Happy Tuesday!

The MoneyFitt Morning will be off on Wednesday and back on Thursday. See you then!

📝 Focus

• PE beats Penguin, goes back to basics (KKR, PARA)

📊 In the Markets

• Barbie & Ken vs Mario & Princess Peach (MAT, NTDOY)

• Meat No Meat (TSN, BYND)

📖 MoneyFitt Explains

🎓 Private Equity

📝 Focus

PE beats Penguin for Simon & Schuster, goes back to basics

Paramount Global (known as ViacomCBS until Feb-22) is selling its top-5 book publisher, Simon & Schuster, to storied private equity🎓 titan KKR & Co for $1.62 billion, ending a year-long effort to offload the renowned publisher. Paramount's shares rose 4% in extended trading on decent growth in its streaming business (more subs, lower losses), while KKR was up 1% on better-than-expected results, though some of both moves may have been in reaction to the sale.

..... ▷ The sale followed last November's successful Justice Department antitrust suit (see below), blocking a $2.2 billion deal struck in 2020 with Penguin Random House, a subsidiary of German media giant Bertelsmann. Both are among the “Big Five" US book publishers, and the DOJ claimed that the deal would have given the combined company too much control over how much authors are paid and harmed competition for publishing rights on major titles. The KKR deal will actually still bring Paramount $2.2 billion in proceeds thanks to a $200mn termination fee paid by Penguin Random House, and cashflow received during the process. PARA will use the proceeds to pay down debt and enhance Paramount+, its streaming service. Founded in 1924, Simon & Schuster was bought for $750mn by Gulf and Western (later Paramount Communications) in 1975 before multiple deals brought it into Viacom, famed media mogul Sumner Redstone's television, film and cable network conglomerate.

..... ▷ It's a classic leveraged buyout, or LBO using junk bonds. A syndicate of Wall Street banks is providing a $1bn "leveraged loan" rated at about B2 on Moody’s (five levels below investment grade) to a KKR vehicle, according to Bloomberg. The KKR deal seems to be a return to basics in the private equity industry.

..... ▷ The CEO of Apollo Global, a giant of the $4 trillion industry with $617bn in assets, said at the firm's recent results that a particularly lucrative era for private equity🎓 has ended, with returns no longer driven easily by rising valuations. PE industry profitability had thrived in more than a decade of “money printing”, fiscal stimulus and low-interest rates (and geopolitical calm) which led to easy, profitable exits into continuously buoyant financial markets. But higher interest rates and slower growth prospects change that equation, forcing PE firms to revert to traditional, skilled investing. (Apollo has positioned itself to benefit from higher interest rates by increasing its non-buyout businesses, particularly in credit investing, and recently bought the securitised products business of Credit Suisse, a major originator of asset-backed securities.)

..... ▷ Compounding the challenges of these changing operating dynamics is a tougher and intensely competitive fundraising environment amid high-interest rates. The FT reports that PE firms such as CVC Capital Partners, Ardian, TPG and Cinven are offering its biggest investors, such as pension plans and sovereign wealth funds, incentives like management fee discounts, co-investment opportunities and even a share of management fees (potentially in the form of "GP shares.") The private equity🎓 sector raised $517bn in the first half of this year, but that was 35% down from a year earlier.

Antitrust and Competition - a mini-explainer

- While it may seem anti-capitalistic for a government agency to stop one private company from buying or merging with another on either agreed or hostile terms, there are strong reasons for it to happen!

- Competition or antitrust laws exist to protect consumers from unlawful monopolies or unfair business practices which would harm them through higher prices and less competition while benefiting certain powerful companies.

- Preventing mergers and acquisitions from resulting in monopolies is perhaps the easiest part of the job, but firms that have become monopolies or overly concentrated market power can also be broken up. Collusion between several companies in formal or informal cartels with practices such as price fixing is also forbidden, though proving it in court can be a lot harder.

📊 In the Markets

Merch Cage Match: US stocks rebounded a little on Monday after quietly directionless Asian and European trading, making up for losses the previous week, with an eye on a highly anticipated US inflation report on Thursday (3.2% headline and 5.1% core expected based on the Cleveland Fed's "Nowcast.") Warren Buffett and Charlie Munger's Berkshire Hathaway rose 3.4% to a record high, after the results reported over the weekend. Of the 85% of companies in the S&P 500 that have posted their quarterly results, about four-fifths have come in above the best guesses of Wall Street's highly-paid analysts, according to FactSet.

..... ▷ Confirming the moviegoer pivot from superheroes to iconic plastic dolls and video games, Warner Bros. announced that the "Barbie" film surpassed $1bn in global box office sales in the 17 days spanning the 3 weekends since its July 21 release. The movie earned $460mn domestically and $572mn internationally, totalling $1.03bn. "Barbie", starring Margot Robbie and Ryan Gosling, follows Barbie's real-world adventure, but, in the even-more real world, it still (for now) ranks second in ticket sales this year behind (the voices of) Chris Pratt and Anya Taylor-Joy in Comcast unit Universal Pictures’ "The Super Mario Bros," with $1.3bn at the global box office since its April release. Mattel vs Nintendo (or Barbie vs Mario) is a cage match I might watch on streaming. Not that other one.

..... ▷ Meanwhile, the other half of the viral "Barbenheimer" phenomenon, Universal's "Oppenheimer," crossed the half-billion mark with $553mn worldwide in the same three weeks, ranking third in both domestic and international box offices in its third weekend. This came despite its 3-hour runtime, R-rating and challenging subject matter of J. Robert Oppenheimer, the Manhattan Project nuclear physicist.

Meat No Meat

Beyond Meat plummeted 12% in after-market trading after abandoning its goal of achieving positive cash flow in the latter half of this year and lowering its sales forecast. The plant-based meat producer cited weak product demand. Despite falling short of revenue expectations, losses were narrower than anticipated. Beyond Meat revised its guidance for annual revenues to a range of $360-380mn, down from the previous $375-415mn. At the after-market price, BYND is up 10% for the year but still over 90% down from its 2019 frenzied hype-period peak.

..... ▷ Over on the animal-killing side of the farm, Tyson Foods, the largest meat producer in the US, reported fiscal third-quarter revenues and profits that were lower than expected on weaker prices for chicken and pork, and weaker demand for beef products (though prices rose.) Net losses were $417mn, or $1.18 per share, compared to a net income of $750mn, or $2.07 per share, in the same period last year, and the firm announced that it would close four chicken facilities to cut costs, having already closed two other chicken plants with almost 1,700 employees earlier in the year. It expects capital expenditures of $2.1bn this year, down from previous estimates of $2.3bn. The company made huge profits as meat prices soared during the pandemic but now faces slowing demand. After a 10% drop at the open, TSN closed down just under 4% to bring the stock to a near-15% loss for the year.