Thursday 10/09/20

1. In INDIVIDUAL COMPANY NEWS, LVMH tries to back out of its purchase of Tiffany, Tesla has valuation problems, AstraZeneca’s pause gives cause for thought and airlines cut schedules
2. In TECH NEWS, TikTok options are mooted and Epic Games pits its users against Apple
3. In HIGH STREET/RETAIL NEWS, things look tricky for Lloyds, New Look and Pizza Hut while Simon & Brookfield decide to rescue JC Penney
4. AND FINALLY, I bring you a cute kid who will make your day…

So LVMH cools on the Tiffany purchase, Tesla hits a bump, AstraZeneca’s action gives us cause for thought and airlines cut schedules…

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In LVMH says it cannot complete Tiffany takeover after France intervenes (Finanical Times, James Fontanella-Khan, Ortenca Aliaj, Leila Abboud and Arash Massoudi) we see that LVMH is ostensibly trying to back out of its proposed $16.6bn takeover of US jeweller Tiffany – because the French government urged it to do so! Given that such a move will have been widely expected given the number of other deals that came together before Covid and then unravelled it is hardly surprising that Tiffany immediately countered with a lawsuit against LVMH, accusing it of delaying tactics. LVMH’s chief exec, Bernard Arnault, is known for his tough negotiation tactics – hence his nickname “the wolf in cashmere” – and has been trying to renegotiate the terms of the $135-a-share deal that was initially announced in November. * SO WHAT? * The French government had urged LVMH to back out of the deal as part of presenting a united front to America as Trump imposed tariffs on French luxury goods in response to France’s imposition of a digital tax. LVMH’s offer last year was at a 37% premium to the pre-announcement share price and was pretty toppy at the time. LVMH/Tiffany: French bleat (Financial Times, Lex) says that LVMH will be arguing that the coronavirus outbreak triggered a “material adverse change” (aka “MAC”) clause giving it legitimate reason to reconsider its bid whereas the US courts are likely to resist such a claim. The implication here is that this sort of thing is pretty cut and dried (LVMH would probably be forced to stick to the deal) but the unknown quantity here is the apparent involvement of the French government as it sees LVMH as a strategic business and hence is likely to get more involved.

Tesla investors strap themselves in for a bumpy road as volatility returns (Daily Telegraph, Matthew Field and Michael Cogley) highlights the recent Tesla share price weakness since the most recent peak it reached on August 31st and has a look into why this happened. Interestingly, Jefferies’ automotives analyst Phillippe Houchois (fun fact: I used to work with Philippe when I was a stockbroker at Cazenove!) observed that “we have been bullish on Tesla for two years now, but I must admit it has been hard to keep track of the speed of the moves. There has been logic in the exuberance, but it is very hard to know when it stops”. In essence, the article points to tech-related excitement, SoftBank options purchases and retail investor-fuelled buying on platforms such as Robinhood on the up and then the S&P500 entry snub and investor profit taking (Baillie Gifford, for example) on the down. Tesla

looks overvalued as battery doubts halt charge (Daily Telegraph, Robin Pagnamenta) takes a closer look at the prospect of the company’s “Battery Day” (sounds like some kind of festival promoting ABH!) which is due on September 22nd where Elon Musk is expected to unveil a “million-mile battery” which will be a vast improvement on current tech in terms of energy density and performance. * SO WHAT? * Big Tech saw a Big Sell-Off this week, but I would say that these things happen from time-to-time as investors look to crystallise the massive gains some of them have made. What is perhaps more interesting, to my mind, is what happens on September 22nd. If the new battery tech breakthrough lives up to the hype, it could be massive – and Tesla’s share price could resume its path to the moon once more. One of the major stumbling blocks to wider adoption of electric vehicles is the continued expense of the battery in the car itself (it represents 30% of the cost of the vehicle), which keeps the selling price stubbornly high. Prices of batteries have been falling in recent years from over $1,000/kWh in 2010 to $381/kWh in 2015 and now $147/kWh, according to Bloomberg New Energy Finance. Tesla is trying to get this figure to well below $100. The thing is that now, Tesla isn’t the only player in the sandbox – Renault, for example, looks like it will be selling more electric vehicles this year than Tesla. I think that a battery breakthrough will be more important than ever to even coming close to justifying Tesla’s heady price tag.

