Why Sainsbury's Sold Argos (It's Not What You Think)

Hello and welcome back to the Market Maker podcast. But before we begin, just a quick heads up. We're going to go back to a format we've tried before. A lot of people said they liked it and it's going to be a quick take on a few of the big deals that have happened and then we're going to go into a deep dive. So, just for a bit of flavor, we've had SpaceX earnings shares sunk after they revealed huge AI spending plans. Then there was a really big one. I know that, Stephen. I was peppering you on WhatsApp uh last week. Astroenica holding talks of Bristol Myers Squib over a $400 billion tie-up and I just, you know, they're such big names, such staple names and such a big number. Thought quick word on that. Um and then actually I met up earlier in the week for a coffee with a guy who used to be a prop trader 20 years ago. Uh he's now very senior at the Hong Kong Exchange based in London. and he was telling me just how busy his team in Hong Kong have been with all of the gang buster kind of listings that are coming to market at the moment. And one I did see was one we've had an episode on before which was Shien who's coming back or attempting at least to the IPO market. Uh then we're also going to comment on Snap, another another one we've touched on before. Um a bit of an update there and then a deep dive. So quick touch on some headlines. The deep dive sainsburries has agreed the sale of Argus to PE partnership swift partners and we're going to look at the strategic rationale take a tour through what's been a pretty turbulent corporate history of Argus. I'm a huge fan and in fact Stephen last week I bought something from Argus. First quiz of the day what do you think I bought? It's a very very good question. Well, I know. And last week you were in New York, so I'm going to go like an adapter. >> Some kind of travel adapter. >> Uh, no. I'll give you one more guess. Not It's not New York. It's not travel related. >> You got to give me You've got to give me a hint, though, because just mean, as we'll find out, the amount of things that Argos sells is pretty >> It cost me 20. >> It's a interesting one. >> Very interesting. I'm going to say like a little juicer. One of those little juicers. Do you know that's a pretty good It's a pretty good train. >> Okay, [laughter] let me grab it. Give me one second. Let me grab it. [clears throat] >> All right. Okay, >> here we go. >> Look at this puppy. Can I don't know if you'll be able to see it. My camera. >> Yeah, very nice. That is really nice. >> That's the Casio AW9H 9VF. Of course, 1980s classic. >> Analog and digital readout. I mean, you don't get That's 20 pounds well spent right there, my friend. >> There is absolutely nothing smart about that watch, and I love it. [laughter] >> Um, >> oh, I can't wait to talk about Argos. But, um, let's, uh, yeah, should we start before I begin though, you did mention I was in New York and the only thing I'm gonna say is I got stopped in New York. I was sat outside the hotel and I was waiting for an Uber and two two guys came up to me and said, "Uh, are you Ant on the Market Maker podcast?" And I've said this before, I'm always a bit like, should I say yes, should I say no? But they were in a shirt and she knows I thought I'm in a safe place. [laughter] And they said, "Yeah, we're we're on our summer internship in investment banking. Shout out and kudos to you, Stephen." They said you were guiding them through their interview process and it was absolute gold for them. So, shout out to those guys. And also Miles Goas who is someone who reached out to me on LinkedIn and he heard an episode I did ages ago with a lady called Chloe Shepard who's a repo trader here in London. And now he's going to be joining her desk for a 12-month internship. Uh he's the first in his family to go to university. He said he wouldn't have been able to figure any of this stuff out if it wasn't for the show. So, look, it's been amazing and I love the comments, the questions that people leaving on the show have been picking up. So, whether they're questioning our analysis, sharing your insights, uh we love it. So, please do engage. Uh we love to learn, too, and we love to get your thoughts and share it with a friend or a colleague cuz it's the only way we're going to really grow the show. We'd both really appreciate it. So yeah, without further ado though, let's let's crack on. >> Yeah, absolutely. And that's amazing. By the way, and by the way, if anyone stops me in the streets, I don't care if you're wearing a shirt and chinos. You can wear what you want. I'll still say that I'm on the market maker. I don't know what you're on about. >> I did get most glamorous place I've been stopped so far is Kiddaminster. Yeah. So look, >> shout out shout out to Kiddaminster. Shout out to Kiddaminster. Massive. I hear you. [laughter] >> All right. headlines. So, um, SpaceX earnings, this is our little headline section. So, tell me, I've got a headline here that says SpaceX earnings a mixed bag. And you must be all over this stuff. Yeah. I mean, the the reason why I always find it interesting is probably like a lot of people, uh, it was my brother who was yapping in my ear on the IPO launch and and kept telling me 200, 210, 220, and I haven't heard from my brother in a few weeks. Uh so it's gone a little bit quiet because the shares you know they are down around 30% decline the share price post the IPO hype everything that I was reading on just the top level because this isn't the deep dive section was interestingly their revenue beat by a considerable margin 7.81 