UK Day Trader

Janney Montgomery Scott - GMCR

2011-02-23T09:27:00.000-08:00

"the firm continues to believe the stock will reach the $50/share level by September and $62/share in twelve months" -February 18, 2011 - Mitchell Pinheiro re: Green Mountain Coffee

Just do the opposite, these guys have a knack for not only getting it wrong, but really really wrong.

Liz Claiborne, Inc (LIZ)

2011-02-16T06:00:00.000-08:00

Liz Claiborne is due to report results on Thursday 17th February 2010. Current valuation on $3bn of sales is some $480m. This is very cheap given their brands and potential for revenue growth.

The main issue I have is the incompetent Chief Executive Officer, William L. McComb . Since he took office he has destroyed around $3-4bn worth of value in this company, whilst also earning $10-15m in the process. During the downturn he did not pro-actively cut costs and the company continues to leak money. He is unable to manage this company because he is incompetent.

I will be watching for his departure. A more competent leader can take the helm and turn this company around.

The brands this company has are superb however the current board particularly the CEO have destroyed the value of the company.

CNBC Live

2011-02-10T02:54:00.001-08:00

Watch live video from CNBC (Live) on Justin.tv

GMCR - Green Mountain

2011-02-02T14:10:00.000-08:00

Stunning Sales but have they been giving the coffee away for free ? Look at all the discounts. No wonder they made $2m on increased sales compared to last year same quarter's $10m

Now $2.50 off K-Cup boxes & $1 off coffee bags
Receive 24 K-Cups per box when you order online, more per box than buying locally
Choose from over 120 varieties of all your favorite brands: Green Mountain Coffee, Tully's, Newman's Own Organics and Caribou
FREE standard shipping when you purchase 4+ boxes of K-Cups
Save $3 on your K-Cup boxes when you reach Platinum Status
Change your order, adjust the delivery schedule, and check your current order status - all online!
Information on new & upcoming products
10% off gift baskets, brewers and accessories
No fees, no cost to join, cancel anytime without penalty

Some Thoughts on the Fed From Fellow Traders

2011-01-27T03:34:00.000-08:00

Fed, Bernanke, Obama, Geither are the worst scum bags alive, and will go down in US history 50 yrs from now when we'r 3rd world

No..They are crooks. Look at 06-07 when gas, housing everything was soaring..Fed..no inflation. Rinse and repeat.

Recovery ? The Jobless Recovery

2011-01-26T06:00:00.000-08:00

Yahoo - Chief executive Carol Bartz last night said the company would let a further 1% of its 14,000 staff go, just weeks after announcing 4% of cuts.

Chief Executive Officer Ursula Burns is also reducing costs, including 5000 job cuts announced last year to save the company about $140 million.

Disney has announced more job cuts as they make their strategic move away from developing console games.

With some top state leaders warning that Texas’ dire fiscal situation will lead to the loss of several thousand state jobs, House budget writers will release their first draft budget today — and big job cuts may be just the beginning. Lt. Gov. David Dewhurst went a step further last week and put a number to the cuts, announcing that 8,000 state jobs could be eliminated.

American Express fell 2.5 percent after announcing job cuts.

Buy the Dip ?

2011-01-25T15:25:00.000-08:00

Very true with the current money printing machine going into overdrive.

Printing Money May Help America

2011-01-25T10:07:00.000-08:00

The quantitative easing (printing money) has effectively been used to devalue the dollar, not quite sure if has achieved it yet, but it will given the amount of debt that the US is sitting on. This could potentially back fire on Bernanke.

Im not entirely sure what the net value of food or fuel imports is into the US. But although US goods will be cheaper to the rest of the world, the cost of importing food items and fuel into the States could rise significantly.

The impact of this could be a reduction in fat people across America, which will certainly help the health care costs.

The other impact could be the reduction in America's disposable household income. This could have significant issues for the American economy in the medium term.

Update on Foot Locker

2011-01-25T09:27:00.000-08:00

I posted some analysis on Foot Locker earlier. Granted my timing was out a little. However the share price is now $18.04. My shorts started around $18.34 with full position at $19.00. I'm still in a small loss on this trade and will now exit as it has come down from the highs at $19.77.

Hopefully my timing on Columbia sports where here will do better as I think this is at its top of its range.

Columbia Sportswear Company (COLM)

2011-01-25T08:59:00.000-08:00

Results are out 28th January 2010 - after markets close.

PE Ratio is around 28. This is high compared to say Nike which has a PE ratio of 19. Market capitalisation stands at around $2bn

Last quarter COLM fell significantly after results.   Estimates are around $436m for the current quarter with earnings of 0.64c. This would bring the current year earnings to around 2.14 or a PE of 28 based on current share price. Next years earnings are expected to grow to 2.64 !.   Thats a 23% growth in earnings (50c). Revenues are expected to grow from $1.49bn to $1.59bn around $100m. Such a small increase in revenues is hardly representative of the PE attached to this company.

These numbers dont really add up as gross profit margins are around 42%. So adding $100m to revenue would result in $42m in gross income.   It would require $17m profit to the bottom line after tax in order to get the 50c increase in the EPS.    This would imply no SG&A increases in the next year. Highly unlikely.

Given margin pressure, the cost of transport, raw materials, it is unlikely that the margins will stay the same next year. Also the increasing move towards the Internet and vast reduction of independent sportswear retailers will add margin pressure.   Dealing with larger companies always means margin pressure.

The austerity measures in Europe have hardly started to kick in which will also impact gross margins for Columbia and its independent retailers. Particularly with the recent sales tax increases which will make goods seem even more expensive.

Given the last earnings release Columbia has outperformed the market and peers.
Even if the results are good the upside is limited as this company is hardly a $LULU.

Im shorting into earnings at around $61.

Cramer 23-December 2010 "Cramer said Columbia is still an exciting story, but after the stock's recent run up, and the disappointing earnings from Nike, he'd only be a buyer of Columbia on a pullback."

Quantitative Easing Explained

2011-01-24T04:05:00.000-08:00

Euro Going to take a pasting ?

2011-01-23T11:06:00.000-08:00

EUR/USD closed on Friday 21st January 2011 at 1.3621 or thereabouts.

Over the weekend it appears that the Irish government has collapsed.

The promises on future spending may be reversed ?

Not good for the Euro

Shorting Netflix

2011-01-22T07:31:00.000-08:00

I have a lot of respect for Whitney Tilson and the transparency in his seeking alpha article on Netflix. It was also great to see Netflix response to this. I agree with Whitney on the points that he has raised, but it would appear that he may have mistimed this. Probably as much as the LULU shorts have mis-timed this short.

Im not going to repeat Whitney's article, you can read it here. You can also see the response from Netflix here.

There are a few key reasons I'm looking to short pre earnings

Google and Apple reporting great earnings got bashed in the market
Netflix will find it difficult for international expansion and on this fact alone the PE cannot be justified.
Apple and Google have hoards of cash and a loyal customer base. I doubt they will stand by and watch this potential market being taken over by a small player.

My only concern here would be a potential buyout by one of the cash rich player. The relationships that Netflix has created has significant value to a bigger player. But I'm not sure this is valued at $9bn. It would be cheaper for the acquirer to write a cheque of $1bn to each of the film studio than to acquire Netflix.

