This week’s news includes; Trump’s Steel Tariffs, Comcast bids for Sky, Retail rout, Spotify public listing, UK gaming sector on the up.
Below are our top 10 stories that you need to know about. Be sure to check our twitter page and Facebook page for regular posts of important headlines. Get all the important stories and insights straight into your inbox by subscribing to our mailing list here.
Opinion articles of the week:
- Business Insider claims that the Bank of England is making a fundamental misjudgement about the British economy.
- The Guardian asks whether Snapchat is becoming irrelevant.
- City A.M claims London can be at the heart of the Islamic finance revolution.
- Investopedia looks at Goldman Sach’s claim that Stock markets may plunge 25% as yields soar.
1. TRUMP STEEL TARIFFS
Donald Trump has announced plans to impose huge tariffs on imported steel and aluminium. He proposed a 25% on Steel and a 10% levy on alumium. This move follows his campaign promise to bring jobs back into the US metal industries.
Trump invoked an obscure law from 1962 allowing him to restrict imports when facing threats to “national security”. It is controversially argued that cheap imports are harming the domestic metal industries and may affect the defence industry.
Global financial markets dipped last year week as this raised fears of an international trade war increased. Trump however, tweeted that “Trade wars are good and easy to win”.
Despite, these tariffs being an ostensible move to bring back jobs, the implications could have the opposite effect. These tariffs could significantly harm US industries that require steel and/or aluminium. The US currently imports 90% of its steel. It is obvious to see that most manufacturers rely on imported steel and aluminium to produce goods at competitive rates. Ultimately, any tariffs would hit consumers hardest.
Trump has criticised the dumping of steel from China but ironically, the US imports most of its steel from Canada. Canada and the EU have both announced that they will introduce counter measures. If these tariffs go ahead, this could have severely damaging implications, not just for US industries and consumers but for the stability of international trade. BBC News looks closer at proposed tariffs.
For a comprehensive view on the tariffs and how the markets reacted, read the Financial Times’ report.
2. COMCAST MAKES RIVAL BID FOR SKY
Comcast has made a £22.1 billion bid to acquire Sky, challenging 21st Century Fox’s bid. The bid comes in a £12.50 per share compared to Fox’s £10.75 per share offer. Fox’s bid for Sky has been in the works but has raised regulatory concerns about media plurality. Fox already owns 39% of Sky and sought to take full control in December 2016. Fox has already offloaded its entertainment assets to Disney for $66 billion.
Comcast is the largest media company in the UK and currently owns Dreamworks, Universal Studios and NBC. The approach is not a formal offer but further announcements are expected. Sky’s share price soared by nearly 18% in response to the news. For more information on the offer, read Bloomberg’s report.
Sky News explains why Disney and Comcast both want to buy the UK broadcaster.
Check out our insight article exploring the dominant forces in the media industry.
3. RETAIL ROUT
Toys R Us has failed to find a buyer and has fallen into administration. The company had a £15 million VAT bill outstanding as it unsuccessfully sought to find a buyer. The company will now begin an “orderly wind-down process”. Toys R Us first opened in 1985 and currently has 105 UK outlets. Unfortuantely, it has made losses for 7 of the last 8 financial years and its US based parent company owes billions in debt. It is expected that 26 of these will close by spring with some stores closing within the coming days. The collapse puts 3200 jobs at risk.
Maplin has also collapsed into administration. Again, the company was unable to find a buyer. It is struggling to raise capital to meet its obligations. Maplin is one of the UK’s largest electronic goods retailers. It has over 200 stores. 2,300 jobs are currently at risk but there are no plans yet to close stores or make redundancies. Maplin first opened in 1976. (Sky News)
Carpetright has also issued another profit warning. This is the second warning it has issued this year. It is now talking with banks to find ways to ensure it meets financial obligations. The retailer downgraded expectations from £14m to a range of £2m and £4m. Carpetright also blames weak consumer confidence. (BBC News)
It is becoming increasingly clear that the traditional retail model of large outlets is unsustainable. Sky-rocketing business rates and greater employment costs combined with lower consumer footfall means profit margins are tight. The next few years will be a sink or swim test. Only the retailers who can successfully adapt to the digital age will survive. Prepare for more big name high street collapses.
BBC News claims the 6 reasons for the retail decline are; squeezed incomes, online shopping, changing tastes, rising overheads, too many shops and too much debt. Check out their report for more information.
