Private fairness will get carried away within the UK | Invesloan.com

A big win for Elon Musk to start: Tesla shareholders voted to reapprove chief executive Elon Musk’s $56bn pay and to reincorporate the electric-vehicle maker in Texas, handing him significant victories as he seeks to reassert control over the company.

And some European start-up drama: Abu Dhabi’s Mubadala is embroiled in a bitter board fight over the future of Wefox, the once high-flying European insurance start-up, as the $300bn sovereign wealth fund attempts to salvage an investment that has soured.

In today’s newsletter:

• Labour’s carried interest tax plans

• How Paramount’s takeover collapsed

• The challenges to buy a US bullet-maker

The big tax rate (potentially) coming for UK private equity

Private equity’s worst fears about the direction of UK tax reform may be coming true.

Labour party leader Sir Keir Starmer unveiled sweeping multibillion-pound tax plans on Thursday, but there was just one figure everyone in PE cared about: the “carried interest” tax rate.

The party’s plan includes raising £565mn by closing the gap — what some politicians call a “loophole” — between the tax rate on carried interest versus regular income.

While dealmakers’ income from management fees is taxed as income at 45 per cent, the money they take home based on their funds’ profits on successful deals is taxed as a capital gain at a 28 per cent rate.

Labour’s manifesto dovetails with some new research out this week: the world’s largest private capital firms have avoided income taxes on more than $1tn in incentive fees since 2000, according to Ludovic Phalippou of Oxford’s Saïd School of Business.

And a small group of UK financiers have hugely benefited from the tax scheme over the years. About 3,000 dealmakers shared £5bn in carried interest in the 2022 tax year, compared with a £3.4bn haul the previous year.

The UK slotted carried interest into a special tax bracket in 2015, bumping it up from the 18 per cent capital gains rate that was previously in place.

Once the government singled out the special rate, it made it easier to raise tax on private equity dealmakers without needing to get into legal arguments about whether to class it as income or capital gains.

Carried interest has been a battle between policymakers and PE execs for years. Blackstone’s Stephen Schwarzman famously compared the fight to keep the tax rate to “a war” (he later apologised).

The risk at this point, of course, is that executives will just pack up and leave the UK for a more favourable tax regime elsewhere in Europe.

But there’s still hope for the execs. Many politicians including Barack Obama and Donald Trump have previously vowed to change the way carried interest is taxed, only to go mum once they were in office. Rishi Sunak, as chancellor, ran a review of capital gains tax, but the system for private equity didn’t change.

So while Labour has a renewed surge of tax energy, history shows that translating campaign-time talk into actual policy rarely comes to fruition.

How David Ellison’s bid for Paramount collapsed

David Ellison was minutes away from buying the century-old Hollywood studio Paramount.

But in a dramatic twist, Shari Redstone, the heiress who controls the media group, changed her mind, DD’s James Fontanella-Khan and the FT’s Christopher Grimes and Anna Nicolaou report.

In quite literally the home stretch — all financial terms had finally been agreed following months of tortuous negotiations — Redstone’s lawyers at Ropes & Gray sent a terse email to Ellison saying the deal between his company, Skydance Media, and Paramount was dead.

“Shari effectively killed a deal that was fully negotiated, fully done on all key economics two minutes before the special committee meeting,” a person close to the deal said. “That was that.”

As the dust settled on a deal that surely wrecked many nights and weekends for dozens of advisers — from Hollywood to Wall Street — people who were involved said they couldn’t recall a messier process.

While Redstone and Ellison at first shared a special bond, both being the children of billionaires, that relationship had weakened in recent weeks.

Skydance’s bidding group, which had backing from RedBird Capital and KKR, decided to lower its offer for Redstone’s National Amusements — which controls about 80 per cent of Paramount’s voting rights.

The group brought the offer down from $2.5bn to $2.3bn, including debt, in order to sweeten its bid to shareholders. Shortly after, Redstone stopped talking to Ellison, according to people briefed about the matter.

