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Commercial Awareness Update - January 2020
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<blockquote data-quote="Alice Manners" data-source="post: 19911" data-attributes="member: 3460"><p>Hi all, </p><p></p><p>Please see this week's commercial awareness update! </p><p></p><p><strong>Germany’s Economic Slowdown</strong> (By Jiraiya)</p><p></p><p><u>The Story</u></p><p></p><p>According to the latest figures, Germany recorded the slowest economic growth in six years since 2013. The country narrowly avoided a recession as its third-quarter result slightly improved after 2 consecutive quarters of contraction. </p><p></p><p><u>Impact on Businesses and Law Firms</u></p><p></p><p>As Europe's largest (industrial) economy, Germany has always been seen as the driving force of eurozone growth. Its economic prosperity is absolutely critical to many businesses and law firms' medium to long-term strategies. Candidates being asked about the impact of Brexit during interviews could offer a comparative perspective by showing an understanding of the German market. </p><p></p><p>As an export-driven country, the US-China trade war and uncertainty of impacts over Brexit weigh on Germany. Its automobile industry, which accounts for 5% of the national GDP, is particularly affected. Facing a 14% decline in sales and increased competition from electric carmakers like Tesla, German household names, including Audi and Mercedes Benz, have already axed more than 20,000 roles.</p><p></p><p>Internally, the sluggish performance can be attributed to Angela Merkel's policy commitment to a balanced budget - the "black zero"- with a €50 billion surplus this year. There is mounting pressure for the government to ramp up stimulus by investing more in education, green energy and infrastructure to ward off the danger of a recession. In fact, the government has unveiled two massive investment programmes after the release of its GDP figures: a 10-year €86bn investment for its rail network and a €44bn plan to phase out the use of coal. </p><p></p><p>On the one hand, with the foresight of increased public spending in Germany, law firms could benefit from more infrastructure and green finance work in the region in light of the country's ambitious commitment to reduce CO2 emission. On the other hand, law firms are predicted to channel more of their resources in exploring the Asian growth as the eurozone economy is losing its momentum; a view shared by the European Commission which warned a slowdown lasting for at least the next two years. </p><p></p><p><strong>UK Inflation</strong> (by Rachel Strickland)</p><p></p><p><u>The Story</u></p><p></p><p>UK inflation (the increase in the price of goods and services over time), fell to its lowest level in more than three years. The Consumer Price Index which measures inflation reached 1.3% missing the Bank of England’s (‘Bank’) target for 2% and evidencing the weakness of the British economy. This comes amid weak retail sales, slowdowns in both the manufacturing and service sectors and continued uncertainty around a Brexit withdrawal agreement. The low rate of inflation is prompting the Bank to call for an interest rate cut from 0.75% to 0.5%. </p><p></p><p>An interest rate cut is a monetary policy used to stimulate economic growth by increasing the money in circulation. This would mean cheaper borrowing costs, encouraging businesses and consumers to spend rather than save. However, cuts in interest rates tend to make a currency lose value against other global currencies. If rates are cut and the pound weakens, UK exports become cheaper, and imports to the UK from elsewhere go up in price. </p><p></p><p><u>Impact on Businesses and Law Firms</u></p><p></p><p>If interest rates are cut, cheaper borrowing costs could stimulate expansion, particularly leveraged buyouts as raising debt finance becomes cheaper. Business revenue may increase as consumers are encouraged to spend and a weaker pound makes exports from the UK more attractive. Conversely, a weaker pound will be an issue for companies who rely heavily on imports and who may look to source from domestic suppliers.</p><p></p><p>For law firms, corporate teams will be involved in increased M&A. Finance teams will advise on loan arrangements, bond issuances, restructuring of existing debts and raising fresh capital in a low interest environment. Derivatives lawyers will also draft Interest Rate Swaps for clients who want to trade a fixed rate of interest for a floating rate, to take advantage of a lower interest rate.