The week’s news included; MPs pass “no fault” divorce bill, Just Eat to buy GrubHub in £5.75bn deal, Tech firms halt sales of facial recognition tools to police, Hertz to sell $1bn of shares despite bankruptcy
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Opinion articles of the week:
- FT – Property law: Do I need planning permission for a hot tub?
- BBC News – Five ways shopping will be different from now on.
- City A.M – No-deal Brexit Q&A: What happens if UK-EU trade talks fail?
1. NO FAULT DIVORCES
The Divorce, Dissolution and Separation Bill, allowing for “no fault” divorces, has passed the first hurdle in Parliament. No fault divorces will only require a party to show the marriage has irretrievably broken down. Under current laws, a party must allege adultery, unreasonable behaviour or desertion has occurred to start divorce proceedings. A person currently seeking a divorce without consent of the other side must have lived apart for five years. The new proposals will remove the general option to contest a divorce where a party unilaterally requests a divorce, except in fraud or coercion. An option for a joint divorce will also be introduced. MPs voted in favour for the bill 231-16 and it has now been backed by the House of Lords.
2. JUST EAT TAKEAWAY TO BUY GRUBHUB
Just Eat Takeaway has agreed to buy GrubHub for £5.75 billion amid a flurry of takeaway M&A activity. Uber had recently attempted to purchase GrubHub but pulled out over competition concerns. Just Eat Takeaway’s move would create the world’s largest food delivery firm outside of China processing a combined 600 million orders annually. Food delivery firms are on a consolidation drive as competition in the sector has led to an expensive battle to retain customers. To increase efficiency and profitability many of the larger players are seeking to merge. In April, Just Eat and Takeaway.com secured regulatory approval for their £6.2 billion merger. This latest deal with GrubHub will provide Just Eat Takeaway with a stronger foothold in the US market. Shareholder and regulatory approval are still required for the deal to proceed.
3. BARCLAYS HIGH COURT CASE
PCP Capital Partners’ £1.5 billion lawsuit against Barclays over its raising of cash from Qatar began last week. The private equity firm alleges Barclays misrepresented its loan to Qatar and had assured PCP that Qatar was receiving the same loan deal that it was. The terms were allegedly much different and had PCP been informed, they would have received much better terms.
Barclays was one of the few UK banks that did not require a bailout in the 2008 financial crisis. It emerged that Barclays had struck a multibillion investment deal with Qatar to secure emergency funding from the major Barclays shareholder. Barclays received £3.95 billion from Qatar but also £322m in hidden fees along with other discrete favourable benefits through “bogus” advisory service agreements. Three former executives were found not guilty of fraud in a separate criminal trial relating to this issue earlier this year.
4. HOVIS UP FOR SALE
Bread maker Hovis is to be put up for sale this year as its owners plan a share sale. The Gores Group plans to sell its 51% stake while Premier Foods is looking to sell its 49% holding. The shares will be sold via auction later this year. Both owners are looking to capitalise on the company’s strong financial performance. During the coronavirus outbreak, customers stockpiled bread en masse and Hovis has benefited from this. Hovis commands 28% of the branded and pre-packaged bread market. The company could be valued at up to £150 million. Hovis was founded in 1886 and employs 2700 people.
5. UK ECONOMY TANKS
The UK economy declined by a record 20.4% in April due to the coronavirus lockdown. April was the first full month in lockdown and economic activity grinded to a halt in many sectors. This huge decline was in line with analysts’ expectations. May is expected to be a less severe decline as restrictions marginally eased and businesses adapted to the new normal. Overall, February to April saw a 10.4% decline quarter on quarter.
Kickstarting the economy will be the priority for the government over the next few months. Over 9 million people are currently furloughed with the scheme costing £14 billion a week. The government needs to ensure there is no furlough cliff edge where firms lay off staff en masse once the scheme ends in October.
6. TECH FIRMS PAUSE FACIAL RECOGNITION SALES
IBM, Microsoft and Amazon have all halted sales of facial recognition technology to police due to issues of racial bias. The companies cite issues surrounding racial profiling and is responding to concerns on the creation of “suspicion-less” surveillance which would disproportionately affect black people and other ethnic minorities. The move was triggered by the death of George Floyd which has sparked a global debate about institutional racism. Amazon will ban sales to police of the technology for one year. Microsoft on the other hand, will not approve sales of facial recognition technology until national legislation approves the use of facial recognition technology in policing. IBM set no deadline and will halt all sales of technology used for “mass surveillance or racial profiling.”
7. HERTZ SELLS SHARES DESPITE BANKRUPTCY
Despite filing for bankruptcy last month, car rental firm Hertz is to sell up to $1 billion of unissued shares. Typically, the share price of a company will fall to near zero during Chapter 11 bankruptcy proceedings which makes Hertz move unusual. In Hertz’s case however, its share price jumped soon after the initial 80% plummet. Prices fell to roughly $0.56 but later jumped as high as $5.53. This spike was driven by increasing market confidence of a post-covid economic bounce back. The US economy added a record number of jobs in May as businesses began to reopen. A share sale will help it raise much needed cash and with share prices trading at roughly its pre-Chapter 11 price now is a good time. This sale is particularly beneficial as the company will not have to take on as much debt. The challenge is convincing investors to buy in, as shareholders could soon find their investment to be worthless. How effective this sale will be remains to be seen.
8. UNILEVER STRUCTURE CHANGE
Consumer goods giant Unilever has revealed plans to end its Anglo-Dutch structure and combine its business into one London entity. Unilever currently has its shares independently listed both on the London stock exchange and the Dutch exchange in separate entities. Under these plans, Dutch shares will be swapped for London based Unilever PLC stock and the company will be unified.
In 2018 however, the company had attempted to combine its entity into a Dutch entity, but British shareholders rejected the proposal. The proposal was even pulled before reaching the vote due to negative feedback from shareholders. This latest move could face the similar backlash from Dutch shareholders who may reject a corporate move to London. Unilever will need 75% of shareholders to approve the plans in order for it to pass. Unilever turned over €52 billion last year and owns brands such as Ben & Jerry’s, PG Tips, Dove and Vaseline.
9. LLOYDS FACES FCA FINE
Lloyds Banking Group has been fined £64 million by the Financial Conduct Authority for failing to treat mortgage customers fairly. Many of the group’s customers have struggled to keep up payments due to pandemic and the group failed to adequately take their circumstances into account. Lloyds Bank, Bank of Scotland and The Mortgage Business were all found to have inadequate background and affordability checks between 2011 and 2015. In the UK, financial institutions have a regulatory obligation to treat customers fairly. This includes ensuring products such as mortgages and loans are affordable for customers based on their financial circumstances. The group was due to face a £91 million fine but instead received a 30% reduction as they did not challenge the findings.
10. GOLDMAN HALTS NEW RETAIL BANK CUSTOMERS
Goldman Sachs has stopped taking new UK customers for Marcus, its online retail savings bank. The bank has already secured 500,000 UK customers in just under two years. Marcus initially offered rates of 1.5%, later reducing to 1.05%. These interest rates far exceeded the average UK savings account rate of 0.3%, drawing in a flurry of customers.
Marcus has now drawn in £21 billion worth of deposits but will stop taking new UK customers to avoid hitting the £25 billion mark. At £25 billion, Marcus will be required by regulation to create a ringfenced institution wholly separate from Goldman Sachs.