September 18, 2025 • 46 mins
This week, Anthony and Piers dive into the Fed’s unexpected “risk management” rate cut, what does that even mean? And why is Powell suddenly more concerned about jobs than inflation?
Then it's on to Trump’s latest bombshell, scrapping quarterly earnings in favour of semiannual reports. Maverick nonsense or a legitimate debate about investor pressure and corporate costs?
Finally, the team dissect the failed sale of Argos from Sainsbury’s to JD.com. Why did the deal collapse? What does it say about cross-border M&A, boardroom discipline, and China’s global shopping spree?
Whether you’re trading the headlines or prepping for a finance interview, this episode is packed with the market mechanics and strategic insight you need.
(00:00) Intro & News in Focus
(02:23) Fed Rate Cut & Market Implications
(10:03) Trading Psychology & Market Reactions
(11:55) Fed Dot Plots Explained
(18:21) Trump’s Corporate Earnings Proposal
(20:21) Press Bias & News Interpretation
(21:00) Quarterly vs. Semiannual Reporting
(26:12) Tech's Role in Corporate Transparency
(31:30) Argos Deal Breakdown
(42:43) Investor Sentiment & M&A Takeaways
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hello and welcome back to the Market Maker Podcast.
And as always, we've got 3 themes that we're going to be
talking about in this episode. 2markets related, one M and a
deal. So you know, back on the docket,
try and get some deal flow in there by popular demand.
So today we're going to talk about the Feds cut.
They cut rates by 25 basis points, very much as expected.
(00:23):
But Powell called it the Fed chairman, a risk management cut.
And, and Piers, I don't rememberhim using that type of
vocabulary ever or any Fed official using that vocabulary.
So really interested to see whatyou made of that.
And also, you know, the Fed now focusing more on slowing jobs
rather than sticky inflation. We also had the dot plots.
(00:45):
We've got some new Fed members in the mix as well.
So we'll talk about that. And they're not.
The other thing this week, whichwas a big press focus was of
course from Donald Trump and himpushing for quarterly earnings
to be moved from reporting everythree months to switch to six
months. So we'll look at the context of
that and also the pros and cons of making such a switch.
(01:09):
And then finally, on the M&A front, we talked, Stephen and I,
many months ago about the famousUK brand.
If you're in Britain, you'll recognize WH Smith, who I don't
know if you've seen the rebrand of that it's shockingly bad.
So that is a dinosaur. OK.
I didn't realize they'd rebrand it.
OK. I saw it in the in the shopping
(01:30):
mall the other day and I was like, wow, that's just exactly
the same that even Nafa Nafa brand.
But so Argus is not too dissimilar.
It's been on the High Street in the UK.
Very fond of that. When I was a child, used to get
that big fat magazine catalog, catalog, and you'd be like, for
Christmas, you'd be circle, circle, circle.
(01:53):
And your parents will buy you none of it.
But so Argus. Argus's deal has fallen through.
So Sainsbury's walked away from selling Argus to jd.com, the
Chinese firm and we're going to dive into what that reveals
about carve outs, Chinese M and a cross-border investor
discipline, all of these kind ofstrategic factors around deal
(02:13):
flow as well. But perhaps we could start with
the Fed Piers, what did, what did you make of yesterday?
Wow, It says there's quite a lotto talk about here.
I mean, often Fed meetings just go exactly as expected.
And kind of, I mean, I guess on the face of it, this was the
(02:34):
same, right? They cut rates by 25 basis
points, but there's so many little sort of nuances and, and
that kind of risk management cut, it kind of sums it all up
in 3 words. I think, as you say, that's
language that's never been used before.
So what does that mean? And I think the Fed, as we've
(02:55):
been talking about, they're justin a very difficult place
because don't forget, like if you strip it back to
fundamentals, right? What is the central bank for?
Well, they've got a dual mandate.
So their job is to it's, it's price stability on the one hand.
So if you translate that, that means, right, get inflation to
target and keep it at Target target meaning 2%.
(03:18):
So that's price stability, right?
Because if you want an economy to function and, and kind of be
in a position to grow, you know,sustainably well, then, you
know, price rises need to be controlled, right?
Then the other ones, the labour market, right?
So it's full employment is the other mandate.
And so that's me making sure that, you know, if you're an
American, if you want a job, youcan get a job and you can earn.
(03:43):
And you know, obviously that labour market is a huge part of
that economic engine, right? So these are the two things that
they're in charge of. The problem the Fed have is both
are moving in the wrong direction.
So inflation is creeping back upand is above target, right?
It's 2.9% targets too. So it's higher than it really
(04:05):
needs to be or should be. OK.
But then on the other hand, you've seen over the last few
months, the labor market has just taken a bit of a dive in
terms of its health, notably looking at the non farm payrolls
numbers, which have, you know, you, I mean, don't want to be
sensationalist, but you could say have collapsed.
And actually to the point we with revisions, we actually had
(04:28):
a negative print for June. So that that's minus jobs being
created, right? And actually, you can look at
other little data points like jobless in initial jobless
claims. That's that's the number of
people claiming jobless benefit for the first time each week.
And that's kind of on the rise and is at a multi year high now
as well. So look there, there's concerns
(04:49):
around the labour market and it weakening, right?
So here's the problem, because if the Fed is just looking at
the labor market, well, look, signs of weakness, we should be
cutting to stimulate, right? But then if they're looking at
the price stability side, while inflation's it's above target
and it's rising. So if you just looked at that,
(05:10):
you should be hiking interest rates.
So here of course is their problem.
Now, one interesting thing otherthan is risk management cut
comment. The other I, I, the the kind of
biggest, well, I'll, I'll, I'll read out what a couple of points
that he said. So here's a direct quote.
Job gains have slowed and the unemployment rate has edged up,
(05:33):
but remains low. Inflation has moved up and
remains somewhat elevated. So basically just what I've
said, right? But the most interesting thing I
thought was the weight of risk was on the employment side, he
said. So a 25 cut was justified.
And then furthermore he went on to argue that the base case is
(05:56):
still that higher inflation is down to tariff driven goods
inflation, which will probably prove to be a one time event.
So you'll notice the absence of a particular word transitory is
he's. He's described the definition of
the word transitory without using it.
And just for context, for anyonenew to markets, the transitory
(06:19):
was how the Fed were describing the COVID impact on the supply
chain disruptions at the time and were woefully wrong in their
assessment of transitory. So he's kind of, as you just
said, saying it without saying it, which is interesting.
Indeed. So look that that that's where
(06:40):
we are, right? And we'll talk about the dot
plot and stuff in a minute and get into a bit more detail.
But market reaction was really, really choppy, you know.
But see, whipsaw is a probably adecent word to use to be
describing what went on with moves in both directions as kind
of traders reacted to the kind of different elements of this
(07:02):
this report. When you were trading these
sorts of things, it's interesting actually just
thinking about the different participants and connecting it
to a actionable stuff people might be trading, but other jobs
in and around this, like if you were to Bloomberg and the FT and
stuff like that. It's interesting of what
perspective you choose to comment about these types of
(07:23):
events. Because I remember when I was
covering the real time live squawk, the initial perception
dovish and let's say the market rallies and the dollar drops,
all the traders are going, what's the dovish like comment?
What's the spin? And then the press conference
starts and it flips on its head and he sounds hawkish.
And then you're like, well, he said this.
Whereas then when you look back retrospect, 24 hours later,
(07:45):
you're like, well, whipsaw, the market's actually gone nowhere.
So all as expected. So it's funny how depending on
whether you're interacting with the marketplace in the the
moment or so let's say you're intraday participant as compared
to say a longer term portfolio manager, for example, You know,
(08:08):
is this a pivotal shift in a direction?
It's interesting how the perception of how you describe
this events is not right or wrong because actually it's
right in the moment to describe those intraca intraday moves.
So it really depends on the setting and the framing of of
that conversation. Yeah.
Just depends on the time horizonof your trading or investing,
(08:30):
right? I mean, if you're fast money
kind of hedge fund style where you're trying to profit from
short term volatility, well thenyeah, you are interested in
every single, you know, general price move, you know, in the
sort of shorter term and like you look at the S and Pi mean,
(08:51):
it kind of sums it up, right? It was trading at about 6600
going into the announcement and then firstly it pinged higher,
so it went up to about 6630, right?
So a 30 point rally, OK, then itkind of a bank faced and then
dropped from 6630 down to 6560, right?
(09:17):
So that's a 70 point reversal. So it rallied 30 points, then
dropped 70, then it rebounded basically back to where it
started. So then a 40 point bounce back
to square one, which kind of sums it all up.
And look, you've got to piece through all of this and try and
(09:37):
figure out what's going on. I think if you're, if you're
really good, then you can take advantage of all of those moves.
The up, the down, the backup. I mean it's very difficult.
I mean, very, very most likely trying to catch each of those.
You might get, you might get the1st and maybe the second, but
(10:00):
maybe the third one just kind ofreally runs you over.
So I think it's super difficult.When you were trading those
because you were one of those traders who traded news driven
intraday events. When you say in that instance
there's three opportunities there on the trade.
