In this week’s Commercial Awareness update, we discuss an acquisition spree in the UK, a week of rise and fall for copper, tax avoidance, a revenue dip for Lego and much more.
The UK acquisition spree
There was a spike in mergers and acquisition (M&A) involving UK firms in the second quarter of this year. Figures released last week from the Office of National Statistics (ONS) show UK companies were involved in 155 completed deals between April and June, worth a combined total of £30 billion. This is almost double the £16.5 billion worth of deals in the first quarter of the year. British takeovers of foreign firms totalled £18.3 billion, despite only accounting for 24 of the deals.
Since the pound lost value after the EU Referendum result, many experts believed overseas investment in the UK would rise due to British companies being cheaper, but these statistics suggest otherwise. Deals for British firms totalled £2.8 billion, but there was £3.8bn worth of foreign disposals of UK companies - the first quarter since 2002 there has been a net loss in investment from abroad. On the contrary, there was a big increase in British companies acquiring foreign firms - despite unfavourable currency exchange rates.
The boost in the value of M&A activity is largely attributed to one deal - Reckitt Benckiser’s $17.9 billion takeover of US baby milk producer Mead Johnson. The FTSE 100 listed consumer goods giant owns brands include Dettol, Durex and Strepsils, and generated £9.8 billion revenues in 2016.
Questions to ask yourself… Are British firms acquiring foreign firms to gain access to new markets because of Brexit? Is more foreign investment good for the UK?
Last week saw a surge in the price of Copper, as the industrial metal reached a three year high. Copper to be delivered within three months surpassed $6,900 for a tonne on the London Metal Exchange (LME) at the beginning of last week. According to data collected by Bloomberg last year, this puts it 15% up on where the industry believed it would be trading at this time. Experts believe copper is likely to be heavily used in the growing electric vehicles industry and also new energy storage technology, hence the rise in their current value.
Copper’s price has risen 20% so far this year, but the recent surge could be set to end as it lost 3% in Friday trading. It could be the market is currently over-inflated - largely due to current demand in the Chinese manufacturing sector - and recently commentators have suggested it could be back down to $6,000 by the end of the year.
In last week’s update we discussed a rise in Gold prices and both Gold and Silver have continued to show steady gains - this is likely to happen while the geopolitical climate is unstable. However, both Nickel and Zinc faced the same drop as Copper during Friday on the LME - they lost 6% and 3% from their value respectively.
Questions to ask yourself… What has the biggest impact on the value of commodities like industrial metals? Which metals will do well in the next 20 years?
Organisations to watch
HMRC won a tax avoidance case last week against French bank BNP Paribas, who were ordered to pay back £35 million. HMRC accused the bank of using a dividend-based tax avoidance scheme, in which it reported an artificial loss on the purchase and sale of dividends, therefore becoming exempt from tax - a tribunal ruled in HMRC’s favour. Even before the ruling last week, BNP Paribas had paid back the £35 million to HMRC.
This ruling is one of many recent cases HMRC has won. The government body has increased its spend on staffing in its tax avoidance department by 7% in the last 12 months. The staff increase comes as it introduces a new Criminal Finances Act later this month, which gives it power to impose tougher penalties on tax avoiders.
The owner of the Daily Mirror is in talks with Northern & Shell to acquire all of its assets, which include newspapers the Daily Star, Daily Express and magazine OK!. This deal would expand Trinity Mirror’s already vast range of publications - the Daily Record, the Sunday People and a number of regional newspapers. Some commentators are surprised by the interest, especially as both the circulation of both the Express and Star have sharply declined in recent years. A takeover would also bring the left-leaning Mirror into the same organisation as the right-leaning and Brexit backing Express and Star.
Trinity Mirror bolstered its local newspaper offering back in 2015 with the £212 million purchase of Local World. By pooling resources and centralising local newspapers, it was able to cut costs and ultimately make a healthy profit in 2016.
On Tuesday Lego announced a revenue drop for the first half of the year for the first time in 13 years. The Danish company’s revenue dropped 5% to $2.4 billion for the year to June, with net profit also falling 3%. Lego is one of the most trusted and popular brands in the world, but these figures have led to calls to “reset the company” to continue their prosperity. After doubling revenue between 2011 and 2016, Lego has disappointed with some of their new products, while demand in their core product tailed off slightly. As part of its modernising strategy, the firm has announced 1,400 job losses - 8% of its workforce - in an attempt to streamline processes.
PR firm Bell Pottinger is on the verge of collapse after it was expelled from the UK trade body after claims it was fuelling racial hatred in South Africa earlier in the year. The firm has a reputation for controversy and this latest campaign was on behalf of South African firm Oakbay Capital - owned by the Gupta family. They are accused of trying to divert attention from their client - who is said to have benefitted from close ties to President Jacob Zuma - by stirring up anger about “white monopoly capital”. A report carried out by law firm Herbert Smith Freehills details the actions taken by the firm and has led to serious disciplinary action, which will likely lead to the firm’s collapse. Bell Pottinger’s Middle East division is trying to distance itself from the scandal in a bid to survive.
Questions to ask yourself… What can Lego do to keep its revenues rising? Should a national organisation have so much control over local press?