Wednesday19 February 2020 ★ 11
© The Financial Times Limited 2020 Week 8
Remote working — whether driven by
fears of infection in China or, more
benignly, efforts to boost recruitment
and happiness in Silicon Valley — is
taking off, with positive results for
companies that provide the tech to
integrate non-office staff.
AnalysisiPAGE 12
Tech groups tap in to
trend for home working
A L I STA I R G R AY— NEW YORK
Walmarthas reported a drop in profits
and a sharp slowdown in US revenue
growth, with sales of toys, computer
games and clothing unexpectedly weak
in the run-up to Christmas.
The sluggish performance by a retailer
considered a bellwether forsentiment
among low and middle-income house-
holdsraised concern overUS consumer
spending, the resilience of which has
helped underpin theeconomy.
Like-for-like sales at Walmart US rose
1.9 per cent year on year in the three
months to the end of January, a slow-
down from 3.2 per cent the previous
quarter and 4.2 per cent a year ago. Net
sales across the group rose 2.1 per cent
to $140.6bn. Adjusted operating income
in the fourth quarter dipped 3.7 per cent
from a year ago to $5.8bn, Walmart said.
The company blamed the weakness
on its own errors rather than a broader
weakness in the economy.Doug McMil-
lon, chief executive, saidclothinghad
been too “red and green”, or Christmas-
orientated, over the festive season.
Nevertheless, theslow holiday sales
sounded fresh alarm on the state of US
retailing, given that Walmart has coped
better than mostwith the onslaught
from online competitors, notably Ama-
zon. Walmart has invested heavily in
ecommerce. Its “buy online, pick up in
store” serviceshelped ecommerce sales
rise 30 per cent in the fourth quarter.
Other retailers to have reported lack-
lustre holiday sales includeTarget,
Walmart’s big-box rival, which last
monthcutits quarterly sales outlook
after its festive financial performance
was weaker than expected.
Analysts had anticipated a slowdown
at Walmart, given the weaknessin the
sector andfactors including astrong
comparable period last year, when toy
sales were boosted by the closure of
Toys R Us. Wall Street shrugged off the
disappointment, sending Walmart
shares upslightly inNew York.
Brett Biggs, chief financial officer, said
the fourth quarter had “started and
ended strong” but Walmart “experi-
enced some softness” in important
categories during some of busiest
shopping weeks of the year.
Walmart’s flagging revenues sound
alarm for US consumer spending
hedge fundTrian Fund Management,
which owns a 4.5 per cent stake in the
company. Trian’s founder,Nelson Peltz,
returned to the fund’s board last year
after a five-year stint between 2009 and
- He hasbacked the deal, saying it
would help Legg Mason “remain at the
forefront of an industry where scale is
increasingly vital to success”.
Chris Harris, an analyst at Wells
Fargo, said that integrationmight create
cultural challenges. “One hurdle would
involve combining Legg Mason’s multi-
affiliate model with Franklin’s more tra-
ditional structure,” he said.
Additional reporting by Owen Walker
Lexpage 10
the autonomy of Legg’sfund manage-
ment affiliates, which include bond spe-
cialistWestern Asset Managementand
Edinburgh-based equity houseMartin
Currie.
Alternatives boutiqueEnTrust Global
will not join the new business after its
management agreed to buy it back from
Legg and take it private.
Ms Johnson said the companies
entered talks in Junebut it took a long
time to complete the deal because they
had to ensure affiliateswould come on
board. “We jokingly said this is an acqui-
sition of multiple companies,” she said.
Legg had come under pressure to cut
costs and boost profits from activist
trackingan index.Nevertheless, Ms
Johnson said that the move was about
“offence not defence”.
“This is not about just bringing
together two overlapping platforms and
trying to pull out costs,” she said. “It is
about having an all-weather product
line-up and world-class distribution
platform.”
Legg shares were up 24 per cent,at
$50.45, just above Franklin’s $50-per-
share offer price in a sign of investor
confidence that the deal would go
through. The deal values Legg’s equity
at $4.5bn, and Franklin will assume
$2bn of debt. Franklin rose 7 per cent.
Franklin said that it would preserve
S I O B H A N R I D I N G— LONDON
O RT E N C A A L I A J— NEW YORK
Franklin Templetonhas agreed to buy
asset management rivalLegg Masonfor
$6.5bnin the latest sign of active fund
groups’ need to scale up to fend off grow-
ing threats to their business models.
The combined business will manage
more than $1.5tn in assets, withJenny
Johnson, Franklin chief executive, at the
helm, the companiessaid yesterday.
