Hi All,
Please see below the updates for this week (Wednesday 27 May 2020). Many thanks to our team of writers once again this week!
Exam ‘Bitesize’ Commercial Awareness
We realise that many of you are in the midst of exams, so this week we have summarised several of the week’s top new stories, in an easily digestible ‘bitesize’ format:
Norwegian Cruises receive a US$400m cash injection from PE House, L Catterton
- The cruise industry has been hit hard by the COVID-19 crisis. Despite being the third largest cruise operator globally, Norwegian Cruises expressed “substantial doubt” in early May over its future survival. All cruises have been cancelled until 31st July, further hitting its revenues.
- Consumer-focused PE house, L Catterton, has come to the cruise liner’s rescue, making a private investment of US$400m.
- L Catterton identified Norwegian as an “ideal partner” due to the resilience demonstrated by the cruise industry, and growing consumer demand for cruises. The company’s growth, execution and success records also made Norwegian a prime target for the mammoth investment.
- PE firms entered the crisis in a strong position after a solid decade of fundraising and growing transaction volumes (McKinsey). Many may now look to further deploy funds into distressed investments and expand their portfolios.
- Distressed asset investment was already an emerging trend for PE investors, pre-COVID-19 and the looming global recession would further increase such opportunities.
BP cuts back its management team, as part of the company's energy transition strategy
- Bernard Looney, BP’s new CEO, has announced that the company’s management team will be more than halved. Leadership positions will be reduced from 120 to 250, as Looney seeks to “reinvent” BP, to make the oil giant “smaller and nimbler”.
- BP has recently suffered significantly due to the combined effects of the oil price collapse and coronavirus drying up demand – profits fell by 2/3 in Q1 2020 and BP are now taking measures to save US$2.5bn by the end of 2021.
- The cuts also form part of BP’s strategy to move towards green energy and become a net zero emissions company by 2050 – a significant goal, given they have traditionally been wedded to unrenewable energy sources.
- To attain this goal, BP are growing their alternative energy business and is investing heavily in their renewables. For example, in late 2019, they formed BP Bunge Bioenergia, a Brazilian bioenergy joint venture focusing on bioethanol. The company is focusing its investment efforts on development of alternative energy sources, moving away from its reliance on oil.
- BP and its lawyers now face the task of implementing large scale job cuts as it seeks to make many highly paid, veteran leaders redundant.
New conditions for the UK bailout scheme: bar on bonuses and dividends
- Last week, the government revamped the coronavirus business interruption loan scheme amid concerns that the bailout programme would be abused and used to reward investors or fund higher management pay-outs.
- The Treasury announced that participating companies are now blocked from using the to pay bonuses to directors and distributing dividends to shareholders.
- These changes seek to ensure cash is applied for the desired purpose – “to keep the company[ies] going through the crisis” (The Treasury).
- Companies who have been granted such loans may need to rethink their corporate governance, including any proposed payments to either party, to ensure compliance with the loan conditions.
Whitbread Raises a Fresh £1bn
By [USER=4422]@Curtley Bale[/USER]
The Story
Last week, Whitbread, the parent company of the hotel chain Premier Inn, announced plans to raise £1bn in new capital. This move comes amidst a significant decline for the hospitality sector, with revenues down 99% in the UK.
Having recently suffered a 12% drop in share price, Whitbread now needs to turn to the market to ensure they can ride out this tough period, to ensure they long-term survival as a key player within the hospitality space.
What It Means For Businesses and Law Firms
According to the Whitbread’s CEO, the company is not just raising cash to stave off the effects of the COVID-19 crisis. Instead, they intend to apply the capital to make distressed advantages and take advantage of emerging investment opportunities which will likely arise as their competitors suffer – acquiring smaller hotels or chains, which cannot survive in the current climate. The company estimates there is potential to grow by 170,000 rooms in the UK and Germany, as small and independent hoteliers go bust. Therefore, having a large amount of capital on hand will allow the company to make these strategic acquisitions (likely at a cut price) and grow its market share, at the expense of former competitors.
Whitbread’s finances are currently looking healthier than the other hospitality chains. This is mainly due to the company’s disposal of the Costa Coffee brand to Coca-Cola in 2018 for £3.9bn and their recent negotiation of covenant waivers until 2022 to overcome its interrupted cash flow. The company currently has an exceptionally strong balance sheet, with £1.55bn of undrawn credit.
These expansion plans may make a sizeable dent in the business of their Premier Inn’s, including Travelodge and Holiday Inn. Travelodge recently appointed restructuring advisors due to difficulties meeting rent payments, whilst Holiday Inn needed to secure £600m in commercial papers (short-term loans to fund day-to-day business) from the Bank of England. Despite the economic downturn, Whitbread is demonstrating both resilience and commitment to growth in the coming years, as one of few hospitality companies able to confidently look to the future.
TikTok’s New CEO Presses Play on Growth Plans
By [USER=3442]@Rachel S[/USER]
The Story
Disney’s former Head of Streaming, Kevin Mayer, has been appointed as CEO of TikTok and COO of parent company, ByteDance. As TikTok surges in popularity, breaking the quarterly record for app installs in Q1 2020, Mayer is a welcome addition and can assist TikTok in accessing new revenue streams. Once tipped to be CEO of Disney, Mayer told reporters of his excitement “to help lead the next phase of ByteDance's journey as the company continues to expand its breadth of products across every region of the world”.
After helping orchestrate Disney’s four major acquisitions over the last several years, including the US$71.3bn purchase of 21st Century Fox and having overseen the successful launch of Disney+; Mayer’s background in strategic acquisitions and brand development is well-aligned to TikTok’s future growth plans.
Aside from big deals and streaming services, Mayer faces a significant challenge in his new role. As a Chinese-owned company, TikTok’s success has been met with deep distrust from the US government and employees across several US government and military agencies have been barred from downloading or using the app. US-born Mayer could help the company build legitimacy in the US and further develop existing practices, such as the launch of a Transparency Centre out of its Los Angeles office.
What It Means For Businesses and Law Firms
Valued at over $100bn, ByteDance, is now the world’s biggest unlisted technology ‘unicorn’ (privately held start-up valued at over US$1bn). The company is also welcoming further investment and at its last funding round raised $3bn from investors including Japan’s SoftBank Group. With Disney, Netflix, Amazon, Google and Facebook racing to establish themselves as the dominant entertainment platform, additional challenge from ByteDance’s TikTok could lead to a wave of retaliatory practices from the behemoths of Silicon Valley. For example, the launch of Facebook Shops this week exemplifies how technology companies are developing new platforms to engage consumers and grow their entire platforms, to facilitate cross-selling.
Under Mayer’s lead, lawyers may be called in to advise on future acquisitions. Competition/ antitrust advice will likely be needed address issues, given the US Committee on Foreign Investment has committed to playing an active role in screening potential takeovers on national security grounds.
Furthermore, TikTok has this month been accused of violating US child privacy regulations, having already been fined $5.7m last year, by the Federal Trade Commission for illegally collecting children’s data. Lawyers may advise on redressing these violations and brand management, as Mayer attempts to improve TikTok’s reputation. Previously, TikTok has worked with US law firm K&L Gates on censorship, child safety, hate speech, misinformation, and bullying.
