Tuesday 25/09/18

1. In MACROECONOMIC AND MARKETS NEWS, Trump looks at deals with countries other than China, oil strengthens and Poland graduates from emerging market to developed
2. In MERGER & ACQUISITION NEWS, the Sky/Comcast deal suffers investor blowback, Sirius XM offers to buy Pandora, Kors eyes Versace, Casino rebuffs “approach” by Carrefour and it seems Amazon sniffed around Deliveroo
3. In INDIVIDUAL COMPANY NEWS, Sears’ troubles continue and Thomas Cook shares crater badly on a big profit warning
4. In OTHER NEWS, I bring you the limitations of an unfortunate surname. For more details, read on…

So Trump looks at negotiating with countries other than China, the oil price shoots up and Poland graduates to developed market status…

I know all this trade chat is getting a bit overdone at the moment, but please bear with me because it is important and does have far-reaching consequences! Trump pursues trade deals in Asia, Europe amid frostiness with China (Wall Street Journal, Jacob M.Schlesinger and Vivian Salama) shows that the President is looking outside his current trade negotiations with the Chinese. He signed a revised trade agreement with South Korea yesterday, is looking to open formal bilateral trade talks with Japan this week and his aides also have meetings lined up with their EU counterparts. * SO WHAT? * This is all good in theory, but it does not diminish the importance of getting the whole China thing sorted. Until that happens, I suspect that everything else – no matter how good or ground-breaking it may be – will pale into insignificance.

US reliance on obscure imports from China points to strategic vulnerability (Wall Street Journal, Chuin-Wei Yap) is a very interesting departure from all the usual comment you see on the US-China trade negotiations in that it looks at the detail of the exemptions to the list of goods affected by the most recent round of tariffs and extrapolates it. For instance, the fact that fluorine salts and carbonate esters (which are both used to make electrolytes for car batteries) got an exemption from the new tariffs shows a certain amount of US vulnerability. Barite imports are also exempted as this mineral is important in helping energy companies drill for oil and gas and ibuprofen – 90% of which comes from China – are also on the list of

exemptions. Basically, this whole exercise has revealed the uncomfortable fact that China has quietly become the world’s leading producer of obscure industrial commodities on which the US in particular has become increasingly reliant. * SO WHAT? * Although it isn’t the case at the moment, it does look like the exemptions on this list could be used as a stick to beat the US with in negotiations – and could be a more effective tool than mere tariff retaliation.

Oil soars as Opec rejects Trump’s demands (The Times, Emily Gosden) highlights oil strength as the Brent crude price rose by 3.3% to $81.39 New York yesterday as the market reacted to OPEC’s unwillingness to increase production. Trafigura and Mercuria, two leading commodities traders, said yesterday that they believe oil prices could hit $100 a barrel late this year or early next if things carry on like this. Trump tweeted that “We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices”. * SO WHAT? * The fact is, when you take Iran out of the equation because of reimposed US sanctions (plus a whole load of other supply problems that, together, add to the more restricted flow), the supply/demand balance is way tighter than it was – which means that oil prices will certainly be higher for longer.

Poland makes the leap from emerging to developed market (Daily Telegraph, Matthew Day) heralds an important moment as it has become the first country from Central and Eastern Europe to be recognised as a “developed” market on the FTSE Russell index and joins the likes of the US, UK and Japan in the list of 25 developed economies. * SO WHAT? * It is the first economy that has made the transition from “emerging” to “developed” for ten years. In order to make this transition, it has to display certain characteristics like a solid regulatory environment and reliable capital and derivatives markets.

In M&A news, there’s a boatload of it going on what with Sky/Comcast, Sirius XM/Pandora, Kors/Versace, Casino/Carrefour (although apparently that’s not real) and Amazon/Deliveroo (which has been discussed but nothing happened)…

North American dealmaking leaves M&A at record high (Financial Times, James Fontanella-Khan, Eric Platt and Arash Massoudi) highlights the huge amount of M&A going on at the moment despite the whole trade war backdrop. Boardroom confidence, super-cheap debt and surging stock prices – not to mention Trump’s tax benefit bonanza – have all helped to power this big movement.

