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Commercial Awareness Update - May 2020
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<blockquote data-quote="Jaysen" data-source="post: 29041" data-attributes="member: 1"><p>Hi All,</p><p></p><p>Please see below the updates for this week (Wednesday 13 May 2020).</p><p></p><p><em><strong>Saudi Arabia and Warner Music – A Potential Top Hit?</strong></em></p><p></p><p>By [USER=1550]@Sairah[/USER] Saeed</p><p></p><p><strong><u>The Story</u></strong></p><p></p><p>Warner Music Group, the world’s third-largest music recording label, looks set to be acquired by one of the world’s largest sovereign wealth funds, Saudi Arabia’s Public Investment Fund (‘PIF’). According to reports, PIF have submitted a $12.5 million bid to purchase Warner Music.</p><p></p><p>The PIF currently manages over $300 bn in assets and Warner Music could represent the latest step in Saudi Arabia’s plans to diversify its global investment portfolio. The entertainment and sporting industries have proven particular targets; the fund has so far purchased a 5.7% stake in Live Nation Entertainment in a deal valued at $500 million, alongside Newcastle United (covered in the 29th April update).</p><p></p><p>Last Thursday, Warner Music obtained approval to list its shares on the NASDAQ stock exchange in the US. It has anticipated a US$1bn IPO since February, however the listing was delayed due to the coronavirus outbreak and subsequent stock market uncertainties.</p><p></p><p>Warner Music is currently 100% owned by Len Blavatnik’s Access Industries and must now choose whether to explore a private sale to the PIF, or to progress with the planned IPO. If this deal is sealed, Warner Music Group may choose not to float on the stock exchange. Volatility within the markets will likely result in decreased demand from investors if the IPO go ahead, given the company would be looking to raise such a high level of investment.</p><p></p><p><u><strong>What It Means For Businesses and Law Firms</strong></u></p><p></p><p>According to Warner Music’s IPO filling with the US Securities and Exchange Commission, the owner, Access Industries has only been interested in floating a small fraction of Warner Music’s shares to the public. This would allow Warner Music to remain a “controlled company” with Access Industries maintaining the majority of voting shares in the business. However, it has been reported the PIF is looking to purchase the entirety of shares of Warner Music, which has raised questions - why would Len Blavatnik now suddenly sell 100% of his company to Saudi Arabia?</p><p></p><p>Before Access Industries confirms the deal, its lawyers will be needed to carefully negotiate a firm price for the share purchase sale in the interest of its shareholders. According to Moody’s analysts, the $12.5 billion offer to purchase Warner Music Group may be an inaccurate reflection of its actual value. This comes after Universal Music Group sold a 10% stake to Tencent Holdings for $3.4 billion in December and is still valued at $33 billion.</p><p></p><p>Saudi Arabia’s political stance on a number of issues are considered to be quite ruthless in the Western world. If the PIF attempts to directly purchase Warner Music, or even wait until the IPO and purchase stock on the open market, Saudi Arabia’s involvement in the record label would likely prove to be controversial. However, as the pandemic causes disruption on the Hollywood economy, companies would rather take a PR hit than lose their financial footing.</p><p></p><p>Competitor, Universal Music Group, is set to publicly list within the next three years, therefore Warner Music is likely to want to secure its position before this time.</p><p></p><p><strong><em>JD Sports and Footasylum Bag a Disappointment</em></strong></p><p></p><p>By [USER=3460]@Alice Manners[/USER]</p><p></p><p><strong><u>The Story</u></strong></p><p></p><p>The Competition and Markets Authority (‘CMA’), the regulator responsible for tackling anti-competitive behaviour, has been investigating the takeover deal between JD Sports and Footasylum, following JD Sports’ agreement to purchase Footasylum 14 months ago, in a deal worth £90 million.</p><p></p><p>This week Phase 2 of the investigation was finally concluded, following an earlier extension of the deadline. The CMA blocked the takeover, deciding that it would lead to <em>a “substantial lessening of competition”</em>, limiting consumer choice.</p><p></p><p><u><strong>What It Means For Businesses and Law Firms</strong></u></p><p> </p><p>JD Sports will now be forced to sell Footasylum in full. JD have criticised the decision to block the takeover, arguing that it <em>“fails to take proper account of the dynamic and rapidly evolving competitive landscape”</em> in which retailers are operating, claiming that the regulator misunderstood the market. They have also questioned the methodology used to reach this decision, arguing that the customer surveys used to conclude that the two businesses are close competitors are <em>“outdated and flawed”</em>, and have threatened to bring legal action against the CMA to challenge how the merger enquiry was conducted.