Monday 17/09/18

  1. In TRADE WAR-RELATED NEWS, Trump threatens China with $200bn more in tariffs and Japanese take advantage
  2. In RETAIL-RELATED NEWS, Amazon seeks out employees leaking data, Debenhams and Paperchase hit a rough patch and Kingfisher suffers in France
  3. In INDIVIDUAL COMPANY NEWS, a British “answer” to Netflix is on the cards and Coca-Cola looks to benefit from Costa’s supply chain
  4. In OTHER NEWS, I wanted to bring your attention to an interestingly-titled news newspaper. For more details, read on…



So Trump threatens to turn the screws even more on the Chinese and Japanese companies make the most of the opportunity…

Trump to slap $200bn tariffs on China (The Times, Philip Aldrick) highlights the expectation that Trump is about to impose taxes on a further $200bn of Chinese imports in his latest attack on global trade. A new 10% tariff is expected to affect around 1,000 Chinese goods, the increased price of which is likely to be passed on to the US consumer. * SO WHAT? * Relations between the two countries seem to have been improving slightly of late, but this throws a spanner in the works. Trump’s already slapped taxes on $50bn-worth of Chinese industrial equipment imports, but if he follows through on his threats, almost half of ALL Chinese imports will be affected. And if that wasn’t big enough, he is thought to be preparing a follow-up tariff package that will affect $267bn-worth of additional items! Although China might not be able to retaliate in a like-for-like fashion, there are plenty of other ways it can react. Apple in particular is likely to be feeling particularly nervous right now…

One “side” benefit of all these tariff shenanigans is Japan on track for biggest M&A spree in the US (Financial Times, Kana Inagaki and Leo Lewis) which shows that Japan is well on the way to having its biggest acquisition spree in the US since 1990. Basically, Japanese companies are now clamouring to buy up US assets while Chinese participation is cut off at the knees by the current trade tensions. Mergers and acquisition lawyer Kenneth Lebrun at Shearman & Sterling in Tokyo observed that “Five years ago, in every auction, there would be a Chinese bidder that was willing to pay 30 per cent more than everyone else”, but at the moment, the main competitors facing Japanese companies in a bidding process are likely to be other Japanese companies. Examples of Japanese acquisitions this year include Asahi Kasei’s purchase of Sage Automotive Interiors for $1.1bn, Recruit Holdings’ purchase of Glassdoor for $1.2bn and, of course, last week’s acquisition of Integrated Device Technology by Renesas. * SO WHAT? * Japanese companies are clearly taking advantage of what may prove to be a narrow window of opportunity but the Chinese may yet bite back as big deals can still be scuppered by Chinese regulators – as was the case when Qualcomm’s $44bn takeover of Netherlands-based NXP Semiconductors was blocked.



In retailer-related news, Amazon does some investigation into data leaks, Debenhams and Paperchase have a rough time and B&Q owner Kingfisher has France problems…

In Amazon investigates employees leaking data for bribes (Wall Street Journal, Jon Emont, Laura Stevens and Robert McMillan) we see that Amazon is currently looking into suspected data-leaks-for-bribes involving its employees in its quest to weed out fake reviews and other seller scams. There are allegations that employees of Amazon are leaking internal data and other confidential information to those selling merch on their website to give them an edge. This is thought to be particularly prevalent in China because Amazon employees aren’t paid particularly well and the number of merchants is currently shooting through the roof – a combination ripe for temptation. Payments are being made for access to internal sales metrics, reviewers’ e-mail addresses and even a service that deletes negative reviews! Merchants fight over getting their products mentioned on the first page of search results and have employed a number of tricks to game the system such as paying someone to click repeatedly on a listing or to create fake positive reviews to rank higher on Amazon’s algorithm. With regard to the deletion of negative reviews, the going rate is currently thought to be around $300 and brokers usually demand a package of at least five review deletions. Alternatively, the e-mails of negative reviewers can be sold on and said reviewers will be asked to change their review often in exchange for free or discounted products – a practice that is banned by Amazon* SO WHAT? * Given what’s at stake here for merchants, it’s hardly surprising that this is going on. At least Amazon is trying to address this. Maybe its China business costs will have to go up to pay its employees more so that they don’t engage in the practice or they’ll have to put more money into the investigation. Either way, they have to do something in order to protect their hard-won reputation or it could make life even harder in this most competitive of markets. I think that trust is particularly important for online retailers as there are so many other options available and customer loyalty these days ain’t what it used to be!

