This week’s news includes; Sports Direct‘s woes, Mastercard in £14bn law suit, the acquisition of Formula 1‘s and Amazon‘s launch of its food delivery.
Opinion articles of the week:
- Three of the world’s largest investments banks have cancelled their forecast of a Brexit-caused recession. Click here for more.
- As Fabric closes its doors for the last time, is arbitrary state intervention killing London’s night life? Click here for more.
- Could Singapore overtake London as the world’s leading Financial Hub? Click here for the debate.
- Many analysts believe that China, Japan and Hong Kong could be the biggest winners from Brexit, click here for more.
1. SPORTS DIRECT
Sports Direct shares are down over 10% on Wednesday morning after a flurry of bad news, including a profit warning and the quashing of takeover speculation.
Sports Direct said in two statements on Wednesday that:
- Earnings for 2017 are forecast to be £300 million ($402 million), down from £381.4 million in 2016;
- Sales up 9% but operating costs set to rise by 8%;
- Founder and executive chairman Mike Ashley won’t take the company private despite speculation;
- Sports Direct refused the resignation of under-pressure chairman Dr. Keith Hellawell;
- Michael Murray, the 26-year-old boyfriend of Ashley’s daughter, will continue to run the company’s property arm and spend £300 million a year on acquiring sites;
- Ashley will execute a 2-4 year turnaround plan.
Shares had risen over 5% on Tuesday following the publication of a report into working practices at Sports Direct. Legal firm RPC identified “serious shortcomings” in the firm’s working practices which its board “deeply regrets and apologises for.”
Sports Direct is ditching zero-hour contracts as a result of the report, which explains the rise in operating costs. The company is also pledging to put workers’ representatives on the company board.
There was speculation in the wake of the report that majority shareholder and founder Mike Ashley could launch a bid to take the company private and the quashing of this rumour explains some of the share price fall.
But the refusal of Dr. Keith Hellawell’s resignation is also likely a factor. Hellawell came in for criticism in the report and shareholder groups have been pressing for corporate governance reforms. The refused resignation suggests this will be unlikely. (The profit warning is, of course, also a big factor in the share price fall.) (Business Insider)
2. FORMULA 1 ACQUIRED FOR £6 BILLION
US firm Liberty Media has bought Formula One motor racing in a £6bn deal.
The takeover of the sport was confirmed by Liberty bosses after it was first reported by Sky News City Editor Mark Kleinman on Wednesday evening.
CVC Capital Partners is handing over its ownership after taking a controlling stake in 2005. Liberty is backed by American media tycoon John Malone.
Sources have previously said the takeover will see the sport gain a public stock listing for the first time through a tracking stock called Liberty Media Group.
The takeover will yield a windfall of more than $400m (£300m) for veteran F1 chief executive Bernie Ecclestone, who owns a 5.3% stake. Ecclestone will remain with F1, it has been confirmed – at least for a transitional period of a few years.
A frenetic period for the ownership and management of F1 will also involve Chase Carey, a former DirecTV and News Corporation executive. Mr Carey, who continues to serve on the board of Rupert Murdoch’s 21st Century Fox and is also a director of Sky plc, the owner of Sky News, has been made chairman. (Sky News)
3. NEW IPHONE RELEASE
The iPhone 7 will not have a traditional headphone socket.
Apple said its lightning connector could be used instead, which would make room for other components. It will also promote the use of wireless earphones, and has released a set of its own called Airpods. The firm said it had taken “courage” to take the step. However, it risks annoying users who will now require an adapter for existing headphones.
The US company unveiled its latest handsets at an event in San Francisco following a year in which its phone sales and market share shrank. Other new features include:
- the home button can now detect how firmly it is being pressed and provide vibration-based feedback, but no longer moves into the phones
- the handsets can be submerged in water up to depths of 1m (3.2ft) for 30 minutes at a time
- the larger iPhone 7 Plus model gets a two-lens camera on its rear, allowing it to offer a choice of focal lengths. The iPhone 7’s home button can now buzz to provide alerts
The launch comes a week after the European Commission demanded Apple pay up to €13bn (£11bn) in back taxes to Ireland – a ruling the firm is appealing. Apple, however, suggests there are advantages to using its Airpods, which will cost £159.
