MarketLine Blog

Posts written by Christopher Leyman-Nicholls

Vincent Bolloré charged in France

MarketLine

The arrest of French billionaire Vincent Bolloré, head of one of the largest companies operating in Africa, Bolloré Logistics, is unlikely to hurt the operations of the company recently valued at EUR12.9bn ($15.4bn). Insufficient logistical infrastructure has long held back economic growth for many countries situated on the world’s poorest continent. The French company has been important to developing critical infrastructure that has been driving growth of late. Odds are investigations in France will not significantly damage the company in Africa. Vincent Bolloré has already gained vocal support from Guinean… Read more

Sears seeks to sell assets to ESL Investments: Strategic call of CEO Eddie Lampert is sign of failure

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Under CEO Eddie Lampert, Sears has always found enough money to struggle onwards. Now the much criticized hedge fund billionaire is seeking to buy the Kenmore appliance brand from his own company via his own hedge fund, ESL Investments. Lampert himself claims the sale “will provide an important source of liquidity” for Sears and help “to complete its transformation to respond to the challenging retail environment.” Few expect that sort of turnaround. Conventional wisdom dictates a troubled retailer needs to maintain the most lucrative assets under its control, not sell… Read more

Chinese regulator takes over Anbang: Massive insurer made example of in wider effort to keep money at home

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President Xi Jinping has plenty of motivation to take action on Anbang Insurance Group. Not only had the company come to symbolize debt-ridden conglomerates through a series of lavish overseas purchases, but the speed at which the company had expanded raised concerns as to the wider impact failure could have. So far it would appear policy revisions have been successful in halting the flow of money out of the country. The messages many businesses in China will have deduced very swiftly is the President, now rated among the most powerful… Read more

Saudi Arabia and Russia oil alliance: Desert kingdom requires Russian co-operation to solve economic problems

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Petrostates have historically been wasteful in regard to spending the wealth generated by large-scale fossil fuel extraction. The desert kingdom of Saudi Arabia is no different, spending vast sums on subsidizing fuel and extensive social programs; most of the workforce is employed by the state, funded by oil. Now the country is undergoing significant reform to correct economic imbalances and diversify the economy. The Aramco IPO is driving Saudi Arabian policy, which in turn is likely to be directing the nature of OPEC policy. Oil futures for March 2019 are… Read more

Nissan $9.5bn China investment: Scale of spending required to stay relevant in world’s largest car market

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Whilst Nissan is not regarded as being a member of the top-tier car manufacturers – the likes of Volkswagen Group and Mercedes Benz are much larger – that has not stopped the company from pumping $9.5bn into car manufacturing in China. Such investments are now essential, particularly for the less popular global brands. The move represents significant ambition from the Japanese car maker: Toyota, recently the second largest player in the Chinese market, is declining in China and an opportunity exists for Nissan to climb up the hierarchy. Large investments… Read more

Qatar Eurofighter Typhoon deal: BAE sale should not distract from harsh reality of lost markets

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The decision of the Qatari government to buy 24 Eurofighter jet aircraft built by BAE is useful but should not disguise a stark reality: at present the jet is losing out badly to the French made Rafale, especially in what were formerly highly productive markets in the Arabian Gulf. The danger in placing too much faith, or emphasis, in attempting to turn around sales is that very few nations have the available resources to buy in the numbers BAE would ideally like. The current geopolitical problems in the Gulf suggest… Read more

Tata-ThyssenKrupp merger: Deal will have short-term impact but doubts remain over long term

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The merger of the European steel making section of Tata and German based ThyssenKrupp will likely have useful short-term impacts upon European production, but the benefits heading into the long-term future are less clear. Soon to be the second largest steel maker in Europe, the combined company will have sufficient bulk to compete much better with Chinese producers who are under pressure from the central government to consolidate. Chances are the new company will gain substantial efficiencies and improve product quality beyond other major rivals, but this only solves some… Read more

Toshiba NAND business sold: Business must reform or risk becoming a ‘zombie’ company

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Now the immediate future of Toshiba has been secured through the $18bn sale of the NAND business, the company must scale down operations to become sufficiently nimble and competitive enough to become prosperous again. With all the large profitable sections sold or bankrupt, Toshiba now mainly exists as a collection of firms which are low-growth and unlikely to yield consistent profits. To solve this problem the company must sell or close the worst performers and use any funds raised to help the company expand again. If this course of action… Read more

Siemens Alstom merger: Deal necessary to compete against China state-backed CRRC

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The merger between Siemens and Alstom will create a company able to compete against the largest train companies in the world. Previous talks between Siemens and Canada based Bombardier failed but showed the mood in the market was towards consolidation. A merger between two leading European companies is necessary if Europe is to remain relevant. The Chinese CRRC is armed with massive resources and is pressing ahead with highly advanced technology. The importance of the ability of Europe to compete was underlined by the decision of the French government sold… Read more

UTC buys Rockwell Collins, hurting Boeing: New company will lead market and make conditions harder for Boeing