Looking back in retrospect of how you used to tackle these
things, if you were successful in deploying like the first and
(10:23):
second opportunity and came out the right side, would you even,
would you psychologically where would you be in terms of that
third presentation or does it really depend on what was that
third scenario to whether you goagain or not?
I'd say it depends, but this is where really where this is what
separates out the very best fromeveryone else and it's the
(10:48):
psychology in the moment. If you've made two awesome
trades and you've got a lot of PNL then most people just get
greedy and go again and keep going and inevitably give half
of it back. Not the Iceman baby.
It's those that could really, you know, and, and look, there's
(11:10):
there's ways of managing that. I, I would often sort of to kind
of, I guess scratch that itch and you know, because you just
want more, right when you're trading well, you should be
trade, carry on trading though, But so I'd often de risk and
start trading half of my size ifI wanted to go again.
But it was like, look, I've, I've banked a good amount here.
(11:32):
I'll then just say, right, well,let's carry on, but at a much
lower risk level so that I can'tput at risk all the good work
that's just been done, right, but.
Well, for context though, for our listeners, yeah, your
nickname on the trading floor for good 20 years was the
Iceman. So it's easy for you to say,
actually easy for anyone to do so.
(11:53):
But perhaps we could talk about some other of the intricacies of
this release, which were there's, you know, this is one
of those unique alternate eventswhere we get the latest summary
of economic projections, IE thisdot plot.
So So what did? What did the dot plot reveal?
So, yeah, just as a reminder foreveryone, then everyone at the
on the FOMC committee, they theyproduce this dot plot every at
(12:18):
the end of every quarter. So every other meeting and each
member just plots on a chart. Where do you think interest
rates will be at the end of 2025?
Then where do you think they'll be at the end of 2026?
Where at the end of 2027? And then the longer run, right.
And this is really designed for the Fed to show to the world and
(12:39):
the markets what they're currently thinking with regards
to short, medium and long term rates.
And so you know they update it each quarter and obviously
depending on what's happened with regards to the economy and
economic data, depending one on and unusually depending on
what's happened with the change in the personnel within the FOMC
(13:02):
itself, then look, you get changes in in that dot plot.
But really this is the Fed's what we call forward guidance.
It's them really saying to us like right now everything we
know today, this is what's goingto happen to interest rates
going forwards. Of course, it's just a, it's
just a guidance. Obviously, you know, things
(13:23):
change, right? Economic circumstances change.
So what they're saying, you know, they're basically saying
right now that at the end of 2027, interest rates will be at
3%. Now will they be at 3%?
I'd say it's very unlikely. Now I've got no idea if it'll be
higher or lower. But look, stuff happens, you
know, in that period of time, right?
But look, it's a guide. So what's interesting for me, I
(13:44):
think is, really is the front end of this sort of dot plot.
So it's like, where do you thinkrates will be at the end of
2025? That's not very far away.
And so those dots are saying, because there's only two
meetings left, right, end of October, mid-december.
And so now you've got the median.
So everyone has an individual dot, but then they basically
(14:06):
take the median kind of average,right?
And then that becomes the marketexpectation.
And so that the Fed cut rates last night and they are saying
they're going to cut rates two more times by the end of the
year, which is very dovish. That's why you have things like
the, the S&P rallying initially,it's because this was a, a, a
(14:26):
dovish cut. They've cut rates and then
they're signaling they're going to continue to cut at each of
the next two meetings. Furthermore, looking at the end
of 2026 dots, well, they shifteddown as well.
So really implying that they're they're looking to cut rates
twice more in 2026, right, to get us down to roughly 3%.
(14:50):
So it was a dovish shift at the front end of the dot plot, the
the mid to back end. Not much change.
OK, so that was definitely interesting.
The other hilarious thing, I mean, look, I'd say if you if
you're, if you're taking all of those committee members,
whatever, 17 of them, right? It's that I've never seen a
(15:12):
bigger divide. So you had thinking about are we
going to cut rates again into the end of the year?
2 more meetings left 70 sorry, there's 19 on committee members.
Seven of the 19 want no more cuts for the rest of the year 2
Two members want one more cut and then what are we up to
(15:35):
there? 99 members want two more cuts,
right? So, so divided.
And then your final member, thisguy called Stephen Mirren, who
has just showed up, was for his first day at the office.
Would I? Love that meeting.
I reckon They sat him in the corner and he was like, he was
(15:58):
like, guys, you know what, I'm going to vote huge guy.
You guys have your, your, your talk.
And then he's just there and he's just totally isolated.
Surely, for those who don't know, he's he's in Trump's
pocket. He's the guy Trump's just put in
because one of the committee members resigned because they're
retiring, but they resigned early.
(16:20):
And somehow Trump's managed to get his man kind of passed by
Congress to kind of sit in the vacant seat.
And he's just bowled in there. And last night he voted for A50
cut and he wants 1.25% worth of cuts by year end.
So you've basically got Trump sat on the committee.
(16:40):
I would have. Loved to have seen the the the
text message, the WhatsApp that Trump would have sent sent to
Stevie last night. Well, I loved it.
He would have said great job. He kicked capital letters.
For this, you know, you look at the dot plot and you look at the
end of 2025 dots and basically you got most of the committee
(17:01):
kind of concentrated up on around 4% and then you could
just got this one dot that's just miles out of line with
everyone and that dot is like down below 3%.
And that's Mirren going. Let's get the bat out and let's
cut rates aggressively. And just to maybe simplify, so
with the dot plot, you're looking at where are interest
(17:22):
rates by the end of this year, next year, 2027, and then what
they call like the longer run. And one of the main things here
is that as you start to predict time further out, the dispersion
of the dots generally gets widerbecause the future becomes more
unpredictable. Just like you were saying
though. With with two.
Meetings away from the end of the year, you're absolutely
(17:44):
right. Like the fact that there's so
much misalignment and yet the visibility to year end is so
close. Typically what you'd see at this
time of year with a dot plot going into end of year is super
tight with these this group of members.
And it's not. So yeah, really goes to show how
divisive things are at the moment on the board.
But but also last point, a function of how it's really
(18:06):
difficult because you've got inflation going up on the labor
market deteriorating, you know, that's so really whilst it is
divisive and political, you know, also the economic backdrop
lends itself to having this kindof division, let's say.
OK, well, look, segue into Trumpthen.
And he was all over the news once again, or should I say the
(18:27):
news was all over Trump because he was coming out talking about
how we should move to a six monthly reporting mechanism.
And he was saying how how all the benefits that that would
have. And so, yeah, maybe just outline
this for me. What was what's Trump saying and
context? Because I think for a lot of
people this might be like, wow, like this is big change.
(18:49):
And I saw a lot of people might,you know, I look at LinkedIn a
lot. I'm fairly, I'm fairly active on
that platform. There was loads of talking heads
going, this is such a bad idea. Yeah, but I think that was quite
one-dimensional. So yeah, break it down for me.
Look, this is quarterly earnings, right?
We're so used to those words. It's quarterly earnings season
and this is in the US by law, the large companies have to
(19:15):
report their performance. And so we've got it coming up
right in a, in a, in a few weekstime, we'll have quarter 3
earnings. So once we get past September,
final month in quarter three, these companies have to start
reporting and, and delivering all their financials and, and
they also like to give us forward projections.
And yes, just for investors, it's awesome because you get a
(19:38):
real kind of insight every threemonths into how these companies
are performing, right? So from a trader's point of
view, it's just really valuable info.
What Trump's saying is, look, whilst it might be good for the
investment community, Trump's proposing that, well, hang on,
it's a real nightmare for these companies because it's so
expensive to, you know, hire people and teams and.
(20:01):
Experienced CFOs and stuff to produce these reports once every
three months for the benefit of people externally.
It's just really expensive and takes up a large capacity within
the business. And Trump's basically saying,
wouldn't it be better if that capacity was spent on actually
running the business. The press kind of obviously, as
(20:24):
usual, kind of plowed in and jumped all over this and very
much framed it as, hang on, thisis Maverick Trump shooting from
the hip. What an idiot.
Ridiculous idea kind of framing,I think I'm not I wouldn't be
wrong in kind of surmising. That's the approach of the the
the press here. And as you said, lots of people,
(20:46):
if you don't like, it's very political, right?
If you don't like Trump, anything he says is stupid.
So that was the response. The thing is, if you step back
and just take a breath, this isn't a radical idea at all.
And in fact, the whole of Europe, all the big companies in
(21:07):
Europe do not have to report earnings.
They they report every six months.
The legal setup is to report every six months.
So no, there's been some, there's been some trial and
error on this. Like for example, the UK moved
to quarterly reporting in 2007. By 2014 they were like, yeah,
(21:27):
that wasn't a great idea, let's move back to semi annual.
So in 2014, UK moved back to semi annual.
The EU moved back to move to semi annual in 2013.
So they scrapped quarterly over a decade ago.
Right now, what's interesting though is some of the big gun
European companies do still report quarterly just because
(21:53):
it's kind of what the US does. And look, we want to play in
that big boys game. So look, we better, you know,
for investor's sake, we're we'regoing to kind of follow suit,
right? So actually, and look, the SEC,
interestingly, who are the regulator, they've said that
they're prioritizing this proposal, meaning, you know,
(22:14):
they're taking it seriously and going to look into it.
