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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Seven & i Holdings plans to split its convenience store operations from non-core businesses as the Japanese retail conglomerate faces an unsolicited $47bn buyout proposal from Alimentation Couche-Tard.

The 7-Eleven owner said on Thursday that it would separate 31 subsidiary businesses — including supermarkets, speciality stores and the Denny’s restaurant brand — and put them in a new holding company, called York Holdings, to bring in outside investors and prepare for a potential listing.

The company’s financial arm, Seven Bank, will also be carved out of the convenience store empire as Seven & i works to streamline its operations and raise its corporate value.

The rest of the business — its convenience store empire in Japan, the US and the rest of the world — has been tentatively renamed 7-Eleven Corporation. The name change will be confirmed after a shareholder meeting in May.

The reorganisation comes as Seven & i tries to prove to investors that it can increase its valuation and fend off the buyout proposal from Canada’s Couche-Tard.

Seven & i, which operates 85,800 stores globally, has long been under pressure from activist shareholders, including San Francisco’s ValueAct Capital, to raise its valuation and focus on its convenience store business.

The group swiftly rejected Couche-Tard’s $39bn opening offer in September, saying it “grossly” undervalued the business and did not account for the difficulty of getting a deal past US competition regulators.

However, Couche-Tard, which operates the Circle-K brand, recently told the Japanese company it was willing to pay 20 per cent more, or close to $47bn, according to people familiar with the matter.

On Wednesday, Seven & i confirmed “that it received a revised confidential, private and non-binding proposal” and “intends to continue to maintain the confidentiality of its current discussions with [Couche-Tard] at this time”.

The new proposal has “cleared the valuation hurdle”, according to four Seven & i investors.

“I would be disappointed if Seven did not take this offer seriously,” said one large shareholder. “I want to see them negotiate and deal with this properly, as they have done so far.”

Seven & i’s stock price has risen 30 per cent since before the first Couche-Tard offer in August. But at ¥2,325 ($16) a share, it is still below the Canadian company’s latest bid.

If accepted, Couche-Tard’s takeover bid would be the largest in Japan by a foreign company and mark how corporate governance reforms are gaining traction in the country.

The announcements on Thursday came as Seven & i slashed its operating income forecast for the full year, which ends in February, to ¥403bn from ¥545bn.

The group also said its operating income for the second quarter was ¥127.7bn, a drop of 20 per cent from the same period the year before, missing analyst estimates of ¥144bn, according to LSEG data.

Good morning and welcome to your Morning Briefing for Thursday 10 October 2024. To get this in your inbox every morning click here.

AJ Bell strengthens senior leadership team

AJ Bell has strengthened its senior leadership team with two appointments as it continues to grow.

Ryan Hughes joins as managing director of AJ Bell Investments, while Stephen Westgate has been hired as group corporate development director.

They will both report to AJ Bell CEO Michael Summersgill.

BareRock launches counselling and wellbeing programme

Professional Indemnity Insurance (PII) provider BareRock has launched a counselling and wellbeing support programme for its advice firm policyholders.

The programme aims to support the mental health and wellbeing of individuals within BareRock’s club member firms who are dealing with the strain of high-stress complaint situations, by covering the costs of professional counselling.

Under the new initiative, BareRock will fund up to 10 one-hour counselling sessions per claim, subject to a £2,000 cap.

If Starmer targets ‘the broadest shoulders’, most clients will be in his sights

It won’t have escaped your attention that the new Labour government’s first Budget falls on 30 October — the eve of Halloween – writes Money Marketing features editor Maria Nicholls.

Unlike the newspapers, I’ll spare you too many spooky puns, she says. But allow me just this little one: people are frightened.

Prime minister Keir Starmer and chancellor Rachel Reeves have warned of “pain” and “difficult decisions”. It seems they’re preparing us for the worst.

Quote Of The Day

It’s a push-me-pull-you month for inflation, which is likely to keep the Bank of England on track for a rate cut in November

– Sarah Coles, head of personal finance, Hargreaves Lansdown, assesses the situation ahead of the BoE decision next month.

