The week’s news included; WeWork rescued as co-founder receives $1.7bn exit package, JustEat rejects $5bn takeover bid, payday lender QuickQuid to shut down, Netflix launches $2bn bond sale as streaming competition heats 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:
- FT – Lawyers’ next challenge: too much technology.
- City A.M. – How to invest in Veganism.
- The Verge – After this week’s hearing, Libra really might be in trouble
- City A.M – Debate: Is the re-election of Justin Trudeau as Prime Minister good news for Canada?
1.WEWORK: BOUGHT FROM THE BRINK
WeWork’s board has accepted Softbank’s $8 billion takeover deal to save the company, but at the cost of thousands of jobs. The firm’s largest shareholder will buy out the company for $8 billion, providing crucial funding. This sum is however, a far-cry from the $47 billion valuation touted earlier this year. As part of the turnaround plan however, 4000 jobs will reportedly be cut. This comes after the office-space sharing firm abandoned its IPO plans last month, foregoing $10 billion in critical funding. SoftBank’s new deal will provide $5 billion funding in debt and additional funding from stock purchases from current shareholders.
WeWork’s co-founder, Adam Neumann, will be forced leave the company but not before receiving nearly $1.7 billion in pay-outs. $1 billion of this is to buy his stock, while $500 million is a credit line to help him pay money due to JP Morgan Chase, WeWork’s largest lender. Astoundingly however, Neumann will receive a $185 million consulting fee. This figure is so high because WeWork’s voting structure gave Neumann too much control of the company, part of the reason investors snubbed its IPO plans. Neumann’s shares were initially worth 20 times more than ordinary voting shares, although this ratio was shrunk to 3:1 after public scrutiny. The payout shows how badly SoftBank wanted Neumann to leave. WeWork is now worth $11 billion less than SotftBank alone has invested into the company.
2. DRUG FIRMS SETTLE OHIO OPIOID CASE
Four US drug companies have settled opioid cases with two Ohio counties for $260 million. The counties had sued drug maker Teva and three distributors AmerisourceBergen, Cardinal Health and McKesson. All companies denied allegations of downplaying risks of opioid addiction and contributing to the crisis but agreed to settle. McKesson, Cardinal and AmerisourceBergen agreed to pay a total of $215 million. Teva will pay $20 million and is ordered to contribute $25 million to treatment medication.
Teva is also party to a much larger global settlement which is nearly finalised. This will see Teva pay $250 million in fines and contribute $23 billion worth of opioid addiction treatment medication over 10 years.
States across America are taking action against big pharmaceutical companies for contributing to a huge opioid crisis ravaging the USA. In the 20 years to 2017, there have been roughly 400,000 deaths from opioid overdoses in the USA, with nearly 50,000 deaths in 2017 alone. Johnson & Johnson recently struck a $572 million deal with the state of Oklahoma. Drug companies such as Purdue Pharma and Allergan have also struck deals.
3. JUSTEAT REJECTS TAKEOVER BID
JustEat has rejected a $4.9 billion hostile takeover bid for internet consumer group Prosus. The food delivery platform is already set to merge with competitor Takeaway.com in a $8.3 billion deal. Prosus sought to spoil the party with its own hostile takeover bid. This could now spark a bidding war for JustEat and jack up the acquisition price. Prosus’ bid is 20% higher than the 594p per share offered by Takeaway.com. Despite this, shareholders feel takeaway.com provide greater growth opportunities. Prosus already boasts large stakes in food delivery services across the globe and argue that they will provide what it deems necessary investment in JustEat to help it realise it’s potential.
A hostile takeover involves bypassing the board and putting a bid directly to shareholders. Just Eat shares soared by nearly 25% in response to the news.
4. HONDA CUTS GASOLINE CAR LINE
Honda has announced that it will stop making petrol and diesel-only cars for Europe by 2022. The company already revealed these plans but targeted 2025 and has now brought this target forward to 2022. It will now ensure all its model will either be hybrid or fully electric. This follows the trend of the shift towards electric models as Western governments clampdown on petrol and diesel vehicles. The UK government has committed to banning the sale of all petrol and diesel vehicles by 2040 and this could even be brought forward to 2035.
