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

0:00Life is all about making decisions. Sometimes you make questionable ones, like buying a new TV that's too big for the wall because the electronics store employee was a little too good at their job. Then, sometimes you make great ones, like protecting your home and auto with Progressive. You get customized coverage options, so you can be sure you have the right coverage. Get your quote today at Progressive.com. Progressive Casualty Insurance Company affiliates and other insurers. Not available in all states. 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.

0:39A 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 last week. AstraZeneca holding talks of Bristol-Myers Squibb over a$400 billion tie-up. And I just, you know, they're such big names, such stable names and such a big number. So quick word on that. 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.

1:21He'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 gangbuster 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 Sheehan, who's coming back or attempting at least to the IPO market. Then we're also going to comment on Snap, another one we've touched on before, a bit of an update there, and then a deep dive. So quick touch on some headlines. The deep dive, Sainsbury's has agreed the sale of Argus to a PE partnership, Swift Partners.

1:59And 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 gonna go like an adapter i'm gonna travel adapter uh no i'll give you one more guess not it's not new york it's not travel related you've got to give it you've got to give me a hint though because just as we'll find out the amount of things that argos sells is pretty it costs me 20 pounds it's an interesting one hmm very interesting I'm going to say like a little juicer one of those little juicers do you know what that's pretty good it's a pretty good trade yeah okay let me grab it give me one second let me grab it all right okay here we go look at this puppy I don't know if you'll be able to see it with my camera yeah very nice that is really nice that's the Casio AW90H 9EVF 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 um I can't wait to talk about Argos but um let's uh yeah should we start with 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.

3:37I was outside the hotel and I was waiting for an Uber and two guys came up to me and said, are you 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. And they said, yeah, 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, Myles Govis, 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.

4:24And now he's going to be joining her desk for a 12-month internship. 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 their insights we love it so please do engage we love to learn too and we'd love to get your thoughts and share it with a friend or a colleague because it's the only way we're going to really grow the show and I'd we'd both really appreciate it so yeah without Fedor Adu do 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 street 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 glamorous place I've been stopped so far is Kidderminster oi yeah so look shout out shout out to kidderminster shout out to the kidderminster massive i hear you 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 so it's gone a little bit quiet because the shares you know they are down around 30 percent 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 billion up 92 percent year on year 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.

6:41One is his appetite to persevere with the AI. 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 starling 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 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 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.

7:39Falling 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 build out. 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 is down but that's kind of expected because big ai capex is prompting 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 second headline i'm going to talk about astrazeneca and bristol myers squib so this is a british pharmaceutical company astrazeneca that you and many people would have heard of and bristol myers squib a similar size slightly smaller u.s pharmaceutical company opening talks to merge into a 400 billion dollar behemoth taking advantage of things like economies of scale Maybe slightly defensive because both parties have a bit of a patent cliff.

9:08So 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 Manns, portfolio manager at Union Investment. The deal makes neither strategic nor financial sense. Lucas Liu, 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 AstraZeneca 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 for-profit fundraise in terms of its strategic misstep and terrible communication.

10:02So 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 AstraZeneca directly employ in the UK? Because this is a UK and a US company, right? So Astra, 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 this just not go 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.

10:41It hits the headlines because there was a leak or because there were 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 AstraZeneca's shares were down 9 % last Monday. And yeah, it's not going to get through antitrust unless it's AZ acquiring Bristol-Myers Squibb. AstraZeneca 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 these two big companies and everyone's saying this isn't going to happen.

11:24This feels like maybe there were businesses utilizing advisors to explore a few options. This came up as one of the options. And then someone has a relationship with the financial media. The FT runs sources. 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 at bristol you know who your financial advisors are let's say pick two there's 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 surely yeah someone said something that they shouldn't have done.

12:13And this was quite exploratory stage. Yeah, 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 are some pretty interesting synergies. Let's spend a bit of time modelling 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 there was something going on over the weekend that tongues got a little bit loose.