</p><p></p><p>In the current climate, it is unclear whether Footasylum will be able to find a suitable buyer. The retailer was facing difficulties prior to the buy-out and without this financing, may be at risk of following in the footsteps of the many retailers which have fallen into administration in recent years, notably since the pandemic began. The CMA said that it had considered the effects of Covid-19 and acknowledged that trading conditions were currently <em>“uncertain and challenging”</em>, however, this did not affect competition concerns nor relax the standards by which mergers are assessed. They concluded that the removal of one of JD Sports’ direct competitors would leave consumers “<em>worse off</em>”, with access to fewer discounts and receiving lower quality service.</p><p></p><p>Earlier this year, the CMA faced criticism for pursuing an <em>“aggressive approach”</em> (see February’s update for an analysis of the impact of this). However, these concerns failed to re-emerge last month when the CMA allowed the JustEat and Takeaway.com merger and provisionally approved Amazon’s investment into Deliveroo, after the company informed the CMA that it would otherwise fail.</p><p></p><p>However, the decision could prove counterproductive; if Footasylum cannot survive and are removed as a competitor through financial hardship, the CMA will no doubt be held accountable for the further decline of the high street. The CMA remains most active antitrust enforcer globally, having frustrated the highest share of deals worldwide in the past five years – the prohibition of this deal likely represents an increasing trend of intervening in large mergers.</p><p></p><p>There are also issues surrounding the length of time the CMA takes to reach decisions; the deal was agreed by shareholders in April 2019 and the CMA investigation began last May. With the final decision only reached last week, this prolonged uncertainty could frustrate and deter future deals.</p><p></p><p><em><strong>Jio Platforms: Elevating Facebook’s Presence in India</strong></em></p><p></p><p>By [USER=4861]@Lauren2[/USER]</p><p></p><p><strong><u>The Story</u></strong></p><p></p><p>Last week, Facebook announced it was investing $5.4bn in Jio Platforms, in exchange for a 9.9% stake. The company is a subsidiary of telecoms operator, Reliance Industries, the most highly valued company in India. The deal represents the largest foreign direct investment into the Indian technology space, to date.</p><p></p><p>The primary reason behind Facebook’s investment is their desire to gain a foothold in India, given the increasing competition from China’s ByteDance, owner of TikTok, which has established a sizeable 119m userbase in India (Nov 2019). Mark Zuckerberg announced the tie-up was part of Facebook’s <em>“commitment to India”. </em>The tech giant has previously suffered poor luck when seeking to establish a solid foothold in India, notably when regulators banned their free internet initiative.</p><p></p><p><u><strong>What It Means For Businesses and Law Firms</strong></u></p><p></p><p>Facebook has shown an increasing appetite for investment into the Indian tech sphere; their portfolio also includes a social commerce start-up, Meesho and EdTech start-up, Unacademy, however Jio is by far the company’s most significant move.</p><p></p><p>India is projected to become the third largest global economy by 2025 (Capital Economics). The country is a standout emerging market and is on the radar of many international companies looking to expand their operations, due to its democratic government, investor-friendly corporate sector and a young population.</p><p></p><p>Facebook now occupies a strong position in the Indian market, due to its ability capitalise upon Jio’s prior success to promote new digital services, ahead of its competitors. The company can utilise a host of Jio-owned services and their accompanying customer bases; Jio’s discount mobile internet service attracted 370m Indian consumers in just three years. The collaboration notably provides the ability to connect Jio’s shopping platforms to Facebook-owned WhatsApp. With a market reach of 400 million users, Facebook will likely seek to break into India’s e-commerce sector.</p><p></p><p>US technology private equity fund, Silver Lake, also invested US$746.8m into Jio Platforms – the latest addition to a portfolio which includes several high value tech companies, such as Alibaba, Airbnb, Twitter and Dell. This recent string of high-profile investments has led to prolific interest in the Jio telecommunications empire; at the beginning of this week, US private equity firm, General Atlantic, was reportedly considering investing around US$1.3bn. Despite the current challenging global situation, interest in certain emerging markets opportunities has not dampened.</p></blockquote><p></p>