In order to ensure management of this trade, the exposure is going to be split as follow's

		Max Exposure
	Shares	1000
210.79			Exit
200.75	9.56	200,754.23
191.19	9.10	191,194.50
182.09		182,090.00
172.99	-9.10	172,985.50
164.34	-8.65	164,336.23
156.12	-8.22	156,119.41
148.31			Exit

Maximum Loss – Short Positions
20.00%	200	182.09	36,418
30.00%	300	191.19	57,358
30.00%	300	200.75	60,226
	Average	192.50	154,003
Exit	800	210.79	168,632
Maximum Loss			14,629

Maximum Profit – Short Positions
20.00%	200	182.09	36,418
30.00%	300	172.99	51,896
30.00%	300	164.34	49,301
20.00%	200	156.12	31,224
	Average	168.88	168,838
Exit	1000	148.31	148,313
Maximum Profit			20,525

Shorting Nile

2011-01-19T11:36:00.001-08:00

Again this overvalued company has hit $62.80. Sales of $300m, profit of $20m, market cap of $900m numbers dont make sense.

If your short, you may be able to help bring this share price down. How ? Type "Diamond on line" into a search engine and click on their sponsored link !

Western Digital Corporation

2011-01-18T09:20:00.000-08:00

WESTERN DIGITAL – EARNINGS PREVIEW

OVERVIEW OF WDC.

Design, develop, manufacture and sell hard drives.
Design and develop solid state drives
November 2009 - entered the traditional enterprise market with WD S25, which is a 2.5-inch, SAS interface hard drive (cloud computing)
Develop and manufacture hard drives for the desktop and mobile PC, enterprise, CE and external hard drive market

Western Digital inherently bad reputation, product failures. However, they are cheaper than other drives and certainly have more drives available in more retail stores. The negative reviews could be a result of market penetration i.e. more of their products are out in the market.
Business Development Manager for Western Digital in Australia, Damien Hodge said that his company was currently selling millions of WD hard drives to cloud computing providers such as Google – 26/11/2010
In 2010, 64% of hard drive net revenue was derived from non-desktop markets, including notebook computers, CE products, enterprise applications, and WD-branded product sales, as compared to 62% in 2009
For 2010 and 2008, no single customer accounted for 10%, or more, of the Company’s net revenue. For 2009, sales to Dell Inc. accounted for 10% of the Company’s net revenue.

FINANCIAL

Low PE ratio of 6.05
Short % of Float (as of Dec 31, 2010)2.80% - very low short interest.

WDC : Sales by Region	2010	2009	2008	Growth
	$m	$m	$m	08/10
United States	1,889	1,492	1,949	97%
Asia	5,239	3,639	3,343	157%
Europe, Middle East and Africa	2,260	2,008	2,344	96%
Other	462	314	438	105%
Total	9,850	7,453	8,074	122%

Given the growth from 2008 to 2010, particularly sales in Asia, the low PE certainly does not align with high sales growth.

VALUATION

EBITDA for 2010 is around $2,035m. Market capitalisation is around $7,680m. Cash flow from operating operating activities was $1,942. The balance sheet has very little debt.

Current assets less total liabilities stands at around $2,101. This represents 27% of the share price. This values the revenue of $9,850m at $5,738m. Or put it another way the company is valued at around 2x EBITDA.

OPINION

I started off analysing the financials of this company. However I soon came to the conclusion that the financials are not what really matters for this company’s valuation, but the probability that the products that WDC produce will be the will be a 'windows phone' of the future. i.e. something that no one buys and is completely useless.

The hard drive makers have been bashed largely due to the growing coverage of cloud computing. The problem is that the wall street analysts sitting in New York offices with 4G networks have not tried a mobile broad band connection in developing nations such as the UK, China, India.

In the UK for example we have areas that still do not have mobile access, let alone a 4G network to download large excel files whilst on the move. Hotels charge £6.00 an hour to access the internet. Not ideal if you have all your critical documents sitting on a Google server farm. Impossible and expensive to work in the absence of a machine without a hard drive. And using public wi-fi channels ? Completely insecure as far as I am concerned. Apply this reasoning across the rest of the developing nations and it is apparent that hard drives are not going to disappear. Just looking at the sales figures in Asia clearly demonstrates that the demand for WDC products is certainly not abating.

Cloud computing is great in offices with good connectivity and countries with fast mobile connections, however it will take some years for the rest of the world to have such high speed connections which will eliminate the need for hard drives. Not to mention the significant investment required.

Other items that the analyst have failed to take note of is that the size of media files is growing faster than the increase in the available speed on mobile networks. So with the exception of music files, the excel spreadsheets, photo, HD media are also bigger.

Mobile operators are also moving away from unlimited mobile broadband access, to a pay per use. There is very little point in having all your home movies in a cloud network when you get wacked with a $1 bill each time you access them.

Mobile monopolies still exist across a lot of Europe. Further the European Commission has been meddling in the pricing of roaming and data charges, forcing roaming price caps by mobile operators. The impact of this is that where travelling Europeans were subsiding unlimited access for local non travelling users, this is no longer the case. The outcome is that all users are now subject to data caps with fees for exceeding the cap.

RIMM and Trading Positions

2010-12-17T02:08:00.000-08:00

Yesterday, via my twitter account I mentioned that I had taken 4 positions below, all for post market earnings trade.

Ticker	Security Name	Position	$
RIMM	Research In Motion	Long	30,000
SCS	Steelcase	Short	30,000
ANC	Accenture	Short	30,000
ORCL	Oracle	Long	30,000

RIMM is not a street favourite. In fact it nearly always gets hit at earnings. However a lot of businesses continue to use Blackberry and those that can't afford an iphone choose Blackberry as the second option, and has decent encryption.

RIMM' results were impressive. The current PE of 11.39 is far too low given the growth in sales and cash flow this company is generating. Q4 earnings per share projections are between $1.74 and $1.80. This brings EPS to $6.32 for the year. The share price is $59.24 giving a PE of 9.33. Thats even lower than Nokia's (NOK)

There is an expectation that its market share will erode much like Nokia's, but management are much more on proactive than Nokias management, who were complacent.

RIMMs valuation is around $31bn. In the last 6 months it has generated $2bn of cash from operating activities. Thats say $4bn a year. Giving a Market Cap / Cash Ratio of around 7.75

Compare that to say YHOO valuation of $21.5bn, annual cash flow of $1bn provides for a ratio around 21.

The street sometimes forgets that the 2bn people in the BRIC countries cant all afford iphones. 3G Networks outside of the US are in general poor. In UK the for example, outside of London 3G connection is slow or not available, similar to other third world and developing countries.

Both the Android and iphone require extensive bandwidth even for accessing email, where as the blackberry does not. There is no point having an iphone and an one line mail account if your access to 3g is limited.

It will be some years before the rest of the world will catch up with decent 3G connections which would make the iphone or android phones appealing to use.

Adobe

2010-12-15T03:48:00.000-08:00

This is one of the reasons why I wish adobe would just disappear. Whether it is my Linux machine or my Windows machine, Adobe does not behave !

MLHR (Herman Miller) and its 401k

2010-12-14T13:08:00.000-08:00

Shady Going On’s MLHR.