12:47And yeah, there would probably be 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 chatted to the guy at the Hong Kong Stock Exchange, Sheehan. There's been so much spoken about Sheehan, not least by us. I remember a few years ago, Xi 'an was valued at almost$100 billion in the private markets. So is it going to IPO? Where is it going to IPO? How much is it going to IPO for? 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, three years ago?

13:34obviously lots of issues with the 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 app 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 renewed energy, I guess, in that particular region. 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 degree.

14:29Yeah, I mean, this is a company that's not doing very well either. And it's definitely worth mentioning. I don't know whether Timu's taken his lunch, but in the draft IPO prospectus last month, it swung, she and 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 because it was small. Donald Trump closed that loophole and it kind of screwed Shein's business model because it was small packages and it was low value packages.

15:11So is this, it's certainly not a great time in terms of the story for Shein to IPO. Therefore, it's not going to be at the$100 billion. It's going to be more like$30 to$40 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 I'm not sure it would get through the LSE or the New York Stock Exchange 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 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 set up 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 u.s stock market record highs baby so at the moment we're just going gangbusters 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.

16:27So 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 absolutely right. The earnings season has been quite remarkable. And Snap, we discussed it 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 billion, right? And that's because they've got this bizarre governance structure, which means that they can never really sell.

17:06And 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%. It was a revenue beat at$1.6 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.

18:02because 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 marketeer and I'm looking at my advertising spend, I'm going to go, all right, I'll keep the meta stuff. That's almost a non-negotiable. I might keep the LinkedIn stuff if that's my target market. Snap is a little bit discretionary. So the fact that these guys are up 19 % quarter on quarter, that is pretty positive in terms of the story for the health of the economy in general.

18:49So 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 more instructive story 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 prices dropped sharply. 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 literally little days, but in the oil market, obviously in the Middle East, that's a long time. But it's looking like the Strait of Hormuz is going to reopen.

19:26oil 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 a climate perspective, is there a little bit more continuity than we thought just a few weeks, months ago, when we were at the height of this kind of dual force or risk of the emergent oil price shock from what's happening in the Khomuz 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 move so quickly. And this is why I've always slightly preferred corporate finance and investment banking.

20:07I think on the podcast that we did last week, we were talking about the massive fall in the South Korean stock exchange, the Cosby, the index, and then it entered bull market territory like a day later. I'm so confused. I'm feeling great now. Yeah. Basically, whatever you do, don't open your day trading account. Just look, just sit, keep calm and carry on. That's the age old 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's 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 pounds and Sainsbury's had paid 1.4 billion.

20:58Am I reading that right or is that a typo? Life is all about making decisions. Sometimes you make questionable ones, like buying a new TV that's too big for the wall because the electronics store employee was a little too good at their job. Then sometimes you make great ones, like protecting your home and auto with Progressive. You get customized coverage options so you can be sure you have the right coverage. Get your quote today at Progressive.com. Progressive Casualty Insurance Company affiliates and other insurers not available in all states. 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.

21:40I'll give you a couple of stories as well, maybe. this thing that employs 14 000 staff it's got 466 stores it is worth 120 million pounds 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 dollars right Like 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 Sainsbury's.

22:32So 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 has it been received? Yeah, well, I tell you what, 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. 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, you used to go into this store and you'd have a very, very small area with lots of little terminals and the Argos catalogs, physical catalogs.

23:15And you'd 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 will go beep beep beep and you'd 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 checkout 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.

23:55And then a few minutes later, these items would be delivered. And there you go. That is Argos. And 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 nostalgia. And it was almost like you're winning something, even though you're buying something. I loved it. Yeah, I loved it. I still love it and 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 Argos sells.

24:46If stock got below three of a particular item, you're supposed to raise an alert. That was a protocol. And I tell you what, my heart probably wasn't really in the job and I just couldn't be bothered to do it. 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 experience. There you go. You're just breaking ground here. New insights shared for the lifetime. Well, look, the career has taken off since then, hopefully. So anyway, this is why Argos is such an interesting story.

