Wednesday 28/08/19

  1. In M&A NEWS, Philip Morris and Altria consider reuniting, BP sells Alaska operations to concentrate on shale and Harry Ramsden’s gets swallowed up
  2. In RETAIL NEWS, CostCo opens in China, UK shop prices fall and Arcadia shuts US stores
  3. In MACRO NEWS, Rouhani refuses talks with Trump and UK mortgage approvals rise
  4. In OTHER NEWS, I bring you a pizzadilla gone viral…



So Phil and Altria consider getting back together, BP ditches Alaska for shale and Harry goes Deep Blue…

Falling tobacco demand spurs Philip Morris, Altria to talk merger (Wall Street Journal, Jennifer Maloney and Cara Lombardo) shows that the two tobacco companies, who split apart in 2008, are considering getting back together again. If they managed to do so, the enlarged entity would have a market value of about $200bn – yes, that’s $200bn. Philip Morris is the larger of the two entities and would control 59% of the enlarged group in an all-stock deal if it all went ahead. * SO WHAT? * Basically, things have now come full circle as the two split over ten years ago because it was deemed that the original company was trading at a discount to its sum of the parts and so it split into Altria, which had a US focus, and Philip Morris International, the overseas business. The boundaries between the two businesses have become increasingly blurred over the years and now it seems that the two are considering a reunification because of a weakening global trend of cigarette sales and a desire to pool their resources in cigarette alternatives. Crudely speaking, Philip Morris has its heat-not-burn IQOS product and Altria has a 35% chunk of vaping supremo Juul (which it bought for $12.8bn in December last year) and you could argue that getting together would mean that they could have a much broader product line-up in the cigarette-alternatives space. This isn’t yet a done deal, as there will no doubt be regulatory

hurdles to overcome that will inevitably result in the sale of various brands, but a reunification sounds reasonable on a strategic basis given evolving consumer behaviour.

BP to sell Alaska operations to Hilcorp for $5.6bn (Financial Times, Anjli Raval) heralds a major moment for BP as this sale signals the end of its 60-year history in Alaska, with a view to the funds raised being funneled into its shale operations. The Alaskan business includes its exploration and production business as well as its pipelines division, which includes its stake in the Prudhoe Bay field and Trans Alaska Pipeline. BP plans to dispose of $10bn-worth of assets over the next couple of years to pay for last year’s acquisition of BHP’s US shale operations. * SO WHAT? * BP is currently developing its US shale business, which includes assets in the Permian and Eagle Ford basins, in competition with rivals like ExxonMobil and Chevron who are also planning on increasing production.

In Harry Ramsden’s gobbled up by rival Deep Blue (Daily Telegraph, Alan Tovey) we see that the fish and chip shop chain has been bought from Boparan Restaurant Group (BRG) by rival Deep Blue Restaurants. Deep Blue currently owns 26 chip shops whose number will be boosted significantly by Ramsden’s 34 sites. The deal was done for an undisclosed sum and BRG will retain a stake in Ramsden’s. * SO WHAT? * This deal will make Deep Blue the go-to company for fish and chips, but it will also allow BRG to concentrate its efforts on Giraffe, Ed’s Easy Diner and Fishworks whilst also keeping a hand in fish and chips. Given ongoing problems in the casual dining sector, it’s probably just as well for BRG to concentrate on a smaller portfolio.



CostCo has a busy opening day in China, UK shop prices continue to weaken and Arcadia is allowed to shut US stores…

What trade war? China’s first Costco draws crowds of shoppers (Wall Street Journal, James T. Areddy) highlights the apparent success of Costco’s first store in China. The Shanghai store opening was so successful, as it turned out, that it had to shut its doors at 1pm – a full eight hours before it was supposed to! Chinese shoppers poured in to get grand-opening prices on Pampers, Ocean Spray and Samsonite products, among others. Things got so bad that shoppers had to contend with elbowing for sale items, huge checkout queues and a 20-minute wait for the toilet! * SO WHAT? * This sounds pretty spectacular as openings go, but what will matter more is whether shoppers continue to stream in over the longer term. It does show, however, that Chinese shoppers are not really deterred by the US-China tariff rollercoaster – especially if there is a bargain to be had!

Shop prices fall at fastest rate in a year (Daily Telegraph, Tom Rees) cites the latest stats from the British Retail Consortium which show that the prices that we pay in shops have fallen at their fastest rate in a year (-1.5% year-on-year). The trade body blamed “weak consumer spend and intense competition” as retailers have been forced to rely more on discounting to shift product. * SO WHAT? * More signs of an increasingly nervous consumer, but at least the employment market is tight and wages are on an upward trend – for the moment.

Arcadia set to shut stores after US deal (The Times, Ashley Armstrong) highlights the fact that Arcadia – Philip Green’s retail group that includes the likes of Topshop, Burton and Dorothy Perkins – is now free to go ahead with US store closures as part of its original CVA, which had been held up in the US by two landlords. It is believed that the legal challenges had been dropped following an out-of-court settlement with Vornado and Caruso. * SO WHAT? * This smooths the path for Arcadia to pursue its turnaround plans, but don’t expect any quick wins here – Green is just clearing the decks at the moment. There’s a lot that needs doing to get Arcadia back on track and it’s going to take quite some time. In the meantime, the pressure continues on the UK high street as many of its competitors continue to struggle.



Rouhani pours cold water on Trump talks and UK mortgage approvals see a sudden rise…

Following on from yesterday’s prospect of conciliation, Iran’s president Rouhani rules out talks with Donald Trump (Financial Times, Monavar Khalaj, Michael Peel, Andrew England and Demetri Sevastopulo) tells us that Iranian president Hassan Rouhani said on state television yesterday that he wouldn’t meet Trump until the US lifted sanctions on Iran. * SO WHAT? * Clearly, this makes France’s President Macron look like a bit of a kn0b as he was trying to look heroic by saying he could get both sides together. Neither side on the US-Iran looks like wanting to give an inch at the moment, so any kind of agreement still looks pretty far off.

Home loans up as lenders drop rates (The Times, Gurpreet Narwan) cites the latest data from UK finance, which shows that mortgage approvals rose to their highest level in over ten years in July as buyers took advantage of very competitive rates. The growth was driven by remortgaging, although approvals for home purchases were also up strongly. * SO WHAT? * Under “normal” circumstances, rising mortgage approvals would imply brighter economic prospects as they are often seen as a sign of increasing confidence (because people don’t want to spend big chunks of money when things are looking a bit iffy on the economic front). However, many economists are saying that this isn’t a sign of optimism – just that lenders have had to drop their rates to attract more customers. It may also be that people are wanting to get any house purchases/sales out of the way ahead of the October 31st Brexit deadline – so activity could drop very sharply in the run-up.



And finally, in other news…

I thought I’d bring you something edible today in the form of A fried deep dish BBQ chicken ‘pizzadilla’ is breaking the internet and even Chrissy Teigen wants to try it (Insider, Ian Burke This looks like a LOT of hassle to make, but I bet it’s pretty darn tasty! However, if I make one, I shall be sure to film it and tell you what it’s like!

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Some of today’s market, commodity & currency moves (as at 0818hrs 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 **
7,090 (-0.08%)25,778 (-0.47%)2,869 (-0.32%)7,82711,730 (+0.62%)5,387 (+0.67%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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