Mark Kleinman is Sky News’ City editor and the man who gets the Square Mile talking in his City AM column.
Every Lidl helps a new era of supermarket mergers
Every Lidl helps. For that matter, every Aldi does too. With apologies to the creators of Tesco’s famous advertising slogan, that might be the neatest way to encapsulate the ambitions of its rivals to spark a new wave of consolidation in Britain’s grocery retail industry.
Not much more than a decade on from its own near-death experience, triggered by an accounting scandal which left the country’s biggest supermarket chain racing to secure an emergency warchest, Tesco’s status as the market supremo has rarely looked so firmly entrenched.
This partly explains why J Sainsbury, in a distant second place as measured by Kantar’s market share data, held preliminary merger conversations with smaller rival Morrisons earlier this year, as I revealed on Sky News last week. According to the FT, it was Sainsbury’s which then terminated the discussions.
There’s good reason to believe, though, that this represented a mere pause, rather than a final halt to negotiations over a combination bringing together any two of Asda, Morrisons and Sainsbury’s. If anything, the impetus for a transaction has strengthened, rather than dissipated, since that last round of discussions: heightened food insecurity, growing anxiety about employment costs – fuelled by Rachel Reeves’ 2024 Budget and not alleviated since – and persistent pressure from ministers (some of which has been subtle, some not) on UK competition regulators to be ‘pro-growth’ all point towards a greater likelihood of a deal being stitched together.
It’s not without irony that the emergence of discounters Aldi and Lidl as formidable players in a sector previously regarded as impenetrable to outsiders is a major contributor to the fact that a deal between two of the big guns is now more plausible than when Sainsbury’s and Asda tried to come together in 2018.
Whether Sainsbury’s is a participant this time around is an open question. Chief executive Simon Roberts needs to revive a meaningful growth story for his investors and he cannot afford to be left behind by his two closest rivals coming together. The same, though, can be said for both Asda and Morrisons, and their private equity owners.
Will BT conclude that it’s still good to TalkTalk?
It’s good to talk, went the old BT advertising campaign featuring Maureen Lipman, but is it good to TalkTalk? That’s the question facing BT Group and its shareholders after last week’s rescue of the company founded by Sir Charles Dunstone in 2004.
TalkTalk’s cost base and regulatory framework proved a toxic cocktail, which, ironically, meant that Openreach’s owner was its only logical saviour. BT hasn’t half played the role of a reluctant paramour, though. Its entreaties to government to alleviate the competition risks attached to a takeover came at the eleventh hour, and even then the company let it be known that it didn’t really want to absorb TalkTalk’s retail customer base and its wholesale arm, PXC.
The irony of the antitrust waiver request won’t have been lost on Sir Charles, who occupied a role on the HBOS board when Gordon Brown’s government allowed Lloyds TSB’s rescue of the ailing bank to sail through in 2008.
People close to BT argue that a request from Epiris, the private equity firm which wanted to buy PXC, to write off its existing debt and give it three months’ rent-free use of its infrastructure – a package worth over £300m – meant the only rational alternative was to buy TalkTalk itself.
In the end, whether or not you agree that BT held the government and TalkTalk’s other stakeholders to hostage, the BT chief executive Allison Kirkby and her board played a shrewd hand to secure a strategic asset on the cheap – with one caveat. A protracted and messy legal battle, allied with a competition review which restokes the debate about BT Group’s structure (and in particular its ownership of Openreach), is itself fraught with reputational risk. There’s more TalkTalking to be done yet.
State of the Game report ushers New Deal talks into injury time
What a state. This week’s publication of the Independent Football Regulator’s (IFR) assessment of the health of the English game is as much a moral judgement as a financial one. How, it tacitly asks, can a professional sport envied around the world operate with 94 per cent of its clubs lossmaking and an even-higher percentage trading with negative EBITDA (ie with their core operating expenses higher than their total revenues)?
The watchdog’s answer, rightly, is that an industry which relies on the bulk of its owners frequently providing sufficient liquidity to ensure that employees get their salaries just hours before payroll is clearly unsustainable.
The IFR’s diagnosis of the problem is, therefore, on the money. In recent months, it has attempted to broker negotiations between the Premier League and English Football League, with only limited success. As I revealed on Sky News last week, while the top flight’s clubs have indicated that they might support a £180m-a-year solidarity payments offer if they receive assurances of approval by the EFL, the lower leagues’ chair, Rick Parry, has been holding out for annual payments of £207m.
Premier League clubs have little appetite to accede to that request, which effectively returns the entire process to the limbo-like state in which it has existed for most of the last three years. Injury time beckons, in every sense.