Main institutional holders of MLHR stock as at 30^th September.

Holder	Shares	% Out	Value*	Reported
WELLINGTON MANAGEMENT COMPANY, LLP	2,631,418	4.61	51,786,306	Sep 30, 2010
VANGUARD GROUP, INC. (THE)	2,340,516	4.10	46,061,354	Sep 30, 2010

Within Herman Miller 401k there was a holding of 4,230,566 shares. This represents around 8% of the company.

Wellington and Vanguard Funds are also held by the 401k and surprisingly also hold significant portions of MLHR.

Total holding by what I would consider “insiders & friends” is around 16%. This is very significant holding.

In the UK its probably bordering on illegal to have the pension scheme not diversify the risk.

By both the 401k and the underlying funds holding MLHR stock, stop extreme price movements.

Even worse is that the total fund assets was $377,265,055 at the end of which $81,353,789 represented MHLR stock (excluding that held by the underlying mutual funds).

The underlying mutual funds probably hold another $10,000,000 (at a guess) assuming contracts were awarded to Wellington and Vanguard were on an ‘understanding’ basis.

Without specific disclosure of the funds in the 11k, it is difficult to identify the funds, let alone the underlying holdings.

So around 24% of the 401k plan has underlying stock of the company itself i.e MLHR.

In 2007 the value of these 4m MLHR shares was around $167m. They are currently valued at around £81m. They managed to shave off around 20% of the 401k return just by holding their own stock.

Surprisingly the 11k does not identify comparative investment return’s, given the high level of transparency it has in the markets, I am a little surprised.

I’m surprised that the 401k holders have not sued MLHR for the poor performance, largely due to the significant holding of MLHR stock itself.

Two things can happen;

1) The underlying holders of the 401k may sue MLHR for poor performance given the large proportion of MLHR stock

2) MLHR will need to replace its own stock with something better performing.

Either way it could spell bad news for MLHR share price, with such a large 'insider' holding propping it up.

Where next for Retailers ?

2010-12-14T05:04:00.000-08:00

The internet has changed the face of retail. Are any retail shares worth buying ?

First it was the records shops, then the bookstores, the electronic retailers are already being hit. (BBY today!)

Pharmacys, shore stores & perfume shops are slowing seeing their customers move to the internet.

Basically any item that can be easily identified i.e. any brand name will always be found cheaper on the internet. Some of the french perfume houses are trying to stop this through the French courts, but alas the internet will always prevail.

So the retail space will be full of clothes shops and restaurants in the foreseeable future.

I am just waiting for my FL (Foot Locker) sales to drop.

Why you should not trade in the UK.

2010-12-14T03:55:00.000-08:00

I started off trading on UK stocks some years ago. Within the first year I discovered that any private investor thinking of trading in the UK is at a large dis-advantage compared to institutional investors.

I try and limit my activities to the US for the following reasons

Prices for stocks are free and Level 2 is cheap. (Here the London Stock Exchange only provides prices on a 20min delay and wants to charge extortionate fees for real time and level 2 data). Unbelievable and completely backward !
If I create liquidity both sides of the trade I actually receive money back for trading in the US. That’s right if I buy and sell BAC at say 11.13 and create liquidity on each side I make money, even after commission.
Information in the UK is expensive and there is no central place for data, compare that to the SEC filings – perfect standard data across all companies
Information on options, short interest is not easily available in the UK. Compare that to Nasdaq where all financial data is available
The US has better quarterly reporting regime, giving you 4 chances a year to get it right !
You cannot day trade in the UK the commission costs are far too high.
Its easy to get access to the NYSE floor brokers, which means you get filled before the price rolls through a level. So you can ‘parity trade’
The US markets are far more liquid, mainly because their exchanges are very forward thinking. Compare that to the London Stock Exchange dinasour that we have here, where systems go down on critical days and price information is a commodity.

Trading Radar Next Few Weeks

2010-12-10T04:23:00.000-08:00

Earnings that are on my radar for next week 13th December 2010

MLHR, AIR, DFS, CCL, RVI, HOV, BBY, CPR.L, APOG, JOYG, ACN, ATU, FDX, GIS, PIR, RIMM, RAD, SCS,

Earnings that are on my radar for next week 20th December 2010

ADBE, AM, CTAS, JBL, NAV, KMX, CAG, FINL, NKEm PRGS, LNN, WAG.

For you new traders or those that are beginning take around $5,000 exposure for each trade.

You can expect around 3% movement on each trade. So around $150 profit or loss. Lets assume that you get it right 70% of the time.

There are 30 potential trades. 21 Gains 9 Loss Expected Income for the Christmas presents is

Profits of 21 x $150 = $3,150

Losses of 9 x $150 = $1,350

Net Profit $1,800 !

I will, if I remember post all of my projections on this over the course of the coming weeks.

