Competitive Streak

“All people looking to do mega deals in almost any territory would be well advised of steering clear from rules that are too onerous in territories. If the competitions authorities were serious about employment and the cost to the consumer, they would ironically encourage all deal making activities. By encouraging competition, there are more jobs created and more pricing wars”


 

To market to market to buy a fat pig We saw an accelerated sell off locally in the last half an hour of trade, those anxious about a pending downgrade from the two ratings agencies about to release their report may do well to look over at the US markets which were also selling off, round about the same time. Still, we ended the day down just over a percent after having been higher during the course of the morning. There was one piece of notable news, Naspers, the company which owns over one-third of Tencent, rallied over 1.85 percent to breach the 1 trillion Rand market capitalisation.

They (Naspers) are effectively the fourth company on the exchange of that size and scale, the first homegrown one in SABMiller will be gobbled up soon by AB InBev, some strange conditions being attached by local authorities. Like zero job losses, like ever. Strange. Read this – conclusion of AB Inbev and SABMiller merger. SAB has to sell Distell, that is OK I guess, they have to do this inside of three years of the completion date.

This one is strange: “The Commission received concerns regarding the potential impact of the proposed merger on employment. These concerns relate to job security and post-merger restructuring which may result in the loss of employment. In this regard, AB InBev has undertaken that it will not retrench any employee in South Africa as a result of the merger. This condition will endure in perpetuity.” AB InBev are never, ever allowed to retrench an employee. What happens if everyone stops drinking beer? Then what? Equally, who is going to watch this and make sure it doesn’t happen? What is to also stop AB InBev from unbundling the local business and listing it separately here as “Castle” or whatever they want, so that they can have the highly prized assets in central and South America, as well as the rest of the continent. It is pretty vague though, the job loss issue could only apply to the actual merger and not external conditions which impact a company’s decision to cut jobs.

Are we just being overcritical and thinking internally again? What about the European Commission and their competitions findings? A week ago that was announced, herewith the findings: Commission approves AB InBev’s acquisition of SABMiller, subject to conditions. At the beginning, the company agreed to effectively sell the SABMiller brands Grolsch and Peroni, it has almost completed that deal with Japanese rival Asahi. They have also agreed to sell Pilsner Urquell, making sure that they do not have a dominant position in the Czech Republic, Hungary, Poland, Romania and Slovakia. Some of those countries drink beer like water, I suspect if you look at the bigger picture, there may be little scope to grow those businesses against that backdrop. The collective business, SABMiller and AB InBev combined will continue to hold onto the Corona, Stella Artois, Budweiser, Beck’s and Miller brands in Europe.

The commission in Europe concluded that the take-over would, after these conditions met, not harm the consumer in the marketplace that is around 125 billion Euros. Now forgive me for being a cynic on these matters, if the consumer does not like the pricing of some process that is not that scientific (you can buy a beer making kit on Amazon for 40 bucks), you could drink almost any other beer, right? Sometimes the over-reach of the anxious competitions types stifle the very thing that they are supposed to be guardians of, competition.

If the pricing of the product got too outrageously high, then small mom and pop types would make beer in their backyards. It is not as if artisan beers are cheap, right? A case of Jack Black Craft Beer costs 315 Rand. At Makro, right now, you can buy CASTLE Lager Can (24 x 330ml) for 169.95 Rand. The competition, the craft beer people are charging a massive premium. And the people with beards who listen to LP’s pay that. So what is the problem if jobs are lost in mainstream brewing and other jobs are created in “craft” brewing?

All people looking to do mega deals in almost any territory would be well advised of steering clear from rules that are too onerous in territories. If the competitions authorities were serious about employment and the cost to the consumer, they would ironically encourage all deal making activities. By encouraging competition, there are more jobs created and more pricing wars. If your country is not big enough to have multiple brewers, then that is unfortunate and the reality that exists. Anyone who wants to give it a go, can in fact do that. In the end the competition authorities are imposing overreaching sanction on businesses and in fact putting in place protectionist policies, which are the exact opposite of encouraging competition. Just my view, what does that count for?

Quickly, let us look at the market. Naspers was up, Mediclinic was too, as were another handful of stocks, the rest were down, and in some cases heavily. Woolies, Sanlam, Discovery, RMIH, financials, retailers and anything with a South African flavour getting heavily smoked. All this was in anticipation of the ratings agencies. Standard and Poor’s and Fitch will let us know in the coming days of their decisions. Friday I think is the date. Until then, and there may be no downgrade for now, we would see “caution” being the better part of valour.


 

Over the seas and far away on Wall Street, stocks in New York, New York had another strange session. Up and down, the broader market S&P 500 closed down 0.1 percent, the nerds of NASDAQ closed higher by nearly one-third of a percent and lastly the Dow Jones Industrial Average was dragged lower by Boeing, Du Pont and Nike. Alphabet (Google) and Microsoft leading the market higher there. It is ADP day today, the day that Mr. Market starts to adjust their Friday numbers. it is all just noise, I can’t remember if people remember all of the numbers at any one given time, yet I can remember when big companies listed and at what prices, Google, Facebook and the like. Alibaba, Twitter and co. Even when GM came back. That sort of thing.


 

Company Corner

Ahhhh …. OK, the folks from Bidvest have given us the right base price calculator for the purposes of capital gains. They are as follows must be apportioned in the ratio of 28.05585% to a Bidvest ordinary share held after the Unbundling and 71.94415% to an unbundled BidCorp ordinary share. So, let us presume that you had 100 shares of Bidvest last Friday at the close and you were lucky enough to have paid 250 Rand a share for those shares, somewhere around the second half of 2013.

You will now, as per the ratio and to the closest cent apportion the paid price of each entity as follows: 1) For your 100 Bidvest shares (the South African and Namibian business) will now have a base cost of 70.14 Rand, and your 100 Bidcorp shares will now have a base cost of 179.86 Rand. Our back of the matchbox calculation was pretty close, our ratio applied on Monday morning 70.1298701 percent for Bidcorp and 29.8701299 percent for Bidvest. We will correct our prices accordingly!


 

Linkfest, lap it up

Last week was the Dow Jones Industrial average’s 120th birthday. Of the original 12 companies only one company is still in the index today – Where are they now!? The 12 members of the 1896 Dow Jones Industrial Average. Makes you realise that staying relevant is very difficult.

Once users start using one app for a certain task they normally continue to use it. WeChat has found the going very tough outside of China due to people already using WhatsApp and Facebook messenger, this stickiness of people highlights the value of the Facebook ecosystem and their “moat” around their products – Twice the Time – Same Number of Apps. As people spend more time on apps, so does the advertising revenue increase.

Infographic: Twice the Time - Same Number of Apps | Statista

You will find more statistics at Statista

This seems like bureaucracy at its finestThis 61-year-old hotel has never had a single guest.


 

Home again, home again, jiggety-jog. Markets today locally have started lower. All eyes on the ratings agencies here locally.


Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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