25:28We 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, Sainsbury's, 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 three years. You think, gosh, this has got to be a shocking piece of news for Sainsbury's.

26:15Share 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%, which again, subsequently kind of flattened out. But it's one of those things, and we're going to dive deep into Sainsbury's 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.

27:00we'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 diffuser from Habitat.

28:00I buy two for my children for their pajamas. And while I'm shopping in Sainsbury's, buying a Casio watch from Argus. So the old model seems to work for them. I must be a niche against the grain of the broader crowd, I guess. Yeah, and I mean, Argus has been doing pretty badly over the last few years. It's had sales of about£4 billion, which have been pretty flat. Its operating profit margin is under 1%. Bearing in mind that Sainsbury's doesn't generate a particularly high operating profit margin, but it's more than 0.9%. It's not growing at all. It's costly because there's lots of outstanding lease liabilities.

28:47So 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 the balance sheet associated with Argos. Sainsbury's 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.

29:32Practically 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 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 suddenly are not. Argos is going to continue as a going concern. 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.

30:39And if you think about it from a Sainsbury's perspective, what really are the synergies between 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 Sainsbury's. It just won't be part of Sainsbury's. When this was done in 2016, was it the initial deal, who were the advisors on that point of time? Who were the advisors? And does the management team see that as fault of the advisors to say, look, this was never going to work in the first place?

31:27Or is there acceptance of that this was just hasn't worked for lots of different reasons and then you re-engage with the same advisor from a corporate scale perspective because they already understand your business and the asset and it's just like following through with the the continual 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 bring in fresh fresh eyeballs on it yeah there's a couple of ways to answer that the first is i'll talk you through the advice as the second is, was it such a bad deal in the long run for Sainsbury's?

32:02So the advisors back in 2016 for Sainsbury's was UBS. And UBS is their lead advisor. 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 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, longer term 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 quite lucrative from a fee perspective.

33:06So UBS are put in the hard yards over decades with Sainsbury's and have got on this deal. The other firm is Evercore And the reason why Evercore's on the ticket is Robey 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 Morrisons, there was a threat that PE would come swooping for the Big B Sainsbury's. So again, it's a little bit of honoring of past relationships.

33:52And let's just have a very, very quick think about whether this was a really, really bad deal. So as I said,$1.4 billion. That was the acquisition price in 2016. That's not strictly true. There was a really complex series of circumstances is 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 billion pound deal was actually only 1.1 billion pounds. 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 pounds.

34:49So when you actually tot it up, 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 advisors because they gave me some terrible advice. This was a decent deal, certainly up until COVID, 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.

35:37So who are they? Who started it? What is the money backing it? 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 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's coming from. So Swift Partners, newly formed private equity firm, specifically for the deal, for this deal.

36:28So it's more of a kind of special purpose vehicle, created by a guy called Richard Pennycook, 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-Morrisons. And they brought in an adult in the room, an ex-investment banker, Matt Truman, who was a retail coverage banker at Lehman Brothers and then latterly Nomura 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 private equity venture capital and consulting group called True Capital.

37:17And 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 well designed. I love their branding. So whoever did that work, fantastic. And if you're a little bit of a bicycle cycling nut, But they invested in a company called Zwift. So Zwift is the, you take off your back wheel, you plug in, you put your back wheel on a Zwift and it connects to the internet and connects to the ecosystem and you can write against other people. And it's very, very cool. And this was a$450 million round led by KKR, but supported by True Capital.

38:08So 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 heard of Sneak Energy, Ant? 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 tunbridge wells so in town where i live and you know what i'm i'm definitely partial 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 you know this looks interesting it looks up 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 six months so i'm not sure about these guys uh that was a bit of a fat finger i would say with german doner kebab i do not rate that company or its food at all okay this is why people tune into the show they want to get ants hot take on basically i'm going around going to argus going to argus shopping what i like with my kebab you're selling the dream that's the 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 energies cherry lemonade oh no no limeade looks absolutely disgusting well no anyone i'm sure of the 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 basically because 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 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 catalogue 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 what he called the Argos catalogue and you know it was very exciting and you would go through the Argos catalogue and you look at the things that you'd want, maybe circle them for your Christmas wish list and things like that.