</p><p></p><p>If companies are becoming more leveraged, lawyers will also have to consider the level of due diligence required and may need to draft contractual provisions with additional security or onerous covenants for new loan arrangements. Moreover, if companies access increasing levels of debt and are unable to sustain their working capital requirements, restructuring lawyers will be required to advise businesses on insolvency.</p><p></p><p><strong>Takeaway.com win battle for Just Eat </strong>(by Curtley Bale)</p><p></p><p><u>The Story</u></p><p></p><p>Dutch company Takeaway.com has won a fierce battle to take over the UK market leader, Just Eat. Takeaway.com fended off three bids from South African-backed rival Prosus who offered 800p per share. They have since settled on a deal worth 916p per share based on Takeaway.com’s closing price on 18th December 2019 - a combined total of £6.2bn. The Dutch buyers have agreed to let Just Eat shareholders control a share of 57.5% in the new Just Eat Takeaway.com organisation.</p><p></p><p><u>Impact on Businesses and Law Firms</u></p><p></p><p>The merger enables Just Eat Takeaway.com to become a larger force across Europe, combining Just Eat’s large UK market share with Takeaway.com’s presence in the Netherlands and Germany. Takeaway.com’s presence in the UK is now substantiated via Just Eat, meaning they themselves do not have to enter the market. A merger with a European giant such as Takeaway.com will help Just Eat to solidify its market position in a highly competitive market. They may benefit from potential economies of scale and a wider customer base. </p><p></p><p>Another reason for the deal is competition across the globe taking similar action. Rival company Prosus recently put $1bn into Swiggy in India and $500m into iFood in Brazil. Alongside Uber Eats, Dominos and SoftBank-backed DoorDash in America, Just Eat Takeaway.com needed to grow its presence and solidify its current market position. It is estimated that, if the merger would have taken place at the start of 2019, their sales would be worth an estimated $1.3bn.</p><p></p><p>Law firm heavyweights Slaughter and May and Linklaters are finalising the Just Eat - Takeaway.com merger, ensuring the share price and agreed percentage share of the new company reflects the accepted offer by the Just Eat shareholders. In the future, law firms are likely to become relevant if the company enters a new market. Moreover, as the Just Eat Takeaway.com workforce grows, they could face legal action if they fail to uphold minimum standards for their delivery drivers, in a way similar to Uber. There are similarities across both industries and the way companies treat their workforce is definitely a pressing issue. </p><p></p><p><strong>McKinsey Climate Risk Report</strong> (by Ayah Reza)</p><p></p><p><u>The Story</u></p><p></p><p>Last week, the McKinsey Global Institute published a report warning that financial markets will be reshaped if the risks of climate change aren’t taken seriously.</p><p></p><p>Whilst a handful of nations may stand to benefit (such as Canada seeing an increased crop yield), on the whole the report paints a bleak picture. Heatwaves reducing GDP in India by as much as 4.5%, and increased flooding in Florida devaluating homes up to 35% are just some of the examples used to advance the argument that business decisions can no longer be made on anything but data integrating climate change risks.</p><p></p><p>Although companies have been adapting to reduce climate risks, the report argues both the “pace and scale of adaptation need to significantly increase to manage the rising levels of physical climate risk”. As if on cue, the same day, Microsoft pledged to be carbon negative by 2030. A $1bn innovation fund was announced to tackle the climate crisis by aiding the development of carbon removal and reduction technologies.</p><p></p><p><u>Impact on Businesses and Law Firms</u></p><p></p><p>Microsoft is going beyond the traditional “carbon neutral” pledge, and has promised it will offset all of the company’s carbon emissions by 2050. The pledge along with the McKinsey report will undoubtedly put pressure on other business leaders to also act. Far from being a solely altruistic venture, taking the arguments put forward in the McKinsey report there is a strong commercial case for working to ensure the climate remains as stable as possible.</p><p></p><p>It is difficult to imagine any sector left untouched by the risks of climate change. The legal industry itself has already started acting on this basis. Law firms are now incorporating advice on climate change to ensure directors are discharging their fiduciary duties to an appropriate standard in mitigating the risks that climate change brings. </p><p></p><p>With regulation governing issues surrounding climate change constantly updating globally, it is the responsibility of law firms to anticipate and minimise the risk of potential liability arising in the future for their clients.</p></blockquote><p></p>
