Tuesday 14/09/21

1. In CHINA CLAMPDOWN NEWS, Beijing is to break up Alipay, Tencent and Alibaba are to open up and Soho China falls through the floor
2. In CONSUMER & RETAIL NEWS, energy prices and global house prices rise while Primark and Shein make money
3. In M&A NEWS, Intuit agrees to buy Mailchimp, Live Nation ponders a Latin American acquisition and Kape buys ExpressVPN
4. In MISCELLANEOUS NEWS, Democrats propose a corporate tax rate hike and S4 Capital keeps momentum going
5. AND FINALLY, I bring you Cup Noodle in fizzy drink form…yup, that was my reaction as well 😱

China continues to tighten the screws…

Beijing to break up Ant’s Alipay and force creation of separate loans app (Financial Times, Sun Yu and Ryan McMorrow) shows that Beijing is going to unravel Alipay, the superapp owned by Ant Group to make a separate app for the company’s highly profitable loans business. Right now, Chinese regulators have already ordered Ant to separate out its two lending units (Huabei, which is like a credit card and Jiebei, which does small unsecured loans) from its core business but they are taking this a step further by demanding that these businesses have their own independent apps. As part of this, Ant will have to put its user data into a new credit-scoring joint venture that will be partly owned by the state. * SO WHAT? * This is huge. Ant is going to hand over its hard-won data – but it really has no choice in the matter. On the plus side (for Ant), the new credit scoring joint venture is much more likely to get a credit scoring licence, something that Ant has been after for ages. China’s central bank has only ever issued three such licences – and they have all gone to state-controlled entities. It will be paying a high price, though. Alipay: Beijing has yet to release its grip on technology companies (Financial Times, Lex) observes that there is quite a contrast between the way domestic investors are interpreting this (disappointed but accepting that this is how things go) and the reaction of international investors (disappointed and stopping the flow of money into things like China ETFs). Still, at some point, I am sure that they will return – they just might be a bit more wary.

Tencent and Alibaba pledge to open up apps to competitors (Financial Times, Primrose Riordan, Eleanor Olcott and Ryan McMorrow) highlights the back story leading up to the recent tech clampdown and what’s going to happen next after a big meeting last week with the Ministry of Industry and Information Technology (MIIT).

The two giants were joined by ByteDance, Baidu, NetEase, Huawei and Xiaomi and the result has been that after eight years of creating walled gardens for themselves that no other companies could access they will open up to third parties. Given the strict regulatory climate at the moment, it’s likely that the opening up will happen quickly. * SO WHAT? * Although MIIT itself can’t enforce anti-monopoly and competition laws, it’s likely that companies will comply because they don’t want the State Administration for Market Regulation to step in and trample all over them. At the end of the day, the writing has been on the wall for such intervention – but it is still dramatic nevertheless. FWIW, I wouldn’t expect Tencent and Alibaba to suffer TOO much in terms of people using their services because they have become so entrenched in the national consciousness over time and it’s just easier to keep using them from a customer point of view. Still, maybe over time margins will be eroded and other players will have a chance to build up their own competing businesses. It’ll be interesting to see whether the two giants are able to nick each other’s clients though!

Then in Soho China shares plunged 40% after Blackstone deal collapses (Financial Times, Edward White, Hudson Lockett and Ryan McMorrow) we see that the Chinese property developer’s Hong Kong-listed shares cratered by 40% in trading yesterday on news that US private equity group Blackstone pulled out from its proposed $3bn takeover – a proposal that hinged on regulatory approval, which they didn’t get. * SO WHAT? * I think that this deal was bound to fail given that authorities are clamping down on a) foreign investment, b) the highly indebted property development industry and c) monopolistic business practices as part of the current theme of “common prosperity”. No doubt this will scare foreign investors and cut down the number of potential outsider “sugar-daddies” to turn to in the event of financial difficulties. This will, in turn, make such companies much more compliant with the vagaries of what the state wants IMO.

Consumers have to deal with higher energy and property prices, but they are also spending at retailers like Primark and Shein…

Consumers are having to deal with a lot at the moment. Energy prices rocket to new high amid global gas crunch (Daily Telegraph, Rachel Millard) shows that energy prices in Britain are now 11x their normal levels due to the perfect storm of a gas supply crunch, not much wind and power station closures. Big energy users like factories etc. may have to switch to diesel generators and households are likely to see their bills increase. As if that’s not enough, Global house prices rise at fastest pace since 2005, report says (Financial Times, Valentina Romei) cites research from Knight Frank that looks at trends across 55 countries which show the consequences of a killer combo of housing shortages and rising household savings (and, I’d add, the growing demand for more space!). The key here is when will it end?? Well if Number of new homebuyers soars as market continues to grow (Daily Telegraph, Oliver Gill) is anything to go by, it’ll be carrying on for a while yet (this article uses the same Knight Frank research report but has more of an emphasis on the UK market versus the FT article above). Workers face ‘triple whammy’ of tax hikes, inflation and benefit cuts (Wall Street Journal, Tim Wallace) piles on the misery as it highlights the likelihood of British household budgets getting tighter against a backdrop of higher costs and benefit cuts.

