This week’s news includes; Nissan acquires Mitshubishi, Tesco faces legal challenge from employees but sees market share increase, Clifford Chance trails video games in application, Sky launches its own mobile service.
Opinion articles of the week:
Analysts have claimed that the pound is acting like “an emerging market currency”. Click here for more.
Will artificial intelligence be the best or the worst thing to happen to humanity? Click here for the debate.
Dealmakers will be closely watching the results of the US presidential election next month but for them there is only one winner. Click here for M&A professionals views’ on the US presidential election. Click here for more.
1. AT &T TO ACQUIRE TIME WARNER IN £70 BILLION DEAL
US telecoms giant AT&T has announced that it will buy entertainment group Time Warner for nearly $86bn (£70bn). The deal – one of the biggest this year – still needs approval from regulators.If the takeover goes through, it would content from the Warner Brothers film studios and the cable TV channels HBO and CNN.
AT&T’s chairman described it as “a perfect match” but critics say it concentrates too much media power. The deal is likely to be closely scrutinised by US antitrust regulators. AT&T is already the third largest cable TV provider in the US.
AT&T has the means by which millions of Americans consume their entertainment. It owns the platform – be that cable or broadband – which enables people to watch their favourite shows. But it does not – until now- own the shows or the “content” which households want to watch, be that Game of Thrones, CNN or live NBA basketball.
Republican presidential candidate Donald Trump has said if he is elected, he will block the deal.
Revenue from HBO, which shows Game of Thrones, contributes about 18% of Time Warner’s total revenue. AT&T said it expected the deal to be completed by the end of 2017.
AT&T, which has a market value of about $238bn, has already made moves to turn itself into a media powerhouse, buying satellite TV provider DirecTV last year for $48.5bn.
The deal gives AT&T access to a major producer of content as it seeks to diversify away from its core telecoms business. Rival Verizon is currently in negotiations to buy Yahoo and has already bought AOL, owner of Huffington Post. (BBC News)
2. NISSAN ACQUIRES MITSUBISHI
Nissan Motor Co. completed its acquisition of a $2.3 billion stake in Mitsubishi Motors Corp., clearing the way for Carlos Ghosn to take over as chairman of a scandal-plagued partner and embark on his bid to turn around a third major automaker.
Ghosn, already chairman and chief executive officer at Nissan and Renault SA, promoted Chief Competitive Officer Hiroto Saikawa as co-CEO of Nissan. Ghosn said the move will allow him to dedicate more time to Mitsubishi Motors.
Nissan is coming to the rescue of Mitsubishi Motors after its admissions to improperly measuring fuel economy and manipulating test data. A push toward electrification and autonomous-driving technology is leading smaller carmakers to join with bigger rivals to share resources and save costs, exemplified by Suzuki Motor Corp.’s talks to form an alliance with Toyota Motor Corp.
“With time we are going to develop much more synergy,” Ghosn said at a press conference Thursday with Osamu Masuko, who will remain Mitsubishi Motors’ president. “What we see today is low-hanging fruit.”
The two Japanese carmakers agreed to share plug-in hybrid and autonomous-driving technology, finance company resources and a multipurpose vehicle model for Southeast Asian markets.
Mitsubishi Motors sees the alliance with Nissan leading to 25 billion yen ($241 million) in synergies for the fiscal year ending in March, Masuko said. Nissan estimates 60 billion yen in savings next fiscal year, Ghosn said at a separate press briefing Thursday in Tokyo. (Bloomberg)
3. UK INFLATION
Rising prices for clothes, hotel rooms and petrol have led to the highest rate of inflation in nearly two years, official figures show. Inflation rose to 1.0% in September, up from 0.6% in August, the Office for National Statistics (ONS) said.
Clothing saw its biggest price rise since 2010 and fuel, which was falling a year ago, was also more expensive. However, the ONS said there was “no explicit evidence” the weaker pound was the reason for higher prices.
September’s inflation figure has traditionally been crucial because it decided what rate benefits would increase by in the following year. However, with the government having frozen many benefits and tax credits until 2020, many families will no longer see them keep up with rising prices. (BBC News)
4. GW PHARMACEUTICALS ABADONS LONDON IPO PLANS
One of the UK’s most promising biotech firms has ditched its Aim market listing in favour of trading its shares exclusively on Nasdaq in the United States.
GW Pharmaceuticals, which is nearing regulatory approval for a potentially game-changing cannabis-based drug to treat children with severe epilepsy, announced plans to de-list from the Aim on December 5. Chief executive Justin Gover said the company no longer needed a dual listing because the vast majority of its shares are now traded on the Nasdaq and held by US investors.
“We remain firmly committed to bringing important products to the global market, products that are both researched and manufactured in the UK,” Mr Gover added.
Since listing on Nasdaq in 2013, GW has raised nearly $800m (£650m), largely from US investors. The company did explore the possibility of transferring its Aim listing to the main market of the London Stock Exchange, but decided against the move.
