Breakingviews - Corona Capital: Stay-at-home fitness, Italy
NEW YORK/MILAN/LONDON/MUMBAI (Reuters Breakingviews) - Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.
- Exercising at home
BATTLE OF THE BULGE. Aaptiv, a fitness app backed by Amazon.com’s Alexa Fund, may be the latest company to take advantage of investors’ huge appetite for at-home fitness. The startup – valued at over $200 million two years ago – is considering a sale, according to Bloomberg. If the skyrocketing values of fitness subscription services like Zwift, now worth over $1 billion, are any indication, its value has probably jumped.
Meanwhile, traditional gyms have lost significant weight in the fight for exercisers’ dollars. Town Sports International, the owner of New York Sports Clubs, recently said it was filing for Chapter 11 bankruptcy. Gold’s Gym International did the same in May. And the share price of Planet Fitness has fallen by almost a quarter this year.
But banking on the continuation of the pandemic-generated shift toward at-home exercising may be premature. It could be like assuming the people who show up at a gym in January will still be there in April. (By Anna Szymanski)
INTERNAL DUEL. The pandemic is undermining Italy’s right-wing opposition leader Matteo Salvini. The League chief, a vitriolic European Union critic, failed to deliver a clean sweep at Italian regional elections this week. The centre-left PD party, which is in the ruling coalition, secured three out of seven regions and lost just one to the centre-right. The results, together with support in a referendum for a government plan to shrink parliament, reinforced investors’ view that Giuseppe Conte’s executive will stay in charge.
Salvini’s chief worry will be the success of Veneto governor and League rival Luca Zaia, who won praise for his handling of Covid-19. Zaia, dubbed “The Doge” and more moderate than Salvini, won a third mandate with 77% of votes. That’s a prelude to a duel within a party that is topping the opinion polls. If Zaia gets the upper hand, investors will fear the League less. (By Lisa Jucca)
PANIC ROOM. With Britain teetering on the brink of a second national lockdown, Whitbread is bowing to the inevitable. After announcing a 78% slump in like-for-like domestic revenue in the 26 weeks to Aug. 27, the 4 billion pound operator of Premier Inn hotels and Beefeater pubs said it would lay off as many as 6,000 people, or 18% of its workforce. Swallowing the 12 million pounds to 15 million pounds in redundancy costs is an acceptance that things are unlikely to improve any time soon.
These workers – like most Whitbread staff – are on flexible furlough. Under the scheme, the government pays at least 80% of salaries up to a cap, even when staff aren’t working. But the Treasury has been tapering its support, with employers meeting the shortfall. Whitbread is evidence that without a blank cheque, the costly job-retention schemes merely delay the reckoning. (By Dasha Afanasieva)
POT-DE-VIN. If persuasion fails, try bribery. Such is Suez’s approach to investor relations. On Tuesday, the French waste management company tried to fend off a potential hostile bid from rival Veolia by pledging to hand shareholders 2 billion euros in bumper dividends and buybacks over the next two years. That’s more than a fifth of its current market value. The promised largesse comes after state-backed Engie, which holds 30% of Suez, told Veolia to raise a 15.50 euro per share offer for its stake.
Suez boss Bertrand Camus’ munificence relies on cost cuts and sales growth to achieve 1.7 billion euros of operating profit by 2022 on revenue of 17 billion euros. That implies a meaty 220 basis point expansion in annual margins. So far, the bullishness is failing to sway investors waiting for a possible raised cash bid from Veolia: Suez shares edged up a paltry 0.6%. (By Christopher Thompson)
STALLING. Indonesia’s Garuda is flying low but reckons bankruptcy is off the table. The flag carrier has weighed up insolvency proceedings but will instead seek better terms on its aircraft loans, according to Bloomberg. The airline, which has $5.4 billion of leasing debt, has already delayed repayment of an Islamic bond but says an expected $580 million bridging loan from the government is taking longer than expected. Time is of the essence.
The carrier’s shares have fallen 55% so far this year, slightly worse than Thai Airways, which secured court approval this month for a restructuring. Like its Asian rivals, Garuda is counting on a speedy revival in domestic tourism as tough restrictions on international arrivals remain in place. With the virus raging across Indonesia, however, it’s going to be a long and bumpy ride. (By Una Galani)
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