81 billion up 92% yearonear. However, when we were looking at as we do with all AI orientated stocks, it was the AI spending that really spooked the market. So, yeah, quick take from you then. With with Elon's strategy, I guess there's two things. One is uh his appetite to persevere with the AI. We we did the deep dive when they listed and everything you were saying was really it's all hinging on the AI story even though they have a Starink profitable side of their business. So is that still true? Now we get the first look under the bonnet here of this company in the public domain and then two what does this mean for investors who are holding Tesla and and the overall ambition of X and Elon? Yeah, it's, you know, I think it was quite a good earnings call, right? It was, it was a beat on a lot of different areas. Revenue, their net loss was only 541 million, beating estimates of a 2.21 billion net loss. Again, I think I mentioned it last week, and definitely check out the AI business model deep dive if you haven't done already. Once you're on this travelator, once you're on the AI spend travelator, you got to keep on playing. falling off is not really an option, especially if you've bet the farm. And when I say bet the farm, I mean a $2 trillion potential market cap story on the AI buildout. You got to keep playing. There's no way that Elon and SpaceX can stop being bullish about this stuff. And then obviously there's the Tesla story. Bring in Tesla at some point. I think it's probably going to happen. And then the whole robotics story comes on board. You've got it starts to all make sense in this extremely sci-fi company. So yes, share price was down, but that's kind of expected because big AI capex is prompting uh slight bearishness, but you know, I think it's a pretty good quarter. >> Well, we're up and running, right? >> Let's go. All right. Uh second headline I'm going to talk about Astroenica and Bristol Myers Squib. So this is a British pharmaceutical company Astroenica that you and many people would have heard of and Bristol Myers Squib similar size slightly smaller US pharmaceutical company opening talks to merge into a $400 billion bayamoth taking advantage of things like economies of scale. maybe slightly defensive because both parties have a bit of a patent cliff. So when a lot of their blockbuster drugs go off patent. So maybe together they are stronger. But what I love to read about is the analyst view, right? And the portfolio managers that actually invest in this stuff. So Marcus Mans, portfolio manager at Union Investment, the deal makes neither strategic nor financial sense. Lucas Louu, portfolio manager at ATG Healthcare. I'm not a big fan of mega mergers. It kills innovation and agility and would be growth dilutive for Astroenica in the near term. And then this is my favorite one. I want you to comment on this one. It was a quote from an unnamed source that says, "This is the equivalent of the World Cup uh forprofit fund raise in terms of its strategic misstep and terrible communication." So, what's going on here? This sounds like an absolute dog's dinner. Yeah. And I was just having a quick type to see how many people did Astroenica directly employ in the UK cuz these this is a UK and a US company, right? So Astro in my mind is up there with like the BPs of the world when it comes to it being identifiably British in that sense. I don't know the makeup of it completely in its investor base. That's probably not strictly true. But would that would this just not get off the ground just purely off the basis of that as well? Would that not be a massive stumbling block? >> Yeah, it's one of those strange ones. It hits the headlines because there was a leak or because there were, you know, certain sources that meant that it was front page of the FT, but is this thing ever going to get off the ground? The investors hate it. I think a Astroenica's shares were down 9% on Monday, last Monday. And yeah, it's not going to get through antitrust unless it's a acquiring Bristol Myers Squib. Astroenica is one of the very few or dwindling sets of jewels in the London Stock Exchange's crown, right? So, yeah, this isn't going anywhere. Question for you. This sounds like when it's this these two big companies and everyone's saying this isn't going to happen. This feels like maybe there were businesses utilizing advisers to explore a few options. this came up as one of the options and then someone's gone to someone has a relationship with the financial media the FT run sources it it feels like a a good outcome for someone like Financial Times and exclusive like this would you pull rank as the banking team like let's say someone at Astra or Bristol you know who your financial advisers are let's say pick two there one one is Lazard and the other is Goldman's would you if you were in that team and you were the senior go right everyone line up who spoke [laughter] >> surely >> yeah someone said something that they shouldn't have done and this was quite exploratory stage >> yeah I think you I think you paint the absolutely correct picture that so many of these meetings happen or so many of these discussions happen a little bit of spitballing hey what if you guys got together here you know some pretty interesting synergies let's spend a bit of time modeling this out and we'll come and present it to you say the bankers and then who knows maybe it's a long lunch maybe it's a few drinks on a Friday afternoon remember this news came out on Monday so maybe [laughter] maybe there was something going on over the weekend that uh tongues got a little bit loose and yeah