So and look, Barack Obama himself questioned this and
actually suggested it back in 2015, right?
So it's not a stupid idea. The whole of Europe do it
anyway. And yeah, it was just
interesting. I, I, I felt it was a really,
really, really, really good example of press bias.
(22:38):
And a good example of why you'vegot to be careful when you're
digesting news and you've just got to think about is that could
there be bias here? And do I just need to kind of
dig into this myself and kind ofanalyse it myself from kind of
first principles before kind of jumping to any kind of
conclusions? On the pros and cons side, there
(23:01):
was probably like 3 that stood out to me that perhaps we could
talk about. One was this the Trump framing
was about short shortism, sort of focus on the management
perspective. For me, when I read that, I was
like, are you telling me an extra 3 months is counteracting
shortism? So that, you know, as, you know,
(23:22):
being amplified, being still fairly nimble in size, I would
say that, you know, decision decisions for us, fine, we're
small and agile. But for these big multinational
companies, there's no way that an extra 3 months is going to
address the shortism. So I thought that was a pretty,
pretty weak hand. He was, he was framing there.
(23:45):
That is the weakest advantage tothis idea that I think the cost
saving is definitely straight upfor sure.
This stuff's expensive to do right, so it'll save you money.
I do also think that it would free up management sort of
(24:06):
capacity in a small way, whereasyou've only got to go through
this rigmarole every six months rather than every three months.
So I think they are definite straight out positives from a
business perspective internally and running and operating your
business. Yeah, from a from a strategy
point of view, three or six months, it's the same, isn't it?
(24:27):
I mean you're not going to yeah.So they're the pros.
And then on the cons side, one of them was that I thought was
interesting was about US multiples because these are
listed entities we're talking about and U.S. markets for
higher valuations partly becauseof the you mentioned about
investors. Investors can be retail, they
(24:48):
can be institutional, both of which are going to probably
prefer greater transparency to invest their capital on whatever
scale. What do you think of that one?
Yes. And look, I think from a
governance perspective, like Western markets, you know,
governance is at its best and this is a very positive thing
(25:10):
from an investor's perspective when it comes to your kind of
the risks involved in investing money in, in Western and
particularly U.S. companies, right?
So yes, the transparency of a quarterly earnings cycle is good
for that risk and that governance side.
Is that the main reason why US multiples are higher than
(25:34):
others? I'd say no, that is not the main
reason. It might be a very small part of
it, but the main reason is the US is the biggest and best and
mightiest economy and there's more growth potential.
They grow faster and they're taking over the planet when
you're looking at big US tech and look, that's why they trade
(25:57):
at higher multiple. Can I, can I just double check?
Are you replacing Stephen Mirrenat the Trump White House
economic advisor? Is this what this episode's
about? Is this is this some sort of
like a interview process or? Let's cut, baby cut.
And then the final one on the, the cons when we move on to the
M and a deal was I, you know, I'm not sure I have a distinct
(26:18):
answer on this. But this idea of longer term
given AI, given cloud systems, whatever it might be, basically
technology, what technology is allowing.
And we're seeing this very much in a trading in an execution
sense, big data, actionable automated algorithmic LED
(26:38):
systems. At what point does it do you get
full transfer of transparency where there is the mechanics are
that doesn't matter quarterly, semi or annual you get a pretty
good pulse of a business in realtime almost.
I've never really thought about this.
And so it's only when this kind of story popped up and everyone
(26:59):
started to kind of think about pros and cons and this one kind
of cropped up, I was like, wow, OK, that's interesting.
So, and the more I think about it, the more I think it's
probably the direction of travel, which is obviously the
opposite to what Trump is suggesting here.
But I go back to in my opinion, the biggest con of quarterly
(27:25):
reporting, the biggest problem is that the time and cost
internally to get this stuff done.
Now, if you can use AI to automate most of this, well,
then actually that's a really big bonus.
So if that is possible, that removes the biggest problem of
(27:47):
it. And so, yeah, can you move to a
more real time kind of reportingor barometer of how businesses
are performing? I mean, The thing is, right,
you're going to start to, if, ifthis is the direction of travel,
the best companies on the street, they're going to start
to do this and they're going to do it because they're like, hey,
(28:11):
we've got nothing to hide here. Check this out.
You can see how we're doing day by day.
And so when companies start to do that, it's going to drag
everyone else, right? It sets the precedent.
And so I think for that reason, you're probably going to get
that move. But I, I can't, it's going to
take a long time. I think, I think that's like
over the next decade that might happen.
(28:34):
The kind of 2nd order impact then what about sell side
products they're selling? I mean, they, they, you know,
there's, there's different players here, isn't there?
Sell and buy side, but there's alot of buy side hedge funds that
their most optimal strategies are in and around earnings
season. So the more frequent the better
because they're trading these mismatches in price and
(28:55):
expectations. And then the other side, on the
sell side, they sell an awful lot of equity research.
And the more things are changingor the more disclosure there is
for fundamental analysis on these firms, the better, right?
I've got a counter to both of your points, OK, Although I I
think both are really good points, but there is a counter.
(29:17):
So for hedge funds, right? Yeah, hedge funds they will
trade quarterly earnings season short term that like equity long
short strategies in the earningsseason exploiting volatility,
right. So if there's less earnings
seasons, well than bad news. However, you could flip it.
If there's less earning seasons,you could say there'll be bigger
surprises. If it's every six months because
(29:42):
we haven't had an update for sixmonths, it might be that
there'll be bigger surprises, meaning more volatility on the
particular earnings event possibly, which could make up
for the less frequency. Maybe that's one counter
argument. I'm not sure I'd buy that
argument. But anyway, it is a counter.
The other one then is, yeah, equity research.
(30:03):
Is this going to kill equity research as an industry who make
a lot of revenue generating quarterly kind of reports and
analysis in around these earnings.
But you could argue for investors, if you're now going
to get only an update every six months, don't these equity
researchers become even more valuable because they're the
(30:25):
ones talking to these businesses, you know, week in,
week out and issuing reports? I I actually think they're going
to be fine. And in some ways, they could
become an even more valuable part of an investor's process
because we're getting less insight from the companies
directly. OK, I'm going to counter your
counter. I saw a chap who it comes from,
(30:51):
you know, decent quality, and heshared a piece talking about an
academic research paper dated this year and it talked about
basically the consequences of abandoning A quarterly reporting
model. This was the white paper and
actually dropping quarterly reports leads to lower market
volatility. Now, I've not read the paper,
(31:12):
but that's the headline take away.
Like with all academic research,obviously there's ways to spin
things. Of course, it's not always the
purest open analysis, so I don'tknow that, but yeah, I mean, we
could go on. But yeah, it's really
interesting. Yeah.
All right. Well, look, just let's move to
show 1 to the final talking point, which was, yeah, the the
fate of of Argus. It's kind of moved from the High
(31:36):
Street into your local Sainsbury's, which I'm sure
you've seen over the years, but the fate of Argos looks in
somewhat peril. So what is the latest update
here? So this is jd.com who are were
looking to buy Argos off Sainsbury's, right?
(31:56):
So firstlyjd.com, an important part of this, they're a Chinese
company, OK? They're a massive, in some
respects, the Amazon of of China, right?
So it's like direct online retail kind of logistics around
same day delivery, you know, right across mainland China, you
(32:17):
know, huge, 150 billion revenue business, right?
Massive, massive. But they're they're the one
thing that they're they're Amazon without the AWS
basically. Now look, they're trying to buy
Argos, right? But the deal's fallen through.
And there's a few elements to this, which is quite
(32:39):
interesting. Firstly, the kind of headline
news was that there's material. So JD pushed for.
So hang on, let's step back. The way these processes work,
right? Sainsbury's Argos is
underperforming within the kind of Sainsbury's kind of overall
business, OK, It's non core, right?
(33:02):
Sainsbury's is a supermarket selling groceries.
Argos was an acquisition which they don't sell groceries, but
the idea was let's get Argos into our Sainsbury's stores.
And then actually that will savea lot of money from the kind of
old Argos model where they had their own kind of stores, right.
We'll just bring it in house and, and this is going to, yeah,
(33:23):
be a real great cost saver. What's happened is that actually
Sainsbury's are growing at double digit overall, but Argos
themselves are, well it depends.They're kind of growing at
single digit. But actually if you take into
account kind of exceptional one off items, they're actually
losing money. So I think they lost, if you
(33:43):
take into account those items they lost about 14,000,000.
That's Argos on their own. Sainsbury's do report, they
separate out and report the Argos figures separately.
And look, those one off items are probably the cost of getting
the infrastructure and building the Argos set up within
Sainsbury's stores, right? If you take that cost out, they
(34:04):
are growing but single digits. So it's a bit of a drag.
So look, Sainsbury's have decided, look, let's divest this
and let's spin this off, OK? But so fine, they begin the
process, they put it up for sale, right?
And people are interested. All right, let's see your bids
and then fine, JD come in and say, right, we're interested.