In Other News

Canada Life has enhanced its parental and family friendly policies for staff within the UK and Isle of Man.

From 1 January 2025, Canada Life colleagues will be eligible for 26 weeks of paid maternity leave or 16 weeks of paid paternity leave, including adoptive parents and the parents of children born through surrogacy.

In addition, staff undergoing fertility treatment and their partners will be offered the opportunity to take an additional ten days of paid leave a year.

Canada Life is also introducing additional support for staff who have recently experienced pregnancy loss, offering paid time off to both parents during this difficult time.

The enhanced parental and family friendly policies will be available to Canada Life colleagues from their first day.

Evelyn Partners has appointed senior hire Vanessa Lee to its Northern private client tax team.

With more than 27 years’ experience, Lee has a focus on advising high-net-worth individuals, families, family offices and trustees on a wide range of complex tax and dispute planning.

She has previously held senior positions at leading professional services firms including BDO and EY.

Based in Evelyn’s Leeds office, Lee will also work with tax teams in Harrogate, Manchester and Newcastle on all aspects of private client tax and succession issues.

Head of tax at Evelyn Partners, Tom Shave, said: “Vanessa’s appointment comes at a time of significant growth and investment for Evelyn Partners’ professional services business.

“Our ambitions in the north of England are underpinned by the recent acquisition of Haines Watts offices in Leeds, Manchester and Newcastle.

“A key aspect of our strategy is in attracting senior talent like Vanessa who will bring a new dimension to our business.”

HSBC targets senior bankers in cost-cutting plan (Financial Times)

China steps up checks of wealth management products after $149bn outflow (Bloomberg)

Ukrainian patriotism and profits spur boom in war bonds (Reuters)

Did You See?

What are we to make of the news the Financial Conduct Authority is to review consolidation in the advice market? asks Nic Cicutti.

The regulator has written to advice and investment firm bosses noting an increase in the acquisition of firms or their assets over the past two years.

It warned that, while industry consolidation can provide benefits, various types of harm can occur where this is not done in a ‘prudent manner’.

However, Cicutti says, the FCA stepping in now “seems a spectacular example of shutting the stable door after multiple horses have bolted”.

“I think it’s a case of too little too late,” he added.

Read Cicutti’s full article here.

A court-ordered break-up of Google would be unprecedented in modern American corporate history, delivering a blow to the Big Tech company that even Microsoft ultimately dodged when it lost its own US antitrust case two decades ago.

Yet for the legal team tasked with mounting Google’s response to the potential sanctions that the Department of Justice revealed on Tuesday night, the case could hardly have landed at a better time.

Google’s initial response to the DoJ’s proposals — that competition is “thriving” in search ads and “fierce” in artificial intelligence — would have been less convincing even two years ago, before OpenAI’s launch of the breakthrough ChatGPT chatbot.

Spinning out its arguments through the appeals courts will be crucial to Google’s strategy as it looks to deflect or delay the effects of August’s landmark ruling by a federal judge that it maintained an illegal monopoly by paying billions of dollars to device makers, mobile carriers and browser developers.

The legal timelines involved in such a complex and high-stakes case are likely to allow Google to put off any impact on its business for years. It plans to appeal the liability decision when the judge rules on remedies, which is likely to be in mid-2025, and may then also contest the remedies themselves.

Google executives are feeling a degree of whiplash after a period of heightened anxiety from investors that the company was falling behind in the AI race, just as it faced three separate lawsuits accusing it of abusing its dominance in search, advertising and mobile platforms.

With new search advertising competitors, such as Amazon and TikTok, emerging and widespread disruption to its core business from AI start-ups, including OpenAI and Perplexity, Google can argue that it is facing the stiffest competition since Microsoft’s Bing launched 15 years ago.