[QUOTE="Jaysen, post: 29041, member: 1"] Hi All, Please see below the updates for this week (Wednesday 13 May 2020). [I][B]Saudi Arabia and Warner Music – A Potential Top Hit?[/B][/I] By [USER=1550]@Sairah[/USER] Saeed [B][U]The Story[/U][/B] Warner Music Group, the world’s third-largest music recording label, looks set to be acquired by one of the world’s largest sovereign wealth funds, Saudi Arabia’s Public Investment Fund (‘PIF’). According to reports, PIF have submitted a $12.5 million bid to purchase Warner Music. The PIF currently manages over $300 bn in assets and Warner Music could represent the latest step in Saudi Arabia’s plans to diversify its global investment portfolio. The entertainment and sporting industries have proven particular targets; the fund has so far purchased a 5.7% stake in Live Nation Entertainment in a deal valued at $500 million, alongside Newcastle United (covered in the 29th April update). Last Thursday, Warner Music obtained approval to list its shares on the NASDAQ stock exchange in the US. It has anticipated a US$1bn IPO since February, however the listing was delayed due to the coronavirus outbreak and subsequent stock market uncertainties. Warner Music is currently 100% owned by Len Blavatnik’s Access Industries and must now choose whether to explore a private sale to the PIF, or to progress with the planned IPO. If this deal is sealed, Warner Music Group may choose not to float on the stock exchange. Volatility within the markets will likely result in decreased demand from investors if the IPO go ahead, given the company would be looking to raise such a high level of investment. [U][B]What It Means For Businesses and Law Firms[/B][/U] According to Warner Music’s IPO filling with the US Securities and Exchange Commission, the owner, Access Industries has only been interested in floating a small fraction of Warner Music’s shares to the public. This would allow Warner Music to remain a “controlled company” with Access Industries maintaining the majority of voting shares in the business. However, it has been reported the PIF is looking to purchase the entirety of shares of Warner Music, which has raised questions - why would Len Blavatnik now suddenly sell 100% of his company to Saudi Arabia? Before Access Industries confirms the deal, its lawyers will be needed to carefully negotiate a firm price for the share purchase sale in the interest of its shareholders. According to Moody’s analysts, the $12.5 billion offer to purchase Warner Music Group may be an inaccurate reflection of its actual value. This comes after Universal Music Group sold a 10% stake to Tencent Holdings for $3.4 billion in December and is still valued at $33 billion. Saudi Arabia’s political stance on a number of issues are considered to be quite ruthless in the Western world. If the PIF attempts to directly purchase Warner Music, or even wait until the IPO and purchase stock on the open market, Saudi Arabia’s involvement in the record label would likely prove to be controversial. However, as the pandemic causes disruption on the Hollywood economy, companies would rather take a PR hit than lose their financial footing. Competitor, Universal Music Group, is set to publicly list within the next three years, therefore Warner Music is likely to want to secure its position before this time. [B][I]JD Sports and Footasylum Bag a Disappointment[/I][/B] By [USER=3460]@Alice Manners[/USER] [B][U]The Story[/U][/B] The Competition and Markets Authority (‘CMA’), the regulator responsible for tackling anti-competitive behaviour, has been investigating the takeover deal between JD Sports and Footasylum, following JD Sports’ agreement to purchase Footasylum 14 months ago, in a deal worth £90 million. This week Phase 2 of the investigation was finally concluded, following an earlier extension of the deadline. The CMA blocked the takeover, deciding that it would lead to [I]a “substantial lessening of competition”[/I], limiting consumer choice. [U][B]What It Means For Businesses and Law Firms[/B][/U] JD Sports will now be forced to sell Footasylum in full. JD have criticised the decision to block the takeover, arguing that it [I]“fails to take proper account of the dynamic and rapidly evolving competitive landscape”[/I] in which retailers are operating, claiming that the regulator misunderstood the market. They have also questioned the methodology used to reach this decision, arguing that the customer surveys used to conclude that the two