[QUOTE="Alice Manners, post: 19911, member: 3460"] Hi all, Please see this week's commercial awareness update! [B]Germany’s Economic Slowdown[/B] (By Jiraiya) [U]The Story[/U] According to the latest figures, Germany recorded the slowest economic growth in six years since 2013. The country narrowly avoided a recession as its third-quarter result slightly improved after 2 consecutive quarters of contraction. [U]Impact on Businesses and Law Firms[/U] As Europe's largest (industrial) economy, Germany has always been seen as the driving force of eurozone growth. Its economic prosperity is absolutely critical to many businesses and law firms' medium to long-term strategies. Candidates being asked about the impact of Brexit during interviews could offer a comparative perspective by showing an understanding of the German market. As an export-driven country, the US-China trade war and uncertainty of impacts over Brexit weigh on Germany. Its automobile industry, which accounts for 5% of the national GDP, is particularly affected. Facing a 14% decline in sales and increased competition from electric carmakers like Tesla, German household names, including Audi and Mercedes Benz, have already axed more than 20,000 roles. Internally, the sluggish performance can be attributed to Angela Merkel's policy commitment to a balanced budget - the "black zero"- with a €50 billion surplus this year. There is mounting pressure for the government to ramp up stimulus by investing more in education, green energy and infrastructure to ward off the danger of a recession. In fact, the government has unveiled two massive investment programmes after the release of its GDP figures: a 10-year €86bn investment for its rail network and a €44bn plan to phase out the use of coal. On the one hand, with the foresight of increased public spending in Germany, law firms could benefit from more infrastructure and green finance work in the region in light of the country's ambitious commitment to reduce CO2 emission. On the other hand, law firms are predicted to channel more of their resources in exploring the Asian growth as the eurozone economy is losing its momentum; a view shared by the European Commission which warned a slowdown lasting for at least the next two years. [B]UK Inflation[/B] (by Rachel Strickland) [U]The Story[/U] UK inflation (the increase in the price of goods and services over time), fell to its lowest level in more than three years. The Consumer Price Index which measures inflation reached 1.3% missing the Bank of England’s (‘Bank’) target for 2% and evidencing the weakness of the British economy. This comes amid weak retail sales, slowdowns in both the manufacturing and service sectors and continued uncertainty around a Brexit withdrawal agreement. The low rate of inflation is prompting the Bank to call for an interest rate cut from 0.75% to 0.5%. An interest rate cut is a monetary policy used to stimulate economic growth by increasing the money in circulation. This would mean cheaper borrowing costs, encouraging businesses and consumers to spend rather than save. However, cuts in interest rates tend to make a currency lose value against other global currencies. If rates are cut and the pound weakens, UK exports become cheaper, and imports to the UK from elsewhere go up in price. [U]Impact on Businesses and Law Firms[/U] If interest rates are cut, cheaper borrowing costs could stimulate expansion, particularly leveraged buyouts as raising debt finance becomes cheaper. Business revenue may increase as consumers are encouraged to spend and a weaker pound makes exports from the UK more attractive. Conversely, a weaker pound will be an issue for companies who rely heavily on imports and who may look to source from domestic suppliers. For law firms, corporate teams will be involved in increased M&A. Finance teams will advise on loan arrangements, bond issuances, restructuring of existing debts and raising fresh capital in a low interest environment. Derivatives lawyers will also draft Interest Rate Swaps for clients who want to trade a fixed rate of interest for a floating rate, to take advantage of a lower interest rate. If companies are becoming more leveraged, lawyers will also have to consider the level of due diligence required and may need to draft contractual provisions with additional