This week’s news includes; CMA preliminary report on Asda-Sainsbury’s merger, Honda shuts down Swindon factory, Flybe acquired by Virgin led consortium, Pinterest IPO plans
Opinion articles of the week:
Opinion articles of the week:
- The Guardian – The Direct approach: why ailing UK retailers are turning to Mike Ashley.
- Chambers Student – Becoming a corporate lawyer: the view from law firm Freshfields
- CNBC – Elon Musk: ‘Paper money is going away
- Legal Cheek – 5 things students need to know about lawtech.
- City A.M – The secret to saving the high street? Fewer shops
1. CMA PUBLISHES SAINSBURY-ASDA MERGER FINDINGS
The Competition and Markets Authority (CMA) has expressed extensive concerns about the £12 billion merger between Asda and Sainsbury’s. The CMA hinted that the deal could be rejected as it could lessen competition, leading to increased food and fuel prices and limit customer choice. Asda and Sainsbury’s maintain that the merger would lead to lower prices for customers. The supermarkets had plans to create £350 million in savings from “harmonised buying terms.” In practice, this would mean a squeeze on suppliers.
The CMA’s findings warn that Sainsbury’s and Asda will have to sell off a significant number of stores in order to “recreate the competitive rivalry lost through the merger”. While these findings are provisional there is doubt that the merger will receive approval. This news was welcomed by numerous suppliers who feared the merger would squeeze their finances, given the new behemoth they would negotiate with. The final decision is expected by the end of April 2019.
2. INDEPENDENT GROUP EMERGES
Last week, eleven MPs quit their parties and formed The Independent group. Seven labour MPs and four Conservative MPs joined forces to form the fourth-largest group in Parliament. Some of the big names include Labour’s Chuka Umunna and Luciana Berger and the Conservatives’ Anna Soubry. The group is not however, an official political party. They have no official leader and they are currently crowdfunding for their group. They do not have a manifesto but have listed their 11 values which they deem the main parties have forgotten.
A key aspect, although it does not appear on their list, Brexit. All MPs who joined are prominent voices against a no-deal Brexit and some have campaigned for a second referendum. The Labour politicians cited growing anti-Semitism within the party and disapproval of Corbyn’s leadership for their departure. The Conservative defectors blamed Theresa May’s Brexit policy as the key reason for leaving.
There have been strong calls for these MPs to resign and run by-elections in their constituencies. The politicians were elected on their respective party manifestos so given they are no longer party members they should arguably stand for election against as independents. There is no automatic requirement to hold by-elections when a politician leaves their party. How this party develops will be interesting to see.
3. HONDA TO CLOSE SWINDON FACTORY
Honda has announced that it will close its Swindon plant within 3 years, costing 3500 jobs. Production will continue as normal until 2021 after which the factory will begin closing. Honda blamed the macroeconomic challenges caused by factor like China’s economic slowdown and the trade war with the US. A large factor in the decision is also the rapid decline in diesel sales. The Swindon factory produces many of Honda’s diesel vehicles. Brexit was an ancillary factor as with no clarity on our future relationship with the EU it is unclear whether there will be any disruption to trade.
The UK auto industry is facing a cocktail of difficulties all topped with Brexit uncertainty. For the last two decades car makers have relied on rapid sales growth in China to bolster their books but sales have declined in recent months. In Europe, leaders are clamping down on diesel and customers are turning their nose up at new diesel cars. JLR, Nissan and now Honda have revealed plans to either cut or move thousands of jobs out of the UK. Things don’t seem likely to get better, particularly as the prospect of a no deal draws nearer. Several car makers have stressed the potential damage disruption caused by a no-deal Brexit could inflict on the industry. A disorderly Brexit, combined with these other mitigating factors could see an exodus of carmakers, potentially bringing “project fear” to life.
4. UBS FINED
UBS has been fined €3.7 billion in a tax fraud lawsuit. The Swiss giant was found to have helped French clients launder proceeds of tax fraud and hide billions in tax from authorities. A French court found that the bank systematically aided tax avoidance and illegally solicited clients through concerts and sports events. The bank will now pay €3.7 billion fined and €800 million to the French state.
The case has been running for 7 years. The bank has denied all wrongdoing and rejected a €1.1 billion settlement. The bank had already set aside $2.46 billion to pay for potential losses from this case. The fine now totals €4.5 billion dwarfing the reserves. UBS made net profits of €4.3 billion in 2018. The bank has already paid fines in Germany and the US for cases of a similar nature. The French courts, however, have issued the largest fine by some €3 billion.
