© Financial Times

This is an audio transcript of the FT News Briefing podcast episode: Philip Morris battles to buy a medical inhaler company

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, August 11th, and this is your FT News Briefing.

[MUSIC PLAYING] 

Marc Filippino
The latest US inflation numbers are due out this morning. We’ll give you a heads-up on what’s expected. And Japan’s SoftBank says it will tread carefully when it comes to Chinese tech investments. Plus, we’ve got the latest details on yet another takeover battle in Britain. This one’s for an inhaler maker called Vectura.

Kaye Wiggins
One of the really interesting things about this deal is that it is pitting big tobacco against big private equity. You know, neither industry being one that is exactly riding high in the court of public opinion.

Marc Filippino
I’m Marc Filippino. And here’s the news you need to start your day.

[MUSIC PLAYING] 

Marc Filippino
Investors who have been worried about inflation may be in for some relief. Today the US government releases its consumer price index, or CPI data, for the month of July. Now, forecasts can and have been wrong. But according to a consensus forecast from Bloomberg, the rapid pace of consumer price increases over the past few months is expected to have levelled off. Here’s the FT’s US economics editor, Colby Smith.

Colby Smith
I think it will definitely be some sort of relief. What we’ve seen in past inflation reports is that an increase in costs has been most pronounced in sectors that are most affected by the pandemic and the economic reopening. So things like airfares, hotel costs, those have been rising quite dramatically. Used car prices have also increased significantly, and that’s related to semiconductor shortages and other supply chain constraints. And so if the bulk of the increases from these reopening-related sectors does tail off in a way, I think that would help to shore up the Fed’s argument that a lot of these pressures are, in fact, temporary. But there has been a recent jump in housing-related expenses. We’ve seen wage growth. There are you know nascent signs of inflationary pressures broadening out to a certain extent. So I think that’s what economists are really gonna be keeping an eye out for in this report.

Marc Filippino
That’s the FT’s US economics editor, Colby Smith.

[MUSIC PLAYING] 

Marc Filippino
There’s been a rush of private equity capital into the UK and a takeover battle that we’re keeping an eye on is for a British company that makes medical inhalers called the Vectura. One bidder is private equity giant Carlyle. The other bidder is not a private equity group. It is Philip Morris, a company that makes Marlboro cigarettes. Yesterday, Carlyle said it would stick with its recent offer of a hundred and fifty five pence a share and it won’t go any higher. Now, that’s lower than what Philip Morris is offering. But Carlyle still thinks it has a shot. But before we go any further, the FT’s Kaye Wiggins explains why Philip Morris, a tobacco company, wants this inhaler company in the first place.

Kaye Wiggins
Well, that’s the point that a lot of people have made. So Philip Morris is trying to move to a strategy that it describes is beyond nicotine. So that means expanding in products that are not cigarettes and that are not involving nicotine sales. So this is the latest kind of push it’s making to kind of change itself so that it has a presence in this very different market. I mean, in one of its statements about previous transaction, which was also buying medical devices company, it said that it wanted to use its kind of capabilities that it has an understanding of the kind of inhalation process to get into the industry of treating some of these problems. So lots of anti-smoking campaigners and also some medical groups have come out quite strongly against the idea of big tobacco buying a company that makes inhalers, which is obviously a product used to in some cases, to treat breathing difficulties that can be caused by smoking.

Marc Filippino
OK, so back to the takeover, Kaye. Carlyle has now stepped back from the bidding war. It won’t go any higher. Does this mean that Vectura is now ripe for the picking for Philip Morris?

Kaye Wiggins
It certainly puts Philip Morris in a stronger position than before, but it doesn’t necessarily mean that the game is over just yet. So Carlyle’s best hope now, having said that its lower bid is its final bid, is to basically try and persuade the shareholders and to some extent, the board, as well as Vectura, that it’s worth sacrificing the extra 10 pence per share that Philip Morris is offering them in order to kind of avoid selling an inhaler company to a tobacco business. They think that they can try to win shareholders over on the kind of ESG argument that they are the better owner of the company. One of the really interesting things about this deal is that it is pitting kind of Big Tobacco against Big Private Equity, you know neither industry being one that is exactly riding high in the kind of court of public opinion. So it’s an unusual deal from from that point of view, right? But it’s also very interesting that private equity is trying to take the moral high grounds in this transaction and say, yes, we can’t pay as much money as Big Tobacco would pay to own this company, but we should still be allowed to buy it anyway because we are the better owner. That’s an interesting argument, which deals don’t very often come down to that type of conversation.