You know, let's go into what we'll give you what we'll give
you kind of a term sheet, which basically means, right, we're
(34:26):
interested and we're going to buy.
Obviously there's been a little bit of look at the financials
and they'll put forward a price they're going to buy it for, OK.
And this is kind of a term sheet.
And then you normally enter intoan exclusivity period where now
JD and only JD are in the running and they might get like
Spence, 2-3 months of exclusivity, giving them time to
now do deep due diligence in order to then check that this
(34:51):
thing they're buying is actuallywhat Sainsbury's are saying it
is. And so they'll do financial due
diligence, right? So are all those numbers that
Sainsbury's are saying, are theycorrect?
I'll do things like legal due diligence, commercials.
You did a lot, lots of due diligence.
And then, and it's during that process that often things crop
(35:14):
up. I was like, oh, OK, I didn't
quite realize that and I didn't try realize this.
And it can often lead to then what ends up being a change in
price from the buyer's point of view.
So JD have come and said, look, because of these things we found
in due diligence, we aren't prepared to pay what we said on
(35:34):
the term sheet. We're going to pay you less.
Now. This gets reported by
Sainsbury's saying that JD pushed for, quote, materially
revised terms and commitments, not in the interests of
shareholders, just means they'reoffering a lower price now.
And so Sainsbury's have then gota choice.
(35:56):
They either say, oh, God, all right, fine, fine, we'll sell it
to you for cheaper. Or they can go, actually, you
know what? No, we're not selling it for
that price. So do you we're keep we're
sticking to our guns and the thesecond one has happened, right.
So that's the that's, that's thekind of top level news.
(36:19):
Can I, can I go two ways though to say what you're saying here
is there's a degree of board discipline where they've gone.
I'm not going to, I'm not going to accept that which I don't
know who the next buyer is, but we're going to go with it.
Surely the market could could reward or punish you in that
scenario. Well, this is it.
(36:40):
Well, initially it rewarded thembecause the Shainsbury's share
price popped five, 6% off the back of this news look up to.
So to start with, the market is saying, OK, we like this.
We like how the board at Sainsbury's is dealing with
this. You know, they're not backing
down, they're strong, they're solid, they're holding firm.
(37:01):
This is our price, take it or leave it.
And it kinds of it sends a message to the rest of the
market. So either what, what happens
now? Well, either JD go all right,
let's rethink this. Maybe we can up our bid a little
bit more and get closer back to what we put on the term sheet in
the 1st place. Or, you know, there may be other
(37:24):
buyers out there that might be prepared to come in.
And, and the, if other buyers docome in, that's, that's a really
positive sign because those buyers will know that the board
have held firm. And so if they're still
interested, well then, right, it's much more likely that
Sainsbury's are going to get thehigher price.
That's the positive story. The -1 is everyone just vanishes
(37:49):
and no one's interested now. And Sainsbury's, you're joking,
aren't you? There's no way anyone's going to
pay that price and they end up not being able to.
So this is that kind of that gapin valuation, the valuation gap,
right, That is probably the biggest reason why most deals
fail. That that cross-border element,
I'm assuming that when it's Chinese entity investing in a
(38:12):
strategic asset like ABP for example, that's a problem or a
Glaxo Smith Kline, when it's Argus, is that a different
kettle of fish? And, and So what and what is
the, what, what signals have we had off of recent behaviour from
someonelikejb.com, which I'm assuming is quite active on the
(38:34):
acquisition front? Well, look, so that's you better
that last point, I did a bit of digging.
So right what who have JD acquired and you know what no
one, they've basically made all almost 0 international
acquisitions they've and in fact, they've only made a 123.
(38:58):
They've only made a few handful within China.
It's really weird for a company of this scale to have had such
little acquisition kind of activity on their kind of
strategy. Now they did try and they had a
look at buying Currys, which is a kind of another retailer of
electronical goods, big one herein the UK, right?
(39:20):
They had a look at buying Currysa couple of years ago and
interestingly they pulled out ofthat as well and didn't come
back to the table. So if you're sick, if you're
expecting JD to now counter and come back with a higher bid, I
don't know. You look at that Curry situation
and that's not what happened. They just walked away.
So it's interesting, but you're right to point out the
(39:42):
political, there's a few, there's a few things that went
wrong with this deal. And one is, look, you know,
Chinese companies trying to buy international companies,
generally speaking, their ability to do so has become more
and more difficult because of the political environment.
And in fact, China's outbound MNA deals, I'm talking about the
(40:04):
whole country now, not just JD has declined 31% year on year.
It's just way harder. And look, this is a function of
Trump as well, right? Trump has made that whole
political situation. He's put it on everyone's.
Front page, OK and so it's harder for China to buy,
particularly Western companies because governments get involved
(40:27):
and it becomes a national security risk in inverted
commas, like everything just gets thrown into that bucket.
Is Argos a natural national security risk?
Look, you can take both sides ofthat argument, right?
You could say, well, no, well, they're they're innocent.
They just sell stuff. But then, you know, the fear
mongers out there will say, well, yeah, they're selling
electronical goods that the whole of the UK are buying.
(40:49):
You know, what are they going toput in those goods and are they
going to be able to spy on us and all all this kind of
conspiracy theory stuff, right? It's an issue.
And so actually what you're finding with China, they're kind
of retreated as a generally as anation.
They're trying to, they're actually pivoting more to doing
deals with countries where it's more kind of investor friendly,
(41:09):
where the geopolitical relationship is different.
So, you know, doing deals in places like Hungary and Turkey
and Thailand and Saudi and the UAE that there there's way more
deals happening in those types of territories rather than the
West because of that political situation.
But look, there's also deal specific stuff that's just, this
is a tricky one. This is a very tricky 1 for
(41:33):
divesting this business because of the whole strategy they had
when they bought it, that Sainsbury's strategy.
How can we cut costs here? Let's bring Argos in house.
Let's bring the Argos shop into the Sainsbury's store, reduce
our footprint, reduce our cost. The problem is now you got to
extract it again. So for a buyer, that's a really
(41:55):
significant cost extracting these Argos little stations
within Sainsbury's and and setting them back up.
Well, if, well, unless their idea is let's not let's move
away from physical entirely. And obviously JD are the
specialists. They're the Amazon of China,
right? So from a logistics point of
view, maybe their strategy is tonot go back to stores and
(42:17):
actually let's RIP this stuff out of the same Sainsbury's
store and just bug it all in warehouses and we'll just do it
all online. Assume that was kind of their
play, but obviously the costs involved in extracting that is a
real issue here. It's just made, yeah.
So it's a separation complexities is the kind of
lingo you would use and that's certainly something that's
(42:40):
probably been a bit of a sticking point.
Yeah. So to so there was a really
great summary that that you had in your notes.
So to kind of bring all this together because I know a lot of
students are in their banking application stresses at the
moment. So in order to put this together
(43:00):
and articulate it, there's really four major themes, right?
But this one, so there's investor appetite for non core
carve outs. And even here, one of the things
we were discussing was even a failed deal can go two ways, but
in this case boost sentiment if it signals potential
divestitures. So they hold firm, they're going
(43:20):
to go again, you know the bottomline now.
So a new buyer coming in, you'vegot a set price.
Strategy's worked so far. Just so connected to that is the
discipline nature of the board. Walking away, you know, is an
unattractive bid or scenario. We don't want to participate #3
you just mentioned it there. Carve out complexity.
(43:43):
And so untangling the Argus kindof mess from Sainsbury's success
almost. There's an execution risk.
I guess that's the word that that would get used in these M
and A conversations a lot. And then on that execution side,
certainty is is quite key when you are entertaining a potential
partner to tango with. So bias with what you've
(44:06):
described is a fairly patchy track record.
You add in the cross-border nature, there's regulatory
concerns. It it it lifts the complexity
again, which were already is looking like a a not a slam dunk
easy thing to pull off in the first instance from a for a deal
mechanics perspective, right? Yep, correct.
And I might add one more thing here.
(44:29):
This is expensive stuff like duediligence is really expensive
and and obviously JD would have instructed M&A advisors and and
all the rest of it. But you're going to have, you
know, lawyers and the cost outlay they've had to already do
to conduct this due diligence process will be in the millions,
(44:53):
right? Multiple millions.
We're talking here now they've because Sainsbury's have said
no, they've got decisions to make because either they're
like, OK, fine, we'll just take the hit.
All that money we've spent is for nothing.
We've basically thrown it down the drain because we're walking
away. We're not going to do the deal.
The point is coming, coming backto the deal for them is now way
(45:15):
cheaper than another rival, right?
Although interestingly, other rivals could go to the same due
diligence providers and basically say, look, you've done
half the work already. How about we come on board now?
We'll pay you a bit more, but it'll be a discount, you know,
than it normally would be. But so DD costs are a really
(45:38):
big, big thing in these processes and often can be one
of the reasons that CS companiescome back to the table with a
slightly higher bid, because allthat's sunk cost would be a
waste otherwise. Cool.
Well, look, we'll wrap it there.If there's any questions at all,
as per usual, I think on YouTube, definitely Spotify, you
can leave a comment. So please do, I do know as well
(46:01):
from the statistics that not everyone follows or subscribes
to the show. So please do much more coming in
future and also for any studentswho are in application season.
