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Dear reader,
I learnt an exciting new verb this week, courtesy of Anglo American chief executive Duncan Wanblad: to daylight.
Wanblad, who is fighting off unsolicited takeover interest from larger rival BHP, is desperate to “daylight” the value in the miner’s unwieldy portfolio of mining assets, more on which below. In Anglo’s case, this means selling off or spinning off several of the group’s commodities such as diamonds and metallurgical coal to reveal the red gleam of its copper assets.
Here at Lex we strive every day to daylight the business issues revealed by the dawn of each news cycle, shining a light on corporate events, charting the high noon of industries and analysing as the sun sets on once-promising companies, technologies and sectors. OK, enough. Here is some of the recent output:
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BHP’s bid for Anglo has set the M&A world alight, as I wrote in last Friday’s newsletter. But the action this week has the Australian miner still trying to find a way in, after the Anglo board’s refusal to engage.
First, the miner’s second proposal was summarily rejected by the UK-listed company. Lex thinks BHP looks in a tight spot here. It has bound itself to a structure for the deal that Anglo has made clear it sees as unacceptable, asking its target to spin off stakes in two Johannesburg-listed companies before a deal were to happen. Anglo would only agree for a huge price — something it doesn’t look like BHP is in a position to offer.
Second, Anglo countered with its own break-up proposal to realise value from the group. A streamlining of the group’s complicated structure has been discussed for decades. But Anglo’s plans were more dramatic than many had expected. Read more. -
You know who is good at daylighting opportunities in the stock market? “Roaring Kitty”. Meme stock investor Keith Gill returned to tweeting last weekend after a lengthy hiatus with a series of pretty indecipherable videos and images. Shares of meme stock companies duly soared: GameStop, the otherwise ordinary retailer engulfed in a Reddit meme frenzy in 2021, more than tripled over Monday and Tuesday. Shares in AMC Entertainment, the cinema chain that has leaned into its meme stock credentials, also jumped. Most AMC observers are well aware that the company is headed for a major debt restructuring that will probably wipe out most of its existing equity value, says Lex. But why let a little thing like cash burn get in the way of the community kinship of the meme stock phenomenon? Find out more.
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Who is being left out of Japan’s tourist boom? The country’s airlines, said Lex. In our best-read column this week, we looked at how Japanese airlines are missing out on a tourist boom, with overseas visitor numbers hitting a historic high in March. The rebound in travel, helped by a weak yen, has boosted tourism spending. But shares in the country’s airlines don’t reflect this brighter outlook, and have wildly underperformed the benchmark Nikkei 225 index. Find out why here.
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Yoghurt is no longer flavour of the month over at General Mills. Talks of a sale of the US food giant’s yoghurt business in North America shouldn’t be a surprise: boss Jeff Harmening is trying to weed out underperforming assets. General Mills’s yoghurt sales have been shrinking, after it lost out in the yoghurt wars to trendier upstarts such as Chobani. But America’s love affair with yoghurt generally is over: sales have been rising thanks to price rises but consumption peaked in 2015. The outlook looks increasingly sour. Read about the company’s options.
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China’s tech companies have found themselves out in the cold in the US, as geopolitical tensions mount between the two countries. But a string of tech groups are now looking for growth elsewhere in the world: the Middle East. There, China’s role as the world’s largest importer of oil gives it a certain sway. Food delivery giant Meituan is hiring staff in Saudi Arabia, in potentially its first overseas expansion. Alibaba and Tencent have also been investing in the country and region. Economic slowdown at home has added urgency to expansion plans elsewhere and comes at a time when Saudi Arabia’s search for growth beyond oil means it is getting serious about investing in emerging industries such as artificial intelligence. Read more here.
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Amid the boom in private credit, US business development companies are shining a light on how borrowers in that market are coping with higher interest rates. BDCs are publicly traded vehicles created in 1980 to promote access to capital for smaller companies. Moody’s in April put the bonds of three BDCs, managed by KKR, Oaktree and BlackRock, on negative outlook, after nonaccruals — non-performing loans — jumped and as the companies increasingly toggled loans towards payment in kind structures. BDCs have been criticised as instruments where their external sponsors extract high fees and pursue asset growth over vigilant underwriting. Find out more.
Best read
Catch up on some of the best-read pieces (in addition to Japanese airlines and Anglo American above) from the Lex column this week:
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San Francisco-based start-up Xaira claims that drug development is poised for an AI revolution, announcing it has raised $1bn in one of biotech’s biggest-ever launches. But AI is no substitute for the experimentation that underpins understanding of a disease.
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Did you know that the Starbucks menu has more than 170,000 ways to customise drinks? After a disastrous set of quarterly results for the coffee chain, Lex argues that adding yet more choice to its food and drinks offering is the wrong way to go.
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Toyota’s conservative strategy — in which it has held on to hybrids and plug-in hybrids as an important part of its portfolio as well as offering battery electric vehicles — has been criticised in the rapid shift to electric cars. But it is paying off handsomely now.
Have a good week,
Helen Thomas
Head of Lex
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