Network Rail agrees to sell the arches in £1.5bn deal

BY Fraser Tennant

In a £1.5bn deal that will help fund railway upgrade plans, bring major improvements for passengers and reduce funding burden on taxpayers, Network Rail has agreed to sell its commercial estate portfolio to property company Telereal Trillium and investment firm Blackstone Property Partners.

Upon completion of the transaction, Telereal and Blackstone will hold equal ownership stakes and intend to be long-term owners of the estate. Both parties have adopted a ‘tenants first’ approach, cemented in a tenants’ charter, which offers a commitment to engage with all tenants and communities in an open and honest manner.

Network Rail launched the sale of its commercial estate in November 2017. The portfolio consists of approximately 5200 properties, the majority of which are converted railway arches. The sites are being sold on a leasehold basis, with Network Rail retaining access rights for the future operation of the railway.

Proceeds from the sale will help fund the railway upgrade plan, which is bringing 170,000 seats into major cities, 6400 extra train services and 5500 new train carriages – a 30 percent increase in capacity.

“This deal is great news,” said Sir Peter Hendy, chairman of Network Rail. “For tenants it will mean significant commitment and investment, and for passengers and taxpayers it will mean massive, essential improvements without an extra burden on the public purse.”

Both Telereal and Blackstone have long and successful track records of operating large commercial estates across the UK. Telereal will oversee the day-to-day property management of the portfolio.

“The arches portfolio is a unique and vital part of the UK economy,” said Graham Edwards, co-founder and chairman of Telereal. “We are tremendously excited by the prospect of working with its entrepreneurial tenant base.”

James Seppala, head of European Real Estate at Blackstone, added: “The portfolio is unique in the role that it plays in stimulating economic activity, growth and prosperity, in particular among SMEs and local communities.”

Mr Hendy concluded: “This has been a very thorough, detailed and complex process and we are pleased we are now in a position to announce Telereal Trillium and Blackstone Property Partners as the new owners of the commercial estate.”

News: Network Rail sells $2 billion property portfolio to fund railway improvements

Volkswagen faces $11bn damages claim

BY Richard Summerfield

German car manufacturer Volkswagen AG was taken to court on Monday as investors sought $10.6bn in compensation as a result of the 2015 ‘dieselgate’ scandal.

A small group of shareholders representing 1670 claims against Volkswagen and around 4000 other investors commenced legal proceedings at the Braunschweigh higher regional court in Northern Germany, just over 20 miles from Volkswagen’s Wolfsburg headquarters.

“VW should have told the market that they cheated and generated risk worth billions,” said Andreas Tilp, a lawyer for the investors. “We believe that VW should have told the market no later than June 2008 that they could not make the technology that they needed in the US.”

The scandal became public after the American Environmental Protection Agency (EPA) issued a public notice of violation in September 2015. The subsequent EPA investigation precipitated a collapse in the company’s stock price with shares in Volkswagen falling 40 percent over two days in September 2015, wiping billions off the company’s market value. As a result, in October 2015 the first group of shareholders filed suit against the company. They were later joined by institutional investors including BlackRock Inc., the California Public Employees’ Retirement System and Allianz Global Investors.

Volkswagen has admitted systematic emissions cheating, but denies wrongdoing in matters of regulatory disclosure, saying that the suit is unfounded. The company insists that a group of engineers acted without authorisation when fitting the ‘defeat devices’ which allowed Volkswagen’s vehicles to cut harmful emissions during regulatory testing, and says the information it had before the American authorities intervened was not significant enough to warrant warning capital markets.

“This case is mainly about whether Volkswagen complied with its disclosure obligations to shareholders and the capital markets,” Volkswagen’s lawyer Markus Pfueller told the court. “We are convinced that this is the case.” Mr Pfueller noted that the company was “confident” that it had “complied with its disclosure obligations toward shareholders and the capital markets”.

Factoring in previous settlements reached by Volkswagen, the company could ultimately pay around $35bn for its transgression, including payouts to US customers, states and regulators and a €1bn settlement with German prosecutors.

Judge Christian Jaede said the period from early 2014 onward was significant as this was when the company learned that US tests showed its diesel cars emitted far more toxic nitrogen oxide on the road than under laboratory conditions. A decision in the case is not expected until 2019.

News: VW investors sue for billions of dollars over diesel scandal

Energy M&A dominates market – EY report

BY Richard Summerfield

Global M&A activity in the power and utilities sector reached a record high of $180bn in the first half of 2018, according to EY’s ‘Power transactions and trends Q2 2018’ report.

Renewables were responsible for nearly half of all deals announced in the second quarter, with 63 contracts totalling $12.9bn announced.

Despite the all-time high in M&A activity, there was a 14 percent decline, quarter-on-quarter, in deal value to $83bn, however.

Momentum also began to gather in the clear energy space .The European Union’s landmark agreement to achieve 32 percent renewable energy consumption by 2030 was particularly noteworthy. Equally, three other renewables deals in the US were announced, totalling $3.8bn.

Developing markets also emerged as an investment destination for traditional M&A. Thailand and India saw $5.3bn and $3.2bn worth of deals respectively. In Estonia,  deals by both domestic and foreign investors reached $600m.

European activity was strong, particularly in the second quarter, with $45.7bn worth of deals recorded, representing 55 percent of total power and utility global deal value. Asia-Pacific saw a 78 percent quarter-on-quarter increase in deal value to $10.3bn. Renewables were the driving force behind this increase, with 25 clean energy deals worth a total of $3.8bn announced during the period.

