Tuesday 26/02/19

  1. In US-CHINA RELATED NEWS, Trump keeps everyone guessing and US companies pause China investment
  2. In BIOTECH NEWS, GE sells its biotech business for $21bn and Crispr Therapeutics makes a breakthrough
  3. In INDIVIDUAL COMPANY NEWS, Spotify has India troubles, Tesla has SEC troubles and Hammerson has retail troubles
  4. In OTHER NEWS, I bring you today’s key question – is Theresa May better at pool or dancing? For more details, read on…



So Trump keeps everyone guessing and US companies hold off on China investment…

Analysts urge caution over hopes for US-China trade solution (The Guardian, Richard Partington) shows that Trump likes to keep everyone guessing as he told a group of US governors yesterday that a trade deal “Might not happen at all” although he then added “But I think it’s going to happen and it could happen fairly soon. The relationship [with China] is great”. As a result, some economists cautioned against getting too excited because an agreement is far from a foregone conclusion. * SO WHAT? * It’s all noise until we see something signed and in black-and-white – and even then it’s not over because, as I said yesterday, China can be a bit slippery when it comes to actually living up to promises.

Given the whole trade war thing, it’s hardly surprising to see US firms dial back China plans amid trade fight (Wall Street Journal, Chao Deng and Julie Wernau) as an annual survey by the American Chamber of Commerce in China shows that about 32% of the 314 US companies that

responded said they have either no plans to expand investment in China or will expand less this year, versus 26% last year. The survey was conducted between November 13th and December 16th – and Trump declared the “ceasefire” in early December. The same survey also showed that almost 75% of companies expect US-China relations to either get worse or remain unchanged this year, with 28% postponing or cancelling decisions because of trade tensions, with 19% saying that they are looking to source and/or assemble products outside China. * SO WHAT? * China is not the insatiable growth engine it once was and many large US companies have been going lukewarm on their China businesses. McDonald’s and Hewlett-Packard have reduced their stakes in Chinese businesses and Viacom is currently in talks to sell a majority stake in some of its Chinese operations. It just seems to me that, in previous years, companies chucked money at China no matter what – and now, because it is slowing down, they are looking more closely at what they actually have and are becoming more careful. Clearly, there are still opportunities there, but the prospect of corporate espionage, the dangers of becoming a bargaining chip (like Apple) in political negotiations and the unpredictable enforcement of legislation all make investment there rather trickier these days than the no-brainer that it used to be.



GE disposes of its biotech unit and Crispr Therapeutics makes a big step…

GE to sell its biotech business to Danaher for $21 billion (Wall Street Journal, Thomas Gryta) heralds a chunky disposal by GE to Danaher – in cash – of its fastest-growing business. The proceeds will be used to pay down some of GE’s $100bn debt but marks a change in direction for CEO Larry Culp (who used to be CEO at Danaher for about 14 years) because it looked like he was lining the company up for a spinoff IPO later this year as part of its entire healthcare division. Now that it has been separated out, the IPO of the rest of the division that makes MRI machines and hospital equipment will have to be re-visited as Culp focuses on pushing through the Danaher deal, which is expected to complete in the fourth quarter. * SO WHAT? * GE has been struggling in the last couple of years as it has been hit by falling profits in its core power business and losses in its GE Capital unit which prompted a change in CEOs, two dividend cuts and a renewed focus on its aviation and power divisions. GE previously said it would raise $30bn in cash from asset sales, so this one disposal to Danaher has gone a long way to meeting that target – but there will be more to come. It closed the sale

of its transportation business to Wabtec Corp yesterday and it has also been reducing its stake in oilfield services firm Baker Hughes. Some will look at the $21bn disposal as a desperate move (and therefore conclude that there are more problems behind it), but others will see it as a decent stride towards what the company is trying to achieve. GE shares are now 65% above their December low but 25% short of the level they were at a year ago. There is more work to be done, but this seems to be a move in the right direction.

