Sir Martin Sorrell has enjoyed a well-earned reputation over the past two decades as the guru of choice for the media and markets when looking for signs of recovery post downturn and recession. He has not usually disappointed, with his famous metaphor of a 'bath-shaped' recession and recovery in the early years of the last decade. This time round his quotable quotes have focused on a 'LUV' recovery - L-shaped (i.e. flat) in the UK and Western Europe, a 'U' in the US and a sharp 'V' in Asia.
Sorrell should know what he is talking about as CEO of one the world's biggest advertising agency groups, having long ago eclipsed his former mentors at Saatchi & Saatchi. With his granite looks and chiselled chin, he offers the quintessential image of the popular 'Mad Men' television show about Madison Avenue in the 1960s.
So it was rather worrying that when Sorrell unveiled WPP Group's full-year figures on Friday he was rather less upbeat than usual, echoing the latest caution from others in adland. Although Sorrell does not see a double-dip recession ahead, he remains uncertain as to whether last year's 'green shoots' have really taken hold.
But of even greater concern to him (and us) is his analysis that governments facing huge public deficits have already worked out that the alternative to spending cuts and higher taxes is to inflate their way out of debt, forgoing the need for tough decisions on where to wield the axe.
The problem is that many of the present day market pundits and policymakers are too young to really remember the impact of the high inflation of the 1970s and 1980s, when the illusion of growth was created by rising prices at the same time as real values were being eroded.
But Sorrell, who quietly turned 65 on Valentine's Day last month, can recall those days only too well. Which is why he was perhaps less chirpy than usual. -David Churchill
The FTSE 100 index closed Friday 1.3% ahead at an 18-month peak of 5,599.76, with investors apparently deciding the international operations of the UK's major companies would insulate them from fiscal and political uncertainty at home. The market was also buoyed by better than expected US jobs data, along with the continued weakness of sterling making London stocks comparatively cheap as well as boosting the value of companies' overseas earnings.
[ p.1 ]...Andrew Hill thinks that the departure of Mitchells & Butlers FD Jeremy Townsend does not necessarily mean the start of a Joe Lewis-inspired clear-out at the pubs group, as Townsend is off to join the larger Rentokil Initial in the same role.
...The planned London listing for African Barrick Gold looks attractive even if the 550p-650p price range seems a 'little daring'.
...Smiths Group is to replace Cadbury in the venerable FTSE 30 share index - celebrating its 75th anniversary this year - and is another example of how adaptability rather than nationality is the key to UK companies' survival.
[ p.17 ]...It is unnerving when WPP Group and other advertising agencies are still downbeat about the recovery months after the first signs of 'green shoots' started appearing, especially since adland is usually so chirpy.
...Xstrata has plenty of options following Glencore's decision to buy back Prodeco for US$2.5bn, including serious funding of investment projects in copper, coal and nickel over the next three years.
...Democrats are keen to do whatever it takes to get the stubborn US unemployment figures lower ahead of the mid-term elections.
...Ferrari's move to go green with a hybrid version of the Ferrari 599 is all very well, but how many of its attention-seeking fans will see the point of a sports car run on silent battery-powered car engines.
[ p.26 ]...John Authers thinks that while asset allocation is very important for fund managers, the anomalies that are created by excessive focus may need to be corrected by more attention in future on better stockpicking.
[ p.26 ]Hong Kong tycoon Sir Li Ka-shing is planning a Eu4bn bid for the UK electricity distribution arm of EDF Energy, part of France's state-owned EDF group. The approach will be made jointly via Cheung Kong Infrastructure and Hong Kong Electric, a 40% affiliate controlled by Ka-Shing. EDF announced plans to sell the UK distribution business last October in a move to cut its Eu42.5bn of debt.
[ p.59 ]...Patrick Hosking is concerned at Standard Chartered's explanation for fudging what appears to be a dividend cut dressed up as a 7% hike, especially as dividends are 'too precious and too rare' to be messed about with in this way.
...Let us hope that Sir Martin Sorrell's fear that Western governments will seek to inflate their way out of the financial crisis is wrong, although the temptation is clearly there.