Although Sky falls in on Comcast share price (The Times, Simon Duke) shows what investors can do when they are p!ssed off (Comcast shares fell by 6% because investors think it paid too much for Sky), deals like Pandora sold to the tune of $3.5bn (The Times, James Dean), where American satellite radio group Sirius XM has put in an offer to buy music streamer Pandora to help it challenge the likes of Apple and Spotify and Michael Kors to bag Versace for $2bn (The Times, James Dean) continue to be announced.

Elsewhere, though, French supermarkets at odds over claims of merger (Financial Times, Harriet Agnew) shows that approaches aren’t always welcome as it said that it rebuffed an approach from the larger Carrefour

(which the latter denied). Casino is probably feeling rather sensitive at the moment, given that its share price has fallen by 30% so far this year. Interestingly, the door has been left open for a potential combo. * SO WHAT? * Casino/Carrefour: No Dice (Financial Times, Lex) thinks a deal is unlikely because a combination of two of France’s biggest retailers (Carrefour is the world’s second biggest retailer by revenues) would require a prohibitively huge amount of disposals to get past the regulator, but it is theoretically possible as it has not been completely dismissed. However, they have big overlaps in France and Brazil and have three-quarters of France’s convenience store market sewn up between them, so the chances of a deal appear slim.

Following on from last week’s intriguing news that Uber was in the early stages of talks to acquire Deliveroo, Amazon pursued Deliveroo (Daily Telegraph, Matthew Field) makes the story even more exciting as it says that Amazon has, in fact, already made two preliminary approaches for food delivery company Deliveroo – the first one about two years ago and the second one last year. Neither party commented on this. * SO WHAT? * Sounds intriguing, no? Amazon is way smaller in the food delivery space than either Deliveroo or Uber Eats, but given that the market size of food delivery has grown to be around £100bn and that Amazon has “uber-deep” pockets, you can imagine that an acquisition of Deliveroo would make strategic sense. And who knows, it may even be able to use delivery drivers to not only deliver your takeaways, they might be able to deliver your food shopping! Deliveroo has postponed its proposed Initial Public Offering (IPO) from 2019 to 2020 and would probably look for a £4bn valuation for the purposes of any kind of acquisition. This is certainly one to watch!

In individual company news, US department store Sears continues to find life difficult and Thomas Cook has a shocker…

Sears CEO pushes a rescue plan to avoid bankruptcy (Wall Street Journal, Suzanne Kapner) shows that it’s not just UK retailers that are feeling the pinch at the moment as CEO Edward Lampert is pushing for creditors to restructure about $1.1bn of debt due in 2019 and 2020 and make a number of asset disposals in order to stave off bankruptcy ahead of a big debt payment due next month. If his proposals were accepted in their current form, the company’s debt would be cut from $5.5bn to about $1.24bn. * SO WHAT? * Lampert has done an admirable job keeping this retailer going, but Sears has lost over $11bn since 2011 and sales have fallen by almost 60% over this time. Naysayers say that he has merely been an asset stripper, selling off the company’s assets over time, but supporters say that he has had to do this in order to keep the company afloat. However, Sears continues to suffer the

problems other retailers are facing (namely changing consumer behaviour) and the current measures seem to be aimed at the fringes of re-jigging the financing rather than addressing the elephant in the room. Still, without money (or even a business that is a going concern), the right measures can’t be taken. I’m thinking that this company will go down the plughole – but I hope I am wrong.

Talking about things going down the plughole, Sunshine to blame as Thomas Cook share price tumbles by 28% (The Guardian, Sarah Butler) shows that the summer heatwave experienced in Europe wasn’t great for everyone as the travel company announced a profit warning yesterday, prompting a massive share price drop. The company said that there was a notable slowdown in bookings in June and July as more people opted to stay at home and not go abroad. Thomas Cook’s bookings are made up of 25% British, 30% German and 15% Scandinavian holiday makers and it makes all of its annual profit in the summer. The weaker pound and consequent higher prices for package holidays would also have been major factors in the bookings slowdown. * SO WHAT? * I just think this is another example of consumers reining in the spending ahead of Brexit and becoming more conscious of the weaker nature of sterling.

…And finally, in other news…

Unfortunate names can have unfortunate consequences, as this man from Belgium found out: Man named Anus changes Facebook profile after being butt of too many jokes (Metro, Zoe Drewett https://tinyurl.com/y9wfwlge). He’s standing as a council candidate – so at least voters will remember his name!

As always, thank you for reading Watson’s Daily!