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Commercial Awareness Update - February 2019!
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<blockquote data-quote="Abstruser" data-source="post: 9791" data-attributes="member: 260"><p>Welcome to this week's commercial news update (27th February 2019)!</p><p></p><p>The topics covered in this week's update are:</p><ol> <li data-xf-list-type="ol">Updates on US-China trade talks</li> <li data-xf-list-type="ol">CMA's concerns over the Asda-Sainsbury's deal</li> <li data-xf-list-type="ol">Kraft Heinz shares plunge</li> <li data-xf-list-type="ol">ECJ decision on EU diesel emissions</li> <li data-xf-list-type="ol">Flybmi's insolvency and problems facing airlines</li> </ol><p>Please feel free to ask any questions, or share your thoughts <img src="data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7" class="smilie smilie--sprite smilie--sprite1" alt=":)" title="Smile :)" loading="lazy" data-shortname=":)" /></p><p></p><p></p><p><strong><u>1. Updates on US-China Trade Talks (by [USER=157]@kitk[/USER])</u></strong></p><p></p><p><strong>The story: </strong></p><p></p><p>Over the last weekend, there has been “substantial progress” made in the US-China trade talks.</p><p>US President Donald Trump has said the US would delay an increase in tariffs from 10% to 25% on US$200bn worth of Chinese imports into the US. The deadline for this increase was set as 1 March. Trump also said that, assuming both sides made additional progress, he plans to meet with Chinese President, Xi Jinping, at the former’s Mar-a-Lago resort in Florida to “conclude an agreement”.</p><p></p><p>China's official news agency Xinhua also reported that "substantial progress" has been made on issues like technology transfer, intellectual property (IP) protection, non-tariff barriers, the services sector, agriculture and exchange rates.</p><p></p><p>It has been reported that the trade talks included negotiations on changes to China’s treatment of state-owned enterprises, subsidies, forced technology transfers and cyber theft, as well as the mechanism for enforcing any potential US-China trade deal.</p><p></p><p><strong>Impact on businesses and law firms: </strong></p><p></p><p>Due to the large number of goods that are covered by these tariffs, the delay in the increase of the tariffs should be positive news for the many businesses which buying and selling decisions might be affected by it. However, the continuing uncertainty over when this increase would occur and when a trade deal is likely to be reached can have an impact on manufacturing and supply chain decisions. To avoid or minimise the impact of the tariffs and hence the increase in the cost of imports covered by them, businesses might shift their production facilities to outside of China or hold off on purchasing orders.</p><p></p><p>It would be important for law firms to monitor developments on these talks. The rules that these talks can generate can potentially affect IP law and international trade law.</p><p></p><p></p><p><strong><u>2. The CMA’s concerns over Asda-Sainsbury Deal (by [USER=525]@Sara Moon[/USER])</u></strong></p><p></p><p><strong>The story:</strong></p><p></p><p>Last Wednesday, the Competition and Markets Authority (CMA) provisionally found that the planned £10bn merger between Sainsbury’s and Asda may “result in a substantial lessening of competition in markets in the UK”. It raised concerns that the merger may burden consumers with unfairly high prices and reduce product choices and quality. A full summary of provisional findings can be found here: <a href="https://assets.publishing.service.gov.uk/media/5c6c5d1140f0b647b58d53da/summary_of_provisional_findings.pdf" target="_blank">https://assets.publishing.service.gov.uk/media/5c6c5d1140f0b647b58d53da/summary_of_provisional_findings.pdf</a>.</p><p></p><p>This led to a fall in Sainsbury’s shares by 17% on the same day. The merger, if realised, will result in the combined market share of more than 31%, which will overtake the current market leader Tesco’s share of 27.7%. This means that the combined market share of the “Asda-bury’s” and Tesco will be nearly 60% in the UK.</p><p></p><p>The CMA, however, laid out options two supermarkets may take to address the concerns raised. This includes the companies “to sell off a significant number of stores and other assets…to recreate the competitive rivalry lost through the merger”. The full decision by the CMA will be given in April.</p><p></p><p><strong>Impact on businesses and law firms:</strong></p><p></p><p>If the merger does not get approved (which is highly likely), this would mean that Sainsbury's, which had its like-for-like sales fallen by 1.1% in January, losing out to its rivals, has to find alternative ways to survive in the market. For Asda, it would mean that there will be less cash to support its e-commerce business; Asda’s parent company Walmart is heavily investing in e-commerce to better compete with Amazon. Also, it means that it has to find other ways to expand its business to overcome continued market share losses to Tesco, Aldi and Lidl.</p><p></p><p>After the decision was released, Mike Coupe, the chief executive of Sainsbury’s criticised the CMA for a “fundamentally flawed” analysis and a wrong decision amid uncertainties of Brexit making an investment in the UK unattractive due to unpredictable competition rules. Given his comment, it seems worth to briefly explain what the impact of Brexit on UK competition rules would be in relation to merger control. In the case of the “no-deal” scenario, the CMA will have exclusive jurisdiction over mergers. Also, the so-called ‘one-stop shop’ principle, which allows mergers to be assessed in a single procedure in the European Commission so that they don’t have to go through multiple procedures in individual EU countries, will no longer apply. If a withdrawal agreement is reached, the European Commission will continue to have exclusive jurisdiction over the deals and ‘one-stop shop’ principle will continue to apply. However, this is until the end of the transitional period to 2020. After the transitional period, there are currently no clear arrangements, leaving things in further uncertainty.