It demonstrated that the wireless headphones could be paired with the phone much more quickly than is normally the case with Bluetooth sets. The iPhone 7 Plus has both a wide angle and telephoto lens on its back, both using their own 12 megapixel sensor. (BBC News)
According to analysts however, the Chinese market is not excited about the new iphone. Apple only holds 7.8% of the market but it’s a key battle ground for Apple. Click here for more. (Business Insider)
Since the unveiling however, John Lewis have seen a 60% rise in wireless headphone sales. Click here for more. (City A.M)
4. HP ENTERPRISE IN £6.6 BILLION MERGER
UK tech firm Micro Focus is buying the software business of a division of Hewlett-Packard for $8.8bn (£6.6bn).
The deal makes Micro Focus one of the UK’s biggest tech companies, with total annual revenues of $4.5bn (£3.4bn).
It is acquiring assets from Hewlett Packard Enterprise (HPE), including former UK tech champion Autonomy which HP bought in an ill-fated deal in 2011.
Micro Focus was promoted to the FTSE 100 last week, replacing ARM after it was bought by Japan’s Softbank. A string of acquisitions has turned Micro Focus, based in Berkshire, England, from being a relatively small player to being worth over £5bn, with revenues doubling in 2015.
Shares in Micro Focus closed 14.5% higher at £22.38 after jumping as much as 21%, making it the biggest riser on the FTSE 100. For more about the deal and Microfocus, click here. (BBC News)
5. MASTERCARD IN RECORD £14 BILLION LAW SUIT
MasterCard is being sued for £14bn in the largest legal claim in British history over allegations it used its market dominance to overcharge millions of UK customers.
The credit card providers have been accused of charging shops excessive fees to process card transactions, which resulted in retailers being forced to pass on these costs in inflated prices for shoppers.
Up to 46m MasterCard customers could be entitled to damages under the lawsuit. The allegations relate to a 16-year period from 1992 to 2008.
The action follows a 2014 ruling from the European Court of Justice which found MasterCard had charged excessive fees to store owners. Lawyers from Quinn Emanuel, who are bringing the case forward, said because “MasterCard’s fees have already been found to be illegal … this ‘follow-on’ claim need only prove the damage consumers suffered as a result of MasterCard’s anti-competitive behaviour.”
MasterCard rebuffed the claims, stating: “We continue to firmly disagree with the basis of this claim, and we intend to oppose it vigorously.”
Former financial services ombudsman Walter Merricks is working with lawyers on the claim, which will also be a test bed for new laws which mean all affected customers are automatically eligible for compensation, without having to opt-in to legal action. (City A.M)
6. UK TRADE DEFICIT
The UK trade deficit, which reflects the difference between imports and exports, shrank to £4.5bn in July from £5.6bn the previous month, the Office for National Statistics (ONS) said.
The narrowing of the gap reflected a 2% increase in exports of goods and services, taking them to £43.8bn. Imports fell by 0.5% to £48.3bn.
Although the pound fell sharply after the Brexit vote, which should make UK products cheaper abroad, the ONS said it was too early for firm conclusions. The pound was 15% lower against other currencies in July compared with the same time a year ago, the ONS said.
The ONS points out in its release that the general consensus among economic commentators is that the recent depreciation in the pound should boost export and manufacturing competitiveness.
However, it says this does not necessarily occur as the price of imported materials used to make UK goods rises as the pound falls. (BBC News)
7. JACKPOTJOY GOES FOR IPO ON LONDON STOCK EXCHANGE IN OCTOBER
Canadian online bingo firm Intertain Group rebranded today and has set early to mid-October as its deadline to float on the main market of the London Stock Exchange.
Intertain has taken the name of its largest business unit, Jackpotjoy, under which it will trade in the UK.
The group’s market capitalisation on the Toronto Stock Exchange is CA$744m (£430m), though City A.M. understands the company will seek a higher valuation for its initial public offering (IPO).