[ p.55 ]...Alistair Osborne thinks the putative bidders for Manchester United FC - the so-called Red Knights - remain long-shot winners, although football remains 'a funny old game'.
...The consortium bid for Forth Ports seriously undervalues its potential and is likely to fail unless it can come up with substantially more money.
[ p.37 ]...James Moore says the stock market recovery has not helped pension funds as much as expected, especially given the impact of new inflationary fears and increased life expectancy.
...Powerful figures within the horseracing industry are already warming to the idea of a licence fee paid by the bookmakers rather than the current levy on profits, especially as it would give them a stronger negotiating position with the bookies who currently enjoy a veto over the levy.
[ p.55 ]A Tuesday deadline for reaching a deal in the dispute between British Airways and its cabin crew has been set, with the Unite trade union believed to be prepared to agree a two-year pay freeze as well as a deal to allow a 'new fleet' of aircraft to be staffed by lower-paid newcomers. If the talks under the auspices of the TUC fail to achieve a breakthrough by Tuesday evening, then Unite is expected to announce cabin crew strikes later this month.
[ p.34 ]...Sam Fleming reports on concern among business leaders that Conservative plans to cut corporation tax if elected will lead to reductions in tax relief on investment.
...Kraft continues to show Cadbury little respect, given the haste with which it plans to shut down the final salary pension scheme.
...The Chinese government needs to cool down its economy which is in serious danger of over-heating.
[ p.103 ]...Andrew Johnson welcomes the planned competition from the new Metro Bank which, if it delivers on its customer service promises, should shake up the established order.
...BP CEO Tony Hayward deserves his pay rise as he has restored order to the oil giant even though its profits were hit by the drop in the oil price.
[ p.82 ]Alistair Darling is thought unlikely to announce further spending cuts in his Budget due later this month, a move which could add to the jitters in the currency markets. A date of 17 or 24 March has been pencilled in for the Budget, although this depends on the timing of the election. Meanwhile, the latest British Chambers of Commerce economic review claims the medium-term Treasury forecasts for UK growth are too optimistic.
...David Smith says public opposition in Greece to spending cuts remains strong, although they have been welcomed so far by international markets and bankers.
[ pp.3.1, 3.8 ]Matalan founder John Hargreaves is expected to take a £250m dividend as part of a £525m refinancing which will also see £260m of debt paid off. The move follows unsuccessful efforts by Hargreaves to sell the discount chain to private equity firms for his £1.5bn asking price.
[ p.3.1 ]A sale of Manchester United FC by the Glazer family to the Red Knights consortium of City financiers would effectively triple the US family's return on their investment after just five years. It is understood the Red Knights value the club at £1.25bn, including £500m of debt. Meanwhile, Glasgow Rangers FC is set to receive a takeover offer within days from property developer Andrew Ellis.
...Business Focus: Ben Marlow and Matthew Goodman suggest that if the consortium deal being put together by Goldman Sachs chief economist Jim O'Neill succeeds, it could revolutionise the ownership of top British clubs which have effectively become the 'playthings of rich tycoons'.
[ pp.3.1, 3.5 ]Prudential CEO Tidjane Thiam is to tell his institutional investors this week that the US$35.5bn takeover of AIA offers 'explosive growth' for the long-term.
...Ian Dey charts the negotiations that enabled Thiam to put together what could be the 'deal of the decade', although some investors remain to be convinced.
[ pp.3.3, 3.7 ]...Dominic O'Connell says the City should back Prudential CEO Tidjane Thiam's 'opportunity of a lifetime', supporting his vision for Asian growth.
...Rolls-Royce is believed to be seeking Whitehall approval to choose a foreign national as its next CEO if it wants to, suggesting that current CEO Sir John Rose might be thinking about making a move.
...The Red Knights consortium bid for Manchester United FC could run into trouble from finding enough wealthy investors willing to make the transition from fan to owner.
[ p.3.4 ]...David Smith thinks that until Gordon Brown can convince everybody he genuinely believes in cutting the deficit, the markets will continue to harbour extreme doubts and believe a Labour election victory would be bad for Britain.