On Tuesday, for example, Google pointed to an Emarketer forecast that its share of US search advertising spending would fall below 50 per cent next year for the first time since the research group started tracking the market in 2008 — primarily due to rapid growth in Amazon’s marketing business.

However, the DoJ successfully made the case that Google monopolises a narrower market for general search engines, making Amazon’s inroads irrelevant from the court’s point of view. Google still handles more than 90 per cent of online search queries, according to StatCounter.

Broadly, Google’s argument focuses on what it describes as regulatory “over-reach” following a case about the impact of its distribution agreements. Forcing it to divest assets or share data with competitors would “go far beyond the specific legal issues in this case”, it said in a blog post on Tuesday.

Requiring Google to split off its Chrome browser or Android operating system, or other “structural” remedies, would “tilt the field at the precise moment that competition is thriving”, the company said.

Instead, Google would prefer any remedies to focus on the contracts it strikes with the likes of Apple and Mozilla, the Firefox browser maker, the company said. Even then, Google argues it should still be allowed to pay those partners for distribution, as long as those deals do not demand exclusivity.

John Kwoka, professor at Northeastern University, disagreed, saying Google was “a complicated company that has an awful lot of operating levers to achieve what it wants, and so it needs to be matched with an equally wide set of complementary remedies, up through and including divestitures where necessary”.

He pointed to a long history of companies evading the effects of regulators’ “conduct” remedies — a risk raised by the DoJ, which warned that “mechanisms and incentives for circumvention are endless”.

“This filing is an important stake in the ground and says ‘if we need to, we’re going to take a crack at this’,” Kwoka said. The DoJ was likely to argue that structural remedies were “necessary, that nothing else will work”, he added.

Google has meanwhile invoked the spectre of AI competition from China — without mentioning the country directly — to argue that weakening the Silicon Valley company would amount to undermining the US on the international stage.

Forcing it to share the “secret sauce” behind its search engine, such as data and algorithms, could put sensitive consumer information in the hands of China’s Baidu or Russia’s Yandex, Google suggested. Such companies might not uphold its own standards of privacy or security, it added.

“Government over-reach in a fast-moving industry may have negative unintended consequences for American innovation and America’s consumers,” it wrote in its blog post. “It’s hard to think of a technology more important for America’s technological and economic leadership [than AI].”

The DoJ saw things differently, arguing that the company’s “ability to leverage its monopoly power to feed artificial intelligence features . . . risks further entrenching Google’s dominance”.

The company is likely to appeal its antitrust cases all the way up to the US Supreme Court. “This is the start of a long process,” it said in Tuesday’s blog post.

Yet Jason Kint, a Big Tech critic who leads the Digital Content Next trade group of online publishers, said it was not a given that the Supreme Court would take up the case.

He estimated that it could take two or three years for any remedies to be enforced if the case proceeds through the courts, adding: “The reality is Google is racking up [legal] losses, they have a difficult set of facts along with spoliation from purging evidence and they may try to settle or proactively make moves to control the outcome.”

The case is one of the most high-profile legal challenges overseen by Jonathan Kanter, one of the progressive antitrust officials appointed by President Joe Biden who has clamped down on anti-competitive conduct across the US economy. 

Considering Google’s willingness to file appeals against the judge’s ruling, Kanter may no longer be heading the DoJ’s antitrust division by the time the case reaches completion.

November’s presidential election could also affect the outcome. Microsoft was able to reach a settlement with the George W Bush administration in 2001, less than a year after the Republican president had been elected.

However, any new Republican administration next year may not necessarily threaten the tougher policy introduced under Biden. Big Tech has attracted bipartisan ire in Washington in recent years, and a new generation of populist conservatives — including JD Vance, Republican candidate Donald Trump’s vice-presidential pick — have praised Washington’s more aggressive antitrust stance. 

A second Trump White House may avoid undermining the Google search case in particular as it was originally filed during his first administration.