Mens Warehouse MW OFT Report

2010-12-06T06:46:00.000-08:00

Completed acquisition by MWUK Holding Company Limited of
Dimensions Clothing Limited
and
Completed acquisition by MWUK Holding Company Limited of
certain assets of Alexandra plc (in administration)
ME/4664/10
The OFT's decision on reference under section 22(1) given on 2 November
2010. Full text of decision published 19 November 2010.
Please note that the square brackets indicate figures or text which have been
deleted or replaced in ranges at the request of the parties or third parties for
reasons of commercial confidentiality.
PARTIES
1. MWUK Holding Company Limited ('MWUK') is the recently incorporated
acquisition vehicle of the US based corporate wear group, the Men's
Wearhouse, Inc ('TMW').1
2. Dimensions Clothing Limited ('Dimensions')2 is active in the supply of
clothing and protective equipment to corporate customers in the UK. The
majority of its turnover is derived from the provision of a fully managed
uniform and clothing service to corporate customers. It also sells corporate
clothing through its catalogue (it is not active in wholesale or rental of
clothing). Dimensions' UK turnover for the year ended 31 December 2009
was £[ ] million.
1 MWUK is owned [ ] per cent by Gresham, a private equity firm; [ ] per cent by Simon Hughes,
the CEO of the merged entity; and [ ] per cent by Moores the Suit People Inc (MSP). MSP is 100
per cent owned by the Men's Warehouse Inc ('TMW'), a US based company, through TMW's
subsidiary Moores Retail Group.
2 Whose direct parent company (which has also been acquired) is Ensco 648 Limited
1
3. Alexandra PLC ('Alexandra') is active in the supply of clothing and
protective equipment to corporate customers in the UK primarily through its
catalogue but also through managed service contracts. Alexandra was in
administration at the time certain of its assets were purchased by MWUK.
Alexandra was formerly quoted on the London Stock Exchange.
Alexandra's UK turnover for the financial year ended 31 January 2010 was
£[ ] million.
TRANSACTION
4. On 6 August 2010, MWUK made two acquisitions:
• 100 per cent of the share capital in Dimensions, for a consideration of
£[ ] million, and
• (following Alexandra's entry into administration on 12 July 2010)
certain assets from Alexandra's administrator, PricewaterhouseCoopers
LLP (PwC),3 for a consideration of £[ ] million.
JURISDICTION
5. A relevant merger situation arises when two or more enterprises cease to
be distinct and either the UK turnover test or the share of supply test set
out in section 23 of the Act is met.
6. Given that Dimensions and Alexandra were wholly separate entities prior to
their acquisition by MWUK, and were not previously under common
control, the acquisition of each of them by MWUK is potentially a relevant
merger situation for the purposes of the Act.
Acquisition of Dimensions
7. Both MWUK and Dimensions are clearly 'enterprises' that have ceased to
be distinct from each other.
3 The parties made arguments that Alexandra was a failing firm in the course of the OFT
investigation, however, given the OFT has concluded that no SLC arises as a result of the
transactions it has not been necessary to give further consideration to these arguments here
although they are considered further under the section of this decision dealing with the
counterfactual.
2
8. The UK turnover of Dimensions exceeds £70 million; the turnover test in
section 23(1)(b) of the Act is satisfied in relation to this transaction.
9. Therefore the OFT believes that it is or may be the case that a relevant
merger situation has been created by the acquisition of Dimensions by
MWUK.
Acquisition of certain assets of Alexandra
Enterprises ceasing to be distinct
10. Given that only certain of Alexandra's assets were purchased, the OFT has
first considered whether the sum of these can be considered to be an
'enterprise' for the purposes of the Act (such that Alexandra constitutes an
enterprise that has ceased to be distinct from each of MWUK and
Dimensions).
11. The requisite test for the OFT is that it has to reach a belief that it is or
may be the case that a relevant merger situation has been created (section
22(1)).
12. MWUK informed the OFT that it has acquired the following assets from
PwC: plant and equipment, IT systems, certain customer contracts, the
benefit and burden of certain tender submissions, intellectual property
(trademarks and internet domain names), vehicles, stock and records.
MWUK has taken over responsibility for the staff on the basis that the
TUPE4 regulations apply. MWUK will also inherit any goodwill that attaches
to Alexandra under its brand.
13. In relation to establishing whether an enterprise is present, the OFT's
guidance states that: 'An 'enterprise' may comprise any number of
components, most commonly including the employees working in the
business and the assets and records needed to carry on the business,
together with the benefit of existing contracts and/or goodwill.'5 The
guidance goes on to identify the transfer of customer records, the
application of the TUPE regulations and payment for goodwill as being
indicative of an enterprise being present.
4 Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/246.
5 OFT Mergers – jurisdictional and procedural guidance, paragraph 3.10.
3
14. As a result, the OFT believes that it is or may be the case that the transfer
of this collection of Alexandra's assets to MWUK constitutes an enterprise
for the purposes of consideration under the Act. As a result, the OFT has
reached a belief that it is or may be the case that Alexandra will cease to
be distinct from MWUK (and Dimensions).
Share of supply test
15. Alexandra's turnover is below £70 million and so the turnover test in
section 23(1)(b) of the Act is not satisfied in relation to this transaction.
The OFT has therefore considered whether the share of supply test is
satisfied in relation to the acquisition of the Alexandra assets
16. The parties argued that the share of supply test was not satisfied in
relation to the Alexendra assets. This was because, at the time of the
acquisition (which technically completed before the Dimensions
acquisition6), MWUK did not own Dimensions. Given that MWUK was not
itself active in the manufacture or supply of corporate clothing in the UK,
there was therefore no overlap between MWUK and Alexandra for the
purposes of the share of supply test.
17. The OFT notes that section 23(9) of the Act states that the question of
whether a relevant merger situation has been created shall be determined
immediately before the time when the reference has been, or is to be,
made. The fact that there was no overlap between MWUK and Alexandra
at the time the enterprises ceased to be distinct from each other is
therefore not conclusive. At the time of the OFT's decision on reference,
MWUK owns Dimensions and therefore there is an overlap between
MWUK/Dimensions and Alexandra in the supply of corporate clothing for
jurisdictional purposes.
18. The combined share of supply share exceeds 25 per cent in relation to the
supply of corporate clothing in the UK, and the share of supply test in
section 23 of the Act is therefore met in relation to the acquisition of
Alexandra.
6 [ ]
4
Conclusion
19. As such, the OFT believes that it is or may be the case that a relevant
merger situation has been created by the acquisition of the Alexandra
assets by MWUK.
BACKGROUND AND RATIONALE
20. The value of the market in corporate wear has steadily declined since
2007. The level of this decline has been varied across different suppliers,
some indicating a drop in sales of up to 25 per cent over this period. The
OFT was informed by competitors that the recession was the main factor
driving sales down. One commented that clothing was considered to be a
low priority, and that in the current climate some customers try and delay
purchasing all but essential items.
21. Dimensions, like other companies operating in the corporate clothing
sector, has experienced a [ ] per cent decline in sales during the recent
economic downturn. As well as experiencing a drop in sales due to the
general economic climate, Alexandra, has experienced other issues which
have led to a decrease in its revenue. These are explored further in the
counterfactual section below.
22. [ ]
THE COUNTERFACTUAL
23. Paragraph 4.3.5 of the OFT/CC Merger Assessment Guidelines7 states:
'In practice, the OFT generally adopts the prevailing conditions of
competition (or the pre merger situation in the case of completed mergers)
as the counterfactual against which to assess the impact of the merger.
However, the OFT will assess the merger against an alternative
counterfactual where, based on the evidence available to it, it considers
that the prospect of prevailing conditions continuing is not realistic (for
example, because the OFT believes that one of the merger firms would
inevitably have exited from the market) or where there is a realistic
7 Mergers Substantive Assessment Guidance (OFT 506).
5
prospect of a counterfactual that is more competitive than prevailing
conditions'.
24. The pre-merger situation is that Dimensions was active independently in
the supply of corporate clothing in the UK. However Alexandra was in
administration at the time of the acquisition and there was therefore some
question as to whether it might meet the conditions of an exiting firm.8 In
this respect, as well as suffering from a loss of sales due to the general
economic downturn, [ ]. Third parties commented that they did not believe
that Alexandra's aggressive pricing strategies were sustainable in the long
term as evidenced by its ultimate entry into administration. At the same
time, OFT notes that although Alexandra's assets were purchased out of
administration, there appear to have been several other companies
interested in purchasing them and it is not clear that Alexandra would not
have survived as a going concern.
25. Ultimately, given that competition concerns were not found in relation to
either acquisition, it has not been necessary, in this case, to conclude on
whether or not Alexandra was an 'exiting firm' under the criteria in the
OFT/CC Merger Assessment Guidelines.9 However, in this regard the OFT
notes that a firm is not necessarily financially failing simply because it is in
administration. Further, other purchasers were interested in purchasing
Alexandra, meaning that it may still have been possible for Alexandra to
have been re-organised. For these reasons, the OFT has considered for the
purposes of its assessment of the transactions that Alexandra would have
survived as a going concern.
26. In relation to each acquisition, the relevant question for the OFT was
whether, given the acquisition by MWUK of the other business, the
addition of that relevant target business itself created a realistic prospect of
a substantial lessening of competition. In determining the answer to this
question for each relevant merger situation, the OFT assessed the
competitive constraints that the merged entity would be likely to face
following the mergers (as it would do in assessing an individual merger).
8 See Merger Assessment Guidelines, paragraphs 4.3.8 to 4.3.18.
9 Merger Assessment Guidelines, paragraphs 4.3.8 to 4.3.18.
