Secondary stock deals soar as health crisis prompts rethinking of investment strategies


By Corrie Driebusch 

Large companies have swiftly sold big positions in other firms after the coronavirus pandemic sparked a scramble for cash and caused them to rewrite their investing playbooks.

Among the big sales: In May, PNC Financial Services Group Inc. sold its more than $13 billion stake in BlackRock Inc., a position it had held for roughly a quarter of a century. It was one of the largest secondary sales in history.

Later that month, Sanofi SA said it sold nearly its entire one-fifth stake in drugmaker Regeneron Pharmaceuticals Inc., partly back to Regeneron itself, generating $11.7 billion in proceeds. Regeneron's stock has risen as it accelerated development of an antibody cocktail to treat Covid-19. Sanofi sold the stake in part because it was thinking about strategic objectives, including other possible acquisitions, according to people familiar with the matter.

Last week, SoftBank Group Corp. said it plans to sell most of its roughly $30 billion stake in T-Mobile US, which took its current form earlier this year after it absorbed Sprint Corp., which SoftBank had previously controlled.

So far this year, more than $28 billion of U.S.-traded stock has been sold spanning eight secondary transactions of at least $1 billion, according to Dealogic, the most by this point in any year on record. The biggest full year for such deals is 2012, when nearly $76 billion was sold in 22 transactions, according to Dealogic, whose data go back to 1995.

For many firms, the sales stem from a reckoning sparked by the coronavirus pandemic as boards focus on whether the most efficient use of capital is a minority stake in another company.

"Boards today realize they can't be complacent," said Elif Bilgi Zapparoli, co-head of global capital markets at Bank of America Corp. "Our discussions are not strictly with CFOs anymore. We're having discussions with CEOs and boards, as well as with sponsors and venture capitalists."

As the crisis set in, many corporate boards began meeting more regularly, and some are asking executives for weekly updates on the business and financials, according to board members and other people familiar with the matter.

Companies have rushed to raise money in the capital markets in recent months. Since the end of March, U.S.-listed firms have raised more than $148 billion in the equity-capital markets, making it a record-breaking quarter of money raising, according to Dealogic. The next biggest quarter for money raised in the U.S. equity-capital markets was the last three months of 1999.

The choice by individual companies to shed certain assets or not in some cases is coming down to broader philosophical questions, bankers and board members say. Those questions include: Where is the world going? Where are businesses going? And how might our business come out of the pandemic stronger than before?

"This crisis forced companies to rethink everything," Ms. Bilgi Zapparoli said.

Other companies have also made smaller but significant divestments as the pandemic swelled. In mid-March, Fox Corp. sold its 5% stake in Roku Inc., raising roughly $350 million. Fox Corp. and Wall Street Journal parent News Corp share common ownership.

In late April, Comcast Corp. sold roughly half its position in newly public Peloton Interactive Inc. for nearly $200 million.

PNC's sale of its BlackRock stake "significantly" enhanced the firm's "already strong balance sheet and liquidity, and left PNC very well-positioned to take advantage of potential investment opportunities" that could arise, according to a statement from Chief Executive William S. Demchak.

PNC, one of the largest regional banks in the U.S., chose to sell the stake and bolster its capital levels while exposed to some of the industries hit hardest during the coronavirus pandemic, including oil-and-gas and hospitality. In the first quarter, PNC increased its loan-loss reserves by $1.3 billion.

Bank stocks have struggled over the past several months, and some analysts say if PNC wishes to do a deal, having cash on hand could be more appealing to its own investors than using its own stock.

The exit marked a big return for the regional bank. PNC bought BlackRock for roughly $240 million in 1995. It has reduced its stake over the years as BlackRock has grown into an asset-management behemoth with an $86 billion market value.

Write to Corrie Driebusch at corrie.driebusch@wsj.com