Monday 29/07/19

1. In MACRO NEWS, the UK jobs market continues to look buoyant despite Brexit uncertainty
2. In MERGER & ACQUISITION NEWS, the amount of merger activity increases with LSE, Just Eat and Pfizer currently mulling moves
3. In UK RETAIL NEWS, Sports Direct disappoints, Primark tries to get a rent cut and Sainsbury’s considers restaurants
4. In OTHER NEWS, I bring you a brilliant birthday cake…

So there seem to be plenty of jobs sloshing around in the UK despite Brexit uncertainty…

Weak growth fails to dent jobs boom (The Times, Philip Aldrick) cites a survey from the British Chambers of Commerce which shows that 30% of 6,500 companies surveyed said that they were planning on growing their

workforce over the coming quarter. This follows on from the survey in the last quarter to June when 60% of respondents said they had tried to add staff and the previous one where 53% had said so. * SO WHAT? * Given the parlous state of the economy at the moment, with Brexit causing chaos and a slowdown in investment, you would have thought that confidence would be shot to pieces. However, the unemployment rate remains stubbornly low and is currently the lowest its been in 45 years! Whether it will remain the case I don’t know – but at least there is underlying confidence from employers.

The number of UK deals rises, London Stock Exchange eyes something transformational, Just Eat and Takeaway.com get closer and Pfizer wants to merge part of its business with Mylan…

City eyes deal spree after strong start to year (The Times, Ashley Armstrong and Ben Martin) highlights a sudden deluge of M&A deals in the UK as the latest stats from data company Dealogic show that the City has had one of its best ever starts to the year. Last week saw a whopping £55bn-worth of merger activity alone and Dealogic showed that the value of private equity takeovers in the UK hit £13.6bn for the year to date – a level not seen since 2007. It also showed that June turned out to be the busiest month for private equity takeovers of public UK businesses in over ten years. * SO WHAT? * This is particularly interesting given that in an edition of Watson’s Daily only last month, Dealogic said that flotations have slowed down to their lowest level until at least 2009. At that point, there had only been 14 IPOs (raising $3.1bn) on UK exchanges in 2019 versus 65 (raising $18.3bn) in the same period in 2014. I went on to say that “I suspect that there are many potential deals waiting in the background for some kind of clarity on the situation” and consultancy firm Bain pointed out that private equity had built up a huge pile of cash (£1.6tn), indicating that there will be more deals to come. It seems that it isn’t just the weather that’s hotting up!

Talking of which, LSE lays high-stakes $27bn bet that data is the future (Financial Times, Arash Massoudi, Richard Henderson and Richard Blackden) shows that the London Stock Exchange is now trying to bounce back from its failure to merge with Deutsche Borse 18 months ago by eyeing an acquisition of data and trading venue group Refinitiv for $27bn including debt from a consortium that includes Blackstone. * SO WHAT? * If this deal goes ahead, it would result in a group with the scale to take on American big hitters including the Intercontinental Exchange, the CME Group and Bloomberg in a seismic shift away from “just” matching buyers and sellers to the business of selling information. This deal won’t be a walk in the park as LSE’s investors, who have seen its shares jump by over 30% in the last year, will have to be convinced that

taking on $12bn of Refinitiv’s debt in exchange for exposure to (very lucrative) pastures new will be worth it. It is also likely to take a while to get the official go-ahead, but if it does, Blackstone in particular will be sitting very pretty. It, along with the Canadian Pension Plan Investment Board and Singapore’s GIC state fund, put together $3bn of equity and $1bn of debt into buying 55% of Thomson Reuters’ financial and risk division, which was subsequently rebranded as Refinitiv. If this deal goes ahead, the stake will be worth $8bn – not a bad return in less that two years! Very exciting times (potentially)…

Then in Just Eat and Takeaway.com in talks over all-share bid (Financial Times, Tim Bradshaw and Arash Massoudi) we see the possible creation of a £9bn online food ordering business that would rival Uber Eats and Amazon-backed Deliveroo. The potential Anglo-Dutch combo would be particularly tasty for hedge fund Cat Rock Capital, which has a stake in both companies and has been pushing for a deal. The two companies have until 24th August to agree a deal under takover rules. * SO WHAT? * This looks like an interesting deal as it will result in a much broader-based group due to there being very little geographical overlap. As far as food delivery apps are concerned, though, I think that scale in their chosen markets is key – not how many countries you cover – because it’s only by going deeper in the markets in which you operate that you can drive costs down in a meaningful way. Having said that, it could be a stepping stone to going deeper in their respective markets. In my opinion, this sounds fine on a strategic basis, but I wouldn’t be getting too excited about it because of the lack of overlap. Easy to say, but if it were me, I’d rather be the #1 go-to in a market and then “export” that elsewhere or get bought out by Uber or something. Much cleaner IMHO.

