Commercial Awareness Update - July 2018

[Coralin96]

Hey guys, sorry I've been away for a while (exams are finally over!). I'll be starting these posts up again for this month.

Commercial Awareness Update 27/06/2018 - 04/07/2018

General Electric continues to sell off its assets

The Story: General Electric continues its strategic review to focus on Aviation, Power and Renewable Energy. The company will sell off its healthcare division and its stake in Baker Hughes, one of the world's largest oil field services companies. The news caused GE's share price to rise, and investors are positive that the company is being slimmed down, especially after years of debt, disorganisation and poor management. The company also announced an extra $500m in cuts by 2020.
The impact on businesses and law firms: In 2015, General Electric reviewed its M&A and finance legal panel. The firms appointed included Allen & Overy, Weil Gotshal and Manges, Freshfields and Slaughter and May. This year, General Electric will be reviewing its panel, which runs every four years. Clearly General Electric will be looking for law firms with strong M&A practices to help it unwind its stake in Baker Hughes and spin off its healthcare division. The law firms chosen can expect high fees and a high volume of work if they are selected, and those in the run in will have to think about how they pitch themselves.

The consequences of Trumps tariffs continue

The Story: Donald Trump has been criticising Harley-Davidson, the American motorcycle manufacturer that has announced plans to move some production out of America. The news comes as the EU has imposed tariffs on motorcycles imported from America in response to Trump's tariffs.
The impact on businesses and law firms: Trump's tariffs has caused the cost of metals to rise and reduces expected European sales to fall. That's because Harley Davidson relies on metals for production and 16% of motorcycle sales come from Europe. Other businesses have cut investment and look to be waiting before moving production and adjusting their supply chains. But if America continues to chase a trade war, we can expect more businesses to follow Harley Davidson.

The smartphone patent war has ended

The Story: Apple and Samsung have settled a seven-year dispute over patents. The dispute started in 2011, when Apple filed a suit claiming Samsung had copied the design of the iPhone in some of its productions, violating Apple's patents.
The impact on law firms: This legal dispute is said to be the most high profile patent case of the last decade. It took place in courts in ten countries and reached the US supreme court. Samsung initially lost the 2012 trial, awarding Apple $1 billion, but this was then reduced to $548 million, and this settlement suggests Samsung has given up trying to overturn the ruling.

 

[Jai C.]

Good to have you back !

 

[Coralin96]

Thanks!

I’ve got a few more commercial stories from 26/06/2018 to 06/07/2018

The road to a trade war

The story: Yesterday was the biggest escalation in the US/China trade war so far. On Friday 5 July, the US imposed tariffs on $34bn of goods produced in China. In response, China announced tariffs on US farm and energy exports, also worth a total of $34bn. The news of China’s retaliation then angered Trump, who threatened tariffs of $450bn.

Impact on law firms and businesses: The latest tariffs follows Trump’s steel tariffs on Japan, threats of tariffs on EU car imports, and Trump’s ongoing NAFTA negotiations with Mexico and Canada. In other words, Trump is disrupting world trade.

US manufacturers may need to rethink their supply chains and move production into the US to avoid tariffs on their imports. China may move business to American competitors in Europe or Asia, opening opportunities for non-American businesses. Some signs show that businesses are slowing down investments as the trade war escalates.

It remains to be seen how far China will change its intellectual property laws and joint venture rules for businesses trying to operate in the country. If it does, it will be easier for law firms to operate in China. One law firm, Linklaters is already targeting capital markets and M&A in China and became the first magic circle law firm to secure Chinese law capability in May 2018.

Trump leading the way in rising oil prices

The story: In May, OPEC, a group of the world’s major oil-exporting nations, and Russia agreed to increase oil output to bring down rising oil prices. But since then, the price of Brent crude has risen to over $77 a barrel.

Impact on law firms and businesses: Oil prices are at a three and a half year high thanks to OPEC curbing production, Venezuela’s collapsing oil industry and Trump’s sanctions on Iran.

Trump has warned its allies to stop purchasing oil from Iran or they risk breaching US sanctions, and over 50 international firms have also exited the country. This fall in the supply of oil is pushing prices up against a backdrop of record demand, which has been fuelled by Trump’s tax cuts and improving global growth.

The rising oil prices will benefit oil producers after years of low prices that caused large cuts in the industry and led to many businesses collapsing. These businesses were forced to restructure and cut costs, and now they can stand to benefit from the higher prices. Many oil and gas companies have reported higher earnings, including BP, which rose by 71% in the first quarter of 2018. The big investors in energy funds and US oil stocks will also benefit from higher returns.

Amazon disrupts healthcare

The Story: On June 28th, Amazon bought an online pharmacy, PillPack for $1bn. The healthcare industry had been anticipating the announcement, fearing that Amazon would extend its one-stop shop to prescription drug. The announcement sent competitor shares plummeting.

Impact on law firms and businesses: Almost $15bn in value was wiped off CVS Health, Walgreens and Rite Aid, the big US pharmacy players on the announcement of the acquisition. Investors fear that Amazon will take over the sector, which is worth $450bn a year, and the move is suggested to have led to the recent frenzy of consolidation in the sector. For example, CVS is acquiring Aetna for $68bn, and has begun offering same day prescription delivery. In the US, Amazon already sells over the counter medicine and recently partnered up with JPMorgan Chase and Berkshire Hathaway (Warren Buffet’s investment firm) in a joint venture. The trio are trying to reduce costs and lower prices through a non profit healthcare venture.

 

[Campbell44]

This is really helpful! Welcome back

 

[Coralin96]

Commercial Awareness Update 9 June - 13 June 2018

Here are some of the big commercial stories that caught my eye this week. (Thanks to Jaysen and Nicole for helping me with this one!)

May's Brexit Deal

The Story: Theresa May set out Britain's Brexit departure plan on July 6th. It caused turmoil in her government with David Davis, the Brexit secretary, and Boris Johnson, the foreign secretary, announcing their resignations. While some critics believed this signalled the end for May, MPs don't seem able to get the votes necessary to trigger a vote of no confidence. The resignations caused May to reshuffle her cabinet, appointing Jeremy Hunt (the former health secretary) as the new foreign secretary and Dominic Raab as the new Brexit secretary.

Impact on law firms and businesses: May's Brexit plan proposes a soft Brexit, where Britain will adopt new EU rules in return for effectively remaining in the single market for goods. Boris Johnson criticised the plan, noting that it would be harder for Britain to agree trade deals with other countries - which Trump agreed with on his visit to London today. It remains to be seen how the EU will respond, but it seems to be a positive step for UK businesses who want to be able to continue to trade in the EU.

Xiaomi's troubled IPO

The Story: The smartphone maker, Xiaomi floated on the Hong Kong Stock Exchange with a valuation of $54bn. This was far from the $100bn the company wanted to raise after the company listed at a time of global market concerns.

Impact on law firm and businesses:

XIaomi's IPO shows the danger of companies looking to float at the wrong time. XIaomi's target of $100bn was announced before Donald Trump became embroiled in a trade war, which increased the risks for investors and affected the Asian stock markets. Xiaomi also faced unexpected regulatory challenges and uncertainties over its business model.

Xiaomi is the first company to use Hong Kong's new rules for going public. They allow companies to have dual-class shares with different voting rights, which means founders can have more voting power when a company goes public.

While Xiaomi's plan - to follow in the steps of other Asian tech companies like Alibaba and (soon to be Tencent Music) who raise record sums of money - may have failed, the IPO market is still doing well. Recently, Dropbox and Spotify raised large sums in the US, suggesting there is investor confidence in US tech companies. American IPO volumes are currently at their highest for three years. On the global level, IPOs could raise $200bn this year as companies like Uber, AirBnB and Saudi Aramco could float on the stock exchange this year.

 

[Coralin96]

Commercial Awareness Update 13 July to 17 July

The Netflix gamble

The Story: Over $20bn was wiped off the valuation of Netflix after the company reported disappointing growth in its subscriber numbers. The company had forecast 6.2 million subscribers in the second quarter, but it only gained 5.1 million, leading to speculation that Netflix has lost its growth momentum.