Meanwhile, consumers are spending on cheap clothes! Primark makes the most of its margins (The Times, Ashley Armstrong) shows that Primark’s owner, Associated British Foods, is confident enough to upgrade its profit forecasts despite Primark’s sales being dented by the pingdemic (its operating margin was higher, though) and they are full steam ahead for getting product in ahead of the peak Christmas/New Year trading season. Shining a light on Shein, the fastest rise in online fashion (The Times, Ashley Armstrong) is an interesting article which highlights the growth of the online fast-fashion retailer for twenty-somethings (it’s pronounced “she-in” for those of you who are, like me, over 30 😁). It is now the world’s biggest player in its field and is putting constant pressure on the likes of Asos and Boohoo. It bashes out an eye-watering 6,000 new items per day backed up by data mining and strong social media marketing whilst keeping costs low via a super-skinny supply chain and an eye for tax loopholes. This company has tried to keep a relatively low profile, but will have to get over itself pretty soon as it is looking for a stock market flotation that could value it at $47bn 😱! I’d really recommend you read the full version this article as this is one fascinating company 👍! * SO WHAT? * FWIW, I think that cheap clothing is going to continue to be a popular form of therapy as we head into the end of the year. Primark has you covered for the in-store bargain-hunting feeling while Shein gives you infinite options online. Two ends of the retail spectrum, eh?

Intuit buys Mailchimp, Live Nation goes shopping, and Kape buys Express VPN…

There was some interesting M&A news today in Intuit agrees to buy Mailchimp for about $12billion (Wall Street Journal, Cara Lombardo and Miriam Gottfried) which highlights a cash-and-stock deal that indicates Intuit’s eagerness to surf the wave of rising SME fortunes in its biggest ever acquisition. It will enable Intuit to offer more services like marketing and customer relationships management.

Live Nation plans to acquire OCESA Entretenimiento in move into Latin America (Wall Street Journal, Anne Steele) shows that the world’s biggest live entertainment company

is trying to (crowd)surf the wave of the rebirth of live events by potentially taking a 51% stake in one of its largest competitors and Teddy Sagi’s Kape buys VPN rival for almost $1bn (Wall Street Journal, Morgan Meaker, James Warrington and Sam Hall) highlights a major acquisition by London-listed Kape Technologies, which will be one of the biggest ever tech deals for a British firm. Kape says that this deal will help its cybersecurity capability that enable users to “protect their data and rights”. * SO WHAT? * It seems to me that business confidence is continuing to build and companies who have done OK are really looking to do deals to enhance and consolidate their existing businesses. Circumstances are such now that they feel that they need to move in before prices put tasty targets out of reach!

Democrats mull a tax hike and S4 Capital continues to grow…

In Democrats release details of proposed tax increase (Wall Street Journal, Richard Rubin) we see that the Democrats announced their new tax increase proposals yesterday – increasing the top corporate tax rate from the current 21% to 26.5% and implementing a 3% surtax on people who make over $5m. * SO WHAT? * Funnily enough, the Republicans are expected to be dead against this particularly as it would reverse all the tax cuts they implemented when their man Trump was in office. Mind you, you never know as Covid will give them ample excuse to waver on their core belief of low taxation, but it’s not going to be easy. Democrats are looking to cover a LOT of costs!

Then in Sorrell’s S4 Capital raises revenue forecasts for third time this year (Financial Times, Alistair Gray) we see that the digital marketing company Sir Martin Sorrell (the legend who made global advertising giant WPP but was ousted a few years ago) built is increasing revenue forecasts for the third time this year and likened its growth to having more in common with Facebook and Google than traditional advertising groups. S4 Capital: Sorrell turns up the heat on adversaries (Financial Times, Lex) shows that his success at S4 is really sticking it to the company that kicked him out but that its current valuation is pretty full and will need further acquisitions to justify it. As I keep saying, advertising is a leading economic indicator and it is an area that continues to be hot (for the moment at least)!

…in other news…

I thought that I’d leave you today with something so bizarre that I just had to bring it to your attention: Nissin Cup Noodle Soda gives us the flavour of instant ramen as fizzy drinks! (SoraNews24, Oona McGee). WHAAAAAAAAAAAAAAAAAAAATTTTTTT?!?!?!?!? Who thought this would be a good idea? I will make a promise with you now. IF I can get hold of some of this (and I might have to call on some friends/relatives for this!), I will do a taste test for you on my YouTube channel. I’m not expecting my reaction to be all that positive 🤣!