The Lex Bulletin: Where are the City’s missing drug dealers?

Dear reader,

For jungle dwellers, apex predators are a mixed blessing. They could swallow you whole like a bonne bouche. But if they disappear, something seems to be missing.

This is an overlooked aspect of the City of London’s current malaise. A wide range of wheel dealers operate in other financial centres. Wall Street has investors like Carl Icahn and Bill Ackman. Paris is a forum for tycoons like Bernard Arnault and Xavier Niel. Mumbai has more powerful dynasties than ancient Egypt.

The city’s corporate raiders Lord James Hanson, Sir Gordon White and Sir Gerry Robinson are long gone. Entrepreneur Sir Richard Branson is these days mostly active in the United States.

The City of London is now curiously devoid of major financial players. Simon Peckham had qualified as managing director of Melrose.

Lex noticed Melrose’s last month split of Dowlais. Melrose would no doubt sell the auto parts group for a big return, given the chance. Now the vehicle of acquisitions mentioned is hanging up his bargain boots focus on running your own aerospace business. Helen Thomas of the FT dissected the move neatly this week.

Unlike 80s rock goddess Bonnie Tyler, I can’t say I’m holding out for a (new) hero. Wheeler traders can destroy value as well as create it: Robinson’s 2004 acquisition of Granada group is a case in point. However, the lack of high-profile players suggests opportunities and capital are scarce. Please tell me what you think Lexfeedback@ft.com.

The deficit of those doing business in London cannot be blamed solely on competition from private equity groups. These are active in all three foreign markets mentioned above.

The takeovers are one reason why the count of London-listed shares is declining. New listings are meanwhile scarce. Foreign companies are going elsewhere. The last one is Anglo Gold Ashanti. The company, capitalized at around $11 billion, has closed its South African operations and is re-domiciling in London. But it will transfer its prime listing in New York in hopes of a higher valuation there.

Paris is doing better as a listing hub for luxury companies. coty it’s browsing a double list there. The US beauty and fragrance group hopes shares trading at 29 times future earnings will reach the 35 times rating enjoyed by L’Oréal. Lex believes Coty can achieve the same advantage by pushing its brands up the market.

We used the coronation of King Charles III as an opportunity to reflect on how the London market has changed since his mother was crowned in 1953. Surprisingly little, as it turns out. Of the likes of Shell, BAT AND BP extension they are still fixtures on the stock market.

Chatbot bonfire

Generative AI is a dominant story in business right now. This next big thing will eventually become yesterday’s news. The technological breakthrough will ingrain itself in some way into everyday life, producing returns on investment on the billions invested. Billions more will be wiped off Next Big Thing releases which will prove to be a great big flop.

We have already seen this with railways, fiber optic networks and virtual reality. We’re seeing it again with US streaming services like Netflix, Disney+ AND Peacock. These have spent billions on the records 599 scripted U.S. TV shows aired last year.

Spending growth is expected to stall this year with media groups shelling out an estimated $136 billion.

Clearly, a significant portion of shows will be worth less in the streaming service catalogs than commissioning publishers confidently believe. Neurodivergent dating strands or elimination contests with sheet metal workers are unlikely to be must-see programming in a few years.

This will result in sensational devaluations.

The same will happen in generative AI. But tech groups need to move forward with investments regardless — there’s a chance their version of this transformative technology will be successful.

Lex approves by Google plans to add more AI to its flagship research product. Parent company Alphabet it expects capital expenditure this year to exceed last year’s total of $31.5 billion. His huge advertising business can easily fund this. The alphabet can’t allow that Microsoft to increase the competitive edge of its former unchallenged Bing service.

The threat posed by GAI eliminated stock stuffing Chegg, a US online tutoring service. Three European Publishers — pearson, Take it easy AND Wolters Kluwer – attempted to reassure its investors this week.

Ronald Reagan joked that there was nothing scarier than the words “I’m from the government and I’m here to help.” For investors, that exception might be a CEO calling out of the blue to explain how certain future earnings are.

It’s easy to imagine that GAI produces textbooks that are cheaper and better customized than Pearson’s. Or by rehashing scientific articles and legal documents published by Relx and Wolters Kluwer.

The attack will be the best form of defense. Publishers need to build and market AIs that synthesize text from their libraries more adeptly than generic competitors. They should also sue tech groups that harbor electronic plagiarism.

Man, the London-listed group of hedge funds, has already invested heavily in artificial intelligence as an investment tool. New CEO Robin Grew will have to ensure the democratization of AI through billions of US investments it does not dull the edge of man in the field.

All technologies have their limits, as evidenced by the failure of a project to develop remote-controlled surgical robots a Siemens Healthineers. The German medical equipment manufacturer is making a write-down of €329mn on a business acquired as part of a $1.1 billion acquisition.

“Is that all you have?” Masayoshi Son might be tempted to ask Bernd Montag, who runs Siemens Healthineers. The founder of Softbanks this week announced a record loss of $39 billion on his two vision funds.

It’s fair to note that all technology investments have been hit by higher interest rates driving up the discount rates that drive valuations.

However, Son has had a poor record recently. He has favored ride-sharing and delivery startups, which have little in the way of unique intellectual property. He paid a lot for bets at the top of the market. And he has invested more in the portfolio companies than many of the founders needed or, in some cases, really wanted.

Lex doesn’t expect the Japanese investor to recover much value from the UK-based chip designer Arm or Chinese social media group Byte Dance.

As always, Warren Buffett of the United States is a better example. His business Berkshire Hataway it’s sitting on a $165 billion float from its insurance segment.

Buffett is currently tepid on public company takeovers. Lex calculates that if his money is making a risk-free 5%, he can easily justify buying companies with only purchase multiples of less than 20x.

Three trends to keep an eye on

• US companies with heavy exposure to China such as Estee Lauder AND Starbucks they are finding that customers are spending less freely expected. The precise intentions of the Chinese consumer remain as mysterious as those of President Xi Jinping.

• The Chinese capital is floods in Singaporepushing up property prices and inflating the deposit bases of banks such as Overseas Chinese banking company.

• Water resources they are under intense pressure all over the world. Countries like Italy are preparation of capital projects. There will be huge opportunities for private investment in everything from fields and desalination to commercial technology.

Things I liked this week

FT House & Home columnist Joy Lo Dico thought smartly about the political, financial and emotional aspects value of trees. And I was transfixed by the movie 1917airing this week on BBC television, concerning a young soldier adrift on the battlefield of the Western Front.

I am one of many European, American and Commonwealth citizens who owe their existence to a grandfather or great-grandfather who survived this ossuary.

I’m still reading Edward Gibbon History of the decline and fall of the Roman Empire.

Enjoy the weekend, whatever reading subject your nose is buried in.

Jonathan Gutri
Lex’s boss