Hopefully this discussion was helpful for both from a macro
and a deal mechanics perspective.
But also there is the ongoing LSCAIC series that we've been
dropping episodes last two weeks.
(46:22):
The last one was particularly great for thinking about, OK, I
don't have to secure an internship just through applying
through the front door. There was some really cool
tactics and how to go about securing it through the back
door. And so I strongly suggest you
also check that out as well. But wishing everyone a great
weekend. Thanks, Piers, as always.
(46:43):
Thanks a lot.
Hello and welcome back to the Market Maker Podcast.
And as always, we've got 3 themes that we're going to be
talking about in this episode. 2markets related, one M and a
deal. So you know, back on the docket,
try and get some deal flow in there by popular demand.
So today we're going to talk about the Feds cut.
They cut rates by 25 basis points, very much as expected.
(00:23):
But Powell called it the Fed chairman, a risk management cut.
And, and Piers, I don't rememberhim using that type of
vocabulary ever or any Fed official using that vocabulary.
So really interested to see whatyou made of that.
And also, you know, the Fed now focusing more on slowing jobs
rather than sticky inflation. We also had the dot plots.
(00:45):
We've got some new Fed members in the mix as well.
So we'll talk about that. And they're not.
The other thing this week, whichwas a big press focus was of
course from Donald Trump and himpushing for quarterly earnings
to be moved from reporting everythree months to switch to six
months. So we'll look at the context of
that and also the pros and cons of making such a switch.
(01:09):
And then finally, on the M&A front, we talked, Stephen and I,
many months ago about the famousUK brand.
If you're in Britain, you'll recognize WH Smith, who I don't
know if you've seen the rebrand of that it's shockingly bad.
So that is a dinosaur. OK.
I didn't realize they'd rebrand it.
OK. I saw it in the in the shopping
(01:30):
mall the other day and I was like, wow, that's just exactly
the same that even Nafa Nafa brand.
But so Argus is not too dissimilar.
It's been on the High Street in the UK.
Very fond of that. When I was a child, used to get
that big fat magazine catalog, catalog, and you'd be like, for
Christmas, you'd be circle, circle, circle.
(01:53):
And your parents will buy you none of it.
But so Argus. Argus's deal has fallen through.
So Sainsbury's walked away from selling Argus to jd.com, the
Chinese firm and we're going to dive into what that reveals
about carve outs, Chinese M and a cross-border investor
discipline, all of these kind ofstrategic factors around deal
(02:13):
flow as well. But perhaps we could start with
the Fed Piers, what did, what did you make of yesterday?
Wow, It says there's quite a lotto talk about here.
I mean, often Fed meetings just go exactly as expected.
And kind of, I mean, I guess on the face of it, this was the
(02:34):
same, right? They cut rates by 25 basis
points, but there's so many little sort of nuances and, and
that kind of risk management cut, it kind of sums it all up
in 3 words. I think, as you say, that's
language that's never been used before.
So what does that mean? And I think the Fed, as we've
(02:55):
been talking about, they're justin a very difficult place
because don't forget, like if you strip it back to
fundamentals, right? What is the central bank for?
Well, they've got a dual mandate.
So their job is to it's, it's price stability on the one hand.
So if you translate that, that means, right, get inflation to
target and keep it at Target target meaning 2%.
(03:18):
So that's price stability, right?
Because if you want an economy to function and, and kind of be
in a position to grow, you know,sustainably well, then, you
know, price rises need to be controlled, right?
Then the other ones, the labour market, right?
So it's full employment is the other mandate.
And so that's me making sure that, you know, if you're an
American, if you want a job, youcan get a job and you can earn.
(03:43):
And you know, obviously that labour market is a huge part of
that economic engine, right? So these are the two things that
they're in charge of. The problem the Fed have is both
are moving in the wrong direction.
So inflation is creeping back upand is above target, right?
It's 2.9% targets too. So it's higher than it really
(04:05):
needs to be or should be. OK.
But then on the other hand, you've seen over the last few
months, the labor market has just taken a bit of a dive in
terms of its health, notably looking at the non farm payrolls
numbers, which have, you know, you, I mean, don't want to be
sensationalist, but you could say have collapsed.
And actually to the point we with revisions, we actually had
(04:28):
a negative print for June. So that that's minus jobs being
created, right? And actually, you can look at
other little data points like jobless in initial jobless
claims. That's that's the number of
people claiming jobless benefit for the first time each week.
And that's kind of on the rise and is at a multi year high now
as well. So look there, there's concerns
(04:49):
around the labour market and it weakening, right?
So here's the problem, because if the Fed is just looking at
the labor market, well, look, signs of weakness, we should be
cutting to stimulate, right? But then if they're looking at
the price stability side, while inflation's it's above target
and it's rising. So if you just looked at that,
(05:10):
you should be hiking interest rates.
So here of course is their problem.
Now, one interesting thing otherthan is risk management cut
comment. The other I, I, the the kind of
biggest, well, I'll, I'll, I'll read out what a couple of points
that he said. So here's a direct quote.
Job gains have slowed and the unemployment rate has edged up,
(05:33):
but remains low. Inflation has moved up and
remains somewhat elevated. So basically just what I've
said, right? But the most interesting thing I
thought was the weight of risk was on the employment side, he
said. So a 25 cut was justified.
And then furthermore he went on to argue that the base case is
(05:56):
still that higher inflation is down to tariff driven goods
inflation, which will probably prove to be a one time event.
So you'll notice the absence of a particular word transitory is
he's. He's described the definition of
the word transitory without using it.
And just for context, for anyonenew to markets, the transitory
(06:19):
was how the Fed were describing the COVID impact on the supply
chain disruptions at the time and were woefully wrong in their
assessment of transitory. So he's kind of, as you just
said, saying it without saying it, which is interesting.
Indeed. So look that that that's where
(06:40):
we are, right? And we'll talk about the dot
plot and stuff in a minute and get into a bit more detail.
But market reaction was really, really choppy, you know.
But see, whipsaw is a probably adecent word to use to be
describing what went on with moves in both directions as kind
of traders reacted to the kind of different elements of this
(07:02):
this report. When you were trading these
sorts of things, it's interesting actually just
thinking about the different participants and connecting it
to a actionable stuff people might be trading, but other jobs
in and around this, like if you were to Bloomberg and the FT and
stuff like that. It's interesting of what
perspective you choose to comment about these types of
(07:23):
events. Because I remember when I was
covering the real time live squawk, the initial perception
dovish and let's say the market rallies and the dollar drops,
all the traders are going, what's the dovish like comment?
What's the spin? And then the press conference
starts and it flips on its head and he sounds hawkish.
And then you're like, well, he said this.
Whereas then when you look back retrospect, 24 hours later,
(07:45):
you're like, well, whipsaw, the market's actually gone nowhere.
So all as expected. So it's funny how depending on
whether you're interacting with the marketplace in the the
moment or so let's say you're intraday participant as compared
to say a longer term portfolio manager, for example, You know,
(08:08):
is this a pivotal shift in a direction?
It's interesting how the perception of how you describe
this events is not right or wrong because actually it's
right in the moment to describe those intraca intraday moves.
So it really depends on the setting and the framing of of
that conversation. Yeah.
Just depends on the time horizonof your trading or investing,
(08:30):
right? I mean, if you're fast money
kind of hedge fund style where you're trying to profit from
short term volatility, well thenyeah, you are interested in
every single, you know, general price move, you know, in the
sort of shorter term and like you look at the S and Pi mean,
(08:51):
it kind of sums it up, right? It was trading at about 6600
going into the announcement and then firstly it pinged higher,
so it went up to about 6630, right?
So a 30 point rally, OK, then itkind of a bank faced and then
dropped from 6630 down to 6560, right?
(09:17):
So that's a 70 point reversal. So it rallied 30 points, then
dropped 70, then it rebounded basically back to where it
started. So then a 40 point bounce back
to square one, which kind of sums it all up.
And look, you've got to piece through all of this and try and
(09:37):
figure out what's going on. I think if you're, if you're
really good, then you can take advantage of all of those moves.
The up, the down, the backup. I mean it's very difficult.
I mean, very, very most likely trying to catch each of those.
You might get, you might get the1st and maybe the second, but
(10:00):
maybe the third one just kind ofreally runs you over.
So I think it's super difficult.When you were trading those
because you were one of those traders who traded news driven
intraday events. When you say in that instance
there's three opportunities there on the trade.
Looking back in retrospect of how you used to tackle these
things, if you were successful in deploying like the first and
(10:23):
second opportunity and came out the right side, would you even,
would you psychologically where would you be in terms of that
third presentation or does it really depend on what was that
third scenario to whether you goagain or not?
I'd say it depends, but this is where really where this is what
separates out the very best fromeveryone else and it's the
(10:48):
psychology in the moment. If you've made two awesome
trades and you've got a lot of PNL then most people just get
greedy and go again and keep going and inevitably give half
of it back. Not the Iceman baby.
