Financial Times Europe - 28.08.2019

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Briefing

iRRRouhani sets condition for Trump talksouhani sets condition for Trump talks

The Iranian president has ruled out a meeting until

the US lifts sanctions on the Islamic republic, after

President Emmanuel Macron of France offered to

broker a deal.— PAGE 2; EDITORIAL COMMENT, PAGE 8

iDeutsche Bank puts excess cash to work

Germany’s biggest bank has combined its treasury

markets and investment operations, which raise

funds and manage its cash and liquidity reserves, as

negative rates squeeze European lenders.— PAGE 11

iFFFed defends independence from politicsed defends independence from politics

The US central bank has been forced to reassert its

independence after former New York Fed chief

Bill Dudley urged it to consider Donald Trump’s

re-election prospects in setting rates.—PAGE

iAAAustralian charged with spying in Chinaustralian charged with spying in China

Canberra has confirmed that

Yang Hengjun, who has been

held since January after going

missing in Guangzhou, has

been arrested on charges of

spying.—PAGE

iPutin woos Ankara with arms sales pitch

The president has shown off military hardware to

Turkish counterpart Recep Tayyip Erdogan at

Russia’s annual air show, in a bid to strengthen ties

despite their opposing objectives in Syria.—PAGE

i$60m revival plan for Dean & DeLuca

Pace Development, the Thai owner of the gourmet

grocery and café brand, has unveiled plans to issue

debt to try to revive the US fortunes of a chain that

pioneered pricey cheese and olive oil.— PAGE 11

iJapan parties worry at US tariffs threat

Opposition groups have given a tepid response to

US assurances that there are no plan for tariffs on

Japanese cars “at the moment”. One said premier

Shinzo Abe had been cornered by the US.—PAGE

Datawatch

WEDNESDAY28 AUGUST 2019 EUROPE

World Markets

STOCK MARKETS

Aug 27 prev %chg

S&P 500 2874.36 2878.38 -0.

Nasdaq Composite 7839.74 7853.74 -0.

Dow Jones Ind 25851.55 25898.83 -0.

FTSEurofirst 300 1469.68 1460.84 0.

Euro Stoxx 50 3363.98 3348.84 0.

FTSE 100 7089.58 7094.98 -0.

FTSE All-Share 3899.22 3898.58 0.

CAC 40 5387.09 5351.02 0.

Xetra Dax 11730.02 11658.04 0.

Nikkei 20456.08 20261.04 0.

Hang Seng 25664.07 25680.33 -0.

MSCI World $ 2105.22 2094.63 0.

MSCI EM $ 960.81 973.66 -1.

MSCI ACWI $ 502.43 500.94 0.

CURRENCIES

Aug 27 prev

$ per € 1.110 1.

$ per £ 1.228 1.

£ per € 0.904 0.

¥ per $ 105.915 105.

¥ per £ 130.016 129.

SFr per € 1.090 1.

€ per $ 0.901 0.

Aug 27 prev

£ per $ 0.815 0.

€ per £ 1.106 1.

¥ per € 117.576 117.

£ index 75.697 75.

SFr per £ 1.205 1.

COMMODITIES

Aug 27 prev %chg

Oil WTI $ 53.97 53.64 0.

Oil Brent $ 58.72 58.70 0.

Gold $ 1503.80 1502.05 0.

INTEREST RATES

price yield chg

US Gov 10 yr 131.92 1.48 -0.

UK Gov 10 yr 150.40 0.43 -0.

Ger Gov 10 yr -0.70 -0.

Jpn Gov 10 yr 121.00 -0.27 0.

US Gov 30 yr 115.30 1.96 -0.

Ger Gov 2 yr 101.26 -0.90 0.

price prev chg

Fed Funds Eff 2.40 2.38 0.

US 3m Bills 2.01 1.97 0.

Euro Libor 3m -0.45 -0.45 0.

UK 3m 0.76 0.76 0.

