David Fuller and Eoin Treacy's Comment of the Day
Category - Autonomies

    NBCUniversal Invests $500 Million in Snap IPO Amid Digital Push

    This article by Gerry Smith and Alex Barinka for Bloomberg may be of interest to subscribers. Here is a section:

    Comcast Corp.’s NBCUniversal invested $500 million in Snap’s initial public offering, expanding its reach into digital media by acquiring a stake in the $28 billion disappearing-photo service popular with millennials.

    NBC Chief Executive Officer Steve Burke, in a memo to staff Friday, called the move a “significant milestone” in the media company’s partnership with Snap. The Comcast unit will be subject to a 12-month lockup period as part of its investment, meaning it can’t sell Snap’s shares for a year, according to a person familiar with the matter.

    Snap surged 44 percent Thursday on their first day of trading, and gained another 12 percent Friday.

    With the latest investment, NBC has now committed over $1.5 billion to digital businesses in the last 18 months, including two separate $200 million investments in BuzzFeed, and a $200 million investment in Vox Media, the online publisher of the Verge, Eater and Recode.

    Last summer, NBC produced a Snapchat channel featuring Olympic content run by BuzzFeed, which generated over two billion views, Burke said in the memo. With the Snap investment, NBC will expand its partnership with the social-media network and BuzzFeed for the 2018 Winter Games in South Korea, and launch more shows with additional NBC brands in the coming weeks, he said.

     

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    Wal-Mart launches new front in U.S. price war, targets Aldi in grocery aisle

    This article from Reuters may be of interest to subscribers. Here is a section:

    The big box retailer also held meetings last week in Bentonville, Arkansas with food and consumer products vendors, including Procter & Gamble (PG.N), Unilever PLC (ULVR.L), Conagra Brands Inc (CAG.N), and demanded they reduce the cost they charge the retailer by 15 percent, sources said.

    Wal-Mart also said it expects suppliers to help the company beat rivals on head-to-head pricing 80 percent of the time, these vendor sources said. The wide-ranging meeting with suppliers - where Wal-Mart discussed other topics - was also attended by Johnson & Johnson (JNJ.N) and Kraft Heinz Co (KHC.O), among others, sources told Reuters. The consumer goods companies did not respond to Reuters requests seeking comment.

    These Wal-Mart moves signal a new front in the price war for U.S. shoppers, as the pioneer of everyday low pricing seeks to regain its competitive pricing advantage in traditional retailing.
    For more than a year, Wal-Mart said it is investing in price while not sharing specifics. When asked by Reuters about the test and demands on grocery suppliers, Wal-Mart spokesman Lorenzo Lopez said the company is "not in a position to share our strategy for competitive reasons."

    Germany-based discount grocer Aldi is one of the relatively new rivals quickly gaining market share in the hotly competitive grocery sector, which already boasts Kroger, Albertsons Cos Inc and Publix Super Markets as stiff competitors on price. A second Germany-based discount grocer, Lidl, is planning to enter the U.S. market this year, and together the German discounters pose a serious threat to Wal-Mart's U.S. grocery business.

     

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    Mondelez, Kellogg, et al -- Let the Deal Frenzy Begin

    This article by Brooke Sutherland and Gillian Tan for Bloomberg may be of interest to subscribers. Here is a section:

    The buyout firm's typical playbook has been to target companies with weak margins and then slash costs like crazy to boost profitability. But even a cost-cutter extraordinaire like 3G needs to eventually find revenue growth. Sale gains at Unilever's personal-care business slowed in the most recent quarter, but that industry is certainly growing faster than the staid cereal and sandwich-spreads markets.

    The bid may fail. Unilever has rejected Kraft Heinz's offer and at least one analyst is bashing the idea, calling it a "sloppy" combination with questionable logic. There may also be antitrust pushback. But it's hard to see 3G going back to hunting for slow-growth food brands after this. It clearly has its eyes on a different sort of prize. That should be a wake-up call for packaged-food investors who may have been hoping for salvation via 3G and Warren Buffett, the firm's dealmaking billionaire sidekick. 

