In this week's Commercial Awareness Update we discuss UK's economy, Salesforce's merger, a failed merger, continuing retail woes and the largest retail deal ever.
Money in your pocket
Despite Brexit uncertainty, the economy appears to be heading in the right direction as wages grew faster than expected between February and April. In April, average pay was 3.4% more than it was just a year ago, which beat the 3% many economists were expecting. With inflation (the rate at which prices are rising) currently at 2%, this means people are better off than they were a year ago. The biggest increases were in the financial services and construction industries. Unsurprisingly, there were concerning signs in the retail sector (see retail woes below).
Employment stayed at a record high of 76.1%, which is likely to cause higher wages. With less people available (i.e. not working), firms may have to pay more to prise new employees away from their competitors. Job creation is starting to slow, which could be down to two things: employers are nervous about the future or they can’t access the talent they need due to so many people being in work. If it’s largely the latter, expect to see wages continuing to rise in the second half of this year. As a result of these wage figures the pound rose against the dollar and euro.
Tech giant, Salesforce, has announced its largest acquisition to date of data analytics firm Tableau - costing them a huge $16 billion. Salesforce is a Silicon Valley firm and fenables businesses to use cloud technology to better connect with customers, potential customers and partners, focusing on relationship management. By acquiring Tableau, this provides the opportunity for new and fresh analytics to be brought to the table, allowing salesforce customers, including Netflix and American Express, to better understand their data. The tech company hopes that offering even more services in one place will help it to keep pace with rivals. Following the deal, Tableau’s stocks rose, valuing it 42% higher than before the arrangement. However Salesforce’s stock fell 4% as large purchases always come with risk which makes investors nervous. Interestingly, no cash will change hands in the deal as Salesforce will be paying Tableau entirely in shares of itself.
Chrysler withdraw from merger
After months of a merger proposal with Renault, Chrysler has announced its withdrawal from the deal after claims that Renault was not moving fast enough with the deal. Investors have now sold shares of both firms, as well as Nissan, in which Renault has a 43% stake. Renault executives twice delayed a vote on the proposal, which likely added to Chryslers frustration. Renault wanted Nissan’s sign off on the deal, as they also own 15% of the shares in Renault, however they were reported to be abstaining from any votes. Furthermore, the French government owns 15% of Renault but claimed to support the merger as long as French jobs were protected in the proposed deal. A Fiat-Renault merger would have created the world’s third largest car manufacturer and investors are likely to be disappointed that this is no longer the case.
The retail sector has been struggling of late and last week was no different as a number of top names in the sector reported disappointing results. The biggest news was that Sir Philip Green’s Arcadia was forced to push through a rescue plan to avoid the empire that owns Topshop, Miss Selfridges and more from collapsing. The plan includes shutting down around 50 stores, with 1,000 shop-floor and 170 head office jobs being cut, but it could save the jobs of most of the 17,000 employed by the company. Management has attributed the downfall to a slow response to changes in the High Street. With online competitors, like ASOS, Boohoo and others taking marketing share, investment in their digital offering is imperative for survival.
It isn’t just Arcadia struggling in the retail sector, as Ted Baker last week issued its second profit warning this year. They have said that lower customer spending has meant they now expect to make a pre-tax profit of £50 to £60 million in 2019, compared to the £70 million analysts were expecting. On Tuesday alone £170 million was wiped off the value of the fashion company as a result of the profit warning. Ted Baker has been in the media for the wrong reasons this year, as their founder and former Chief Executive was accused of acting inappropriately towards staff
The biggest private real estate deal ever
Last week, Blackstone, American private equity firm, announced it would be paying $19 billion for the purchase of several US warehouses from logistics firm GLP, making this the largest private real estate deal ever. The private equity firm will mainly be using the warehouses for ecommerce logistics where demand is growing massively. Amazon, who is GLP’s biggest tenant, along with other e-commerce companies, have been critical in spurring the demand for industrial warehouses. Savvy investors who have been banking in on the trend have helped valuations of publicly listed warehouse-owning firms rise by 30%. Blackstone backing this deal on e-commerce warehouses, is essentially betting a strong hand on the future of online shopping.