Friday 14/08/20

  1. In TECH NEWS, US companies worry about the China tech backlash, Reliance talks to ByteDance about TikTok, Apple and Google ban Fortnite and Lenovo’s sales stay strong
  2. In M&A NEWS, Thermo Fisher/Qiagen gets dropped while the British M&A market hits new lows
  3. In NEWS ON CONSUMER TRENDS, we look at what’s going on with the British consumer
  4. In MISCELLANEOUS NEWS, the Philippines trials Russia’s new drug, DoorDash feels the heat and Tui suffers
  5. AND FINALLY, I bring you an appeal for Trump’s hair and some unusual fertiliser…



So US companies worry about a China backdraft, Reliance has TikTok talks, Apple and Google ban Fortnite and Lenovo does well and keeps its head down…

Corporate America worries WeChat ban could be bad for business (Wall Street Journal, John D. McKinnon and Lingling Wei) shows that US companies such as Apple, Ford, Walmart and Walt Disney are among the companies who are objecting to the Trump administration’s plans to restrict transactions involving Tencent’s WeChat app because they believe it will needlessly hobble their business in the world’s second biggest economy. In a call with the White House which also included the likes of P&G, Intel, MetLife, Goldman Sachs, Morgan Stanley, UPS, Merck and Cargill the companies expressed concern about the clarity of the executive order issued by Trump last week that is expected to come into force late next month. As it stands, the order bans “any transaction that is related to WeChat” by Americans – but given that WeChat is used by over 1.2billion people globally and is everywhere in China (it’s a “super-app” that enables mobile payments, messaging, e-commerce and countless other functions) you can see why they are objecting. The administration says that WeChat takes “vast swaths of information from its users”, thus allegedly posing a data security risk. * SO WHAT? * I think that a lot of this is Trump vote-seeking, attention-grabbing bluster designed to make him look like someone not-to-be-messed-with in the run-up to the presidential election. If he really does bring this order in, analyst Ming-Chi Kuo at TF International Securities believes that Apple’s iPhone shipments could drop by up to 30% as taking WeChat off the AppStore could be disastrous. Corporate America is not going to take this lying down IMO.

Elsewhere, Reliance and ByteDance in talks over TikTok India (Daily Telegraph, Ellie Zolfagharifard) suggests that India’s Reliance Industries is in early talks with ByteDance about investing in TikTok’s business in India. The two parties are thought to have started talks late last month but have yet to reach a deal. Analytics firm Sensor Tower says that TikTok has 611 million downloads in India – and its current ban in the country is clearly frustrating for ByteDance given the potential revenue opportunities. There was no official comment from Reliance, ByteDance or TikTok over this. * SO WHAT? * If a deal DID go ahead between the two, you would have thought that Reliance – owned by Mukesh Ambani, the richest man in Asia – would benefit by getting more traction with Indian consumers and TikTok would get a powerful local ally. It is still all speculation at this stage, though.

Then in ‘Fortnite’ kicked off Apple and Google app stores after Epic games moves to bypass fees (Wall Street Journal, Sarah E. Needleman) we see that both giants pulled one of the world’s most popular games off their app stores in an escalation of the ongoing battle between developers over distribution and in-app purchases. Other app makers such as Netflix and Spotify have also been pushing back against Apple’s developer fees. The decision came in yesterday and will stop people from downloading or updating the Fortnite app after the game’s creator, Epic Games, released a new way of getting around the 30% cut that the app stores make from digital transactions within the app. Epic is effectively declaring war and is now trying to promote the #FreeFortnite hashtag across the internet and its chief exec, Tim Sweeney, said that “We must all choose to fight a painful battle now, or accept an all-powerful middleman with unbounded ambition to extract tribute and limit innovation in the decades to come”. It is also offering players 20% back on their in-game purchases over the past month – which also covers V-bucks. It is now suing Apple in the US District Court in California after its removal from the app store, accusing it of monopolistic behaviour in its distribution and payment processes. * SO WHAT? * The pressure is increasing on Apple over this. Spotify filed an antitrust complaint in Europe against Apple for limiting competition against Apple Music and the EU opened an antitrust investigation into its App Store and Apple Pay services, so it would seem like Epic is trying to surf the wave. I have to say that I don’t fancy anyone’s chances in a p!ssing contest against Apple (it just put Margrethe Vestager back in her box), but you can understand why there are concerns. This is a bold move by Epic!

