The week’s news included; Airbnb hits $86bn value in IPO, Mastercard to face huge £14bn lawsuit, Facebook sued by US regulators, Moncler buys Stone Island in $1.7bn deal
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:
- The Guardian – Crazy golf on the first floor? UK’s department stores face radical remake
- City A.M – How Covid-19 turned out to be Open Banking’s moment to shine
- Yahoo Finance – DoorDash IPO is ‘most ridiculous of 2020’ and ‘holds no value’: Analyst
1. BREXIT NEGOTIATIONS CONTINUE
Brexit talks between the UK and EU are set to continue as some progress was made. Both parties had previously agreed to end negotiations on Sunday if no deal was reached before then. Optimism is still low but both Boris Johnson and EU Commission President Ursula Von de Leyen deemed it responsible to try and reach an agreement.
The key differences surround the “level playing field” and fishing rights. A “level playing field” would mean that as part of the deal, the UK would be required to remain tied to EU regulatory standards on goods. This is a common clause in most free trade deals to prevent unfettered dumping of cheap goods. The UK, however, asserts it must break free of EU rules to achieve sovereignty. The EU also wants a “ratchet” clause which would see both sides stay aligned indefinitely, as where one side increases their standards, the other is required to do the same.
With regards to fishing rights, the UK wants to prioritise UK boats in its waters and limit EU boats’ access and quotas. This would harm EU fishermen who currently catch £600m worth of fish in UK waters every year.
Given the significant differences at this stage, many insiders felt that a no-deal Brexit was now inevitable. This would, however, leave swathes of issues. These include:
- An increase in the prices of goods as tariffs would apply on EU imports and exports.
- The infamous Dover lorry queues would likely come to pass, as the thousands of lorries moving in out of the UK to the EU would be stopped and checked at the border.
- Issues around border checks between mainland Britain and Northern Ireland remain unresolved.
- Legal and financial service firms will face limits and restrictions on doing business in and with the EU. Some will have to channel business through EU subsidiaries others may have to withdraw entirely.
Although there are still huge differences between the two sides, the commitment to try and secure a deal is positive.
2. AIRBNB IPO
Airbnb launched its IPO last week and it reached a value of a $86 billion, smashing expectations. Airbnb’s share price rose 112% on the day. The shares of the accommodation rental platform were priced at $68 pre-IPO, which would give it a value of $40 billion. Last week, Airbnb’s shares closed the day at $144.71, making the company worth $86.5 billion. This is lightyears away from the $18 billion low Airbnb saw at the outset of the pandemic.
The success of the IPO is a sign that investors are confident of Airbnb’s recovery post-Covid. Airbnb’s bookings have collapsed during the pandemic. Over 80% of bookings in April were cancelled so millions of refunds were issued to hosts over the past few months where such cancellations occurred. Consequently, the company slashed 1900 jobs in May. Even prior to the pandemic, Airbnb posted a huge $322 million loss in the first nine months of 2019. Last quarter however, Airbnb managed to make a profit of $219 million despite revenue down 19% year on year.
3. MASTERCARD TO FACE £14BN LAWSUIT
The UK Supreme Court has allowed for a hearing of a £14 billion group action lawsuit against Mastercard. Claimants allege Mastercard charged excessive transaction fees to over 46 million UK customers for 16 years. The stakes are enormous for Mastercard. Almost every adult present in Britain between 1992 and 2008 could receive a £300 payout from Mastercard, if successful. The cost to Mastercard would be a staggering £14 billion. To put this in context, Mastercard’s total global revenue in 2019 was roughly £12.75 billion. The ruling of the Supreme Court will now see the case go to a second hearing at the Competition Appeal Tribunal.
4. UK AND SINGAPORE AGREE TRADE DEAL
The UK and Singapore have signed a trade deal worth £17.6 billion. The deal will bring closer ties and more collaboration in digital and services trade. It largely mirrors the current arrangement the UK enjoys under its EU membership.
With a no-deal Brexit all but confirmed, the UK will need to quickly get agreements in place to replace the lost arrangements. Canada and the UK have signed a continuity agreement to allow the countries to trade on the same terms as is currently in place with the EU. A more comprehensive trade deal will be negotiated in due course.
