Off The Charts! A $10.8 bn ASX company, a US$4 bn Bitcoin heist, WOW dips, and a curious case of Shrink-flation

It was killing season in more than just Canberra this week. If you were in the red on Monday, you weren't alone. The ASX had the biggest drop in weeks after the markets started panicking about interest rate rises - at least that's what it looked like to us. In the US the Fed brought forward interest rate hikes to 2023, and, while the RBA is yet to promise anything, leading Aussie economists are forecasting rate hikes as early as 2022! 

This week, we're be looking at a sneaky shortcut that companies are using to sidestep inflation, mergers and demergers galore, a US$4 billion Bitcoin heist that set a new record for crypto scams, and a new form of retail camouflage known as “shrinkflation”.

All this and more... let's jump in. 

#1 Two powerhouses become one

What do you get when you take one big investment group and merge it with another? How about a $10.8 billion market cap and around 30,000 more shareholders?

Well, this may just become a reality come October thanks to the latest merger of two of Australia’s largest and oldest investment houses - Washington H. Soul Pattinson and Milton. 

WHSP announced this week their agreement to acquire Milton, bringing their market cap up from $7.2 billion to a whopping $10.8 billion proforma. This means that WHSP will become the 54^th largest company on the ASX.

In an effort to expand into new asset classes, WHSP’s acquisition of Milton will provide more liquidity and ‘firepower’, according to CEO Todd Barlow. With all the extra cash, WHSP intends on expanding into direct credit, private equity and property. What more could you want!

Even the King of LICs Geoff Wilson noted how powerful this merger would be, claiming the acquisition is a win for both companies and their shareholders. When the merger is finalised in October, WAM will take the bronze position on the Australian LIC podium, knocking Milton out of the spot. A win-win, right?  

#2 WOOLWORTHS SHARE PRICE FALLS OFF THE CHARTS

This week the long awaited Woolworths-Endeavour demerger finalised. But Woollies shareholders might be waking up with a headache today to find their shares fell 14.3% since the split, giving back almost all gains earned in the last 12 months.

ASX: WOW dropped 14.3%. Source: Apple Stocks/ Livewire.

The split, which was first flagged in 2019, would separate the retail giant's gaming, liquor and hospitality businesses under the flag of Endeavour group. It comes as ESG concerns tied to the Endeavour brand's gaming businesses begun to hamstring the growth of WOW. These concerns include the fines received by Endeavour-owned ALH group for plying gamblers with tens of thousands of dollars of free alcohol last year. As super funds and impact investors look to increase the sustainability of their investments, WOW began to fall out of some investors mandates.

However, the dip in share price may be justified. According to the Demerger Document, Endeavour contributed about 23% to WOW's Net Profit last year, which would have a similar reduction to WOW's new earnings per share. 

A fall of 14% does not fully reflect the drop in earnings, which could mean that investors are still clinging to some hope of increased value. Brokers are not so sure though, as the consensus rating fell from Overweight to Hold yesterday (Source: FactSet). We will have to wait and see whether the groups can deliver on promises of increased value for these shareholders.

#3 The sneaky COUNTER-INFLATION TACTIC: SHRINK-FLATION

If you’re searching for clues that the inflation monster is well and truly awakening, you may want to start paying more attention to the weight of products – rather than the price - during your next trip to Woolies.

Our ingenious friends at the likes of Mondelez and Procter & Gamble know all about shoppers’ propensity to focus on cost over quantity. So instead of raising prices, you may find that your favourite product weighs less, but the price is the same.

It’s a form of retail camouflage known as “shrinkflation” and consumer advocates who track packaging expect it to become more pronounced as consumer prices rise. Take this (blatant) example uncovered by a chocolate lover who exposed Nestle Japan's sly diminution of KitKats, which sparked a social media backlash.

“Do we raise the price knowing consumers will see it and grumble about it? Or do we give them a little bit less and accomplish the same thing? Often it’s easier to do the latter.” – Edgar Dworsky, a consumer advocate and former lawyer in Massachusetts, told The Washington Post.