The tie-up of the groups — both of
which suffered investor outflows from
their funds last year — is the latest deal
involving midsize companies struggling
to adapt to competition from passive
funds, which charge lower fees for
US asset managers in $6.5bn tie-up
3 Franklin Templeton buys rival Legg Mason 3 Move reflects challenge for active funds
Legg Mason
was under
pressure
from Trian’s
Nelson Peltz
Companies / Sectors / People
Companies
AAC Technologies................................. 20
Aditya Birla Group................................. 14
Alibaba........................................................... 12
Amazon.......................................................... 11
Apple.............................................1,2,11,12,
BASF................................................................ 13
BHP...........................................................10,
BP...............................................................10,
BPER Banca..........................................10,
BSNL............................................................... 14
Bank of China............................................ 19
Berkshire Hathaway............................. 20
Bharti Airtel................................................ 14
BlackRock..................................................... 14
Bluebell Capital Partners................... 14
Bytedance.................................................... 12
Casio.................................................................. 8
Coca-Cola..................................................... 12
Coca-Cola HBC........................................ 20
Conagra Brands...................................... 20
Continental.................................................. 13
Credit Suisse................................................ 8
Daimler........................................................... 13
Deutsche Bank............................................. 1
Disney............................................................. 11
Drax.................................................................. 11
Edmond de Rothschild........................ 14
Emerson Electric..................................... 20
EnTrust Capital......................................... 11
Eskom............................................................. 19
Fiat Chrysler............................................. 12
Foxconn........................................................... 1
Franklin Resources..........................10,
Franklin Templeton..........................11,
Fuyao Glass................................................ 19
GAM................................................................ 14
Gaz..................................................................... 8
Glencore..................................................10,
Google.........................................................2,
HSBC...............................................1,10,13,
Hon Hai Precision.................................. 20
Huawei............................................................. 4
Hyundai Motor............................................ 2
ICICI Bank.................................................... 14
IQE................................................................... 20
Independent Franchise Partners... 12
InterContinental Hotels...................... 20
Intesa Sanpaolo...........................10,12,
Jaguar Land Rover................................. 12
Jupiter Fund Management................ 14
Kerry Group............................................... 20
Kirin.................................................................. 12
Kraft Heinz................................................. 10Kroger........................................................... 20
Krupa Global Investors........................ 14
Lam Research........................................... 20
Legg Mason..............................10,11,14,
Martin Currie............................................... 11
Merian Global Investors...................... 14
Microchip Technology......................... 20
Microsoft........................................................ 11
Netflix............................................................. 12
Nissan............................................................. 14
Oil India......................................................... 14
Patek Philippe............................................. 8
Product Hunt............................................. 12
Punjab National Bank.......................... 14
Qianyi Investment................................... 19
Qorvo............................................................. 20
Qualcomm................................................... 20
RBR Capital................................................. 14
Reliance Jio................................................. 14
Renault.......................................................... 14
Rio Tinto................................................10,
Rosneft............................................................. 2
Rosneft Trading......................................... 4
SAIC................................................................. 13
SSE.................................................................... 11
SVM Asset Management.................... 13
Samsung....................................................... 12Sekisui House............................................ 12
Shenzhen Airlines................................... 19
Slack................................................................ 12
State Bank of India................................ 14
State Street................................................ 14
Stripe............................................................... 12
Sun................................................................... 12
Taiantang Pharmaceutical................. 19
Target............................................................. 11
Tesla................................................................. 11
Texas Instruments................................. 20
Toys R Us..................................................... 11
Trian Fund Management................... 10
Twitter........................................................2,
UBI Banca........................................10,12,
UniCredit....................................................... 13
Unilever......................................................... 12
Vanguard..................................................... 14
Viettel............................................................. 12
Vingroup....................................................... 12
Vodafone...............................................14,
Vodafone Idea........................................... 14
Volkswagen................................................. 13
Vopak............................................................ 20
Walmart.......................................................... 11
Weir Group................................................. 20
Western Asset Management............ 11Worldline..................................................... 20
Yukos................................................................ 2
Zoom............................................................... 12
Sectors
Airlines........................................................... 19
Automobiles................................9,12,13,
Banks...................................1,10,12,13,19,
Energy.......................................................11,
Financial Services................................... 20
Financials...................................10,12,14,
Food & Beverage........................10,12,
Industrials........................................13,19,
Insurance........................................................ 7
Media...........................................................2,
Mining......................................................10,
Oil & Gas..................................................4,
Pharmaceuticals....................................... 19
Retail................................................................ 11
Technology........................................1,12,
Telecoms.......................................1,12,14,
Travel & Leisure..................................... 20
People
Ambani, Mukesh...................................... 14
Casimiro, Didier.......................................... 4
Deripaska, Oleg.......................................... 8
Dorsey, Jack................................................ 12Flint, John..............................................10,
Ghosn, Carlos............................................. 14
Glasenberg, Ivan................................10,
Gulliver, Stuart....................................10,
Hoover, Ryan............................................. 12
Huang, Da.................................................... 19
Ihara, Keiko................................................. 14
Johnson, Jenny.......................................... 11
Khodorkovsky, Mikhail........................... 2
McLean , Colin........................................... 13
McMillon, Doug.......................................... 11
Messina, Carlo.....................................10,
Peltz, Nelson.........................................10,
Quinn, Noel.........................................1,10,
Saikawa, Hiroto........................................ 14
Sanderson, Peter..................................... 14
Sechin, Igor................................................... 4
Simões, António....................................... 13
Soros, George.............................................. 3
Speth, Ralf................................................... 12
Stevenson, Ewen...................................1,
Taupin, Vincent........................................ 14
Thiam, Tidjane............................................ 8
Tucker, Mark........................................10,
Uchida, Makoto........................................ 14
Zhang, Daniel............................................. 12Haven sentGreece and Italy offer unlikely
shelter from coronavirus storm—ANALYSIS, PAGE 19
Going nativeVietnam’s policy pivot in
favour of national champions—INSIDE BUSINESS, PAGE 12
David
Sheppard
Tail
Risk
The UK has kicked its coal addiction, despite returning for
one last fix in the depths of winter. The electricity system
wentmore than two weekslast summer without burning a
single tonne of the dirtiest fossil fuel for the first time since
the 1880s, in what was hailed as a landmark in the coun-
try’s attempts to turn its energy supplies “green”.