The UK high street continues to get a buffeting as Debenhams’ fund-raising efforts are thrown into question (Daily Telegraph, Ben Marlow) as its hope of offloading its Danish department store Magasin du Nord to raise £200m has encountered resistance from major shareholder Mike Ashley, who holds 30% of Debenhams via his company Sports Direct. * SO WHAT? * Debenhams’ future will be very tricky if it doesn’t get this cash injection and its share price has already fallen by two-thirds to just 12p after a number of profit warnings. I still stand by my prediction that Ashley will buy Debenhams for a knock-down price and merge it with House of Fraser. Even if he doesn’t complete a transformation, bringing them together and cutting out extraneous bits and perhaps consolidating systems could make it a more attractive proposition for a potential buyer. Alternatively, he could try to do the transformation himself and perhaps even include his growing property interests – a lot of current properties are in prime locations so this could be another avenue for him to follow.

Insurer abandons Paperchase suppliers (The Times, Miles Costello) highlights the current travails of Paperchase which is facing further pressure as leading credit insurer Euler Hermes said that it would no longer insure the company’s suppliers for any new stock they deliver to the chain. Euler Hermes’s action has been sparked by concerns over Paperchase’s cash flows and more general worries about high street retailers. Paperchase has 130 stores in the UK and 30 on the Continent and in the Middle East. * SO WHAT? * This is a major blow to a company that is already having a tricky time of it. If suppliers start to get more antsy, then this could turn into a death spiral. 

French struggles hit home for Kingfisher (Daily Telegraph, Ben Woods) warns that profits at B&Q owner Kingfisher could fall by 12% as its overseas operations continue to drag on its performance. Its French business, which includes the Castorama and Brico Depot chains, is taking a beating whilst the UK business is doing well at B&Q and Screwfix. Kingfisher is in the middle of a five-year plan to overhaul its buying functions and streamline its product lineup, * SO WHAT? * The company is doing well in the face of wavering consumer confidence, higher costs and online competition – but it clearly needs to sort its French business out.



In individual company news, there’s a bid to make a UK answer to Netflix and Coca-Cola aims to take advantage of Costa’s supply chain…

UKTV breakup to pave way for British rival to Netflix (The Guardian, Mark Sweney) sounds like a big claim to me, but the BBC and US pay-TV company Discovery are in the final stages of negotiating a £1bn breakup of UKTV (whose roster includes the likes of Dave and Gold). The BBC has wanted to have full control of UKTV for some time now, but an agreement appears to be imminent that the channels will be split between them. * SO WHAT? * Talks have been held for some time now between the BBC, ITV and Channel 4 about joining forces to create a British streaming service to take on the likes of Netflix and 

Amazon (!) but the issue of UKTV has proved to be a sticking point thus far. Negotiations are fluid currently, but this is worth following. Whether or not a British streaming effort can realistically take on American might is, however, a moot point.

Coca-Cola to tap Costa’s coffee supply chain (Financial Times, Stefania Palma) follows on from Coca-Cola’s recent £3.9bn acquisition of Costa Coffee from Whitbread and says that the US company will be using Costa’s supply chain to supply its own existing fast-food clients with access to a wider array of beverages. The acquisition was all part of a wider effort to diversify itself away from reliance on carbonated drinks, which still account for almost 75% of sales. * SO WHAT? * Coke is clearly trying to get ahead of the global trend for less-sugary drinks and Costa’s coffee expertise could come in very handy for Coke’s existing Asia business. Its vending machine business is also of great interest.



…And finally, in other news…

We often hear about newspapers going under these days as their readership abandons, but I’m happy to say that there’s a new one on the scene: Uranus Examiner promises to get to the bottom of stories (Metro, Kate Buck A catchy name, don’t you think??

As always, thank you for reading Watson’s Daily!

Some of today’s market, commodity & currency moves (as at 0809hrs 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
7,304 (+0.31%)26,155(+0.03%)2,905 (+0.03%)8,01012,124(+0.57%)5,353 (+0.46%)23,104 (+1.27%)2,680 (-0.25%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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