Ring, ring, now there are three. The reclusive David Yeo and his wife, Vicky, will become the most powerful people in the Australian telecoms market after their company, TPG, revealed a surprise agreed bid for rival iiNet. The $1.4 billion offer will be debt financed by TPG, which will become the second biggest fixed line telco in the country after Telstra and ahead of Optus/SingTel. David Teo and his wife own 36.71% of TPG, which gives them a holding worth $2.2 billion before this deal at Thursday night’s closing price. Sydney investment company Washington Soul Pattinson owns 26.88% of TPG — worth $1.6 billion. Soul Patts is controlled by the Millner family, led by Robert Millner, a well-connected Sydney business with strong links to the Liberal Party. The iiNet shareholders get a record $8.60 in cash and an interim dividend of 10.5 cents a share should the deal happen. And if it does, iiNet will make a further distribution to shareholders before the takeover happens. TPG also owns 6.25% of iiNet. TPG subscriber numbers for the combined company will jump by 950,000 for fixed-line internet services (nearly all broadband) to around 1.7 million, second only behind Telstra’s 3 million. — Glenn Dyer
Woolies, is this your future? The full-year results overnight for Britain’s fourth-biggest supermarket chain, Morrisons, holds a warning for our giant, Woolworths, as it struggles with weak sales, a poor and costly expansion into hardware and rising competition from Aldi and Costco. Morrisons (which was once the model for Woolies revival years ago, when Paul Simons ran Woolies) told the UK market overnight that underlying profit halved, and reported a loss after taking more than a billion pounds in asset impairments (writing down the value of land and buildings). Morrisons said it would slash its dividend this year from 13.7 pence a share to as little as 5 pence a share.
Comparable store sales fell for the year and by a nasty 2.6% in the fourth quarter. The retailer has already told the market the dividend would be cut to help finance a price war against Aldi and its fellow German hard discounter, Lidl. Both retailers have made life a real misery in the UK supermarket sector in the past year to 18 months. Industry leader Tesco lost its way, lost sales, lost profits and cut its dividend, lost its CEO and chairman and a group of long-time executives, and is being investigated for accounting fraud and other offences.
Sainsbury’s, another big supermarket chain, is also under similar pressure with its dividend in danger. Morrisons is slowing the pace of opening new stores (as are Sainsbury’s and Tesco). Woolies has troubles with its multimillion-dollar loss-maker called Masters Hardware (and it’s cutting its expansion). Woolies has lost sales momentum, consumers believe its prices are too high, profit growth has slowed and has been downgraded for the full year. Woolies claims it will spend half-a-billion dollars on cost cuts, and finance it from lowering its costs of doing business. But hard-headed analysts reckon its dividend is in danger if sales growth doesn’t recover. So the examples in the UK from Morrisons, Tesco and Sainsbury’s bear reading and remembering when looking at Woolies’ future performance. — Glenn Dyer
Free trade, the USA way. According to US Nobel laureate Paul Krugman, the Trans-Pacific Partnership trade agreement (for which our Trade Minister Andrew Robb is an unashamed cheer leader) is “fundamentally trivial” for the US trade sector. In a speech in the US this week and a post on his New York Times blog, the economist said: “Pushing this [trade deal] has nothing to do with the interest of a vast majority of Americans.” The US and 11 other Pacific-Rim nations, including Australia, are now trying to agree on the final terms of the trade partnership. If you believe Andrew Robb’s comments this week, that agreement is very close.
Krugman said special interests, especially “Hollywood and pharmaceuticals”, are pushing hard for the Trans-Pacific Partnership. He said these groups want intellectual property protections included in the measure, he added. Krugman said these copyright and patent protections create monopolies, are “anti-growth” and hurt vulnerable poor people looking for medicine. Krugman said:
“The claims that this is going to be an enormous engine of growth just doesn’t hold water … There can no longer be ground-breaking, world-transforming deals on international trade because we’ve already done those.”
“So why do some parties want this deal so much? Because as with many ‘trade’ deals in recent years, the intellectual property aspects are more important than the trade aspects. Leaked documents suggest that the US is trying to get radically enhanced protection for patents and copyrights; this is largely about Hollywood and pharma rather than conventional exporters.
“I don’t think the proposal is likely to be the terrible, worker-destroying pact some progressives assert, but it doesn’t look like a good thing either for the world or for the United States, and you have to wonder why the Obama administration, in particular, would consider devoting any political capital to getting this through.”
That’s a reference to the opposition to the TPP from US Democratic Party Senator Elizabeth Warren. She’s tapping into sentiments wary of the agreement and could scupper the ability of President Obama to fast track approval for the TPP. — Glenn Dyer
The trend is your friend. This is an old adage in investment markets. So what to make of the count of central banks that have cut interest rates so far in the current round? Well, The Bank of Korea chopped its key rate yesterday to a record low of 1.75% (down 0.25%) and became the 24th central bank to cut rates so far in 2015. South Korea’s cut followed the rate cut by Thailand’s central bank on Wednesday and easing by central banks in China, India and Poland since March began.
As for rate rises: Brazil is the most notable as it battles rising inflation (yes, as oil prices fall) and tries to help a currency battered by a growing corruption scandal that is engulfing the government and the huge Petrobras oil group, which could need bailing out very shortly. Australia of course has cut rates, so has Indonesia and the eurozone. The US is plotting a rate rise, the UK is warning of one in the next year. New Zealand has already moved, and is now moaning about a high currency, despite falling inflation. The European Central Bank and the Bank of Japan have now unleashed their bazookas in a much bigger round of monetary policy easing than a rate cut. Interest rates around the world are at record lows everywhere. Rate cutting is a sign of weakness, with worries about deflation (now starting to ease in the eurozone) the real trend to watch for is rate rises because that will show increasing confidence in a growing economy and rising prices (but not Brazil), rather than concern for one going nowhere and facing falling levels of inflation. — Glenn Dyer