22 March 2018

Lens on the Week

UK

LABOUR DIVIDED: The election of Jenny Formby, a member of the trade union Unite, by whose general secretary she has had a child, as the new Secretary General of the Labour party seems destined to exacerbate the rift between moderates and the hard left.  John Woodcock, the Labour MP for Barrow and Furness, quotes her as saying that she wants all Blairites to leave the party, and her election follows the resignation of six staff members including the directors of “governance and legal” and “policy and research”.  It now seems inevitable that the process of cleansing the party of its moderate element will culminate in calls for MPs to be reselected at the annual party conference in September.

BREXIT TRANSITION: Michael Barnier and David Davis, the two chief protagonists in the Brexit negotiations, have confirmed that considerable progress has been made on the proposal for an “implementation” or transition period after the UK leaves next March.  Although important issues including fishing rights and the Northern Ireland border remain to be resolved, and the transitional arrangements are subject to overall agreement, a number of points have been agreed including:

• that the transition will last until 31 December 2020;
• that people moving between the EU and the UK during the period will enjoy the same rights as those who move beforehand;
• that the UK will remain party to the EU trade deals during the period but will be able to negotiate trade deals to take effect thereafter.  This is a crucial point for business who will not be left with the prospect of a sudden death with no trade deals when the transition comes to an end;
• that Northern Ireland will remain in the single market until another solution is found.  This clearly needs more work as Mrs May has said that it would not be a satisfactory outcome to introduce a Customs border between Northern Ireland and the rest of Britain.  Watch out for the introduction of differential tariffs under which goods created in or to be consumed in the UK come under the UK’s tariffs while other goods come under the tariffs for the EU, a messy arrangement but maybe a short term fix; and
• the UK would remain part of the Common Fisheries Policy until 2020.

CAMBRIDGE ANALYTICA: Alexander Nix, the chief executive of Cambridge Analytica, has been suspended following allegations that the firm was involved in a rich cornucopia of manipulative malfeasance including the use of honeytraps, bribes and misuse of data supplied by social media companies.  The allegations are denied but Mr Nix’s position has been further undermined by reports that he referred to two potential clients as “niggers” in an internal email.  The suggestion that the firm has misused data from Facebook will add to political concerns over the material held by digital companies and whether it gives them too much power.  Facebook shares have fallen dramatically but the problem is clearly one for the sector as a whole.  Could the ghosts of the Templars, themselves suppressed for having excessive power, which destroyed the progeny of Philip the Fair, be coming back for another bite?

International

SLOVAKIA: Prime minister Robert Fico resigned, following anti-government protests triggered by the murders of a journalist and his girlfriend.  The police believe that the death of the journalist, Jan Kuciak, is connected to his investigations into the Italian mafia’s activities in Slovakia and into allegations of its growing political influence in particular.  The protesters are demanding a full investigation and new elections, but Mr Fico resigned only on condition that his coalition government stays in power.  However, President Andrej Kiska has rejected the list of new cabinet ministers proposed by the acting prime minister.

SYRIA: Turkish forces and allied Syrian rebels captured the Kurdish-held town of Afrin, after months of hard fighting to eject the Kurds from their enclave in north-eastern Syria.  President Erdogan announced that his forces will now launch an operation against the Kurdish enclave around the town of Manbij in north-western Syria.  This risks conflict with US forces who are supporting the Kurds in their fight against Isis in the area.  The risk is particularly acute with the departure from the White House of Rex Tillerson, who maintained good communications with Turkey while he was secretary of state; his replacement, Mike Pompeo, appears to be less concerned about the health of US/Turkish relations.

The regime assault on eastern Ghouta, the rebel-held suburb of Damascus, continues.  Assad’s troops have broken the rebels’ territory, separating it into three areas.  They have set a deadline for the withdrawal of rebel troops from Harasta, the smallest of the three.