businesses are close competitors are [I]“outdated and flawed”[/I], and have threatened to bring legal action against the CMA to challenge how the merger enquiry was conducted. In the current climate, it is unclear whether Footasylum will be able to find a suitable buyer. The retailer was facing difficulties prior to the buy-out and without this financing, may be at risk of following in the footsteps of the many retailers which have fallen into administration in recent years, notably since the pandemic began. The CMA said that it had considered the effects of Covid-19 and acknowledged that trading conditions were currently [I]“uncertain and challenging”[/I], however, this did not affect competition concerns nor relax the standards by which mergers are assessed. They concluded that the removal of one of JD Sports’ direct competitors would leave consumers “[I]worse off[/I]”, with access to fewer discounts and receiving lower quality service. Earlier this year, the CMA faced criticism for pursuing an [I]“aggressive approach”[/I] (see February’s update for an analysis of the impact of this). However, these concerns failed to re-emerge last month when the CMA allowed the JustEat and Takeaway.com merger and provisionally approved Amazon’s investment into Deliveroo, after the company informed the CMA that it would otherwise fail. However, the decision could prove counterproductive; if Footasylum cannot survive and are removed as a competitor through financial hardship, the CMA will no doubt be held accountable for the further decline of the high street. The CMA remains most active antitrust enforcer globally, having frustrated the highest share of deals worldwide in the past five years – the prohibition of this deal likely represents an increasing trend of intervening in large mergers. There are also issues surrounding the length of time the CMA takes to reach decisions; the deal was agreed by shareholders in April 2019 and the CMA investigation began last May. With the final decision only reached last week, this prolonged uncertainty could frustrate and deter future deals. [I][B]Jio Platforms: Elevating Facebook’s Presence in India[/B][/I] By [USER=4861]@Lauren2[/USER] [B][U]The Story[/U][/B] Last week, Facebook announced it was investing $5.4bn in Jio Platforms, in exchange for a 9.9% stake. The company is a subsidiary of telecoms operator, Reliance Industries, the most highly valued company in India. The deal represents the largest foreign direct investment into the Indian technology space, to date. The primary reason behind Facebook’s investment is their desire to gain a foothold in India, given the increasing competition from China’s ByteDance, owner of TikTok, which has established a sizeable 119m userbase in India (Nov 2019). Mark Zuckerberg announced the tie-up was part of Facebook’s [I]“commitment to India”. [/I]The tech giant has previously suffered poor luck when seeking to establish a solid foothold in India, notably when regulators banned their free internet initiative. [U][B]What It Means For Businesses and Law Firms[/B][/U] Facebook has shown an increasing appetite for investment into the Indian tech sphere; their portfolio also includes a social commerce start-up, Meesho and EdTech start-up, Unacademy, however Jio is by far the company’s most significant move. India is projected to become the third largest global economy by 2025 (Capital Economics). The country is a standout emerging market and is on the radar of many international companies looking to expand their operations, due to its democratic government, investor-friendly corporate sector and a young population. Facebook now occupies a strong position in the Indian market, due to its ability capitalise upon Jio’s prior success to promote new digital services, ahead of its competitors. The company can utilise a host of Jio-owned services and their accompanying customer bases; Jio’s discount mobile internet service attracted 370m Indian consumers in just three years. The collaboration notably provides the ability to connect Jio’s shopping platforms to Facebook-owned WhatsApp. With a market reach of 400 million users, Facebook will likely seek to break into India’s e-commerce sector. US technology private equity fund, Silver Lake, also invested US$746.8m into Jio Platforms – the latest addition to a portfolio which includes several high value tech companies, such as Alibaba, Airbnb, Twitter and Dell. This recent string of high-profile investments has led to prolific interest in the Jio telecommunications empire; at the beginning of this week, US private equity firm, General Atlantic, was reportedly considering investing around US$1.3bn. Despite the current challenging global situation, interest in certain emerging markets opportunities has not dampened. [/QUOTE]
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