</p><p></p><p></p><p><strong><u>3. Kraft Heinz shares plunge (By [USER=980]@Angel[/USER])</u></strong></p><p></p><p><strong>The story:</strong></p><p></p><p>It was one of the worst days imaginable for Kraft Heinz when the company announced a:</p><ol> <li data-xf-list-type="ol">$12 billion loss;</li> <li data-xf-list-type="ol">Write-down of the company’s value by $15bil</li> <li data-xf-list-type="ol">36% cut in dividends; and</li> <li data-xf-list-type="ol">Probe by the Securities and Exchange Commission into its accounting practices.</li> </ol><p>The impact of such news on investors was reflected in the company’s shares plunge by as much as 20% in after-hours trading. Kraft Heinz, one of the biggest food companies in the world, is best known for its ketchup, other foods and condiments. The company is the result of a merger controlled by conglomerate Berkshire Hathaway Inc (famously run by Warren Buffett) and private equity firm 3G capital – a firm best known for its cost-cutting approach to businesses.</p><p></p><p><strong>Impact on businesses and law firms:</strong></p><p></p><p>This news can be taken as a lesson to learn for the wider industry. The company’s CEO blamed losses on higher operational costs stemming from manufacturing and logistic costs and the lowering of prices to stay competitive in the US market.</p><p></p><p>First, this shows that the company may have been a little too optimistic when setting its forecasts that did not eventually materialise. Companies need to be careful, as the impact of not meeting such business expectations on investors can be critical.</p><p></p><p>Second, it shows that there is an increase in competition from cheaper retail brands (such as Walmart) and a change in consumer taste who prefer less or non-processed food. Indeed, Kraft Heinz shares have been faltering in recent years and such challenges are equally faced by rival food makers such as Unilever and Nestle SA. Kraft Heinz now plans to accelerate a deleveraging plan to improve its balance sheet and ‘accommodate additional divestitures’. Indeed, innovation is crucial for the company and the wider industry to catch the trends of changing consumer demands. To improve the situation from now on, it might be suggested that there is no use in solely on cutting costs if they forget the very lifeline of the food industry: to make products that people actually want.</p><p></p><p>Finally, it is important for companies, with the assistance of their legal advisors, to abide by laws and regulations. The inquiry by the SEC’s procurement division was sparked by the company’s record of a $25mil in extra costs in the fourth quarter. The company’s filing indicated that it received a subpoena in October 2018 ‘associated with an investigation’ into matters including ‘agreements, side agreements, and changes or modifications to its agreements with its vendors.’</p></blockquote><p></p>
[QUOTE="Abstruser, post: 9791, member: 260"] Welcome to this week's commercial news update (27th February 2019)! The topics covered in this week's update are: [LIST=1] [*]Updates on US-China trade talks [*]CMA's concerns over the Asda-Sainsbury's deal [*]Kraft Heinz shares plunge [*]ECJ decision on EU diesel emissions [*]Flybmi's insolvency and problems facing airlines [/LIST] Please feel free to ask any questions, or share your thoughts :) [B][U]1. Updates on US-China Trade Talks (by [USER=157]@kitk[/USER])[/U][/B] [B]The story: [/B] Over the last weekend, there has been “substantial progress” made in the US-China trade talks. US President Donald Trump has said the US would delay an increase in tariffs from 10% to 25% on US$200bn worth of Chinese imports into the US. The deadline for this increase was set as 1 March. Trump also said that, assuming both sides made additional progress, he plans to meet with Chinese President, Xi Jinping, at the former’s Mar-a-Lago resort in Florida to “conclude an agreement”. China's official news agency Xinhua also reported that "substantial progress" has been made on issues like technology transfer, intellectual property (IP) protection, non-tariff barriers, the services sector, agriculture and exchange rates. It has been reported that the trade talks included negotiations on changes to China’s treatment of state-owned enterprises, subsidies, forced technology transfers and cyber theft, as well as the mechanism for enforcing any potential US-China trade deal. [B]Impact on businesses and law firms: [/B] Due to the large number of goods that are covered by these tariffs, the delay in the increase of the tariffs should be positive news for the many businesses which buying and selling decisions might be affected by it. However, the continuing uncertainty over when this increase would occur and when a trade deal is likely to be reached can have an impact on manufacturing and supply chain decisions. To avoid or minimise the impact of the tariffs and hence the increase in the cost of imports covered by them, businesses might shift their production facilities to outside of China or hold off on purchasing orders. It would be important for law firms to monitor developments on these talks. The rules that these talks