Tuesday 04/12/18

  1. In POLITICAL NEWS, Macron faces fuel tax pressure and Spain’s far-right gains ground
  2. In MERGER & ACQUISITION NEWS, GSK buys Tesaro to boost its cancer drug pipeline, Unilever buys GSK’s consumer nutrition business and Altria has talks to buy marijuana company Cronos
  3. In UK RETAIL-RELATED NEWS, Black Friday fails to boost sales, shop space continues to fall, Mike Ashley calls for a 20% online sales tax, Ted Baker falls on hugging, McColl’s has a profit warning and Thomas Cook gets another kicking
  4. In OTHER NEWS, I bring you an interesting challenge. For more details, read on…



So Macron faces further fuel tax pressure and Spain’s far-right gain ground…

French opposition tells Macron to abandon fuel tax increase (Financial Times, Ben Hall) looks at how the situation is developing in the aftermath of the Paris riots that were initially sparked by protests against rises in the fuel tax. Prime Minister Edouard Phillippe held separate meetings with party leaders yesterday ahead of an emergency debate in Parliament on Wednesday and all of them, apart from the Greens, recommended that he should at least abandon plans to raise taxes on petrol and diesel. Even members of Macron’s party are saying the same thing. Protests against the taxes have been continuing – yesterday, striking students closed down 100 high schools and fuel shortages were being reported in some areas because of blockades at ports. * SO WHAT? * Macron’s stated intentions behind raising the fuel tax were to lower consumption and reduce France’s carbon emissions, but the protestors have been arguing that a rising fuel tax punishes those who can’t afford to live in town centres – thus feeding into the feeling that Macron is playing to the rich who can afford to live the urban life and NOT the masses. Clearly he has to tread very carefully on this one, because if he caves here he could be opening up a massive can of worms and tons more protests on everything under the sun. On the other hand, he would be fighting against his own people if he just carried on regardless – an opinion 

poll by Harris Interactive taken AFTER the violence puts support for the gilets jaunes on a 72% approval rating, which was the same level before the clashes happened. Macron is on very shaky ground at the moment and if he loses that mojo, the EU’s #2 economy could go backwards – which isn’t great because Germany (the #1 economy) is having leadership and far-right issues and Italy (the #3 economy) continues to be a basket case led by extremists who are only just holding a weak coalition together.

Far-right poll breakthrough deepens Spain’s political turmoil (Financial Times, Ian Mount) highlights trouble in Spain as the far-right Vox party won 12 seats in Andalucia’s 109-seat regional parliament on Sunday whilst the centre-left PSOE, the party of Spain’s Prime Minister Pedro Sanchez, looks likely to lose control of Spain’s most populated region after 36 years. Sanchez came to power after a vote of no-confidence in his predecessor and now this electoral failure is leading to increased calls for immediate national elections. * SO WHAT? * This is a disaster for Spain’s ruling party and heralds the gathering momentum for the anti-immigration, anti-Muslim Vox, which was formed in 2014. While everyone else will inevitably start the blame-game, Vox now has a real opportunity to stir things up and potentially get a seat at the top table of politics with other regional elections due in May. The other thing that is interesting here is that voters shifted further to the RIGHT – and not the left, which would have played into the very left-wing Podemos’ hands. This is yet more evidence of the seismic shift in European politics from the left to the right and shows the increasing difficulties being faced on the European continent.



GSK boosts its cancer capabilities, Unilever buys Horlicks and Altria wants to smoke something different…

GSK pays $5bn for US cancer drug specialist – and sells Horlicks (Daily Telegraph, Julia Bradshaw) heralds a big deal as it paid $5.1bn for US oncology specialist Tesaro, which is a loss-making biotech at the cutting edge of cancer treatment development. The acquisition gives the company access to its established Zejula drug for ovarian cancer that is already on the market in the US and Europe but it also gives them access to Tesaro’s pipeline of other experimental cancer treatments. * SO WHAT? * This signals a change in direction for GSK as it sold most of its cancer assets to Novartis about four years ago. It seems that investors balked at the $5bn price tag and GSK’s share price fell by 7.6% in trading yesterday.

Unilever agrees €3.3bn deal for GSK’s consumer nutrition business (Financial Times, Leila Abboud and Amy Kazmin) means that Unilever gets to expand its operations in India (after nosing ahead of Nestle and Coca-Cola in the battle to buy the business) while GSK’s chief exec Emma Walmsley gets more cash to plough into drug R&D. The deal is expected to close within 12 months.