5. QUICKQUID TO CLOSE
The UK’s largest payday lender, QuickQuid is closing down and its US owner Enova will take a £58 million hit. The company was on the brink of collapse and was preparing for bankruptcy proceedings. The UK Financial Conduct Authority seriously clamped down on payday lenders in 2014, capping interest payments at 100% of borrowed money. QuickQuid’s interest rates had been as high as 1300%. In addition, more stringent lending rules were introduced, leading to a slew of claims against payday lenders for irresponsible lending. Last year, Wonga also collapsed after being inundated with claims. Now QuickQuid is facing the same fate, with over 3000 complaints in the first 6 months of 2019 alone. Enova said it is closing UK operations due to regulatory uncertainty. Payday lenders relied on exorbitant rates and came to prominence in the wake of the financial crisis. The regulatory clampdown has forced lenders to reshape their business models but for many, like Wonga and QuickQuid it has proved fatal.
6. LIBOR INVESTIGATION CLOSED
The Serious Fraud Office (SFO) has unexpectedly closed its investigation into the rigging of Libor, despite evidence implicating of Bank of England. Libor is an index which tracks inter-bank interest rates. Banks estimate interest rates they think they will have to pay to borrow money and the average estimate is published daily as the London Inter Bank Offered Rate aka Libor. A scandal broke when traders were found to have been “low-balling” estimates. This is where banks move Libor estimates to suit trading positions linked to Libor. In the UK, thirteen traders and brokers have been prosecuted by the SFO in connection with Libor rigging. In the US, the DoJ has prosecuted six. Traders have protested that this so called “rigging” was common commercial practice. The SFO claims it has taken the decision to close the investigation after a detailed review. BBC News looks at the developments in greater detail.
7. CHINA ECONOMY SLOWS
The US-China trade war is hitting the Chinese economy. The economy has slowed to a thirty year low at just 6% per year. This is 0.1% lower growth than expected by economists. This slow down has been fuelled by falling global demand for Chinese exports and a wider global international slow down. The escalating US-China trade war has had a significant impact on industrial production and construction. The US currently has imposed tariffs on $500 billion of Chinese imports with the latest round set to take effect in December. Chinese construction is at its lowest rate since records began in 1992.
8. RBS LOSSES
RBS has posted a £8 million loss after taking an additional hit from PPI claims. The bank had to put aside £900 million for PPI claims as the 29 August deadline brought thousands of unanticipated last-minute claims. In addition, RBS’s investment banking arm, Natwest Markets, revealed losses of £193 million. The bank had been returning to profitability after being bailed out by the UK government in 2008. In 2018 it posted its first full year profit since the crash, with a £961 million profit in the third quarter 2018. The bank is still 62% owned by the UK government and recently appointed its first female CEO, Alison Rose.
9. NETFLIX BOND SALE
Netflix is preparing for war. The streaming giant has announced a $2 billion bond sale as competition heats up. The sale will be for activities such as production and content acquisition. Netflix will need to boost its original content in order to stay on top of competition. Apple and Disney are now entering the streaming market with their own offerings launching next month. Netflix has preferred bond offerings as a way to fund content production, with a similar offering in April. Netflix currently has 150 million subscribers and turned over $15.79 billion in 2018.
10. SNAP SURPRISES
Snap surprised investors with strong revenue and user growth in the third quarter. The parent of the social media app posted revenue of $446 million, up 50%. Active monthly users rose by 7 million up to 210 million. Snap was also able to cut its losses by nearly $100 million year on year down to $227.3 million.
Snap is seeking new ways to attract users and diversify its income streams. It has invested heavily in augmented reality tools and it’s original entertainment productions. Viewers of Snap’s Discover feature were up 40% year on year. The company has been able to recover from the all time low share price of $5 and now trades at around $14.