Thursday 23/04/20

  1. In COMMODITIES, CORONAVIRUS & MACRO NEWS, Trump gets involved in oil, Cornwall finds high-grade copper, we look at anti-coronavirus efforts in parts of the US, South Korea and France and UK inflation falls to 1.5%
  2. In M&A NEWS, Facebook invests big in India’s Jio while acquirers try to back out of Moss Bros and Victoria’s Secret deals
  3. In INDIVIDUAL COMPANY NEWS, Boohoo is on the prowl and Fever-Tree benefits from home drinking
  4. AND FINALLY, I bring you Dalgona coffee and dogs being trained to detect Covid-19…



So oil continues to be entertaining, a copper discovery in Cornwall excites, we look at a few anti-coronavirus measures around the world and UK inflation drops to 1.5%…

Modest lift in oil prices as Donald Trump rattles sabre (Daily Telegraph, Ed Clowes) shows that Trump’s aggressive tweeting (“I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea”) lifted oil prices. Oil prices tend to rise on the threat of conflict because oil consumption usually increases as a result, but surely this is going to be a fleeting rise because there’s tons of oil sloshing around in storage at the moment – which is why the oil price is so weak currently. In addition to this, US oil blockade could strand Saudi tankers (The Guardian, Jillian Ambrose) shows another way that Trump is trying to “help” his domestic oil industry – by potentially blocking all incoming tankers and/or putting massive tariffs on oil imports. US senator Ted Cruz indulged in a bit of Trump-like Twitter diplomacy on Tuesday saying “My message to the Saudis: TURN THE TANKERS THE HELL AROUND”. Nice. All this oil price weakness continues to have repercussions as per ‘We pulled the plug’: as oil prices plunge, drillers in the Gulf of Mexico shut off wells (Wall Street Journal, Collin Eaton), which highlights yet more examples of oil companies shutting down operations due to the ongoing low oil price. Oil field services companies such as Schlumberger, Halliburton and Baker Hughes are laying off workers as the oil majors that they work with continue to cut projects. I expect that the carnage will continue for now.

On a happier note, Cornish copper find raises hopes for once ‘richest square mile’ (The Guardian, Steven Morris) highlights a new discovery of copper near Redruth by Strongbox Exploration. This could be pretty exciting as the average grade of copper in the area is 8% versus the global average of around 0.5% and it was discovered whilst trying to find lithium.

In terms of anti-coronavirus measures around the world, Donald Trump warns Republican governor not to reopen

Georgia (Financial Times, Demetri Sevastopulo and Lauren Fedor) I think is another example of Donny T trying to make sure he stays on both sides of the fence in the “to-lockdown-or-not-to-lockdown, that is the question” debate. He said that he “strongly” disagrees with governor Brian Kemp’s decision to open spas, beauty salons and tattoo parlours from tomorrow and then let residents visit cinemas and restaurants from Monday, but is not really doing anything about it. * SO WHAT? * This would suggest to me that if Georgia gets a second wave, he’ll just blame the governor and if it doesn’t, he’ll probably take the credit indirectly! Georgia has not yet met White House guidelines for reopening, which say that lockdowns should remain in place until coronavirus cases have fallen for 14 days in a row. It was one of the last states to impose a lockdown and is on track to be one of the first to lift restrictions. Let’s hope people don’t have to pay for these decisions with their lives.

Elsewhere, South Korea boosts coronavirus stimulus package to $200bn (Financial Times, Edward White and Song Jung-a) shows that South Korean president Moon Jae-in unveiled a major increase in spending to help industries affected by the crisis. This just serves to highlight concerns for the long-term effects of the outbreak. Talking of which, France’s testing weakness shows challenges lifting lockdowns (Financial Times, Leila Abboud and David Keohane) highlights potential difficulties facing President Macron in his aim to start lifting quarantine conditions in mid-May. Specifically, his scientific adviser says that the country is going to have to be able to triple its current testing capacity. Jean-François Delfraissy says France needs to be able to perform 500,000 tests per week by the current May 11th deadline but current capability is 150,000 per week. Just to put that into context, the UK is currently performing 120,000 tests per week versus Germany with 350,000 and Italy and Spain about 300,000 each.

Meanwhile, Inflation falls to 1.5% as demand evaporates (The Times, Gurpreet Narwan) shows that the combination of weak consumer demand and lower oil prices has dented inflation. The latest data from the Office for National Statistics shows that it fell from 1.7% in February to 1.5% in March. * SO WHAT? * I would say that this was within market expectations, but as the data was collected on March 17th – a week before the UK lockdown began – I imagine it could get worse.



