Commercial Awareness Update: May 2019

[Abstruser]

Commercial Awareness Update: 1st May 2019

Hi everyone,

Another month has flown by! The topics covered this week are:

1. Second Belt and Road Forum by @kitk
2. Uber’s upcoming IPO by @Abstruser

As always, feel free to share your thoughts and comments below. Happy reading!


1. Second Belt and Road Forum (by @kitk)


The story:

Last week, over 5,000 delegates attended the second Belt and Road Forum held in Beijing.

This forum is about China’s Belt and Road Initiative (BRI). Launched in 2013, the BRI aims to connect Asia, Africa and Europe via both land corridors and sea routes. This involves the funding of infrastructure projects, like the building of railways and ports, in various countries around the world.

At last week’s forum, US$64 billion in deals were signed and 283 “practical outcomes” had been achieved. Also, 37 world leaders joined Chinese President Xi Jinping in signing a joint communique promising to work together in further opening their markets, as well as promoting green growth and diversified and sustainable financing for BRI projects. This is an increase from the 29 world leaders who attended the first Belt and Road Forum in 2017.

The BRI appears to be of growing interest to European countries. In late March, Italy became the first major European economy to endorse the BRI, while Swiss President Ueli Maurer and Austrian Chancellor Sebastian Kurz were among the signatories of the abovementioned communique.


Impact on businesses and law firms:

With the increasing economic scale and political support of the BRI, more businesses are likely to become involved in the BRI projects. Examples of such involvement include providing project design services and green financing for the construction projects. Law firms might handle more advisory work related to the provision of such services. As the BRI involves large, cross-border projects that involves many parties, there is also likely to be a higher chance that law firms would work on disputes arising between parties participating in such projects.


2. Uber’s upcoming IPO (by @Abstruser)


The story:

Last Friday, Uber filed its S-1 form with the United States Securities and Exchange Commission (SEC) in preparation for its upcoming initial public offering (IPO). In the United States, all companies intending to publicly list their shares must file an S-1 form with the SEC. An S-1 form typically contains basic financial information in relation to the listing company and its share offering.

Uber’s filing revealed a price range of $44-50 per share for its upcoming IPO. With 180 million common shares to be sold, the ride-hailing company is expected to raise $7.9 billion to $9 billion, which would give Uber a valuation between $80.5 billion and $91.5 billion.

The S-1 form also revealed that Uber will be selling shares worth $500 million in a private placement to PayPal. PayPal has handled Uber’s payments in Australia and the United States since 2013. Last Friday after the S-1 filing, PayPal announced that it had agreed to extend its global partnership agreement with Uber to develop future commercial payment collaborations, including Uber’s digital wallet.


Impact on businesses and law firms:

At the price range announced on Friday, Uber’s IPO is poised to be the second-largest IPO by a US company, after Facebook’s $16 billion offering in 2012. However, it isn’t all smooth sailing for Uber. In its S-1 filing, Uber is expected to post a net loss of $1 billion for Q1 2019. In contrast, Uber had posted a net income of $3.7 billion the same time last year. Uber attributed its projected losses to increased spending on incentives and advertising, which highlights stiff competition posed by other ride-hailing companies such as Lyft, and food delivery companies like Deliveroo. Growing competition in the ride-hailing segment is also highlighted by the poor performance of competitor Lyft’s shares since its IPO in late March. The company’s shares are currently trading at 20% below their initial price, as investors display little confidence in the company’s long-term growth prospects in a highly-saturated market.

On the legal side, public companies are generally subject to stringent corporate governance regulations that private companies are not. This means that as a public company, Uber will likely be required to disclose more information to stakeholders than it previously did as a private company. This may be particularly significant in light of Uber’s considerable legal troubles in the past. In 2017, Uber faced a series of sexual harassment and pay discrimination lawsuits brought by over 400 former employees. Uber also fended off an intellectual property theft lawsuit brought by Waymo in 2017, a subsidiary of Google that develops autonomous vehicle technology. The company only recently received a renewed license to operate in London in 2018, after Transport for London (TfL) refused to renew Uber’s operating license in light of public safety and security concerns. Uber is still in ongoing litigation in both the United Kingdom and the United States over whether Uber drivers are independent contractors or employees.

 

[Abstruser]

8th May 2019

Hi everyone,

The topics covered in this week’s update are:

1. OYO’s acquisition of @Leisure (by @Abstruser)
2. Apple’s Recent Performance (by @Alice G)
3. US Attorney General William Barr’s Senate Testimony (by @Moni)

1. OYO’s acquisition of @Leisure (by @Abstruser)

The story:

Last week, Indian-based budget hotel startup OYO completed a €369.5 million acquisition of Dutch property management group, @Leisure. Having raised over $1.2 billion in funding from investors such as Airbnb and SoftBank last year, OYO paid for its 51% stake in @Leisure in cash. OYO is currently valued at around $5 billion, and is the sixth largest hotel brand in the world by room numbers.

The @Leisure acquisition is OYO’s latest move in its international expansion strategy, with OYO hotels already present in Malaysia, Nepal, Indonesia and the Philippines. Notably, OYO is one of the top ten hotel brands in China, a market typically hostile to the expansion of foreign companies.

Impact on businesses and law firms:

Similar to Airbnb, none of the hotels or rooms under the OYO brand actually belong to OYO. Instead, OYO’s business model revolves around implementing renovations in existing properties, standardising services and pricing, and providing access to OYO’s own software to handle user bookings and monitor day-to-day housekeeping. This capital-light model, also adopted by ride-hailing companies like Uber, allows for much faster growth and expansion than building inventory from scratch. Last year, OYO added ten times as many rooms to its network than the Marriott group, a feat highly praised by SoftBank founder Masayoshi Son.