“Having carefully considered this option, the board believes that the existing Nasdaq listing provides sufficient access to investment in GW by investors in the UK, US and further afield and that a main market listing would not be advantageous at this time,” the company said.
US investors tend to have greater appetite for high-risk biotech stocks and deeper pockets than their counterparts in the UK. It is understood that the decision had nothing to do with Britain’s forthcoming exit from the European Union. (The Telegraph)
Tesco increases market share for first time in 5 year
Tesco has shrugged off its battle with Unilever over Brexit price hikes, for now at least. The nation’s largest supermarket increased its market share for the first time in five years and grew sales, which had fallen every quarter from March 2015.
An extra 228,000 shoppers visited the firm’s stores over the last three months, boosting sales by 1.3 per cent and market share to 28.2 per cent, the latest figures from industry analysts Kantar showed.
These are tricky times for Britain’s supermarkets and Tesco’s losest rival Sainsbury’s till receipts edged down 0.4 per cent, although its market share also grew by a percentage point to 16 per cent as other chains struggled.
Morrisons’ sales tumbled 3 per cent after it sold its convenience stores, but this didn’t dent market share which held at 10.4 per cent.
The supermarket price war, sparked by discounters Aldi and Lidl, again hit Asda hardest – sales crashed 5.2 per cent lower at the Wal-Mart owned supermarket, continuing its woeful performance of recent years. Aldi and Lidl yet again posted strong sales boosts, up 11.4 per cent and 8.4 per cent respectively.
Tesco said it is on track to deliver £1.2bn profits this year, despite taking hits from a damaging accounting scandal (see below) and the Unilever spat. (The Independent)
Executives on fraud trial
Three former Tesco executives accused of fraud in relation to an accounting scandal at Britain’s biggest supermarket will go on trial next September.
Christopher Bush, the former managing director of Tesco UK, Carl Rogberg, the former finance director of Tesco UK, and John Scouler, the former commercial director for food, appeared at Southwark crown court for a plea and case management hearing on Thursday, when the date for the full trial was set for 4 September 2017.
They are all charged with one count of fraud by abuse of position and one count of false accounting. The three men could face up to 10 years in prison if found guilty of the fraud charge and seven years for false accounting. Their lawyers have said they intended to plead not guilty to the charges.
The allegations relate to a scandal at Tesco that left a £326m hole in its accounts. (The Guardian)
Legal challenge regarding anti-social hours pay
Tesco is facing legal action from staff who say they lost out on pay for working anti-social hours. The complaint is from 17 workers who are “extremely unhappy” at seeing their pay rates change for weekends, bank holidays and night shifts.
Leigh Day, the law firm acting for the workers, estimated thousands of long-term Tesco staff, mainly in their 40s, could be affected. The employees have started the process towards making a claim in an employment tribunal, according to Leigh Day.
Pay changes announced by Tesco in February included an hourly wage rise, but also cuts to the rates paid to some Sunday and bank holiday staff. Under the changes, staff would receive time and a half for Sunday and bank holiday shifts from July, whereas previously some had received double time. (BBC News)
6. TRAVIS PERKINS CLOSES 30 UK BRANCHES WITH 600 JOBS AT RISK
The UK’s biggest builders merchant, Travis Perkins, is closing 30 branches, putting 600 jobs at risk.
The company, which employs 28,000 people and has 2,060 stores, said it was taking the steps due to an “uncertain UK outlook” for next year. Profits will also be lower than expected this year due to weak sales in its plumbing and heating division.
The firm is closing branches of Travis Perkins, Benchmarx, BSS and PTS, but not its DIY store Wickes. Chief executive John Carter said it was “still too early to predict customer demand in 2017 with certainty”. The 600 affected workers have been told of the changes, while the firm is also closing 10 smaller distribution centres and writing off IT equipment.
Charlie Campbell, an analyst at Liberum, said it was not clear whether the company’s problems were “due to uncertainty around the EU referendum and its after-effects or a sign of more fundamental weakness”.
Travis Perkins was one of the biggest fallers on the FTSE 100 following the Brexit vote on fears of a hit to the UK’s property and construction sectors. Shares in the company fell 7% in morning trading on Wednesday, and are down more than 22% since the referendum.
Analysts expect Travis Perkins to make sales of more than £6bn this year and core profits of just under £415m. But with almost all its business focused on the UK, they are concerned it would be hit by any slowdown in UK housing and construction following the Brexit vote. (BBC News)
7. UK LAW FIRMS
UK law firms bill
The 100 largest law firms in the UK billed more than £20bn in fees last year – the largest revenue ever achieved by the group.
In 2015/16 the top 100 firms in The Lawyer’s annual UK 200 report generated a total turnover of £20.13bn, a rise of 5 per cent on 2014/15’s £19.24bn. Over the past five years since 2011/12 the total value of The Lawyer top 100 has grown by 19.2 per cent, from £16.891bn.