there would probably be a a cause for concern let's just say but anyway I don't think it's going anywhere what probably will go somewhere heading on to headline three and I want to get your take having just chat matter to the guy at the Hong Kong Stock Exchange, Shien. There's been so much spoken about Shien, not least by us. I remember a few years ago, Shien was valued at almost $100 billion in the private markets. So, is it going to IPO? Where's it going to IPO? How much is it going to IPO for? Uh yeah, I guess it's does it go locally or does it go to the New York Stock Exchange which it has attempted in the past 3 years ago. Obviously lots of issues with a Chinese entity over regulation, ESG surrounding living wages, forced labor. So does it just make more sense, I guess, to just list on the Hong Kong exchange? I guess the the appetite or I'd imagine it's less friction and also the the engine room is running on that exchange at the moment. There are deals to be done and you are missing out if you're not part of that local action. So there's probably a lot of impetus and a lot of kind of uh renewed energy I guess in that particular region. Um not sure about the US scenario. We kind of we've had this big pickup but given SpaceX as well there's anthropic coming is now optimal feels a bit suboptimal to me from that from that degree. >> Yeah. I mean this is a company that's not doing very well either and that's and it's definitely worth mentioning. I don't know whether Timu's taken its lunch, but in the draft IPO Perspectus last month, it swung sheen swung into a 99 million quarterly loss due to slowing sales in the US. Remember, there was that import duty exemption on small packages. So for years and years, you could send a small package from a different country to the US and you wouldn't get any import duty cuz it was small. Donald Trump closed that loophole and it kind of screwed Shien's business model because it was small packages and it was low value packages. So is this is certainly not a great time in terms of the story for Shien to IPO. Therefore, it's not going to be at the hundred billion. It's going to be more like 30 to40 billion valuation. But as you say, is the story a little bit more durable, a little bit more robust in the eastern markets? Possibly. And that's why they, you know, I'm not sure the it would it would get through the LSE or or the New York Stock Exchange from a from an ESG perspective before you even go into the is there a demand base for it. All right, final one of this quick take before the deep dive is a snap. And I remember when we talked about Snap a few months ago, you were highlighting how there's some really interesting parts of the business. There's an interesting governance setup. But I guess from this perspective to start with, we're right in the midst or coming to the end of I mean we're recording this on Thursday on the 5th of August and the US stock market record highs, baby. So [clears throat] at the moment we're just going gang busters. Earning season I think we're 90% or the odd through. And once again general take is things are humming along despite everything in the world that's going on. So, what were the financial metrics that we've seen out of Snap that we could take away? >> Yeah, it's bonkers. I mean, you're you're absolutely right. The earning season's been quite remarkable. And Snap, we discussed it on a on a podcast a few weeks ago, and we can link to it in this episode. It's one of those companies I always look at and think, gosh, they've got so many monthly active users. I think 800 million. They're a brand name. They should be competing with the likes of Meta, put their market caps down at I think it was sub 10 10 billion, right? [laughter] And that's because they've got this bizarre governance structure which means that they can never really sell and Evan Spiegel and the other co-founder can never really relinquish control. But anyway, Snap's latest earnings were a success. The stock price jumped over 10%. Uh it was a revenue beat at $1.6 $6 billion for the quarter, 19% growth over a consensus of 1.5 billion. It increased its advertising revenue by 9% and it increased its average revenue per user, which is something we discussed a few weeks ago, by 13%. Narrowing its net loss. So what's kind of interesting is when we're looking for signals in the market of slowdowns and speedups, right? in terms of economic growth, in terms of confidence, in terms of the health of the market or the health of corporations and businesses, advertising is one of the places that we look to straight away because if I'm a little bit negative or a little bit bearish or a little bit concerned about the future of my business, one of the purportedly discretionary parts of my cost base is advertising spend. And Snap is not. If I'm a marketeteer and I'm looking at my advertising spend, I'm going to go, "All right, I'll keep the meta stuff. That's that's almost the non-negotiable. I might keep the LinkedIn stuff if that's my my target market." Snap is a little bit discretionary. So the fact that these guys are up 19% quarteron quarter that is pretty positive in terms of the story for the health of the economy in general. So what it it doesn't mean that much for Snap. I mean it's a good thing for its investors up 10%. But I think it tells a a more instructive story for for the economy as a whole. >> Yeah. And just talking about the economy as a whole, when you're thinking about people spending money, businesses spending money, you know, the oil price has dropped sharply. Uh, you know, we were down, we dropped 11% in a two-day