FT premium subscribers can click here to receive Due Diligence every day by email.

Nine West 57th Street is perhaps the most iconic address in private equity. Made famous in Barbarians at the Gate, it is probably best known for being the home of KKR. Other notable tenants these days include Apollo, Silver Lake and Providence Equity.

The address also became the name of a women’s shoe store, Nine West, whose founders worked nearby.

A 2014 leveraged buyout involving Nine West has perhaps come to represent the worst tendencies of private equity. Retail-focused buyout group Sycamore Partners acquired The Jones Group, an assortment of women’s fashion brands including Nine West, in 2015 for $2bn.

Upon buying Jones, Sycamore, and its minority partner KKR, chopped up the conglomerate, selling brands such as Stuart Weitzman to its own affiliates. The so-called “Remainco” was renamed Nine West and promptly went bankrupt in 2018.

As DD’s own Sujeet Indap explains in his Inside Finance column this week, Nine West creditors accused Sycamore — oddly enough also headquartered at 9 West 57th Street — of defrauding them in the original buyout and making hundreds of millions of dollars off of a sweetheart break-up of The Jones Group.

An ugly bankruptcy trial earlier this year, however, was short-circuited when creditors and Sycamore agreed to a consensual restructuring plan that saw the buyout group throw in $120m to settle wrongdoing charges which perhaps was a good bargain as some believed the firm’s liability could be $1bn.

As the column explains, Sycamore deftly took advantage of divisions among different bond and loanholders to get a decent outcome. Sycamore has quickly developed a reputation for playing rough with adversaries at a time when private equity generally is clashing more sharply with creditors.

Earlier this week, Sycamore refinanced the debt at office supply chain Staples, paying itself a $1bn dividend off its portfolio company. But as the Nine West situation illustrates, avoiding huge legal losses can be as important as a home run investment. The rent on 57th Street, after all, is not cheap.

Has Severgroup’s bid to take control of Lenta turned sour?

The sale of Russian hypermarket chain Lenta looked a done deal last week when its largest shareholders — the US private equity group TPG and the European Bank for Reconstruction and Development — agreed to sell their 42 per cent stake to oligarch Alexei Mordashov’s Severgroup.

But a late bid by Lenta rival Magnit for slightly more than the $3.60 per global depository receipt Severgroup already agreed to pay has sparked off a revolt from minority shareholders upset earlier by the terms TPG and EBRD agreed to.

On Tuesday, some of the largest shareholders in Lenta — including Aberdeen Standard Investments, Prosperity Capital Management, and Bestinver — wrote a letter to its board accusing it of a stitch-up in favour of Severgroup.

“In particular, it is unclear how the purchase of the company and the waiver of certain provisions under the articles, by, or in favour of, Severgroup is advantageous to, and in the best interests of, the company when compared to other bidders,” they wrote.

Magnit has yet to make a formal offer for Lenta’s shares, and the Severgroup deal is binding, people close to Lenta say.

But the minority shareholders say Lenta ignored earlier entreaties by Magnit while helping Severgroup put its bid together.

They intend to make claims to TPG and EBRD’s ethics committees — and say more minority shareholders will make their own complaints shortly.

The mad dash to the checkout has only just begun. Read Max Seddon and Henry Foy’s piece here.

The art of the deal

Private wealth managers have been telling their clients for years to keep a portion of their wealth in art, an asset class considered to be recession-proof as it can hold its value during times of economic hardship.

But not everyone has millions of dollars to drop on a painting. That’s where Athena Art Finance comes in as one of the world’s top lenders to buyers of artwork, including pieces by masters like Claude Monet and Pablo Picasso.

DD’s James Fontanella-Khan exclusively reported that the group has agreed to sell itself to YieldStreet — a rapidly growing digital wealth management platform backed by billionaire George Soros — for $170m. That’s about the same price as Picasso’s Les Femmes d’Alger was sold for in 2015, setting an auction record at the time.

Athena was launched by a consortium of investors led by the private equity group Carlyle under the stewardship of Olivier Sarkozy — a former managing director at Carlyle and half-brother of the former French president Nicolas Sarkozy.

Since 2015, Athena has provided over $225m in financing for rich art buyers, cementing itself as one of the most active providers of financing to art dealers, galleries and collectors seeking to secure fine art.

The Soros fund has contributed about $100m in financing to YieldStreet, part of which is being used to acquire Athena.

Job moves

  • Macquarie Capital has hired Michael Magliana as co-head of the UK for its accounting, economics and appraisal group and Camelia Robu as head of leveraged finance in Emea. Magliana joins the group from Jefferies where he was managing director and co-head of FIG. Robu was previously a managing director at HSBC in its leveraged and acquisition division.

  • Maja Torun, a managing director at Citi, has been promoted to co-head of France investment banking alongside Emmanuel Regniez.

  • Gladstone Place Partners has hired Christina Stenson, as a partner in the financial communication company’s San Francisco office. Stenson was previously a partner at Brunswick Group

Smart reads

Kick the activist’s habit Hernan Cristerna, the global co-head of M&A at JPMorgan Chase, thinks activist investors need to give up their need for a quick sugar high. Instead of pushing a company to break up or sell a business immediately, it can be more judicious to wait for the right time, he writes in the FT. (FT)

Portugal’s path to recovery António Costa, the country’s prime minister, has presided over an impressive economic turnround since the European debt crisis brought Portugal to its knees, making his socialist party one of the few successful centre-left governments in the region. Critics say Costa has also reduced public investment and added higher indirect taxes to balance the books. (FT)

Extra credit As America’s student loan crisis deepens, Wall Street is eyeing up opportunities to invest in college students in exchange for a piece of their future. Income-sharing agreements can provide much-needed capital to students as long as they’re willing to give up a stake in their future earnings. (BBG)

News round-up

US private equity firm sells Topshop stake back to Arcadia (FT)

Revealed: the cash cost of WeWork's global expansion (FT)

Uber plans to sell around $10 billion worth of stock in IPO (Reuters)

G4S/Garda World: maple leaf rag (FT)

Starboard eclipses Elliott as most prolific activist hedge fund (FT)

Slack is fetching high prices in private stock deals ahead of public offering (BBG)

Bids in Germany’s 5G spectrum auction pass €5bn (FT)

Saudi Aramco bonds slip in trading despite record demand (FT)

Corporate debt levels risk amplifying economic fragility, says IMF (FT)

Carvana rally inflicts painful losses on short sellers (FT)

Petrobras bonds rally on $9bn transfer-of-rights deal (FT)

Due Diligence is written by Arash MassoudiJavier Espinoza and Robert Smith in London, James Fontanella-KhanOrtenca Aliaj, Sujeet IndapEric PlattJennifer Bissell-LinskLindsay Fortado and Mark Vandevelde in New York, and Don Weinland in Hong Kong.

FT premium subscribers can sign up here. Please send feedback to due.diligence@ft.com 

Get alerts on Mergers & Acquisitions when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article