Research In Motion
Friday, 17 December 2010
Wednesday, 15 December 2010
Tuesday, 14 December 2010
Shady Going On’s MLHR.
Main institutional holders of MLHR stock as at 30th September.
WELLINGTON MANAGEMENT COMPANY, LLP
Sep 30, 2010
VANGUARD GROUP, INC. (THE)
Sep 30, 2010
Within Herman Miller 401k there was a holding of 4,230,566 shares. This represents around 8% of the company.
Total holding by what I would consider “insiders & friends” is around 16%. This is very significant holding.
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
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.
I started off trading on
- 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
. 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. US
- Information in the
is expensive and there is no central place for data, compare that to the SEC filings – perfect standard data across all companies UK
- Information on options, short interest is not easily available in the
. Compare that to Nasdaq where all financial data is available UK
has better quarterly reporting regime, giving you 4 chances a year to get it right ! US
- You cannot day trade in the
the commission costs are far too high. UK
- 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’
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. US
Friday, 10 December 2010
Monday, 6 December 2010
Dimensions Clothing Limited
Completed acquisition by MWUK Holding Company Limited of
certain assets of Alexandra plc (in administration)
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.
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
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.
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.
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
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
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
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
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.
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
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
6 [ ]
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. [ ]
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).
prospect of a counterfactual that is more competitive than prevailing
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.
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.
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
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.
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).
38. The parties overlap in the supply of corporate clothing sold through
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
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
• 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
11 OFT/CC Merger Assessment Guidelines, paragraph 5.2.17
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
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.
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.
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
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,
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.
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.
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
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.
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,
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
of corporate wear in-house in the past and did not discount doing this in
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.
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
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
shares would imply, and that there are a number of competitors able to
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
• bidding below cost for a contract in order to build a relationship with a
• 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
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
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
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
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.
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
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.
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
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
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.
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.
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.
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
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.
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.
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.
106. Neither of these mergers will be referred to the Competition Commission under
section 22(1) of the Act.
Friday, 3 December 2010
Thursday, 25 November 2010
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.
Monday, 22 November 2010
“At the end of the third quarter, we operated 3,474 owned stores. Year-to-date, we have opened 35 new stores and closed 61 existing stores”. - Q3 (October) 2010 Results – Earnings Call Transcript
The problem with foot locker (FL) is that this may become a Barnes and Nobel or Borders Group of the future. The same way that CD and book sales have moved from high streets to the internet, footwear is probably one of the retail areas that will follow suit.
The reason is that footwear is very standardized, unlike other clothing apparel.
A pair of Nike AIR JORDAN FORCE 4 AJF 4 are the same, look the same feel the same and are the same, whether it is in Amazon or Foot locker. The only difference is that Amazon price is $99.99 whereas foot lockers price is $149.99 a difference of a third. In the days of austerity $50 makes a huge difference.
Investment in Foot Locker cannot be compared to a company like Nike (NKE).
Table : Nike Annual Sales
Cost of Sales
Gross Operating Profit
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Nike has shown an increase in revenues of around 16.5% over the prior 4 years, the same cannot be said for Foot Locker. Gross Margins for Nike have improved by 2%.
Table : Foot Locker Annual Sales
Cost of Sales
Gross Operating Profit
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| || |
Foot locker sales have decreased over the prior 4 year period to 84% of what they were 4 years ago. Margins have also been under pressure reducing by a full 3%, whilst Nike have increased their margins by a full 2%.
Management obviously have a challenge on their hands. The continuous store closures, although will not impact underlying earnings will increase impairment costs and ultimately cash flow. SG&A will be under pressure with reducing gross operating profit.
Approximately 68% of the merchandise came from Nike in 2009. With Nikes margins showing increases over the last 4 years, this can only mean reducing margins for Foot Locker.
As Foot Lockers turnover reduces, its ability to negotiate and retain historic discount rates will be significantly impaired. This is likely to have additional margin pressures as goods will be purchased at a significantly higher price.
Foot locker has very little experience in terms of significant international expansion into the major retail markets of BRIC. A quick search of
The 16-25’s in
Table : Revenue Per Square Foot
| || |
Number of stores at year end
Total selling square footage at year end (in millions)
Total gross square footage at year end (in millions)
Revenue Per Square Foot
There has been significant reduction in revenues per square foot over the past 4 years.
Revenues have gone from $658 per annum per square foot in 2006/7 to $627 per annum per square foot in 2010/9
The last quarter is likely to have been positively impacted by exchange rates, particularly in relation to propping up gross margins. The US dollar against other currencies will have reduced the cost of goods purchased. Over the next quarter these benefits are likely to unwind and put pressure on margins. It is quite surprising to see that inventory valuation was not lower at $1,202m – October 2010 compared to $1,228 – October 2009, given what should have been significantly lower purchase costs. It would appear that for the quarter ended October 2010 the margins have been propped up with higher inventory valuations. i.e. inventory values have been held up higher to reduce the impact on cost of sales.
Barnes and Nobel with $7bn of revenues is worth a mere $1bn. The sales however are decreasing much rapidly than Foot Locker. Foot Lockers valuation is $2.86bn on sales of $4.85b feels a bit rich.
Foot Locker has also repeatedly continued to prop up underlying earnings with exceptional items. The use of exceptional items, particular provisions, can be used to ensure that on-going underlying earnings for the future are protected.
There is probably no surprise that Foot Locker will require some more exceptional charges in the very near future to continue to prop up its underlying earnings
FUTURE FOR FOOT LOCKER.
Due to the higher pricing nature and standardization of Foot Lockers products, they are more susceptible to be purchased through the internet. This is going to have a significant impact on future sales and margins.
Furthermore 2007 and some of 2008 saw an economic boom that was exceptional fuelled by rising asset prices together with cheap money. Currently it appears as if Foot Locker’s valuation is based considerably on historic sales with a view to achieving these sales and margins at some point in the future. In fact with the increasing store closure increasing internet purchases, it is unlikely that Foot Locker will ever achieve these historic sales or margins again.
The current underlying profits and gross margins have been propped up through one-time re-organization costs and other provisions that are being used to “magik” the underlying earnings.
Other things I don’t like about foot locker is their presentation of the profit and loss account in the SEC Form 10k. There are no subtotals for gross profit. The lack of detail around cash flow in the press release and the lack of information on gross profit margins in the press release. This is poorly presented and displays complete disregard for their equity investors.
On a current valuation basis Net Income Year to Date is $112m. If I assume sales of $1,400m for the final quarter and a gross profit margin of 27% would yield around $378m. Take off this $314m for SG&A and depreciation leaves around $64m. Take off taxes and net income is around say $50m This would take total net income to be $162m for the year. On current valuation this would give a PE ratio of around 17.0
Given the lack of certainty around the growth and other companies in the same sector, the likely pressure from larger brand names, the continuing