slump. I mean, who knows where we'll be by the time this show airs, which is literal days, but in the oil market, obviously in the Middle East, that's a long time, but it's looking like the straight of Hamus is going to reopen. Oil prices have dropped. CPI was already down in the prior print. The Fed aren't going to hike as aggressive as we might have originally thought. So from from a climate perspective, you know, is there a little bit more continuity than we thought just a few weeks months ago when we're right at the height of this kind of dual force or risk of the emergent uh oil price shock from what's happening in the humus with the AI bubble or not scenario. Maybe the corporate earnings have just smoothed that out, you know, a little bit of confidence. >> Yeah. And look, the markets moved so quickly, and this is why I've always slightly preferred corporate finance and investment banking. I think on the podcast that we did last week, we were talking about the massive fall in the South Korean uh stock exchange, the the Cosby, the index, uh, and then it entered bull market territory like a day later. I'm so confused. [laughter] >> I'm feeling great now. Yeah. Basically, whatever you do, don't open your day trading account. Just just >> look, just sit, keep calm, and carry on. That's that's the age old, you know, phrase that holds true in investing. >> Absolutely. >> All right. Well, look, let's move on then and let's talk a little bit about this headline where Sainsbury has sold off Argus to a newly formed Swift Partners. I couldn't believe the numbers when I saw your notes of Swift partners paying, am I right?£120 million and Saints Reese has paid 1.4 billion. Am I reading that right or is that a typo? No, that's absolutely right. It's staggering that this thing and we're going to get on to our kind of mutual love of Argos. I'll give you a couple of stories as well maybe. Uh this thing that employs 14,000 staff. It's got 466 doors. It is worth £120 million. How is Again, it's one of these things that you just have to take a step back and just go, huh, wait a second. Going to go back to the cursor being worth $60 billion, right? [laughter] this thing that is such a staple for so many Brits and maybe quite importantly so many Brits of a certain age. We'll see from hopefully the comments that this thing is being sold off basically for spare change as a non central strategic asset of the massive supermarket chain Sainsburries. So, so just paint me a picture then. So, what's happened in the past? How have we arrived where we're at? What's the structure of it? And then how is it being received? >> Yeah. Well, I tell you what, I'm going to I'm going to say something before I begin and before I give you the headline terms. Do you know I used to work at Argos? >> Oh, so were you back or front of house? >> Back of house. >> Oh, okay. So, anyone that knows Argos, what it used to be, and it's still the same actually, uh, you used to go into this store and you'd have a very, very small area with lots of little terminals and the Argos cataloges, physical cataloges, and you' thumb through the catalog for the thing that you wanted. You'd find the code, the numerical code. You'd fill it out with a little pen on a tiny sheet of paper. You take those codes represent the things that you want to buy to the checkout. The checkout would go beep beep and you would pay your money. Then you'd have a number, a little bit like if you're queuing up for a fast food, you'd have your number and in the background in the kind of warehouse behind the checkouts, you have all of these little minions for which I was one going away scurrying around trying to pick up these items that corresponded to these codes. And then a few minutes later, these items would be delivered. And there you go. That is Argos. And I was I was part of the machine. >> When you were describing the pen and filling out the numbers and then the ticket on the screen, it gives me such a warm feeling. It's almost like u nostalgia and it was almost like you're winning something even though you're buying something. >> Love it. >> Yeah, I loved it. I still love it. And I I tell you what, I didn't enjoy my job though. Uh so I was working over Christmas and I remember I had a really really nasty boss and I'm sure that people that have worked summer jobs uh can empathize with this. and he kept trying to trick me and kept trying to kind of see whether I was passionate about this job. So in the on the kind of uh aisles and aisles of different products that Argo sells, if stock got below three of a particular item, you're supposed to raise an alert. That was a protocol. And I I tell you what, my heart probably wasn't really in the job and I just couldn't be bothered to do it. So, so he would create artificial scarcity and remove a couple of the items and then tell me off for not declaring it and I was fired soon after. So, that was my Argos back of house experienced. There you go. You're just breaking ground here. New insights shared into the life and time. >> Well, look, the career has taken off since then, hopefully. So, anyway, this is why this is why Argos is such an interesting story. We could have picked any story this week for the deep dive. There's so much going on, but I wanted to go close to home and I wanted to talk about what maybe we would call the real economy. So, the headline goes, "Sainsburries, which bought Argos from home retail 10 years ago for 1.4 billion, has sold off Argos to the newly formed Swift Partners." So, this is a newly formed company fronted by seasoned UK retail executives. And you think to