Markets volatile amid political uncertainty in France and US, Skydance to buy Paramount in major Hollywood deal, Carlsberg to buy Britvic and Marston’s brewing JV, Ocado scores in Japan

“So much for the summer lull. Just as you thought the UK going to the polls was enough drama, political twists and turns in France and the US have put investors in a spin as they try to work out the lay of the land in those geographies,” says Russ Mould, Investment Director at AJ Bell.

“All the major European indices apart from Germany’s DAX were initially in the red at the market open but staged an about-turn just under an hour into trading. The French election has raised the prospect of a hung parliament which causes uncertainty over the political outlook in the country.

“In the US, there were growing calls for Joe Biden to step aside in the 2024 presidential campaign. While investors have become more confident about a near-term rate cut from the Federal Reserve, uncertainty over who might run the country for the next four years threatens to become a new worry point for the market. The Democrats are cutting it fine to announce a replacement presidential candidate if Biden does drop out.

“The flags were out for Merger Monday. Three big M&A deals showed corporates were still hungry to expand their reach despite a backdrop of political and economic ups and downs.

“Carlsberg had the thirst to buy Britvic and the share of Marston’s brewing joint venture it didn’t already own. It’s rare to see a business do two deals in one day, but sometimes the stars simply align.

“In the media sector, Skydance finally struck a deal to gobble up Paramount and become a bigger player in Hollywood. That gives it a lot more scale but this is not a simple bolt-on deal and business as usual. There are significant cultural differences to overcome and big strategic decisions to be made, such as the future of Paramount+ which has been the runt of the litter in the streaming industry.”

Skydance / Paramount

“As much as Hollywood is steeped in film-making history, it has been forced to evolve with the times. Whether that’s adopting new technology, stomaching major changes to the way the public consumes media, or dealing with egos bigger than Mars, Hollywood has survival instincts and it does whatever is needed to keep the stars shining bright.

“The latest big change is the end of the Redstone era for Hollywood after 88 years. Shari Redstone is selling the Paramount business founded by her grandfather in 1936 to independent film studio Skydance.

“Originally created as the Northeast Theatre Company by Michael Redstone, it morphed into National Amusements which eventually became one of the largest media groups in the US, owning CBS, Viacom and Paramount Pictures.

“Skydance will now undertake a two-stage deal whereby it will buy National Amusements, which owns nearly 80% of the voting shares in Paramount Global, and then merge with the latter entity.

“A big gamble on the streaming sector backfired for Paramount with its Paramount+ platform failing to gain the kind of traction enjoyed by Netflix, Amazon Prime Video and Disney+. Even Apple TV+ has managed to play catch-up and is growing bigger by the day.

“In an era where streaming platform owners need to make a profit on their services, rather than letting losses build up in the quest to gain market share, Skydance will have to think long and hard about Paramount+’s future.

“Investors will also be hoping that Skydance can bring some new sparkle to the broader Paramount group, given how its share price performance has been truly miserable. Despite a spike during the pandemic, the shares are now 78% lower than five years ago. In contrast, Netflix’s shares are trading 85% higher over the same period. It’s clear who has been the winner and the loser for these two companies.

“A 7% rise in pre-market trading for Paramount’s shares doesn’t exactly imply an all-out celebration regarding Skydance’s deal. Perhaps investors accept it could be a long road to recovery.”

Carlsberg / Britvic / Marston's

“Carlsberg has prevailed in its pursuit of soft drinks firm Britvic, further thinning the ranks of the UK market and depriving investors of an opportunity to buy a company and stock which has enjoyed steady success since its 2005 IPO.

“The writing was on the wall for Britvic as an independent entity when it emerged Carlsberg had secured a waiver on a change of ownership clause associated with a bottling contract Britvic enjoys with PepsiCo. Carlsberg wouldn’t have gone to the trouble of getting this detail if it wasn’t serious about getting the deal across the line.

“It probably isn’t the best price tag in the world for Britvic – only around 3% more in headline terms than a second bid which Britvic rebuffed on the grounds it was being significantly undervalued – but it is a fairly weighty premium to the undisturbed share price. It also includes the helpful kicker of a 25p special dividend to be paid before the transaction goes through.

“Carlsberg’s acquisition of Britvic adds some diversification to its portfolio. The Danish outfit is having to react to a world in which younger age groups are less likely to indulge heavily in alcohol.

“The concurrent decision to buy Marston’s out of the pair’s brewing joint venture suggests beer remains a big part of Carlsberg’s ongoing story. This deal will allow Marston’s to focus on running its pub estate, probably no bad thing given its struggles to recover post-pandemic and provide a useful injection of cash to help it pay down its onerous debts.

“Soft drinks and alcohol may differ in their effect on the consumer but the procurement, production, logistics and distribution are similar whether products are being sold in the shops or in bars, pubs and restaurants and this underpins Carlsberg’s ambitious targets for cost savings and efficiencies in the new Carlsberg Britvic entity.

“The reaction of Carlsberg shareholders to the deal suggests it will have to overcome some considerable scepticism on their part to convince them of its merits.”

Ocado

“Online groceries play Ocado badly needed some crumbs of comfort to throw the way of investors after last month’s damaging revelation that Canadian supermarket chain Sobeys would delay the opening of a new customer fulfilment centre and end a mutual exclusivity agreement.

“This undermined Ocado’s argument that its real growth engine lay in selling an out-of-the-box tech and robotics-based solution for selling groceries online across the globe.

“In this context news that Japanese retail firm Aeon will build a third Ocado-powered robotic warehouse in the Kanto region is positive. One swallow doesn’t make a summer though and Ocado still has plenty of convincing to do with a highly sceptical market.”

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