Lenovo’s sales strong despite growing threat of US sanctions (Financial Times, Ryan McMorrow and Kathrin Hille) highlights Lenovo’s strong sales and profit growth in Q2 as the world’s biggest computer maker continued to gain market share despite the current anti-China-tech backdrop. It’s interesting to note that while the likes of ByteDance, Tencent and Huawei are getting a right kicking, Lenovo’s US business has stayed intact and continued to benefit from people equipping themselves for home working. Even the US Air Force bought its laptops to help its staff to work from home! * SO WHAT? * International sales account for 79% of Lenovo’s revenues, so it will probably be a bit nervous ahead of an imminent election where the president appears to be hell-bent on pulling the rug from under Chinese tech. Although Lenovo sounds pretty relaxed about the situation, some fear that it could be targeted by the US as the “next Huawei” as only last year the Pentagon’s inspector general said that its computers had “cyber security risks”. For now, it looks like it is successfully flying under the radar!



The Thermo Fisher/Qiagen deal gets dropped and UK M&A activity falls…

Thermo Fisher’s €10.7bn takeover of Qiagen collapses after investor revolt (Financial Times, Kaye Wiggins and Arash Massoudi) shows that the deal fell apart after investors in Qiagen said that it was worth more as the Dutch diagnostics group actually benefited from the pandemic due to “unprecedented demand” for its coronavirus-related products! Qiagen makes molecular testing equipment and has managed to develop coronavirus testing kits for research. Its products were in such demand that it moved to 24-7 production at two of its manufacturing sites! It will need to pay Thermo Fisher $95m under the terms of its agreement for not going ahead with the deal. * SO WHAT? * Three of Qiagen’s top seven investors are hedge funds – Davidson Kempner,

PSquared and Farallon Capital – and Davidson Kempner in particular had been very vocal of Thermo Fisher’s effectively low-balling the company’s real value even after it upped its offer by $1bn last month to take the latest developments into account. If the hedge funds are wrong, they are going to get a lot of egg on their faces – but we’ll just have to see how Qiagen does by going it alone.

City M&A collapses to lowest level in over a decade (Daily Telegraph, Lucy Burton) highlights the lack of M&A going on in the UK as stats from Refinitiv show takeover activity being at its lowest level since just after the financial crisis in 2009. Ian Hart, UBS’s co-chairman of UK investment banking, observed that deals were put on hold in the initial stages of the pandemic and others said that companies are dragging their feet in getting deals over the line. It is possible that deals in the short term are likely to come from companies disposing of non-core operations and from companies who have benefited during lockdown cherry-picking suddenly-cheaper assets to enhance their existing business.



We have a look at what’s going on with the UK consumer…

So what are we all spending our money on then?? Brits splashing out on Rolexes boosts Watches of Switzerland (Financial Times, Jonathan Eley) shows that some of us (not me!) are spending cash on posh watches as Watches of Switzerland, which sells in its Goldsmiths and Mappin & Webb chains, saw its share price rocket up by 20% in trading yesterday on strong demand from UK consumers! The lack of tourists buying meant that the company could supply more products to the regions – but despite this there are still long waiting lists for marques such as Rolex, Patek Philippe and Audemars Piguet. Watches of Switzerland has 135 stores across the UK and US selling brands such as Cartier, Omega, TAG Heuer and Breitling. Nice! Apparently, we are also spending money on gambling according to Return of sports betting helps GVC beat forecasts (The Times, Dominic Walsh) as the company behind Ladbrokes, Sportingbet, Coral and Bwin forecast strong full-year results due to its betting shops reopening and the increase in online gambling and Very revenues top £2bn for first time (The Times, Ashley Armstrong) shows that we have been buying laptops, gaming consoles and home furnishings online.