It's those that could really, you know, and, and look, there's
(11:10):
there's ways of managing that. I, I would often sort of to kind
of, I guess scratch that itch and you know, because you just
want more, right when you're trading well, you should be
trade, carry on trading though, But so I'd often de risk and
start trading half of my size ifI wanted to go again.
But it was like, look, I've, I've banked a good amount here.
(11:32):
I'll then just say, right, well,let's carry on, but at a much
lower risk level so that I can'tput at risk all the good work
that's just been done, right, but.
Well, for context though, for our listeners, yeah, your
nickname on the trading floor for good 20 years was the
Iceman. So it's easy for you to say,
actually easy for anyone to do so.
(11:53):
But perhaps we could talk about some other of the intricacies of
this release, which were there's, you know, this is one
of those unique alternate eventswhere we get the latest summary
of economic projections, IE thisdot plot.
So So what did? What did the dot plot reveal?
So, yeah, just as a reminder foreveryone, then everyone at the
on the FOMC committee, they theyproduce this dot plot every at
(12:18):
the end of every quarter. So every other meeting and each
member just plots on a chart. Where do you think interest
rates will be at the end of 2025?
Then where do you think they'll be at the end of 2026?
Where at the end of 2027? And then the longer run, right.
And this is really designed for the Fed to show to the world and
(12:39):
the markets what they're currently thinking with regards
to short, medium and long term rates.
And so you know they update it each quarter and obviously
depending on what's happened with regards to the economy and
economic data, depending one on and unusually depending on
what's happened with the change in the personnel within the FOMC
(13:02):
itself, then look, you get changes in in that dot plot.
But really this is the Fed's what we call forward guidance.
It's them really saying to us like right now everything we
know today, this is what's goingto happen to interest rates
going forwards. Of course, it's just a, it's
just a guidance. Obviously, you know, things
(13:23):
change, right? Economic circumstances change.
So what they're saying, you know, they're basically saying
right now that at the end of 2027, interest rates will be at
3%. Now will they be at 3%?
I'd say it's very unlikely. Now I've got no idea if it'll be
higher or lower. But look, stuff happens, you
know, in that period of time, right?
But look, it's a guide. So what's interesting for me, I
(13:44):
think is, really is the front end of this sort of dot plot.
So it's like, where do you thinkrates will be at the end of
2025? That's not very far away.
And so those dots are saying, because there's only two
meetings left, right, end of October, mid-december.
And so now you've got the median.
So everyone has an individual dot, but then they basically
(14:06):
take the median kind of average,right?
And then that becomes the marketexpectation.
And so that the Fed cut rates last night and they are saying
they're going to cut rates two more times by the end of the
year, which is very dovish. That's why you have things like
the, the S&P rallying initially,it's because this was a, a, a
(14:26):
dovish cut. They've cut rates and then
they're signaling they're going to continue to cut at each of
the next two meetings. Furthermore, looking at the end
of 2026 dots, well, they shifteddown as well.
So really implying that they're they're looking to cut rates
twice more in 2026, right, to get us down to roughly 3%.
(14:50):
So it was a dovish shift at the front end of the dot plot, the
the mid to back end. Not much change.
OK, so that was definitely interesting.
The other hilarious thing, I mean, look, I'd say if you if
you're, if you're taking all of those committee members,
whatever, 17 of them, right? It's that I've never seen a
(15:12):
bigger divide. So you had thinking about are we
going to cut rates again into the end of the year?
2 more meetings left 70 sorry, there's 19 on committee members.
Seven of the 19 want no more cuts for the rest of the year 2
Two members want one more cut and then what are we up to
(15:35):
there? 99 members want two more cuts,
right? So, so divided.
And then your final member, thisguy called Stephen Mirren, who
has just showed up, was for his first day at the office.
Would I? Love that meeting.
I reckon They sat him in the corner and he was like, he was
(15:58):
like, guys, you know what, I'm going to vote huge guy.
You guys have your, your, your talk.
And then he's just there and he's just totally isolated.
Surely, for those who don't know, he's he's in Trump's
pocket. He's the guy Trump's just put in
because one of the committee members resigned because they're
retiring, but they resigned early.
(16:20):
And somehow Trump's managed to get his man kind of passed by
Congress to kind of sit in the vacant seat.
And he's just bowled in there. And last night he voted for A50
cut and he wants 1.25% worth of cuts by year end.
So you've basically got Trump sat on the committee.
(16:40):
I would have. Loved to have seen the the the
text message, the WhatsApp that Trump would have sent sent to
Stevie last night. Well, I loved it.
He would have said great job. He kicked capital letters.
For this, you know, you look at the dot plot and you look at the
end of 2025 dots and basically you got most of the committee
(17:01):
kind of concentrated up on around 4% and then you could
just got this one dot that's just miles out of line with
everyone and that dot is like down below 3%.
And that's Mirren going. Let's get the bat out and let's
cut rates aggressively. And just to maybe simplify, so
with the dot plot, you're looking at where are interest
(17:22):
rates by the end of this year, next year, 2027, and then what
they call like the longer run. And one of the main things here
is that as you start to predict time further out, the dispersion
of the dots generally gets widerbecause the future becomes more
unpredictable. Just like you were saying
though. With with two.
Meetings away from the end of the year, you're absolutely
(17:44):
right. Like the fact that there's so
much misalignment and yet the visibility to year end is so
close. Typically what you'd see at this
time of year with a dot plot going into end of year is super
tight with these this group of members.
And it's not. So yeah, really goes to show how
divisive things are at the moment on the board.
But but also last point, a function of how it's really
(18:06):
difficult because you've got inflation going up on the labor
market deteriorating, you know, that's so really whilst it is
divisive and political, you know, also the economic backdrop
lends itself to having this kindof division, let's say.
OK, well, look, segue into Trumpthen.
And he was all over the news once again, or should I say the
(18:27):
news was all over Trump because he was coming out talking about
how we should move to a six monthly reporting mechanism.
And he was saying how how all the benefits that that would
have. And so, yeah, maybe just outline
this for me. What was what's Trump saying and
context? Because I think for a lot of
people this might be like, wow, like this is big change.
(18:49):
And I saw a lot of people might,you know, I look at LinkedIn a
lot. I'm fairly, I'm fairly active on
that platform. There was loads of talking heads
going, this is such a bad idea. Yeah, but I think that was quite
one-dimensional. So yeah, break it down for me.
Look, this is quarterly earnings, right?
We're so used to those words. It's quarterly earnings season
and this is in the US by law, the large companies have to
(19:15):
report their performance. And so we've got it coming up
right in a, in a, in a few weekstime, we'll have quarter 3
earnings. So once we get past September,
final month in quarter three, these companies have to start
reporting and, and delivering all their financials and, and
they also like to give us forward projections.
And yes, just for investors, it's awesome because you get a
(19:38):
real kind of insight every threemonths into how these companies
are performing, right? So from a trader's point of
view, it's just really valuable info.
What Trump's saying is, look, whilst it might be good for the
investment community, Trump's proposing that, well, hang on,
it's a real nightmare for these companies because it's so
expensive to, you know, hire people and teams and.
(20:01):
Experienced CFOs and stuff to produce these reports once every
three months for the benefit of people externally.
It's just really expensive and takes up a large capacity within
the business. And Trump's basically saying,
wouldn't it be better if that capacity was spent on actually
running the business. The press kind of obviously, as
(20:24):
usual, kind of plowed in and jumped all over this and very
much framed it as, hang on, thisis Maverick Trump shooting from
the hip. What an idiot.
Ridiculous idea kind of framing,I think I'm not I wouldn't be
wrong in kind of surmising. That's the approach of the the
the press here. And as you said, lots of people,
(20:46):
if you don't like, it's very political, right?
If you don't like Trump, anything he says is stupid.
So that was the response. The thing is, if you step back
and just take a breath, this isn't a radical idea at all.
And in fact, the whole of Europe, all the big companies in
(21:07):
Europe do not have to report earnings.
They they report every six months.
The legal setup is to report every six months.
So no, there's been some, there's been some trial and
error on this. Like for example, the UK moved
to quarterly reporting in 2007. By 2014 they were like, yeah,
(21:27):
that wasn't a great idea, let's move back to semi annual.
So in 2014, UK moved back to semi annual.
The EU moved back to move to semi annual in 2013.
So they scrapped quarterly over a decade ago.
Right now, what's interesting though is some of the big gun
European companies do still report quarterly just because
(21:53):
it's kind of what the US does. And look, we want to play in
that big boys game. So look, we better, you know,
for investor's sake, we're we'regoing to kind of follow suit,
right? So actually, and look, the SEC,
interestingly, who are the regulator, they've said that
they're prioritizing this proposal, meaning, you know,
(22:14):
they're taking it seriously and going to look into it.
So and look, Barack Obama himself questioned this and
actually suggested it back in 2015, right?
So it's not a stupid idea. The whole of Europe do it
anyway. And yeah, it was just
interesting. I, I, I felt it was a really,
really, really, really good example of press bias.
