Wednesday 27/03/19

1. In M&A AND IPO NEWS, Uber buys Careem, Geely aims for Smart, Uber’s ex chief buys into ‘dark kitchens’, River Island takes control of Mint Velvet and Lyft eyes a chunky valuation
2. In TECH NEWS, Samsung has a profit warning while Apple and Qualcomm continue their spat
3. In INDIVIDUAL NEWS, Fever-Tree fizzes, Ocado signs up Coles and Debenhams continues to fend Ashley off
4. In OTHER NEWS, I bring you the Queen’s secret handbag language. For more details, read on…

So Uber buys Careem, Geely buys into Smart, Travis Kalanick buys into the food delivery wave, River Island’s handler takes control of Mint Velvet and Lyft aims high…

This deal has been well-flagged but Uber pays $3bn for Middle East rival Careem (Financial Times, Shannon Bond and Simeon Kerr) just confirms the news of Uber’s biggest acquisition thus far. This transaction is expected to close in the first quarter of 2021 – as long as it gets past the regulators – and will give it a decent leg up in a fast-growing market. Up until now, Uber and Careem have been competitors in passenger transport and food delivery in the Middle East, north Africa and South Asia. * SO WHAT? * This is a good strategic buy for the ride-hailer which has spent a lot of the recent past reversing OUT of markets such as China, south-east Asia and Russia where competition proved to be just too strong (although it’s kept a presence via stakes in Didi Chuxing, Grab and Yandex respectively). Careem has proved to be something of a local hero and it broke through the $1bn valuation threshold back in 2016 to become a “unicamel”. There is still the possibility that local regulators might not just wave this through, but as far as Uber’s expansion strategy is concerned this deal makes sense as Uber itself looks towards an imminent stock market flotation.

China’s Geely set to buy half of Daimler’s Smart unit (Financial Times, Olaf Storbeck, Patrick McGee, James Fontanella-Khan and Peter Campbell) highlights the proximity of a deal whereby Mercedes-Benz owner Daimler will sell a 50% stake in its Smart brand to China’s Geely – something that is expected to be announced more formally before the Shanghai Auto Show next month. * SO WHAT? * Geely became Daimler’s largest shareholder last year and its involvement in the loss-making Smart unit could be quite handy for both sides. Geely would get a brand that aims to be 100% battery-powered by 2020 (which is brilliant for a Chinese market aiming to be a world-leader in EVs) and Daimler gets to partially offload a business that has, frankly, struggled since it started 21 years ago. Geely owns Volvo Cars, Lotus, Malaysia’s Proton and has a slice of truckmaker Volvo Group.

Travis Kalanick’s new venture buys UK ‘dark kitchens’ business (Financial Times, Tim Bradshaw) heralds Uber’s bad-boy founder Travis Kalanick’s acquisition of London-based ‘dark kitchens’ start-up FoodStars last year via his company City Storage Systems (CSS). This takeover, which

was flagged by regulatory filings and represents the company’s first acquisition outside the US, gave CSS access to over a hundred commercial kitchens across London supplying the food delivery market. Kalanick bought a controlling stake in CSS a year ago for $150m, using some of the money he raised from selling $1.4bn worth of Uber stock as he hopes to surf the wave of food delivery. * SO WHAT? * Kalanick is a smart operator and I think that investing in dark kitchens is a great way to get involved in food delivery as it doesn’t matter who wins out of Just Eat, Uber Eats, Deliveroo etc.etc. – they will still benefit. I think the main thing here, though, is not to over-expand within each market because I would imagine the sites they operate in aren’t exactly prime and could be difficult to sell at a pinch if things start to go south. Mind you, transferring expertise from market to market could be attractive – but that is more of a long term thing I would have thought.

River Island group takes control of Mint Velvet in £100m deal (The Guardian, Sarah Butler) is a tiddler of a deal in the grand scheme of things but heralds the exercising of an option to buy for the Lewis Trust Group (LTG) who first bought a stake in Mint Velvet – which specialises in “relaxed glamour” (!) for the over 30s – in 2015. * SO WHAT? * This is good for Mint Velvet which took a hit from House of Fraser’s collapse last year and closed down about 10 of its 40 House of Fraser concessions as a result. Other brands that lost out from HoF’s demise have not been so lucky – Coast was bought by a sister company in a pre-pack administration, LK Bennett fell into administration and Pretty Green is currently seeking some kind of deal in order to avoid administration.

