This Week In The City... 24th January 2003
The battle for Safeway rages on as Kohlberg Kravis Roberts, the U.S buy-out specialist and Philip Green, owner of BHS and Arcadia mull over possible bids for the popular supermarket. Mr Green is said to have the backing from HBOS for financing the deal by debt if it goes through. If either of these gets their way, the supermarket industry would still have four big players left, otherwise a consolidation would see Asda, Sainsbury and Morissons strengthening their position.
Robbie Williams has enraged his record company by saying ¡°I think [music piracy] is great, really I do. There is nothing anyone can do about it¡±. This comes amidst vows by the ¡®music majors¡¯ ¨C Sony, Warner Music, EMI, BMG and Universal ¨C to step up their anti-piracy fight. The advent of MP3 and peer-to-peer file sharing programs like Kazaa has seen $3bn of sales wiped off the music industry in the last year alone.
Amidst the dire equity market, government bonds have become more popular. But this surge in demand has caused yield to fall to a historic low. Corporate bonds on the other lost their appeal after the Enron and WorldCom debacle. However, a recent trend towards corporate bonds has been evident as investors aim to take advantage of the high yield on offer. The France Telecom bond issue last week for example, was oversubscribed by $11bn.
Microsoft paid its first ever dividend to its shareholders last week. Along with other companies that made their name during the tech boom of the 90¡¯s like Dell and Amazon.com, Microsoft has preferred to retain its profit for reinvestments or buying back stock. As investment opportunities dried up, shareholders have heaped more and more pressure on the tech companies to distribute the cash mountain that has accumulated.
HMV reported strong Christmas trading and a subsequent 30% increase in operating profits, prompting its shares to soar. The result is especially encouraging given the weak retail sector over Christmas and increase in music piracy. CEO Alan Giles continues to be upbeat about the coming year (although many do not share his enthusiasm) and cites that the restructuring at Waterstones ¨C a fully owned subsidiary ¨C should see an increase in profits there too.
Vivendi Universal is to continue its demerger and break up effort under new CEO Jean-Ren²ˆourtou by selling off its video games division for an approximate price of $1.6bn. Microsoft is said to be interested in adding the reputable games publisher to its already strong artillery at Xbox.
Goldman Sachs is to pour £810m into Japan¡¯s Sumitomo Mitsui Financial Group (SMFG). The deal would increase Goldman¡¯s lending capabilities and act as a vote of confidence for Japan. It also means that Goldman can now offer lending services to its clients comparable to investment banks that are leveraged by their commercial banking activities. Citigroup, CSFB, Deutsche Bank and the likes have long since used their lending services as a tool to win lucrative investment deals. The investment by Goldman comes in the form of preferred shares[3] that can be converted to common stock of SMFG, giving them a 7% stake and also expanding SMFG¡¯s capital base by 0.5%. This increase in capital base is much sought after amongst Japanese banks where bad loans have saddled the banking industry.
Regus, the UK serviced office provider is to file its US arm for Chapter 11[2]. This does not apply to its UK operations, which are still enjoying strong results. The US arm on the other hand pales by comparison, making close to $4m losses every month. Regus had tried to negotiate for lower rents for its offices, which form the bulk of their costs, but was unsuccessful.