In Crispr Therapeutics treats its first human with gene editing (Financial Times, Hannah Kuchler) we see that the Boston-based biotech company announced that it had treated its first human suffering with the blood disorder beta thalassaemia (which affects the movement of Oxygen around the body and restricts growth) with its Crispr gene-editing technology. The process involves using stem cells to created blood cells which are then collected, edited and then placed back into the body in a stem cell transplant. The company is also testing the same technique to treat sickle cell disease. * SO WHAT? * This is a major breakthrough and the company’s share price shot up by 25% on the news. Biotechs that specialise in gene therapies seem to be really hot right now – as recent news of Roche’s $4.8bn acquisition of Spark Therapeutics (which I mentioned yesterday) shows.  No doubt there will be more M&A activity in the sector.



Spotify hits India problems, Tesla his SEC problems and Hammerson has retail problems…

Warner legal barrier to Spotify’s hopes of expanding into India (Daily Telegraph, Natasha Bernal) highlights a blip in Spotify’s expansion as recording company Warner Music Group launched a legal action in India to block it from offering songs from artists including Katy Perry, Bruno Mars and Ed Sheeran. * SO WHAT? * This is a right pain for Spotify given that it is due to launch in India imminently. It has been the culmination of months of acrimonious negotiations between the two companies and is a fly in the ointment for Spotify as it tries to gain a foothold in a growth market that saw music sales climb by 17% in 2017. No doubt it will make things work somehow, but for the moment this will be a bit of a pain.

SEC asks Manhattan federal court to hold Elon Musk in contempt (Wall Street Journal, Dave Michaels and Tim Higgins) highlights Musk’s latest run-in with authorities as the Securities and Exchange Commission asked a federal judge to hold Musk in contempt over tweets he made last week about Tesla’s 2019 production volumes because he violated a condition of his settlement last year where he agreed to run any price-sensitive announcements by them. * SO WHAT? * This is a pain for Tesla, but the punishment is unlikely to be too serious because he issued a

clarification tweet shortly afterwards. Maximum punishment for something like this could be a ban on him being an officer of a public company,  but it’s more likely to be something that further restricts his behaviour. It’s difficult to tell whether he does stuff like this to bring the attention onto himself (and away from questions about vehicle production) or whether he just enjoys p!ssing off authorities.

There’s more evidence of the travails of the UK high street in Hammerson and investor ‘in this together’ amid asset sales (The Times, Louisa Clarence-Smith) as shopping centre landlord Hammerson has stepped up disposals of its retail parks and other assets following pressure from activist investor Elliott Advisors, which owns over 5% of the company. Most of Hammerson’s properties are in Britain (where assets include the Bullring in Birmingham and Brent Cross in London), but it also operates in France, Ireland, Spain and Germany. It made £570m of disposals last year and plans on selling £900m-worth this year. * SO WHAT? * In return for agreeing to up the pace of disposals and setting up a committee to oversea it all, Elliott has promised not to vote against any ordinary resolutions at the upcoming general meeting and has put a ceiling on its voting and economic interests for the next 12 months. This really is a sign of how bad things are getting in UK retailing with such a high profile landlord throwing the towel in on so many assets. Still, if they have to focus in order to survive, then so be it. It would be interesting to see what the other side of this is – are rivals like Intu hoovering up its unwanted assets or are they going to smaller landlords scaling up? I’ll let you know when I know!



And finally, in other news…

I think we’d all agree that Theresa May is having a tough time at the moment – so it’s good to see her unwinding in Theresa May and Giuseppe Conte practice pool (BBC https://tinyurl.com/y5b4fp23). I must admit that part of me wanted to see her being master of the baize and chalking her cue with practiced aplomb – but sadly I was disappointed. The question is what is she better at – pool or dancing? It’s a close call…maybe she could challenge him to a game of “arrers” at the local pub next time ????

Some of today’s market, commodity & currency moves (as at 0822hrs 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 **
7,184 (+0.07%)26,092 (+0.23%)2,796 (+0.12%)7,55411,505 (+0.42%)5,232 (+0.31%)21,451 (-0.32%)2,943 (-0.63%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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