    Would-be 3G targets Kellogg, Mondelez, Campbell Soup and General Mills have all implemented some form of zero-based budgeting -- one of the buyout firm's favorite tools whereby every expense has to be justified each year -- as well as other productivity self-help efforts such as shedding lower-margin and non-core assets. Kellogg is targeting an operating margin of nearly 18 percent by 2018, while Mondelez is aiming to cut $3 billion in costs. Campbell on Friday upsized its cost-savings target to $450 million by fiscal 2020, while General Mills says its on track to drive down expenses by $880 million with its margin-management and efficiency plans. 

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    Email of the day on protectionism representing a headwind for global companies

    Reckitt Has a $16.6 Billion Way of Fending Off Boredom

    This article by Chris Hughes and Andrea Felsted for Bloomberg may be of interest to subscribers. Here is a section:

    Infant nutrition is a new area for Reckitt. The company’s traditional strengths were once in household products. Think stuff you put on the floor rather than stuff you pop in the mouth. Through a series of takeovers, consumer healthcare has become an important part of Reckitt’s business -- its brands include Strepsils and Nurofen. Baby formula is another new departure and will put Reckitt in head-on competition with formidable rivals like Nestle SA and Danone SA.

    Believing this is a good move means believing the growth rate for infant nutrition will be much faster than Reckitt’s existing markets. Perhaps it will. While growth has stuttered in recent years, it is poised to rebound, according to estimates from Euromonitor International, a research firm.

    The lack of overlap with Reckitt's businesses means cost savings are relatively low given the size of the deal – just 200 million pounds ($250 million) annually after three years. As a result, it will take as long as five years for the returns to cover the threshold 7 percent to 8 percent cost of capital.
    That’s a long time to wait.

    Some investors have been concerned about the amount of debt being taken on to fund this all-cash transaction: net debt will initially be about four times the companies' combined Ebitda in 2017. That concern is valid, but it shouldn't be overdone: credit ratings companies have barely blinked and leverage should fall quickly from that level.

    Reckitt has done deals well in the past and probably needs one to regain momentum. Fourth-quarter sales were disappointing, with like-for-like sales growing a measly 1 percent. Guidance for growth this year is lower than analysts hoped.

     

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    Machines Can Replace Millions of Bureaucrats

    This article by Leonid Bershidsky for Bloomberg may be of interest to subscribers. Here is a section:

    In some countries, some of the people in these jobs -- such as postal employees -- are public sector workers. But government clerks who do predictable, rule-based, often mechanical work also are in danger of displacement by machines. In a recent collaboration with Deloitte U.K., Profs. Osborne and Frey estimated that about a quarter of public sector workers are employed in administrative and operative roles which have a high probability of automation. In the U.K., they estimated some 861,000 such jobs could be eliminated by 2030, creating 17 billion pounds ($21.4 billion) in savings for the taxpayer.

    These would include people like underground train operators -- but mainly local government paper pushers.

    This week, Reform, the London-based think tank dedicated to improving public service efficiency, published a paper on automating the public sector. It applied methodology developed by Osborne and Frey to the U.K.'s central government departments and calculated that almost 132,000 workers could be replaced by machines in the next 10 to 15 years, using currently known automation methods. Only 20 percent of government employees do strategic, cognitive work that requires human thinking -- at least for now, while artificial intelligence is as imperfect as it is. Most of the rest are what the Reform report calls the "frozen middle" -- levels of hierarchy where bureaucrats won't budge without approval from above.

    Almost all British government departments have 10 employee grades or more. The department for environment, food and rural affairs has 13. Most of the middle-level tasks are routine and rigidly regulated and motivation is low: Only 38 percent of middle-level bureaucrats say they feel good about what they do.

    In the U.K., the average civil servant takes 8 sick days a year, while a private sector worker takes 5. In the last two decades public sector spending rose by an average 3.1 percent a year, about 16 times faster than productivity.

