Commercial Awareness Update- September 2019
- By Sara Moon
- Commercial Awareness Discussion
- 8 Replies
Hi everyone
It's a new month again, time really flies!
Hope you enjoy this week's updates!
Commercial News Update – Wednesday, 4th September 2019
Topics covered this week:
The Story
Last week, French engineering firm Systra agreed a rescue deal for TSP Projects, an infrastructure design consultancy owned by British Steel.
Control of British Steel passed to the official receiver in May, as the high court ordered the company’s compulsory liquidation.
Impact on Businesses and Law Firms
The acquisition will make TSP a fully-owned subsidiary of Systra, which means Systra will now own 100% of TSP’s shares. The official receiver was able to make the decision to sell TSP because one of British Steel’s creditors, White Oak Asset Finance, agreed to release the security it held over the subsidiary, removing a claim over the business. Corporate and finance legal departments will have been needed to coordinate this structural change and update contracts linking TSP with British Steel and its creditors.
Moreover, it was reported that the acquisition will save 400 jobs and that the agreement includes TSP’s £70m of pension liabilities. During due diligence, Systra’s legal team would have had to examine employment contracts and advise their clients on the legal and commercial feasibility of the acquisition.
Finally, the transaction is a good example of how businesses can use an acquisition to achieve strategic aims. Indeed, the acquisition will double Systra’s size in the UK and strengthen its position in the engineering and consultancy market for mass transit, mobility and infrastructure. Its CEO, Pascal Mercier, said that “this acquisition [was] a game-changer for [Systra’s] UK and Ireland business, placing [it] among the leading UK consulting engineering firms”. He also recognised the importance of firms sharing a similar culture to realise synergies post-acquisition, noting his feeling that the acquisition was “a good fit between two like-minded companies with a shared commitment to excellence, safety and innovation.”
Some commentators noted TSP was always the most “attractive” part of British Steel because it is a service business and therefore, unlike its manufacturing parent company, it is unlikely to suffer as much from Brexit uncertainty – one factor which was cited as a reason for British Steel’s struggles.
2. Labour’s Plans for Share Seizures @LJ
The Story
Analysis by Clifford Chance and the FT claims that a Labour government would confiscate roughly £300bn of shares in the 7,000 largest companies and transfer them to workers. The FT claims that this would be one of the biggest raids on the private sector to take place in a western democracy, representing a shift in power away from bosses to workers.
Specifically, McDonnell’s plan is to gradually hand 10% of equity to workers in any company which has more than 250 staff. Workers can earn up to £500 a year in dividends, with anything above this, significantly, going to the state through a ‘stealth tax’.
Impact on Businesses and Law Firms
It is difficult to pinpoint the exact impact this will have on both businesses and law firms. As Dan Neidle (partner at Clifford Chance) explained, “there is no historic precedent” and we would be in “completely uncharted territory”.
Though, while it’s hard to determine practical implications, it is possible to discuss the more theoretical arguments presented. McDonnell argues that shares establish a stronger vested interest for workers in the success of their company; therefore, potentially enhancing productivity (this model is famously seen in John Lewis’ partnership model). Likewise, the long-term impacts are also important to consider. Companies are likely to invest more in human resources, with employees more incentivised to stay longer, helping reduce overall turnover.
Nevertheless, companies may restrict investment into the UK if this does indeed pass as legislation, as it takes both profit and power away from owners. Furthermore, wages could be lowered in order to counteract these higher costs facing the company. Overall, it establishes further limitations generally on the flexibility of a more free market based economy.
Commercial lawyers may already be discussing how to anticipate this. Employment lawyers will be researching how this can change the relationship between ownership and staff. Additionally, restructuring lawyers will perhaps consider more substantial changes to corporate structure to minimise impact for clients.
3. Argentine Debt Crisis @Moni
The Story
Last week, Argentina entered a “technical default” on about $101bn in outstanding debt, including IMF loans and global bonds. The government previously announced that it was seeking to postpone payments on its local bonds and IMF loans, while it worked to adjust the maturity profile on $50bn of foreign-owned debt. Economic uncertainty, since the President’s unexpected defeat in the primary elections, has made it difficult for the government to place short term debt which it would use to cover repayments.
Since the announcement, Argentine bond prices have reached all-time lows, and the peso has rapidly devalued. Over the weekend, President Macri imposed capital controls to support the weakening currency and prevent the debt crisis from worsening. The official peso rate has improved; however, the full impact of the restrictions is yet to be seen.
Impact on Businesses and Law Firms
Argentina has now defaulted nine times and investors will worry that last week's events are only the beginning of yet another prolonged debt crisis. The default is especially concerning given that Argentina is currently going through a political transition. As such, there is concern that noone has sufficient authority to negotiate with the IMF and current bondholders. President Macri, who won over markets with his free-market economic agenda, suffered a surprising defeat to Alberto Fernandez in last month's primary election. Investors do not have a clear sense of Mr Fernandez' planned economic agenda and fear a return to populist policies that have previously resulted in economic stagnation.
Investors will be watching IMF and bondholder discussions closely with the hopes that President Macri can stem the crisis. The negotiations will also provide a significant opportunity for law firms with expertise in sovereign debt restructuring. Both the government and bondholders will look to legal counsel on how best to secure a working compromise in the coming months.
It's a new month again, time really flies!
Hope you enjoy this week's updates!