6
MARKET DEFINITION
27. Dimensions and Alexandra overlap in the supply of corporate clothing in the
UK (see paragraph 20). Corporate clothing is bought by companies and
other organisations to be worn by their employees. It is either bought
directly by the employer or indirectly by the employees using a clothing
allowance. It includes the supply of uniforms and other apparel by
specialist corporate clothing companies. Some employers may 'self supply'
corporate clothing by carrying out for themselves all or some of the
functions of a specialist corporate clothing provider.
28. The parties submitted, and third parties corroborated, that the supply of
corporate clothing can be segmented in the following way:
• managed corporate clothing services
• catalogue sales
• rentals (in which Dimensions and Alexandra do not overlap),10 and
• personal protective equipment (PPE).
29. The supply of corporate clothing has not previously been the subject of an
investigation by either the OFT or the CC.
Product scope
30. The parties submitted that the relevant candidate market is the supply of
corporate clothing as a whole, but that this market can be segmented by
type of distribution; managed corporate services, catalogue sales and PPE.
They did not consider that each of these segments was capable of being
defined as a separate relevant market.
31. Market definition begins with the narrowest plausible candidate market(s)
in which the parties overlap. In this case, on a cautious basis, these are:
• managed corporate clothing services
• catalogue sales, and
• PPE.
10 Alexandra is active in rentals but Dimensions is not – the parties do not therefore overlap in
rental services this will therefore not be considered any further.
7
32. Each of these is considered below.
Managed corporate clothing services
33. The parties are both active in providing managed corporate clothing
services in the UK.
34. The provision of a fully managed service involves the design, delivery,
replacement, planning and removal/destruction of corporate uniforms. A
partially managed service involves the same services except that customers
take delivery and then arrange distribution of the garments, rather than
having the distribution managed by the service provider. Corporate wear
suppliers typically tender for the contracts of larger customers. Contracts
are typically for between three and five years.
35. The majority of customers and competitors respondents agreed that
managed corporate clothing services were distinguishable from other
corporate clothing services because they provided a particular type of
service to larger companies and are attractive to certain types of customers
because all of the companies' clothing needs could be catered for under a
single contract. Competitors in managed services told the OFT that
customers of managed service contracts would generally not switch to
catalogue purchases or indeed to self-supply, that is customers directly
sourcing their clothing needs from a manufacturer.
36. In relation to self-supply, the views received by the OFT were generally
consistent. All customers, except one, told the OFT that even following a
10 per cent increase in prices they would not consider self-supply. The
reasons given were that they did not believe it to be a feasible option given
the complexity of the logistics, the need to monitor manufacturers in
developing countries, and the cost of storage facilities for stock. Customers
also advised that they would not currently have the skills required to
choose appropriate materials or to design uniforms.
37. Managed services customers confirmed that they would not generally
switch to purchasing through catalogues. However, a catalogue competitor
noted that catalogue sales were becoming more important in the economic
downturn with, some companies preferring to replace clothing only on an
'as and when needed' basis (rather than replacing it periodically on a larger
scale through a managed services contract).
8
Catalogue services
38. The parties overlap in the supply of corporate clothing sold through
catalogues.
39. Corporate wear sold through catalogues is typically homogenous and
unbranded. Unlike for managed service contracts, sales of corporate wear
through a catalogue are typically on an ad hoc basis and there are no prearranged
supply agreements.
40. On the demand-side, smaller customers generally told the OFT that they
would not generally switch to a managed service contract, given that this
could be more expensive and lacked the flexibility they enjoyed through
catalogue purchases. The OFT further investigated whether customers
viewed self-supply, either through purchasing from a retailer or sourcing
from Asia, as an alternative to purchasing from a corporate wear catalogue
supplier. In general, third parties' views were that sourcing from Asia
would be too onerous a task to be profitable following a SSNIP, and retail
prices do not compare favourably to catalogue prices.
Supply side substitution: managed corporate clothing and catalogue
41. The boundaries of the relevant product market are generally determined by
reference to demand-side substitution alone, but there are circumstances
where the OFT is able to aggregate several narrow relevant markets into
one broader one on the basis of considerations about the response of
suppliers to changes in price. The OFT may take such considerations into
account when:
• production assets can be used by firms to supply a range of different
products that are not demand-side substitutes, and the firms have the
ability and incentive to quickly shift capacity between these different
products depending on demand for each, and
• the same firms compete to supply these different products and the
conditions of competition between the firms are the same for each
product.11
11 OFT/CC Merger Assessment Guidelines, paragraph 5.2.17
9
42. In this regard, third parties noted that most—but not all—corporate wear
suppliers will provide both managed services and catalogue products to a
greater or lesser degree given that the clothing for each type of service is
largely the same and that there are common tasks involved in selling both,
for example sourcing clothing from Asia, and managing logistics and stock.
Some differences did exist, however. Further, one competitor told us that
large customers often require supply of bespoke products via managed
services and also homogeneous clothing via catalogue sales. These
customers therefore have a preference for a 'one stop shop'.
43. Set against this under a managed contract, corporate clothing could be less
standardised and more tailored to the needs of the customer to a greater
extent, third parties said. Managed services also involve design, fitting,
embroidery, etc. Similarly, the OFT was not provided with any evidence of
competitors quickly shifting supply between managed services and
catalogue sales in response to changes in demand (see, for example,
paragraph 43) as one would expect were supply-side substitution a
constraint.
Conclusion on managed corporate clothing and catalogue services
44. The OFT has not considered it necessary to conclude on the precise scope
of the relevant product markets in this case since the test for reference
does not depend on this. However, on the basis of the above, the OFT has
nonetheless taken a cautious approach and examined the transactions on
the basis of the narrowest plausible candidate markets given the evidence
on demand- and supply-side substitution; that is, on the basis of the supply
of managed corporate clothing services excluding self-supply, and of the
supply of corporate clothing sold through catalogues.
PPE
45. The parties overlap in the provision of clothing with a protective element
(PPE). PPE is designed to protect users from injury or illness resulting from
contact with radiological, chemical, physical, mechanical, electrical or other
hazards and includes a variety of products, for example, hearing protection,
protective footwear, protective gloves and protective clothing.
10
46. Given that the parties only overlap in the supply of high visibility protective
clothing, thermal underwear and protective shoes, the OFT has considered
whether the supply of PPE should be further delineated by these types of
protective clothing.
47. On the basis of the evidence available to the OFT—and consistent with the
discussion of corporate wear above (which does not distinguish between
individual items of clothing)—customers want to purchase sets of PPE
rather than individual items. Further, one PPE customer told the OFT that it
did not believe it would be difficult to switch to unbranded suppliers (for
example, branded protective footwear may be suitable for use in the
construction industry) or indeed to self-supply from overseas, for example,
from China.
48. The OFT has not needed to conclude on how the PPE market should be
delineated given that no substantial lessening of competition concerns are
raised on the various bases identified. On the narrowest plausible candidate
markets in which the parties overlap (namely, high visibility clothing,
thermal underwear and protective shoes) the parties' market shares are not
high enough to give the OFT cause for concern. In particular, in relation to
high visibility clothing the parties do not appear to be significant players
and there are several other suppliers. Third parties have not raised any
concerns in relation to PPE. The OFT has not therefore needed to give
further consideration to the markets identified.
Geographic scope
49. The parties submitted that the geographic market for corporate clothing
services (managed contracts, catalogue sales and PPE) is at its narrowest
UK wide, as most providers including Alexandra and Dimensions operate at
least across this area. The parties further submitted that they considered
that the market could be EEA-wide given that certain large customers
require European coverage. [ ]
50. Customers and competitors confirmed that clothing was often transported
across the country and that competitors did not need to be in any particular
location in the UK.
51. In respect of self-supply, some of the largest UK customers indicated that
they could self-supply from further afield, including from Asia.
11
Notwithstanding that the extent of any constraint from self-supply on
managed corporate clothing and catalogue services is unclear, it may be
the case that self supply 'imports' provide some form of constraint on any
putative UK geographic market.
52. On the basis of the above and taking a cautious approach, the OFT has
assessed the merger in a UK wide geographic market.
Conclusion on market definition
53. On a cautious basis, the OFT has assessed the transactions on the basis of
the narrowest plausible candidate markets in which the parties overlap,
that is a) catalogue sales b) managed services contracts and c) PPE in the
UK.
HORIZONTAL ISSUES
UNILATERAL EFFECTS
Managed Services Contracts
Shares of supply
54. In the UK, the parties estimate that they have a combined share of supply
of managed services (excluding self-supply) of around [20 to 30] per cent,
with an increment of [five to 15] per cent.
55. Although Alexandra and Dimensions were the two largest managed