Marc Filippino
And has Vectura chimed in at all or given any indication on whether it thinks Carlyle’s got a point here?

Kaye Wiggins
Since Carlyle said that it wasn’t gonna come back with a higher bid, Vectura hasn’t yet said anything in response. But previously, Vectura has kind of acknowledged that there might be potential issues with Philip Morris as an owner, although having said that, it has also previously supported a deal with Philip Morris. So, you know, we have to assume from what we’ve seen publicly already that it is, at least in principle, willing to accept a takeover bid from Philip Morris, even though Carlyle would point to the fact that it has previously said that there are potential issues there.

Marc Filippino
Kaye Wiggins is the FT’s private capital correspondent. Thanks, Kaye.

Kaye Wiggins
Thanks, Marc.

[MUSIC PLAYING] 

Marc Filippino
Japanese tech investment group SoftBank posted quarterly earnings yesterday. The sprawling conglomerate saw net profits fall nearly 40 per cent over last year. Now, granted, last year’s profits were boosted by gains related to the merger of T-Mobile and Sprint. SoftBank was the parent company of Sprint back then. But the big question yesterday was not about profits. It was about how SoftBank would approach its investments in Chinese tech companies. Chinese tech companies are a large portion of SoftBank investments, and bets on companies like the ride hailing app Didi Chuxing have lost much of their gains because of Beijing’s regulatory crackdown. The FT’s Leo Lewis reports that SoftBank’s chief executive Masayoshi Son says he’s gonna be cautious about tech investments in China.

Leo Lewis
He was pretty clear that they will be taking a wait-and-see stance on this. In other words, paring back their investments in China until, as he put it, the situation is more settled. And he didn’t have an exact timeframe on that, but he made it sound like he was thinking, at least in terms of a year before it was completely clear how how that investment scene in China tech had settled down.

Marc Filippino
Leo, was there anything else that struck you as you listened to Masayoshi Son speak at yesterday’s earnings report?

Leo Lewis
So, I mean, one of the things that he talked about, quite apart from what they would do vis-à-vis China and quite apart from, you know, what the portfolio is going to look like, he addressed this question of what is SoftBank? And you know we in the FT have been trying to answer that. And we know that a lot of investors have found it increasingly difficult to do so. Masayoshi Son stood up and described the company as a vision capitalist, and he wanted to draw the distinction here between that and ordinary investors. And ordinary investors, he said, were interested only in the gain. In his case, he was interested in companies that would create a revolution, and the revolution that he had in mind in particular was the AI revolution. And he wanted to sort of impart how excited he was about this. And he was basically saying, look, we we SoftBank and he, Masayoshi Son, believe that AI now it’s got the same sort of trajectory over the next 10 to 20 years as the internet did 25 years ago. In other words, he was trying to convince people that he is betting on as certain a revolution in everyone’s lives now as he did 25 years ago when he he bet heavily on the internet revolution and of course, turned out to have been right.

Marc Filippino
Leo Lewis is the FT’s Asia business editor.

[MUSIC PLAYING] 

Marc Filippino
Before we go, a word from Japan’s prime minister, Yoshihide Suga.

[AUDIO CLIP OF SUGA IN JAPANESE]

Marc Filippino
That’s Suga on a video released this past weekend marking the conclusion of the Tokyo Olympics. The games were held despite Covid and public opposition. But in the end, things didn’t turn out that bad. There were only a handful of Covid cases for athletes. Japan won an unprecedented 27 gold medals. You’d think Suga might score some political points, too? But no, his approval rating actually sunk and it sunk below 30 per cent. Japanese people seem to have enjoyed the Olympics, but they aren’t really connecting it to Suga. There’s more frustration over his handling of the pandemic and the slow vaccine rollout. And with an important election looming this autumn, that leaves Suga and his party in a wobbly position.

[MUSIC PLAYING] 

Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing, make sure you check back tomorrow for the latest business news.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.

Get alerts on when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section