(22:38):
And a good example of why you'vegot to be careful when you're
digesting news and you've just got to think about is that could
there be bias here? And do I just need to kind of
dig into this myself and kind ofanalyse it myself from kind of
first principles before kind of jumping to any kind of
conclusions? On the pros and cons side, there
(23:01):
was probably like 3 that stood out to me that perhaps we could
talk about. One was this the Trump framing
was about short shortism, sort of focus on the management
perspective. For me, when I read that, I was
like, are you telling me an extra 3 months is counteracting
shortism? So that, you know, as, you know,
(23:22):
being amplified, being still fairly nimble in size, I would
say that, you know, decision decisions for us, fine, we're
small and agile. But for these big multinational
companies, there's no way that an extra 3 months is going to
address the shortism. So I thought that was a pretty,
pretty weak hand. He was, he was framing there.
(23:45):
That is the weakest advantage tothis idea that I think the cost
saving is definitely straight upfor sure.
This stuff's expensive to do right, so it'll save you money.
I do also think that it would free up management sort of
(24:06):
capacity in a small way, whereasyou've only got to go through
this rigmarole every six months rather than every three months.
So I think they are definite straight out positives from a
business perspective internally and running and operating your
business. Yeah, from a from a strategy
point of view, three or six months, it's the same, isn't it?
(24:27):
I mean you're not going to yeah.So they're the pros.
And then on the cons side, one of them was that I thought was
interesting was about US multiples because these are
listed entities we're talking about and U.S. markets for
higher valuations partly becauseof the you mentioned about
investors. Investors can be retail, they
(24:48):
can be institutional, both of which are going to probably
prefer greater transparency to invest their capital on whatever
scale. What do you think of that one?
Yes. And look, I think from a
governance perspective, like Western markets, you know,
governance is at its best and this is a very positive thing
(25:10):
from an investor's perspective when it comes to your kind of
the risks involved in investing money in, in Western and
particularly U.S. companies, right?
So yes, the transparency of a quarterly earnings cycle is good
for that risk and that governance side.
Is that the main reason why US multiples are higher than
(25:34):
others? I'd say no, that is not the main
reason. It might be a very small part of
it, but the main reason is the US is the biggest and best and
mightiest economy and there's more growth potential.
They grow faster and they're taking over the planet when
you're looking at big US tech and look, that's why they trade
(25:57):
at higher multiple. Can I, can I just double check?
Are you replacing Stephen Mirrenat the Trump White House
economic advisor? Is this what this episode's
about? Is this is this some sort of
like a interview process or? Let's cut, baby cut.
And then the final one on the, the cons when we move on to the
M and a deal was I, you know, I'm not sure I have a distinct
(26:18):
answer on this. But this idea of longer term
given AI, given cloud systems, whatever it might be, basically
technology, what technology is allowing.
And we're seeing this very much in a trading in an execution
sense, big data, actionable automated algorithmic LED
(26:38):
systems. At what point does it do you get
full transfer of transparency where there is the mechanics are
that doesn't matter quarterly, semi or annual you get a pretty
good pulse of a business in realtime almost.
I've never really thought about this.
And so it's only when this kind of story popped up and everyone
(26:59):
started to kind of think about pros and cons and this one kind
of cropped up, I was like, wow, OK, that's interesting.
So, and the more I think about it, the more I think it's
probably the direction of travel, which is obviously the
opposite to what Trump is suggesting here.
But I go back to in my opinion, the biggest con of quarterly
(27:25):
reporting, the biggest problem is that the time and cost
internally to get this stuff done.
Now, if you can use AI to automate most of this, well,
then actually that's a really big bonus.
So if that is possible, that removes the biggest problem of
(27:47):
it. And so, yeah, can you move to a
more real time kind of reportingor barometer of how businesses
are performing? I mean, The thing is, right,
you're going to start to, if, ifthis is the direction of travel,
the best companies on the street, they're going to start
to do this and they're going to do it because they're like, hey,
(28:11):
we've got nothing to hide here. Check this out.
You can see how we're doing day by day.
And so when companies start to do that, it's going to drag
everyone else, right? It sets the precedent.
And so I think for that reason, you're probably going to get
that move. But I, I can't, it's going to
take a long time. I think, I think that's like
over the next decade that might happen.
(28:34):
The kind of 2nd order impact then what about sell side
products they're selling? I mean, they, they, you know,
there's, there's different players here, isn't there?
Sell and buy side, but there's alot of buy side hedge funds that
their most optimal strategies are in and around earnings
season. So the more frequent the better
because they're trading these mismatches in price and
(28:55):
expectations. And then the other side, on the
sell side, they sell an awful lot of equity research.
And the more things are changingor the more disclosure there is
for fundamental analysis on these firms, the better, right?
I've got a counter to both of your points, OK, Although I I
think both are really good points, but there is a counter.
(29:17):
So for hedge funds, right? Yeah, hedge funds they will
trade quarterly earnings season short term that like equity long
short strategies in the earningsseason exploiting volatility,
right. So if there's less earnings
seasons, well than bad news. However, you could flip it.
If there's less earning seasons,you could say there'll be bigger
surprises. If it's every six months because
(29:42):
we haven't had an update for sixmonths, it might be that
there'll be bigger surprises, meaning more volatility on the
particular earnings event possibly, which could make up
for the less frequency. Maybe that's one counter
argument. I'm not sure I'd buy that
argument. But anyway, it is a counter.
The other one then is, yeah, equity research.
(30:03):
Is this going to kill equity research as an industry who make
a lot of revenue generating quarterly kind of reports and
analysis in around these earnings.
But you could argue for investors, if you're now going
to get only an update every six months, don't these equity
researchers become even more valuable because they're the
(30:25):
ones talking to these businesses, you know, week in,
week out and issuing reports? I I actually think they're going
to be fine. And in some ways, they could
become an even more valuable part of an investor's process
because we're getting less insight from the companies
directly. OK, I'm going to counter your
counter. I saw a chap who it comes from,
(30:51):
you know, decent quality, and heshared a piece talking about an
academic research paper dated this year and it talked about
basically the consequences of abandoning A quarterly reporting
model. This was the white paper and
actually dropping quarterly reports leads to lower market
volatility. Now, I've not read the paper,
(31:12):
but that's the headline take away.
Like with all academic research,obviously there's ways to spin
things. Of course, it's not always the
purest open analysis, so I don'tknow that, but yeah, I mean, we
could go on. But yeah, it's really
interesting. Yeah.
All right. Well, look, just let's move to
show 1 to the final talking point, which was, yeah, the the
fate of of Argus. It's kind of moved from the High
(31:36):
Street into your local Sainsbury's, which I'm sure
you've seen over the years, but the fate of Argos looks in
somewhat peril. So what is the latest update
here? So this is jd.com who are were
looking to buy Argos off Sainsbury's, right?
(31:56):
So firstlyjd.com, an important part of this, they're a Chinese
company, OK? They're a massive, in some
respects, the Amazon of of China, right?
So it's like direct online retail kind of logistics around
same day delivery, you know, right across mainland China, you
(32:17):
know, huge, 150 billion revenue business, right?
Massive, massive. But they're they're the one
thing that they're they're Amazon without the AWS
basically. Now look, they're trying to buy
Argos, right? But the deal's fallen through.
And there's a few elements to this, which is quite
(32:39):
interesting. Firstly, the kind of headline
news was that there's material. So JD pushed for.
So hang on, let's step back. The way these processes work,
right? Sainsbury's Argos is
underperforming within the kind of Sainsbury's kind of overall
business, OK, It's non core, right?
(33:02):
Sainsbury's is a supermarket selling groceries.
Argos was an acquisition which they don't sell groceries, but
the idea was let's get Argos into our Sainsbury's stores.
And then actually that will savea lot of money from the kind of
old Argos model where they had their own kind of stores, right.
We'll just bring it in house and, and this is going to, yeah,
(33:23):
be a real great cost saver. What's happened is that actually
Sainsbury's are growing at double digit overall, but Argos
themselves are, well it depends.They're kind of growing at
single digit. But actually if you take into
account kind of exceptional one off items, they're actually
losing money. So I think they lost, if you
(33:43):
take into account those items they lost about 14,000,000.
That's Argos on their own. Sainsbury's do report, they
separate out and report the Argos figures separately.
And look, those one off items are probably the cost of getting
the infrastructure and building the Argos set up within
Sainsbury's stores, right? If you take that cost out, they
(34:04):
are growing but single digits. So it's a bit of a drag.
So look, Sainsbury's have decided, look, let's divest this
and let's spin this off, OK? But so fine, they begin the
process, they put it up for sale, right?
And people are interested. All right, let's see your bids
and then fine, JD come in and say, right, we're interested.
You know, let's go into what we'll give you what we'll give
you kind of a term sheet, which basically means, right, we're
(34:26):
interested and we're going to buy.
Obviously there's been a little bit of look at the financials
and they'll put forward a price they're going to buy it for, OK.
And this is kind of a term sheet.
And then you normally enter intoan exclusivity period where now
JD and only JD are in the running and they might get like
Spence, 2-3 months of exclusivity, giving them time to
now do deep due diligence in order to then check that this
(34:51):
thing they're buying is actuallywhat Sainsbury's are saying it
is. And so they'll do financial due
diligence, right? So are all those numbers that
Sainsbury's are saying, are theycorrect?
