Commercial Awareness Update - October 2019

[Alice G]

Hello everyone,

It is the start of a new month and we have some new commercial stories to share with you.

We really hope you enjoy these and that you find them useful. Your feedback is always welcome and very much valued, so please do let us know your thoughts We have a growing presence on social media with a new instagram account so remember to head over there for more updates from the team too!

Hope you are all having a great start to October, all the very best with your applications, and happy reading!!

Topics Covered:

1. Novartis Pairs Up with Microsoft for AI Drug Development @Alice G
2. Back to Basics: Cybersecurity for Law Firms @Jaysen
3. India’s Corporate Tax Cut @Sara Moon

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Novartis Pairs Up with Microsoft for AI Drug Development @Alice G

The Story:
Novartis and Microsoft have announced that they have joined forces under a five-year agreement with the hope of using artificial intelligence to alleviate some of the greatest problems in the pharmaceutical industry. Novartis hopes to have AI systems enhancing all aspects of its business from financing to development and from manufacturing to sales. On average, it takes around 14 years from the discovery and development of a new drug to its commercialisation and the cost is in the region of $2.5bn; it is hoped that these stats can be reduced with AI systems in place. Novartis anticipates that by using deep learning technology (machine-learning which can process unstructured data while using artificial neural networks) it will be able to develop drugs more quickly and more precisely, and also deepen its capabilities in personalised medicine.

Impact on Businesses and Law Firms:
The healthcare industry has been rather on the backfoot in terms of technological development, but this news demonstrates that Big Pharma is coming to realise that technology is probably the best way to reduce the arduous research and development process. The quicker development of drugs would be of huge benefit to us all and we might see breakthroughs in treatments for illnesses and diseases we do not currently have cures for. This alliance might signify the development of a new trend since other pharma companies might be more incentivised to harness technology and follow the example set by such a renowned business like Novartis.

Lawyers would have been involved in the negotiations and the agreement of terms for this alliance. With the view to developing personalised medicine there is also a reasonable concern for the personal data of those patients involved. Lawyers would also be relied on to advise the companies about cybersecurity and data compliance laws in the jurisdictions concerned.

Back to Basics: Cybersecurity for Law Firms @Jaysen

The Story:
Law firms are attractive targets for hackers. They may have access to a company’s most valuable information, such as trade secrets, intellectual property and sensitive client information. They also serve as an intermediary when large sums of money are being transferred between parties.

Growing use of technology means the consequences of cyber attacks become more damaging. Information can be accessed from anywhere in the world and hackers are harder to track. The importance of adequate cyber security measures is only going to increase.

Impact on Businesses and Law Firms:
Law firms can try to put systems in place to minimise the risk of a cyber attack, however, sometimes education is the best preventative measure. For example, phishing attacks, which are the most common cyber attack facing the legal profession, involve hackers impersonating people, such as lawyers or clients, in order to access money or sensitive information.

However, no matter what law firms do, they can’t completely escape the risk of a cyber attack. That’s why what matters is how law firms respond if a breach does happen. That means putting processes in place so they can respond to a breach quickly, for example, hiring forensic investigators, informing affected clients, checking insurance coverage, drafting regulatory notifications and identifying legal obligations. The GDPR, for example, means law firms now have to report a breach within 72 hours or they could face serious fines.

Not all law firms will face a breach, but if they do, it could be one of the greatest threats a law firm can face. The integrity of their service rests on their ability to handle sensitive disputes and confidential deals. Lose that, and the reputational costs could be significant.

India’s Corporate Tax Cut @Sara Moon

The Story:
On 20th September, India made a historic reform to its economy by cutting its corporate tax rate from 30% to 22%. For some of the new manufacturing firms, the rate will be lowered from 25% to 15%. This is in response to the economic slowdown the country is currently facing. In the first quarter of this year, India’s GDP growth fell to 5.8%, which was a five-year low, and in the second quarter, it fell to 5%, which was a six-year low.

Impact on Businesses and Law Firms:
Corporate tax cuts come with several positive implications. Domestically, they allow existing companies to gain more profit, which can be used to reinvest and expand the business. This may also boost employment, which can then increase domestic consumption and further benefit businesses. More importantly, from a more international perspective, India’s corporate tax cut is likely to attract foreign manufacturers who are currently based in China but are seeking alternative locations that can help them avoid high tariffs caused by the ongoing US-China trade war. With Google already having shifted its Pixel smartphone production to Vietnam from China and with many other companies planning to follow the trend, India can take huge advantage of this with its lower corporate tax. It is estimated that the Indian economy could benefit by $11 billion from these relocations caused by the trade war.

Relocation projects by companies will require advice from law firms on Indian law. Advice will be especially needed with regards to land law and employment law, which are notorious for their complexities. This is because the land ownership is fragmented across several states and companies have to strictly comply with all of the 40 Acts of Labor laws. India prohibits foreign law firms from practicing domestic law so law firms like Allen & Overy which have close connections with Indian law firms will gain a good source of revenue from this proposed relocation trend.

 

[Bugsy Malone]

Hello everyone,

Welcome to this week’s commercial update!

The topics covered:

1. John Lewis Partnership Outlines Restructure (by ELA)

2. US Discussions to Delist Chinese Stocks (by Flora)

3. PayPal’s Exit From Libra (by Sairah)

4. London Stock Exchange Delistings (by Moni)

5. UK Listings at a Ten-Year Low (by Alice)

6. Back to Basics: US-China Trade War (by Jaysen)



1. John Lewis Partnership Outlines Restructure (@ELA)

The Story

Last month, John Lewis Partnership – which owns and operates John Lewis and Waitrose – announced its first ever half-year loss. Sales are down 2.1% so far this year at John Lewis stores and 0.7% at Waitrose supermarkets.

To try to tackle this deteriorating trading environment, the group recently announced a senior management restructure and a business consolidation plan that will combine the running of John Lewis and Waitrose.

Impact on Businesses and Law Firms

Currently, John Lewis Partnership comprises separate operating boards in three different head offices (one for Waitrose, one for John Lewis, and one for the partnership) and there are separate managing directors for John Lewis and Waitrose. After the restructure, there will instead be a single executive team with responsibility for the performance and strategy of the whole company. Moreover, the two retailers will share one common IT system and supply chain platform.

From a business perspective, the group hopes this restructure will help reduce duplication, be more cost-effective and create a more a unified leadership team. It is forecast that the restructure will save £100 million a year, but also cut head office roles from 225 to 75.

Restructuring involves modifying the corporate, operational and/or financial structure of a company. Hence, commercial lawyers would have been involved from the moment this restructuring plan started to be discussed and negotiated, and they will assist with its legal implementation. For example, employment lawyers will be needed to negotiate and modify the contracts of board members, as well as to ensure the group observes the rights of those employees it makes redundant. Corporate governance lawyers, who specialise in advising directors and executives, may advise on board structure and composition, or risk identification and management. