- Feb 17, 2018
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Hi All,
Please see below the updates for this week (Wednesday 6 May 2020).
Let’s Talk Mergers! Conversation Between Virgin Media and O2
By @Sairah
The Story
Telefonica, owner of mobile network O2, has confirmed it is merger talks with cable network business, Virgin Media, currently owned by Liberty Global. If the deal is sealed, it would create a business with an estimated value of around $30 billion (Goldman Sachs). The potential tie-up would represent the largest deal since the WHO declared the coronavirus a pandemic, which has led to a plummet in global M&A activity.
Telefonica has been looking to float or sell O2 UK for several years but had so far failed to secure a possible candidate for a sale or stock listing. It previously attempted to sell O2 to the owner of Three, CK Hutchinson, for £10.3 billion in 2015, however the deal was blocked by the European Commission and Ofcom over competition concerns. This deal between Virgin Media and O2 is unlikely to encounter similar issues, as each business would remain a separate entity.
Despite the current climate, this is an excellent opportunity for Telefonica, given the company is currently heavily indebted. It can seek to reduce its debt from the partial cash out from O2, whilst retaining a presence in the UK, which it identifies as ones of its “core markets”, alongside Spain, Brazil and Germany.
What It Means For Businesses and Law Firms
If the merger goes ahead, Virgin Media and O2 will be in a strong position to compete with UK telecoms market leader, BT. Given the demand for 5G networks, investors are increasingly drawn to infrastructure-like returns of fibre optics. By pooling resources, Virgin Media is well-placed to push ahead with its fibre network rollout plans and 5G infrastructure costs would be reduced, a further draw for investors. A particular opportunity emerging for Virgin Mobile would be the operation a full mobile service through O2, which would help boost Virgin’s overall customer base.
Until the end of the transition period, the UK remains subject to the intervention of EU regulators, which have displayed prior hesitation about telecoms mergers. The deal will also be subject to investigations by the UK Competition and Markets Authority (CMA) to assess if the transaction is likely to prevent or restrict competition. For both businesses, to protect their position in the marketplace its lawyers will be needed to advise on the correct structure for the M&A transaction to secure clearance, and to draft possible co-operation and/ or anti-competitive agreements to avoid infringement penalties.
It is understood that Virgin Media signed a 5-year contract with Vodafone last November. The deal reportedly requires Virgin Mobile to transition onto Vodafone’s network by the end of 2021. This could cause a potential problem at due diligence stage of the M&A deal between O2 and Virgin Media; lawyers must ensure they can meet their existing contractual arrangements.
Never Sell Shell?
By @Rachel S
The Story
The stock market adage, “never sell Shell” will likely be resigned to the history books after this week saw the oil major cut dividends for the fist time since the Second World War. Royal Dutch Shell’s 2020 Q1 dividend has been reduced from 47 cents to 16 cents and its dividend yield declined from over 10% to around 3.5%. The listed company closed 11% down on Thursday.
Shell has cut dividends in part of what CEO Ben van Beurden has named a “crisis of uncertainty”. Oil companies are grappling with coronavirus-driven lockdown measures leading to a global drop in demand and historically low oil prices. This has been exacerbated by a price war between Russia and the OPEC cartel last month, leading to oversupply within the oil market and storage capacity issues.
Shell believes that preserving cash now will allow for future alternative energy investments which will ensure the company’s long-term health. Other protective measures taken include suspending its share buyback programme, cutting capital spending by $5bn and reducing operating costs by $4bn.
What It Means For Businesses and Law Firms
For struggling oil companies, dividend cuts, reduced capital expenditure, suspension of share buybacks or new debt issuance seem a logical move. Competitor, BP, maintained its dividend this quarter despite a 66% drop in first-quarter profits. This was achieved by increasing its gearing ratio with a new $10bn banking facility and the launch of $7bn in bonds. Chevron and Total are yet to provide Q1 results.
The longer-term concern for oil companies is that a reduction in dividends will accelerate the transition to renewable energy. Income investors have long relied on oil majors like Shell for a consistent source of large dividends with payouts central to the company’s investment case. With shareholders under increasing pressure to divert from the worst-polluting companies, investors may now choose to focus their portfolios on green bonds and renewable energy stocks.
Law firms may advise struggling oil companies on new debt facilities and future investments into alternative energy. Furthermore, while Shell’s dividend cut is a precautionary measure to preserve cash, restructuring and insolvency work for oil companies who cannot weather the current market conditions may become necessary.
McDonald’s Reopening: Shielded from Liability?
By @Lauren2
The Story
Following six weeks of closure, several of the largest fast food chains plan to reopen on a limited basis, in line with government rules permitting takeaway services. Such plans are also in anticipation of the lockdown being eased.
McDonald’s has trialled new operational safety measures in ‘viral proof’ stores. The restaurant announced that deep cleaning, floor markings and Perspex screens will be introduced to ensure the safety of employees and customers through social distancing.
Meanwhile, Greggs has postponed its plans to re-open 20 stores in the Newcastle area to trial operating with social distancing measures in place. The company cited the “significant risk” as the reason for their U-turn. They similarly plan to carry out private trials before opening to the public. Competitors including Burger King, Five Guys and Nando’s have also trialled reopening.
The proposed reopening of several restaurants has evoked significant criticism and concern, notably that insufficient personal protective equipment (PPE) will be provided to employees. Amazon recently faced legal action from trade unions in France, due to taking inadequate health and safety precautions which led to the closure of all French warehouses.
What It Means For Businesses and Law Firms
Whilst chains are keen to reopen to protect their business models and generate revenue, it poses significant health and safety concerns. In turn, employers expose themselves to significant legal risks, at a cost. Failure to provide sufficient PPE protection, which has proven notoriously difficult to source, with the NHS lacking sufficient supply, exposes employers to potential liabilities.
The Personal Protective Equipment at Work Regulations 1992 imposes a duty on employers to ensure that employees exposed to health and safety risks are provided with PPE. Additionally, adequate training on how to use/ wear PPE must also be provided – failure to do so may similarly lead to employers’ liability.
Constructive dismissal claims present a further threat; failure to create a safe working environment amounts to a breach of trust and confidence. Negligence claims may also arise where workers contract coronavirus, although there will be notable difficulties establishing that they contracted the virus in the workplace.
Lawyers at firms including Mishcon de Reya and A&O have warned of legal action on a monumental scale. Trade unions have voiced similar concerns. Last week, the TUC called on the government to intervene to ensure safe workplaces across a range of industries, as they already anticipate a multitude of claims will be brought against care homes and NHS Trusts due to lack of PPE. Leader of the Labour Party, and former lawyer, Keir Starmer, joined unions to highlight the need for action against reckless employees to ensure compliance with employers’ legal duties. Employers also find themselves in a difficult predicament where staff refuse to return due to fears of inadequate protection, and how this can be dealt with legally.
Businesses wishing to reopen their doors face a plethora of concerns. They must urgently identify ways to manage their operations which mitigate risk; this may go so far as remaining closed, to avoid the fallout of attempting to operate which Amazon faced in France.
Please see below the updates for this week (Wednesday 6 May 2020).
Let’s Talk Mergers! Conversation Between Virgin Media and O2
By @Sairah
The Story
Telefonica, owner of mobile network O2, has confirmed it is merger talks with cable network business, Virgin Media, currently owned by Liberty Global. If the deal is sealed, it would create a business with an estimated value of around $30 billion (Goldman Sachs). The potential tie-up would represent the largest deal since the WHO declared the coronavirus a pandemic, which has led to a plummet in global M&A activity.
Telefonica has been looking to float or sell O2 UK for several years but had so far failed to secure a possible candidate for a sale or stock listing. It previously attempted to sell O2 to the owner of Three, CK Hutchinson, for £10.3 billion in 2015, however the deal was blocked by the European Commission and Ofcom over competition concerns. This deal between Virgin Media and O2 is unlikely to encounter similar issues, as each business would remain a separate entity.
Despite the current climate, this is an excellent opportunity for Telefonica, given the company is currently heavily indebted. It can seek to reduce its debt from the partial cash out from O2, whilst retaining a presence in the UK, which it identifies as ones of its “core markets”, alongside Spain, Brazil and Germany.
What It Means For Businesses and Law Firms
If the merger goes ahead, Virgin Media and O2 will be in a strong position to compete with UK telecoms market leader, BT. Given the demand for 5G networks, investors are increasingly drawn to infrastructure-like returns of fibre optics. By pooling resources, Virgin Media is well-placed to push ahead with its fibre network rollout plans and 5G infrastructure costs would be reduced, a further draw for investors. A particular opportunity emerging for Virgin Mobile would be the operation a full mobile service through O2, which would help boost Virgin’s overall customer base.
Until the end of the transition period, the UK remains subject to the intervention of EU regulators, which have displayed prior hesitation about telecoms mergers. The deal will also be subject to investigations by the UK Competition and Markets Authority (CMA) to assess if the transaction is likely to prevent or restrict competition. For both businesses, to protect their position in the marketplace its lawyers will be needed to advise on the correct structure for the M&A transaction to secure clearance, and to draft possible co-operation and/ or anti-competitive agreements to avoid infringement penalties.
It is understood that Virgin Media signed a 5-year contract with Vodafone last November. The deal reportedly requires Virgin Mobile to transition onto Vodafone’s network by the end of 2021. This could cause a potential problem at due diligence stage of the M&A deal between O2 and Virgin Media; lawyers must ensure they can meet their existing contractual arrangements.