GUNS AND BOMBS:  In the wake of last month’s tragedy at Marjory Stoneman Douglas High in Florida, a fresh spate of shootings in the USA made the headlines this week.  A teacher (and reserve police officer) who was giving a gun safety lesson in a high school in California injured three pupils when he accidentally fired his gun.  At a high school in Maryland, a 17 year old boy shot and seriously injured two other pupils with a semi-automatic handgun; he died of gunshot wounds, either self-inflicted or sustained in a shoot-out with a security guard.  In Monroe County, Mississippi, a 9 year old boy shot his 13 year old sister dead with a handgun at the family home, following an argument over a video game.

Hundreds of thousands of pupils staged a walk-out at their schools last Wednesday, in memory of the 17 victims of the MSD High School shootings and to demand gun-control legislation.  Further mass protests against gun violence will take place this Saturday, with many thousands of youngsters due to take part in a March For Our Lives through Washington. Other marches are planned for across the country.

Police in Texas have been searching for a serial bomber responsible for five explosions in the last three weeks.  The first three bombs were left on doorsteps, the fourth was triggered by a tripwire and the fifth exploded at a FedEx distribution centre.  Two people have been killed and four wounded.  Yesterday, the police were following a suspect in his car when he apparently detonated a bomb and killed himself.  One police officer was injured.

Financial

THE FRENCH ARE COMING – UN:  Just when you think the deal is all sewn up, along comes a disrupter.  And this time the disruption is caused by a French company.  Hammerson, the UK property company which runs a portfolio of major shopping centres across the British Isles (flagship: Brent Cross in northwest London) agreed over the winter to consolidate its position by buying major rival Intu, whose leading pride and joy is the Trafford Centre, west of Manchester.  That would create a £3.4bn net asset business which would be the largest retail property specialist in the UK.   In a retail world which is rapidly changing, property owners are looking to hold physical assets which they think will outperform and attract shoppers as internet shopping takes an ever bigger slice of the market.  That means that shopping must have many features which only the largest centres can really provide – easy access and good parking, a range of eating possibilities, a huge variety of shops, and leisure based properties to make a shopping day a complete day (and evening) out – so not just a crèche and a bar, but cinemas, bowling, even crazy golf.  As the chances of any more regional malls being built are low because of planning restraints (the government and local authorities want to force retail back to town centres) and even major city edge centres are likely to struggle to get permission, retail property investors are grabbing anything they can.

But Hammerson has ceased to be predator and have become the prey.  The new stalker is Klepierre, a French retail specialist which owns over one hundred shopping centres across Europe.  Klepierre have offered a knockout offer (they hoped) of 615p a share (half cash, half Klepierre shares) which is a 40% premium to Hammerson’s share price before the offer – though still a 20% discount to Hammerson’s net asset price.  Hammerson immediately rejected the offer.  The Intu offer has not been popular with shareholders who see Hammerson as overpaying, so Klepierre has struck at a good point.  The market is presuming they will be back; they have until mid April to confirm a formal offer.

LES FRANCAIS ARRIVENT – DEUX:  French corporate financiers are not just in the retail boulevards of London; another team is looking to Hessle (it’s a pretty market town in Yorkshire East Riding).  Those financiers represent Michelin, the giant French tyre maker, which has made a £1.2bn offer for Fenner, a LSE quoted engineering company, which operates from there.  Fenner is a long established company (150 years and counting) which has always been based in the Hull area.  The counting won’t be going on for much longer – Fenner have accepted the offer and will soon be merged into Michelin, and its shares delisted.  The main business of Fenner is complementary to that of Michelin – it makes conveyor belts and specialist hoses, and specialist engineering products for engines, and for the medical world.  Turnover last year was £650m.  The French are once again offering a significant premium to the share price before they appeared on the horizon – the agreed offer price is 610p per share, a 30% premium.

Michelin say that there are two particular attractions in the acquisition – firstly, Fenner’s long record of innovation and ability to develop new products and markets, and secondly, the high level of competence and skill of the Fenner management team.  Although they expect savings of up to £30m a year from the merged business, they do not intending to make any significant level of redundancies and they intend to continue to operate from Fenner’s current premises and locations.