Commercial Awareness Update 28/02/19
1. Setback for Sainsbury's-Asda merger
The Competition and Markets Authority (CMA) has dealt a blow to J Sainsbury’s proposed £7.3 billion takeover of Walmart-owned Asda. Concerns that the deal between the two supermarkets would harm competition nationally and in 600 local areas prompted the CMA’s decision. Markets.com chief market analyst Neil Wilson said that “investors are rightly accepting that this deal is dead in the water”: the only way around the deal now is for the supermarkets to sell off some stores to reduce competition concerns. But a spokesperson for Sainsbury’s and Asda claimed that the deal would lower costs and, subsequently, prices. The companies are expected to see the merger review process through, which ends on 30 April, but private equity group (PE) KKR is said to be considering a bid for Asda. Other PE groups have ruled out any interest.
Why have other private equity groups ruled out interest in the supermarket?
2. M&S and Ocado announce deal
At the end of January, we wrote that Marks and Spencer and Ocado were considering a tie-up which would see M&S expand its online food presence. Yesterday, it was announced that the deal between the two companies had been agreed. M&S will buy 50% of Ocado for £750 million, creating a joint venture named Ocado. It will start delivering M&S, Ocado, and big name brands from September 2020, when Ocado’s current deal with Waitrose expires. M&S shares fell 10% following the announcement, while Ocado shares rose by 4%.
How is M&S going to finance the deal? Was there a link between this and its shares falling after the announcement? Why? What is the motivation behind the deal?
3. Instagram investment scam
Action Fraud, a police-led awareness centre, has warned of fraudsters on Instagram coaxing users into joining ‘get-rich-quick’ schemes. They promise high returns within 24 hours, before disappearing with the cash. Of those who reported their losses over the past 5 months, the average amount of money lost was £9,000. This makes a total of £3 million lost through such schemes. Security company ZeroFox specialises in social media and said that it has tracked two million posts advertising money-flipping scams. Action Fraud urged people to only use firms authorised by the Financial Conduct Authority (FCA) for financial matters and report fraud cases.
What is the role of the FCA? Do social media sites have a responsibility to moderate such schemes on their platforms?
4. Trade penalties to remain post-Brexit
The UK government has announced that penalties on imports, which are deemed to be traded unfairly, will remain post-Brexit. The EU already imposes tariffs on such goods, but the government will also implement necessary measures regardless of whether the UK leaves the EU with or without a deal. However, International Trade Secretary, Liam Fox, has said that the UK will not retain the 66 measures protecting EU producers. A total of 43 measures will be put in place, and will largely target products dumped by China on world markets, including Chinese tyres, but also ceramic goods and steel products. Director General of UK Steel, Gareth Stace, warned that the Trade Remedies Authority will face the ‘mammoth task’ of implementing the new safeguards while also conducting investigations. This could make steel producers vulnerable until the Authority finds its footing.
How can something be traded unfairly? Is it against the law?
5. Standard Chartered looks to cut costs
British-based bank Standard Chartered has announced restructuring plans after its annual results were lower than the City was expecting. Despite a 28% rise in profits, the bank, which focuses largely on Asia, has been affected by the risks posed by the US-China trade war. Clients have been reluctant to commit their money at a time where geopolitical tensions are creating uncertainty. Standard Chartered CEO Bill Winters has already cut 15,000 jobs since landing his role in 2015, but now plans to cut $700 million in costs over the next three years. One way in which Standard Chartered will do so is by selling its stake in an Indonesian bank.
How else might Standard Chartered cut costs? Why are so many companies restructuring? Is there a difference in the way that investors react to different companies restructuring? Why is this?
6. GE to sell its biotech business for £21 billion to Danaher
General Electric Co. has decided to sell its biotechnology business to Danaher Corp. for £21 billion in an effort to pay down the debt by letting go of one of its fastest growing businesses. Danaher originally approached GE earlier last year to buy part of GE’s health-care unit, responsible for making MRI machines and hospital equipment. However, the chief executive said that it was still considering options for the remaining parts of the health care business. The deal is expected to close in the fourth quarter and accelerate its efforts to reduce the company’s more than $100 billion in debt. GE investors were evidently pleased with this news, with shares increasing by 6.4% and Danaher shares were up by 8.4%, on Monday.
What kind of issues have caused GE to whittle down its health care division? How much profit will GE lose out on considering the business biopharma?
7. Tesla shares fall after SEC asks judge to hold Musk in contempt
Tesla shares have fallen 5% after the Securities and Exchange Commision (SEC) asked a judge to hold Musk in contempt for violating its 2018 deal, in an ‘inaccurate’ tweet about production. Musk tweeted, and consequently revised, projections for full-year Tesla manufacturing numbers; he said that Tesla would make ‘around’ 500,000 vehicles this year before he clarified that he had ‘meant to say’ that the annualised production rate could be 500,000. In the court filing, the SEC wrote, ‘Musk did not seek or receive pre-approval prior to publishing this tweet, which was inaccurate and disseminated to over 24 million people’.
What are the potential repercussions if the court holds him in contempt?
8. Bank of America drops Merrill Lynch name
As part of Chief Executive Brian Moynihan’s effort to rebrand, the Bank of America is downgrading the iconic ‘Merrill Lynch’ name from its investment banking and trading divisions. However, Merrill Lynch Wealth Management, the traditional brokerage unit, will retain the Merrill Lynch title. This rebranding marks BofA’s biggest step away from the legendary 105-year-old firm. It has been known for its ‘thundering herd’ of brokers since the two companies merged in 2009, after the financial crisis.
What are the benefits of growing on a unified basis? How much of this effort is due to the year of declining market share, revenue and string of departures of senior leaders that the bank has experienced?
AI changing the role of lawyers
The emergence of technology and its capabilities in document reviewal and drafting has increased fear for talented young lawyers of being replaced by robots. However, artificial intelligence (AI) will simply mean that lawyers will have to change the service that they offer. For most, that means being even more commercially aware and understanding the client and their needs. Lawyers are no longer isolated providers of premium legal documents because there will be software for that. So they’ll have to offer more than that i.e. real, business-savvy advice.
Sidley Austin NQ pay increase
Newly qualified solicitor pay at Sidley Austin increases by 8%. That’s a whopping £130,000. It moves Sidley Austin’s NQs on an earning par with their opposite numbers over at fellow US player Weil Gotshal. Money aside, the firm is probably most famous for being the one that brought Barack and Michelle Obama together, who met in the Chicago office.
Seoul office for Shearman & Sterling
Shearman & Sterling have delivered on their promise to open an office in Seoul, entering Asia’s fourth largest economy. This is happening as a major US rival, Simpson Thacher & Bartlett, is closing their 6-year old office. Currently there are 28 foreign firms in Seoul, 22 of which are US firms. One of the more recent entrants is Latham & Watkins, which launched its Seoul office in 2016, focussing on projects and corporate work.
Wellbeing on trend with law firms
Achieving a healthy work/life balance seems to be all the rage, with law firms putting on ‘wellbeing’ weeks, awareness days, inspirational talks etc. But raising awareness doesn’t necessarily mean that the culture and mindset of a firm changes. Some of the firms that made it to the top 10 list include Fieldfisher, Irwin Mitchell and Mills & Reeve.