Wednesday 28/10/20

1. In M&A AND IPO NEWS, AMD buys Xilinx, LVMH and Tiffany renegotiate terms and Airbnb aims for a listing
2. In TECH NEWS, Microsoft rides the cloud and TikTok turns to Shopify
3. In AUTOMOTIVE NEWS, Waymo does a deal with Daimler Trucks, Daimler buys into Aston and Jaguar Land Rover hits profit
4. In INDIVIDUAL COMPANY NEWS, BP profits but warns about the future, UK banks consider charging and Big Hit Entertainment slides
5. AND FINALLY, I bring you some “offensive” fusion…

So AMD buys Xilinx, LVMH and Tiffany try to resolve differences and Airbnb goes for a listing…

AMD agrees to buy rival chip maker Xilinx for $35bn (Wall Street Journal, Asa Fitch) highlights further consolidation in the chip industry as Advanced Micro Devices announced plans to buy rival Xilinx in an all-paper deal that will broaden their product range significantly. The deal will need to get regulator approval but comes only weeks after Nvidia announced plans to purchase Arm Holdings for $40bn. AMD/Xilinx: stock take (Financial Times, Lex) shows that this is quite an opportune move by AMD as Xilinx has suffered for quite some time due to the US/China trade wars and Huawei-bashing (Huawei is a Xilinx client). In making this move, AMD will become a bigger producers of FPGAs (Field-Programmable Gate Arrays) than Intel and will help it grow its cloud computing business. * SO WHAT? * The fact that AMD’s share price has shot up by about 80% this year has given it currency to make such a move. In this business it is important to have scale to make further ground to keep up with customer demand for specialist chips and an enlarged entity with different client bases should provide new opportunities. The industry consolidation continues…

Given what’s going on at the moment, LVMH and Tiffany in talks to cut price of $16.6bn deal (Financial Times, James Fontanella-Khan, Leila Abboud and Arash Massoudi) is hardly surprising. Basically, the deal was originally agreed at a very high price shortly before coronavirus hit, it was (probably) a watertight contract and LVMH’s chief exec, Bernard Arnault, tried to back out completely (using the French government to put pressure on – although they obviously denied any involvement). The original deal was for LVMH to pay $135-a-share in cash for Tiffany, but it seems that Tiffany’s stance has softened to the point where it now says it is willing to look at offers above $130-a-share whilst LVMH could be happy with something under $133. Every $1 reduction would equate to a saving of around $120m. * SO WHAT? * All I can say is that contract must have been tight as to tie LVMH to this deal as I am sure that it would have explored every possible avenue to make a swift exit! Surely a compromise will happen, no?

Then in Airbnb announces plans for Nasdaq listing (Daily Telegraph) we see that Airbnb has announced that it aims to list on the Nasdaq and raise $3bn in an IPO, which would give it an implied valuation of over $30bn. This came after there was speculation that it would list before the end of this year. If it did, it would be the index’s third-biggest IPO after Facebook and Mondelez International.

Microsoft soars on cloud computing and TikTok turns to Shopify…

Microsoft’s earnings continue to ride pandemic-fueled demand for cloud, videogaming (Wall Street Journal, Aaron Tilley) shows that the tech giant believes that catalysts that have driven its current strength – demand for cloud computing services, videogaming and PCs – will continue at least until the end of the year. It said that sales rose by 12% during the first quarter of its fiscal year, which was above market expectations on revenue and profit. Sales from Azure, its cloud computing division, increased by 48% from the previous year while its gaming content business saw a sales rise of 30% versus the same period last year. With the new XBox Series X gaming console hitting the shops in a few weeks’ time, you would expect a further spike. * SO WHAT? * Overall, the results fell slightly short of the market’s expectations, but I would have thought that Microsoft is right in assuming recent catalysts will continue. Companies will shift to the cloud, students and white-collar workers alike will continue to power PC

demand as they work from home and gaming revenues should improve with a new console and winter on the horizon (people wanting to snuggle up indoors playing console games rather than go outside!). Longer term, maybe its search engine Bing may get a lift if the US Justice Department decides to come down hard on Google in its just-started antitrust case.

TikTok moves into social ecommerce with Shopify deal (Financial Times, Tim Bradshaw and Hannah Murphy) heralds a move by the app towards ecommerce as it has announced an alliance with the Canada-based Shopify that will enable users to shop while they scroll through videos, bringing it line with others such as Facebook, Instagram and Pinterest. * SO WHAT? * This form of shopping has been around for a while now in China and it seems that we are all just playing catchup! Apps such as WeChat, Kuaishou and Pinduoduo in China have powered sales in the country worth about $253bn this year versus just under $20bn in the US last year – so you can see that there is MASSIVE growth potential here. Shopify has made huge gains under lockdown as retailers rushed to give themselves online capability and I don’t see this ending any time soon! Its growth rate may, however, slow down following lockdown frenzy.