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Having left the servicing market when the 787 Dreamliner program was created, Boeing announced a return earlier this year. Yet the much vaunted return – advertised as a means to save money in a toughening commercial jet airliner market – is likely to be harmed by the purchase of Rockwell Collins by UTC. The new company formed by the takeover will provide a service no other company is able to match fully. In making very public protests over the $30bn deal, Boeing is attempting to raise the interests of regulators…. Read more

Macron labor law reforms: Overdue changes to French labor laws are much needed victory for business

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The envisioned reforms are wide-ranging and are easily the most ambitious set of labor market reforms to have made it this far intact. Previously, all efforts have floundered under the weight of popular protest. Although productivity remains healthy in the domestic economy, business growth has been stymied by bad regulation which deters job creation, especially for small businesses nearing the 50th employee threshold which makes the employer subject to an alarmingly complex and costly set of regulations. Bodies representing small and medium businesses are pleased with the outcome, hailing them… Read more

No longer too big to jail: Imprisoning heir to Samsung can create change in chaebol culture

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Efforts to solve problems emanating from corporate governance and culture within massive chaebols have gained fresh impetus from the conviction of Lee Jae-yong for bribery in a corruption scandal which was responsible for the impeachment of President Park earlier this year. For significant change in culture to occur and for forces seeking change to stand a reasonable chance of success, Mr. Lee must remain in prison rather than be subject to the pardons previous prison sentences handed to powerful businessmen have ended in. Pushed by a sizeable chunk of public… Read more

Social Media: Disruptors likely unless culture changes in Silicon Valley

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The deletion and subsequent reinstatement of the Google account belonging to prominent scholar Jordan Peterson has set a dangerous precedent regarding the treatment of individuals promoting viewpoints which are at odds with those held by leading social media and technology companies. Mostly thanks to a campaign to reverse the decision, Jordan Peterson is now back online, but with a near absence of information coming from Google, many in online communities now fear censorship from the largest internet giant of them all. Engaging in ever closer oversight of dissident voices increases… Read more

Siemens gas turbines taken to Crimea

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Under pressure from the German government to extirpate the company from any harmful events, Siemens has reacted swiftly to eradicate the possibility of further problems emerging. All operations in Russia are now under review and links with the offending company which is accused of illegally moving the gas turbines to Crimea have been irrevocably damaged. For an influential and large company such as Siemens to take such stern action will likely mark a major change in relations international business has with Russia. Suddenly trust has been eroded and further sanctions… Read more

US and China trade talks: Emphasis on steel and tariffs is misguided

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The danger of current US policy towards Chinese steel is that damaging tariffs will be imposed. Many observers describe such a policy as the nuclear option because the ability of other countries to impose harmful tariffs on US goods will be just as strong. Troublingly, tariffs would do little to solve the actual problem of dumping on the international market. A policy with many similarities was attempted in 2002 but resulted in a public climb down by the then President Bush after severe job losses were incurred. Tariffs are not… Read more

Air India privatization: Airline must be broken up before sale

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Air India is in a horrible financial condition. Largely surviving off a government bailout, the company has incurred massive losses down the years during which market share was lost and the business overtaken in the quality of service it provided. Now the company has finally managed to turn a profit – largely due to low oil prices – a privatization is unlikely to result in one buyer taking over the entire airline and assorted assets. Some observers of the international airline industry have expressed surprise at the possible bid from… Read more

Minority Conservative government: Hung parliament will provide a better deal for business

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The declaration of a hung parliament but with a Conservative party government is good news for the economy and businesses because the likelihood of a ‘hard Brexit’ has suddenly been reduced because in order to survive, the government will require support from opposition groups. Given the opposition parties are all but wholly united on a ‘soft Brexit’, the policy of the previous government could be about to change radically. The change makes the possibility of the UK buying access to the single market and passporting much greater than has been… Read more

Toshiba NAND business sale: Suitable sale is becoming increasingly difficult to achieve

MarketLine

A major problem Toshiba has with the sale of the NAND business is the company as a whole is in such a bad financial condition, potential buyers are in a very strong negotiating position. Toshiba has already sold off other profitable parts of the business in order to cover costs resulting from an accounting scandal in which profits were overstated. Now the second largest NAND business in the world is up for sale, prospective buyers are aware that the Japanese technology giant desperately needs a deal, and soon. Downward pressure… Read more

Brazilian meat scandal: Confidence in $14bn industry is returning

MarketLine

The scandal to hit the meat industry in Brazil at one stage threatened to result in the sort of bans on a food product not seen since the BSE crises occurred in the United Kingdom in the 1990s. Although the more salacious accusations reported in the press have come to nothing, many serious accusations resulted in the erection of import bans; China stopped all imports of Brazilian meat, whilst the EU only prevented access from the affected plants. But now the worst consequences appear to have been avoided and the… Read more

Namibia: NEEEF is not the solution. New policy would be bad for the economy

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NEEEF is not the policy the Namibian economy requires at present. Businesses, however big or small, would be required to be at least 25% owned by people described as ‘disadvantaged persons’ and occupy half of board and management positions. The suggested legislation appears to be an effort towards what amounts to forced redistribution of wealth and has similarities with the land redistribution attempted in Zimbabwe. Ownership is not the only target: spending and investment would be subject to new controls too. Problems regarding implementation are legion. Given approximately 40% of… Read more