yourself, gosh, 120 million, a 70 million quid payment up front with the other 50 million being deferred over the next 3 years. You think, gosh, this has got to be a shocking piece of news for Sainsbury's. Share price has got to start plummeting. What are these guys doing? What's Simon Roberts, the CEO of Sainsbury's doing? But markets loved it. Share price rose 5%. Uh which again subsequently kind of flattened out. But it's one of those things and we're going to dive deep into sainsburries and Argos. It's one of those things that although this is a loss from a I bought it for a lot and I'm selling it for not very much and again there's different nuances there that we can break down. the simplicity of the strategy of Sainsbury's CEO, Simon Roberts, who basically said, "Look, we are going to go back to what we do really well. We're going to go back to being the country's best grocery store supermarket." And yes, we got a little bit distracted by some of the thought process around having lots of different stuff all under one roof, whether it's Habitat or Argos or to their clothing company. And now they're going, "Wait a second. Actually, the business that we're really, really good at and what we're known for is doing really, really well. It's growing moderately quickly and all the other stuff is a bit of a distraction. So even though we're only getting 120 million for this thing, it's off the books and we don't have to think about it so much anymore. It's interesting that it's interesting because I bought something for the toilet like an air freshener uh diffuser from Habitat. I buy two for my my children for their pajamas and while I'm shopping in Sainsbury's buying a Casio watch from Argus. So [laughter] the old model seems to work for the I must be a niche uh in the in against the grain of the broader crowd I guess. Yeah. And I mean Argos has been doing pretty badly over the last few years. It's had sales of about4 billion pounds which have been pretty flat. its operating profit margin is under 1%. Bearing in mind that sainsburries doesn't generate a particularly high operating profit margin, but it's more than 0.9%. It's [laughter] it's not growing at all. It's costly because there's lots of outstanding lease liabilities. So Argos has got lots of stores that have leases and those leases are considered from an accounting perspective to be debt. So there's 280 odd million pounds of lease obligations, lease liabilities currently sitting on their balance sheet associated with Argos. Sainsburries want to get wants to get rid of that. So this deal is not really adding any value to the business from a underlying profitability perspective. Yes, maybe there's a little bit of convenience factor for you, Ant, but it's not a great business and therefore getting rid of it even at the cost that they got rid of it seems like a good thing to do. Practically speaking, then what does that actually mean? I'm assuming given their pretty big footprint, Argus employs a lot of people. I mean, you don't see a lot of people physically, but there's a lot of people behind the scenes literally. So what does that look like post deal? >> Yes. Yeah. So it's it's not one of those horrible headlines that announces that another high street name has gone under axing 20,000 jobs and you feel extremely sorry for all the people that were working at a place and and suddenly are not. This Argos is going to continue as a going concern. it the staff will continue and in fact Swift partners and we'll go on and talk about these guys in a bit. Swift partners are saying there's not going to be any store closures and maybe there might be a few additions. So this isn't a terrible news story. It is just a classic case of a spin-off of a not particularly strategically important significant part of a much larger group. And if you think about it from a sainsbur's perspective, like what really are the synergies between, you know, a cucumber and the products that Argos sells? There's not a great deal from a supply perspective, from an organizational or operational perspective. So, it's business as usual. Argos will continue to exist as standalone stores and within and within Sainsburries. It just won't be part of sainsburries. when this was done in 2016 was it the the initial deal? Who were the advisers on on that at that point of time? Who are the advisers and does the management team see that as fault of the advisers to say look this never was never going to work in the first place or is there acceptance of look this was just hasn't worked for lots of different reasons and then you re-engage with the same adviser from a corporate scale perspective because they already understand your business and the asset and it's just like following through with the the continue analysis that you were doing and then you just follow the process that way or do you have clean slate Right. Who's what's happening this time? And and you bringing fresh fresh eyeballs on it. >> Yeah. There's a couple of ways to answer that. The first is I'll I'll talk you through the advisers. The second is was it such a bad deal in the long run for Sainsbur's? So the advisers back in 2016 for Sainsburries was UBS. And UBS is their lead advisor. It's their it's Sainsbury's corporate broker. Again, when we teach banking, when we go into banks and say, "Hey, this is what a bank looks like," a lot of a lot of what we say is, "All right, the goal of a bank is to land, i.e. get a client for a particular small part of banking. Maybe that's payments, maybe that's security services, maybe it's trade finance, whatever it might be." and then use that