services corporate wear suppliers, customers indicated that they will
continue to face competition from a number of smaller suppliers.
Tendering
56. Customer contracts are awarded through competitive tendering processes,
where six to eight competitors are typically invited to participate and from
which customers identify a shortlist of three to four.
57. The majority of customers who responded agreed that there were a number
of suppliers who could meet their demands. Simon Jersey,
12
Incorporatewear, Coneen Group, and Sartoria Corporate Wear were
amongst the competitors which customers told the OFT had bid for their
contracts when they were open to tender. Other suppliers identified by
customers included William Sugden & Sons Limited, Russel Europe, Disley
N M Williams (UK) Limited, Slaters, Hunter Apparel, Direct Corporate
Clothing and Indiform. All customers who responded indicated that when
they had gone out to tender they had received at least five tenders from
competitors who they believed were genuine contenders for the contract.
58. Given that there may be around 50 or so opportunities to tender in any
given year, the parties submitted that there are opportunities for smaller
competitors to win significant contracts, and that small size is not an
impediment to wining contracts. This was confirmed to the OFT by
customers and competitors. Recent examples of relatively small
competitors winning large contracts are: Incorporatewear winning the
contracts for Virgin Atlantic and Thomas Cook [ ].
Supply to large customers
59. Two competitors queried whether the parties were the only firms with
sufficient scale to be able to compete for large fully managed contracts.
They believed that post merger, for the very largest contracts with a value
of £10 million or more, no other competitors remained. Similarly, a
competitor commented that it could bid for most managed service
contracts except the very largest ones which it believed only Dimensions
and Alexandra were in a position to bid for.
60. Set against this, large customers contacted by the OFT indicated that they
perceived there to be adequate choice beyond the parties and that several
companies were credible alternatives to the merging parties even if they
generally possessed far smaller market shares. They said that the size of a
competitor did not generally preclude it from being a credible bidder.
Consistent with this, the parties provided the OFT with numerous examples
of mid-sized competitors winning contracts for large, multi-site customers.
Further, competitors told the OFT that consortia had made bids before,
even though there had been issues around co-ordination and assignment of
tasks. There was no evidence that any of the large customers had split
their contracts into 'lots' in the past, however. All three of the largest
customers who responded were unconcerned about their reduction in
choice of suppliers post-merger. Two of the three had managed the supply
13
of corporate wear in-house in the past and did not discount doing this in
the future.
61. Moreover, a large customer commented that they did not believe that long
term supply agreements with a single supplier were an issue in this market
given the significant culture and practice of regular re-tendering processes
by most of the larger purchasers.
62. For these reasons, the OFT does not consider that the transactions will be
detrimental to large customers.
Closeness of competition between Dimensions and Alexandra
63. The parties submitted that, although the transactions have led to the
largest and second largest suppliers of managed corporate service providers
merging, they are not the closest competitors to one another. This is
because, the parties said, Dimensions focuses on managed corporate
clothing services whereas Alexandra's sales are more balanced between
catalogue and managed services sales: Dimensions made £[ ]m worth of
managed services sales in 2009 relative to £[ ]m worth of catalogue sales
in the same period; Alexandra made £[ ]m worth of managed services sales
in 2009 versus £[ ]m worth of catalogues sales.
64. Bidding data from the parties over the last four years supports the
proposition that the parties do not compete strongly against one another. In
general, the parties have only bid against each other in relatively few of
contracts that each has bid for.
14
Frequency and proportion of each of the parties' total number of annual bids in
which it faced competition from the other merger party
2007 2008 2009 2010
A. Total number of tenders in which Dimensions [ ] [ ] [ ] [ ]
each party bid: Alexandra [ ] [ ] [ ] [ ]
B. Number of tenders in which both Dimensions
and Alexandra made bids (this will be a subset of
the figures in the row above)
[ ] [ ] [ ] [ ]
C. Per cent of tenders in which it Dimensions [ ]% [ ]% [ ]% [ ]%
bid against the other merger party
(i.e. the figures in B. divided by the
figures for each party in A.):
Alexandra [ ]% [ ]% [ ]% [ ]%
65. Of the [ ] tenders in which the parties bid against one another in 2009,
neither party was successful in around [ ] of the cases, indicating that
other bidders provide a constraint on both of the parties. Consistent with
this, customers reported that there were several firms willing and able to
submit competitive bids. Customers also identified non-price factors on
which competitors are able to rival the merger parties.
66. Set against this, three customers for whose business both the parties bid
against one another (these were not all in the same year) provided
information on the prices offered by the first and second place bidders. In
two of these instances, the parties were placed first and second. However,
the number of tenders in which the parties were first and second place is a
very small subset of all the contracts for which the parties bid against each
other.
67. The OFT's market testing supported the parties' argument that Dimensions
and Alexandra predominantly target different customer groups and that
their products are differentiated. Third parties confirmed that they
perceived Alexandra to be stronger in catalogue sales whilst Dimensions
was more focused on managed services contracts.
68. Overall, then, although there is some evidence of the parties competing
with each other, seen in the context of the overall bidding data the OFT
concludes that the parties are not closer competitors than their market
15
shares would imply, and that there are a number of competitors able to
constrain them.
Conclusion on unilateral effects in managed services contracts
69. On the basis of the evidence above on market shares and tendering, the
OFT does not consider that the mergers give rise to a realistic prospect of a
substantial lessening of competition on the basis of unilateral effects in
managed services contracts.
Anticompetitive buyer power
70. A competitor was concerned about the parties' ability to engage in
'predatory' pricing post-merger. They argued that by earning a reputation
for bidding aggressively the parties could deter rivals from making bids.
They further argued that MWUK is a well resourced competitor and could
therefore support losses over a three to five year period. The competitor
told the OFT that the parties could harm competitors and damage
competition by:
• bidding below cost for a contract in order to build a relationship with a
customer
• improving margin by using the additional demand to secure better prices
from garment suppliers in Asia, and
• improving margin by product re-engineering and added value services.
71. The OFT considered that the complainant's argument was most
appropriately characterised as a concern over the possible exercise of
anticompetitive buyer power (sometimes known as a 'waterbed effect'). In
doing so, the OFT noted that, in many cases, an increase in buyer power
will not give rise to unilateral effects; and some of the benefit to the
merged firm may be passed to its customers.
72. Under the waterbed effect argument, any additional discount generated by
the expanded activities of the merged firm (from enhanced buyer power or
from MWUK's 'deep pockets') allows it to reduce prices and attract
additional business. Some of that increased business comes at the expense
of the merged firm's competitors. Their scale of activity is therefore
reduced.
16
73. This may reduce the discount that they obtain from their garment suppliers
in Asia and/or make them less able to enjoy economies of scale. If so, then
this 'waterbed effect' may give rise to competition concerns if the merged
firm's competitors are already sufficiently 'squeezed' that they exit the
market or otherwise cut back their operations. This reduces the competitive
pressure on the merged firm, potentially more than offsetting the typically
pro-competitive effects of its enhanced buyer power.
74. The waterbed effect in this case therefore depends on four factors. First,
the extent to which discounts depend on scale. Second, whether any
scale-dependent discounts apply 'at the margin' to prices, so that discounts
affect retailers' incremental costs, which in turn affect the prices they
charge. Third, whether there are economies of scale in managed services
and fourth, whether the merged firm's rivals are much smaller and/or
operating under much lower margins. Even if so, any waterbed effect must
still be weighed against the pro-competitive effects of buyer power.
75. On the first and second factors, several competitors told the OFT that
Asian garment suppliers (in particular those in China) preferred to deal with
larger companies, and offered them discounts. However, this appeared to
be for reasons of supply chain logistics as much as for reasons of volume.
Further, the OFT was unable to ascertain how many competitors use
garment suppliers in Asia and could therefore be affected by the
complainant's concern. The information available to the OFT was
insufficient to determine what form any discounts that Chinese garment
suppliers offer to large UK customers may take (retrospective rebates or
discounts 'in kind', for example).
76. On the third factor, the OFT did not uncover any evidence that economies
of scale in managed services contracting are such that a small reduction in
the scale of the activities of the parties' competitors would substantially
increase their costs of operation.
77. On the fourth factor, given that several competitors have been in financial
difficulty in the past year, it seems likely that at least some of them have
incorrectly priced contracts, indicating that they may be operating under
low margins. Further, the parties have larger market shares than their
rivals. Set against this, the parties margins do not appear significantly
higher than their competitors and customers have told the OFT that small
size is not an impediment to winning contracts (see paragraph 64). On
17
balance, then, it is not clear to the OFT that the parties' competitors are
sufficiently squeezed that they would be likely to exit the market or
otherwise curtail their activities.
78. Consequently, the OFT does not consider that the mergers give rise to a
realistic prospect of a substantial lessening of competition on the basis of
anticompetitive buyer power in managed contract services.