However, some have expressed concern with OYO’s rapid expansion. Analysts from Morgan Stanley stated that OYO’s “dramatic” expansion could lead to difficulty in maintaining quality standards across all 630,000 hotel rooms across the OYO network. Further, analysts have suggested that OYO’s expansion could face difficulties in more developed markets like the United Kingdom, where budget hotel chains such as Holiday Inn and Travelodge already have a strong presence.

Another significant feature of OYO’s business model is its dynamic pricing, which is similar to the approach taken by ride-hailing companies and airlines. Although Masayoshi Son has praised OYO’s ability to make “43 [million] micro-optimisations per day” through dynamic pricing, it has been a source of some legal complication for OYO. Earlier this year, the Federation of Hotel and Restaurant Associations of India (FHRAI) issued a warning to OYO for its “unfair and arbitrary revision of commission rates” and “stopping of minimum guarantee amounts”. The FHRAI further noted that these were issues which “pertain to breach of contracts between parties”. This suggests that OYO may have included contractual terms guaranteeing a minimum amount to hoteliers in return for listing their properties on the OYO network. Operating dynamic pricing may have led to property-owners receiving a cut of the final price which was less than the guaranteed amount. However, the exact details are unknown.


2. Apple’s recent performance (by @Alice G)

The story:

It is no secret that Apple has been struggling of late, but its latest quarterly results have been better than Wall Street had anticipated. Projections had predicted a revenue of $57.37 billion but the company has reported their revenue as being $58 billion, resulting in a 5% stock increase in after-hours trading. Though iPhone sales are still dwindling and are reported as being down by 17% year-on-year, Apple’s Services segment - which includes the App Store, Apple Music, iCloud, Apple Care and Apple Pay – reported a 16% increase in sales. The company’s Wearable, Home and Accessories division has also jumped by 30%.

Impact on businesses and law firms:

The increase in stock value after these figures were reported demonstrates greater investor confidence in Apple as a business. It is likely that investors feel less worried about the company’s iPhone woes having been incited by the strength of the Services segment. With Apple TV+ on the cards, Apple’s tangible proof of its services strength and its current subscription model ventures will probably provide even more impetus to rival other streaming services. Netflix and Amazon will no doubt be increasingly weary of Apple’s potential in this space.

Having been such a dominant force in the tech space, the case of Apple is an interesting one. It demonstrates the fallibility of companies regardless of their size and from a competition standpoint, it shows that there is always scope for new innovation and new players in the market. As the iPhone becomes less pre-eminent, there is space and scope for new emerging companies perhaps - which is no doubt an exciting prospect for IP departments.


3. US Attorney General William Barr’s Senate Testimony (by @Moni)

The story:

On Wednesday May 1st, U.S Attorney General William Barr testified in front of the Senate Judiciary Committee on Wednesday to answer questions on special counsel Robert Mueller’s report into Russian Interference in the 2016 election. Barr was asked to testify following concern with his handling of the Special Counsel report, including the redaction of many parts of the report as well as his summary letter of the report, which Mueller says “did not fully capture the context, nature, and substance” of the special counsel’s work and conclusions. Mueller goes on to state that AG Barr’s summary letter created “public confusion about critical aspects of the [the] investigation.” These allegations by special counsel Mueller are particularly concerning, given they were raised well before AG Barr released his summary report. However, Barr defended his, and President’s Trump’s, handling of the Mueller Report. At his hearing, Barr was also questioned on his decision to clear President Trump on obstruction of justice, which he justified by saying that the government would not be able to establish “corrupt intent” beyond a reasonable doubt.

Although Barr declined a second day of testimony, the fallout of the report is far from over. The AG has stated that he does not have any issues with Special Counsel Mueller testifying before Congress, and many expect that his testimony will be scheduled in the coming weeks.


Impact on businesses and law firms:

The Congressional reaction to Bill Barr’s testimony demonstrates the persistent divisions the US legislature. Since his testimony, House democrats have consistently called for his resignation and have scheduled a vote for the committee to hold the AG in contempt of Congress for failing to turn over the full unreacted report. Bill Barr is the third Attorney General to serve under President Trump in less than six years, while it seems unlikely, a resignation by the AG would be seen as a significant blow to the administration. In addition, the testimony also underscored the close relationship between the Executive Branch and the Justice Department, and the loyalty of AG Barr to the President, who he has defended on multiple occasions. This alignment is perhaps underscored by the fact that Attorney Barr declined to testify before the Democrat-controlled House Judiciary Committee.

Overall the picture in Washington is somewhat unchanged, stark divisions between Democrats and Republicans that are unlikely to be overcome soon and thus make a productive congress very unlikely. Although Democrats are avoiding calls for impeachment, they continue to strongly criticize the Trump administration, accuse the president of wrongdoing and place pressure on those seen as loyal to him, especially within the Justice Department, to resign. This division and inability to cooperate will serve as the backdrop to a hotly contested democratic primary and the 2020 general election, which will undoubtedly have significant consequences for the US economy and the global economy.

 

[Sara Moon]

Hi everyone,

The topics covered this week are:

1. Singapore’s anti-fake news legislation (by @Abstruser);
2. Fixing lawsuit against pharma companies in the US (by @Moni);
3. US-China Trade War Update (by @Alice G); and
4. UK Coal Free Week (by @Sara Moon).

Hope you enjoy!

1. Singapore’s anti-fake news legislation (by @Abstruser)

The story:

Last Wednesday, Singapore’s parliament passed the Protection from Online Falsehoods and Manipulation Act (‘POFMA’), a highly controversial bill aimed at tackling fake news in the city state.

