Friends now, foes later: Sequoia’s drama at Klarna

One major US deal to start: Capital One has agreed to buy Discover Financial for $35.3bn, in an all-stock tie-up that is set to unite two of America’s largest credit card companies. Details here.

Plus, an interview with Gerry Cardinale: Having just struck a £1.15bn deal to buy All3Media, the RedBird Capital dealmaker is seeking approval to complete a takeover of The Daily Telegraph newspaper. He sat down with DD’s James Fontanella-Khan to discuss what he’s up to.

Hear more from Cardinale at the FT Business of Football Summit, where he will be joined by footballing legend Zlatan Ibrahimović, to discuss what they are up to with RedBird-owned AC Milan and more. As a DD subscriber, register for your complimentary digital pass here to watch the two-day event online, or save £200 on your in-person pass to join us at The Biltmore Mayfair on 29 February. Register here.

In today’s newsletter:

• Sequoia picks boardroom battle 

• Currys sparks takeover fight

• Who signed off on Evergrande’s accounts?

Sequoia infighting plays out at portfolio company

In the business of venture capital, almost nothing is more important than appearing “founder friendly”.

What that means is backing entrepreneurs with near unconditional support. Failing to do so could cost venture investors the chance at snagging prized future start-up deals. 

Take the motto of Silicon Valley’s famed Sequoia Capital, often regarded as the top VC firm: “We help the daring build legendary companies.”

But Sequoia’s reputation for founder friendliness seems to be at stake in a dramatic board fight now developing at Klarna, the Swedish “buy now, pay later” pioneer.

The drama at Klarna involves board chair Michael Moritz, a legendary venture capitalist (and former journalist) who was an early investor in Google and has been knighted in the UK. He’s also a former Sequoia leader.

Moritz has been a crucial boardroom ally of Klarna chief executive Sebastian Siemiatkowski, sources tell DD — staunchly coming to Klarna’s defence in 2022 when the group slashed its valuation from $46bn to just under $7bn.

After Moritz stepped down from Sequoia in July, the firm set about transitioning his board seats to active partners. However, Klarna said Moritz would stay on as board chair in an independent capacity, with Sequoia partner Matt Miller taking the firm’s seat on the board.

Yet it appears Sequoia doesn’t want Moritz to serve on Klarna’s board — where it is the largest shareholder with a 22 per cent stake — in any capacity.

Backed by managing partner Roelof Botha, Miller has asked for an extraordinary shareholder meeting to remove Moritz from the board. Other shareholders are sympathetic to the effort.

One person with knowledge of the latest move said removing Moritz could be viewed as “step one to removing Sebastian”.

Sequoia said in a pair of statements that it was “excited to back Sebastian and Klarna’s journey ahead” and that the group “realised there were a series of governance changes that needed to be made to set the company up for its future”.

The move marks a rare display of infighting that pits Sequoia against its own former leader. And it comes as Klarna positions itself for an upcoming initial public offering.

Electronics retailer Currys sparks bidding war

The UK high street mainstay Currys — known for selling electronics, from computers to vacuums — isn’t the sort of company you’d expect to find in the middle of an international bidding war.

But the London-listed retailer appears headed in that direction, after attracting takeover interest from Elliott Management and the Chinese ecommerce group JD.com.

Over the weekend, Currys said it had rejected a 62p-a-share bid from Elliott, adding that it significantly undervalued the company. JD.com separately said on Monday that it was considering its own offer.

That sent shares in Currys soaring 36.4 per cent on Monday to 64.2p, valuing the group at over £725mn.

Analysts said the company could make a tempting target given its depressed share price. Currys has previously attracted interest, including from private equity firm TDR a few years ago, according to people familiar with the matter. TDR declined to comment.

Currys has faced issues including a struggling Scandinavian business. However, it controls nearly a quarter of the UK consumer electronics market, and an electronics refurbishment division and mobile business that could alone be worth more than £1bn.  

That may be why Peel Hunt analysts said they would “struggle to see the [Currys] board engaging on anything less than 80 pence” per share. Our colleagues at Lex came to a similar conclusion.

For Elliott, a bid for Currys fits nicely into a UK private equity portfolio that already includes consumer investments such as the bookshop Waterstones and the food chain Wasabi.

But for JD.com, the logic may be more complex. While the group faces a slowdown in its domestic market, UK retail isn’t exactly a classic growth strategy. And Chinese bidders generally face greater regulatory barriers for UK takeovers.

The auditors that signed off on Evergrande

As China’s Evergrande grew rapidly using eye-watering amounts of leverage during a long real estate boom, PwC repeatedly signed off on its accounts. 

The Big Four firm was the company’s auditor when it listed in 2009 until last year, when PwC resigned and said it hadn’t been able to get the information it needed for Evergrande’s 2021 audit. 

Evergrande defaulted, with more than $300bn in liabilities, in 2021. 

A court’s decision last month to order Evergrande’s liquidation means things could start to get difficult for the audit firm. 

Eddie Middleton and Tiffany Wong, the restructuring specialists at Alvarez & Marsal who have been appointed as Evergrande’s liquidators, are preparing for a potential lawsuit against PwC, DD’s Kaye Wiggins and the FT’s Chan Ho-him reported at the weekend. 

It doesn’t mean that after just a few weeks in the role they have unearthed any evidence of wrongdoing by the auditors.

Rather, it’s part of an increasingly common playbook. “Suing the auditor has become somewhat normalised as a way of recovering value [for creditors],” a restructuring specialist not involved with the case said. 

Liquidators often move fast to preserve their ability to bring such cases, so that they’re not thwarted later by the statute of limitations — usually six years under Hong Kong law. 

Still, executives at PwC might be feeling a little uneasy. It follows a period in which the firm built up a significant business auditing Chinese real estate groups: PwC has also acted for others that have struggled, such as Country Garden, Sunac, R&F Properties and Shimao.

Job moves

• Activist investor Carl Icahn has secured two seats on the board of US airliner JetBlue. They will be held by Jesse Lynn, the general counsel of Icahn Enterprises, and Steven Miller, who is a portfolio manager at Icahn Capital. 

• Carmaker Stellantis said it would appoint Claudia Parzani, Linklaters partner and chair of Borsa Italiana, as a non-executive director at its next general meeting. She will replace Kevin Scott, who is stepping down for personal reasons.

Smart reads

The oracle of Tokyo? Warren Buffett’s bet on the sleepy world of Japanese general trading companies was well-timed. Other investors shouldn’t copy him, the FT’s Lex writes. 

Trading secrets A little-known trader from Azerbaijan built a network that moves large quantities of petroleum from Russia to China, India and other markets, The Wall Street Journal reports. 

Property empire A former Bangladeshi politician amassed a UK real estate empire of more than 350 properties worth about £200mn, Bloomberg News writes, adding to concerns over Britain’s ability to scrutinise inflows of foreign money.

News round-up

Morgan Stanley accused of duping ECB with fake Frankfurt job title (FT)  

S&P Global close to acquisition of research platform Visible Alpha (FT) 

Carlyle in talks with London airport owner to resolve loan row (FT) 

Hedge funds reap big gains after ramping up bets on Nvidia (FT) 

Deloitte scales back UK deals business after profitability review (FT) 

Jeff Bezos’s $4bn share sale does not signal end of tech market rally (FT)

Ten reasons why a mass-market sale of NatWest stock is now a bad idea (FT)

Diego Della Valle cements French connection with planned Tod’s delisting (FT)