can generate can potentially affect IP law and international trade law. [B][U]2. The CMA’s concerns over Asda-Sainsbury Deal (by [USER=525]@Sara Moon[/USER])[/U][/B] [B]The story:[/B] Last Wednesday, the Competition and Markets Authority (CMA) provisionally found that the planned £10bn merger between Sainsbury’s and Asda may “result in a substantial lessening of competition in markets in the UK”. It raised concerns that the merger may burden consumers with unfairly high prices and reduce product choices and quality. A full summary of provisional findings can be found here: [URL]https://assets.publishing.service.gov.uk/media/5c6c5d1140f0b647b58d53da/summary_of_provisional_findings.pdf[/URL]. This led to a fall in Sainsbury’s shares by 17% on the same day. The merger, if realised, will result in the combined market share of more than 31%, which will overtake the current market leader Tesco’s share of 27.7%. This means that the combined market share of the “Asda-bury’s” and Tesco will be nearly 60% in the UK. The CMA, however, laid out options two supermarkets may take to address the concerns raised. This includes the companies “to sell off a significant number of stores and other assets…to recreate the competitive rivalry lost through the merger”. The full decision by the CMA will be given in April. [B]Impact on businesses and law firms:[/B] If the merger does not get approved (which is highly likely), this would mean that Sainsbury's, which had its like-for-like sales fallen by 1.1% in January, losing out to its rivals, has to find alternative ways to survive in the market. For Asda, it would mean that there will be less cash to support its e-commerce business; Asda’s parent company Walmart is heavily investing in e-commerce to better compete with Amazon. Also, it means that it has to find other ways to expand its business to overcome continued market share losses to Tesco, Aldi and Lidl. After the decision was released, Mike Coupe, the chief executive of Sainsbury’s criticised the CMA for a “fundamentally flawed” analysis and a wrong decision amid uncertainties of Brexit making an investment in the UK unattractive due to unpredictable competition rules. Given his comment, it seems worth to briefly explain what the impact of Brexit on UK competition rules would be in relation to merger control. In the case of the “no-deal” scenario, the CMA will have exclusive jurisdiction over mergers. Also, the so-called ‘one-stop shop’ principle, which allows mergers to be assessed in a single procedure in the European Commission so that they don’t have to go through multiple procedures in individual EU countries, will no longer apply. If a withdrawal agreement is reached, the European Commission will continue to have exclusive jurisdiction over the deals and ‘one-stop shop’ principle will continue to apply. However, this is until the end of the transitional period to 2020. After the transitional period, there are currently no clear arrangements, leaving things in further uncertainty. [B][U]3. Kraft Heinz shares plunge (By [USER=980]@Angel[/USER])[/U][/B] [B]The story:[/B] It was one of the worst days imaginable for Kraft Heinz when the company announced a: [LIST=1] [*]$12 billion loss; [*]Write-down of the company’s value by $15bil [*]36% cut in dividends; and [*]Probe by the Securities and Exchange Commission into its accounting practices. [/LIST] The impact of such news on investors was reflected in the company’s shares plunge by as much as 20% in after-hours trading. Kraft Heinz, one of the biggest food companies in the world, is best known for its ketchup, other foods and condiments. The company is the result of a merger controlled by conglomerate Berkshire Hathaway Inc (famously run by Warren Buffett) and private equity firm 3G capital – a firm best known for its cost-cutting approach to businesses. [B]Impact on businesses and law firms:[/B] This news can be taken as a lesson to learn for the wider industry. The company’s CEO blamed losses on higher operational costs stemming from manufacturing and logistic costs and the lowering of prices to stay competitive in the US market. First, this shows that the company may have been a little too optimistic when setting its forecasts that did not eventually materialise. Companies need to be careful, as the impact of not meeting such business expectations on investors can be critical. Second, it shows that there is an increase in competition from cheaper retail brands (such as Walmart) and a change in consumer taste who prefer less or non-processed food. Indeed, Kraft Heinz shares have been faltering in recent years and such challenges are equally faced by rival food makers such as Unilever and Nestle SA. Kraft Heinz now plans to accelerate a deleveraging plan to improve its balance sheet and ‘accommodate additional divestitures’. Indeed, innovation is crucial for the company and the wider industry to catch the trends of changing consumer demands. To improve the situation from now on, it might be suggested that there is no use in solely on cutting costs if they forget the very lifeline of the food industry: to make products that people actually want. Finally, it is important for companies, with the assistance of their legal advisors, to abide by laws and regulations. The inquiry by the SEC’s procurement division was sparked by the company’s record of a $25mil in extra costs in the fourth quarter. The company’s filing indicated that it received a subpoena in October 2018 ‘associated with an investigation’ into matters including ‘agreements, side agreements, and changes or modifications to its agreements with its vendors.’ [/QUOTE]
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