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19th December 2017 Your Commercial Awareness update

Author: Ben Triggs
Created on 19th Dec 2017

In this week’s Commercial Awareness update, we discuss Disney’s acquisition of Fox, a century of flotation on the LSE, a rates rise in the US, poor phone signal in the UK and gin becomes Britain’s favourite spirit.

Disney buy 21st Century Fox for £39 Billion

Walt Disney has agreed a £39 billion deal with 21st Century Fox to acquire their film and television studios - who produce shows like The Simpsons - as well as its 39% stake in Sky. The move is a shift away from Murdoch’s desire to continue building up his media empire, but does allow Fox to be more focused with its remaining assets. Fox will be creating a new firm focusing on news and sports in America, which will include Fox News Channel, Fox Sport and others. Murdoch was in the process of bidding to buy the remaining 61% of Sky, but this will now be taken on by Disney. They will also take on Fox’s debt, which stands at $13.7 billion. Contained in the deal, Fox’s shareholders will receive Disney shares, which will give the Murdoch Trust up to a 5% holding.

The companies involved expect the deal to take over a year to complete, but it’s still unclear how it will be viewed by the US competition regulators. By consolidating more parts of the film and television industry, they may have a problem about the lack of competition and the Department of Justice could take actions to block the deal.

It was a big weekend for Disney, as their latest release Star Wars: The Last Jedi earned £337 million in global ticket sales in its opening weekend. In America, the film made $220 million (£165 million) over the weekend, making it the second-largest in terms of takings ever. There are another five Star Wars related films, including the final and ninth in the series, scheduled for release before the end of 2019.

Questions to ask yourself… Why has Rupert Murdoch chosen to sell off a large part of his media empire? What does Disney gain by acquiring 21st Century Fox? 

100 flotations this year

The London Stock Exchange (LSE) has passed 100 company flotations for 2017, breaking the hundred mark for the first time since 2013. The increased activity has been driving by a number of Initial Public Offerings (IPOs) coming from outside the UK - in fact, this accounts for nine of the ten biggest IPOs during the year. Amongst the biggest public offerings, Allied Irish Bank (valued at £10.5 billion) and Russian EN+ (£5 billion) were particularly of note. However, the century was completed by Israeli precious stones company Shefa Yamim. They are looking to raise £5 million, with an approximate market capitalisation of £16 million.

Floats on the London Stock Exchange have raised a total of £15 billion this year, which is approximately four times greater than the next largest European exchange by amount raised - Nasdaq OMX. In a time of uncertainty over Brexit, this increase in activity is important for the continued success of the UK economy and a sign of confidence moving forward.

Questions to ask yourself… Why has IPO activity risen in a time of apparent economic uncertainty? How important is the LSE in Britain’s post-Brexit plan?

Fed Increases Interest Rates

Last week, the US Federal Reserve (Fed) raised interests rate for the third time in 2017, making their benchmark rate between 1.25% and 1.5%. The increase of 0.25% isn’t expected to be their last, with more rises expected next year and rates likely to go above 2%. The Fed also boosted their economic forecasts to project 2.5% growth in 2017 and 2018, attributing this in part to the recent tax cuts announced by Donald Trump. 

The US economy has been growing in strength in recent times and unemployment fell to 4.1% last month, which is the lowest it’s been for 16 years. On the back of this growth, the Fed will push ahead with plans for three more rates rises next year. 

Questions to ask yourself… What is the impact of an interest rates rise? Where’s the optimum interest rate for an improving economy?

Poor Phone Signal

Infrastructure advisor Lord Adonis has this week said that urgent action is needed to tackle “deplorable” mobile phone coverage across the UK. The chairman of the National Infrastructure Commission (NIC) has written to Ofcom - the UK’s communications watchdog - encouraging them to introduce measures to improve poor service. For calls and texts messages, geographically 30% of the UK doesn’t receive a signal from all four operators, while just 43% of the UK receives 4G from all of the same four.

A report last year suggested 4G mobile coverage was worse in the UK than in Albania, Peru and a host of other countries. The NIC has called for an end to “digital deserts” and wants action to make sure signal is strong on rail routes and roads. Ofcom may be required to suggest a legislative change or incentives to ensure the main providers offer coverage to more of the UK. It may be that it’s not economically smart for those companies to increase the reach of their signal, if it would not make them more attractive to enough potential customers.

Questions to ask yourself…  Should the government bring in legislation to enforce private companies to increase their coverage? What impact does poor signal have on the economy?

Gin the most popular spirit

There has been a number of records broken in 2017, and now the Wine and Spirit Association (WASA) has announced a new gin buying record, after 47 million bottles were bought in the UK this year. In the past 12 months, sales of gin have reached 1.2 billion - double what it was six years ago. Gin has become the nation's favourite spirit according to figures in a YouGov poll, after rising above Whisky and Vodka since this time last year. Many believe the rise is partially driven by the growth of craft and premium distillers, who have innovated to bring different infusions to market. The Co-op believes this trend is set to continue and expects to sell five times more gin than sherry over the Christmas period, especially as premium gins are beginning to be seen as a popular alternative gift to single malt whisky.

Question to ask yourself… How does the gin industry keep growing?