     

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    Why Hollywood As We Know It Is Already Over

    This article from Vanity Fair may be of interest to subscribers. Here is a section:

    When Netflix started creating its own content, in 2013, it shook the industry. The scariest part for entertainment executives wasn’t simply that Netflix was shooting and bankrolling TV and film projects, essentially rendering irrelevant the line between the two. (Indeed, what’s a movie without a theater? Or a show that comes available in a set of a dozen episodes?) The real threat was that Netflix was doing it all with the power of computing. Soon after House of Cards’ remarkable debut, the late David Carr presciently noted in the Times, “The spooky part . . . ? Executives at the company knew it would be a hit before anyone shouted ‘action.’ Big bets are now being informed by Big Data.”

    Carr’s point underscores a larger, more significant trend. Netflix is competing not so much with the established Hollywood infrastructure as with its real nemeses: Facebook, Apple, Google (the parent company of YouTube), and others. There was a time not long ago when technology companies appeared to stay in their lanes, so to speak: Apple made computers; Google engineered search; Microsoft focused on office software. It was all genial enough that the C.E.O. of one tech giant could sit on the board of another, as Google’s Eric Schmidt did at Apple.

    These days, however, all the major tech companies are competing viciously for the same thing: your attention. Four years after the debut of House of Cards, Netflix, which earned an astounding 54 Emmy nominations in 2016, is spending $6 billion a year on original content. Amazon isn’t far behind. Apple, Facebook, Twitter, and Snapchat are all experimenting with original content of their own. Microsoft owns one of the most profitable products in your living room, the Xbox, a gaming platform that is also a hub for TV, film, and social media. As The Hollywood Reporter noted this year, traditional TV executives are petrified that Netflix and its ilk will continue to pour money into original shows and films and continue to lap up the small puddle of creative talent in the industry. In July, at a meeting of the Television Critics Association in Beverly Hills, FX Networks’ president, John Landgraf, said, “I think it would be bad for storytellers in general if one company was able to seize a 40, 50, 60 percent share in storytelling.”

     

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    The latest "nightmare inducing" Boston Dynamics robots

    This YouTube video highlights a presentation from Boston Dynamics at a recent Singularity University event. The newest robot is previewed 3:53 minutes into the video. 

    China's Consumers Greet Year of the Rooster with Bling Splurge

    This article by Bruce Einhorn and Daniela Wei for Bloomberg may be of interest to subscribers. Here is a section:

    Retail sales rose 10.9 percent in December from a year earlier, the best monthly result in 12 months. Chinese imports of Swiss watches are up after falling for seven consecutive months through July, rising 7.9 percent in November from a year earlier. Led by its best-selling Macan SUV, Porsche had a 12 percent sales increase in 2016. Tiffany on Jan. 17 reported “strong growth” in China. On Jan. 19, Luca Marotta, chief financial officer of Rémy Cointreau, said the outlook for the Chinese New Year was “very, very positive.” Xi hasn’t ended his anticorruption drive, but its chilling effect on spending is easing. “A rebound across all luxury categories is now in progress,” Bloomberg Intelligence analyst Deborah Aitken wrote on Jan. 9.

    During the Lunar New Year holiday, millions of Chinese will travel and shop at home and overseas. Bookings for international air travel made in December for Chinese New Year rose 9.8 percent from the previous year, according to ForwardKeys, an analyst of tourism data. Mainland tourist arrivals in the gambling hub of Macau jumped 7.8 percent in December, the largest increase since February 2015. Chinese consumers “are still very confident,” says Amrita Banta, managing director of Agility Research & Strategy, a consulting firm focusing on the affluent.

    In Macau, tourist arrivals from mainland China for the first three days of the holiday period increased 9.1 percent to 234,000 compared to Chinese New Year in 2016, the Macau Government Tourism Office reported on its website Thursday.

    Yet they may not be prepared to spend as much. Rather than purchase expensive items as gifts, Chinese are buying more for personal use, says Bruno Lannes, a Bain partner in Shanghai.

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