This week’s news includes; Sainsbury’s Asda potential merger, Comcast bids for Sky, Facebook profits unaffected by scandal, Costa Coffee goes solo.
Below are our top 10 stories that you need to know about. Be sure to check our twitter page and Facebook page for regular posts of important headlines. Get all the important stories and insights straight into your inbox by subscribing to our mailing list here.
Opinion articles of the week:
- City A.M debate “Digital payment is on the rise, but will the UK go completely cashless in 10 years?”
- CNBC looks at why tech companies are racing each other to make their own custom A.I. chips
- City A.M looks at claims that leading London law firms relaxed about Brexit effect
1. SAINSBURY’S AND ASDA MERGER
Sainsbury’s and Asda have entered merger talks. If the deal goes ahead it would create a £14 billion supermarket behemoth. This surprised many the industry but makes sense in the market context.
Aldi and Lidl have een gaining ground on the big 4 supermarkets as price wars ensue. The larger supermarkets are fighting off competition through consolidation. Tesco’s £3.7 billion acquisition of Booker, is allowing it to sell more wholesale goods and reduce prices. This deal however, dwarfs Tesco’s move in terms of significance.
Despite the initial excitement, this deal will face steep scrutiny on grounds of competition. Asda and Sainsbury’s collectively have over 30% of the market share. A merger between them would put them ahead of Tesco at 27.6%. It would also put Morrison’s at the third place with 10.4%.
Sainsbury’s decide not to acquire Nisa convenience stores in 2017 due to concerns over competition. The scrutiny faced by Tesco spooked the board from proceeding. This deal with Asda however, is likely to face even greater scrutiny than any other recent mergers. It is expected that regulators will look competition issues on a localised level. It will certainly be interesting to see how this deal develops. (Sky News)
2. COMCAST BID FOR SKY
Comcast has made a £22 billion bid for Sky. This has created uncertainty for 21st Century Fox’s bid for Sky. In December, Fox launched a £19 billion to acquire the 61% of Sky it did not own. The move has faced significant regulatory scrutiny. Last month, it was revealed Fox would either have to sell or ring-fence Sky News due to issues of media plurality (see previous top 10).
With this bid from Comcast, Fox’s position to acquire Sky is now under threat. Sky announced that it will now withdraw its recommendation to accept Fox’s bid due to the Comcast bid. Comcast currently owns NBC and Universal Pictures. It is the US’ largest cable TV company
Disney acquired Fox in December but analysts believe they too could make a bid of Sky. BBC News analyses the bidding war for Sky in more detail.
Check out our insight article exploring the deal.
3. SNOOPER CHARTER
The UK has been given six months to amend its “snooper charter”. The High Court claims that the UK’s surveillance laws, stipulated in the Investigatory Powers Act 2016, are incompatible with EU law. The court deemed that government’s powers to store personal datasets undermine privacy and free speech. Access to these data sets was not limited to combating serious crime nor was it subject to independent review.
The government had already accepted and had sought 12 months to amend them. The high court has now ruled that the government will only have half that time to finalise the amendments. The case was brought forward by Lawyers for Liberty and was funded by supporters. (The Guardian)
4. UK BUDGET
The UK budget is in surplus for the first time since 2002. Government income was £112 million greater than its expenditure in March. For the past 16 years, the government has borrowed money as its expediture far exceeded income. This is latest development is significant as now the government is only borrowing for investment, not for day to day expenditure.
Critics would certainly argue the human cost of this development was far from worth it. In many areas, Public services have been cut to the bare minimum as local authorities struggle with increased demand. The crisis faced by health services in winter has now become a year round struggle in many parts of the country. The primary call has been for more funding. While the government has increased funding, those within the public sector argue the funding is far from sufficient.
The government will no doubt Herald these statistics as proof of success of their economic policy. In the autumn statement chancellor George Osborne announced the lifting of the pay cap on NHS workers. Whether, these new figures will encourage him to loosen the purse strings remains to be seen.
The pound however, slumped to $1.37 a few days later as economic figures were lower than expected. The UK’s economic growth for the first 3 months of 2018, fell to 0.1%.