Coal has crept back in to the mix over the winter, consist-
ently generating about 5 per cent of theUK’s electricity.
But, in truth, this signalled neither a retreat from the
pledgesmade as part of the Paris agreement on climate
change, or a natural response to the colder winter months.
What has been happening is nothing more than the death
rattle of Britain’s coal industry.
Wind, nuclear, cleaner natural gas and, critically, a
higher price for carbon emissions have helped stripcoal
almost entirely out of the system, well ahead of govern-
ment plans forcoal plants to beshutby 2024. The coun-
try’s electricity supply has cut CO2 emissions by around
two-thirds in a decade, faster than any other big economy.
Generators such asSSE
andDrax, which have spent
billions to reposition them-
selves as cleaner operators,
fired up their coal plants in
large part not because the
market has demanded it but
because they are sitting on
stockpiles they need to get
rid of before they close their
sites.
SSE’s Fiddlers Ferry power plant in Cheshire, which is
due to close next month, confirmed it was burning coal “to
use the remaining stocks over the winter when demand is
at its highest”.
Drax, which hasconvertedmuch of its main power plant
in Yorkshire to run on biomass in the form of wood pellets,
said its coal units “can still play a role” outside the summer
months — but declined to say for how much longer. It has
contracts to supply electricity from its coal units when sup-
plies are tight up until 2022, but that has rarely been the
situation this winter.
Analysts at EnAppSys, which monitors energy supplies,
said there was no economic incentive to use coal unless
power plants were simply trying to burn through old
stocks, given that wholesale gas prices are close to their
lowest level in a decade and the costs of emitting carbon are
still high.
Coal that has been sitting in yards cannot easily be
resold, making it akin to a stranded asset.
There is an element of hypocrisy in companies that
trumpet their role in cleaning up the UK’senergy system
choosing to burn coal. Butit should not overshadow what
has been achieved.
Coal use is coming to a juddering halt, from supplying
around a third of UK electricity generation a decade ago.
The winter rebound was a final dirty hurrah.
Wind, nuclear,
gas and a higher
price for carbon
emissions have
helped stripcoal
out of the system
While the S&P 500, Dow and Nasdaq have
surged to record highs in recent weeks,
another rally has also taken hold. The US
options market has experienced a huge
jump in trading — led by bets on large
companies includingTesla,Amazon,
Apple,Google,MicrosoftandDisney,
according to analysts at Goldman Sachs.
Vishal Vivek, equity derivatives
strategist at the New York bank, said
trading volumes in US options were
almost as high as those on the underlying
stocks, at 91 per cent.
That is the highest level of at least the
past 14 years, and about three times the
equivalent percentage in 2016.
The purchase of “call” options —
contracts that give the right to buy a stock
at a fixed price any time up until
expiration — has been a particularly
popular trade.
If the stock increases in price over that
period, the holder of the call option gains.
Thomas Hayes, chairman of Great Hill
Capital, a New York hedge fund, said
investors had been gravitating towards
call options as stocks such as Tesla raced
higher because “they allow managers to
control many more shares... for a
fraction of the cost”.
Mr Hayes said that a majority of active
investors underperformed their
benchmarks last year, having traded “too
conservatively” on fears of escalations in
the US-China trade war.
Now that the stock rally had continued
unabated, he said, “we have a severe case
of ‘FOMO’ [fear of missing out]”, Mr
Hayes continued.Jennifer Ablan
Taking off Trading volumes in US options soar to 14-year high
Massive surge in US
options trading
Average daily value traded
as a proportion of shares volume ( )
Sources: Goldman Sachs Global Investment Research;
OptionMetrics
*
- Data as of Feb
Bets on large companies such as Disney have spurred a rally in US options trading— Allstar/Pixar/Disney
FEBRUARY 19 2020 Section:2Front Time: 18/2/2020-19:13 User:nick.miller Page Name:2FRONT USA, Part,Page,Edition:EUR, 11 , 1