Impact on businesses and law firms:

For most companies, a fall in customers would not have such a drastic effect on share price. But Netflix is different. Netflix’s stock has more than doubled its value this year, valuing the company at almost $180 billion. This is remarkable considering the company is yet to post a profit, spends $8bn a year on content and is loaded with a lot of debt.

So far, investors have been content as Netflix has grown its subscribers at a record rate. Netflix had also been doing well at a time when tech companies like Amazon, Google and Facebook were under fire for privacy issues. But, now, the company’s second quarter results raises doubt as to whether Netflix can keep up its rate of growth.

However, there may be a solution. The company has decided on global expansion as a way of maintaining its growth rate. Its next market is India, a country with a GDP that is growing faster than any other major economy at over 7.7%. India is also becoming more open the foreign investment compared to countries like China, and its internet users have doubled in the past four years.

But there are also challenges to investing in India including regulations on foreign companies operating in the market and corruption. Some companies have also failed to understand the Indian market, which will be a big test for Netflix.

Booming private equity firms

The Story: According to Pitchbook, the average time it takes for private equity firms to raise money has fallen from almost 2 years in 2010 to 12 months. This is the fastest pace of fundraising for private equity firms in over a decade.

Impact on businesses and law firms:

The llow-interestrate environment has raised demand for private equity as investors, such as pension funds and insurance companies, chase higher returns. Private equity firms are also trying to raise as much money as they can while interest rates are low, which has led to rising valuations and intense competition.

According to The Lawyer, Eversheds was the most active UK firm buy number of private equity matters in 2017 with 99 deals, whereas Weil Gotshal & Manges was the most active US firm with 118 deals.

Uber gender discrimination

The Story: Uber is under investigation by the US government’s Equal Employment Opportunity Commission after a complaint about gender inequality.

Impact on businesses and law firms

Uber has faced a long battle with regulators over the years. Currently, it is facing investigations into surge pricing and foreign bribery. It faces a lawsuit from Google for alleged intellectual property theft and patent infringement in relation to its self driving technology. TFL has also revoked its London licence in September last year and the company has turned to Hogan Lovells to appeal the decision.

The company has been trying to fix its brand after Susan Fowler, a former Uber engineer publicly spoke about a culture of discrimination and sexual harassment at Uber.

 

[Nicole]

Commercial Awareness Update 13 July to 17 July

The Netflix gamble

The Story: Over $20bn was wiped off the valuation of Netflix after the company reported disappointing growth in its subscriber numbers. The company had forecast 6.2 million subscribers in the second quarter, but it only gained 5.1 million, leading to speculation that Netflix has lost its growth momentum.

Impact on businesses and law firms:

For most companies, a fall in customers would not have such a drastic effect on share price. But Netflix is different. Netflix’s stock has more than doubled its value this year, valuing the company at almost $180 billion. This is remarkable considering the company is yet to post a profit, spends $8bn a year on content and is loaded with a lot of debt.

So far, investors have been content as Netflix has grown its subscribers at a record rate. Netflix had also been doing well at a time when tech companies like Amazon, Google and Facebook were under fire for privacy issues. But, now, the company’s second quarter results raises doubt as to whether Netflix can keep up its rate of growth.

However, there may be a solution. The company has decided on global expansion as a way of maintaining its growth rate. Its next market is India, a country with a GDP that is growing faster than any other major economy at over 7.7%. India is also becoming more open the foreign investment compared to countries like China, and its internet users have doubled in the past four years.

But there are also challenges to investing in India including regulations on foreign companies operating in the market and corruption. Some companies have also failed to understand the Indian market, which will be a big test for Netflix.

Booming private equity firms

The Story: According to Pitchbook, the average time it takes for private equity firms to raise money has fallen from almost 2 years in 2010 to 12 months. This is the fastest pace of fundraising for private equity firms in over a decade.

Impact on businesses and law firms:

The llow-interestrate environment has raised demand for private equity as investors, such as pension funds and insurance companies, chase higher returns. Private equity firms are also trying to raise as much money as they can while interest rates are low, which has led to rising valuations and intense competition.

