Daily market update: Netflix-Warner Bros deal, Unilever ice cream demerger

Europe got off to a quiet start, with minimal movement among the main equity indices.

The FTSE 100 held firm as strength among industrials, basic materials and healthcare was offset by weakness in consumer stocks and real estate.

Prudential was the biggest riser after filing paperwork to float an Indian subsidiary, selling more shares as part of the IPO offer than previously guided.

Unilever dipped to reflect the separation of its ice cream assets from the group.

On the economics front, the big event of the week is the US interest rate decision on Wednesday where the market is pricing in an 87% chance of a quarter percentage point cut. Markets may not rally if we get a 25 basis-point cut, given how investors are already expecting it to happen. Instead, markets are only likely to move in a large way up or down if we don’t get a cut or if the cut is much bigger than expected.

Netflix

Netflix’s proposed acquisition of Warner Bros’ studio and streaming assets has hit a stumbling block after Donald Trump flagged potential competition concerns.

The US president made comments about market share, suggesting that competition authorities will look closely at whether a combined entity would be too dominant.

Much attention has been given to Trump’s friendship with Larry Ellison, whose son David had previously spearheaded a deal for Paramount Skydance to buy Warner Bros, which was unsuccessful. There is a lot of talk that Trump seemed to support such a deal at the time, so the president opposing the Netflix acquisition would be double standards.

Fundamentally, Trump wants to bring some pizzazz back to Hollywood. He wants to resurrect the glitz and glamour of the US film industry, whose star has faded as more productions are made overseas thanks to tax incentives and cheaper costs.

Netflix will be under pressure to do as much as possible on home soil, so any commitment to do a certain amount of production in the US could help to win Trump over.

Unilever

Investors will be watching Magnum Ice Cream closely to see if its shares firm up or melt following the demerger from Unilever. So far, the split seems to have delighted investors as the shares have pushed higher.

The split has been in the making for some time, drawn out by a lengthy administrative process and then delays linked to the US government shutdown.

Unilever shareholders have been given free shares in the ice cream arm and there is a risk that many people will sell them at the first opportunity.

The whole reason behind the corporate split was that the ice cream arm was lower growth and more seasonal in terms of demand than the rest of Unilever, so certain investors might feel they also don’t want to retain such interests in their portfolio.

It’s perfectly normal for shares in a demerged company to be volatile in the first few weeks of trading as certain investors head for the exit and others take positions. It’s a simple rearranging of the chairs.