Tuesday 20/10/20

1. In M&A AND IPO NEWS, Conoco Phillips buys Concho, Alibaba takes control of Sun Art, Intel sells NAND business to SK Hynix and Ant’s $30bn gets the go-ahead
2. In CORONATRENDS NEWS, Landsec decides to sell a massive chunk of its properties and Heathrow offers rapid checks
3. In INDIVIDUAL COMPANY NEWS, Universal offers up movies, EVs face fire risk and Boohoo loses its auditor
4. AND FINALLY, I bring you an astrologer’s predictions…

So oil Conoco buys Concho, Alibaba takes control of Sun Art, Intel sells off its NAND business and Ant gets the go-ahead for a massive IPO…

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ConocoPhillips to buy rival Concho in $9.7bn deal (Financial Times, Derek Brower and Myles McCormick) shows that ConocoPhillips is willing to gamble on shale ahead of a hoped-for post-coronavirus oil recovery. It will make one of the world’s biggest independent oil producers a major player in US shale and will catapult its status in the Permian, the world’s richest oilfield, to being a serious rival to ExxonMobil. No cash will change hands, as this is an all-paper deal, and the price represents a 15% premium to what Concho Resources was trading at at the October 13th close. This follows two other recent major acquisitions in shale – Chevron agreed to buy Noble Energy in July for $13bn and Devon Energy agreed to buy rival WPX for $12bn in September. * SO WHAT? * Given the M&A activity in this area, it would seem that big oil companies are now confident enough to use the recent decimation of the shale oil industry as an opportunity to get involved. Conoco/Concho: surfing the wave (Financial Times, Lex) highlights this deal as making ConocoPhillips the third biggest US shale producer and that Concho Resources’ wells are not on government land – so if Biden gets in, the company will be unaffected by his promise that there will be a ban on fracking permits on government property. All they need now is for oil prices to go up…

Alibaba to pay $3.6bn to take control of Chinese supermarket chain Sun Art (Financial Times, Ryan McMorrow) shows that the ecommerce giant has

increased its stake in supermarket operator Sun Art Retail Group from 36.2% to 72% and it is currently offering cash to its other shareholders. * SO WHAT? * Funnily enough, the supermarket chain’s share price shot up by 19% on the news as it bought the shares from France’s Auchan Retail International. Sun Art is China’s #2 grocery chain and it has worked with Alibaba on grocery delivery. Alibaba/Sun Art: fresh meat (Financial Times, Lex) highlights the fact that Auchan’s retreat follows the likes of Amazon, Tesco, Carrefour and Metro as yet another foreigner who failed to crack the Chinese market and that this is a good strategic move by Alibaba as part of its plans to combine online and offline capability using big data.

In Intel enters deal to sell NAND memory unit to SK Hynix (Wall Street Journal, Cara Lombardo and Dana Cimilluca) we see that Intel will be selling its NAND flash memory manufacturing business to South Korea’s SK Hynix for about $9bn that will mark a major move in strategic direction for Intel and make the SK Hynix one of the world’s biggest NAND memory makers. Their combined market share was over 20% in Q2 – a level only bettered by Samsung, which has a market share of over 30%. Intel stated its intentions of investing the cash in fast-growing areas like AI and 5G. * SO WHAT? * This is the latest example of consolidation in the semiconductor industry as players go for scale and broaden their product portfolios. For instance, Analog Devices agreed to pay over $20bn for Maxim Integrated Products in July, Nvidia has offered $40bn for Arm Holdings last month and AMD is in talks to buy Xilinx.

Meanwhile, Beijing gives green light for Hong Kong leg of Ant’s $30bn IPO (Financial Times, Primrose Riordan, Hudson Lockett, Mercedes Ruehl and Ryan McMorrow) shows that Chinese regulators have approved the Hong Kong IPO of Chinese payments company Ant Group. At $30bn, this will be the world’s biggest stock market debut (the company itself is thought to be worth up to $318bn). It will raise even more money than the Saudi Aramco float which raised $25bn last year. Ant Group is planning a dual listing in Shanghai and Hong Kong. It is currently awaiting approval from Hong Kong Exchanges and Clearing.

Landsec decides to sell a ton of properties and Heathrow offers rapid testing…

Coronavirus has made a huge dent in the prospects for UK real estate and Landsec to sell almost a third of its £12.8bn property portfolio (The Guardian, Joanna Partridge) shows that one of Britain’s biggest property companies has decided to sell off a load of its properties over the next few years in order to focus more on growth opportunities in cities. Landsec owns the Trinity Leeds shopping centre and Bluewater in Kent, among others, and wants to spend the proceeds on new developments. * SO WHAT? * It’s interesting to see that the company wants to offload some of its hotel and leisure properties as well as

retail parks in order to invest in offices, retail stores and homes. This all sounds great in a way, but the company did not provide much detail in the announcement so it’s difficult to judge the impact. It’ll be interesting to see who actually buys these properties because I would imagine that many rivals will be doing the same, leading to a crowded market and not great selling prices IMO.

Then in Heathrow to offer £80 rapid coronavirus test for departures (Financial Times, George Steer) we see that passengers flying from Heathrow will be able to pay £80 to get tested for Covid-19 and get the results in less than an hour in a purpose-built facility run by private firms Collinson and Swissport. Airlines including British Airways, Virgin Atlantic and Cathay Pacific will be offering this service to passengers in Terminals 2 and 5. * SO WHAT? * This certainly signals a step forward for international travel, but I don’t expect it’ll have much of an effect on its own. Nothing to get too excited about at this stage IMO.

Universal offers movies, EVs face fire risk and Boohoo has a set-back…

In a quick scoot around some of the other news headlines today, Universal tosses cinemas a lifeline while testing new distribution model (Wall Street Journal, R.T. Watson) shows that Comcast Corp’s Universal Pictures is to release an increased number of films going into the end of the year in order that should boost footfall at cinemas. Most studios have been going in the opposite direction and booting releases into next year. * SO WHAT? * Universal will be testing a new strategy of making films available for online rental sooner than ever by releasing low budget films and experimenting with a new distribution model. These are ideal conditions in which to test this sort of thing IMO as in normal circumstances I would have thought that there would be huge push-back from the cinemas. They are now in no position to bargain and so movie studios can experiment to their hearts’ content.

Elsewhere, Auto makers grapple with battery-fire risks in electric vehicles (Wall Street Journal, Ben Foldy) shows that US safety regulators are this month opening an investigation into over 77,000 Chevy Bolts made by General Motors after complaints of battery-related fires. This isn’t great at a time when car sales are making a nervous recovery and EVs are being touted as the way forward. Not disastrous, but not great either!

Boohoo takes a tumble as auditor stands down (The Times, Ben Martin) highlights a 20% hit to Boohoo’s share price yesterday on news that its auditor, PwC, was stepping down. Investors get spooked by this because it suggests that something dodgy is going on, but I would also add that the company had a bit of a run following its Leicester-related problems over the summer. I would say that this is not a drama yet, but it is worth monitoring. Accountants are getting super-sensitive after a spate of dodgy accounts-related disasters.

…in other news…

I thought I’d leave you with food for thought today in Brit astrologer who ‘predicted’ coronavirus says what’ll happen in next 6 months (The Mirror, Zoe Forsey). Hmm.