I'll do things like legal due diligence, commercials.
You did a lot, lots of due diligence.
And then, and it's during that process that often things crop
(35:14):
up. I was like, oh, OK, I didn't
quite realize that and I didn't try realize this.
And it can often lead to then what ends up being a change in
price from the buyer's point of view.
So JD have come and said, look, because of these things we found
in due diligence, we aren't prepared to pay what we said on
(35:34):
the term sheet. We're going to pay you less.
Now. This gets reported by
Sainsbury's saying that JD pushed for, quote, materially
revised terms and commitments, not in the interests of
shareholders, just means they'reoffering a lower price now.
And so Sainsbury's have then gota choice.
(35:56):
They either say, oh, God, all right, fine, fine, we'll sell it
to you for cheaper. Or they can go, actually, you
know what? No, we're not selling it for
that price. So do you we're keep we're
sticking to our guns and the thesecond one has happened, right.
So that's the that's, that's thekind of top level news.
(36:19):
Can I, can I go two ways though to say what you're saying here
is there's a degree of board discipline where they've gone.
I'm not going to, I'm not going to accept that which I don't
know who the next buyer is, but we're going to go with it.
Surely the market could could reward or punish you in that
scenario. Well, this is it.
(36:40):
Well, initially it rewarded thembecause the Shainsbury's share
price popped five, 6% off the back of this news look up to.
So to start with, the market is saying, OK, we like this.
We like how the board at Sainsbury's is dealing with
this. You know, they're not backing
down, they're strong, they're solid, they're holding firm.
(37:01):
This is our price, take it or leave it.
And it kinds of it sends a message to the rest of the
market. So either what, what happens
now? Well, either JD go all right,
let's rethink this. Maybe we can up our bid a little
bit more and get closer back to what we put on the term sheet in
the 1st place. Or, you know, there may be other
(37:24):
buyers out there that might be prepared to come in.
And, and the, if other buyers docome in, that's, that's a really
positive sign because those buyers will know that the board
have held firm. And so if they're still
interested, well then, right, it's much more likely that
Sainsbury's are going to get thehigher price.
That's the positive story. The -1 is everyone just vanishes
(37:49):
and no one's interested now. And Sainsbury's, you're joking,
aren't you? There's no way anyone's going to
pay that price and they end up not being able to.
So this is that kind of that gapin valuation, the valuation gap,
right, That is probably the biggest reason why most deals
fail. That that cross-border element,
I'm assuming that when it's Chinese entity investing in a
(38:12):
strategic asset like ABP for example, that's a problem or a
Glaxo Smith Kline, when it's Argus, is that a different
kettle of fish? And, and So what and what is
the, what, what signals have we had off of recent behaviour from
someonelikejb.com, which I'm assuming is quite active on the
(38:34):
acquisition front? Well, look, so that's you better
that last point, I did a bit of digging.
So right what who have JD acquired and you know what no
one, they've basically made all almost 0 international
acquisitions they've and in fact, they've only made a 123.
(38:58):
They've only made a few handful within China.
It's really weird for a company of this scale to have had such
little acquisition kind of activity on their kind of
strategy. Now they did try and they had a
look at buying Currys, which is a kind of another retailer of
electronical goods, big one herein the UK, right?
(39:20):
They had a look at buying Currysa couple of years ago and
interestingly they pulled out ofthat as well and didn't come
back to the table. So if you're sick, if you're
expecting JD to now counter and come back with a higher bid, I
don't know. You look at that Curry situation
and that's not what happened. They just walked away.
So it's interesting, but you're right to point out the
(39:42):
political, there's a few, there's a few things that went
wrong with this deal. And one is, look, you know,
Chinese companies trying to buy international companies,
generally speaking, their ability to do so has become more
and more difficult because of the political environment.
And in fact, China's outbound MNA deals, I'm talking about the
(40:04):
whole country now, not just JD has declined 31% year on year.
It's just way harder. And look, this is a function of
Trump as well, right? Trump has made that whole
political situation. He's put it on everyone's.
Front page, OK and so it's harder for China to buy,
particularly Western companies because governments get involved
(40:27):
and it becomes a national security risk in inverted
commas, like everything just gets thrown into that bucket.
Is Argos a natural national security risk?
Look, you can take both sides ofthat argument, right?
You could say, well, no, well, they're they're innocent.
They just sell stuff. But then, you know, the fear
mongers out there will say, well, yeah, they're selling
electronical goods that the whole of the UK are buying.
(40:49):
You know, what are they going toput in those goods and are they
going to be able to spy on us and all all this kind of
conspiracy theory stuff, right? It's an issue.
And so actually what you're finding with China, they're kind
of retreated as a generally as anation.
They're trying to, they're actually pivoting more to doing
deals with countries where it's more kind of investor friendly,
(41:09):
where the geopolitical relationship is different.
So, you know, doing deals in places like Hungary and Turkey
and Thailand and Saudi and the UAE that there there's way more
deals happening in those types of territories rather than the
West because of that political situation.
But look, there's also deal specific stuff that's just, this
is a tricky one. This is a very tricky 1 for
(41:33):
divesting this business because of the whole strategy they had
when they bought it, that Sainsbury's strategy.
How can we cut costs here? Let's bring Argos in house.
Let's bring the Argos shop into the Sainsbury's store, reduce
our footprint, reduce our cost. The problem is now you got to
extract it again. So for a buyer, that's a really
(41:55):
significant cost extracting these Argos little stations
within Sainsbury's and and setting them back up.
Well, if, well, unless their idea is let's not let's move
away from physical entirely. And obviously JD are the
specialists. They're the Amazon of China,
right? So from a logistics point of
view, maybe their strategy is tonot go back to stores and
(42:17):
actually let's RIP this stuff out of the same Sainsbury's
store and just bug it all in warehouses and we'll just do it
all online. Assume that was kind of their
play, but obviously the costs involved in extracting that is a
real issue here. It's just made, yeah.
So it's a separation complexities is the kind of
lingo you would use and that's certainly something that's
(42:40):
probably been a bit of a sticking point.
Yeah. So to so there was a really
great summary that that you had in your notes.
So to kind of bring all this together because I know a lot of
students are in their banking application stresses at the
moment. So in order to put this together
(43:00):
and articulate it, there's really four major themes, right?
But this one, so there's investor appetite for non core
carve outs. And even here, one of the things
we were discussing was even a failed deal can go two ways, but
in this case boost sentiment if it signals potential
divestitures. So they hold firm, they're going
(43:20):
to go again, you know the bottomline now.
So a new buyer coming in, you'vegot a set price.
Strategy's worked so far. Just so connected to that is the
discipline nature of the board. Walking away, you know, is an
unattractive bid or scenario. We don't want to participate #3
you just mentioned it there. Carve out complexity.
(43:43):
And so untangling the Argus kindof mess from Sainsbury's success
almost. There's an execution risk.
I guess that's the word that that would get used in these M
and A conversations a lot. And then on that execution side,
certainty is is quite key when you are entertaining a potential
partner to tango with. So bias with what you've
(44:06):
described is a fairly patchy track record.
You add in the cross-border nature, there's regulatory
concerns. It it it lifts the complexity
again, which were already is looking like a a not a slam dunk
easy thing to pull off in the first instance from a for a deal
mechanics perspective, right? Yep, correct.
And I might add one more thing here.
(44:29):
This is expensive stuff like duediligence is really expensive
and and obviously JD would have instructed M&A advisors and and
all the rest of it. But you're going to have, you
know, lawyers and the cost outlay they've had to already do
to conduct this due diligence process will be in the millions,
(44:53):
right? Multiple millions.
We're talking here now they've because Sainsbury's have said
no, they've got decisions to make because either they're
like, OK, fine, we'll just take the hit.
All that money we've spent is for nothing.
We've basically thrown it down the drain because we're walking
away. We're not going to do the deal.
The point is coming, coming backto the deal for them is now way
(45:15):
cheaper than another rival, right?
Although interestingly, other rivals could go to the same due
diligence providers and basically say, look, you've done
half the work already. How about we come on board now?
We'll pay you a bit more, but it'll be a discount, you know,
than it normally would be. But so DD costs are a really
(45:38):
big, big thing in these processes and often can be one
of the reasons that CS companiescome back to the table with a
slightly higher bid, because allthat's sunk cost would be a
waste otherwise. Cool.
Well, look, we'll wrap it there.If there's any questions at all,
as per usual, I think on YouTube, definitely Spotify, you
can leave a comment. So please do, I do know as well
(46:01):
from the statistics that not everyone follows or subscribes
to the show. So please do much more coming in
future and also for any studentswho are in application season.
Hopefully this discussion was helpful for both from a macro
and a deal mechanics perspective.
But also there is the ongoing LSCAIC series that we've been
dropping episodes last two weeks.
(46:22):
The last one was particularly great for thinking about, OK, I
don't have to secure an internship just through applying
through the front door. There was some really cool
tactics and how to go about securing it through the back
door. And so I strongly suggest you
also check that out as well. But wishing everyone a great
weekend. Thanks, Piers, as always.
(46:43):
Thanks a lot.
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