Commercial News Update – Wednesday, 4th September 2019
Topics covered this week:
- Deal Agreed for British Steel Subsidiary TSP Projects (@ELA)
- Labour’s Plans for Share Seizures @LJ
- Argentine Debt Crisis @Moni
- The Future of HS2 and Brexit Update @Alice G
- UK High Street Reform @Sara Moon
The Story
Last week, French engineering firm Systra agreed a rescue deal for TSP Projects, an infrastructure design consultancy owned by British Steel.
Control of British Steel passed to the official receiver in May, as the high court ordered the company’s compulsory liquidation.
Impact on Businesses and Law Firms
The acquisition will make TSP a fully-owned subsidiary of Systra, which means Systra will now own 100% of TSP’s shares. The official receiver was able to make the decision to sell TSP because one of British Steel’s creditors, White Oak Asset Finance, agreed to release the security it held over the subsidiary, removing a claim over the business. Corporate and finance legal departments will have been needed to coordinate this structural change and update contracts linking TSP with British Steel and its creditors.
Moreover, it was reported that the acquisition will save 400 jobs and that the agreement includes TSP’s £70m of pension liabilities. During due diligence, Systra’s legal team would have had to examine employment contracts and advise their clients on the legal and commercial feasibility of the acquisition.
Finally, the transaction is a good example of how businesses can use an acquisition to achieve strategic aims. Indeed, the acquisition will double Systra’s size in the UK and strengthen its position in the engineering and consultancy market for mass transit, mobility and infrastructure. Its CEO, Pascal Mercier, said that “this acquisition [was] a game-changer for [Systra’s] UK and Ireland business, placing [it] among the leading UK consulting engineering firms”. He also recognised the importance of firms sharing a similar culture to realise synergies post-acquisition, noting his feeling that the acquisition was “a good fit between two like-minded companies with a shared commitment to excellence, safety and innovation.”
Some commentators noted TSP was always the most “attractive” part of British Steel because it is a service business and therefore, unlike its manufacturing parent company, it is unlikely to suffer as much from Brexit uncertainty – one factor which was cited as a reason for British Steel’s struggles.
2. Labour’s Plans for Share Seizures @LJ
The Story
Analysis by Clifford Chance and the FT claims that a Labour government would confiscate roughly £300bn of shares in the 7,000 largest companies and transfer them to workers. The FT claims that this would be one of the biggest raids on the private sector to take place in a western democracy, representing a shift in power away from bosses to workers.
Specifically, McDonnell’s plan is to gradually hand 10% of equity to workers in any company which has more than 250 staff. Workers can earn up to £500 a year in dividends, with anything above this, significantly, going to the state through a ‘stealth tax’.
Impact on Businesses and Law Firms
It is difficult to pinpoint the exact impact this will have on both businesses and law firms. As Dan Neidle (partner at Clifford Chance) explained, “there is no historic precedent” and we would be in “completely uncharted territory”.
Though, while it’s hard to determine practical implications, it is possible to discuss the more theoretical arguments presented. McDonnell argues that shares establish a stronger vested interest for workers in the success of their company; therefore, potentially enhancing productivity (this model is famously seen in John Lewis’ partnership model). Likewise, the long-term impacts are also important to consider. Companies are likely to invest more in human resources, with employees more incentivised to stay longer, helping reduce overall turnover.
Nevertheless, companies may restrict investment into the UK if this does indeed pass as legislation, as it takes both profit and power away from owners. Furthermore, wages could be lowered in order to counteract these higher costs facing the company. Overall, it establishes further limitations generally on the flexibility of a more free market based economy.
Commercial lawyers may already be discussing how to anticipate this. Employment lawyers will be researching how this can change the relationship between ownership and staff. Additionally, restructuring lawyers will perhaps consider more substantial changes to corporate structure to minimise impact for clients.
3. Argentine Debt Crisis @Moni
The Story
Last week, Argentina entered a “technical default” on about $101bn in outstanding debt, including IMF loans and global bonds. The government previously announced that it was seeking to postpone payments on its local bonds and IMF loans, while it worked to adjust the maturity profile on $50bn of foreign-owned debt. Economic uncertainty, since the President’s unexpected defeat in the primary elections, has made it difficult for the government to place short term debt which it would use to cover repayments.
Since the announcement, Argentine bond prices have reached all-time lows, and the peso has rapidly devalued. Over the weekend, President Macri imposed capital controls to support the weakening currency and prevent the debt crisis from worsening. The official peso rate has improved; however, the full impact of the restrictions is yet to be seen.
Impact on Businesses and Law Firms
Argentina has now defaulted nine times and investors will worry that last week's events are only the beginning of yet another prolonged debt crisis. The default is especially concerning given that Argentina is currently going through a political transition. As such, there is concern that noone has sufficient authority to negotiate with the IMF and current bondholders. President Macri, who won over markets with his free-market economic agenda, suffered a surprising defeat to Alberto Fernandez in last month's primary election. Investors do not have a clear sense of Mr Fernandez' planned economic agenda and fear a return to populist policies that have previously resulted in economic stagnation.
Investors will be watching IMF and bondholder discussions closely with the hopes that President Macri can stem the crisis. The negotiations will also provide a significant opportunity for law firms with expertise in sovereign debt restructuring. Both the government and bondholders will look to legal counsel on how best to secure a working compromise in the coming months.