Waymo does a deal with Daimler Trucks, Aston Martin gets a boost and Jaguar Land Rover becomes profitable…

In a look at what’s going on in the automotive sector at the moment, Waymo strikes self-driving lorry deal with Daimler Trucks (Financial Times, Patrick McGee) highlights the autonomous driving specialist’s partnership with commercial vehicle group Daimler Trucks to power big lorries. This will be Alphabet-owned Waymo’s first partnership in the trucking sector and the two companies will work together on building a self-driving version of Daimler’s Freightliner Cascadia, with a view to making it available to US customers “in the coming years”. This sounds interesting, but I still think that we will be waiting for years to see driverless trucks on our roads in any numbers.

Elsewhere, Mercedes takes 20pc stake in Aston Martin (Daily Telegraph, Alan Tovey) shows that the German carmaker is going to take a 20% stake in the troubled Aston Martin. It will also supply Aston with engines and

powertrains as part of the deal – and some are even saying that this could pave the way eventually for a full takeover. * SO WHAT? * Aston Martin has had a nightmare since it floated two years ago at a valuation of £4bn. It is now worth £1bn, chief exec Andy Palmer was booted in May and a consortium led by Lawrence Stroll took over subsequently. Former Mercedes exec Tobias Moers was then installed as chief exec. No doubt this would make a Mercedes takeover much smoother if it did happen!

Then there’s some more good news in Jaguar Land Rover steers back into profit as sales rise (Daily Telegraph, Alan Tovey) which shows that JLR has actually returned to profit following coronavirus carnage which led to production shutdowns and cost-cutting. Car sales were up by 53.3% versus the preceding quarter but down by 12% (which I don’t think sounds that bad, considering!) versus the same quarter last year. Sales in China are picking up and demand for its new Defender have been pretty good. * SO WHAT? * This sounds OK, but there is still a lot of work to be done here. Its legacy of too-much-diesel-and-not-enough-electric will take time to overcome, for instance, but let’s hope that the new boss, Thierry Bolloré, will be able to work some magic. He’s got his work cut out in this market, though!

BP profits but then cautions, UK banks look at charging and Big Hit Entertainment gets the blues…

BP warns of volatile future for oil market as it returns to profit (The Guardian, Jillian Ambrose) shows that the oil giant has returned to a modest underlying profit for the third quarter but tempered this with a warning that the oil market as a whole will face a volatile future under the pandemic. * SO WHAT? * Yes, things aren’t great at the moment, but they have been a lot worse. I think that chief exec Bernard Looney is just piling on the misery at a time when the company is cutting 10,000 jobs and shoring up its finances. It seems to me that global trade is rising slowly from the ashes and that a higher oil price can’t be that far behind, especially as China appears to be recovering at a decent rate. When that builds momentum, I would expect BP’s prospects to improve further.

Banks look at charging for current accounts (Daily Telegraph, Lucy Barton) shows that banks are considering charging for current accounts as the historically low interest rate is killing their ability to earn money. If one

starts, it is highly likely that others will follow – and it looks likely that HSBC will be the first or at least one of the first.

Then in South Korean boy bands give investors a case of buyers’ remorse (Financial Times, June Yoon) we see that post-IPO blues are setting in among investors who saw the IPO of BTS’ management company Big Hit Entertainment shoot up and subsequently explode, like dynamite, leaving them with a cold dose of reality. Retail investors have been badly burned already after the share price rose from Won135,000 to Won270,000 and beyond before currently settling at Won156,000. As I have said before, BHE is far too reliant on one band, BTS. Two of the seven members are due to go off on compulsory military service for two years in the near future and then there’s the problem that most K-pop groups tend to peak after five years – BTS has been around for seven. * SO WHAT? * BHE doesn’t really have anything in the pipeline either song-wise or artist-wise other than BTS, so if it can’t grow organically, it may have to take the more expensive route of buying in talent. Having said that, lockdown has presented new possibilities – two online concerts held by the band were highly lucrative, bringing in more money than “real” concerts and merchandise sales were more than double what they would be normally. Will this be the way to go in the future?

…in other news…

I thought I would leave you today with something that some will class as an abomination in Gordon Ramsay’s £48 ‘pizza beef Wellington’ blasted by fuming Italians (The Mirror, Rosaleen Fenton). I actually happen to think this sounds quite nice 😋