security or onerous covenants for new loan arrangements. Moreover, if companies access increasing levels of debt and are unable to sustain their working capital requirements, restructuring lawyers will be required to advise businesses on insolvency. [B]Takeaway.com win battle for Just Eat [/B](by Curtley Bale) [U]The Story[/U] Dutch company Takeaway.com has won a fierce battle to take over the UK market leader, Just Eat. Takeaway.com fended off three bids from South African-backed rival Prosus who offered 800p per share. They have since settled on a deal worth 916p per share based on Takeaway.com’s closing price on 18th December 2019 - a combined total of £6.2bn. The Dutch buyers have agreed to let Just Eat shareholders control a share of 57.5% in the new Just Eat Takeaway.com organisation. [U]Impact on Businesses and Law Firms[/U] The merger enables Just Eat Takeaway.com to become a larger force across Europe, combining Just Eat’s large UK market share with Takeaway.com’s presence in the Netherlands and Germany. Takeaway.com’s presence in the UK is now substantiated via Just Eat, meaning they themselves do not have to enter the market. A merger with a European giant such as Takeaway.com will help Just Eat to solidify its market position in a highly competitive market. They may benefit from potential economies of scale and a wider customer base. Another reason for the deal is competition across the globe taking similar action. Rival company Prosus recently put $1bn into Swiggy in India and $500m into iFood in Brazil. Alongside Uber Eats, Dominos and SoftBank-backed DoorDash in America, Just Eat Takeaway.com needed to grow its presence and solidify its current market position. It is estimated that, if the merger would have taken place at the start of 2019, their sales would be worth an estimated $1.3bn. Law firm heavyweights Slaughter and May and Linklaters are finalising the Just Eat - Takeaway.com merger, ensuring the share price and agreed percentage share of the new company reflects the accepted offer by the Just Eat shareholders. In the future, law firms are likely to become relevant if the company enters a new market. Moreover, as the Just Eat Takeaway.com workforce grows, they could face legal action if they fail to uphold minimum standards for their delivery drivers, in a way similar to Uber. There are similarities across both industries and the way companies treat their workforce is definitely a pressing issue. [B]McKinsey Climate Risk Report[/B] (by Ayah Reza) [U]The Story[/U] Last week, the McKinsey Global Institute published a report warning that financial markets will be reshaped if the risks of climate change aren’t taken seriously. Whilst a handful of nations may stand to benefit (such as Canada seeing an increased crop yield), on the whole the report paints a bleak picture. Heatwaves reducing GDP in India by as much as 4.5%, and increased flooding in Florida devaluating homes up to 35% are just some of the examples used to advance the argument that business decisions can no longer be made on anything but data integrating climate change risks. Although companies have been adapting to reduce climate risks, the report argues both the “pace and scale of adaptation need to significantly increase to manage the rising levels of physical climate risk”. As if on cue, the same day, Microsoft pledged to be carbon negative by 2030. A $1bn innovation fund was announced to tackle the climate crisis by aiding the development of carbon removal and reduction technologies. [U]Impact on Businesses and Law Firms[/U] Microsoft is going beyond the traditional “carbon neutral” pledge, and has promised it will offset all of the company’s carbon emissions by 2050. The pledge along with the McKinsey report will undoubtedly put pressure on other business leaders to also act. Far from being a solely altruistic venture, taking the arguments put forward in the McKinsey report there is a strong commercial case for working to ensure the climate remains as stable as possible. It is difficult to imagine any sector left untouched by the risks of climate change. The legal industry itself has already started acting on this basis. Law firms are now incorporating advice on climate change to ensure directors are discharging their fiduciary duties to an appropriate standard in mitigating the risks that climate change brings. With regulation governing issues surrounding climate change constantly updating globally, it is the responsibility of law firms to anticipate and minimise the risk of potential liability arising in the future for their clients. [/QUOTE]
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