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The week’s news included; Brexit drama and delay – explained, WeWork facing bankruptcy by next month, Renewable energy use overtakes fossil fuels in the UK, Chick-fil-a to leave UK market just days after entry
Opinion articles of the week:
- The Guardian: How the wheels came off Facebook’s Libra project.
- Legal Cheek: Big Tech and Competition law explained
- CNBC: Airbnb’s cash numbers could show that it’s not another WeWork in the making
- City A.M:
What does Britain need? More robots
1. BREXIT DEAL DELAYED
Despite securing an amended Brexit deal with the EU, Boris Johnson has requested an extension to the Brexit deadline, albeit with a twist. Johnson seemingly did the impossible and secured amendments to the withdrawal agreement with the EU. What couldn’t be overcome was the arithmetic in Parliament and what was initially dubbed “super Saturday” was somewhat anticlimactic. There was no vote on the deal Boris has secured, just a vote to force an extension to Brexit which was passed by just 12 votes. Boris Johnson then wrote to the EU extend the deadline but also wrote to explain why an extension was the wrong option.
Prime Minister Boris Johnson secured an amended deal with the EU, to the surprise of many. One of the crucial points was the Irish backstop which was removed in Johnson’s deal and this was the main cause of the impasse under Theresa May.
The Irish backstop would have seen the UK remain aligned to the EU if no future trade deal was reached, and this arrangement was indefinite. Under Johnson’s deal, the whole UK would leave the customs union regardless but Northern Ireland would remain aligned to the EU in some aspects if no future deal was reached, preventing a hard border in between Northern and the Republic of Ireland. This arrangement creates a border in the irish sea, meaning goods would be checked at Northern Irish ports. Politico review Johnson’s deal in full here.
Crucially, the Northern Irish DUP were firmly against it because Northern Ireland would be treated differently from the rest of the UK. Labour said the deal was worse than Theresa May’s deal.
On Saturday, former Conversaitve MP Oliver Letwin proposed an amendment which derailed Johnson’s plan. The amendment requires Parliament to pass all relevant legislation required to enact Johnson’s deal, before Parliament votes on the deal itself. This was a “insurance policy” to prevent no deal. The amendment passed by 322 to 306. Boris Johnson was then obliged to comply with the “Benn Act” requiring him to request an extension from the EU, as a deal had not been approved by Parliament ahead before 19 October. The chances of leaving on 31 October are now dwindling.
Boris Johnson has written not one but three letters to the EU. One letter was a request for an extension to the Brexit deadline, as required by law but Johnson did not sign this letter. The second was an explanation from the UK’s ambassador confirming the extension request was required by law. The third was a personal letter to Donald Tusk, the EU Council president. Here explained why he believes a delay is the wrong option and not in the best interest of all parties involved. The full text of all three letters in available here.
The ball is now in the EU’s court as to whether to grant the extension and for how long. The EU have however, made clear that a no-deal Brexit is not desirable, so an extension is likely. If an extension is granted, a general election would almost inevitably follow. All parties have laid out their rough stance on Brexit so such a general election will essentially form a second referendum and will shape the future of the UK.
2. JOHNSON AND JOHNSON LEGAL BATTLES
Johnson & Johnson is set to face 100,000 more damage claims over its products adding to the pressure of its opioid scandal. The total cost of resolving all these cases could top $20 billion. J&J was ordered to pay out $8 billion in damages for failing to warn about effects of a potential breast growth in men caused by a psychiatric drug. Additionally, J&J last week had to recall baby powder in the US after traces of asbestos were found. It is already facing thousands of lawsuits over its talc products over claims they cause cancer.
One positive for J&J was that an Oklahoma judge highlighted an $100 million error. The judge had previously awarded $572 million for J&J’s involvement in the state opioid crisis. $107 million was set aside in this figure to help fight NAS, a withdrawal syndrome exhibited by infants when mother’s stop taking opioids during pregnancy. It transpired, this figure erroneously had an addition three 0’s behind it and was supposed to be $107,000.
Despite these legal battles, third quarter earnings at the company beat expectations by $700 million at $20.73 billion.
3. WEWORK SEEKING RESCUE
WeWork could run out of money by mid-November and it is now desperately seeking rescue financing. WeWork’s failed IPO debacle has seen its valuation drop by over 80% in a matter of weeks. WeWork pulled its IPO plans in September after a frosty response from investors, but this meant it forewent nearly $10 billion in crucial funding. Now, WeWork is reportedly set to run out of cash by mid-November. The company posted a $900 million loss in the first half of the year.
