Wednesday 07/08/19

1. In MEDIA & INTERNET NEWS, Tencent is in talks to buy 10% of Universal Music, Disney gets weighed down by Fox and Match Group outperforms
2. In HEAVY INDUSTRY NEWS, shipbuilding gets feisty, Glencore halts cobalt production and Sirius’ mine plan looks shaky
3. In INDIVIDUAL COMPANY NEWS, Boohoo.com’s deal with Karen Millen has repercussions and Klarna becomes the biggest fintech company in Europe
4. In OTHER NEWS, I bring you a very annoying optical illusion…

So Tencent has talks about a Universal Music stake, Disney gets dragged by Fox and Match Group outperforms…

Tencent in talks to buy 10% of Universal Music from Vivendi (Financial Times, Nic Fildes and Mercedes Ruehl) highlights the Chinese group’s latest effort to expand its global music industry aspirations. Vivendi, which own’s Universal Music, announced that it was in talks to sell the stake to Tencent that would effectively value Universal Music, the world’s biggest music group, at €30bn. It also has the option to take this stake up to 20% within a year on the same terms. * SO WHAT? * Vivendi has been looking to offload a chunk of Universal since last year and so the opportunity to do it at top dollar with Tencent was clearly too good an opportunity to miss. Interestingly, it is also talking about “areas of strategic co-operation” with Tencent, which looks like it could be a very powerful ally in cracking the Chinese market. Tencent, for its part, has been buying into music services worldwide like India’s Gaana, Asia’s Joox and karaoke app Smule and this stake in Universal represents its latest move into content, rather than tech. There had been speculation that Vivendi could offload a 50% stake in Universal, but clearly that did not turn out to be the plan.

Disney’s quarterly revenue surges but profit drops (Wall Street Journal, Erich Schwartzel and Maria Armental) highlights Disney’s success being dragged down by 21st Century Fox, which disappointed analysts and sent its

shares 3% lower in after-hours trading yesterday. Fox movies like X-Men: Dark Phoenix flopped and Fox’s Star India, heralded as a key asset in its international expansion strategy, suffered from cancelled cricket matches while Disney’s movies, like Avengers: Endgame, broke records. * SO WHAT? * The entertainment behemoth will be turning its focus on the launch of its streaming service later this year that will pitch it head-to-head against the likes of Netflix and marketing for it is expected to begin in earnest at the end of this month. The bare-bones Disney+ service will be priced at $6.99 per month at launch whereas the premium service, which also includes ESPN+ and Hulu, will be at $12.99. I would have thought that Disney could be dead money for the short-to-medium term as it is going to have to pour a LOT of resource into streaming and making more compelling content to catch up with the industry leaders. The saying goes that you have to spend money to make money – and I think Disney is going to have to spend enormous amounts in order to become a proper player.

Match Group shares rise as company outperforms expectations (Wall Street Journal, Dave Sebastian) highlights a stunning performance by the online-dating specialist – which owns Hinge, Match.com, OkCupid and Tinder – which posted quarterly revenues up by 18%. The better-than-expected quarterly results sent the shares 18% higher. All platforms continued to add users and the company has also expanded its presence in Latin America, Japan, South Korea and India as it targets an estimated 600 million singles. * SO WHAT? * This is a great performance, but “danger” is coming with none other than Facebook announcing expansion plans for its own dating app. When Facebook announced it was going to enter the dating arena last year, Match’s stock fell by over 22% in a day – but as of yesterday’s close, its share price has shot up by 92% over the last 12 months. An already interesting area is certainly going to get even more interesting!