5. FACEBOOK SHAKES OFF SCANDAL
Facebook’s financials show no sign of damage following the Cambridge Analytica data scandal. The tech giant posted profits of nearly $5 billion in the first quarter of 2018. This was a 63% rise. Facebook has made a commitment to fight fake news and bolster its data privacy protections.
A #deleteFacebook campaign began in the wake of the scandal but this had minimal impact. Active users grew by 13% to 2.2 billion and advertising revenue rose to $11.7 billion in the first quarter. It is clear it will take more than a data scandal to hurt Facebook’s profits. Facebook stocks had fallen by 9% since the start of 2018, largely following this announcement they climbed 4.9%. (Sky News)
6. LLOYD’S PROFITS
Lloyds has posted 23% rise in profits in the first quarter of 2018. The consumer bank revealed pre tax profits of £1.6 billion. This marks a new chapter in the banks history. In 2009 the UK government bought Lloyd’s as part of a £20 bailout package. In 2017 the government sold its final shares in Lloyds (for an overall profit).
The bank has however announced that it has put aside an additional £90 million to deal with PPI claims. This extra cost is due to the work in actively contacting those entitled to compensation. Lloyds has already spent a staggering 18.8 billion on PPI related expenses. As mentioned in our top 10 last week, banks have paid out over £30 billion so far. The final deadline, in August 2019, will see the ultimate end to this costly scandal. (BBC News)
7. COSTA COFFEE GOES SOLO
Whitbred, the owner of Costa Coffee has announced that it will be divesting the coffee chain. Costa will now become an entirely separate entity. By 2020, Costa will officially become an independent company and it’s shares will be floated.
The decision came after Whitbred faced mounting pressure from activist shareholders. Costa is a market leader so the demerger will give it more freedom to expand and ultimately deliver better shareholder returns. Costa has 2400 UK shops and posted operating profits of 61m for the first of last year.
Costa was acquired by Whitbred in 1995. Whitbred also owns Premier Inn, Beefeater and Brewers Fare brands. It posted sales of £3.3 billion last year. It’s share price fell 0.2% in response to the news. (BBC News)
8. BOOHOO PROFITS
Boohoo profits soared in the past quarter, helped by its SecretLittleWeapon. Profits at the online fashion retailer rose by 40% in the year to February. Much of the progress can be attributed to a 228% rise in sales at its subsidiary, PrettyLittleThing. Overall boohoos revenue rose 97% in the year. Share prices rose 16% in response to the news.
This is just another example of the shift in consumer trends. While traditional retailers are suffering, online retailers are surging. In the past year, Debenhams, Next, Marks and Spencer’s, H&M have all announced declining revenues and store closures. Boohoo on the other hand has raised £50 million to invest in new, bigger warehouses. This investment will provide it with a 2 billion sales capacity.
Boohoo acquired pretty little thing last year for 120 million. Boohoo also owns the brand Nasty Gal. (The Independent)
9. CARPETRIGHT CLOSURES
CarpetRight is set to close 81 stores. Creditors approved the plan as it seeks to save itself. The plan is known as a company voluntary arrangement (CVA). This is where the company’s creditors agree to allow a proportion of debt to be paid back over time. The company must outline how it intends to raise capital and this usually involves closures and restructuring.
This plan will see the closure of 20% of its 400 stores. It will also see recapitalisation where new cash will be raise through changing the number of available company shares.
Like many retailers, Carpetright has too many overheads and too much debt to continue as it is. It has issued numerous profit warnings but this new CVA will help it meet its obligations and return to profitability. New Look and Select have both had their CVA proposals approved by creditors.
10. POUNDLAND CLOSURES
Poundland has announced that it will be closing 80 UK stores. In the challenging retail climate, it is now looking to cut down on its 900 stores in order to boost profitability.
This comes only 2 months after the retailer was acquired by Steinhoff for £597 million. Steinhoff has also been in trouble recently after it revealed a huge accounting scandal. Its accounting scandal meant its 2016 financial report could not be relied upon and saw a 90% fall in share price. Steinhoff also owns Harvey’s and Bensons for Beds.
Poundland’s problems stretch further back. Poundland acquired 99p stores in 2015 for £50 million but this has led to a plethora of issues. In the first year following the acquisition 99p stores lost their credit insurance so had low levels of stock. Poundland posted a 84% drop in profits. (Retail Gazette)