Prices are latest for edition Data provided by Morningstar

KIRAN STACEY— WASHINGTON

A last-minute review ofa $10bn Penta-

gon cloud computing contract has

failed to seek new information from

AmazonorMicrosoft, the two bidders,

raising concerns it is a political ploy

aimed at reassuring the White House.

Mark Esper, the defence secretary, was

due this month to announce the winner

of thecontract, known as Jedi, which

would give one company responsibility

for handling US military data and com-

munications around the world.

But Mr Esper threw that process into

doubtwhen he announcedafresh

review of the bidding with just weeks to

go before an expected decision. His

announcement followed accusations by

Oracle, the enterprise software group,

that the process had been tainted by

conflicts of interest within the Penta-

gon, and a late intervention by Donald

Trump. The US president, who has criti-

cised Amazon founderJeff Bezos,

weighed in on the way the contract was

being handled, saying: “Great compa-

nies are complaining about it.”

However, since announcing the

review Mr Esper has not asked, and is

not planning to ask, for new informa-

tion from either Amazon or Microsoft,

according to three people close to the

process. Instead,the process is more an

opportunity for him to look at decisions

that were made before he was appointed

last month.

Sam McGowan, a research analyst at

Beacon Policy Advisers, a consultancy

in Washington, said: “The fact that Mr

Esper has not contacted either of the

two bidders suggests that his decision to

review the contract.. .is more about

finding a way to persuade the president

to stick with it rather than undermining

US national security and scrapping the

entire contracting process.”

Amazon, Microsoft and the Pentagon

all declined to comment.

The defence departmentis seeking to

move its information technology sys-

tems off its ownservers into the cloud,

and is offering one company $10bn over

10 years to handle the contract.

The Jedi contract is unusual in its

scale and complexity and could result in

a single company not only dominating

US defence communications systems

but also finding itself in pole position to

win similarcontracts around the world.

Oracle, which came third in the bid-

ding, launched a legal challenge against

it, while the Pentagon’s own inspector-

general is also looking into how the rules

for the bid were drawn up and whether

any officials had conflicts of interest.

Amazon and Microsoft go unchallenged

in review of Pentagon’s $10bn ‘Jedi’ deal

© THE FINANCIAL TIMES LTD 2019

No: 40,180★

Printed in London, Liverpool, Glasgow, Dublin,

Frankfurt, Milan, Madrid, New York, Chicago, San

Francisco, Orlando, Tokyo, Hong Kong, Singapore,

Seoul, Dubai, Doha

ObituaryiPAGE 14

Piëch leaves legacy of

success and scandal at VW

Austria €3.80 North Macedonia Den

Bahrain Din1.8 Malta €3.

Belgium €3.80 Morocco Dh

Bulgaria Lev7.50 Netherlands €3.

Croatia Kn29 Norway NKr

Cyprus €3.60 Oman OR1.

Czech Rep Kc105 Pakistan Rupee

Denmark DKr37 Poland Zl 20

Egypt E£42 Portugal €3.

Finland €4.50 Qatar QR

France €3.80 Romania Ron

Germany €3.80 Russia €5.

Gibraltar £2.70 Serbia NewD

Greece €3.60 Slovak Rep €3.

Hungary Ft1200 Slovenia €3.

India Rup220 Spain €3.

Italy €3.60 Sweden SKr

Latvia €6.99 Switzerland SFr6.

Lebanon LBP7500 Tunisia Din7.

Lithuania €4.30 Turkey TL

Luxembourg €3.80 UAE Dh17.

South Asia is the

only region where

every country has

legislation on

workplace sexual

harassment, with

six introducing

such laws in the

past 10 years.