[ p.3.4 ]...Irwin Stelzer believes it clear that President Obama is spending his way to recovery in the expectation that the bills will not come in until after his re-election in 2012.
[ p.3.4 ]Manchester United FC manager Sir Alex Ferguson is said to support the Red Knights consortium bid interest in the club, according to unnamed City financiers said to be involved in the consortium. But Ferguson has denied the claims.
...Richard Wachman says the Red Knights have a number of heavyweight supporters on their side, including Goldman Sachs chief economist Jim O'Neil and Seymour Pierce chairman Keith Harris who has already been involved in some of the Premier League's biggest takeovers.
[ pp.1, 5, 50-51 ]...Ruth Sunderland believes it is now clear that the razing of manufacturing industry during the Thatcher era was 'all pain with no gain', although the tragedy is that Labour did not do enough to repair the damage.
...While the Prudential's Asian aspirations are welcome, it is a shame to see the long-established business model for UK insurance savings come adrift so quickly.
[ p.52 ]...William Keegan thinks it is irresponsible of Shadow Chancellor George Osborne to talk up the putative fiscal crisis, especially his apparent suggestion that the fiscal crisis we have already experienced was bigger or more important than the banking crisis itself.
[ p.52 ]...Peter Preston thinks that Rupert Murdoch, who turns 79 on Thursday, deserves credit for supporting print journalism over the decades, including bankrolling the Times and Sunday Times for so long in the face of difficult conditions.
[ p.53 ]Prudential chairman Harvey McGrath has admitted the insurer is set for more share price volatility in the near-term because of short-positions taken by investors over the US$35.5bn bid for AIA. Figures show that short selling of the shares increased by 55% on the day the deal was announced, with the share price down 20% in the first 48 hours.
...Focus: Jamie Dunkley and Kamal Ahmed look at the contrasting strategies from Asia-focused Prudential and Aviva, which is backing expansion in Europe. But while Aviva should benefit from short-term uncertainty over the Pru's Asian gamble, in the long run the Pru could emerge the real winner.
[ pp.B1, B7 ]Icelandic voters, according to exit polls late Saturday, have come out overwhelmingly against paying back the £3.5bn owed to the UK and Netherlands. Now Iceland president Olafur Grimsson is demanding that Gordon Brown personally agrees to cut the repayment owed.
[ pp.B1, B5 ]Shadow Business Secretary Ken Clark has pledged support for small and medium sized companies if the Conservative Party wins the election. Proposals could include a return of the Enterprise Allowance scheme brought in by the Thatcher government. Meanwhile, Clarke has emerged as a key player in the Tory election strategy following the 'wobble' induced by the tightening in the polls.
[ pp.B2, B6 ]...Kamal Ahmed says that while there remain a number of risks about Prudential's US$35.5bn bid for AIA, CEO Tidjane Thiam seems set to be remembered as the man who pulled off the insurance deal of the decade.
...Microsoft CEO Steve Ballmer is firmly embracing the future of cloud computing as the way ahead for business, although security remains a key issue.
[ p.B4 ]...Liam Halligan, chief economist at Prosperity Capital Management, is worried about a growing political census that a weak pound and higher inflation could be a pain-free way to avoid facing up to the debt crisis. But the gilt markets may not be so gullible.
[ p.B4 ]...Tom Stevenson, an investment director at Fidelity International, points out that a year ago most investors were still reeling from the impact of the latest economic and financial shocks, although it actually marked the start of the current share rally. But investors should be wary of taking part in the easiest game of all - investing with the benefit of hindsight.
[ p.B4 ]Prudential CEO Tidjane Thiam is expected to tell institutional investors this week he plans to sell about £1bn of the AIA assets being acquired in the £24bn takeover. Meanwhile, speculation about an opportunistic bid by Axa for Prudential because of its falling share price have been played down, while Resolution has denied it is in talks to buy the Pru's UK operations. Simon Evans also reveals that most of the responsibility for making the Asian strategy work will fall on Barry Stowe, CEO of the Pru's current Asian business.
