No wonder the Ocado boss Tim Steiner called it a “win-win arrangement”. That’s how the market saw it, too: it took £130 million off Ocado’s value and upped Morrisons’ by £260 million. Both winners there, all right.
Still, what’s £390 million between friends? Except, of course, they’re not. Since David Potts took over as Morrisons’ chief in March last year, he’s made no secret of his distaste for the terms of the Ocado online shopping deal bequeathed by predecessor Dalton Philips. It locked him into a loveless marriage till 2038 with the van-based conveyor of IT solutions, intellectual property and Bonio the Original dog biscuits. Mr Potts tried, unsuccessfully, to renegotiate a contract he thought similarly barking. Now he’s found a different way to get his own back: a tie-up with Amazon, a company 170 times bigger than Ocado and the one it most fears.
The deal is smart enough in its own right. Mr Potts has wanted to ram home a key difference between Morrisons and supermarket rivals: it also being one of Britain’s top food manufacturers. So what better than supplying Amazon’s newly launched Pantry grocery service? Feeding Amazon eats up spare capacity at Morrisons’ 20-plus manufacturing sites, while extending the reach of a Morrisons food delivery operation currently accounting for only 3 per cent of the market.
Better still for Mr Potts, the Amazon deal restores negotiating clout with Ocado, an issue driven home by the second half of the Morrisons statement. With Amazon in the bag, the supermarket chain has screwed a much better price out of Ocado to extend the original deal at its Dordon distribution centre to its new one at Erith, where Morrisons is now taking space.
Tellingly, Mr Potts also has forced Ocado to fill the hole in the initial deal: that it covered only about half of Morrisons’ customer base. Ocado has agreed to develop a “store-pick solution” for Morrisons’ 500-plus stores. That’s jargon for taking groceries from individual stores and lobbing them in the back of the Ocado van: more hassle and less high-tech than the solutions the company prefers to talk about, when making its latest excuse for failing to land that deal with a foreign retailer.
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One other thing: Ocado fans have long claimed that Amazon’s route into UK food delivery would involve buying the company. That does look a bit less likely now, whatever Mr Steiner’s win-win talk.
Hell to pay
Just like that fortnight of parties to celebrate that nice HSBC staying in Britain, sooner or later all good things must come to an end. Such as the bank’s progressive dividend, perhaps? Well, if you believe analysts at Bernstein.
They’ve crunched a few numbers in this low interest rate world, not least around HSBC’s “struggles to grow its Hong Kong loan book”, and decided it’s “impossible for the bank to sustain its progressive dividend policy”. Bernstein is braced for a cut “any time in the next six months”.
It would be a shock. HSBC has just raised the full-year payout a cent to 51 cents — and the top duo, chairman Douglas Flint and chief executive Stuart Gulliver, wouldn’t want a dividend cut as their legacy. But the shares are hinting at one: on a price down 1.65 per cent at 459½p, the yield is almost 8 per cent.
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Bernstein reckons that raising the divvy to 52 cents next year would involve paying out about 170 per cent of earnings. Regulators might balk at that, particularly when HSBC’s core tier one ratio of 11.9 per cent lags UK peers and it can’t get its hands on some capital. Bernstein reckons $9 billion is “trapped in the US” to settle past shenanigans: the fun HSBC used to have money-laundering for Mexican drug gangs, Iranian sanctions-busting and fixing anything that moved.
True, the only FTSE 100 member paying a bigger dividend than HSBC, Royal Dutch Shell, simply dipped into its reserves. HSBC might not have that flexibility.
Bush telegraph
More proof that lawyers are too clever by half. The chairman of Australian law firm Slater & Gordon, one John Skippen, has just said he employed 70 of them to examine 8,000 files over ten weeks. And he still bought the professional services arm of Quindell. He could have simply read the newspapers.
Well, Skippen the Bush Kangaroo is now up some sort of creek. Slater has just crashed to a A$958 million loss for the latest six months, mainly down to a A$814 million writedown on that walking accounting scandal Quindell. The shares, down another 30 per cent yesterday, have dropped 92 per cent in a year and the group is at the mercy of its banks.
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Mr Skippen has so far refused the resignation of Slater managing director Andrew Grech. But both should hop off for being stupid enough to buy a business built by Quindell’s sacked ex-boss Rob Terry. He doesn’t even know the difference between buying and selling shares.
Good news day
Anyone who launches a new newspaper deserves applause. So let’s not have killjoys moaning that The New Day, the latest read from Trinity Mirror boss Simon Fox, is a bit light on news. There is a terrific one-question quiz on page 23, for example, asking: “In what year did the foot and mouth outbreak hit the UK?” The answer is “coming tomorrow”, so let’s not spoil things by consulting Google.
Nothing wrong, either, with the emphasis on “good news not just bad”. In fact Mr Fox has quickly got into the swing. He says Trinity Mirror’s full-year adjusted profits before tax “grew by 5.1 per cent”. The unadjusted version fell 18 per cent. Not such a good news story.