Commercial Awareness Update - August 2018

[Deleted member 348]

I love this!!



Haha I went a bit overboard with this one !

Love that !!

 

[George]

Thanks Coralin! That was extremely helpful! I also came across this article on legal business detailing which firms are advising Costa and coca cola on the acquisition https://www.legalbusiness.co.uk/blo...s-skadden-ashurst-and-cc-on-3-9bn-costa-deal/

 

[Coralin96]

Thanks Coralin! That was extremely helpful! I also came across this article on legal business detailing which firms are advising Costa and coca cola on the acquisition https://www.legalbusiness.co.uk/blo...s-skadden-ashurst-and-cc-on-3-9bn-costa-deal/

Ahh this is perfect. I was struggling to think of the implications of this story to law firms, so this is a great addition.

Wonga is also a topic I need to write about!

 

[Mohanjith]

The Coke deal was announced around 10 days after Pepsi announcing its SodaStream deal.

It goes to show how traditional consumer product businesses are diversifying their revenue streams beyond core products with changing consumer behaviour.

What plan do you guys think Coca-cola has for Costa operations in the UK and the EU, once the UK leaves the EU or will Costa not have any problems?

 

[Coralin96]

The Coke deal was announced around 10 days after Pepsi announcing its SodaStream deal.

It goes to show how traditional consumer product businesses are diversifying their revenue streams beyond core products with changing consumer behaviour.

What plan do you guys think Coca-cola has for Costa operations in the UK and the EU, once the UK leaves the EU or will Costa not have any problems?

Interesting! I hadn't quite made the link with Pepsi buying Sodastream but that does make sense! What other traditional consumer product businesses would you say are diversifying? And what would you say is the changing consumer behaviour?

From what I've read, the cost will be on finding staff, because 20% of Costa's staff in the UK are not British citizens. This will be a problem after Brexit as the freedom to move between the EU and the UK will be drastically reduced. There is a solution that has been proposed - short term working visa's for proposed, so perhaps Coca Cola will lobby for this.

Brexit could also dampen consumer confidence causing a fall in sales for Costa.

I think a key thing is that Coca Cola has a lot of weight behind it, so they can put huge amounts of money into Costa on a marketing campaign or international expansion if they wanted to.

 

[Mohanjith]

The past few years, soda consumption has been declining and the trend is predicted to continue as consumers search for healthier alternatives.
The Pepsi Co CEO had also stated her vision for the company to provide healthy options to their customers which Ied to SodaStream.
I recently read that Cadbury also plans to introduce chocolate with low sugar content. This may not exactly be diversification but it illustrates the above change in consumer behaviour I mentioned.

I'm sorry, I will have to research a bit more on other companies and markets to identify how they have diversified.

Yes I agree, Coco Cola would have the financial strength to see through any turbulent periods.
Thanks for that insight.

 

[Coralin96]

The past few years, soda consumption has been declining and the trend is predicted to continue as consumers search for healthier alternatives.
The Pepsi Co CEO had also stated her vision for the company to provide healthy options to their customers which Ied to SodaStream.
I recently read that Cadbury also plans to introduce chocolate with low sugar content. This may not exactly be diversification but it illustrates the above change in consumer behaviour I mentioned.

I'm sorry, I will have to research a bit more on other companies and markets to identify how they have diversified.

Yes I agree, Coco Cola would have the financial strength to see through any turbulent periods.
Thanks for that insight.

Wow, fascinating - I didn't know that. Thanks for sharing!

This backs up your points as well: https://www.theguardian.com/busines...ta-as-drinkers-shift-from-fizzy-pop-to-coffee

 

[Coralin96]

I should say btw that these threads aren't just for me. If anyone wants to comment or share a link, please do - you probably know something that I don't!

 

[Mohanjith]

Speaking of coffee...
https://www.bbc.co.uk/news/business-45430915

 

[Kazam]

Interesting choice of destination! Italy was the original inspiration for Howard Schultz to create Starbucks but I would have thought Italians would find American coffee terrible.

From the company website:

"In 1983, Howard traveled to Italy and became captivated with Italian coffee bars and the romance of the coffee experience. He had a vision to bring the Italian coffeehouse tradition back to the United States. A place for conversation and a sense of community. A third place between work and home. He left Starbucks for a short period of time to start his own Il Giornale coffeehouses and returned in August 1987 to purchase Starbucks with the help of local investors."

 

[yanerlim]

The end of the world's largest initial public offering

The Story

• A report by Reuters last week said that Saudi Aramco, the world's largest oil company, has shelved plans to IPO.
• Saudi Arabia said it was untrue and that they were waiting for "optimum conditions".
• The IPO was supposed to raise money for Saudi Arabia to help it diversify its economy away from oil.
• There have already been struggles after Saudi Aramco could not decide whether to list in London or New York. Later, the Kingdom also said the company was worth $2trn, which left investors concerned over the company's transparency with its figures.
• In the meantime, Saudi Aramco is buying a 70% stake in Sabic, a large petrochemicals firm.