In Marlboro-maker in takeover talks with Canadian marijuana group (Financial Times, Eric Platt, Alistair Gray and James Fontanella-Khan) we learn that Atria is in early-stage talks to buy Canadian marijuana company Cronos which would be the first big takeover by a tobacco company of a pot producer if it came to fruition. Shares in Cronos jumped by 14% in trading yesterday but it said in a statement that “No agreement has been reached with respect to any such transaction and there can be no assurance such discussions will lead to an investment or other transaction involving the companies”. Altria has also held talks with Tilray and Aphria. * SO WHAT? * The increasing legalisation of cannabis is creating a lot of excitement what with Constellation Brands investing almost $4bn into Canopy Growth (another pot company), Aurora Cannabis buying medical marijuana group MedRedleaf for $2bn in May and then Coca-Cola talking to Aurora to develop cannabis-infused beverages and Diageo, the drinks group, also sniffing around for investment opportunities in the sector. I think this makes strategic sense for Altria and could well hasten further M&A action – especially from tobacco companies as it seems like a natural fit. It’s all going on with Altria at the moment what with its interest in buying a stake in US vaping supremo Juul Labs!



The gloom in retail continues with disappointing sales, shrinking floor space, Mike Ashley calling for a levelling of the playing field, Ted Baker’s hugging no-no, McColl’s profit warning and another Thomas Cook kicking…

Black Friday fails to lift retail sector gloom (The Times, Emma Yeomans) paints a sorry picture for retailers as figures from the British Retail Consortium (BRC) and KPMG show that although Black Friday sales were actually better than last year, they weren’t enough to lift an otherwise weak month. Helen Dickinson, chief exec of the BRC, observed that “Weak consumer demand and falling confidence man that retailers are in for a nerve-racking run-up to Christmas. Conditions in the industry have been particularly tough since the vote the leave the EU in 2016 and the current uncertainty has only compounded the challenges. Only when the UK secures a transition period with the EU that ensures tariff-free, frictionless trade will retailers be able to breathe a sigh of relief”. Separately, figures published by Barclaycard showed that consumer spending had fallen to its lowest level of growth since March and consumer confidence continues to erode.

Quarter of shop space lost after 2008 crash, report reveals (The Guardian, Jasper Jolly) paints a sorry picture for retail as a study conducted by academics at Northumbria University showed that over 25% of all retail floor space in England and Wales has disappeared since the 2008 financial crisis as the continued rise in online shopping has killed off traditional retailers who failed to reinvent themselves in time. And if that wasn’t bad enough, the rateable value of retail property has also fallen considerably in areas outside London. * SO WHAT? * Not great reading, but it’s probably not that surprising. Local authorities get to keep a certain amount of the money collected from business rates, so a fall in the total rateable value will hit their budgets hard.

Given all of the above, you can see the thought process behind Mike Ashley wants tax on retailers with online sales of more than 20% (The Guardian, Sarah Butler) as he argues that “It is very simple why the high street is

dying. It is the internet that is killing the high street” and that retailers with over 20% of online sales should have to pay a 20% tax on those sales. He said that this would force existing retailers to and pure online players to invest in their high street presence. * SO WHAT? * There’s obviously an element of Ashley talking his own book here as he battles to save as many House of Fraser department stores as he can. However, I think that he has a very valid point about the advantage that online retailers have over physical stores but I’m not sure how much backing he is really going to get. I suspect that if consumers were really forced to choose between lower online prices or subsidising the high street, they’d choose low online prices. Maybe I’m just being cynical!

Meanwhile, Ted Baker under pressure as staff demand end to ‘forced hugging’ (Daily Telegraph, Lucy Barton) is a rather unusual headline that you don’t see every day as 2,496 staff signed a petition to stop “forced hugging” amid allegations of inappropriate behaviour by the group’s founder Ray Kelvin. The share price fell 15%. * SO WHAT? * This is not good for the company as Ray Kelvin is seen as a shining light in the retail world and he is so closely associated with the company that he founded in 1988 that investors will no doubt be nervous about any potential repercussions. The hugging allegations refer to a “policy” whereby people are encouraged to hug him before they talk. I suspect that this will be an ongoing story that will play out in the press.

Elsewhere, McColl’s shares plunge as it issues profit warning (Daily Telegraph, Charlie Taylor-Kroll) highlights the 29.7% share price fall in the newsagent as investors expressed their disappointment at the company’s announcement that its profits would fall 20% short of expectations. The profit hit was blamed on the collapse of wholesaler Palmer & Harvey last year, the rise in the national living wage, a competitive environment and weak consumer spending.

Thomas Cook falls 20% as short-sellers pile in (The Times, Dominic Walsh) shows the embattled travel agent getting another kicking as short-sellers smelling blood helped to power the share price to new lows, meaning that they have more than halved since last week’s profit warning. Nightmare. And there’s not really much the company can do about it.



And finally, in other news…

Do you like a challenge? Well how about giving this a go: Bus driver can lick his own forehead with his tongue in unusual trick (The Mirror, Laura Forsyth https://tinyurl.com/ya43nwyz). Classy.

Some of today’s market, commodity & currency moves (as at 0828hrs 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 **
7,062 (+1.18%)25,843 (+0.06%)2,790 (+1.09%)7,44211,465 (+1.85%)5,054 (+1.00%)22,036 (-2.39%)2,666 (+0.42%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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