The amount of shares the company will list, as well as the IPO’s exact value, are yet to be determined. Jackpotjoy shareholders will vote on the London IPO on 23 September, although the company will remain listed in Toronto and give Canadian investors access to exchangable shares.
Jackpotjoy has a 27 per cent share of the UK online bingo market and delivered revenue growth of 23 per cent in the first half of 2016. (City A.M)
8. AMAZON LAUNCHES FOOD DELIVERY SERVICE
Amazon is taking on Deliveroo, Uber and Just Eat by entering the growing market for delivering restaurant food to busy Londoners.
Customers in certain London postcodes can order meals from restaurants using an Amazon app. Amazon promised free delivery within an hour on orders of £15 or more and no mark-ups on restaurants’ standard prices.
The Amazon Restaurants service is only available to customers of Amazon’s Prime service, which costs £7.99 a month or £79 a year, and offers unlimited one-day delivery, free music streaming and other services.
Amazon listed more than 100 restaurants including large operators such as Strada, specialist chains like the Middle Eastern-themed Comptoir Libanais and the Michelin-starred Indian restaurant Benares, based in Mayfair.
Amazon’s move pits the US online retailer’s financial power against established operators in the market for delivering restaurant food to time-strapped Londoners with cash to spend.
Deliveroo launched in 2013 and has about 3,000 riders delivering for restaurants in London. Its riders went on strike last month over changes to their pay that they said would make them worse off.
Other competitors in the market include Just Eat, which operates nationally and puts diners in touch with about 30,000 UK restaurants, and UberEats, owned by Uber, the taxi-hailing app. (The Guardian)
9. WALL OF CALAIS
Construction is set to start this month (September 2016) on a £1.9m wall in Calais to stop migrants from blocking an approach to the port.
Work will start on the wall – which will stretch for over half a mile along the main dual carriageway leading into the port – to prevent migrants from trying to stop traffic and climbing into lorries and vehicles.
Built from smooth concrete to make it hard to scale without ladders, the wall will be part of £17m package of measures the UK is undertaking with the French, which also include investing in space for 200 lorries at Calais so that they have somewhere safe to wait.
Immigration minister Robert Goodwill said: “The security that we are putting in at the port is being stepped up with better equipment. We are going to start building this big new wall very soon. We’ve done the fence, now we are doing a wall.”
The motorway into Calais was blocked on Monday (5 September) by lorries and protesters calling on the Jungle migrant camp to be demolished. The latest figures showed that UK Border Force guards on French soil stopped 84,088 migrants last year.
French police commissioner Patrick Visser-Bourdon has claimed there were 22,000 breaches of the port road defences in June this year, in comparison with 3,000 in January, the Telegraph reported. (Business Insider)
10. RISE IN ZERO HOUR CONTRACTS
The number of people estimated to be on controversial “zero-hours” work contracts has jumped by 20 per cent in a year, according to the Office for National Statistics.
The ONS’s latest Labour Force Survey of households found that the number of people on such contracts for their main job was 903,000 in April to June 2016, up from 747,000 in the same period in 2015. As a proportion of all people in employment, that represents an increase from 2.4 per cent to 2.9 per cent.
Zero-hours contracts enable employers to offer an individual worker as many, or as few, hours of work in a week as the employer requires. The worker can also turn down the hours offered.
Some 80 per cent of the workforce of Sports Direct (see above) are on zero-hours contracts. This week the retailer’s under-fire owner, Mike Ashley, said he would offer workers the opportunity to switch to contracts with guaranteed hours – although this offer does not cover workers supplied to Sports Direct’s warehouses by agencies.
The Government has already banned exclusivity clauses in zero-hours contracts which prevented workers from taking jobs elsewhere. But pressure is is now growing for Theresa May’s government to offer more protection to workers who have been on the contracts for more than a year and who work regular hours.
The ONS found that 55 per cent of those on these contracts are women and 20 per cent are in full-time education. They are also likely to be younger, with 37 per cent of the zero-hours workforce aged 16-24. (The Independent)