In this week’s Commercial Awareness update, we discuss Brexit divorce bill, EU’s trade deal with Japan, Apple acquire Shazam, Cineworld’s reverse takeover of Regal Entertainment and two year degrees.
Brexit Divorce Agreement
In a significant week of negotiations, the EU and Britain agreed to a provisional Brexit “divorce deal”, which will see Britain paying the EU between £34 billion and £39 billion to fulfil its pre-existing commitments before leaving the union.
Progress has been made on the UK’s obligations, including, the rights of EU citizens in the UK and the Northern Ireland border. As a result on Friday morning the EU said they were happy to move to the next stage of negotiations. This will focus on what the trade deal will look like after Britain leaves the EU in March 2019 and the two-year transition deal. The “divorce bill” isn’t a binding document, but instead a 15-page “progress report”, which will lead to the new round of negotiations scheduled to start early next year.
Here are some of the key takings:
- The three million EU citizens currently residing in the UK will be able to apply for full citizenship in the UK. The same will happen for the one million Britons living on the continent.
- There will be no regulatory barrier between Britain and Northern Ireland, and the principles of the Good Friday Agreement (1998) are upheld
- The UK will pay into the 2019 and 2020 EU budgets as if it remained part the bloc and pay its fair share of liabilities over the coming years
The markets reacted positively to the news of a breakthrough in negotiations, with the pound rising to $1.35 against the dollar and €1.148 against the euro - a six month high. However, the CBI (Confederation of British Industry) stated that this doesn’t do enough to alleviate the concerns of businesses throughout the UK. Many commentators have suggested that negotiating the exit deal is the easy part - the more difficult part will be working out the ongoing relationship. The CBI believe that agreeing on a transition deal will be essential in keeping firms from relocating to other parts of Europe, with their president suggesting that firms with Brexit contingency plans could start activating them by Easter next year if progress it’s made on the transition deal.
Questions to ask yourself… Is this a good deal for Britain? What is the biggest challenge ahead of the trade negotiations?
EU trade deal with Japan
In other trade news, the EU and Japan concluded negotiations on a free trade deal which will lead to the world’s largest free trade area, making up 30% of global gross domestic product (GDP). Japan had previously signed on to the 12-nation Trans-Pacific Partnership, but Trump’s protectionist agenda led to it being abandoned on his first day in office. This new deal with the EU will remove the 10% tariff on Japanese cars, and will see the 30% duties on EU cheese and 15% on wines scrapped. In total, Japan will eliminate tariffs on 94% of imports from the EU, while the EU will remove 99% of their tariffs.
The EU is also aiming to strike free trade agreements with Mexico and the Mercosur bloc (Argentina, Brazil, Paraguay and Uruguay).
Question to ask yourself… Will Britain be able to emulate these trade agreements outside of the EU?
Apple acquire Shazam
Today, Apple announced it will be acquiring London-based music recognition app Shazam in a deal believed to be worth $400 million. The app has appeared in the top ten most downloaded apps on the App Store and is used by hundreds of millions across the world. In 2015, Shazam was valued at close to $1 billion, but has recently seen declining user growth and reported only £40.3 million in revenues in 2016 (and a loss of £4 million). This explains the price Apple paid for the app.
This is a clear sign of Apple’s ambitions in the music industry, with their streaming service currently attracting 27 million users - their closest rival spotify has 60 million. Currently Shazam makes its revenue by recommending purchases on Apple and Spotify once a user has identified a song on the app. The acquisition ensures that Spotify cannot gain from Shazam, but there are likely to be other factors behind Apple’s decision. Shazam has a rich collection of music trend data, built over many years, while also having advanced audio-recognition technology which could be used on Apple’s Homepod smart speaker. Both could explain Apple’s willingness to invest in what is its biggest acquisition since Beats in 2014.
Questions to ask yourself… Does this deal offer good value for Apple? Why has Shazam struggled to make a profit?
Cineworld’s reverse takeover of Regal Entertainment
Last week, Cineworld announced it was acquiring US firm Regal Entertainment for $3.6 billion to create the world’s second largest cinema chain. The deal is a reverse takeover, because Regal is actually larger than its new owner. The UK based firm agreed to pay $23 per share to complete the takeover - a 13% premium on their closing share price on Monday. Since news of the acquisition started, shares in Regal have risen 13%, while Cineworld’s shares opened 1.1% on Tuesday morning after news of the acquisition spread.
Acquiring Regal gives Cineworld access to the North American markets, while gaining increased presence across Europe. They will have a combine 9,500 cinemas in the group - only second to AMC Theatres, who own the Odeon chain. To fund the deal, Cineworld will take on more debt and do a right issue worth £1.7 billion.
Question to ask yourself… Are there greater challenges for Cineworld because this is a reverse takeover?
Two year degrees
University Minister Jo Johnson has announced he wants to offer a two-year degree to minimise costs for incoming students. The “accelerated” degrees will cost 20% less than a full three year course - saving around £5,500 - with the student completing the same number of modules/units in the condensed period. Overall, this could lead to a saving of £25,000 for each student, when you factor in the savings from living costs and the fact that the graduate would be in work one year earlier.
There has been previous attempts to introduce a two-year course, but only 0.2% of the student population have taken up these accelerated courses. If Johnson’s plan has more success this time it is hoped that it will encourage a more diverse range of students to go to university. The current cost and time commitment has the potential to disproportionately exclude young people from lower-economic backgrounds. Plus, the two-year degree could combat the declining number of mature students starting courses in the UK. If this proposal is approved by Parliament, these new degrees could be offered for courses starting Autumn 2019, at a cost of £11,100 per year in tuition fees.
Question to ask yourself… Is a two-year degree course a good idea?