Never Sell Shell?
By @Rachel S
The Story
The stock market adage, “never sell Shell” will likely be resigned to the history books after this week saw the oil major cut dividends for the fist time since the Second World War. Royal Dutch Shell’s 2020 Q1 dividend has been reduced from 47 cents to 16 cents and its dividend yield declined from over 10% to around 3.5%. The listed company closed 11% down on Thursday.
Shell has cut dividends in part of what CEO Ben van Beurden has named a “crisis of uncertainty”. Oil companies are grappling with coronavirus-driven lockdown measures leading to a global drop in demand and historically low oil prices. This has been exacerbated by a price war between Russia and the OPEC cartel last month, leading to oversupply within the oil market and storage capacity issues.
Shell believes that preserving cash now will allow for future alternative energy investments which will ensure the company’s long-term health. Other protective measures taken include suspending its share buyback programme, cutting capital spending by $5bn and reducing operating costs by $4bn.
What It Means For Businesses and Law Firms
For struggling oil companies, dividend cuts, reduced capital expenditure, suspension of share buybacks or new debt issuance seem a logical move. Competitor, BP, maintained its dividend this quarter despite a 66% drop in first-quarter profits. This was achieved by increasing its gearing ratio with a new $10bn banking facility and the launch of $7bn in bonds. Chevron and Total are yet to provide Q1 results.
The longer-term concern for oil companies is that a reduction in dividends will accelerate the transition to renewable energy. Income investors have long relied on oil majors like Shell for a consistent source of large dividends with payouts central to the company’s investment case. With shareholders under increasing pressure to divert from the worst-polluting companies, investors may now choose to focus their portfolios on green bonds and renewable energy stocks.
Law firms may advise struggling oil companies on new debt facilities and future investments into alternative energy. Furthermore, while Shell’s dividend cut is a precautionary measure to preserve cash, restructuring and insolvency work for oil companies who cannot weather the current market conditions may become necessary.
McDonald’s Reopening: Shielded from Liability?
By @Lauren2
The Story
Following six weeks of closure, several of the largest fast food chains plan to reopen on a limited basis, in line with government rules permitting takeaway services. Such plans are also in anticipation of the lockdown being eased.
McDonald’s has trialled new operational safety measures in ‘viral proof’ stores. The restaurant announced that deep cleaning, floor markings and Perspex screens will be introduced to ensure the safety of employees and customers through social distancing.
Meanwhile, Greggs has postponed its plans to re-open 20 stores in the Newcastle area to trial operating with social distancing measures in place. The company cited the “significant risk” as the reason for their U-turn. They similarly plan to carry out private trials before opening to the public. Competitors including Burger King, Five Guys and Nando’s have also trialled reopening.
The proposed reopening of several restaurants has evoked significant criticism and concern, notably that insufficient personal protective equipment (PPE) will be provided to employees. Amazon recently faced legal action from trade unions in France, due to taking inadequate health and safety precautions which led to the closure of all French warehouses.
What It Means For Businesses and Law Firms
Whilst chains are keen to reopen to protect their business models and generate revenue, it poses significant health and safety concerns. In turn, employers expose themselves to significant legal risks, at a cost. Failure to provide sufficient PPE protection, which has proven notoriously difficult to source, with the NHS lacking sufficient supply, exposes employers to potential liabilities.
The Personal Protective Equipment at Work Regulations 1992 imposes a duty on employers to ensure that employees exposed to health and safety risks are provided with PPE. Additionally, adequate training on how to use/ wear PPE must also be provided – failure to do so may similarly lead to employers’ liability.
Constructive dismissal claims present a further threat; failure to create a safe working environment amounts to a breach of trust and confidence. Negligence claims may also arise where workers contract coronavirus, although there will be notable difficulties establishing that they contracted the virus in the workplace.
Lawyers at firms including Mishcon de Reya and A&O have warned of legal action on a monumental scale. Trade unions have voiced similar concerns. Last week, the TUC called on the government to intervene to ensure safe workplaces across a range of industries, as they already anticipate a multitude of claims will be brought against care homes and NHS Trusts due to lack of PPE. Leader of the Labour Party, and former lawyer, Keir Starmer, joined unions to highlight the need for action against reckless employees to ensure compliance with employers’ legal duties. Employers also find themselves in a difficult predicament where staff refuse to return due to fears of inadequate protection, and how this can be dealt with legally.
Businesses wishing to reopen their doors face a plethora of concerns. They must urgently identify ways to manage their operations which mitigate risk; this may go so far as remaining closed, to avoid the fallout of attempting to operate which Amazon faced in France.