The new legislation grants the Singaporean government wide powers to monitor the veracity of online media posted on platforms such as Facebook. Last year, Facebook and Singapore butted heads when Facebook refused to remove a “false and malicious” online article linking Singaporean banks to the Malaysian 1MDB scandal.

POFMA also extends to private encrypted chats such as those exchanged through Whatsapp and Telegram. Speaking on the policing of private chats, Singapore’s Senior Minister of State for Law, Mr Edwin Tong stated that “Closed platforms, chat groups, social media groups, can serve as a public megaphone as much as an open platform.”

There are three main offences under POFMA, namely (a) knowingly communicating false statements of fact that are likely to prejudice the public interest, (b) creating or altering online bots or inauthentic accounts to spread false statements of fact, and (c) providing or soliciting services to spread false statements of fact in Singapore. Offenders can face up to SGD $1 million in fines, and up to 10 years imprisonment.

Aside from targeting offenders, POFMA also grants Singaporean ministers broad powers to order (or ‘issue directions’ to) online platforms to issue public notices stating that certain statements are false or incorrect. Ministers can also order platforms to disable internet users from accessing material that has been deemed factually incorrect.

Impact on businesses and law firms:

Several tech companies have expressed concern with Singapore’s new bill, as government intervention on online platforms could affect user growth and activity, and therefore impact the profitability and success of these platforms. Last Thursday, a Google spokesperson stated that they were “concerned that this law will hurt innovation and the growth of the digital information ecosystem.” In a public statement, Facebook’s Asia-Pacific public policy vice-president said that “We remain concerned with aspects of the new law which grant broad powers to the Singapore executive branch to compel us to remove content they deem to be false”. Both spokespersons for Google and Facebook expressed hope that POFMA would be enforced with a “proportionate and measured approach”.

It is also unclear how POFMA will affect encrypted messaging services such as Whatsapp and Telegram. Authorities in other countries have had difficulty in policing private encrypted messages. For example, in February, India proposed new rules that would allow authorities to trace the origins of encrypted messages. Whatsapp firmly stated that this was “not possible” as it would lead to a complete redesign of their Whatsapp product, and result in an app that was not “fundamentally private”. However, Mr Edwin Tong stated that ministers may order companies such as Whatsapp to send mass information notices to all its users notifying them of false information that may have been circulated privately.

With POFMA, Singapore joins the ranks of countries such as Germany, France, Russia and Malaysia, all of whom possess their own anti-fake news legislation. For law firms, this trend towards regulating online information is likely to generate more regulatory and compliance work from clients with an online presence, and not only online media companies.

The anti-fake news regulatory trend also raises an interesting legal tension between policing misinformation, and the protection of fundamental rights in liberal democracies such as the US and the EU. For instance, under the First Amendment to the US Constitution, there is “no such thing as a false idea”. Similarly, some critics note that EU-wide efforts to tackle fake news have been hamstrung by the bloc’s strong commitment to protecting freedom of speech.


2. Fixing lawsuit against pharma companies in the US (by @Moni)

The story:

On Friday May 10th, 44 US States filed a lawsuit against 20 drug companies, including Teva, Pfizer, Novartis and Mylan, alleging that they engaged in price-fixing to inflate the prices of more than 100 generic drugs by as much as 1000%. The lawsuit, which is a more expansive version of a similar suit, filed in December 2016, alleges that the price-fixing activity took place largely between January 2013 and June 2015, during which time the competitors agreed to cooperate so that their companies maintained a “fair share” of generic drug markets, while simultaneously colluding to raise prices. According to the suit, the drug companies and their executives were aware that their actions were illegal and as such avoided written records.

Several companies have come out to deny any wrongdoing, including Teva. The Israeli drugmaker is one of the world’s largest manufactures of generic medicine and is painted as the ring-leader in the states’ lawsuit. The company has since denied any wrongdoing and says it has not engaged in any actions that would lead to civil or criminal liability. In addition to the accused companies, the lawsuit also names 15 individuals, who the suit claims were responsible for carrying out the price-fixing plans on a day-to-day basis. The lawsuits seek damages, civil penalties, and actions by the court to restore competition to generic drug markets.

Impact on businesses and law firms:

The lawsuit comes at a time when drug companies are facing widespread scrutiny from US lawmakers across the political spectrum, over drug prices. Federal filings from January 2019 show that the pharmaceutical industry spent a record high $27.5m on lobbying in 2018, amid pressure to lower drug prices. The outcomes of this particular suit will likely have wide- reaching effects for the US pharmaceutical industry, either in terms of maintaining the status quo if it is quashed or forcing drug companies to change their behavior. The lawsuit suggests that there had been widespread misconduct in the industry over several years. Moreover, state prosecutors are arguing that the conspiracy has negatively affected the US economy and damaged state and federal health care plans.

In addition to having potential impacts on these companies and consumers, the suit will also likely result in a discussion around current US competition laws, which could have an impact on other industries as well.

 

[Sara Moon]

3. US-China Trade War Update (by @Alice G)

The story:

The trade war was originally initiated last year in light of President Trump’s concerns over the trade deficit between the US and China, China’s attitude towards foreign competition and the theft of US intellectual property by Chinese businesses. At the beginning of March this year it appeared that significant headway was being made between the US and China to resolve the trade war through their bilateral negotiations. China was reportedly showing its willingness to import more American goods and to relax its rules surrounding foreign competition. The two powers were also deciding on a process to enforce a trade agreement.

However, Trump upped the ante last week after accusing China of backtracking and ‘reneging’ on the progress and agreements that were being made during their talks. On Friday 10th May he announced that he would be raising duties on $200bn of Chinese imports from 10% to 25%. This US protectionism and further escalation of the trade war has led China to retaliate. On Monday 13th May, China announced that it would be placing higher tariffs on $60bn worth of American goods, increasing tariffs from 5% to 25% on approximately 5,200 American products effective from 1st June. China, as reported by the Economist, has previously adopted a more conciliatory strategy but this retaliation has demonstrated a more hardline approach. Trump has also stated that if there is no breakthrough in talks soon that he will impose 25% tariffs on a further $300bn goods, which would result in tariffs on virtually all Chinese imports.

Despite Trump’s adulation at the position of the US in the trade war, the burden of the costs will fall to the American consumers. American importers will suffer the increased tariffs on Chinese goods and will hike prices as a result. American farmers will be even more severely hit which has resulted in Trump announcing that he will offer further aid to them.

Talks between the leaders of the world’s two largest economies are due in the coming weeks.

Impact on businesses and law firms:

On Monday 13th May, stocks plunged significantly as businesses and markets fear that the trade war could escalate even further and last much longer than had previously been thought. The US stock market suffered its worst day since the start of 2019 and European stock markets hit their lowest levels in over six weeks too on Monday. Global stocks also fell to their lowest level since March. Apple’s, Caterpillar’s and Boeing’s stock prices also suffered. China’s currency and other emerging market currencies were also knocked. The Chinese renminbi was down 0.9% against the US dollar on offshore markets.

Analysts have been quick to opine that market volatility in the coming weeks is highly likely and that there could well be a risk of a global recession depending on the length and further severity of the trade war. Uncertainty and volatility are the antithesis to global M&A and corporate activity. Businesses are hesitant to enter deals because of the difficulty in projecting future success and benefits of a particular deal. Although the consumers are more than likely to carry the burden of the costs as stated already, some businesses may have to absorb the costs to an extent which might inhibit their ability to raise funds too. Corporate law firms will suffer because of this projected decrease in M&A activity.

However, uncertainty can be an opportunity for lawyers. The increase in tariffs will have significant impacts on the supply chains of many businesses who might look to relocate and source materials from elsewhere. Businesses will probably be keen to instruct their lawyers to perform due diligence on how they can further mitigate the impacts of the trade war dependent on their own operations too.

4. UK Coal Free Week (by @Sara Moon)

The story:

From 1 May to 8 May, UK had its first coal-free week since 1882, when the world’s first centralised public coal-fired generator opened at Holborn in London. Back in 2015, the UK government announced to phase out coal generation by 2025 and completely convert to coal-free electricity in order to reduce carbon emission which has been fatal to the climate. Coal-free week has been carried out as part of this initiative and has shown that coal has now become hugely irrelevant in generating electricity.

Impact on businesses and law firms:

Climate change is one of the key issues governments all around the world are currently grappling with and the UK has been a leading country in implementing climate protection measures. The Climate Change Act 2008 codified the government’s commitment to cut greenhouse gas emissions by 80% of 1990 level by 2050. Since April 2018, Energy and Carbon Report Regulations 2018, which have been implemented through the Companies Act 2016, have come into effect. These regulations have replaced the Carbon Reduction Commitment Energy Efficiency (CRC) Scheme and extended the obligations imposed on companies in regard to reporting carbon emissions and energy use. For example, the regulations, unlike the CRC scheme, require not only quoted companies but also unquoted companies to comply with reporting obligations on greenhouse gas emissions (unquoted companies are companies that are not listed and whose shares are not traded on a stock exchange and quoted companies are those whose shares are traded on a stock exchange). Also, they introduced various additional requirement on quoted companies of having to report on total energy use across all energy types. With legislative forces to protect climate being strengthened every year, law firms have key roles to play in ensuring that companies are complying with various reporting obligations and conducting business within the lawful rate of greenhouse emission.

In addition to legislative measures, many companies are responding to consumers’ demand for environmentally responsible business activities and are issuing ‘green bonds’. Green bonds are bonds that raise funds for projects contributing to the environment, such as those promoting environmental protection measures, developing climate change solutions, and various other green projects. They first emerged in 2013 and the market for them has grown rapidly, with the issuance reaching USD 167.6bn in 2018. Companies are issuing these bonds to increase their market appeal and have used the proceeds to make their business activities more environmentally friendly. Investors benefit from investing in these bonds by enjoying tax-exempt income. Since these bonds are issued for specific purposes with tax advantages, there are various requirements to be met to issue them. This means that growing issuance of green bonds come with increasing demand from companies for legal advice on green financing. Thus, many law firms like White & Case have been increasingly investing in their Capital Markets Practice to advise on this newly emerging area.

 

[Angel]

Hi everyone!

The topics covered this week are:

1. Flourishing Fintech start-ups – Softbank @Moni
2. Amazon’s investment in Deliveroo @Alice G
3. US Retail Sales – Trade War @Sara Moon
4. UK Retail Sales – Debenhams @Angel
5. Consequences of the Huawei ban @Jaysen

Happy Reading!

1. Flourishing Fintech start-ups @Moni

The story:

This week, Japanese conglomerate SoftBank, bought an $800million stake in Greensill, a UK Fintech start-up. Greensill, a supply chain financing company that provides working capital funding, backed by payables to supplier, to companies. Since the 1990s, banks have generally been the traditional supplier of such financing and this industry has grown significantly since the global financial crisis. However, firms like Greensill are playing an increasingly important role in the supply chain finance industry and driving its recent growth.

Softbank invested in Greensill through its $100billion Vision Fund, the world’s largest tech investor, which typically makes VC investments in late-stage companies like Uber and Doordash. The fund also made a $440m investment in Oak North, a British bank start-up, earlier this year.