According to The Lawyer, Eversheds was the most active UK firm buy number of private equity matters in 2017 with 99 deals, whereas Weil Gotshal & Manges was the most active US firm with 118 deals.

Uber gender discrimination

The Story: Uber is under investigation by the US government’s Equal Employment Opportunity Commission after a complaint about gender inequality.

Impact on businesses and law firms

Uber has faced a long battle with regulators over the years. Currently, it is facing investigations into surge pricing and foreign bribery. It faces a lawsuit from Google for alleged intellectual property theft and patent infringement in relation to its self driving technology. TFL has also revoked its London licence in September last year and the company has turned to Hogan Lovells to appeal the decision.

The company has been trying to fix its brand after Susan Fowler, a former Uber engineer publicly spoke about a culture of discrimination and sexual harassment at Uber.

Great summary

 

[Coralin96]

I've been meaning to post this one for a couple of days now, but I thought I'd tie all the stories together. Enjoy

Commercial Awareness Update 14 July to 24 July

Government proposals to regulate foreign acquisitions

The Story: The UK government has released new proposals that give it the power to intervene in foreign acquisitions for national security reasons. Under the new proposals, businesses will be encouraged to notify the government if a transaction could give rise to a security risk. These proposals come as Western governments have increasingly scrutinised foreign takeovers, particularly in relation to China.

Impact on businesses and law firms:The new proposals are likely to raise the cost and uncertainty of foreign acquisitions of business. Regulatory teams will have to undertake a risk-analysis to determine whether they are likely to be caught up by the rules, and if so, consider beginning an early dialogue with the regulator. The proposals are wide and could include a broad range of transactions including asset purchases and minority stakes. Parties may also want to consider how to minimise the likelihood of triggering national security risks, for example, by selling part of a business first.

Financial services after Brexit

The Story: The UK's proposal to retain access to the EU for its financial services sector was rejected by Brussels. The UK had suggested an improved equivalence model, whereby the UK would respect EU regulatory rules, but also raise the EU notice period, which currently stands at one month for a cancellation.

Currently, the UK financial services sector relied on 'passporting' to gain access to the EU. This means that banks and other financial services firms are able to export services to the EU if they have approval of UK regulators, without having to seek approval from every EU state they wish to operate in.

Impact on businesses and law firms:The uncertainty for UK financial institutions after Brexit is a big problem. Banks may need to exercise contingency plans and relocate all or part of the business into the EU so they retain 'passporting' rights to continue to serve the EU after Brexit. Law firms can expect a lot of Brexit-related advisory work and may set up Brexit advisory teams if they haven't already. One thing is for sure, the uncertainty created over Brexit means a lot of clients will be coming to lawyers for advice.

Cash injection from China's central bank

The Story: The People's Bank of China injected $74 billion into the Chinese economy on Monday. This follows a similar move in June when the government cut the amount of money commercial banks needed to store at the central bank, in order to encourage bank lending.

Impact on businesses and law firms:The injection comes amid slowing global growth and worsening trade relations with the United States, after Trump threatened more tariffs on China's exports to the US. China has also been trying to control its large amount of debt, which could see companies with weak cash flows collapsing and law firms seeing a rise in local restructuring and insolvency work.

While growth in China has been slowing, it is still far higher than Western economies, making it an attractive place for businesses. China has recently begun to relax foreign investment restrictions, which poses many opportunities for both businesses and law firms.

Trump v Europe

The Story: It has been an eventful last few weeks between the US and the EU. Initially, they both came into conflict as the EU issued retaliatory tariffs against Trump and Trump threatened to impose tariffs on EU car exports.

This was followed by the recent Nato summit, which has been called one of the most divisive summits in its history. In that meeting, Trump accused the Germans of being "controlled by Russia". This comes as Trump has been criticised within his own country for taking a soft stance with Russian President, Vladimir Putin. That said, Trump did reaffirm one of Nato's core principles that an attack against an ally will be treated as an attack on all of Nato's members, which was something he shied away from in the past.

However, the picture may be different now. Discussions between Trump and the president of the European Commission, Jean-Clause Juncker, appeared to be a success as both agreed to move towards removing trade barriers on non-auto industrial goods.