[ pp.79, 82-83 ]...Margareta Pagano thinks the Spanish model of owning and running football clubs, which gives ordinary fans and supporters the chance to become owner-members, is something that British clubs should consider as a way out of their financial mess.
...Prudential CEO Tidjane Thiam looks likely in the end to win over the doubters in the City with his vision for the long-term future for the insurer in Asia.
...Speculation that Nestlé is thinking of trying to gain control of L'Oréal, in which it already holds a 30% stake, looks wide of the mark.
[ p.85 ]...Hamish McRae suggests that the long-term decline in British manufacturing industry may be coming to an end. But it will be a 'slog' to get it back to being the major engine of growth for the economy if, indeed, it can ever achieve this again.
...Although the Budget is generally expected be held on 24 March (although this has yet to be confirmed) it could become the first of three budgets this year, with an 'emergency' one after the election and a third following another election later this year if there is a hung Parliament.
[ p.84 ]...Laurence Kotlikoff, a professor of economics at Boston University, believes that if the Obama/Volcker proposals are adopted, the next big run will be on the US government itself.
...John Lawless reveals that Selfridges in Oxford Street has teamed up with celebrity chef Mark Hix to open its new restaurant, the first by an outsider in a 100 years.
[ pp.86, 87 ]...Lisa Buckingham thinks the City should rally round the Prudential's £15bn rights issue and back CEO Tidjane Thiam's vision. Meanwhile, the Pru has taken a stand against hefty investment banking fees by absorbing extra risk in the cash-call to halve the costs of the issue.
[ p.78 ]Taking Stock: Simon Watkins thinks that continuing large pension fund deficits in spite of the stock market rally could be a drag on future M&A activity.
Economics: Dan Atkinson sees hidden danger to the public finances from the 'joke jobs' in the public sector, which also lead to further bureaucracy and Byzantine regulations on health & safety.
Outlook: Interims from JD Wetherspoon on Thursday are expected to show it has held its margins along with a slight increase in like-for-like sales.
[ p.84 ]...Tracey Boles welcome reports that the management and unions at the Royal Mail are seemingly getting close to a three year deal which would see higher pay and shorter hours in return for allowing more high-speed sorting machines to be introduced.
...The 2009 results this week from Northern Rock may show it has probably seen the worst of its bad debts, although the bank is unlikely yet to be back in profit.
...The Prudential's institutional investors should be backing CEO Tidjane Thiam in his £23.5bn takeover of AIA for his ambitious expansion plans rather than leaving the Pru eventually to be picked off by a foreign predator.
[ p.F2 ]Tom Alexander, new CEO of the merged Orange and T-Mobile operations in the UK, believes there will no culture clash in combining the two mobile companies, owned by France Telecom and Deutsche Telekom respectively. He is adamant that reports of up to 4,000 job losses are wrong, while also insisting there are no plans to dump the less-popular T-Mobile brand in the UK in favour of Orange. Alexander believes we are now at the cusp of the next real revolution in mobile telephony with the development of smart phones which expand people's horizons dramatically.
[ p.3.6 ]'We can win back the customer's confidence. We are doing a better job'
Tadashi Arashima, global managing director of Toyota, admitted at the Geneva Motor Show which started last week that the company's sales could fall in the short-term across Europe as a result of the recall scandal. But he insists customers have reacted well to the recall and have been reassured about Toyota's commitment to quality, claiming the company can win their trust back. Toyota's sales in the UK are down 5% so far this year, with its market share slipping from 6.81% to 5.01%.
[ p.B9 ]A boss who thinks small to grow big
Jim McCarthy, CEO of Poundland, reports that growth at the 'everything is a £1' store chain rose 4.4% over Christmas on a like-for-like basis, with sales accelerating since then. But he acknowledges that while the surge in popularity of discounters has been helped by the demise of Woolworths, the big threat remains competition from the major supermarkets as they increasingly move into non-grocery products. He plans to open between 50 and 60 new stores this year and is also considering expanding away from the High Street into out-of-town developments.
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