Softbank’s investment has increased Greensill’s valuation to about $3.5billion- a double of its previous valuation. The investment came at an important time for Greensill, which has recently been involved in a scandal relating to one of its largest shareholders, Greensill Asset Management. This scandal has caused Greensill a decrease in its assets under management by more than half. Softbank’s large bet on Greensill, despite its recent troubles, is a sign of its confidence in the role that Fintech companies will play in supply chain finance, and the financial services industry more broadly, in the coming years.

Impact on businesses and law firms:

Softbank’s investment in Greensill is yet another indicator that institutional investors and large banks are becoming increasingly aware of the value that Fintech companies can add to financial services. Also last week, Wells Fargo and Barclays provided a $17million in funding to OpenFin, a financial services software start-up backed by J.P. Morgan Chase.

As investment from institutional investors and big banks increases, start-ups providing financial services will continue to increase their customer base and consolidate their position in the industry as well. Given that many of these companies are introducing new technologies to the industry that disrupts old customer-service provider relationships, it will be interesting to see how they will be regulated, interact, and compete with traditional industry players.


2. Amazon’s investment in Deliveroo @AliceG

The story:

Last week, Amazon has led the latest $575 million funding round in Deliveroo. This marks the food delivery service’s eighth round of funding. Deliveroo’s founder, Will Shu, has expressed his excitement at working with Amazon who he had said is a ‘customer-obsessed organisation’. Mr Shu has said that he aims to invest the funds into better technology for Deliveroo and to further expand the international footprint of the company.

Impact on businesses and law firms:

In terms of the impact on Deliveroo itself, some riders have expressed some preliminary concerns about the potential influence of Amazon. Because the ‘trillion-dollar club’ business is so customer focused, as Mr Shu was quick to note, there are fears that riders may be fitted with timers or that riders might incur penalties for late deliveries to better the customer experience. One of the positives often espoused about the gig economy is the freedom that comes with it, but these measures would undoubtedly lead to such freedoms being curtailed. Not necessarily bad for customers of course, but for the inherent business model of Deliveroo this could be problematic for their riders and maybe the business as a whole.

Naturally, this investment round has led to a little bit of trouble for the stock prices of major rivals. JustEat suffered a share drop of 8% on Friday 17THand Uber’s already problematic IPO has not been bettered by this news either. This might mean that prices become even more competitive for consumers as these rivals vie for business.

From more of a legal and regulatory standpoint, Tom Watson MP was very quick to call upon the UK’s competition watchdog to investigate what he perceives to be Amazon’s further attempt to capture more customer data through this particular investment. Big data and the ways and means companies go about harnessing data for their own ends has been a hot topic of late, especially in terms of advertising and product development. Foucault is infamous for his proclamation ‘knowledge is power’ and never has that seemed more pertinent to this particular issue. Indeed, in years to come it will be the job of regulators and lawyers to protect our data and to legislate where the lines ought to be drawn upon such matters. Competition lawyers will be busy trying to ensure that we as consumers are protected and that business practices are fair, whilst also ensuring that innovation is not stifled.

 

[Angel]

3. US Retail Sales – Trade War @Sara Moon

The story:

US retail sales fell by 0.2% in April, due to a decline in sales of automobiles, building materials, clothing, health and personal care, electronics and appliances. US factory production also fell in April for a third time this year, particularly in machinery and motor vehicles industry. The weak performance of US retail industry was due to the ongoing US-China trade war, which discouraged consumers to make purchases. China also showed lower than expected growth of its retail sales, reporting a rise of 7.2% from a year earlier, which was the slowest growth since May 2003. With Trump recently having raised tariffs on $200 billion worth of Chinese imports from 10% to 25% and threatening to levy 25% tariffs on all Chinese imports, it is expected that retailers will be facing another painful hit next month.

Impact on businesses and law firms:

If the weak performance of the retail industry continues, which is likely considering another tariff increase, massive store and factory closures may happen as a consequence. For many clothing retailers, such as Victoria’s Secret and Gap, that have already been struggling without the impact of the tariff due to increasing competition in the industry, Trump’s further increase in tariff may act as another impetus to shut down more of their stores.

The Economist produced an article last week stating that the recent trend in businesses has been “deconglomeration” instead of “conglomeration”. This means that instead of focusing on augmenting their size, many companies decided to sell unprofitable divisions to concentrate on developing profitable ones. The ongoing impact of the trade war may act as a trigger to many big businesses considering restructuring to confirm selling off unwanted parts or those that have already decided to restructured to do so earlier than expected. Selling off means, on the other side of view, acquiring new business. Therefore, corporate M&A departments of law firms might see growing cases to work on. Restructuring of companies also requires corporate lawyers to advise on compliance of important legal requirements as well as employment department to advise on avoiding breach of any employee rights.


4. UK Retail Sales – Debenhams @Angel

The story:

One of the many high-street retails affected by the high-street crisis (that is, the decline of UK retail chains) is Debenhams. This led to the chain announcing the two proposed Company Voluntary Arrangements (“CVAs”). A CVA is a statutory procedure provided by the Insolvency Act 1986 to assist companies in financial difficulties. It important to understand that a CVA is not an end in itself. It is merely a restructuring tool to implement a commercial deal - a contract between the company and its creditors. The terms of this contract will be negotiated with the overarching aim to rescue the company by reducing its debts (ie, borrowings and obligations owed to creditors). In this instance, some key proposals by Debenhams are to close down 22 stores by early 2020 and obtain rent cuts from its landlords.

The requisite majority voting in favour of a CVA for it to go through is 75% by value of those voting and above. Earlier this month, Debenhams successfully obtained the requisite by an overwhelming surplus (90% and above for both proposals). This is an important aspect of the tool for it ‘crams-down’ dissenting unsecured creditors. That is, it is irrelevant that minority unsecured creditors disproved of the plan. They are nevertheless bound by it.