The increase of almost £1bn (£886m) has been achieved in a year when major mergers were notable by their absence in the UK market. The 2015/16 financial year did include the merger of Wragge Lawrence Graham & Co and Canada’s Gowlings but as this went live in February only the legacy UK firm’s financial data is included in this year’s report.
Other than this the largest mergers to feature UK firms during 2015/16 were that of Shakespeares and SGH Martineau and Irwin Mitchell and Thomas Eggar.
The total number of lawyers in the top 100 grew from 52,629 in 2014/15 to 54,924 last year, a rise of 4 per cent. The bottom line also grew in 2015/16. Total net profit across the top 100 rose by 4.7 per cent from £6.191bn to £6.492bn. (Lawyer2b)
Clifford chance introduces video games in application process
Clifford Chance will begin using a video game to test the mettle of its trainee applicants should a trial prove successful, Lawyer 2B has learned. Vacation scheme students at the magic circle firm have been asked to try out the video game and feed back to the firm.
Graduate recruitment manager Jackie Trench declined to elaborate on the contents of the video game, stating it would “defeat the purpose” if candidates knew exactly what they were being tested on.
However, Lawyer 2B understands the game tests the tenacity and perseverance of potential trainees, as well as how they respond under pressure.
Trench said Clifford Chance was “looking at innovative ways to update our processes and make sure we’re always getting the best possible candidates” with the new software. The video game is expected to be rolled out to trainee candidates next year if the trial is a success. It will run alongside the firm’s existing psychometric tests.
A Clifford Chance spokesperson said the firm has “always used psychometric testing” as a “sifting tool” for trainee applicants. The firm abolished its verbal reasoning tests in favour of critical reasoning a couple of years ago. (Lawyer2b)
8. SKY LAUNCHES MOBILE SERVICE
Sky has said it will shortly start registering interest from customers wanting to join its upcoming Sky Mobile service, as it prepares to take on BT and operators such as Vodafone in the £15bn UK mobile market.
In January 2015, the company reached a deal with O2 to launch a mobile offering, expanding its business from TV, broadband and home phones. It will begin registering potential customers from 31 October.
Stephen van Rooyen, the chief executive of Sky UK and Ireland, said: “We have long had eyes on the size of the prize. With £15bn in revenues, it is our largest adjacent sector for us. The opportunity to enter and take share is substantial. There are literally millions of customers for us to go after.”
Earlier this year, BT, which started taking on Sky’s pay TV dominance in 2012 by spending billions on sports television rights, including the Premier League, paid £12bn to buy EE and return to the mobile market.
Sky Mobile is expected to focus on getting its 12m existing subscribers to take up the mobile service. Mobile is a key market for additional revenue and profit growth for Sky, which along with BT paid more than £5bn for Premier League rights last year, a 70% increase on the previous deal.
Sky will be hoping to emulate the success of its move into broadband, which has seen the company attract more than 6m customers since 2006, second only to BT. (The Guardian)
Online fashion giant Asos has reported soaring sales despite the widespread struggles of the fashion industry.
Retail sales came in at £1.4bn, up 26 per cent, in the year to 31 August, with £603.8m coming from the UK. Pre-tax profit for the year came in at £32.7m, down 31 per cent.
Profits were hit by several “one-off” costs, such as the discontinuation of its in-country China operation, totalling £6.5m. On an underlying basis, Asos said its profits were up 37 per cent to £63.7m.
Asos’s results were released on the same morning Burberry reported a four per cent decline in revenue in the six months to 30 September.
The fashion industry as a whole is on its steepest decline for seven years, according to new data from Kantar Worldpanel, released yesterday. Some £700m has been wiped off the value of the UK market since last year, the report found.
Asos said it was “looking forward… with confidence”, however. “We expect growth in sales to remain in the previously guided range of 20 per cent to 25 per cent.” (City A.M)
10. HERMES FACES HMRC INQUIRY
Courier giant Hermes has been referred to HMRC following complaints that they are paying staff less than the national living wage.
Employees at the firm, who deliver for John Lewis and Next, were taking home less than the national living wage once petrol costs were taken out, a recent investigation found.
Hermes workers also said they received no holidays or sick pay and they risked losing their jobs if they were unable to come to work for any reason. There was discussion on whether they should be defined as self-employed or not.
Edward Troup, the executive chairman of HMRC, told Frank Field, the chairman of parliament’s work and pensions committee, that he had passed on around 100 reports from Hermes workers to HMRC’s compliance teams.
He said: “If we find that companies have misclassified individuals as self-employed, we will take all necessary steps to make sure they pay the appropriate tax, national insurance contributions, interest and penalties.”
Hermes, who employ 10,500 couriers, disagreed with the original report, saying it did not reflect the way their operated and had not been discussed with them. It said its employees were paid an average of £9.30 an hour, which was far above the £7.30 living wage. (City A.M)