The office-space leasing company already revealed plans to cut 2000 jobs as well as the sale of assets and non-core businesses such as its private school, We Grow. This however, is far from sufficient to keep the business afloat. WeWork’s largest shareholder, SoftBank is pitching a financing package alongside key lender and stakeholder JP Morgan Chase & Co who comes with a rival package to keep the company afloat. Of course, while the drama ensues, WeWork is experiencing an exodus of top talent. Six C-suite executives have left in the past month.
A WeWork bankruptcy could be catastrophic for property markets globally, but particularly in the US. The company has $22 billion of long-term liabilities and nearly $18 billion of this sum comprises of long-term leases for the spaces it rents out. These lease agreements last for years and if the company goes under, this poses huge operational risks for landlords, considering the size of WeWork’s portfolio. WeWork holds 33% of the entire flexible space market, with over 23.4 million square feet of office space. This is more space than its nearest 6 competitors combined. WeWork is fighting for its life, but it may be irreparably damaged. Its estimated WeWork needs at least $3 billion to make it through the next year.
4. LIDL ANNOUNCES £15 BILLION INVESTMENT
Lidl has revealed plans to invest £15 billion in its UK suppliers. This is to allow it to bring more British fresh food and meat to its stores. Lidl aims to raise sales of British produce by over 10% within the next year. It is hoped the investment will allow its suppliers to expand and improve quality. This initiative forms part of five year plan which will also see longer term contracts for suppliers and added support for young farmers. Lidl continues to apply pressure on the larger supermarkets, recently upping its market share to 5.9%.
5. BONMARCHE FALLS INTO ADMINISTRATION
High street retailer Bonmarche has fallen into administration. The company was struggling to meet its financial obligations and consistently weak sales amid a challenging environment tipped the company over the edge. Businessman Philip Day upped his stake in Bonmarche to 95% with a £5.7 million bid earlier this year. The company will now seek a new buyer for a fresh injection of cash. All stores will remain open for the time-being. This isn’t Bonmarche’s first collapse. In 2012 the firm went into administration but was rescued by a private equity firm. Now, the collapse puts 318 stores at risk of closure and 2887 jobs in jeopardy.
6. TESLA TO BEGIN BUILDING CHINA PLANT
Tesla has been given approval to begin manufacturing cars in China. Tesla has plans to produce 1000 Model 3 cars every week in China, giving it a significant boost and access to the Chinese car market. Crucially, this factory will help Tesla avoid the huge tariffs resulting from the US-China trade war. The company had been vocal about the harmful impact of the tariffs on business. Tesla’s new $2 billion factory will be called “Gigafactory 3” and it will even receive help from Chinese authorities in constructing the plant. This will be the first ever fully-foreign owned car manufacturing plant in China.
7. WHSMITH ACQUISITION
WHSmith has struck a $400 million deal to acquire US travel firm Marshall Retail Group. The deal will allow WHSmith to increase its international presence and further expand its offerings at airports as high street conditions remain challenging. The acquisition will see WHSmith add 170 new stores/outlets, 59 of those at airports. WHSmith currently has 1600 stores/outlets and turned over £1.4 billion last year.
8. UK RENEWABLES ENERGY OVERTAKES FOSSIL FUELS
Renewable energy consumption has overtaken fossil fuels in the UK for the first time ever. Renewable energy from windfarms, solar panels and biomass plants accounted for 40% of UK energy consumption. Wind farms were the largest source of renewable energy, totalling 20%. With more wind farm projects underway, fossil fuel energy could be a thing of the past. The use of fossil fuels has declined by 20% in under 10 years and now accounts for 39%. Coal power has now dropped to just 1% and all British plants will be closed ahead of a ban by 2025. The government is set on reaching net zero emissions by 2050 and the increased renewable energy consumption ahead of fossil fuels will certainly comes as positive news.
9 ASOS PROFITS SINK
ASOS has profits have nosedived 68% after heavy investment in warehouses but the outlook is positive. ASOS still managed £33.1 million in profits for the year. Overall however, the company simply failed to attract enough new customers. ASOS also faced numerous logistical issues with its German and US warehouses which hit profit margins. It appears it has now overcome the challenge.
The company has now promised to boost its black Friday offerings to keep up with competition. The online retailer offered 20% discount last year, well below many competitors’ offerings. Investors were pleased that the warehouse issues were over and ASOS shares rose 19% in response to the news.
10. CHICK-FIL-A TO CLOSE UK BRANCH
Just 8 days after opening, the first UK branch of US restaurant Chick-fil-A, may be set to close. The company received a, backlash from LGBT+ groups due to the owner’s stance of LGBT issues. The Cathy family who own the restaurant chain have made public statements against LGBT rights and donated to anti-LGBT groups. The firm revealed that the Reading store would in fact be temporary. Chick-fil-a was founded in 1967 currently has outlets in 47 out of 50 US states.