Since the initiation of the insolvency process, many other matters have arise. Debenham’s CEO resigned and took away a £700,000 pay-off. the company is now controlled by a consortium of banks and hedge funds. Mike Ashley’s Sports Direct (the once biggest shareholder in Debenhams) is also seeking to challenge a pre-pack administration deal (a sale of the business negotiated by the administrators to the prospective buyers) because this deal resulted in wiping out Ashley’s equity interest in Debenhams.

Impact on businesses and law firms:

The decision to close down underperforming stores comes at a hefty price. It places approximately 1200 jobs at the risk of redundancy. Lawyers will be engaged to oversee the process. It is important to ensure that the employees are treated fairly and compensated adequately in order to avoid litigation that may damage the company’s reputation.

Indeed, Debenhams is only one of the many big retails affected by the decline of UK high street stores. Restaurant chains like Prezzo have announced closures while others, like toy-store chain Toys r Us and electronics retailer Maplin, have fell into administration.

There are many factors triggering such a decline. First, there have been a fall in consumers’ discretionary spending since the Brexit vote. That is, shop prices increased disproportionately to the increase of wages. This left consumers with less disposable income to spend. Other reasons include the shift to online shopping in recent years, the changing tastes of consumers, and the fierce competition from new brands.

In order to save a company from such a financial distress, it is important for the business to know the reason causing the decline. That is, whether it is a good business with potential to improve but is merely stuck with a bad balance sheet due to unfavorable times (and thus worth saving), or if its products or services are simply not in demand anymore (and thus, even luck permits a rescue this time, it is unlikely that the business will sustain in the long-run). Professional service providers will be engaged to help the company analyse and reach the right decisions.

Finally, it is important to note that there is no ‘one size fits all’ solution. The implementation of a CVA is only one of the many ways to restructure debt. It is the lawyers’ job to advise the client on other legal methods based on the client’s needs. For instance, should Debenhams require a different commercial deal and if a moratorium (that is, an automatic stay/ injunction on its creditors from enforcing on any claims) is required this time, formal administration proceedings would be more appropriate compared to a CVA.

 

[Angel]

5. The impact of the Huawei ban on businesses and law firms (@Jaysen)

The story:

It’s fair to say that this month has been hell for Chinese tech giant Huawei. On May 15, 2019, the US government announced a ban on companies exporting US technologies to Huawei, unless they obtained a special licence. Trump’s administration based the ban on the grounds that Huawei was a national security threat.

The pain was felt this week. Google said that it would restrict Huawei’s access to some of its Android operating system (although this was later put on hold after the ban was delayed). This was soon followed by the likes of Intel and Qualcomm, which have reportedly stopped selling their parts to Huawei.

Impact on businesses and law firms

Let’s start with Huawei. It’s the second biggest smartphone seller in the world and the biggest seller of network infrastructure. However, the Chinese giant relies on American companies for hardware, software and licences. With the ban in place, costs will rise as Huawei will be forced to develop new supply chains when its current stockpiles run out. Should Google’s restrictions go ahead, the limitations to Android will impact the tens of millions of phones it sells internationally every year. With that in mind, Huawei is unlikely to escape significant trade disruption. The company’s CEO has already said the company’s annual revenue growth may undershoot by 20%.

Then there are the wider commercial implications, so concerning that some have called the Huawei ban the start of a US-China cold war. These events are taking place against the backdrop of tightening restrictions on foreign companies and, crucially, the US-China trade war. It may just be the case that the US is flexing its muscle to bring China back to the table for trade talks. Perhaps, if China provides further intellectual property protections, the US will lift sanctions. Even so, these orders cause collateral damage. Huawei is a big source of revenue for many American suppliers. One analyst suggests US tech company Xilinx could see $300m wiped off its annual revenue over the calendar year. It’s not only the US either; European technology stocks fell after Germany’s Infineon said it would cut some of its shipments to Huawei. If Asian suppliers follow suit, the impact on Huawei would be devastating. And, if China retaliates, it would be even worse. American companies with significant exposure to China fear tighter regulations, slower customs clearance, delayed licence approvals and further antitrust investigations. Law firms will play an essential role in helping US companies insulate themselves from the effects of the trade war, such as relocating manufacturing facilities outside of China.

And what of 5G? Huawei has become of a major symbol for China’s ambitions on the world stage. However, the US has waged a global campaign to stop the use of Huawei’s network equipment, raising fears that China could use these systems for spying or sabotage. This has come at a time when cyber-hacking has been flagged as one of the biggest issues facing multinational businesses and law firms. But, in Huawei’s case, are these genuine fears or is the US merely scared of a rising global competitor?

Suppliers now have 90 days (thanks to a temporary exemption granted this week) to work out how to proceed without damaging their lucrative contracts. Law firms will be relied on to help global firms comply with US export controls. The risk to doing overseas business is rising, which means growing sanctions-related work for law firms. They should help companies assess their exposure to Huawei, as well as other firms that could become caught up in the crossfire. This includes interpreting Trump’s recently signed executive order, which is expected to prohibit the use of gear from “foreign adversaries” with national security risks.

 

[Jaysen]

Hi everyone!

Welcome to the last commercial news update in May. We've introduced a shorter word count to these updates; do let us know if you have any comments on that.

Commercial News Update – 29 May 2019

Topics covered this week:

1. Facebook's GlobalCoin in 2020 (@Angel)
2. May’s departure, European elections and a no-deal Brexit (@Jaysen)
3. British Steel's insolvency (@Alice G)

Facebook’s GlobalCoin in 2020 (by @Angel)

The story

Facebook is developing a digital payment system, “GlobalCoin”, set to begin by 2020. Based on various reports, the tech giant has met with several other high-frequency trading firms, cryptocurrency exchanges, and bank officials (including governor of the Bank of England, Mark Carney) to realise this secretive initiative, code-named as ‘Project Libra’.

