 

It’s a sizeable wager by Apollo, one of the biggest winners of the coronavirus crisis, that Vegas will make a comeback as an epicentre for tourism.

Unlike competitors MGM and Caesars, who jumped eagerly into the sports betting ring, Sands’ business model relies heavily on the city’s convention circuit and in-person events.

The risk pales in comparison to Apollo’s $31bn mega-buyout of Harrah’s Entertainment (renamed Caesars) from 2008, which ended in a messy bankruptcy.

As Lex explains: “The latest gambit anticipates a realistic economic recovery. But the private equity firm is wise not to bet the house.”

Despite the anti-sports betting sentiments of its founder, Apollo has a history of interest in the sector — most recently acquiring Great Canadian Gaming for $2.5bn and Italian sports-betting group Gamenet. It also attempted to buy William Hill before Caesars swooped in.

Apollo’s next move is anyone’s game.

Can London reverse its listing luck?

For the past several years, London has watched foreign stock markets — led by those in the US and China — become home to the most exciting businesses on the planet.

This isn’t particularly good if you are trying to create a globally competitive market. It’s also not fun for UK-based bankers and lawyers who have seen their counterparts in other regions make a killing on IPOs — particularly in the midst of the recent Spac boom. 

So when Jonathan Hill was tasked by UK chancellor Rishi Sunak to come up with recommendations to make Britain a more hospitable place for IPOs, it was an opportunity for dealmakers to get their say.

As you know, advisers do quite well off fees from transactions, including IPOs. When it comes to Spacs, those fees essentially double because they’re usually retained to advise on the listing as well as the takeover deal with a target company. 

Lord Hill’s recommendations seem to have something for everyone. We detail some of them below for you:

• Allowing dual-class share structures for companies admitted to the London Stock Exchange’s “premium” segment for a recommended limit of up to five years, meaning directors will have more sway in certain voting processes.

• Reducing free float requirements from 25 to 15 per cent, meaning founders need to sacrifice fewer shares in order to list. 

• Easing the restrictions around Spacs, which are considered reverse-mergers under the current rules, which is a potential downside for Spac investors, whose money could be locked in place if they decide they’re not on board with the vehicle’s chosen target. Lord Hill suggests scrapping that presumption and writing rules that treat shell companies more akin to normal commercial companies.

To boil it down — Lord Hill is trying to re-establish a balance between investor protection and pulling in new listings — so company founders will be given greater protection, whether they’re listing a blank-cheque vehicle or a promising tech upstart. 

But not everyone is eager to mess with the regulatory establishment.

“Shareholder protections should not be used as a bargaining chip to prove the UK is open for business,” said one big investor.

Another large global asset manager emphasised that the current standards for premium listings, including the principle of “one share, one vote”, were “critical”.

DD will be watching to see where the UK’s Financial Conduct Authority leans, as it considers the proposals with a goal to publish new rules by late 2021.

Job moves

• Johnny Skumpija, a Cravath, Swaine & Moore partner who helped Palantir Technologies go public, is joining Sidley Austin as a partner in its capital markets practice. 

• Rio Tinto chairman Simon Thompson will step down within the next year after the mining company’s destruction of a 46,000-year-old sacred indigenous site in Australia last year. More here.

• JPMorgan Chase has hired Alfredo Porretti as its new head of shareholder activism to build up its defence against activist investors, per Reuters. He previously worked at Greenhill and Morgan Stanley.

Smart reads

Under the radar Software billionaire Robert Brockman is allegedly behind the largest tax fraud case in US history. Like the $2bn he has been accused of concealing through offshore accounts, he’s long evaded the public eye. (WSJ)

Digging for profits As environmental concerns shift energy demand away from fossil fuels, private equity is still churning coal into gold, regardless of whether the mines are actually still up and running. (Reuters)

Open season ExxonMobil was supposedly too big to attract predators. But activists are circling, preparing to feast after its worst-ever annual performance as a proxy vote nears. (FT)

News round-up

Daily Mail owner buys New Scientist for £70m (FT)

Jack Ma’s Ant forced into arms of banks he once dubbed ‘pawnshops’ (FT) 

Insurer Oscar Health falls in Wall Street debut after $1.4bn IPO (FT)

Michaels to go private in Apollo Deal (WSJ) 

Banks in UK welcome Budget review of profit surcharge (FT)

Evergrande turns to Hong Kong tycoons for funding as EV push stalls (FT) 

Aon’s $30 billion bid for insurance broker Willis hits EU antitrust hurdle (Reuters)

Amazon in talks to carry many NFL games exclusively on Prime Video (WSJ)