I thought I’d mention Lyft to price shares above targeted range of $62 to $68 in IPO (Wall Street Journal, Corrie Driebusch and Maureen Farrell) just because of all the hype surrounding the ride-hailing company ahead of its Initial Public Offering. Apparently, there is strong investor demand for the offering with standing-room-only crowds being present throughout the roadshow that started on Monday. * SO WHAT? * Clearly there is big investor appetite for IPOs at the moment – and the performance from Lyft’s flotation will be closely watched by Pinterest and Uber who are also about to take the plunge. I expect investment banks involved in the deal to be under huge pressure to ensure the deal goes well in order to keep the buzz going – even if they have to lose out financially in the short term. IMHO, buying into Lyft is complete madness at these high prices from a fundamentals point of view – and one could only really justify buying into it to take advantage of momentum. 

Samsung has a profit warning and Apple continues its fight with Qualcomm…

Samsung surprises market with first-quarter profit warning (The Guardian, Julia Kollewe) will set alarm bells ringing in the sector as it comes only two months after Apple issued its first profit warning since 2002. Samsung blamed the profit downgrade on falling memory chip prices and sluggish demand for display panels. * SO WHAT? * Analysts have been talking about the negative impact of China’s economic slowdown, the US-China trade war, weaker smartphone sales (Samsung puts its display panels and chips into iPhones, for example) and lower-than-expected demand for their chips from data centre

companies like Amazon and Google (leading to falling chip prices as they try to clear the resultant supply glut) for a while now. I guess this is all now just coming home to roost. I don’t think any of those factors mentioned above will turn around overnight, so there could be more disappointment to come.

Talking of which, Apple facing US ban on some iPhones after Qualcomm ruling (Daily Telegraph, James Titcomb) heralds the latest development in the ongoing spat between Apple and Qualcomm which has already led to sales restrictions on iPhones in Germany and China while Apple contends that Qualcomm owes it nearly $1bn. Basically, the International Trade Commission stated that Apple had infringed on Qualcomm’s tech and recommended a partial ban on phones assembled in China and shipped to the US. This matter will be subject to further review and is not over!

Fever Tree fizzes, Ocado signs up Coles and Debenhams continues to fend off Mike Ashley’s advances…

Fever-Tree eyes US expansion after posing 40pc rise in sales (Daily Telegraph, Ashley Armstrong) highlights the continued strong performance from the premium tonic maker as it decides to think big and expand in America. The company now has a £3bn valuation and saw UK sales shoot up by 53% thanks to the World Cup and royal wedding last year. Fever-Tree believes that the UK market will slow – hence its interest in US expansion where it is already active via its tie-up with Southern Glazer’s Wine and Spirits, which owns the North American rights to Grey Goose Vodka, Bombay Sapphire gin and Jameson whiskey. * SO WHAT? * It sounds like the company’s got a reasonable shot at US success given that it saw its US sales up by 20%.

Meanwhile, Deal in the bag as Ocado heads down under (The Times, Deirdre Hipwell) is something I mentioned

yesterday on my YouTube channel– that Ocado managed to sign up Australian supermarket group Coles to use its technology. The two companies have agreed to operate and develop two robotic warehouses and Coles’ online grocery business will migrate to Ocado’s Smart Platform. Coles has about 35% market share of the Australian grocery market. * SO WHAT? * More good news for Ocado! Things look like they are starting to snowball and there are very high barriers to entering this type of business…

Debenhams presses ahead with £200m lenders’ rescue plan (The Guardian, Sarah Butler) sounds the latest fending off of Mike Ashley’s constant advances as the ailing department store presses on with its plans to get more debt to help its survival. * SO WHAT? * AAAAAAARRRRRRGGGGGGH! Debenhams just looks like a money pit to me and is a business that is in terminal decline. I would be willing to bet that if Ashley DOESN’T manage to take over the business now that he will be able to buy it for a song within a year. You heard it here, people! As far as I can see, all the current management is doing at the moment is buying time – they are just treating the wounds and not the symptoms of the company’s massive malaise IMHO.

And finally, in other news…

I’m all about helping readers of Watson’s Daily – and so I thought I’d leave you with something useful for if you ever get to meet the Queen in How the Queen secretly communicates with her staff using her handbag (BestLife, Diane Clehane http://tinyurl.com/y3rttypv). Well now you know! Canny…