79. As noted below, the OFT may also need to take account of any stimulus to
rivalry in managed contract services that may arise as a result of any
increased buyer power from the mergers. However, given the OFT's
findings on the waterbed effect, it is not necessary for the OFT to conclude
on this.
Catalogue Services
Shares of supply
80. The parties have a combined market share of [25 to 35] per cent, with an
increment of [zero to 10] per cent in the supply of corporate clothing
through catalogues.
81. The parties submitted that Dimensions did not compete strongly with
Alexandra given its relatively low market share.
82. The parties also informed the OFT that providers do not generally have
ongoing contractual relationships with catalogue customers and, as a
consequence, catalogue customers are free to buy from different providers
as and when they choose to fulfil their clothing needs. In addition,
catalogue providers are able to buy one type of clothing from one
manufacturer and another type of clothing from another provider.
83. Customer responses to the OFT indicate that they are able to multi-source
and that the products produced by competitors are viewed as being
generally substitutable. Most customers did not express concerns about the
proposed merger to the OFT.
84. Consequently, the OFT does not consider that the mergers give rise to a
realistic prospect of a substantial lessening of competition on the basis of
unilateral effects in catalogue services.
18
COORDINATED EFFECTS
85. One third party raised the possibility that co-ordination would be more
likely post merger. The third party argued that competitors would not wish
to bid in managed services contract tenders in which the parties are the
incumbent because the parties would compete aggressively in these
tenders. In the OFT's view, this concern is therefore most appropriately
characterised as one over customer sharing The OFT received no evidence
of pre-existing coordination on prices, geographic territories, product
categories or customers.
86. The OFT does not consider that the proposed merger will change the
structure of supply to such an extent as to create or strengthen the
likelihood of tacitly collusive behaviour in managed services, especially
given the parties have different strengths (Alexandra in catalogue sales and
Dimensions in managed services). Co-ordination requires all of the following
conditions are met: that rivals can reach and monitor the terms of coordination;
that co-ordination is internally sustainable; and that coordination
is externally sustainable.
87. In summary, the OFT considers that—even if corporate wear firms could
reach and monitor the terms of co-ordination (which does not appear
likely)—it is far from clear that co-ordination would be internally or
externally sustainable.
88. The OFT considers that reaching and monitoring the terms of coordination
is generally easier where there are few firms in the market, and where the
degree of complexity in the environment in which firms compete is not
high.12 In the present case, however, between six and eight firms typically
bid for contracts (see paragraph 62)—meaning establishing a 'bidding rota'
is likely to be hard. Further, managed service contract tenders are
'bespoke' and cover non-price parameters of competition (see paragraph
71)—so the complexity of tenders seems high and likely to vary from one
contract to another.
89. In terms of internal sustainability, corporate wear managed services
contracts tend to last around three to five years making them important
sources of revenue. Each is sufficiently large that it is likely that rivals
12 See Merger Assessment Guidelines, paragraph 5.5.11.
19
would have the incentive to deviate from the co-ordinated terms in order to
win the business. Further, the duration of contracts makes it difficult for
rivals to swiftly retaliate against firms deviating from the co-ordinated
terms.13
90. In terms of external sustainability, existing 'fringe' competitors outside any
coordinating group appear likely to be able to take significant business from
any coordinating group (see paragraph 64), which typically reduces
external stability. Further, there has been international entry to the supply
of corporate wear in the past two years – the current mergers being
examples of this. Another example is the acquisition by Logistik of Faithful
and Rainbow in June 2009. The instability caused by outside entry is
unlikely to be conducive to maintenance of a co-ordinated outcome. Also,
given the bespoke nature of contracts and the large size of many
customers (relative to suppliers of corporate wear), several customers told
the OFT that they possessed buyer power (see paragraph 99), which is
also likely to externally destabilize coordination.14
91. Nor did the OFT receive any evidence that Alexandra or Dimensions were
particularly aggressive competitors whose presence had been preventing
coordination from emerging pre-merger.15
92. On balance, then, and on the basis of the above, the OFT does not
consider that the mergers give rise to a realistic prospect of a substantial
lessening of competition on the basis of coordinated effects in managed
services contracts.
BARRIERS TO ENTRY AND EXPANSION
93. The parties submitted that barriers to entry and expansion are low in each
of the markets identified. They informed the OFT that there are
insubstantial intellectual property or technical know-how required. In
relation to managed services any initial investment can be recouped
through the winning of a substantial customer contract. The parties and
third parties identified one significant new entrant, Pacific Brands, an
Australian corporate clothing provider which had recently entered the
13 See Merger Assessment Guidelines, paragraph 5.5.16.
14 See Merger Assessment Guidelines, paragraph 5.5.18.
15 See Merger Assessment Guidelines, paragraph 5.5.19.
20
market by winning the tender for Compass Group PLC. Third parties
generally commented that barriers to de novo entry were high given the
costs associated with the scale of operation required to be a significant
operator in the markets identified.
94. Given the outcome of the competition assessment does not depend on it,
the OFT has not found it necessary to conclude on the height of any
barriers to entry and expansion.
BUYER POWER
95. During the course of its investigation the OFT found some evidence of
countervailing buyer power especially among larger managed services
customers who submitted that they possessed sufficient buyer power to
mitigate any unreasonable price increase. Given the number of competitors
in the market smaller customers generally felt they were able to switch
supplier. By way of example, one large customer told the OFT that it
believed that it had buyer power given the volumes it purchased and
commented that the competitive tendering process enabled it to not only
drive prices down but also to increase the quality of supplies.
96. Given that no prospect of a substantial lessening of competition is raised
by the transactions, the OFT has not found it necessary to conclude on
whether there is buyer power in the markets identified.
THIRD PARTY VIEWS
97. Where relevant, third party comments have been incorporated above. No
customer complaints were received as they considered the parties were not
strong competitors with one another and they had adequate choice postmerger.
Far from being concerned some customers who responded to the
OFT believed that they perceived that the merger would provide the
Dimensions business with financial backing which would enable it to grow
the business and market position. Some competitors were, in contrast,
concerned that the it was a merger of the largest two players in the general
provision of corporate wear, seeing the transactions as a reduction in
choice of provider for customers.
21
ASSESSMENT
98. The parties overlap in the manufacture and supply of corporate wear in the
UK. More specifically they overlap in the supply of corporate wear under a)
managed services b) catalogue sales and c) PPE.
Managed service contracts
99. In the UK, the parties estimate that they have a combined share of supply
of managed services (excluding self-supply) of around [20 to 30] per cent,
with an increment of [five to 15] per cent. Unilateral effects concerns do
not arise as a result of the transaction. The parties do not appear to closely
compete with one another as Dimensions specialises in managed services,
whilst Alexandra is known for its catalogue business. No customers who
responded to the OFT were concerned by the merger. Several customers
indicated that it was not difficult to switch supplier and that relatively
regular tendering provided them with an adequate choice of credible bids.
Larger customers indicated that they believed they possessed a degree of
buyer power.
100. A competitor expressed concern about the parties' potential ability to
leverage any increase in buyer power post-mergers to give anticompetitive
effects. However, the evidence available to the OFT did not indicate that
the conditions for such a 'waterbed effect' were likely to be met.
101. Nor does the OFT believe that the proposed mergers will create or
strengthen coordinated behaviour. The OFT does not have any evidence to
suggest that collusive behaviour is presently occurring in the industry. The
mergers do not make the market concentrated and the competitive
environment is complex, meaning firms are not likely to have the ability to
reach and monitor the terms of any customer sharing. The lumpiness of
managed services contracts means that competitors' incentives to deviate
from any coordinated outcome are high and that punishment for deviation
is not credible, meaning that coordination is not likely to be internally
stable. Fringe competitors and new entrants appear likely to be able to win
business from any coordinating group and large customers have buyer
power, meaning that coordination is not likely to be externally stable.
22
Catalogue services
102. In relation to catalogue services the parties have a [25 to 35] per cent
share of supply. The increment created by the transactions is just [zero to
10] per cent.
103. There are no customer contracts and buyers purchase on an ad hoc basis –
they are therefore able to switch and multi-source according to their
requirements. Customers informed the OFT that they believed they had a
degree of buyer power.
PPE
104. The OFT has not needed to conclude on how the PPE market should be
delineated given that no competition concerns are raised on the various
bases identified. On the narrowest plausible candidate markets in which the
parties overlap (namely, high visibility clothing, thermal underwear and
protective shoes) the parties have low market shares which would not
typically be a cause for concern to the OFT. There are also several other
suppliers. Third parties have not raised any concerns in relation to PPE.
105. Consequently, the OFT does not believe that it is or may be the case that
the merger may be expected to result in a substantial lessening of
competition within a market or markets in the United Kingdom.
DECISION
106. Neither of these mergers will be referred to the Competition Commission under
section 22(1) of the Act.
23

