TheChek News Flow

Reforms reflect a continuing backlash triggered by Kraft’s crimes against nostalgia

Kraft of the US acquired two businesses when it purchased Cadbury for £11.5bn in 2010. The first was a humdrum UK-listed confectionery group led by an American who didn’t like chocolate. The second, by then existing only in the popular imagination, was a company run by kindly British Quakers who cared for workers from cradle to grave.

UK takeover regulators this week proposed further tightening a regime introduced in the wake of the transaction. This reflects a continuing backlash triggered by Kraft’s crimes against nostalgia in acquiring the second business along with the first. Resentment back then was deepened by the failure of the processed cheese titan to keep open a Bristol factory as promised.

If the new rules are implemented, fewer bids would be made and fewer would succeed. Incumbent bosses would rest a little easier. Investors would be marginally worse off.

Previous reforms made sense. The UK deal timetable was shortened and disclosure improved to discourage sieges. Acquirers were required to stick to any binding commitments on jobs, or face legal consequences.

The changes mooted by the Takeover Panel, which polices UK mergers and acquisitions, look more nakedly protectionist. It comes as no surprise to find they were suggested by a UK government eager for populist approval.

Bidders would have to publish plans for the location of corporate headquarters, workforce composition and for research and development. They would make these new pledges, along with promises already required by the rules, earlier during a bid.

An acquirer would still choose whether commitments were binding or not. But politicians and unions would have longer to demand more onerous concessions, and across a wider range of corporate activity. Most deals would be unaffected. They are too small or involve businesses the public has not heard of. A few big ones would be in trouble, particularly if consumer brands were involved.

Bankers with good political connections would be in hotter demand. That does not bode well for the openness of UK markets.

Inditex: fashion statement

The clothing retailer is unlikely to take a Naomi Campbell-like tumble just yet

Not many companies do fast fashion quicker than Spain’s Inditex, and certainly not as profitably. For Inditex, business is more of a canter than a catwalk. Brands such as Zara and Pull & Bear are reasonably priced. Its shares are pricier. They trade at a 70 per cent premium to peers. That might seem a lot to pay for a business that just undershot half-year earnings forecasts. But Inditex is unlikely to take a Naomi Campbell-like tumble off its platforms just yet.

For one thing, the group has got its costs well under control relative to its peers. Of the Spanish retailer’s key listed competitors — Hennes & Mauritz, Primark and Fast Retailing — none, not even online specialist Asos, come close to its 56 per cent gross profit margin. Only Primark, owned by UK-quoted Associated British Foods, can beat it on earnings growth in recent years. That explains why Inditex shares have far outrun its fast fashion peers, not to mention all European retailers, over three years.

The only loose thread that could lead to an unravelling is the sense that profitability has peaked. Analysts pointed to a strong euro for the greater than expected compression of margins in interim results on Wednesday. Yet, look back a few years when the currency had weakened and one sees that a downward trend began in 2013, and now totals two percentage points. Inditex is in a highly competitive market with fickle customers.

Yet the balance sheet is robust. Cash flow has easily exceeded capital investment needs by an average of more than €2bn annually, meaning Inditex has had no need for debt. That will not change soon.

As more than 60 per cent of production is in euro-based economies, further currency strength may keep a lid on its shares for a time. But Inditex has racked up years of growth for good reason: it is formidably well run. Fashionistas sometimes justify splashing out on an expensive garment on the basis it is “a good investment”. The same applies to Inditex.

Budapest targets philanthropist over supposed scheme to flood Europe with immigrants

Hungary’s rightwing government is launching a “national consultation” on an alleged plan by George Soros to flood Europe with immigrants, in a sign that the billionaire philanthropist will be a target in the ruling Fidesz party’s campaign to be elected for a third term next spring.

Government officials confirmed that a budget has been earmarked to send a questionnaire and an explanatory letter to about 8m voters concerning the Hungary-born Mr Soros’ supposed views.

Viktor Orban, Hungary’s prime minister, has claimed there is a “Soros plan” to force Hungary and other European nations to accept more migrants. “It is an action plan that describes exactly how disobedient, non-immigrant central European countries should be transformed into immigrant countries,” Mr Orban told a gathering of religious leaders in parliament this week.

The announcement of the campaign against Mr Soros shows Mr Orban’s determination to shrug off international criticism, as tensions rise over Hungary’s clashes with Brussels over refugees and the rule of law, as well as the government’s clampdown on universities and NGOs that receive foreign funding.

Mr Orban has intensified his attacks on Mr Soros — a one-time benefactor who funded a scholarship for him in 1989 — and on EU officials, who the Hungarian leader alleges are complicit.

Leaders of Fidesz, Mr Orban’s party, claim Mr Soros wants to convince Europe to accept 1m immigrants annually to meet labour market needs or bolster the voter base of leftwing groups. According to Mr Orban, EU officials actively implement the plan because they “eat from Soros’ hand”.