Just to refresh one’s memory, cryptocurrency is a form of digital currency that relies on a peer-to-peer network of users. It embodies the traditional aspects of money (as a medium to store value, a form of unit of account, and a medium of exchange) while moving away from the need to rely on a central authority (such as the bank).

Impact on businesses and law firms

There are several foreseeable challenges to such a project, and these challenges are nothing new. First, there is the consideration to create a secure and reliable method to update a public ledger especially when uncountable number of ‘miners’ (the users) around the world have access to the ledger at any one time. Second, necessary incentives must be created for these users to want to contribute resources to verify the transactions. Finally, there is a question of whether the law can, or should, keep up with the pace of these innovations. As the law stands, this is not a heavily regulated area (if at all). For instance, property law does not readily provide an answer for what is to happen to the crypto-assets of an owner who dies without passing them on. Some academics go to the extent of viewing such digital currencies as nothing more than a form of speculative investment and not to be politically implemented.

For now, what is certain is that the news of Project Libra is favourable to investors. As soon as the report was out, existing digital currencies such as Bitcoin, Litecoin, and Ethereum observed a rise in value respectively.

May’s departure, European elections and a no-deal Brexit (by @Jaysen)

The story

It has been a busy week for UK politics.

Last Friday, Theresa May announced her resignation from office, giving up the battle to push her with withdrawal agreement through Parliament for a fourth time. It didn’t take long for MPs to announce their plans to run for Tory leader.

On Monday, the European election results were announced. In the UK, the Brexit Party was the clear winner, securing 32% of the vote, while the Conservatives saw their vote collapsing to just 9%.

Impact on businesses and law firms

The results of the European election and the success of the newly-formed Brexit Party means the odds of our future prime minister pursuing a no-deal Brexit has just increased. The candidates will be keenly aware that a failure to take Britain out of the EU will only embolden Nigel Farage and his Brexit Party. Several candidates, including frontrunner Boris Johnson, has said Britain should leave the EU on October 31, 2019, with or without a deal.

Suppose a no-deal Brexit passes through Parliament, what will the impact on law firms be? On the plus side, there will be an increase in advisory work for lawyers; clients will need legal advice to handle the uncertainty: How do they deal with multiple regulatory bodies? What legislation applies to them? What is the impact on their contracts? How do they cost-efficiently restructure their supply chains?

However, while advisory work will lead to more demand for legal services, it could be countered by a fall in revenue as businesses hold back investment. If they cannot absorb this cost, law firms may need to restructure their own practices.

The impact will also be global; for example, law firms may need to temporarily close their offices in South Korea as they’ll lose the benefit of the current EU-Korea free trade agreement. Closer to home, they’ll also need to consider how they can continue to service EU clients in the event of a no-deal Brexit. We've already seen thousands of UK lawyers register in Ireland to maintain legal privilege in disputes, while several firms have also opened up further bases within the EU.

British Steel's insolvency (by @Alice G)

The story

Last week, British Steel went into insolvency just three years after being acquired by the private equity group Greybull Capital whose failed “turnarounds” have included Comet and Monarch. The UK government is constrained by what it can do to save British Steel due to EU state aid rules and so a bail-out has been denied, however, the Treasury has granted an indemnity to allow British Steel to continue operations for now. As an integral industry to the defence and construction sectors and with thousands of jobs in Teeside and Scunthorpe at risk, it is hoped that a buyer will come forwards soon.

Impact on businesses and law firms

If the Scunthorpe blast furnace were to be permanently closed, the UK would be left with only one in Port Talbot, Wales. This would probably lead to the UK relying increasingly on steel from elsewhere in the world which would lead to increased costs for businesses like Network Rail who rely on British steel. Steel materials are ordered months in advance which is why Brexit uncertainty is deemed to have been such a huge influence, other companies of a similar nature will no doubt be worrying about their immediate futures too.

Law firms are essential during the insolvency process. They help to advise, negotiate and draft the relevant documents, in the sale of a company or its assets. Pensions and employment issues are significant in these circumstances and lawyers are drafted in to help companies manage their obligations to staff. Should a private equity firm buy British Steel, law firms who represent them will be involved throughout the process of a “turnaround” right up until the firm either sells on or lists British Steel.

 

[ELA]

Hi everyone!

Welcome to the last commercial news update in May. We've introduced a shorter word count to these updates; do let us know if you have any comments on that.

Commercial News Update – 29 May 2019

Topics covered this week:

1. Facebook's GlobalCoin in 2020 (@Angel)
2. May’s departure, European elections and a no-deal Brexit (@Jaysen)
3. British Steel's insolvency (@Alice G)

Facebook’s GlobalCoin in 2020 (by @Angel)

The story

Facebook is developing a digital payment system, “GlobalCoin”, set to begin by 2020. Based on various reports, the tech giant has met with several other high-frequency trading firms, cryptocurrency exchanges, and bank officials (including governor of the Bank of England, Mark Carney) to realise this secretive initiative, code-named as ‘Project Libra’.

Just to refresh one’s memory, cryptocurrency is a form of digital currency that relies on a peer-to-peer network of users. It embodies the traditional aspects of money (as a medium to store value, a form of unit of account, and a medium of exchange) while moving away from the need to rely on a central authority (such as the bank).