as a gateway into a much larger longerterm relationship. And once you are embedded within a company across lots of different parts of your business, then it stands to reason that you are the first person that they will call when you've got something strategic and potentially a potentially quite lucrative from a fee perspective. So UBS have put in the hard yards over decades with sainsburries and have got on this deal. The other firm is Evercore. And the reason why Evercore's on the ticket is Roby Warshaw which was the firm that Evercore actually bought the small boutique advisory firm that Evercore acquired. They helped Sainsbury's in 2021 for a kind of for a takeover defense strategy. Remember when the private equity firms were circling around UK supermarkets following the sale of Asda and Morrison's? There was a threat that P would come swooping for the big B sainsburries. So again, it's a little bit of honoring of past relationships. And let's just have a very very quick think about whether this was a really really bad deal. So as I said, $1.4 4 billion. That was the acquisition price in 2016. That's not strictly true. There was a really complex series of circumstances when Home Retail spun this thing out and it's to do with Home Base and selling that on and it's to do with the shareholders and getting them to agree for the deal. Well, actually the actual sainsbury's contribution for this 1.4 4 billion deal was actually only 1.1 billion. So that decreases it a little bit. And during the course of their holding between 2016 and 2026 or 2027 when the deal will probably go through, they managed to spin off Argos's credit card business for I think over £700 million. So when you actually tot it up, it's not it doesn't look like such a shocking deal. Yes, headwinds, industry, internet, covid, whatever it might be, but I wouldn't be firing my advisers because they gave me some terrible advice. This was a decent deal certainly up until co up until 2020, 2021 and you're shipping the credit card company for 700 plus million. It's not too bad. Good lesson there to always look beyond the headline and understand the broader context with then Swift partners. I've not heard of them before. Probably no one else has either. So who are they? And you mentioned earlier that they've got the idea of potentially expanding the network of Argus. So who are they? Who started it? What is the money backing it? And and what is their vision, so to speak? Yeah, this is really really interesting. What's so fascinating about the world that we talk about and the and the world that we exist in is there are players across the whole spectrum of size of check of investor base of type of background of target company size and you get all sorts of different things that you think at the beginning of the day I didn't know this thing but by the end of the day I understand a little bit more about Swift Partners and where their money is coming from. So Swift Partners, newly formed private equity firm specifically for the deal for this deal. So it's more of a kind of special purpose vehicle created by a guy called Richard Penny Cook who was a former finance director for Morrison's from 2005 to 2013. He got his buddy Trevor Strain on board who's also ex Morrison's and they brought in an adult in the room an ex-investment banker Matt Truman [laughter] who was uh a retail coverage banker at Layman Brothers and then Latalie Namura and JP Morgan. So these guys have come together and said look we've got the expertise we know retail we know extremely well and we know how to turn around retail as well. Where's the money coming from? So, this is a a private equity venture capital and consulting group called True Capital. And I'd never heard of True Capital, but I'm going to give them their credit. Their website is absolutely awesome. It's like it is extraordinarily welldesigned. I love their branding. So, whoever did that work, fantastic. And if you're a little bit of a bicycle cycling nut, they invested in a company called Zift. So Zift uh is the uh you take off your back wheel, you plug in, you put your back wheel on a Zift and it connects to the internet and connects to the ecosystem and you can ride against other people and it's very very cool. And this was a $450 million round led by KKR but supported by True Capital. So really interesting firm focused mainly on the retail side. They also invested in Ribble which is another cycling clothing brand. And I put a little photo of Sneak Energy. Have you have you heard of Sneak Energy? And I've not heard or seen sneak energy, but I have seen in your notes German Donna kebab. And you know what? They opened a German Donna kebab in Royal Tumbr, Wales. So in town where I live. And do you know what? I'm I'm definitely partial to a to a kebab. >> Have you been to German Donna kebab? >> No drinking is needed. So I went to the German Donna kebab because I thought this looks interesting. It looks like my street. It was terrible. Like, oh no, it was tiny portions, not tasty, not that authentic kebab sort of experience and it was expensive and it shut down. >> It opened quite a big um unit shut down within 6 months. So, I'm not sure about these guys. Uh that was a bit of a fat finger, I would say, with German Donic kebab. I do not rate that company or its food at all. >> Okay, this is why people tune in to the show. They want to get Ant's hot take on basically running around going to Argus, going to Arus shopping, >> going with my kebab. >> You're selling the dream. That's it. I've made it. >> But yeah, no, again, that sounds very much straight from the private equity