5. FACEBOOK SUED BY US STATES
Facebook has been sued by US regulators and 48 attorneys general. This could see Facebook be forced to sell WhatsApp and Instagram. The prosecutors allege that Facebook’s practices of buying up rivals and stifling competition amounts to illegal activity. This is by far the most significant action taken against Facebook by regulators. Facebook’s growth has been exponential, and regulators have been unable to stem its dominance in the market.
As sites grow, Facebook’s tactics have been to either acquire the competition or stifle them. Facebook bought Instagram and WhatsApp in 2012 and 2014 respectively. It tried to purchase Snapchat in 2013 for $3 billion but was rejected. Soon after Snapchat released its “Stories” function, Instagram later released its own almost identical version. These practices, although not in themselves illegal, when combined with many other practices, they appear to be a direct effort to stifle competition. This is what has brought Facebook into the crosshairs of the regulators. Facebook strongly denies the allegations stating the deals were already scrutinised and approved.
6. DOORDASH IPO
Food delivery firm DoorDash launched its IPO last week and saw huge gains. The US’s largest food delivery app achieved a share price of $182, giving it a market capitalisation of $68 billion. This is way beyond the $32 billion valuation it sought just a few weeks ago.
While AirBnB’s stellar IPO gains last week had been hailed, many analysts deem DoorDash’s gains to be baseless market frenzy. This is fundamentally because DoorDash’s long term business model appears shaky. Its fighting in a highly saturated and unprofitable market.
DoorDash, like most of the other major firms are unprofitable and posted losses of over $100 million last year including Just Eat, Uber Eats and Deliveroo. Companies can remain loss making as long as they keep investors confident in their ability to hold a decent chunk of the market. With competition heating up, their market share cannot be taken for granted and its very possible they could decline as quickly as they rose.
This won’t stop the IPO celebrations though. DoorDash raised $3.37 billion and this will undoubtedly provide significant financial security for the firm.
7. MONCLER BUYS STONE ISLAND
Italian luxury fashion brand Moncler will buy Stone Island in a $1.4 billion deal. Moncler will buy a 70% stake in Stone Island and then later buy the remaining 30%. The brands will remain separate and autonomous but will share information and data. Even luxury retailers are feeling the pinch of the pandemic and consolidation is looking more attractive than ever. LVMH nearly pulled out of its acquisition of Tiffany earlier this year but agreed a deal at a reduced price.
Moncler is best known for its luxury winter coats. Stone Island, also Italian, produces winter wear and sportswear too but has a younger customer base. Investors were pleased by the news as Moncler shares rose 6.5% in response.
8. MORGAN STANLEY MOVES €100BN TO FRANKFURT
Morgan Stanley has announced plans to a shift €100 billion worth of assets to Frankfurt ahead of Brexit. Businesses have been told to prepare for a no-deal Brexit in which UK firms will lose the ability to freely service EU clients and counterparties. In order to keep business flowing smoothly, financial service firms have been moving assets and staff and creating branches in EU states. Frankfurt has been the destination of choice for hosting assets for many investment banks. JP Morgan, Goldman Sachs and now Morgan Stanley have all moved hundreds of billions worth of assets to the mainland continent.
9. TESCO SELLS THAI & MALAY ARM
Tesco has finalised the $8 billion sale of its businesses in Thailand and Malaysia. The businesses will be sold to Thai conglomerate CP Group. Despite being agreed in March, the parties just received approval from Thailand’s trade and competition authorities. The sale will be completed by the end of the year.
Tesco is seeking to focus on its European business and the sale will provide a welcome windfall. The supermarket will contribute £2.5 billion to its pension scheme and issue a £5 billion special dividend to shareholders. Tesco entered Thailand and Malaysia in 1998 and 2002, respectively. It boasts nearly 2000 stores in Thailand and 49 stores in Malaysia.
10. BT FINED £6.3M
BT has been fined £6.3 million by Ofcom for breaching rules in securing public services contracts in Northern Ireland. The telecoms giant failed to provide its competitor, Eir, with information on its Fibre network products during a tender process for other essential telecoms services. Northern Ireland procured the services between April 2017 and March 2018. Ofcom requires network providers, like BT, to issue the same information to all wholesale clients, both external rivals and other departments of its own business. Ofcom found BT breached these rules but did not believe the breach was intentional. BT received a 30% reduction in the fine for agreeing to fully accept liability. BT said it had taken steps to prevent it reoccurring.