4. SPOTIFY FILES FOR PUBLIC OFFERING
Spotify is listing on the NYSE in an unorthodox way. It will be listing its shares on the NYSE but not through the conventional initial public offering process. Usually a firm will market their shares in the run up to the list and the share price will be formally set (through share price discovery process). In Spotify’s case however, the price will be established based solely by buy and sell orders received on the day of listing. For investors, this means that no simplified marketing documents will be released to entice them to invest.
Spotify is the market leader in the music streaming business. It has 71 million paid subscribers dwarfing Apple Music’s 36 million subscribers. Despite revenue of $5 billion, increasing royalty payments amongst other issues led the company to losses nearly $1.5 billion in 2017. Similar to many tech companies in the social sphere like Snap and Uber, big questions of profitability linger over Spotify
The valuation of Spotify once the shares list will be interesting to see. Its value has fluctuated from $15.9 billion to $23.4 billion in 2018 alone. For more information on the listing read Bloomberg’s report.
5. TESCO BOOKER MERGER
Tesco’s £3.7 billion acquisition of wholesaler Booker is set to go ahead. 83.4% of Booker shareholders voted in favour of the merger, while Tesco shareholders also approved. The deal will create the UK’s largest food group. Shares in Tesco and Booker rose by 1.8% and 1.6% respectively.
The merger has already passed all regulatory hurdles. The CMA concluded that Booker and Tesco do not operate in the same market so the deal would not harm competition. Tesco is the UK’s largest supermarket and Booker is the largest wholesaler. (City A.M)
6. TRANSALANTIC LAW FIRM MERGER AGREED
US based Bryan Cave and UK firm Berwin Leighton Paisner have announced that they will be merging. The new firm will be called Bryan Cave Leighton Paisner (BCLP). The firm will have combined revenue of over $900 million and over 1,600 lawyers in 11 countries. The merger is expected to go live in April 2018. (Legal Cheek)
There have been a number of trans-atalantic mergers in recent times as the legal sector consolidates. The most notable mergers last year saw the creation of Eversheds Sutherland and Womble Bond Dickinson.
7. UK GAMING SECTOR GROWS
Sales in the UK gaming industry have hit record heights, contrary to the wider retail sector. The games market recorded sales of £5 billion, up 12.4% from 2016. The best selling game of 2017 was FIFA 18, while Grand Theft Auto V came third despite being initially released in 2013. Console sales also rose by over 30%. Analysts have attributed this sector growth to growing audiences, particularly as consoles have now become full entertainment systems with gaming simply as an aspect.
Despite the depreciation of the sterling and stagnating wages, consumers have found the cash to spend on gaming. Even more striking, was the 15% decline in the market for 2nd hand games as new games sales took over. It is usually expected that consumers would buy more second hand games as disposable income is squeezed. This certainly was not the case.
BBC News reports on the sector in more detail.
8. SKY AND NETFLIX DEAL
Sky has struck a partnership deal with Netflix. The Netflix app will now be integrated into Sky Q. In the coming year, Ultra HD Sky Q subscribers soon now have access to a package containing Netflix content.
Sky is working hard to adapt as the entertainment media industry players change. Sky is broadening its providing by collaborating with a number of services and competitors. They signed a deal with BT in December, in which they agreed to share sports content on each others platforms. Sky also announced the integration of Spotify in Sky Q last week. Whether these moves will help Sky stay dominant in the market remains to be seen. (Sky News)
9. AMAZON BUYS RING
Amazon has agreed to acquire smart doorbell maker Ring. It is expected that Amazon will pay over $1 billion for the company. The terms of the deal have not yet been released.
Ring’s smart doorbells allow users to view a direct video feed from their front door on their smartphone. Users can also communicate with visitors. This acquisition has huge strategic significance. There is the possibility that Amazon could introduce a service where Amazon deliveries can be left inside the house. Deliverers can use Ring to gain access to the house, at the request of the consumer. Ring could also be synced to Amazon’s Alexa.
Ring has not been without its critics. As recently as 2013, Ring failed to gain investors on ABC’s Shark Tank and seemed on the brink of collapse. This acquisition however, signals a new era for the tech company. The possibilities for development are enormous and will be interesting to see.
CNBC looks closer at the acquisition.
10. DYSON CREATES 300 ELECTRIC CAR JOBS
Dyson is recruiting 300 engineers to develop its first electric cars. The company hopes to have built its first car by 2020. Dyson already employs 400 people to work on the project. While the manufacturing location has not been decided this recruitment drive is clear statement of intent. Dyson is best known for its vaacum cleaners and has been performing well financially. In 2017, it posted revenue of £3.5 billion and profits of £801, a 27% rise. (BBC News)