There was a possibility that new DoJ officials might “go soft” on remedies or in a potential appeals process, Kwoka said, citing Trump’s unpredictability and Democratic presidential candidate Kamala Harris’s apparent openness to meeker antitrust policy. But, he added, “Big Tech doesn’t have the deference it did five years ago from either party, so . . . some version of this will probably go ahead.”

Google also faces other threats. Earlier this week, a California judge ordered it to open Android to rivals so they can create their own app marketplaces to compete with Google Play. The DoJ is separately suing Google for its alleged monopolistic control over digital advertising.

Yet, despite these blows, Wall Street’s reaction has been sanguine. Shares in Alphabet, Google’s parent company, fell only 1.5 per cent on Wednesday, leaving its market capitalisation just below $2tn, and maintaining its position as the world’s fourth-largest listed company.

The DoJ’s proposal “goes a mile wide and an inch deep”, analysts at Bernstein said: “As expected, the remedy set was far-reaching and light on specifics, though we remind readers that this is only the first inning of the battle.”

TSB has been fined for failing to ensure customers who were in debt were treated fairly.

The financial watchdog issued the bank a £10,910,500 penalty for its failures.

1

The Financial Conduct Authority (FCA) said that the bank “lacked suitable systems and controls to secure fair outcomes”.

It stated that between June 2014 and March 2020, TSB‘s “inadequate processes” created a real risk that repayment plans were for customers in arrears were unaffordable.

The FCA claims that staff were potentially encouraged to prioritise the number of repayment plans made over taking enough time to assess individual customer circumstances.

Therese Chambers, joint executive director of enforcement and market oversight, said: “If you get into difficulty, you hope for – and we expect – fair treatment so a stressful situation isn’t made worse.

“TSB’s woeful systems and controls exposed its customers to risk of harm and meant it missed opportunity after opportunity to do the right thing.

“While it did take action, it took us instigating a review before it acted effectively to address all the issues.”

TSB has paid £99.9million in redress to the 232,849 mortgage, overdraft, credit card and loan customers affected.

Hello everyone, this is Cissy in Hong Kong.

In China, there’s a saying that when inexperienced investors start playing the stock market, it’s time to get out. Events of this past week seem to back up that notion.

Hong Kong shares plummeted on Tuesday, the day mainland markets reopened after the seven-day Golden Week holiday. Someone I know of, who isn’t an experienced stock trader, had borrowed heavily to invest in Hong Kong-listed Chinese property stocks last Thursday, but on Tuesday, he suffered heavy losses as his leveraged position meant he was forced to liquidate his holdings.

That person wasn’t alone in such risky behaviour. In this stimulus-triggered, casino-like market, I heard of another investor who took out online loans during the holiday and went all-in on Tuesday morning on a highly volatile Shenzhen-listed stock that had already surged 18 per cent for fear of “missing out on the once in a lifetime opportunity”. But he ended up with significant losses after the benchmark indices experienced their largest daily declines since 2020. Reflecting on his losses, he said he was “badly misled by all these online posts, and I can only blame myself”.

Even college freshmen and delivery workers were joining the frenzy, while influencers were telling their followers to jump on the bandwagon and keep buying. China’s economic downturn, triggered by a property crisis, only exacerbated the situation. With their property investments continuing to depreciate, many people had become desperate for returns.

For most of the time that mainland markets were closed, Hong Kong shares were rallying. Some Chinese semiconductor stocks almost doubled in market capitalisation from late September, when Beijing announced new economic stimulus measures. Investors bought in at these inflated prices, only to end up losing money a few days later.

The frenzy brings to mind the stock crash of 2015, which had far-reaching consequences both domestically and internationally. An economist told me, however, that the current correction may not be a bad thing, as cooling the stock frenzy and averting a serious crash is a crucial step towards revitalising China’s economy.

Irreplaceable Asia

Asia will remain the centre of the chip industry despite the build-up of chip production in the west, Christophe Fouquet, president and CEO of Dutch chip production equipment maker ASML, told Nikkei Asia’s Cheng Ting-Fang in an exclusive interview.

