"The company is going to continue to do what they do best, continue to grow, Japan is one of the biggest brewed coffee markets in the world. Teavana premium teas are going to be unleashed on a culture that loves tea! Tech development is also going to take place, the Japanese are brilliant adopters of new tech. All in all, better to own all of it and have control."
To market, to market to buy a fat pig. Tuesday close was a long way away. I am sorry, I did not burn any meat yesterday, instead I made homemade wholewheat pasta (fresh), a first for me. The wholewheat part that is, not the fresh, that is old hat and I never seem to buy pasta. It would of course be a lot more impressive if I farmed salmon, at over 300 Rand a kilogram the stuff might be delicious, it certainly is not cheap. The old adage that there are plenty fish in the sea might ring true with humans, as there are more and more of us, this is not true with fish stocks that are being depleted. The way I see it is that simple economics will dictate the demand and by extension the price.
Enough about food and fish, we missed a trading day as a result of celebrating our respective heritages. Mine is so complicated that my family and I would need multiple sets of attire, no wardrobe is big enough to hold those clothes. The broader market S&P 500 (shifting gears quickly) closed the session up over three quarters of a percent in New York overnight, the first session ending in the green for a week. What? We had a losing Tuesday? I thought that was not supposed to happen. Locally, cast your attention span back to Tuesday evening, the local market was dragged back by industrials and financials, resources bounced off their beaten up ways, I see that the iron ore price is now below 80 Dollars a ton. Sad, true.
Starbucks announced, and you can read it on the Investor relations segment of their website that they were buying the remaining 60.5 percent of Starbucks Japan, that they do not own, via a two-step tender offer process the release says. Japanese law apparently. Japan is Starbuck's second biggest market after their home market, they have been in Japan since 1996 with their partner Sazaby League, now with over 1000 stores and providing active employment for 25 thousand folks. Wow. That is pretty big, the shops must be sizeable, people must pay more in the stores than in other places. Why do I say that? Starbucks in Japan has their fourth largest store footprint, second largest by sales, higher margins as a result of bigger orders!
Sazaby League asked Starbucks for the exit (their franchise agreement expires in 2021), I am sure that the US company are pleased to own all of the brand across one of the richest countries in the world. It will be a two step tender process, as mentioned and will begin as follows, starting tomorrow:
"The purchase price for Sazaby's 39.5% stake is ¥965 per share, for a total of 55 billion Yen, or approximately 505.0 million Dollars with Japanese Yen converted into US Dollars at a reference conversion rate of 108.93 JPY to USD. Upon final settlement of this first tender offer step, which is anticipated to occur during the middle of Starbucks first quarter of fiscal 2015, Starbucks will own a controlling 79% interest in Starbucks Japan."
55 billion Yen, at a rate of 108.93 Yen to the Dollar (for 39.5 percent) translates to 505 million Dollars. It hardly seems like a kings ransom, Starbucks themselves are worth 55.55 billion Dollars as at market close last evening. To buy the rest, the remaining 22 percent from the minority shareholders will be bought at a 51.8 percent premium to the first tender price. Starbucks Japan (code 2712 in Tokyo) trades at 1461, up a whopping 13.43 percent over the last month, the tender price to minorities is 1,465 Yen. Phew. Sazaby are accepting a monster discount to what the rest of the shareholders are getting, the minorities are being bought out on a 33 multiple, take the money and run. I guess to push the whole lot over the edge and with Sazaby wanting to exit (and by extension open to the discount), Starbucks bought the whole business for (22% for 44.5 billion Yen from minorities and 55 billion Yen for 39.5% from Sazaby) 99.5 billion Yen. Or 913 million Dollars.
In the release, the other one titled "Announcement Concerning Tender Offer For Shares of Starbucks Coffee Japan, Ltd." KPMG's discounted cash flow analysis came to a price of between 852 yen to 1,086 yen, whilst the average share price (that the market paid) was 1,171 yen to 1,399 yen during the period concerned. And then KPMG runs a complex model of sales and profits projections through to 2021. Always fun to see, I suspect that giving too much time to expectations sets yourself up for definite surprises, either to the down or upside.
