In this week’s Commercial Awareness update, we discuss the takeover boom in London, what Google is doing about election ads, the possibility of a new British streaming service, the Air France 14 day strike and Sports Direct taking legal action against House of Fraser.
The 2018 takeover boom
Britain is enjoying a takeover boom in this first half of 2018, with £200 billion of deals involving UK companies, having already been completed. This is the biggest level of activity since the financial crisis, with 35 transactions and a significant growth in average deal size. During the financial crisis, there was actually a spike in deals as companies underwent restructuring, but activity dipped in the years after 2008.
Dealmakers in the financial centre of London have made over half a billion in advisory fees from this activity - continuing at this pace, they will easily eclipse the $779 million brought in during 2016 from such deals. One of the big acquisitions this year was the $8 billion takeover of GKN by private equity firm Melrose. There has also been overseas interest in TV broadcaster Sky, and Shire Pharmaceuticals in recent weeks. UK companies have become increasingly attractive to overseas firms since the Brexit referendum because the pound is now cheaper, giving buyers better value for money.
Questions to ask yourself… Is this takeover boom a good sign for the UK economy? Other than the favourable exchange rate, why else is a takeover appealing for foreign firms?
Google has announced this week they will be changing their rules for buying election related digital advertising ahead of the next American presidential election in 2020. Google has said that election-based advertisers will have to prove they’re American citizens or residents before they can post adverts on the platform. Like Facebook and Twitter, Google has also committed to providing more transparency about the advertisers using their platform.
These changes come in response to allegations that Russian influencers, directly linked to the Kremlin, were buying election advertising space to sway American voters. Facebook suggests that such adverts on their platform didn’t tend to support either Donald Trump or Hillary Clinton, but instead shared posts or articles relating to potentially divisive topics, aimed at swaying public opinion.
Question to ask yourself… Should there be more done to regulate election advertising?
Companies to watch
ITV, Channel 4 and BBC
The BBC, ITV and Channel 4 have entered talks about the possibility of setting up a combined streaming service. Since the rise of Netflix and Amazon in the UK market, the main broadcasts are looking at ways to maintain their market dominance, hence these initial talks. It’s believed that the America TV group NBC Universal is also involved in the talks, aimed to see if there’s a way that all top shows being produced by each can be shared within the same streaming platform. BBC still dominates British TV and iPlayer is the most popular on demand service, but younger viewers (16-24 year olds) on average spend more time on Netflix than watching BBC shows (live and through iPlayer).
Over the weekend, the CEO of Air France resigned after his proposal for a new pay deal was rejected by the staff. Monday marked the 14th day of industrial action as many staff again refused to work over the pay dispute - they are demanding a 5.1% pay rise, and rejected a deal only offering 7% over four years. Air France has been in financial difficulty, reporting a net loss of £238 million for the first quarter of 2018. This spells significant problems for the French government, who own 14.3% of Air France-KLM. President Macron’s situation is not helped by further striking on the railways against his labour reforms. Many speculators believe Air France’s future hangs in the balance, especially if they don’t take the cost-cutting and operational measures needed to be competitive.
House of Fraser
Last week, struggling retailer House of Fraser announced they would be closing stores, as they look to sell a 51% stake to Chinese fashion firm C. Banner (who owns Hamleys). The Scottish department store will propose a company voluntary agreement (CVA) - a deal with their creditors to pay them back over a period of time, while they continue trading. On approval of this deal, they will sell the 51% stake to C.Banner. House of Fraser has 59 stores in the UK, which will have their future decided in the next month as they begin a year long restructuring process.
As a result of this announcement, Sports Direct has launched legal action against House of Fraser, a company it holds an 11.1% stake in. They claim that House of Fraser has frozen them out regarding the dealings with C. Banner, which potentially don’t represent the best interests of Sports Direct shareholders.
Questions to ask yourself… What problems could occur from a joint deal with the BBC, Channel 4 and ITV? Should the French government get involved to save Air France?