Even with the launch of new chip plants in the US and Europe backed by subsidies and tax incentives, semiconductor capacity is growing faster in Asia and the region will remain the leader in production for many years to come, Fouquet said.

Spending on chip production equipment has long been viewed as a key barometer of the outlook for chip demand and production capacity growth. Asia accounted for 84 per cent of ASML’s revenue last year, with Taiwan its largest individual market, followed in the region by China, South Korea, Japan and Singapore. The US and Europe generated 12 per cent and 4 per cent, respectively, of the company’s sales.

In his view, Europe and the US should only use the incentives temporarily to create time and space to solve the more structural challenges, and cost-effectiveness should be key for long-term development.

America’s attraction

Chinese artificial intelligence start-ups are stealthily launching products in the US, which has a larger pool of high-spending users than their home market.

MiniMax, ByteDance and 01.ai are among a group of Chinese tech companies that have entered the US market with AI apps, seeking to emulate TikTok’s success, writes the Financial Times’ Eleanor Olcott.

The biggest breakout app has been Talkie, from Shanghai-based MiniMax, which has told investors it will net about $70mn in sales this year, a lofty projection by the standards of AI start-ups that have struggled to monetise their technology.

That Chinese AI apps are gaining traction overseas underscores the potential for the country’s tech groups to launch competitive products, despite Washington’s restrictions on the highest-end chips used to power model training.

Unbreakable ambitions

The Japanese government will support the development of quantum encryption technology, an effort expected to involve tens of billions of yen (¥10bn equals $68mn) in public-private investment over the next five years, writes Nikkei’s Kiu Sugano.

Japan and others are in a race against time to prepare for the emergence of quantum computers, which are expected to enter into practical use in 2030. Experts warn that these computers will be able to crack all current encryption techniques, making new forms of data protection a key issue.

Quantum encryption involves the transfer of encrypted data with a key converted into photons through fibre optic cables. Cracking this type of encryption is theoretically impossible since any attempt to steal data from the key would change the state of the photons and alert the system.

Japanese companies possess world-class technology in terms of key generation speed and transmission distance, but other countries have taken the lead in researching practical applications for quantum encryption.

Made in Mexico

As the AI boom continues, Foxconn is building a gigantic AI server manufacturing facility in Mexico to meet the “crazy” demand for Nvidia’s next-generation Blackwell chips, writes Nikkei Asia’s Lauly Li.

Nvidia’s GB200 server system is powered by its Grace Blackwell “superchip” and is the most powerful AI server system to date and Foxconn will start shipping a “small volume” of the GB200 systems in the final quarter of this year. The company did not provide a timeline for when the Mexico facility will come online.

A major iPhone assembler, Foxconn is also the world’s largest server maker, accounting for 40 per cent of the global market. The company’s server business has been its strongest driver of revenue growth this year amid a slowdown in the smartphone market.

Foxconn Chairman Young Liu said on Tuesday that the company’s diverse manufacturing footprints for servers will become more critical going forward as governments look to bring production of sensitive tech hardware closer to home for national security reasons.

Suggested reads

1. Cryptocurrencies flying high in India despite tough regulations (Nikkei Asia)

2. Samsung issues public apology after falling behind on AI (FT)

3. MediaTek launches AI smartphone chipset with latest TSMC 3-nm tech (Nikkei Asia)

4. Shein’s UK arm surpasses £1.5bn revenue mark (FT)

5. North Koreans harness AI, fake American IDs to land remote IT work (Nikkei Asia)

6. The perils of America’s chips strategy (FT)

7. AI to turn ‘Dragon Ball,’ ‘Gundam’ voices into English, Chinese (Nikkei Asia)

8. Baidu plans Apollo Go global expansion as Tesla prepares to unveil robotaxi (Nikkei Asia)

9. The Nintendo Museum should be a gamer’s paradise. But there’s a bug in the system (FT)

10. Honda showcases EV megacasting tech in race against Tesla (Nikkei Asia)