playbook, right? you know, buy a brand, squeeze it to make money, but also decrease the quality of the product. But, um, but yes, so they own Donna Kebab and Sneak, which is a zero sugar energy drink targeted to the gaming community. So, if you want to stay up all night gaming again, and I don't know if you do that, uh, drink Sneak Energy's cherry lemonade. Oh, Lo, limeade looks absolutely disgusting. Well, hello, anyone. I'm sure there's people listening who have tried it or do drink it. So, drop us a comment. Let us know. Out of 10, what's your rating? >> Shall we um shall we talk a little bit about the history of Argos? That's why basically cuz I've got a quiz that I want to give you. >> Okay. Yeah, let's go. >> All right. So, anyone of our vintage and maybe slightly younger listen listeners won't even comprehend what this thing is, but two times a year in the summer and just before Christmas, Argos used to release the Argos catalog. And this was one of the most exciting things for many suburban youngsters. Comedian Bill Bailey called it the laminated book of dreams. That's why he called the Argos catalog. Um, and you know, it was very exciting and you would go through the Argos catalog and you look at the things that you'd want, maybe circle them for your Christmas wish list and things like that. So my question to you, Ant, is at peak circulation, how many Argos cataloges were printed every year? >> Am I allowed to know what year the peak circulation was? >> No, because I can't remember. >> Okay. [laughter] >> I'm going to go kind of late 90s. >> Yeah. Yeah, it's going to be a long time ago. So, pre- internet era when people were magazine cataloged out to the max. So, I'm going to say there's quite a significant portion of the UK would have been getting you would have been wanting to get your hands on on this. So, I'm going to say 12.5 million. Tell you what, you're in the right ballpark. At peak circulation, 20 million Argos cataloges are printed every year. >> Yeah. >> So, you're not a million miles away. And over a bit, this is my favorite stat. Over a billion Argos cataloges have been have been printed in the history of Argos. >> It's a lot of trees, Steven. >> That's a lot of trees. But again, it's one of those things that it was such a joyful experience, especially with our consumerist hat on. And even now, you explained the process of of picking up, you know, a watch last week. To a lot of people here in the UK, Argos is still an extremely viable, useful, attractive business type and customer experience because you can pick something up the same day. You don't have to wait until the next, you know, the next day. even even next day delivery sometimes isn't practical enough if you need to go and get something quickly. So, it's pretty well liked by the consumer base. It just can't really make money and that's the problem, right? And that is the problem. So, explain to me there like you're saying it it can't really make money. So, why not? What's the problem? It's a really really interesting one and again there is such a big difference and whenever I'm talking about new business formation with young people that are thinking about entrepreneurship and things like that there is such a big difference between a really great idea and a really really good business and Argos for the consumer still is a really good idea even in the world and by the way it's been quite resilient in in the face of the internet and Amazon. It was growing during Amazon's main kind of land and expand here into the UK. It was still growing and it was still pretty wellliked. It got bought in 2016 for 1.4 billion. That was not necessarily peak Amazon, but it was certainly that wasn't before internet shopping, right? So, there's a number of factors that have contributed to this thing flatlining. We can talk about the problems within the UK high street. We can certainly talk about the sluggish economic growth post post Brexit, post the year that this thing was acquired by Sainsbur's. So you can talk about slightly less discretionary consumption. You can talk about the the Amazon factor for sure, especially with regards to consumer staples. And one of the biggest problems strategically from an Argos perspective is I kind of have I kind of have a little bit of loyalty towards Argos because you know I've got that legacy warm and fuzzy feeling about going to the store and picking up my Christmas present at the age of 9 or 10. But because it doesn't really do anything that is differentiated apart from its interface with the customer, you don't have to go to the aisles, you just pick up the thing. There's not really that much that's keeping me going there if there is a cheaper alternative because it doesn't sell a lot of its own stuff. I'm not really wedded to the Argos own brand dot dot dot. It's just a intermediary that is buying stuff, quite expensive stuff, and selling it on for a relatively low margin at a relatively low margin and trying to compete against the economies of scale of the likes of [snorts] Amazon. So, it's again, it's slightly stuck in that strategic no man's land where it's not massive brand loyalty. I'm going to go I'm going to make a trip because I really want to go to X store because I really like Xto and I like their clothes or I like their products and I want to make a thing of it or I just need convenience. So, I'm going to go to the cheapest thing or I'm going to go online. It's kind of neither here nor there. And that's what I hope well we can hope that's what the guys that have bought this are going to try and figure out where is that unique point of