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A strange Saudi shopping spree

THE SCOOP

What do the heirs to a Saudi banking dynasty want with an American children’s clothing store teetering on the edge of bankruptcy?

Since The Children’s Place — once a defining feature of American malls — said last week that it was running out of cash, more than half of its stock has been snapped up by the Al-Rajhi family, the founders of Saudi Arabia’s largest private bank.

Mithaq Capital, which invests some of the Al-Rajhi family fortune, bought 46% of the retailer’s shares on Friday and Monday, and another 8% on Tuesday, corporate filings show, and plans to replace the board. Semafor reported the hostile approach Wednesday.

All in, Mithaq spent at least $80 million to buy control of a public company in three trading sessions — an unheard-of blitz for even the most aggressive of hostile bidders and corporate agitators.

KNOW MORE

The Al-Rajhis are said to be Saudi Arabia’s richest non-royals and trace their fortune to Al Rajhi Bank, which was founded by the family’s nonagenarian patriarch and is now the kingdom’s second-biggest company, behind oil giant Aramco. Mithaq, run by a son of a less-prominent branch, invests some of the family’s wealth.

Mithaq’s reported holdings of public stocks, valued at about $200 million by S&P Capital IQ, are an eclectic mix: a British litigation-finance firm, an Israeli data-intelligence firm, a Chinese tour-guide company, an Australian goat-milk producer, an advertising-technology company that just delisted from Nasdaq.

The Al-Rajhis’ partner in Mithaq, Asif Seemab, told Bloomberg in 2022 that “other than Shariah compliance” — which prohibits collecting or paying interest on debt — “we are country-agnostic and sector-agnostic.” Executives who’ve engaged with the firm describe a Buffettesque buy-and-hold approach, with occasionally sharper elbows. (Mithaq is currently waging a hostile takeover battle at a small Canadian conglomerate.)

LIZ’S VIEW

Mithaq’s tactics here are high-risk, and might actually hasten The Children’s Place’s downfall, zeroing out the value of the stock it was so eager to own.

The Children’s Place’s biggest problem is a $445 million loan backed by its inventory, a common way that retailers finance themselves. The fine print of that loan requires it to be repaid if anyone acquires at least 25% of the company’s stock, an event that The Children’s Place, which has just $45 million of cash on hand, can’t afford. On paper, the company is now insolvent, and Mithaq’s shares are worthless.

That said, Mithaq clearly, somewhat bafflingly, likes this company and is prepared to put money into it. The Children’s Place’s lenders are in control now, and they might prefer dealing with a single large shareholder willing to bankroll a turnaround.

Japan is off the podium. Germany is poised to overtake Japan as the world’s third-largest economy after surprisingly bad numbers out of Tokyo yesterday. Both are projected to be lapped by India over the next few years.

Japan is now officially in a recession that it’s uniquely unequipped to fight. Unlike other industrialized countries that have swiftly raised interest rates to battle post-pandemic inflation, Japan has held interest rates negative. Its economy has long been big but fragile, with an aging population and weak domestic demand, and officials figured that raising borrowing costs would do more harm than good.

So the weapon of choice for central bankers fighting off recessions — cutting interest rates to get easy money flowing — isn’t available to the Bank of Japan. The problem with NIRP is that there’s nowhere to go.

Risk on: The big idea of 2023 was a boring one: cash. With money-market funds paying 5%, investors moved out of the riskiest investments and into the safest. That might be over. A survey of family offices by KKR — which has a dog in this fight — finds a newfound appetite among the wealthiest clans to get back in the asset-owning game.

Of particular note to an industry with big fundraising targets to hit: More than a quarter of respondents said they planned to put more money into private equity.

Watch this space: With its chief rival, Boeing, mired in safety issues, Airbus said today it will ramp up plane deliveries, share its growing cash pile with investors through a special dividend, and start work on next-generation jets. But it has a problem of its own: Its money-losing space program, which took another €200 million charge in the quarter. “Mishaps of this magnitude and suddenness are just not acceptable at Airbus,” CEO Guillaume Faury wrote in an internal memo to staff last month, Reuters reports.

Breaking ground: Data tomorrow is expected to show a slight drop in new home construction in the U.S. A lack of supply is keeping housing prices stubbornly high, blunting the Fed’s best tool — high borrowing costs — for cooling a sector that has been a major driver of inflation. New houses are especially important because owners lucky enough to lock down low mortgage rates in the past are reluctant to sell.

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