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Corona Capital

14 Sep 2020 By Breakingviews columnists

Corona Capital is a column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.


– Amazon’s weaknesses

– NYC’s struggles

Help wanted! Amazon.com is on another hiring spree, the fourth this year. The $1.5 trillion company is searching for 100,000 more workers – specifically for warehouse and logistics – in the United States and Canada to keep pace with the demand from shoppers. In the second quarter, North American sales rose more than 40% to about $55 billion.

The surge is giving Amazon an even bigger slice of e-commerce sales, but it is hitting at a weak spot. The last mile for shipping products is attractive to shoppers, but traditionally costly to Amazon, which often subsidizes costs.

The company is opening 100 fulfillment centers to help alleviate the crush, but still. Rival Walmart, which employs 1.5 million in the United States, some double Amazon’s global tally, has picked up the pace by utilizing its massive retail footprint. Nine in 10 Americans live within 10 miles of a Walmart store, making curbside pickup much more of a snap. (By Jennifer Saba)

Hometown disadvantage. New York City-centric businesses are dropping like flies. On Monday, the owner of New York Sports Clubs, Town Sports International, filed for Chapter 11, while last week, department store owner Century 21 said it would shut down. Since the Covid-19 pandemic lockdowns started, the city has lost residents in big numbers, which is putting pressure on commercial real estate too. It’s prompting business leaders to sound the alarm and Mayor Bill de Blasio is pleading for federal aid.

In less weird times, the odds that NYC would get some love from Washington would be higher. The Big Apple is home to President Donald Trump and some of his business enterprises. Condos branded with his name have lost some 25% of their value since 2016, according to CityRealty. With valuations of other properties around the world also falling, Trump has some work to do if he vacates office in January. Throwing a bone to the city that never sleeps might be a solid first step. (By Lauren Silva Laughlin)

Apple cart. The glory days of Apple’s fall product-launch events passed along with late boss Steve Jobs. But this year’s edition, on Tuesday, could be lamer than usual. Thanks to Covid-19 it will be virtual, which presents opportunities for improvements – like skipping stilted appearances by top executives. But the unveiling of new iPhones will come later, according to news reports, leaving this week’s show to focus on upgrades to the company’s watches and iPads, according to Macworld.

The company led by Tim Cook hasn’t needed Jobs’ magnetism to sell serious quantities of smartphones, other gadgets, and – increasingly – services. There are reasons its market capitalization is $1.9 trillion, and that’s already down 15% or so from the recent high. But the valuation of a business that used to be consistently underestimated by investors now looks relatively frothy. Unexciting product updates may not do much damage, but bigger risks like antitrust and U.S.-China relations eventually might. (By Richard Beales)

The Great Disconnect. The Bank for International Settlements’ quarterly report on Monday points to reasons for the divergence between risky asset prices and the global economic outlook. For example, if historical relationships were to hold, 2020 growth forecasts would be consistent with bankruptcies rising by 20% to 40% in 2020, the BIS says. Yet bailouts and other public-sector support have meant that most economies have seen a lower number of bankruptcies since the beginning of the year than in the equivalent period in the previous five years. Credit markets, which expect corporate bankruptcies to stay low, may not therefore be getting things that badly wrong.

The Basel, Switzerland-based BIS also underscores the extent to which the U.S. stock market rally has been driven by technology stocks rather than broad-based enthusiasm for equities, and flags the unprecedented scale of monetary policy easing. As long as policymakers are willing to backstop markets and companies, asset prices and economies can take different paths. (By Swaha Pattanaik)

Power surge. French electricity giant EDF may be close to short-circuiting again. Dampened power demand could mean the $31 billion state-owned utility gets extra capital later this year, French newspaper Les Echos reported on Monday, three years after it raised 4 billion euros. Net debt of 42 billion euros is equivalent to a toppy 3 times estimated 2020 EBITDA, according to Refinitiv data. Bringing that down to 2.6 times implies boss Jean-Bernard Levy needs some 2.2 billion euros from investors who have sent shares down 14% year-to-date.

The pandemic has seen the dividend axed, raising questions about whether a company which is already 84% owned by the government is suited for public markets. In response, Levy has pledged 3 billion euros in disposals by 2022. He could also spin off the lucrative renewable energy division. That would at least show that President Emmanuel Macron’s privatisation drive isn’t totally dead. (By Christopher Thompson)

Cheque, mate. Metro’s largest shareholder is using the pandemic to increase its grip on the German wholesaler. Buyout firm EP Global Commerce, which already indirectly owns 29.99% of the company, on Sunday launched a new tender offer. The vehicle, owned by Czech and Slovak investors Daniel Kretinsky and Patrik Tkac, plans to bid 8.48 euros per ordinary share and some 8.87 euros per preference share, with the aim of lifting its stake above 30%.

The approach, which boosted Metro’s ordinary shares 6.5% to 8.92 euros on Monday morning, is opportunistic. The stock has halved since last June, when the investing duo made an unsolicited offer valuing the company at 5.8 billion euros. Since then, its customer base of restaurants and hotels have come under strain. But the investors can avoid bidding for the entire company by stating that they have no intention of controlling more than 50% of the company. It makes sense to pick up cheap stock, if they can. (By Aimee Donnellan)

Padded seats. Were France and the Netherlands too generous to Air France-KLM? Thanks to 10.4 billion euros of state bailout loans and guarantees, the airline had 14.2 billion euros of liquidity on tap at the end of June. Even though it’s burning through 10 million euros a day, that’s enough to keep it airborne until mid-2024, by when even the most pessimistic industry-watchers believe things will have returned to some kind of normal.

With so much leeway, unions are digging in against aggressive staff cuts. National tensions – both the French and Dutch governments hold 14% stakes – may also be getting in the way. KLM is ditching 20% of its staff, while the flabbier Air France is shrinking its workforce by 16%. Dutch Finance Minister Wopke Hoekstra is getting nervous, saying on Sunday that the airline’s future might be in doubt. The problem is that he’s removed the immediate financial pressure. (By Ed Cropley)


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