Seeing opportunity in bridges and tunnels
BlackRock is already Wall Street’s dominant player in stocks and bonds with $10 trillion in assets. Now the company plans to go big on the business of investing in airports, bridges, oil pipelines and more.
Alongside announcing its quarterly earnings, the firm said on Friday that it would acquire Global Infrastructure Partners for about $12.5 billion in cash and stock. The deal is BlackRock’s biggest takeover since 2009, when it bought Barclays Global Investors for $13.5 billion and became the world’s biggest provider of index funds.
It’s a major bet by BlackRock on infrastructure, in which financial firms invest in, or take over and run, assets like tunnels, highways, and oil and gas networks. The strategy has grown in popularity in recent decades in part because of steady long-term returns. Cash-strapped governments have also sought private money to help finance fiber broadband, data centers, green energy projects (which fit into BlackRock’s push to invest in climate-related assets), upgrades to airports and roads and more.
“Policymakers are only just beginning to implement once-in-a-generation financial incentives for new infrastructure technologies and projects,” Larry Fink, BlackRock’s chairman and C.E.O., said in a statement.
Among the most prominent bets on infrastructure in recent years was Blackstone’s announcing a $40 billion investment vehicle (backed with a $20 billion commitment from Saudi Arabia), which reached its fund-raising target earlier than expected.
Global Infrastructure Partners is the third-largest investor in the field, after Macquarie of Australia and Brookfield of Canada, with more than $100 billion in assets. Among its most notable holdings are London’s Gatwick and City Airports and an oil and gas joint venture with Hess. Acquiring the firm will give BlackRock more than $150 billion in infrastructure assets.
Global Infrastructure’s chairman and C.E.O., the Nigeria-born deal maker Bayo Ogunlesi, is the lead director at Goldman Sachs (and is name-checked by the Nigerian music star Burna Boy). Ogunlesi and Fink have known each other for decades, since their days at the investment bank First Boston.
As part of the deal, Ogunlesi will join BlackRock’s board. “We are convinced that together we can create the world’s premier infrastructure investment firm,” Ogunlesi said. He will step down from Goldman’s board.
The terms: BlackRock will pay about $3 billion in cash and roughly 12 million of newly issued shares. About 30 percent of the stock will be paid out over five years, subject to hitting some financial milestones. The transaction is expected to close by the end of September, pending regulatory review.
BlackRock also disclosed its fourth-quarter and full-year results, including $289 billion in asset inflows for the year and a 7 percent rise in adjusted net income for the quarter, to $1.45 billion.
HERE’S WHAT’S HAPPENING
Government shutdown concerns grow. Republican hard-liners urged Speaker Mike Johnson on Thursday to abandon a tentative spending agreement he struck this week with Democrats, saying it doesn’t cut spending deeply enough. The impasse has widened a rift among Republicans and threatens to undo a bipartisan deal to avert a partial shutdown next week.
More tech companies are set to lay off staff. Discord, the social chat and messaging start-up beloved by gamers, and Amazon’s Audible unit reportedly plan to cut jobs. They would be just the latest wave of layoffs, as tech companies abandon grow-at-all-costs strategies amid pressure from investors.
Bitcoin investment funds begin trading with a bang. Newly approved exchange-traded funds directly tied to the cryptocurrency went live on Thursday, with more than $4 billion changing hands. The robust trading debut impressed many on Wall Street; still, Bitcoin dipped in value overnight, falling below $46,000.
Counting the costs of the Houthi conflict
Oil prices jumped on Friday, with the Brent crude benchmark topping $80 a barrel. That’s after Western nations launched another volley of airstrikes against Iran-backed Houthi forces in Yemen who have been attacking commercial vessels traversing the vital Red Sea passage.
The U.S.-led military response is stoking fears of a wider conflict in the region, despite efforts by the Biden administration and others to keep the Israel-Hamas war from broadening. But the Houthi attacks are disrupting global trade and could hinder central bankers’ moves to bring down inflation. Investors are already worried about how the inflation fight is going; Thursday’s disappointing Consumer Price Index report hasn’t soothed those fears.
The latest retaliatory strikes suggest that even stronger responses by the U.S. and its allies are possible. “I will not hesitate to direct further measures to protect our people and the free flow of international commerce as necessary,” President Biden said.
The impact on business is growing. Tesla said on Thursday that it would shut down production for two weeks this month at its Berlin plant, citing lengthening delays in getting parts. To avoid being targeted, many cargo ships are being rerouted away from the Suez Canal and going around Africa, adding roughly two weeks to the journey and $1 million in fuel costs.
The Houthi attacks have driven up shipping rates, and some business leaders, including Ken Murphy, the C.E.O. of the British grocery chain Tesco, are warning that customers could see higher prices as a result.