Pfizer nears deal to combine off-patent drug business with Mylan (Wall Street Journal, Jonathan D.Rockoff and Cara Lombardo) heralds a potentially big deal as Pfizer has indicated an interest in merging its off-patent drugs business with Epi-Pen maker Mylan to create a major global seller of lower-priced medicine. The two companies have been just bumbling along recently, but it is hoped that a combination of the two could reignite sales growth. * SO WHAT? * This is all part of Pfizer chief exec’s plan to concentrate on the much higher margin patent-protected prescription drugs and vaccines. If this went ahead, it could well start another wave of consolidation among other generics-makers  

Sports Direct has a ‘mare, Primark pushes for lower rents and Sainsbury’s mulls restaurants…

OK, so it happened last Friday after markets closed, but Ashley sinks to new low in already frayed ties with the City (The Times, Ashley Armstrong) highlights the disappointing performance by the company in results that were delayed until 5.19pm. It announced that its CFO, John Kempster, would be departing and that it would be revising full year guidance due to the performance of House of Fraser, which made £54m in losses. * SO WHAT? * This sounds like a pretty disastrous performance and the fact that the results had already been delayed from the previous week – and then again on Friday, from 7am to 5.19pm) – stinks. If he slagged off House of Fraser that badly, thank God he didn’t succeed in buying Debenhams as well! It all sounds very suspicious to me and there seems to be a lot going on behind closed doors. Ashley seems to have a constant love-hate relationship with the City – and, at the moment, it seems to be all hate (and I think that the feeling is mutual). As many of you will know, I think that both House of Fraser and Debenhams are terminal – it’s just a question of how quickly it will happen. If House of Fraser and Sports Direct’s collective businesses don’t turn around soon, I would be willing to bet that House of Fraser will be the one to get the chop as its losses can rack up at an alarming rate.

Primark takes on landlords in push for rent cuts (The Guardian, Kayleena Makortoff) sounds like it’s not only troubled retailers who are pushing landlords for lower rent – the successful ones are now coming forward! You will no

doubt be aware of a number of retailers (e.g. Arcadia’s Top Shop, Miss Selfridge etc. and Accessorize Monsoon, among others) who have basically forced landlords to take massive rent haircuts in order to keep shops open – well it seems that successful ones want to get in on act and Primark, being one of those, is negotiating 30% cuts on new leases. * SO WHAT? * Good on them – and why not?? Given the sheer number of CVAs these days, successful retailers are effectively becoming victims of their own success by having to pay more rent than their failing neighbours. Landlords such as Intu and Land Securities will come under increasing pressure to take these moves into account when valuing their property portfolios as existing values could look inflated given the outlook.

In New restaurant chain may be on the menu at Sainsbury’s (Daily Telegraph, Laura Onita) we see that Sainsbury’s is looking at potentially launching a chain of in-store restaurants. In addition to providing an “eat-in” option, customers would also be able to order via delivery apps on their phones. * SO WHAT? * This smacks of desperation IMO. Mike Coupe, Sainsbury’s chief exec, is clearly trying to look proactive after his disastrous pursuit of Asda ended in very public failure. It just looks to me that he’s trying to jump on any current bandwagon in an attempt to justify his existence – but restaurants?? Really?? Maybe I’m being too harsh, but it sounds like it’ll cost loads of money to roll out and will take up loads of resource for not much in return. Maybe Coupe is hoping that this will distract investors and give him a bit of wiggle room. I just don’t see this working – the fad for in-store cafes fades in and out over time, but can you really see restaurants taking off in supermarkets? For that to happen, they will have to be good and cheap (= cr*p margins) and be something that you can’t get elsewhere. 

And finally, in other news…

You just have to see this – it’s absolutely brilliant: A woman got a birthday cake shaped like an Amazon package from her husband because she loves online shopping (Insider, Ian Burke https://tinyurl.com/yy6ah7gx). This is genius!