Impact on businesses and law firms: The recent events have made it difficult for businesses that trade between the EU and US as they've had to grapple with significant political uncertainty. However, if they move towards the elimination of trade barriers, this is likely to be a significant win for businesses, leading to a closer integration between the two. UK law firms should try to gain a foothold within the US sooner rather than later, or they may miss out on large amounts of cross-border legal work.

 

[Campbell44]

I've been meaning to post this one for a couple of days now, but I thought I'd tie all the stories together. Enjoy

Commercial Awareness Update 14 July to 24 July

Government proposals to regulate foreign acquisitions

The Story: The UK government has released new proposals that give it the power to intervene in foreign acquisitions for national security reasons. Under the new proposals, businesses will be encouraged to notify the government if a transaction could give rise to a security risk. These proposals come as Western governments have increasingly scrutinised foreign takeovers, particularly in relation to China.

Impact on businesses and law firms:The new proposals are likely to raise the cost and uncertainty of foreign acquisitions of business. Regulatory teams will have to undertake a risk-analysis to determine whether they are likely to be caught up by the rules, and if so, consider beginning an early dialogue with the regulator. The proposals are wide and could include a broad range of transactions including asset purchases and minority stakes. Parties may also want to consider how to minimise the likelihood of triggering national security risks, for example, by selling part of a business first.

Financial services after Brexit

The Story: The UK's proposal to retain access to the EU for its financial services sector was rejected by Brussels. The UK had suggested an improved equivalence model, whereby the UK would respect EU regulatory rules, but also raise the EU notice period, which currently stands at one month for a cancellation.

Currently, the UK financial services sector relied on 'passporting' to gain access to the EU. This means that banks and other financial services firms are able to export services to the EU if they have approval of UK regulators, without having to seek approval from every EU state they wish to operate in.

Impact on businesses and law firms:The uncertainty for UK financial institutions after Brexit is a big problem. Banks may need to exercise contingency plans and relocate all or part of the business into the EU so they retain 'passporting' rights to continue to serve the EU after Brexit. Law firms can expect a lot of Brexit-related advisory work and may set up Brexit advisory teams if they haven't already. One thing is for sure, the uncertainty created over Brexit means a lot of clients will be coming to lawyers for advice.

Cash injection from China's central bank

The Story: The People's Bank of China injected $74 billion into the Chinese economy on Monday. This follows a similar move in June when the government cut the amount of money commercial banks needed to store at the central bank, in order to encourage bank lending.

Impact on businesses and law firms:The injection comes amid slowing global growth and worsening trade relations with the United States, after Trump threatened more tariffs on China's exports to the US. China has also been trying to control its large amount of debt, which could see companies with weak cash flows collapsing and law firms seeing a rise in local restructuring and insolvency work.

While growth in China has been slowing, it is still far higher than Western economies, making it an attractive place for businesses. China has recently begun to relax foreign investment restrictions, which poses many opportunities for both businesses and law firms.

Trump v Europe

The Story: It has been an eventful last few weeks between the US and the EU. Initially, they both came into conflict as the EU issued retaliatory tariffs against Trump and Trump threatened to impose tariffs on EU car exports.

This was followed by the recent Nato summit, which has been called one of the most divisive summits in its history. In that meeting, Trump accused the Germans of being "controlled by Russia". This comes as Trump has been criticised within his own country for taking a soft stance with Russian President, Vladimir Putin. That said, Trump did reaffirm one of Nato's core principles that an attack against an ally will be treated as an attack on all of Nato's members, which was something he shied away from in the past.

However, the picture may be different now. Discussions between Trump and the president of the European Commission, Jean-Clause Juncker, appeared to be a success as both agreed to move towards removing trade barriers on non-auto industrial goods.

Impact on businesses and law firms: The recent events have made it difficult for businesses that trade between the EU and US as they've had to grapple with significant political uncertainty. However, if they move towards the elimination of trade barriers, this is likely to be a significant win for businesses, leading to a closer integration between the two. UK law firms should try to gain a foothold within the US sooner rather than later, or they may miss out on large amounts of cross-border legal work.

Best one yet!