The majority of transactions in Q2 were in the US, which generated 75 percent of the total deal value for the quarter, of which $21.1bn or 78 percent were domestic deals. Consolidation was a major driving force. For example, Center Point Energy bid $8.1bn for Vectren and NextEra Energy's bid $5.8bn bid for Gulf Power.

“The first half of 2018 reflects a complex deal environment characterised by a changing generation mix and a growing appetite for renewables investment, which will continue to drive the deal agenda into the second half of the year,” said Miles Huq, EY global power & utilities transactions leader.

He added: “Around the world, we are also seeing utilities companies increasingly exploring new technologies, including battery storage, electric vehicle infrastructure and digital grid technologies. With sector convergence on the rise, we are also seeing more non-conventional competitors emerge as the power and utilities landscape continues to undergo transformation.”

Global outbound deal activity was led by China, which accounted for $31.2bn of cross-border energy deals, including the largest deal of the quarter: the $27.4bn takeover bid of Portugal's EDP by China Three Gorges.

Report: Power transactions and trends Q2 2018

TPG and Vodafone Australia combine in merger of equals

BY Fraser Tennant

In a combination that will establish a leading challenger full-service telecommunications provider in Australia, TPG Telecom Ltd and Vodafone Hutchison Australia (VHA) are to merge in a transaction with a pro forma enterprise value of approximately $15bn.  

The merger – a Scheme Implementation Deed (SID) – combines two highly complementary businesses to create a leading integrated, full-service telecommunications company, with a comprehensive portfolio of fixed and mobile products for consumers and enterprises.

It is also envisaged that the merger of TPG, which has Australia’s second largest fixed line residential subscriber base, and VHA, the country’s third largest mobile operator, will create a more effective challenger to Optus and Telstra – the two biggest mobile companies in Australia, with a combined market share of more than 80 percent.

Upon completion, TPG shareholders will own 49.9 percent of the merged group with VHA shareholders owning the remaining 51.1 percent. The merger of TPG and VHA has been unanimously recommended by the board of TPG.

“The merger with VHA represents an exciting step-change in TPG’s evolution, and will benefit both our shareholders and Australian consumers alike," said David Teoh, chairman and chief executive of TPG. “Together TPG and VHA will own the infrastructure required to deliver faster services and more competitive value propositions.” Mr Teoh will be chairman of the merged group while Iñaki Berroeta, currently chief executive of VHA, will be managing director.

“We are joining with TPG from a position of strength and momentum," said Mr Berroeta. “VHA has a track record of reliability, stability and a fantastic customer experience, which has seen the business prosper. Together, TPG and VHA will provide stronger competition in the market and greater choice for Australian consumers and enterprises across fixed broadband and mobile.”

Alongside the merger agreement, TPG and VHA have signed a separate joint venture (JV) agreement to acquire, hold and licence 3.6 GHz spectrum. The JV will not terminate if the merger fails to proceed.

Mr Berroeta concluded: “The combination of TPG and VHA will create an organisation with the necessary scale, breadth and financial strength for the future. The equal terms of the combination preserves the competitive strengths of the two businesses.”

News: Vodafone in $11bn Australian merger

Canadian PE and VC investment divergent in H1 2018

BY Fraser Tennant

Private equity (PE) and venture capital (VC) investment in Canada has been divergent in the first half (H1) of 2018, with activity trending downward and upward respectively, according to a new report by the Canadian Venture Capital & Private Equity Association (CVCA).

In its ‘VC & PE Canadian Market Overview H1 2018’, the CVCA notes that $7.6bn was invested across 146 PE deals in Q2, bringing the year-to-date (YTD) total to $14.5bn across 288 deals. Much of this investment was due to two mega deals which made up 69 percent of total dollars invested. In comparison, mega deals made up 51 percent of dollars invested in H1 2017.

Further key findings in the Canadian PE investment space include a sharp drop in the number of exits in H1 2018, with only 41 exits ($10.5bn) compared to 152 exits ($11.5bn) in H1 2017.

“Canadian PE appears on pace from previous years, however on the dollar side it is increasingly driven by significant deals, suggesting the levels are a bit more tenuous,” said Mike Woollatt, chief executive of the CVCA. “In the absence of a few large deals, activity in the Canadian PE market is being driven substantially by smaller deals as activity shifts to categories with typically smaller deal sizes.”

Unlike PE, VC investment is on an upward trajectory and shows no signs of slowing for the remainder of 2018. Indeed, almost $1bn was invested over 166 deals in Q2, bringing the year-to-date (YTD) total VC investment to $1.7bn – 7 percent higher than H1 2017. Moreover, Q2 2018 is the third time since January 2017 where VC investment in Canada has surmounted $1bn.

Additional key findings in the Canadian VC investment space include an average deal size of $6m, which represents a 28 percent increase from the previous quarter and 13 percent higher than the average deal size in the five-year period between 2013 and 2017 ($5.3m).

“Innovation in Canada is enjoying the best VC investment climate in well over a decade,” continued Mr Woollatt. “We are consistently observing an increase in size and volume of deals at all stages, plus, a welcome resurgence in exits. We are bracing for 2018 to be another record year.”

Report: VC & PE Canadian Market Overview H1 2018