“What we call the ‘Soros plan’ is an alien, completely different vision to what we believe should be the path for the EU, especially in migration,” Zoltan Kovacs, government spokesman, told the FT.

The allegations were rejected by Goran Buldioski, director of the Budapest-based Open Society Initiative for Europe, part of a group of foundations created by Mr Soros. “The challenges on migration faced at the moment have nothing to do with George Soros and the Open Society Foundations,” he said, describing the planned consultation as an attempt to distract from the Orban government’s shortcomings.

The wording of the consultation, set for October, has not been decided but previous surveys have been criticised for leading questions that manipulate public opinion, rather than accurately sample it. An April survey entitled “Lets Stop Brussels,” accused the EU of promoting illegal immigration and opposing tax cuts and measures to create jobs. The survey, which was accompanied by a nationwide advertising campaign, was dismissed as “highly misleading” by the European Commission.

Later the government unveiled a billboard campaign featuring Mr Soros, which local Jewish groups said risked “unleashing anti-Semitic passions”.

Officials counter that the questionnaires are a democratic method of consultation, allowing government to fine-tune policymaking in line with the public mood.

Analysts say that Mr Orban’s government, which faces a weak and fragmented opposition, is seeking to conjure a powerful adversary in the form of Mr Soros to rally its supporters and gain a third successive term in power.

Edit Zgut, analyst at Political Capital, a Budapest think-tank, said: “Fidesz’s aim is to kill two birds with one stone: to channel the frustration of ultra-conservative voters towards the EU and to emphasise that migration is the ‘real reason’ behind western accusations that Mr Orban has weakened the rule of law.”

Budapest alleges that details of Mr Soros’ plan are included in an opinion column he published on projectsyndicate.org and that Hungarian NGOs and the European Commission are expected to implement its objectives. In a column published on the website in September last year, Mr Soros argued the EU could reduce illegal migration by strengthening its external borders and committing to accept 300,000 refugees annually.

Mr Soros also urged member states to agree common refugee policies but he argued against compulsory refugee quotas, which are now the subject of a legal battle between Budapest and Brussels. “The EU cannot coerce member states to accept refugees they do not want, or refugees to go where they are not wanted,” he wrote.

Intel has reportedly delayed the launch of its Cannon Lake laptop processors until the end of 2018, putting the CPU architecture a full 18 months behind its original target of mid-2017.

The delay raises questions about both processors and maximum RAM for next year’s MacBook Promodels …

The source of the report is Digitimes, which has a mixed track record, but as Patently Apple notes, this is backed by a slide in an Intel presentation that appears to confirm the timing.

If the report is correct, that would force Apple to opt for less-efficient Coffee Lake CPUs for next year’s MacBook Pro. This would also mean sticking with LPDDR 3 RAM, which limits maximum memory to 16GB. With Cannon Lake, Apple would have been able to use LPDDR 4 and increase the maximum to 32GB.

The 16GB RAM maximum in the 2016 MacBook Pro was the subject of considerable criticism before it was revealed that this was a constraint imposed by the fact that the Kaby Lake processor did not support the later low-power RAM chips needed to offer 32GB.

If Apple does need to use Coffee Lake next year, it’s likely that it would then skip Cannon Lake altogether and move straight to Ice Lake for a later refresh. This is expected to be available in late 2018 or early 2019, meaning that it will – in theory, at least – launch soon after Cannon Lake.

TrendForce last month estimated that MacBook shipments grew by 17% in Q2.

Italy's largest bank signalled its interest for what would likely be an all-share deal that could come once UniCredit's turnaround over the next two years is complete, in recent months as it scouts for potential partners in Europe, the sources said.

The early expression of interest to the German government, which owns a 15 percent stake in Commerzbank dating back to when it was rescued during the financial crash, lays a foundation for what could be one of Europe's largest cross-border mergers.

For now, however, the contact is at an early stage. One person familiar with the matter said other groups had also expressed interest in Commerzbank to the government.

A spokeswoman for UniCredit declined to comment, adding that the Italian bank was focused on its strategic turnaround, while Commerzbank declined to comment.

A number of hurdles, including overcoming possible German misgivings about ceding one of the country's chief lenders to a foreign buyer, would have to be crossed before any deal.

"UniCredit has been in touch with the German finance ministry," said one of the people, adding that while the government was open to a sale, Commerzbank had not shown any interest.

Asked whether there had been expressions of interest in the government's Commerzbank stake, a German finance ministry spokesman declined to comment, saying "officials are contacted by financial investors on a range of issues".

"We have always said that the government does not want to keep its (Commerzbank) stake forever and wants to get a good result for the taxpayer," he added.