As our engaged users may be aware, the pandemic has lit a fire under input costs; so much so that the UN FAO Food Price Index saw its biggest month-on-month gain since October 2010, bringing the index to its highest point since September 2011. The Index rose 4.8% in May from April and a whopping 40% from the same period last year.

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So the next time you're at the shops and you find that your favourite products are weighing less, it’s a sneaky sign that inflation is finally making a comeback.

#4 Credit Suisse: Who wants to be a millionaire? 

The true COVID-19 story is that the rich got richer and the poor got nowhere. Credit Suisse released its Global Wealth Report 2021 this week and global wealth to US$418.3 trillion by the end of the year.

2020 was the first year when more than 1% of all global adults are (in nominal terms) dollar millionaires. According to Credit Suisse, the ultra-high net worth (UHNW) group grew faster than ever, with 24% more members to the club -- the highest rate of increase since 2003.

Those that owned their home (or property) saw the biggest forces of wealth creation. But share prices in the US and China were also a major contributing factor, globally. 

"Windfalls from unplanned savings and prevailing low interest rates saw a revival in housing markets during the second half of 2020. The net result was a better-than-average year for homeowners in most countries," said the report. 

Source: Credit Suisse. 

#5 Bitcoin bounces back - and then gets stolen

Bitcoin is living up to its volatile reputation, bouncing back after falling below US$30,000. It’s also living up to negative safety perceptions after a pair of South African brothers vanished after 69,000 coins worth US$3.64billion disappeared from their cryptocurrency investment platform. But more on that later.

The original cryptocurrency underwent quite the rollercoaster this week, falling below what Forbes describes as a ‘death cross’. This occurs when the 50-day simple moving average falls below the 200-day SMA; Bitcoin’s value capitulated to US$28,800 before recovering to above US$30,000 over the course of the week and advancing 3.57% to US$34,631 overnight.

For the past month, Bitcoin was trapped within a range of the mid-US$30,000s, suggesting that the enthusiasm for digital assets is starting to fade. Regulators are also intensifying their scrutiny of the industry, with China’s central bank summoning the country’s biggest lenders to reinforce a ban on cryptocurrency services.

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That skepticism comes with good with reason. How does nearly US$4 billion of crypto get stolen in this day and age? That’s the billion-dollar question right now in South Africa, where barely-teen brothers Amer and Raees Cajee, founders of Africypt, stand accused of a Bitcoin heist and have reportedly fled the country.

That amount would represent the biggest-ever dollar loss in a cryptocurrency scam and it’s so serious that the ‘Hawks’, South Africa's Directorate for Priority Crime Investigation, are involved. And crypto bulls wonder why equity and bond buffs (like this scribe) remain skeptical!

Contributor stories of the week

• On the hunt for income is Shane Wakelin with Income from the West: Long-term reliable income streams. He takes us on a property spin through the highest yielding tenants. 
• Fan-favourite Marcus Padley is back with Sell quickly and buy slowly - his latest lessons on staying fully invested. 
• Shane Oliver provides readers with a five reasons to keep a cool head through interest rate and QE speculation in Five reasons not to panic as central banks head for the easing exits.
• Inflation can't stay hidden forever, argues Rudi Filapek-Vandyck in his article 2021, The Year Of Doubt
• And, another gem from James Gerrish who asks the question: Is it too late to jump aboard the Lithium train?

Coming up next week... 

• A special COVID-safe Buy Hold Sell, as we dive into 5 growth stocks trading at a discount. We'll stop at nothing to deliver the verdict from Ben Clark and Justin Braitling on these stocks. 
• Our latest CIO Profile, MLC Asset Management's Jonathan Armitage sits down for a chat with Livewire's Ally Selby.
  
• This weekend listen out for Patrick Poke's special guest on the Rules of Investing podcast, Wilson Asset Management's Matt Haupt. You'll hear how he uses macro analysis to help inform his stock-picking decisions. 
  
• Dividends are on the table next week, after Glenn Freeman dials in to Janus Henderson’s London-based gabfest.
  
• And don't miss out on our final instalment of Livewire's Top-Rated Funds Series.

- Mia Kwok, Vishal Teckchandani, Bella Kidman and Nicholas Plessas.

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