(Others involved said the decision to stop communication was out of respect for the negotiation process with the special committee, which was in charge of representing the interests of all of the media company’s shareholders.)

Paramount’s operations suffered through the whole thing. There was a minor exodus in recent months, first when Redstone fired longtime chief executive Bob Bakish (who was openly opposed to the Skydance deal). Then four board members also left.

Meanwhile, so many suitors have made appearances in recent months, it’s hard to keep track.

Bakish met with Warner Bros Discovery’s David Zaslav. Apollo approached Paramount twice, most recently with Sony. And then just last week Edgar Bronfman Jr, the Seagram heir, made an approach alongside Bain Capital.

It seems like Redstone warmed up to a turnaround effort pitched by her own team (aka cost-cutting). On top of that, it ultimately proved too painful for her to let go of a company founded by her grandfather.

We’re taking bets: what will Redstone’s next move be?

The geopolitical hoops to buy a US ammunition maker

The fear surrounding foreign ownership of American companies has increased recently.

Nippon Steel has received regulatory and political pushback in its bid to buy US Steel for roughly $15bn. And while not an acquisition, fast fashion group Shein has had to pivot to potentially list in London after hitting roadblocks in its plan to float in New York.

The latest company to be met with suspicion is based in eastern Europe: Czechoslovak Group, or CSG, last year made a near $2bn offer to buy a leading US ammunition maker.

And recently, there’s been political critiques and challenger bids.

The group’s 31-year-old chair Michal Strnad, didn’t expect to be labelled a US national security risk when he made the offer for Kinetic, the small-arms ammunition unit of Vista Outdoor that owns the Remington brand, reports the FT in an interview with the publicity shy billionaire.

The offer has thrust Strnad into a contentious bidding war, and has put him in Washington’s spotlight. On the other side of the auction block are so-called American alternatives, including one from a wealthy Donald Trump donor.

Earlier this week, Vista rejected a $3bn offer from Dallas-based investment firm MNC Capital Partners (there was some concern about financing). Then Trump-fan Jeffery Hildebrand also informally threw his hat in the ring.

The fact that Kinetic is a homegrown gun maker has something to do with it. Republican politicians have labelled it as “industrial espionage” and that CSG has “ties to foreign adversaries”. (Strnad rejects the accusations.)

Republican Senator JD Vance has been among those critical of a foreign deal. In January, he said that “we cannot afford for America’s supply of weapons to fall into the wrong hands”.

Even as the political tide fights against him, Strnad is optimistic. CSG already has a bit of a foothold in the US, after buying Italian ammunition maker Fiocchi in 2022, which owns facilities in Arkansas and Missouri.

“I cannot build a truly global industrial group without going to the US,” he said.

Job moves

• Private credit manager 17Capital has promoted Dane Graham and Greg Hardiman to partners, as well as Michael Timms to managing director. Senior executive Pierre Garnier is relocating to the United Arab Emirates to set up an office as the firm expands in the Gulf.

• Eurazeo has hired Ken Hu to manage a new office in Tokyo for the firm. He previously worked for Strategic Value Partners and AMP Capital Investors.

Smart reads

Trump roundtable Former US president Donald Trump pitched corporate and Wall Street titans on how he would slash taxes and regulations if elected, the FT reports.

Chinese megaport A new Chinese project in Peru could accelerate trading between Beijing and South America — and is rattling Washington, the Wall Street Journal writes.

Soured portfolio A New York developer made a big bet on trophy properties such as Miami Beach’s Raleigh Hotel. The current market’s not working in his favour, the WSJ reports.

News round-up

Saudi Aramco signs LNG deal with US developer (FT)

Wells Fargo fires workers for ‘simulating’ being at their keyboards (FT)

Todd Boehly is building new asset manager around crown jewel (Bloomberg)

Can Anglo American’s platinum division go it alone? (FT)

Peel Hunt boss says ‘switch has been flicked’ on gloomy City sentiment (FT)