5. FLYBE ACQUISITION
Flybe has been acquired by a Virgin led consortium at a discount price of £2.2 million. Shareholders will receive just 1p per share under the deal. The Connect Airways consortium is led by Virgin Atlantic and consists of Stobart Group and Cyrus Capital. US based Mesa Air later put in a higher bid of 4.5p per share but this was rejected. The proposals would not have been carried out in time to avoid disruption to Flybe operations.
Flybe has been hit by rising fuel costs and a price war in the budget flight sector which has put it in financial difficulty. In Autumn last year, Flybe began it’s sale process. The deal is now done but to this is to the dismay of some shareholders. Hosking Partners, who own a 19% stake in Flybe threatened legal action against the Connect Airways takeover. The 1p per share is a far cry from Flybe’s IPO price of 295p per share. The deal will however, provide a crucial £100 million cash injection into the business.
6. PINTEREST IPO
Pinterest has discreetly filed for an initial public offering (IPO). The social media platform is aiming to raise up to $1.5 billion, reaching a total value of over $12 billion. Pinterest has hired Goldman Sachs and JP Morgan Chase to advise on the floatation. Pinterest was founded in 2010 and allows users to post, share and search for images, with a focus on lifestyle and fashion. The platform now boasts 250 million monthly users and posted revenue of $553 million in 2018.
This is just another listing in a busy year for the IPO market. This year has been called “the year of unicorns” due to the number of huge listings set to occur. The US government shut down and global market uncertainty has hindered the flow of planned activity but there are still numerous big listings on the way. Uber and Lyft are both currently preparing their IPO’s and could float by the end of March 2019. Airbnb and dating app Bumble are also taking steps to list in 2019.
7. UBER LOSSES
Uber posted its 2018 financial results and while it managed to decrease losses, revenue growth also declined in the last quarter. Uber turned over $3 billion in the last quarter of 2018, a 36% decline in growth. For the year however, the taxi-hailing app saw a 43% rise in revenue to $11.3 billion. The losses for 2018 were also down 15% to $1.8 billion. Uber has failed to post a profit in its existence and has incurred heavy losses in recent years. Despite this, it has reached record app engagement and if the company cuts costs, its fortune could soon change. Uber’s losses could concern investors as it gears up for its IPO. It could list as early as next month and be valued at $120 billion.
Apple is collaborating with Goldman Sachs to launch a joint credit card, according to reports. The card will be linked to users’ Apple Wallets. Users will be able to earn rewards such as cash back on purchases on Apple products. The card will operate on Mastercard’s payment system. It is hoped that this will helps users track and manage their money better. The card will initially be available to employees in March then rolled out later this year.
Apple saw iPhone sales fall 11% year on year as Chinese competitors eat at its market share. The growth of competitors and the free battery replacement service saw 9.7 million fewer iPhones sold in q4 2018, down to 64.5 million units. Huawei is undoubtedly the biggest gainer. In q4 2018 the firm boosted sales by 37.6%.
9. CANNABIS LEGAL DEPARTMENT
London based Mackrell Turner Garrett has announced that it
will be opening a cannabis law related department. Following the recent rise in
UK lawsuits over the use of medicinal cannabis Mackrell is looking to cash in.
After two high profile cases the law was recently changed, allowing for
cannabis derived products for medicinal purposes in exceptional cases. There
have however, only been a few cases in which GP’s have been authorised to
prescribe medicinal cannabis.
The department will be led by Robert Jappie, a senior associate who had previously worked in the criminal defence field. As more cases will inevitably come to the fore and attitudes change, Mackrell may have established themselves as a front runner in the cannabis legal sector.
10. GOVERNMENT BORROWING
The UK government has reduced public sector borrowing to its lowest level since 2001. Borrowing fell by £18.5 billion to £21.1 billion. The government also revealed a net borrowing surplus of £14.9 billion. This was due to increase tax receipts. Income tax and capital gains tax receipts reached £21.4 billion. Despite the positive news, the outcome Brexit could have an adverse impact on the public finances. There is a lot of concern about the impacts of no-deal Brexit. Chancellor Philip Hammond confirmed that the government is on track to beat forecasted borrowing levels but has warned Brexit could force an alternative fiscal plan. City A.M looks closer at the figures.