One judgment to start: Sam Bankman-Fried has been sentenced to 25 years in prison over his role in the collapse of his FTX cryptocurrency exchange, after a US judge concluded he had done “enormous harm” by stealing billions of dollars in customer funds to make risky bets.
And one anniversary to start: Due Diligence is celebrating seven years! Thank you all for being along for the ride. To many more.
In today’s newsletter:
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Britain’s biggest water utility circles the drain
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Elliott’s stuck in an AC Milan fight
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Byju’s investors try to oust its founder
Britain’s biggest water utility circles the drain
The ongoing saga involving the UK’s largest water company took a new turn yesterday after Thames Water said its shareholders were unwilling to stump up £500mn of fresh equity.
The revelation has intensified concerns over the future of the heavily indebted company that supplies water to the population of London and beyond. Its shareholders signalled being ready to take an estimated £5bn loss on their investment on Thursday as they ruled out giving the company new equity.
It has also placed Thames Water’s investors, including Chinese and Abu Dhabi sovereign wealth funds and UK and Canadian pension funds, under increasing pressure after they initially committed to putting in new money.
The decision not to invest was taken as shareholders accused the industry regulator Ofwat of failing to provide the “necessary regulatory” support to the company.
Part of the unwillingness to invest further stems from a lack of progress in getting Ofwat to let the utility increase water bills and begin paying shareholder dividends again.
While not throwing good money after bad may be the sensible thing to do from an investor’s perspective, others aren’t so understanding.
Perhaps unsurprisingly, the fate of a water utility stirs up greater emotion than more typical investment targets for financial investors such as niche software companies.
“Thames Water investors are essentially blackmailing customers and Ofwat,” said a spokesman for GMB, an influential trade union. “Holding bill payers to ransom for costs after years of under-investment is completely unacceptable.”
Either way, the company remains in dire straits as it grapples with an £18.3bn mountain of debt, faces fines for sewer discharges and needs to invest billions of pounds to revamp its ageing infrastructure.
Reader suggestions for how to resolve the mess are welcome.
Why Elliott is stuck in AC Milan’s legal mess
When Elliott Management sold AC Milan for a record-breaking €1.2bn in 2022 to private equity group RedBird Capital Partners, it was seen as a coup. Elliott had taken over the football club only a few years earlier, after a previously unknown Chinese investor defaulted on the hedge fund’s loan.
Police raids earlier this month dragged the football club into a mess. Elliott, the notoriously combative $65bn fund manager, is embroiled in a legal row over the RedBird sale, with two Italian financiers behind a small investment firm called Blue Skye claiming the hedge fund violated their minority shareholder rights. The hedge fund has described the suits as “frivolous and vexatious” and struck back against Blue Skye with its own last year.
Blue Skye helped to broker the €300mn financing deal between Elliott and the Chinese investor who initially bought the club in 2017. Blue Skye’s two financiers have also raised questions over Elliott’s continuing influence over the club.
The row isn’t just about money — the sums in dispute are in the tens of millions of euros, according to people familiar with the matter. What’s at stake is the US hedge fund’s reputation. It would not be pushed around “by two unknown guys”, said one person close to the firm.
Another said that Elliott can’t afford to be held hostage by a former partner as it could complicate its relationships with others who source investments for the hedge fund. AC Milan is the second deal that Elliott made on the suggestion of Blue Skye, which had been critical to their joint acquisition of Hotel Bauer in Venice.
Things escalated when the Italian police raided AC Milan’s offices. During the search, police looked for documents to substantiate claims that somehow RedBird did not truly buy the club. “The suspicion is that Elliott currently maintains effective control of the company,” the search warrant said.
Elliott doubled down. Following the raids, the fund said: “AC Milan was sold to RedBird on August 31 2022. As of that date, the Elliott funds have had no equity interest in, or control over, AC Milan.”
Byju’s investors look to oust founder in court
In the span of a few short years, the case of Byju Raveendran has become one of the most spectacular rise and fall stories in Indian tech. The latest twist: some of Byju’s biggest investors are entering a legal battle to oust its founder.
During the Covid-19 pandemic, the former tutor’s eponymously named online education company became India’s most valuable start-up with a $22bn valuation. Byju’s was backed by heavyweights including Qatar’s sovereign wealth fund, Dutch-listed investor Prosus, Sequoia’s former India arm Peak XV and the Chan Zuckerberg Initiative of Meta founder Mark Zuckerberg and his wife Priscilla Chan.
Since last year, Byju’s has lurched from one crisis to another. It defaulted on a $1.2bn term loan, which pushed it into a legal battle with creditors. Its auditor, Deloitte, resigned as the company’s losses nearly doubled from a year prior. It also ran into trouble with Indian authorities over foreign exchange rules.
In September, things got weird. A group of lenders accused Byju’s of wiring more than $500mn to an obscure Florida-based hedge fund with a registered address to a branch of pancake chain IHOP. They alleged the transfer was part of the company’s attempt “to conceal the whereabouts” of the cash.
Investors weren’t happy. The mess prompted Prosus, Sequoia and the Chan Zuckerberg Initiative to resign from the board and try to oust Raveendran at an extraordinary meeting last month. The group had the backing of the majority of shareholders present for the vote.
Byju’s challenged the move in court, and the two sides are gearing up for a bitter court battle that may decide not only Raveendran’s future, but that of the company he built, report the FT’s Benjamin Parkin and Mercedes Ruehl. The Karnataka High Court, which is hearing the case, stayed the shareholder vote. A hearing scheduled for Thursday was adjourned.
Job moves
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Linos Lekkas, who worked at Citigroup for 13 years, is retiring. He was most recently head of its corporate and investment banking for Europe.
Smart reads
Tech ‘Oppenheimer’ There’s one man leading tech’s charge into AI weaponry. In Silicon Valley, his politics have made him a pariah, the FT reveals.
Gambling’s consequences A series of gambling scandals in US sports is unveiling the dark underside of the country’s bet on the industry, The Wall Street Journal reports.
Unhappy funds Japan’s stock market is booming. Hedge funds that relied on the country’s “nothing to see here” market aren’t so pleased, the FT writes.
News round-up
AI advertising start-up valued at $4bn after fundraising (FT)
Dole scraps sale of vegetables unit after DOJ threatens to sue (Dow Jones)
Small investors power Trump Media’s market valuation above $13bn (FT)
Trump aims to outraise Biden-Obama event with $33mn fundraiser (FT)
Lloyd’s of London chief calls for quick insurance payouts on Baltimore bridge (FT)
UBS makes Sergio Ermotti best-paid European bank boss (FT)
Crypto group Copper launches review after ‘embarrassing’ sushi party (FT)