Significant? No, not in the bigger picture, however the next moves are important for Starbucks in Japan. You can listen to the 24 minute conference call, on why Starbucks have done this -> Starbucks Conference Call Tuesday, September 23, 2014, 6:00 pm EDT. It is just a call. No presentations whatsoever. Howard Schultz on the call talks about the first store outside of North America being in Tokyo, lines around the block to taste the delicious coffee. The company is going to continue to do what they do best, continue to grow, Japan is one of the biggest brewed coffee markets in the world. Teavana premium teas are going to be unleashed on a culture that loves tea! Tech development is also going to take place, the Japanese are brilliant adopters of new tech. All in all, better to own all of it and have control.
Things that we are reading, that we think you should be too
The rich get rich and the poor get poorer? Does that always hold true? I am not too sure in highly developed societies that it necessarily does. In a country as big as the USA, where there are many disparities, I am not so sure that you will ever get closer to folks being the same. The Federal Reserve released a week ago the Balance Sheet of Households and Nonprofit Organizations, showing that the collective was worth 81.492 trillion Dollars. Or, as AEIdeas (Prof Mark Perry writing for Carpe Diem) said: "Per household, that would be an average of $673,700 of assets free and clear of debt. Amazingly, as much household wealth has been created in the last 21 years since 1993, as in the first 217 years of the US (1776 to 1991)." About all that debt that everyone focuses on .......
I guess then that you would not have been surprised to see then that There Are More Billionaires In The World Than Ever, according to Statista, "The number of billionaires worldwide has increased 7 percent from 2,170 in 2013 to 2,325 in 2014, according to the Wealth-X and UBS Billionaire Census 2014. In fact, there are now more billionaires in the world than ever before. Collectively, these individuals are worth $7.3 trillion and just 286 of them are women." What is surprising is that Europe has more billionaires than North America, confirming that generational wealth, quality education, steady economy policies and rich societies all contribute.
First you saw Amazon.com suggest that there be a drone to drop off your goods at your doorstep that you ordered an hour ago, Google have talked about it too, now I see via Fastcompany that DHL WILL BEGIN TESTING DRONE DELIVERIES ON FRIDAY. Wait, this is NOT for the latest Call of Duty, rather for medicines and supplies to a German island that needs it. A good start and ironically those most removed from the hustle and bustle will get the technology first. Medicine and supplies are more important than Call of Duty, not to everyone though.
This was interesting, Tom Lee, who left a major Wall Street bank for an outfit called Fundstrat Global Advisors, suggested that the S&P 500 EPS could peak at 154 Dollars, and then applying a 17 multiple to equity markets, he gets to a price target on the index of 2600. Much, much higher than where it is now. Read the BusinessInsider story here: Wall Street Bull Tom Lee Has An Unusual Way Of Illustrating How Long-Lived Bull Markets Evolve. I think when analysts and strategists make bold calls such as this, they are not taken as seriously as when people present doomsday predictions, somehow those bearish types are seen as cleverer.
Via the BusinessInsider, them again, they found all the components in the two new iPhones via a website: Teardown.com Analysis: The Apple iPhone 6 & 6 Plus. A couple of sentences is all you need to know: Preliminary analysis of the iPhone 6 Plus estimates it costs $242.50 USD to build - an increase of about 15% more than the iPhone 5S and then For the iPhone 6 the preliminary display / touchscreen cost about $41.50 with the iPhone 6 total CoG to be approximately $227.00. From the graphic you can see that the iPhone 5 cost 211.49 Dollars. Amazing.
And then lastly: Warren Buffett is Right to Hate Gold. Oops, sorry for that Gold Bulls, but two important points in there: Gold is an unproductive asset and Gold is valuable largely because people believe it's valuable. Make your own mind up, that one point is also worth making: Betting on commodities like gold is often a bearish bet against human productivity and innovation. I for one believe in humans and their ability to evolve and be more productive. As such I am not a big fan of gold.
Home again, home again, jiggety-jog. Stocks are up smartly here today, catching up today for lost time yesterday. We should really shift our public holidays to Fridays or Mondays to not have so much disruption. Talking disruption, and not good, Apple are having big problems: Some iPhone 6 Plus owners say it's bending in their pockets. True. Bugs in the system. And then: Apple apologises for bungling iPhone software update. Mine works for now, not pleasing as a shareholder though.
Sasha Naryshkine, Byron Lotter and Michael Treherne
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