Tuesday 11/02/20

1. In MACRO & CORONAVIRUS NEWS, Trump promises spending cuts, China’s inflation reaches new highs and Germany’s leadership plunges into further turmoil while the coronavirus hits global growth, oil prices and mobile phone production
2. In RETAIL NEWS, US mall operators Simon Property and Taubman pair up, UK shoppers ship in the bargains and John Lewis tastes success with makeup for men
3. In MERGER & ACQUISITION NEWS, the Harry’s/Edgewell deal falls apart, William Hill and CBS sign an agreement while Geely and Volvo Cars head towards a merger
4. In OTHER NEWS, I bring you one of my all-time favourite movie scenes (it’s not classy)…

So Trump talks spending cuts, China’s inflation shoots up and Germany’s leadership problems just got worse while the coronavirus continues to affect global growth, oil and mobile phone production…

Trump proposes big spending cuts in $4.8tn budget (Financial Times, James Politi and Katrina Manson) shows that the President announced his final annual budget before the November elections, calling for increased spending on defence and infrastructure and decreased social spending. His plans contrast sharply with those of the Democrats, who accuse him of pandering to the rich at the expense of the poor.

In China’s inflation hits eight-year high (Daily Telegraph, Tim Wallace) we see that inflation has shot up to 5.4% in January – up from 4.5% in December. Food prices alone have climbed by over 20% in the last 12 months as China has been hit not only by the coronavirus – it is still suffering from the culling of about half of its pig population after the African swine fever outbreak (this was about 100m pigs).

In Europe, Race to succeed Merkel thrown open as heir apparent steps aside (Financial Times, Guy Chazan) highlights a shocking development for the ailing country as the person who was thought most likely to succeed Angela Merkel as Chancellor, Annegret Kramp-Karrenbauer (aka

“AKK”), said she wouldn’t run for the job at the next election and will stand down as the leader of the Christian Democratic Union. This follows a series of gaffes which caused people to question whether she had the right stuff to be leader of Europe’s biggest economy. Potential replacements include Armin Laschet (PM of North Rhine-Westphalia), Jens Spahn (the current health minister) and Friedrich Merz (a former CDU group leader and old rival of Merkel). If either of the last two win, it is likely that the CDU will change direction and become more conservative. It is also likely to mean early elections. * SO WHAT? * What an absolute mess! The coalition is already fragile enough as it is without all this. What a time for Europe. On the other hand, maybe this could jolt Germany out of its current rut – but the risk here is that it could over-compensate in its lurch to the right in order to capture the AfD vote.

In the meantime, the impact of the coronavirus continues to be felt in Investors fear outbreak is set to halt global growth (The Times, Callum Jones), which highlights falling markets and fears that global growth on a quarter-on-quarter basis could stall for the first time since 2009. Oil down to a one-year low as the virus takes its toll (The Times, Emily Gosden) shows the effect of a sudden drop in demand from the world’s biggest oil importer as some observe that the increasing surplus of oil will further depress prices unless OPEC decides to cut production and Smartphone output to slide as coronavirus shuts Chinese factories (The Guardian, Rob Davies and Graeme Wearden) cites research from TrendForce which forecasts that smartphone production will fall by 12% in the first quarter versus last year due to factory shutdowns and lack of workers. The nightmare continues.

US mall operators get together, UK shoppers buy the bargains and John Lewis benefits from makeup for men…

Mall operators Simon and Taubman pair up (Wall Street Journal, Esther Fung and Micah Maidenburg) shows that Simon Property Group, America’s biggest mall owner, has agreed to buy rival Taubman Centers Inc for $3.6bn. Fun fact: Simon Property tried to buy Taubman in 2002 for $18, but it is now offering $52.50 a share. * SO WHAT? * This is an example of the larger company using its strong cash flow and balance sheet to go shopping and buy out weaker players – and comes only a week after Simon Property and a couple of partners agreed to buy clothing retailer Forever 21 out of bankruptcy for $81m. It would seem that Taubman is a good fit as it owns upmarket malls that tend to attract more affluent shoppers – and is therefore arguably more insulated against an economic downturn.