Seventy per cent

of nations globally

had such laws last

year. In 2009 it

was 51 per cent

Pest control

Countries with legislation on sexual

harassment in employment ()

Source: World Bank   

 

South Asia

OECD high income

Eastern Europe

Sub-Saharan Africa

Lat Am & Caribbean

East Asia & Pacific

Mideast & N Africa

Central Asia

Profit motive

Time to drop the shareholder-first

mantra?— HEAD-TO-HEAD DEBATE, PAGE 9

Special report

Why Africa is faring better than

many realise— SEPARATE SECTION

ARASH MASSOUDI— LONDON

JAMES FONTANELLA-KHAN

AND ERIC PLATT— NEW YORK

Philip Morris International is in talks to

merge with Altria in a deal that would

reunite the global and domestic US

makers of Marlboro and create the

world’s largest tobacco group, with a

market value of nearly $200bn.

PMI saidit was considering an all-

share combination that would put it

back together with Altria, 11 years after

they were separated to shield PMI from

a slowing US cigarette market as well as

the threat of regulation and litigation.

However, investors gave a frosty

reception to the prospect of a new com-

bination, sending shares in both compa-

nies lower in the afternoonin New York.

A successful deal wouldcreate a vast

business that last year reported com-

bined sales of nearly $50bn and net

income of $15.3bn.

PMI urged caution in a statement con-

firming talks with Altria, saying it could

give “no assurance” that a transaction

would “result from these discussions”.

A person close to the negotiations said

that the nil-premium deal under consid-

eration would see PMI shareholders

own between 57 and 59 per cent of the

combined group, while Altria would

hold the remainder.

The acquisition of Altria by PMI

wouldbe the sixth largest takeover ever,

according to data provider Refinitiv.

Shares in Altriaclimbed as much as

11.3 per centbeforefalling 2.5 per cent to

$45.94. Its market value sat at $85bn

and the company has $27bn of net debt.

PMI fell 7.1 per cent to $72.22, bring-

ing its market value to $113bn. It has

$26.5bn of net debt.

Two years ago,main rival British

American Tobacco completed a deal to

buy Reynolds American for $49.4bn.

Analysts then expected PMI to recom-

bine with Altria, given that fears over US

litigationhad dissipated.

Tobacco groups are racing to increase

their presence in electronic cigarettes

and heated tobacco technology as sales

of traditionalproductsfall. Altria last

year agreed to take a 35 per cent stakein

ecigarette group Juul Labsfffor $13bn.or $13bn.

Uniting the two companies would also

allow PMI to capture the full value of

itsIQOS heated tobacco technology,

which Altria is preparing to launch

under licence in the US, according to

Bonnie Herzog at Wells Fargo. Altria’s

strong US free cash flow would also

allow PMI to “catapult the growth” of

IQOS around the world, she said.

The two companies are investing in

e-cigarettes despite intense opposition

from regulators in Washington, which

have warned that teenage vaping has

become an “epidemic”. According to

one federally funded study last year, one

in five high school seniors said they had

vaped nicotine in the previous month.

“While US litigation risk was suffi-

cient to break these companies apart

back in 2008, US regulatory risk is on

the same plane, in our view,” analysts at

Stifel said.

They added: “We are surprised by this

combination and believe this will result

in a permanently lower multiple for

Philip Morris’s stocks, as we see little

resolve to the controversy around regu-

lating tobacco products.”

The two companies have taken differ-

ent approaches to the fast-growing can-

nabis market. PMI believes that mari-

juana remains too risky to invest in,

while Altria has taken a45 per cent

stakein the Canadiangroup Cronos.

Additional reporting by Andrew Edgecliffe-

Johnson in New York

Analysispage 13

Philip Morris and Altria discuss

reuniting to forge $200bn giant

3 Fresh talks 11 years after split 3 Investor unease over plan 3 Race for tobacco substitutes

A combination

of the two

companies

wouldbe the

sixth biggest

takeover ever

Smokers bond by huddling

together against the cold

and discussing how to quit.

It is the same with tobacco

companies, pariahs in a

health-conscious world

Page 10

Flight shame

Consumer backlash pushes airlines

to cut emissions— BIG READ, PAGE 7

$50bn

Combined sales

$15.3bn

Combined net income

35%

Altria’s stake in Juul Labs

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