Chinese shipbuilder consolidation causes South Korean concern, Glencore stops cobalt mining and Sirius faces a tricky situation…

South Korean shipbuilders brace for fight after Chinese mega-mergers (Financial Times, Edward White and Lucy Hornby) shows that the former’s shipbuilders are readying themselves for intensifying competition from China after the two biggest state-backed shipbuilding groups, China State Shipbuilding and China Shipbuilding Industry Corp announced plans to merge last month. The resulting Chinese giant will rival Hyundai Heavy Industries, the world’s biggest shipbuilder by orders, even after HHI buys Daewoo Shipbuilding & Marine Engineering. To give you an idea of scale, the new Chinese group will have over $120bn of assets versus an enlarged Korean group of $33bn – although it has to be said that South Korea had a 39% market share of worldwide orders last year versus China’s of 30%. * SO WHAT? * Overcapacity in  the last decade has resulted in industry consolidation to the extent that many once mighty companies are reduced to consolidating to survive. It’s not going to be plain sailing ahead either as slowing global trade due to the US-China ructions have dented order flow and new emissions rules may mean shipowners spend money on tech upgrades to their vessels rather than spend money on new ones that run on cleaner fuels. Tough times.

Glencore to halt production at world’s largest cobalt mine (Financial Times, Neil Hume and Henry Sanderson) shows that the mining and commodities giant is taking drastic action by shuttering production at the world’s biggest cobalt mine – the Mutanda mine in the Democratic Republic of Congo (DRC) – due to a massive fall in prices for the metal used in lithium ion batteries. The mine is “no longer economically viable” as cobalt prices have fallen by over 40% due to the DRC producing too much, so it will continue to operate until the end of the year upon which time it will be mothballed. Glencore is due to present its financial results today. * SO WHAT? * This is pretty major given the importance of cobalt – but understandable given the fall in its price. Talk about getting production plans completely wrong! Mind you, I guess any mistakes you make in your projections are magnified when your country makes about 70% of the world’s supply…

Meanwhile, closer to home, $5bn Sirius mine plan in doubt as bond pulled (The Times, Emily Gosden) shows that plans for a $5bn fertiliser mine in the North Yorkshire Moors are hanging by a thread as the developer, Sirius Materials pulled a $500m bond sale. The FTSE250 company decided to take this drastic action because of “instability in the market” and its share price dropped by a chunky 29% on the news. The company had warned that it might go bust if it couldn’t raise money on the bond sale and it would have unlocked $2.5bn in funding from JP Morgan had it gone ahead. Its future is looking decidedly uncertain now.

Boohoo.com’s deal could put 1,100 jobs at risk and Klarna becomes Europe’s biggest fintech compay…

1,100 jobs at risk in Boohoo’s Karen Millen deal (Daily Telegraph, Laura Onita and Yolanthe Fawehinmi) highlights risks for employees as the online retailer bought Karen Millen and Coast’s online business for £18.2m. The two upmarket retailers have a total of 32 stores and 177 concessions in the US and administrators Deloitte said that stores would continue trading for the moment. * SO WHAT? * Boohoo’s purchase will give it access to older and more affluent customers, but it won’t necessarily be great for employees. This is just further evidence of the consolidation of the retail sector – but it’s also quite interesting to see how an online retailer is dabbling in shops. 

In Sweden’s Klarna becomes biggest fintech firm in Europe (The Guardian, Kalyeena Makortoff) we see that the Swedish payments company has just become Europe’s largest private fintech firm after its latest financing round, where it raised $460m, gave it an implied valuation of $5.5bn. Klarna is a disruptor in the payments sector as an alternative to credit cards and lets users shop now and pay later via lump sums or installments (and with NO interest on most items) as long as they pay back on time. It now has 60m users worldwide, is on track to make $1bn in annual revenues and has agreements for flexible payments with the likes of H&M, Ikea, Nike, AliExpress, Sephora, Zara and Agent Provocateur with another 1,000 in the pipeline. * SO WHAT? * This all sounds very exciting, but providing credit is a tricky business to get right. For now, though, things are looking good.

And finally, in other news…

I thought I’d leave you today with the very annoying optical illusion in Simple arrow illusion causes headaches and confusion as ‘it can’t turn left’ (The Mirror, Zahra Mulroy https://tinyurl.com/yxzleo2a). Annoyingly clever!