difference that can keep this thing alive. So So is is that what happened here then? There was as we explained earlier you got those brand building under one roof of sainsburries like TUI and Habitat and all the other brands that come with it. Is it you mentioned there Sainsbursbury is looking to lean that product mix up if you like or brand mix to do what they do best. So is this like an asset that's perhaps unloved and you've mentioned the people behind this new entity this private equity firm who are all from the retail industry buckets of experience in that one discipline. So, is this just let's just not reinvent the wheel, but let's just make make Argus great again, [laughter] giving it care and love sort of thing. >> Yeah, absolutely. And it's it's always it's always worth thinking if I'm the CEO of a company, if I'm the CEO of Sainsbur's, what interactions are going to be taking up my time during the course of an average day or an average week and what am I going to be going home thinking about? And it is likely that the majority of my interactions as a CEO of Sainsbury's are going to be related to the supermarket. it's 80 plus percent of their revenue. I will be speaking to major suppliers, big uh property owners to negotiate lease terms, whatever it might be. So, I'm going to be thinking constantly about the core business. I'm going to be speaking constantly about the core business with my external engagements and investors. Whenever I speak to those guys, they're going to be asking me about my strategy and whether Arlos is core to the strategy. So the fraction of my day I'm going to be spending on Argos is like 0.1%. Maybe 1% whatever the number is. Now this is a 4 billion revenue company that employs 14,000 people. It again it deserves possibly someone's 100% of their time or a CEO's 100% of their time. And maybe that will unleash a little bit of creative thinking and a little bit of imagination with regards to the strategy and the marketing and the business positioning as well. Has any of that strategy been revealed from the side of the the private equity firm yet or is it all yet yet to become known? >> I think it's yet to become known. I don't think I've seen anything in particular apart from the reassurance that it's kind of business as usual. So, look, we we'll wait and see. We'll wait and see what happens. I'm fascinated. I I want it to succeed. >> I I thought I uh read a piece about um Penny Cook talking about reintroducing the catalog. One of those cataloges. >> No. And and don't don't don't tease me. I'm going to what I'm going to do as a present for you. I'm going to get the printed catalog and I'm going to get you I'm going to go into a store because you know you and I live several hundred miles away from each other. >> So, I'm going to get a little box. I'm going to put it together and I'm going to get one of the little uh old little sheets with the little squares on it with one of the little cheap plastic halfsiz pens >> and I'll play you can circle five things Stephen and uh we'll see how your Christmas pans out. >> That is fantastic. I did used to go through the Argos catalog and circle something that I wanted on every page. And bearing in mind there was a lot of pages of kind of white goods and and clothes drying racks and things like that. And I was probably about 9 years old. Maybe that was the inner consumer capitalist in me just desperate to break out. Uh so yeah, part of globalization in as as a ' 90s child. But uh [laughter] but so so what to to summarize then is this first of all it feels like a bit of another shock horror story on the UK high street where actuality is you go beneath it it's not quite that sainsbury's not getting as bad a deal as those numbers suggest those workers preserving their jobs if anything there's the potential to thrive under uh new direction and new momentum so yeah is anything else I'm missing there in terms of like key takeaways of the story? >> No. Again, it's it's one of those things you read the headline, you think, "Oh my gosh, Sains has had a shocker and the high streets had a shocker as well, and this is all not very good." Bit of doom and gloom. But again, the reality is this is just a strategic corporate spin-off, which we speak about all the time. Sainsbury's got a little bit of a haircut, but actually it's probably going to be earnings per share accretive because they don't have to pay interest on the lease liabilities. They don't on the on the leases and they don't they're barely getting any profit from the thing either. So the share price goes up. So again, it is a really important little bit of learning to die behind the headline. We always talk about this and just go all right what is really going on? What actually is the structure of this deal? Who is actually making you know good decisions and who might be making bad decisions? What's really going on here? And then you can talk about it with real clarity and a little bit more depth. All right. Well, as ever, thank you Stephen for sharing uh your insights. But look, we'd love to hear from everyone else. I feel like um we're a bit blinkered in our uh devoted love for [laughter] Arus. So, I'm sure not everyone's quite in the same uh depth of passion as we have. So, yeah, let us know what what you think. Do you think Argus is going to uh survive and in fact thrive in new leadership or uh do you think Sainsbury is perhaps uh are making the wrong decision here to to spin off this asset? Let us know. Love to get your thoughts. >> Absolutely. Looking forward to responding to the comments as well. >> Thanks everyone. Take care. Thanks, H.