Analysts expect oil prices to rise, but not soar. Energy prices have been volatile since the Oct. 7 Hamas attacks on Israel. Brent spiked to around $92 a barrel shortly afterward, but has fallen since.
Hertz pulls the plug
Hertz shares fell sharply on Thursday after the car rental company announced it would cull 20,000 electric vehicles from its lineup — about a third of its global fleet.
The decision is a stunning reversal: The company had doubled down on E.V.s just two years ago. It also raises wider questions about whether the E.V. market is decelerating and whether the wider energy transition has hit a road bump.
Hertz trumpeted its move into E.V.s, saying consumers were eager to avoid rising gasoline prices. In 2021 and 2022, it announced deals to buy 340,000 E.V.s from Tesla, Polestar and G.M., saying it would electrify a quarter of its fleet by the end of this year.
The company now says it will buy more internal-combustion engine vehicles, citing weaker demand and higher operating costs for E.V.s. Hertz partly blamed Tesla, saying the move by Elon Musk’s carmaker to cut prices by 30 percent last year had hit the cars’ resale value. It added that Tesla was less willing than other carmakers to give Hertz volume discounts on replacement parts.
The irony: Tesla has been widely credited with jump-starting the E.V. market, forcing legacy carmakers to play catch-up.
The E.V. market isn’t dead, but there are signs of strain. Jeremy Robb, senior director of economic and industry insights at Cox Automotive, told The Times that almost 1.2 million E.V.s were sold in the U.S. last year, and sales were up 40 percent in the last three months of 2023 from the same period in 2022. But the pace of growth is slowing and some carmakers are pulling back on expanding production.
Hertz is still planning to electrify its fleet, according to its C.E.O., Stephen Scherr — but it might take a bit longer. “Tesla is among the best-selling cars in America, but it’s not yet the best rental car,” he told The Times. “Those two have not converged as quickly as many people, including ourselves, thought. But they will,” he added.
“What Bill accomplished with us, in my opinion, will never be replicated. And the fact that it was done in the salary cap and free agency era makes it even more extraordinary.”
— Bob Kraft, the owner of the N.F.L.’s New England Patriots, commending Bill Belichick on his 23-year career with the team. Belichick, who announced on Thursday his departure from the Patriots, won a record six Super Bowl titles and helped transform the once-middling franchise into a $7 billion juggernaut.
Davos in an era of huge changes
Thousands of senior executives, government officials, nonprofit leaders and others will start flocking to Davos, Switzerland, this weekend for the 2024 World Economic Forum. The decades-old gathering will take place during a time of huge upheaval, including war and economic volatility.
That feeling of uncertainty is reflected in surveys being released ahead of Davos, including Accenture’s annual Pulse of Change Index. There is an emerging sense that big disruptions are coming — but how they should be handled is less than clear.
Expect more big changes at a rapid clip, according to Accenture. Drawn from both A.I.-driven analyses of data and a survey of more than 3,400 C-suite executives, some of the key findings from the consulting firm’s research include:
About 88 percent of corporate leaders predict business-altering changes to come for their organizations this year. But 52 percent said they weren’t prepared to respond adequately.
Technology, led by generative artificial intelligence, was the top cause of change last year. (By comparison, it ranked sixth in 2022.) Executives also ranked it first among sources of disruption.
Accenture’s data analysis concluded that issues around talent — including skill shortages and a lack of employee engagement — was the second-biggest area of change last year. Intriguingly, executives ranked talent fourth on their list of disruptions, behind tech, geopolitics and consumer attitudes.
How to prepare for that change is likely to be a hot discussion topic at Davos, which sees itself as a forum for decision makers to discuss issues of global importance. Though the forum has drawn criticism for being more about talk than action, a survey of 6,684 people conducted by YouGov and Salesforce released today suggests that doesn’t have to be the case.
About 54 percent of respondents said that global leaders can drive change via the event. But only 25 percent said they believed that attendees are transparent about what happens at the confab.
DealBook will be reporting from Davos next week, starting Tuesday, after the Martin Luther King Jr. holiday.
THE SPEED READ
Deals
Morgan Stanley is reportedly near a deal to pay less than $500 million to resolve a U.S. regulatory inquiry into its block-trade business. (Reuters)
The long-suffering hedge funds that bet on the outcome of mergers and acquisitions are starting to recover amid a rise in deal activity. (Bloomberg)
Policy
A trade group representing big Wall Street banks has reportedly hired Eugene Scalia, the son of Antonin Scalia, to prepare a potential lawsuit against the Fed over proposed regulations. (Semafor)
Best of the rest
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