41:08So my question to you, Anne, is at peak circulation, how many Argos catalogues were printed every year? Am I allowed to know what year the peak circulation was? No, because I can't remember. 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 catalogued out to the max so i'm gonna say there's quite a significant portion of the uk would have been getting that you would have been wanting to get your hands on on this so i'm gonna say 12.5 million i tell you what you're in the right ballpark at peak circulation 20 million argos catalogs were 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 catalogs 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 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.

43:14And 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 then by the way, it's been quite resilient 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 well liked. It got bought in 2016 for£1.4 billion. That was not necessarily peak Amazon, but it was certainly, you know, that wasn't before internet shopping, right?

44:00So 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 Brexit, post the year that this thing was acquired by Sainsbury's. So you can talk about slightly less discretionary consumption. You can talk about 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 a little bit of loyalty towards Argos because I've got that legacy warm and fuzzy feeling about going to the store and picking up my Christmas present at the age of nine or 10.

44:56But 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 Amazon. So it's again, it's slightly stuck in that strategic no man's land where it's not massive brand loyalty.

45:53I'm going to go, I'm going to make a trip because I really want to go to X store because I really like X store 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 is that what happened here then there was as we explained earlier you got those brand building under one roof of Sainsbury's like Tui and Habitat and all the other brands that come with it is it you mentioned there Sainsbury's 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 our make Argus great again giving it his due 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 sainsbury'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.

47:43It's 80 plus percent of their revenue. I will be speaking to major suppliers, big 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 Argos 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.

48:26Again, 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 private equity firm yet? Or is it all 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'll wait and see we'll wait and see what happens i'm fascinated i want i want it to succeed i thought i uh read a piece about um penny cook talking about reintroducing the catalog catalog one of those catalogs no and don't don't don't tease me i'm gonna what i'm gonna do as a present for you i'm gonna get the printed catalog and i'm gonna get you i'm gonna go into a store because you know you and i live several hundred miles away from each other so i'm gonna get a little box i'm gonna put it together and i'm gonna get one of the little uh old little sheets with little squares on it with one of the little cheap plastic half size pens and i'll say that you can circle five things, Stephen, and we'll see how your Christmas plans out.

49:56That is fantastic. I did used to go through the Argos catalogue 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 clothes, drying racks and things like that. And I was probably about nine years old. Maybe that was the inner consumer capitalist in me just desperate to break out uh so yeah part of globalization in uh as a 90s child but uh so so what to summarize then is this first of all it feels like a bit of another shock horror story on the uk high street whereas 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 think there's the potential to thrive under new direction and new momentum.

50:50So yeah, is it anything else I'm missing there in terms of like the key takeaways of the story? No, again, it's one of those things. You read the headline, you think, oh my gosh, Sainsbury's 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 spinoff, which we speak about all the time. 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 dive behind the headline we always talk about this and just go, all right, what is really going on?

51:44What actually is the structure of this deal? Who is actually making 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 your insights. But look, we'd love to hear from everyone else. I feel like we're a bit blinkered in our devoted love for Margaret. So I'm sure not everyone's quite in the same depth of passion as we have. So yeah, let us know what you think. Do you think Argus is going to survive and in fact thrive in new leadership?

52:23Or do you think Sainsbury's perhaps are making the wrong decision here 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. are you ever shopping online and suddenly a discount that helps you save pops up it makes your day sometimes even your week want that feeling month after month well new customers who save by switching their home and auto insurance to progressive save hundreds cue your happy dance get your quote today at progressive.com progressive casualty insurance company affiliates and other insurers not available in all states.

53:06Thanks, Ant.