Prospects for earning money may be getting better, according to Hopes of V-shaped bounce grow as vacancies reach 62pc of last year’s (Daily Telegraph, Tim Wallace), as stats from the Recruitment and Employment

Federation (REC) show that jobs are returning after a few very difficult months. Job postings increased by 125,000 over the last week and will be used as proof by economists that their theories of a V-shaped recovery (i.e. a quick recovery) will become a reality. ONS data shows that online ads for vacancies are now 62% of their 2019 level – which is up from 42% in May – and demand is rising for builders, gardeners, lorry drivers, childminders and debt collectors (!). * SO WHAT? * Job postings are the recruitment equivalent of estate agents’ property listings IMO – they are interesting to note but not as important as actual starts (or sales, for estate agents). I suspect that the types of jobs available will be very polarised and that many of the people who have lost their jobs in the pandemic will not be qualified (or they will be deemed to be “over-qualified”). I hope that an uptick in listings becomes a trend, however, as this would signal recovery – but it’s too early to tell yet.

Having seen what we are spending our money on, National Express suffers as passengers shun public transport (Financial Times, Philip Georgiadis) shows us that we’re not spending it on public transport. The group runs coach, school bus and rail services in eight countries – and it just hasn’t got a clue as to when normality will return. Tough times. * SO WHAT? * National Express’ share price has lost two-thirds of its value this year and there aren’t many signs of light at the end of the tunnel. Chief exec Dean Finch (who is shortly leaving for a new job at Persimmon!) put a brave face on things saying that the company could actually benefit medium term as weaker players fall away, meaning less competition.



The Philippines commits to Russia’s vaccine, DoorDash is under pressure and Tui suffers…

Philippines to begin Russian Covid-19 vaccine trials in October (Financial Times, John Reed) shows that President Rodrigo Duterte is literally putting his whole weight behind Russia’s Covid-19 vaccine saying that he wants to be the first one injected with it. His spokesman said yesterday that trials would begin in October and if they went OK, the Sputnik V vaccine (great name!) would be registered for public use by April 2021. Russia said it’d give it to the Philippines for free. * SO WHAT? * Duterte continues to foster closer links with Russia and China – and this is clearly part of that. Whatever his motives, I hope it works 👍

Elsewhere, DoorDash becomes latest gig app threatened with injunction (Financial Times, Dave Lee) shows that the recent decision to force Uber and Lyft to classify their workers as employees and not contractors is continuing to gain momentum as San Francisco’s lead prosecutor filed for a similar injunction. This movement really is gathering momentum and looks very much like it will be disrupting the disruptors in the gig economy.

Tui loses £1.8bn so far this year amid Covid-19 shutdown (The Guardian, Joanna Partridge) shows that Tui, Europe’s biggest holiday company, has warned that its business is unlikely to get back to normal until 2022 and that losses so far have reached £1.8bn. Hardly surprising given the circumstances. Although it also managed to get an extra €1.2bn from the German government on top of the €1.8bn it got from state lender KfW in March to help it through the winter season, things are still likely to be very tricky.



…in other news…

I thought I’d leave you today with the rather bizarre Trump wants to change government rules so his hair can stay ‘perfect’ (SkyNews, Chris Robertson) and the rather unusual German zoo turns poo into profit during lockdown (Telegraph). Maybe a gift for someone who has everything??

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Some of today’s market, commodity & currency moves (as at 0800hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
6,186 (-1.50%)27,897 (-0.29%)3,373 (-0.20%)11,042 (+0.27%)12,994 (-0.50%)5,042 (-0.61%)23,289 (+0.17%)3,359 (+1.15%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)