IMF appeases US trade policy

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The first conference held by the IMF since the economic policy of the United States underwent dramatic changes following the election victory of Donald Trump already shows strong signs of moving towards a position designed to appease the new president. Differences between previous statements and policies from the IMF and what is now being espoused point towards the dropping of the pledge occurring for political purposes. Indeed the language used by the German Finance Minister and that of the IMF shows a stark contrast between views on the matter. Whilst… Read more

Renault Car Emissions: New allegations threatens French car manufacturer

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The accusations against Renault published in the French press follow on from a 2015 report detailing cars which exceeded environmental rules by over 300%. Stretching back to 1990, the hierarchy at Renault is said to have known about and been involved with cheating emissions tests. The influence of the French government, and therefore the French taxpayer, will be important given the upcoming presidential election and shareholding. If reports of nearly one million cars being sold with devices used to distort the results of emission testing, the scandal could involve the… Read more

President Park Impeached: Relations with chaebols could change forever

MarketLine

Legislation designed to curtail the strength of chaebols has traditionally failed to discover parliamentary approval; now amendments to several acts have found new impetus following the impeachment of the president. Whilst voters await the coming election, prospective candidates are seeking to assert their case for a change in how chaebols operate in the South Korean economy. However, despite the rise in support, problems will need to be overcome for lasting change to occur. Previous efforts have fallen flat; this time there is a far greater chance of success. Moon Jae-in,… Read more

Toshiba $6.3bn write-down

MarketLine

Originally the board of Toshiba wanted to sell just 19.9% of the semiconductor making business, which was expected to raise $2bn, maybe more. In hanging on to the majority of the business Toshiba would be able to maintain control over the business from which 80% of operating profit is derived. Yet the banks saw the matter differently. Whilst the sale of the majority of the business solves many problems, it creates a fresh set. The more the ‘crown jewels’ of Toshiba are sold off, the harder making a profit becomes…. Read more

Bernie Ecclestone departs F1

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The business model utilized in Formula One under the regime of Bernie Ecclestone and the ownership of CVC served the purpose of making shareholders rich. Yet, this was achieved at the expense of the sport. TV audiences have been in decline for a long time, several teams are struggling to survive, races are leaving traditional areas of support and the fans are unhappy. New owner, Liberty Media, must address these problems if Formula One is to regain impetus and become sustainable for all interested parties in the long term. For… Read more

Verizon purchase of Yahoo: Data breach puts deal at risk, but purchase still likely

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The theft of confidential information from Yahoo in 2013, although only recently announced, has heaped doubt over the proposed purchase of Yahoo by Verizon. Many predict the final bill will be substantial and worse could follow – the FBI are investigating and could yet cause more problems. A reduced share price caused Verizon to reappraise the sale. For both parties the realization that damage occurring from the data theft has yet to be fully felt is a serious problem, making revaluing Yahoo much harder. Regardless of which route Verizon chooses… Read more

2M Alliance: Hyundai Merchant Marine deal is not a long-term solution

MarketLine

The agreement with the 2M Alliance marks an important step for Hyundai Merchant Marine. Despite the deal not meeting creditor demands, Hyundai M.M will have access to better business conditions than is possible under the soon to be defunct G6 alliance. Full membership, once the present agreement expires, has not been ruled out. Were the financial health of Hyundai to recover sufficiently the risk which deterred 2M customers would lesson, providing full access. The deal is not perfect and does not meet the memorandum of understanding signed earlier in the… Read more

Chinese Foreign Direct Investment Liberalization

MarketLine

Reducing the number of markets foreign investors are prevented from entering – down to 62 from 93 – marks a useful step in the right direction and should encourage investment into China, reducing the gap to the outflow. Investors should become more comfortable with China given the proposed new rules, but there is much to be done and reasons for pessimism. The proposals appear to be hobbled by caution and need to go much further to create a lasting impact. More worryingly, the problems that the changes aim to tackle… Read more

Samsung purchase of Harman signals the future

MarketLine

The takeover of Harman has placed Samsung among the leading players in the connected car industry; the Korean technology company has access to a raft of deals with major car manufacturers, expertise from a range of companies acquired by Harman and a huge $24bn order backlog. Infotainment, acoustics, display and other systems are all due to expand in value in the coming years, and Harman has systems already installed in over 30 million cars worldwide. Taking over the company presents Samsung with a highly valuable market position. CarPlay (the system… Read more

COMAC C919 Airliner lands

MarketLine

When the COMAC C919 launched, comparisons were immediately made with the failed Bombardier effort to break the Boeing/Airbus duopoly. Bombardier failed for several reasons, chiefly because it was unable to gain the required customer base needed to gain traction in the airline industry. This does not apply to COMAC: the company has a ready-made market of state controlled airlines, colossal state backing and provides fantastic opportunities for foreign companies. These factors will aid the company to make serious inroads into the Chinese domestic airline market, providing the impetus for future… Read more