Dollar General (DG)

2010-12-03T03:26:00.002-08:00

For those that are looking that have shares in Dollar General (DG) may want to check this post out on yahoo.

This is one of the most overvalued companies in the sector.

I haven't had a chance to finish my research on this, but the monkeys have locked in interest at extortionate rates with swaps from the Vampire Squid

Recent move upwards with earnings on Monday 6th December 2010, be careful if you are looking to go long particular at all time highs.

Current Share Price is 31.93

S&P 500 is 1221

Dow is 11362

There have been various posts by amateur investors looking at options activity for this company.

Dollar General (DG)

2010-12-03T03:26:00.001-08:00

For those that are looking that have shares in Dollar General (DG) may want to check this post out on yahoo.

This is one of the most overvalued companies in the sector.

I haven't had a chance to finish my research on this, but the monkeys have locked in date at extortionate rates with swaps from the Vampire Squid

Recent move upwards with earnings on Monday 6th December 2010, be careful if you are looking to go long particular at all time highs.

Current Share Price is 31.93

S&P 500 is 1221

Dow is 11362

There have been various posts by amateur investors looking at options activity for this company.

The Best of Breed Analysts

2010-11-25T09:44:00.000-08:00

These analyst have a nack for getting it completely wrong. Its actually not too bad to follow them as if you do the opposite you are likely to make stacks of money.

Sasa Zorovic & Mike Abramsky

"Given the stock's valuation, there is greater downside risk than upside potential to Salesforce.com," wrote Goldman Sachs analyst Sasa Zorovic. He reiterated his sell rating and $53 price target. 05/22/08 - Sales Force is now $145 on 17th Nov 2010

Janney Montgomery Scott equity analyst Sasa Zorovic reiterated a buy rating and $40 fair value estimate on shares of Adobe Systems (ADBE) - June 18th 2010. Stock Price then was $33.12. Price as at $28.40 on 17th Nov 2010. The market has climed some 20% as well !

RBC Capital analyst Mike Abramsky says he is cutting Apple (AAPL) to underperform from sector perform and his $125 price target to $70 on reduced growth expectations, visibility and near-term leadership uncertainty. He sees a revaluation in the stock toward a market multiple. (15th Jan 2009 - Bloomberg Business Week). Price is now $314.80 on 17th November 2010.

If you know another great analyst with consistent nack for making the wrong calls, then let me know. Its great to keep a watch on these guys as doing the opposite your returns will be better than the Sage of Omaha.