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In this week’s Commercial Awareness update, we discuss Coca-Cola’s acquisition of Costa, Wonga’s collapse, PwC’s flexible hours, Argentina’s economic woes, planned IPOs for Aston Martin and Grindr, and should you have to pay higher VAT charges online?
Companies to watch
Coca-Cola announced last week they are set to acquire Costa coffee from Whitbread for a deal worth £3.9 billion. Whitbread has owned Costa since 1995, when they bought them for £19 million, but has recently been considering the direction of the chain. Earlier in the year, they were considering a demerger to split up the group and make Costa a stand-alone company. Going this route wouldn’t have generated the same value for the company, so this is an excellent deal for Whitbread, whose share price rose 16% on the news.
Costa has 2,400 UK coffee shops and is Europe’s biggest coffee chain. This is one of many recent deals involving soft drink manufacturers, who are currently trying to adjust their offering/image as sugary drinks are getting bad publicity. Last month, Coca-Cola’s biggest rivals, PepsiCo, acquired fizzy drinks maker SodaStream. Plus, coffee demand across the world is growing year-on-year and Coca-Cola has the opportunity to increase Costa’s traction in new markets, making it a shrewd purchase.
In last week’s update we talked about Wonga’s financial woes and the possibility that they were heading for administration. Since then, the payday loan company has called in Grant Thornton as the administrator and they will no longer sell new loans. Their existing customers who have outstanding repayments will still be required to pay back the loans and Wonga’s overseas operations will still continue to trade.
On the high street, Homebase is facing similar difficulties and creditors have approved a rescue plan to save the store from bankruptcy. The plan involves closing 42 of their stores - out of 241 - and cutting 1,500 jobs. WIll this be enough? Currently 70% of their outlets are losing money. The Australian firm, Wesfarmers bought the home store in 2016 for £340 million, but after sustaining heavy losses in what some are describing as the worst takeover of all time, they sold it on earlier this year for just £1.
Professional Services firm PwC has announced a scheme to give some of their new employees the flexibility to work the hours they want. The Flexible Talent Network gives applicants the chance to state which hours they would prefer to work, and also potentially give employees times of the year off. A lot of PwC’s work is project based, so this more flexible working could help them resource more effectively at key times. In the first week since it launched, 2,000 people have registered for the new scheme.
Questions to ask yourself...
Argentina’s attempt to shore up the peso
The Argentine government is taking emergency steps in an attempt to save the plummeting peso and keep the country solvent. Since the start of the year, the peso has lost 50% against the US dollar. Last week, Argentina’s government raised interest rates from 45% to 60% in an attempt to halt hyperinflation. They hope that increasing the interest rate will encourage people to save money and not take out loans (as they will be more expensive), therefore limiting the supply of money being spent. With less money in the system, prices are less likely to go up as people’s demand for products has declined. Despite this move, the peso continued to lose value against the dollar towards the end of last week.
In the long term, the government aims to reduce the budget deficit by imposing a tax on imports of primary goods and services. The goal is to reach a surplus by 2020, which will only be achieved by the austerity measures also announced last week. The spending cuts will be politically unpopular, but are crucial for the long term prosperity of their economy. They are also negotiating with the International Monetary Fund (IMF) to seek faster distribution of the $50 billion credit agreement they agreed earlier this year.
Two planned IPOs
There were two high profile companies that announced plans for an Initial Public Offering (IPO) last week. The first being luxury car manufacturer Aston Martin. They are planning a stock market listing which could value them at £5 billion and promote them straight to the FTSE 100. The company recorded strong first half of the year results, with operating profits up 14% compared to last year. However, there is reason for investors to be nervous - the car maker has been bankrupt seven times in the past. The £5 billion valuation would value them more than Ferrari (the other listed luxury car company), and with plans to almost double the number of cars sold by 2020, maybe it’s justified.
The other announcement about an IPO last week involves gay dating app, Grindr. Its Chinese parent company Kunlun Group has given approval to list the company on international stock exchanges. Grindr has 27 million users in 192 countries, but a large majority of its user base is in Europe and North America. The plan for the IPO is to expand Grindr’s reach and offering, while strengthening its competitiveness.
Higher VAT for online shopping?
The government is looking into the possibility of a new ‘Amazon tax’, which will create a two-tiered VAT system in an attempt to save the physical high street. Colliers International are proposing a VAT rate of 22.5% for online purchases, while physical stores would be subject to a 15% VAT rate. This would mean that stores could charge cheaper prices in store and therefore would be incentivised to keep their physical shops. Many believe that online shops have an advantage, especially as they don’t have to pay huge business rates on the stores they own. The new ‘Amazon tax’ could even up the playing field and even encourage the government to bring rates down, as they will be collecting extra revenues from the tax.