Given the announcement, I thought that AstraZeneca’s Covid trial pause a reminder of huge challenges in race for vaccines (Financial Times, Sarah Neville, Clive Cookson and Kiran Stacey) shows that the pharma giant’s confirmation on Tuesday that it had temporarily halted trials of its coronavirus vaccine has been a real blow to everyone’s hopes for a vaccine sooner rather than later. It serves as a reminder of just how difficult it is to find an effective vaccine. Although AstraZeneca was keen to stress that it was not a major problem, badging this latest development as a sign of how careful it is being, you would have thought that things must be reasonably serious given the enormous pressure all pharma companies are facing regarding the discovery and development of a coronavirus solution. The previous record time for finding a vaccine was four years for mumps – and this took four years! Achieving the near impossible is what pharma companies are trying to do now, but I would argue that in addition to tech changing everyone is trying to find a solution at the same time globally so I would expect the sharing of information to be on a much bigger scale than before which will surely compress the process 🤞

Then in US and European airlines cut schedules as passengers fail to return (Financial Times, Claire Bushey and Philip Georgiadis) we see that Europe’s biggest discount airline, Ryanair, has reduced the number of passengers it expects to carry in the fiscal year to March (EasyJet also cut its flight schedule earlier this week) and Finnair is expected to offer up to 80 flights daily in October versus the 200 it had planned previously. Over in the US, United Airlines announced that capacity would be cut by 70% versus Q3 of 2019 – a small increase versus the previous guidance of a fall of 65%. The airline industry nightmare continues…

TikTok options narrow and Epic Games continues to complain…

TikTok, US discuss ways to avoid sale (Wall Street Journal, Miriam Gottfried, Georgia Wells and Kate Davidson) highlights the latest in the ongoing TikTok saga as parent company ByteDance is talking to the US government about ways to avoid a full sale of its US operations. * SO WHAT? * Discussions in this regard have heated up since the Chinese government announced measures that would make a sale to an American company much more difficult, but it seems to me that time is running out for a solution to the TikTok problem. A number of 

options are still on the table but time is rapidly running out as a sale is supposed to be agreed by next week, according to Trump’s most recent pronouncements.

Talking of lost causes, Fortnite mobilising gamers to wage war on Apple (Daily Telegraph, Laurence Dodds) highlights Epic Games’ efforts to turn users against Apple in its current fight by urging them to #FreeFortnite sounds like a pathetic attempt to rally its userbase. * SO WHAT? * Given the enormity of the task it faces and the potential losses it must already be experiencing, I would agree with a prediction made in this article that “Apple will hold, Epic will fold” and that things will be back to normal soon enough (with lawyers having earned a lot in the process!). As I have said before, I don’t think Epic stands a chance if it proceeds on its own – it needs to get with others to even have a hope and no-one seems willing to stick their neck out.

The gloom continues on the UK high street but JC Penney gets saved…

Lloyds to cut hundreds of UK jobs as it revives restructuring plans (The Guardian, Julia Kollewe and Sarah Butler) highlights yet more job cuts in the banking sector as part of restructuring efforts while Almost 125,000 UK retail jobs lost so far this year, study estimates (The Guardian, Sarah Butler) cites a study by the Centre for Retail Research which tells us what we already know – that retailers are getting mullered.

New Look close to collapse as it seeks rent deal (Daily Telegraph, Laura Onita) highlights yet another apparel retailer dicing with death while Pizza Hut move to close 29 outlets threatens 450 jobs (Daily Telegraph, Rhiannon Curry) shows the latest casual dining casualty as it is in talks with creditors about a CVA.

On a positive note, Mall owners Simon and Brookfield to rescue JC Penney (Wall Street Journal, Suzanne Kapner and Alexander Gladstone) shows that JC Penney managed to find a saviour (for now!) at a cost of $800m. I would imagine this is not the end of JC Penney’s sorry saga!

…in other news…

Today, I thought I’d leave you with what must be the cutest video ever! If you are having a rough day – or even if you are not – you really should watch the video in Toddler leaves people in tears as baking with grandma descends into chaos (The Mirror, Luke Matthews).