Impact on business and law firms

• Investors are already concerned about the legal implications of Saudi Aramco's New York listing.
• US law firm, White & Case is advising Saudi Aramco, and will need to prepare Saudi Aramco for the litigation suits which may affect its listing.
• Under US law, terrorism legislation allows families affected by 9/11 to sue Saudi Arabia.
• Saudi Aramco may also struggle to comply with onerous US regulations.
• If Saudi Aramco decides to choose to list in London instead, it will struggle to meet UK regulations which require a certain class of company to list 25% of its shares on the stock exchange. The oil company only wants to list 5%.

After reading up on IPOs, I have come to realise this is a discussion topic that doesn't apply to all firms. Its true that many small/mid-sized firms (eg: DWF) have started to follow suit and float their firms on public markets, but this isn't relevant for many big sized firms which are already doing well. This, however, is a good topic discussion for smaller firms which are looking to boost profits. Here are some more reading materials for everyone who wants to analyse this matter further:
https://www.ft.com/content/59185fac-17db-11e8-9e9c-25c814761640
https://www.legalcheek.com/lc-journal-posts/should-law-firms-be-allowed-to-float/

 

[yanerlim]

After reading up on IPOs, I have come to realise this is a discussion topic that doesn't apply to all firms. Its true that many small/mid-sized firms (eg: DWF) have started to follow suit and float their firms on public markets, but this isn't relevant for many big sized firms which are already doing well. This, however, is a good topic discussion for smaller firms which are looking to boost profits. Here are some more reading materials for everyone who wants to analyse this matter further:
https://www.ft.com/content/59185fac-17db-11e8-9e9c-25c814761640
https://www.legalcheek.com/lc-journal-posts/should-law-firms-be-allowed-to-float/

I would like to clarify that I was talking about floating law firms on public market, not other corporations

 

[yanerlim]

Good one!

I know I said the last post would my last update for August, but this story seems worth writing about!

Coca-Cola to buy the Costa Coffee chain for £3.9bn

The Story

In a £3.9bn deal, Coca-Cola, will be buying Costa Coffee from its buyer, hospitality group Whitbread plc. The decision caused Whitbread shares to rise by 18% after the deal was announced.

Impact on business and law firms

Costa is the second largest coffee shop in the globe, but competition in the UK market is fierce. Over the past year, coffee has been a major market for mergers and acquisitions. Nestle recently paid Starbucks $7.1bn to sell its coffee and purchased a stake in US coffee roaster Blue Bottle, while JAB Holdings acquired Keurig Green Mountain alongside other investors.

Whitbread owns both Costa and the hotel business, Premier Inn. But while Whitbread was keen to keep the two businesses together, citing savings, some disagreed. Activist investors have been pressuring UK leisure group, Whitbread to sell Costa for some time. The hedge funds Elliot Advisors and Sachem Head called for a sale process, which was publicly resisted by Whitbread.

Costa and Premier Inn, the two divisions of Whitbread already had separate legal entities and their own senior leadership teams. Until Coca Cola approached Whitman in June its plan was to undertake a demerger, spinning off the Costa business as a separate entity.

Other demergers in the past have included splitting TalkTalk from Carphone Warehouse and Dr Pepper Napple from Cadbury Schweppes. Lawyers would have got involved to help the Whitbread businesses restructure, separating IT and other functions, including a pensions team .

Whitbread will now have an opportunity to focus on its asset-heavy hotel business: Premier Inn. Costa had traditionally been the faster growing business of the two, but recently sales had slowed down, far below the 2% growth in Costa's 2017 tax year as consumer confidence fell . Premier Inn owns the freehold of about 3/5 of its hotels, a decision which Whitbread argues gives it better financing terms and flexibility. But many hotel operators have sold their freeholds to investors and Whitbread may now need to do the same as it loses the cash flow produced by Costa to fund its asset-heavy hotel business. Alternatively, Premier Inn could slow its growth, borrow more or invest the funds from this acquisition.

Most of the cash proceeds will be returned to shareholders, although £100m will be set aside for deal-related costs. Whitbread also said it will reduce debt and contribute to ites pension fund.

Whitbread first purchased Costa 23 years for £19m. Back then, Costa turned over £55m and had 39 shops. it was also a time when tea was the most popular hot drink in the UK. Over the next two decades, a growth in disposable incomes and a trend of breakfast-on-the-go led to a growth in coffee sales. Costa would later have 2,000 outlets with an estimated total revenue of over £9bn.

Before this deal was announced, Whitbread had a market capitalisation of £7.3bn, with Costa representing an estimated £2.3bn of that value. With this deal valuing Costa at 3.9bn, it shows that Coca Cola is paying a 20% premium on Costa's estimated value.

In recent years, Costa has aggressively opened up outlets. It has also turned its attention to China, a country with a tradition of tea-drinking, to offset falling high street sales in Britain. Costa had set a strategy for a third of its sales to come from overseas by 2020. Costa had also been in the process of putting its Costa Express machines into convenience stores and investing in IT such as for its click and collect coffee ordering

Coca Cola's acquisition reflects its CEO's appetite for less-conservative deals. In a statement, the CEO said hot drinks was "one of the few remaining segments of the total beverage landscape where Coca-Cola does not have a global brand".

Coca Cola had $35.4bn in revenues in 2017 and a market capitalisation of over $191bn. The company could use its existing supply chains, brand and global scale to grow Costa and compete against national and international rivals.

Subject to shareholder and regulatory approval, the deal is expected to close in the first half of 2019.

here's an insightful video on this!