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Seven days: 18 August

Our take on the most important business stories of the past week
August 18, 2017

Trade deal touted

The government put forward two proposed customs arrangements to ensure “the freest and most frictionless trade possible” of goods between the UK and EU. The first would be a new customs arrangement between the UK and EU, which would remove the need for a customs border. The second option is a “highly streamlined” customs arrangement that would aim to continue some existing arrangements with the EU and reduce or remove barriers to trade through new arrangements. However, Brexit Secretary David Davies wants an interim customs union of up to two years after the UK’s exit in 2019, to avoid a “cliff-edge” for manufacturers.

Trump draws ire

Business leaders resign

Merck (MRK) chief executive Ken Frazier was the first of five industry specialists to step down from Donald Trump’s manufacturing advisory council, after the president’s two-day delay in condemning the white supremacist violence in Charlottesville, Virginia. Intel chief Brian Krzanich and Under Armour boss Kevin Plank also quit the panel. The move drew ire from the president who tweeted that because of his resignation Frazier “will have more time to lower rip-off drugs prices”. However, the decision seemed popular with investors, sending shares in the pharmaceutical giant up 1 per cent on the day of the news – its biggest one-day move during the past month. 

 

Fight for Revolution

Rival offer proposed

Revolution Bars (RBG) may become subject to a bidding war. Nightclub owner Deltic has approached the bar group about a possible all-share merger, just two weeks after pub company Stonegate proposed a conditional 200p cash per share bid. However, Revolution’s management rejected the Deltic offer over concerns of the value and deliverability of the merger. Deltic operates an estate of 57 clubs, under brands including Fiction and Steinbeck & Shaw, labelling Revolution its major competitor in the UK late-night market. Deltic has until 12 September to make a formal offer.

 

China delicate

Credit boom unsustainable   

The International Monetary Fund (IMF) has warned that China’s credit growth is on a “dangerous trajectory”. In its latest economic outlook report, the IMF said there is an increasing risk of a “disruptive adjustment” or marked slowdown in economic growth. Without the boom the country’s economic rise would have been significantly slower. Since the 2008 financial crisis, Chinese growth had already been slowing, from an annual average of 10 per cent during the prior three decades to 6.7 per cent lower last year.

 

 

 

CMA plays ball

Takeover close 

Oil services group John Wood’s (WG.) takeover of rival Amec Foster Wheeler (AMFW) has taken a step closer to completion. Earlier this month the Competition and Markets Authority (CMA) had placed a big question mark over the merger when it suggested the tie-up could reduce competition for oil and gas services in the UK North Sea. However, Wood Group said its proposed remedy – the sale of Amec’s upstream oil and gas business – has now been accepted “in principle”, pending a final decision from the CMA by 12 October.

 

Aldi's American dream

Instacart deal

We’ve reported on the strides taken by discount supermarket chains Lidl and Aldi within the UK grocery market for a while. Now the latter has partnered with Instacart to expand its distribution within the US. Through the deal, customers would be able to order groceries from Aldi online for delivery by Instacart, that bills itself as a way for traditional grocers to compete online. The deal follows Amazon’s step into the US grocery market via its recently-announced plan to acquire Whole Foods. Aldi’s delivery plan will begin in Dallas, Los Angeles and Atlanta later this month, with potential for further expansion.]

 

Debt keeps rising

So are delinquencies

US household debt hit another record high in the second quarter, after having surpassed its pre-crisis peak earlier in 2017. It totalled $12.8 trillion in the three months to June, up $552bn from a year ago, according to a Federal Reserve report. The rate of delinquent debt at 4.8 per cent was at par with the previous quarter, though the transition of credit card balances into delinquency increased markedly. That won’t go unnoticed at the Bank of England, which recently warned credit card companies and car loan providers in the UK that they risk action against loose lending practices.

 

Chart of the week

There was generally good news for income seekers during the interim reporting season. 

Out of the 53 FTSE 100 companies that have reported their results for the six months to the end of June, almost all have increased their dividend payments. Only Admiral (ADM) and Pearson (PSON) have cut their interim payouts (excluding special dividends.) 

Despite these cuts, overall FTSE 100 dividend growth excluding special dividends has reached 15 per cent at the first-half stage. Taylor Wimpey (TW.) and Rio Tinto (RIO) delivered the largest year-on-year increases in their dividends (see chart).