Impact on businesses and law firms

There are several foreseeable challenges to such a project, and these challenges are nothing new. First, there is the consideration to create a secure and reliable method to update a public ledger especially when uncountable number of ‘miners’ (the users) around the world have access to the ledger at any one time. Second, necessary incentives must be created for these users to want to contribute resources to verify the transactions. Finally, there is a question of whether the law can, or should, keep up with the pace of these innovations. As the law stands, this is not a heavily regulated area (if at all). For instance, property law does not readily provide an answer for what is to happen to the crypto-assets of an owner who dies without passing them on. Some academics go to the extent of viewing such digital currencies as nothing more than a form of speculative investment and not to be politically implemented.

For now, what is certain is that the news of Project Libra is favourable to investors. As soon as the report was out, existing digital currencies such as Bitcoin, Litecoin, and Ethereum observed a rise in value respectively.

May’s departure, European elections and a no-deal Brexit (by @Jaysen)

The story

It has been a busy week for UK politics.

Last Friday, Theresa May announced her resignation from office, giving up the battle to push her with withdrawal agreement through Parliament for a fourth time. It didn’t take long for MPs to announce their plans to run for Tory leader.

On Monday, the European election results were announced. In the UK, the Brexit Party was the clear winner, securing 32% of the vote, while the Conservatives saw their vote collapsing to just 9%.

Impact on businesses and law firms

The results of the European election and the success of the newly-formed Brexit Party means the odds of our future prime minister pursuing a no-deal Brexit has just increased. The candidates will be keenly aware that a failure to take Britain out of the EU will only embolden Nigel Farage and his Brexit Party. Several candidates, including frontrunner Boris Johnson, has said Britain should leave the EU on October 31, 2019, with or without a deal.

Suppose a no-deal Brexit passes through Parliament, what will the impact on law firms be? On the plus side, there will be an increase in advisory work for lawyers; clients will need legal advice to handle the uncertainty: How do they deal with multiple regulatory bodies? What legislation applies to them? What is the impact on their contracts? How do they cost-efficiently restructure their supply chains?

However, while advisory work will lead to more demand for legal services, it could be countered by a fall in revenue as businesses hold back investment. If they cannot absorb this cost, law firms may need to restructure their own practices.

The impact will also be global; for example, law firms may need to temporarily close their offices in South Korea as they’ll lose the benefit of the current EU-Korea free trade agreement. Closer to home, they’ll also need to consider how they can continue to service EU clients in the event of a no-deal Brexit. We've already seen thousands of UK lawyers register in Ireland to maintain legal privilege in disputes, while several firms have also opened up further bases within the EU.

British Steel's insolvency (by @Alice G)

The story

Last week, British Steel went into insolvency just three years after being acquired by the private equity group Greybull Capital whose failed “turnarounds” have included Comet and Monarch. The UK government is constrained by what it can do to save British Steel due to EU state aid rules and so a bail-out has been denied, however, the Treasury has granted an indemnity to allow British Steel to continue operations for now. As an integral industry to the defence and construction sectors and with thousands of jobs in Teeside and Scunthorpe at risk, it is hoped that a buyer will come forwards soon.

Impact on businesses and law firms

If the Scunthorpe blast furnace were to be permanently closed, the UK would be left with only one in Port Talbot, Wales. This would probably lead to the UK relying increasingly on steel from elsewhere in the world which would lead to increased costs for businesses like Network Rail who rely on British steel. Steel materials are ordered months in advance which is why Brexit uncertainty is deemed to have been such a huge influence, other companies of a similar nature will no doubt be worrying about their immediate futures too.

Law firms are essential during the insolvency process. They help to advise, negotiate and draft the relevant documents, in the sale of a company or its assets. Pensions and employment issues are significant in these circumstances and lawyers are drafted in to help companies manage their obligations to staff. Should a private equity firm buy British Steel, law firms who represent them will be involved throughout the process of a “turnaround” right up until the firm either sells on or lists British Steel.

I like this shorter word count!

 

[Jaysen]

May’s departure, European elections and a no-deal Brexit (by @Jaysen)

The story

It has been a busy week for UK politics.

Last Friday, Theresa May announced her resignation from office, giving up the battle to push her with withdrawal agreement through Parliament for a fourth time. It didn’t take long for MPs to announce their plans to run for Tory leader.

On Monday, the European election results were announced. In the UK, the Brexit Party was the clear winner, securing 32% of the vote, while the Conservatives saw their vote collapsing to just 9%.

Impact on businesses and law firms

The results of the European election and the success of the newly-formed Brexit Party means the odds of our future prime minister pursuing a no-deal Brexit has just increased. The candidates will be keenly aware that a failure to take Britain out of the EU will only embolden Nigel Farage and his Brexit Party. Several candidates, including frontrunner Boris Johnson, has said Britain should leave the EU on October 31, 2019, with or without a deal.

Suppose a no-deal Brexit passes through Parliament, what will the impact on law firms be? On the plus side, there will be an increase in advisory work for lawyers; clients will need legal advice to handle the uncertainty: How do they deal with multiple regulatory bodies? What legislation applies to them? What is the impact on their contracts? How do they cost-efficiently restructure their supply chains?

However, while advisory work will lead to more demand for legal services, it could be countered by a fall in revenue as businesses hold back investment. If they cannot absorb this cost, law firms may need to restructure their own practices.

The impact will also be global; for example, law firms may need to temporarily close their offices in South Korea as they’ll lose the benefit of the current EU-Korea free trade agreement. Closer to home, they’ll also need to consider how they can continue to service EU clients in the event of a no-deal Brexit. We've already seen thousands of UK lawyers register in Ireland to maintain legal privilege in disputes, while several firms have also opened up further bases within the EU.

By way of update to this story, the UK has today signed a post-Brexit (outline) free trade agreement with South Korea: https://www.bbc.co.uk/news/business-48577667.