Bargain-hunters keep tills ringing after Christmas (The Times, Ben Martin) cites the latest monthly survey from the British Retail Consortium and KPMG which shows that retail sales avoided a decline last month due to discounting, although they were flat versus January last year. * SO WHAT? * Although this isn’t exactly a historic

moment for retailers, it could be a lot worse. Optimists will say that consumer confidence is returning after the election and continued tight markets and rising wages should filter through eventually. The latest Barclaycard survey would seem to back this up as 74% of its 2,004 respondents said that they were confident about their household finances and 42% were feeling positive about the prospects for the economy – the highest proportion since September 2016. That sounds positive, but I do wonder how imminent changes in overdraft charges are going to affect this.

John Lewis slaps on its war paint in London (The Times, Ben Martin) heralds an interesting trend as a trial of male beauty products – including bronzer, concealer, foundation, powder among other items under the “War Paint for Men” brand at its Oxford Street store – has been so successful that the range will be made available online. This is clearly a growth area as John Lewis said that men’s personal styling sales have shot up by over 150% over the last year. * SO WHAT? * Wow! There has been a lot of talk about this trend in recent years, but the fact that this experiment beat the retailer’s expectations by 50% shows that it could be a great growth area. It’s good to see that John Lewis is trying new things – but it’ll need a lot more of this sort of thing to really turn things around. I do not doubt that there are low barriers to entry here, so I would expect many others to jump on the bandwagon.

Harry’s/Edgewell falls apart and William Hill and CBS sign an agreement while Geely and Volvo Cars get closer…

Harry’s threatens legal action after Edgewell scraps $1.4bn deal (Financial Times, Alistair Gray) highlights the breakdown of the proposed deal between two of America’s biggest shaving companies as Edgewell, maker of Schick and Wilkinson Sword razors, said that the overzealousness of the Federal Trade Commission (FTC) towards the acquisition put them off the whole thing. Harry’s isn’t taking this lying down and is threatening legal action. Edgewell enjoyed an effective duopoly with Gilette owner Proctor & Gamble for years, but then Harry’s then tried to disrupt this when it started in 2013 by selling shaving products via an online subscription service. Edgewell and Harry’s considered merging to take advantage of Edgewell’s IP and global distribution power and Harry’s experience in brand building and direct-to-consumer marketing. * SO WHAT? * This is a big win for the FTC who argued that such a combo would damage the competitive landscape. I would imagine that Harry’s is the biggest loser out of this – shares in Edgewell jumped by 25% on the news!

In William Hill, CBS strike sports-betting media deal (Wall Street Journal, Katherine Sayre and Benjamin Mullin) we see that William Hill has agree to pay CBS Sports an

undisclosed sum for access to its audience and sponsorships across the latter’s content. The aim is to get CBS Sports users to download the William Hill betting app and put money into betting accounts. * SO WHAT? * This sounds like a great idea on a strategic basis, although you would have thought this will not have come cheaply for William Hill. It’s the latest in a string of deals between sports bookies and media companies following the legalisation in 2018 of sports betting across the US. Given the stagnant nature of its UK business, it is clearly imperative that William Hill gets an early foothold into a market with absolutely massive potential. 

Volvo could return to stock market in merger with Geely (Daily Telegraph, Vinjeru Mkandawire) shows that the billionaire behind Chinese car manufacturer Geely Automotive is looking at potentially merging it with Volvo Cars with a view to a dual listing in Stockholm and Hong Kong. Li Shifu said that a merger would help to pool resources. * SO WHAT? * Volvo has flourished since Zhejiang Geely Holding Group took up ownership in 2009 and with greater access to China, the world’s biggest car market, and consolidated resources you would have thought that it would be a formidable combination. Car manufacturers continue to consolidate in the face of tightening regulation and rising costs involved in complying with it: last year VW and Ford partnered up on autonomous and electric vehicles and Fiat Chrysler is currently in the midst of a £35bn merger with PSA Group. Consolidation is bound to continue.

And finally, in other news…

I scour a number of sources in order to bring you something unusual and/or interesting for this section – but today is one of those rare occasions when I have come up with NOTHING! 😱😱😱 So instead, I thought I’d put a link here of something I watch from time to time when I need to cheer up a bit – it’s Stifler’s dance-off from American Pie: The Wedding. Whoever did the choreography for this is a genius! Just to warn you, Stifler does say one naughty word in this short clip…