Although M&A isn’t completely dead, there seems to be a steady trickle of acquirers trying to back-out of previous deals…

In Jio becomes Facebook’s biggest investment (Financial Times, Chris Nuttall) we see that Facebook just made its biggest single investment in another company – Indian telecoms company Reliance Jio. The social media giant is paying $5.7bn for about 10% of the company. This sounds like a good strategic move into a market with big potential (in theory). * SO WHAT? * Reliance Jio needs the cash from this deal as it has spent a lot of money on becoming the country’s leading wireless operator but Facebook/Jio: one-sided relationship (Financial Times, Lex) highlights difficulties of foreign companies doing business in India as margins are always tight and can be easily scuppered by fast-changing regulations. Also, the Indian government takes a hefty slice of telecom sector revenues (which has been extended recently to include non-telecom related revenues), so although this deal looks decent enough in theory, it is unlikely to be a money-spinner for quite some time.

As we can see, M&A isn’t completely dead, but there seems to be a stream of companies now who are getting cold feet about deals that were negotiated before the coronavirus

hit. Crew Clothing owner seeks to scrap £22m deal for Moss Bros (Financial Times, Patricia Nelson) shows that Crew Clothing owner Brigadier Acquisition is trying to pull out of the acquisition only one month after agreeing a takeover. As identified by Moss Bros: return of the MAC (Financial Times, Lex), it is trying to use the Material Adverse Change (MAC) clause to void the deal. Victoria’s Secret buyer seeks to cancel takeover after coronavirus (Wall Street Journal, Khadeeja Safdar and Cara Lombardo) shows a similar thing whereby private equity firm Sycamore Partners is trying to pull out of its plans to take on Victoria’s Secret. It is arguing that the decision by Victoria’s Secret owner L Brands to close all of its US stores, furlough most of its staff and stop paying rent were violations of the original transaction. * SO WHAT? * I’m not sure how the US case will go with Victoria’s Secret, but as far as the Moss Bros thing goes, a MAC clause has never successfully been invoked in a deal for a UK private company. If buyers were aware of adverse circumstances OR POTENTIAL for them at the time of signing, a MAC can’t be used. WPP tried to invoke the MAC when trying to buy media company Tempus when 9/11 happened, but it failed and didn’t appeal. However, even if the bid to invoke the MAC in Moss Bros’ case failed, Brigadier COULD try to drag this thing out on appeal in the courts. This would cause Moss Bros a great deal of pain given current circumstances, so it may be forced to get back to the negotiation table and concede improved terms rather than die a drawn-out death.



Both Boohoo and Fever-Tree are currently doing well under current circumstances…

Boohoo eyes struggling fashion brands after boost to profits (The Guardian, Sarah Butler) shows that the online fashion retailer reported stellar numbers yesterday – a 54% rise in pre-tax profits and 44% increase in sales in the year to 29th February. As well as the main boohoo website, it also owns PrettyLittleThing, Nasty Gal, Coast, Karen Millen and MissPap – and it is one of the rumoured potential buyers of troubled Oasis and Warehouse. Although it couldn’t give profit guidance for the rest of the year given uncertainties, it tried to reassure investors by saying that it

has a strong balance sheet and £241m in cash that should help it get through current events. * SO WHAT? * It’s always good to see retailers doing well under current circumstances – especially as others such as TM Lewin and Office are scrabbling around for rescue deals.

I must say that I had been wondering whether we’d already reached “peak gin” in the UK, but Fever-Tree toasts ‘robust’ sales as home drinkers reach for a tonic (Daily Telegraph, Simon Foy) shows that the current outbreak has brought the company some solace as concerned lockdownees continued to reach for a reassuring G&T at home rather than when out-and-about. Still, the company said it couldn’t predict immediate forecasts due to all of the uncertainty but remains confident in its current financial position as it has no debt and held £128m of cash at the end of last year. Worth a toast, perhaps? Its share price rose by 13.29% on the news.



And finally, in other news…

You’ve no doubt heard about this drink already (my eldest son keeps making me this with varying results!), but just in case you haven’t, here’s one person’s experience in I tried making Dalgona whipped coffee – and I was pleasantly surprised with the results (The Mirror, Paige Holland It’s the coronavirus lockdown drink of choice (well, that and alcohol!). I’d recommend it – it’s surprisingly good! And then there’s the fascinating Can dogs detect COVID-19? Canines in training to sniff out virus (AFP, Dogs have been used to detect cancers, Parkinson’s disease and various bacterial infections, so the Medical Detection Dogs charity is trying to find out whether they can be trained to detect the coronavirus.

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Some of today’s market, commodity & currency moves (as at 0734hrs 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 **
5,771 (+2.30%)8,49510,415 (+1.61%)4,415 (+1.16%)19,429 (+1.52%)2,838 (-0.19%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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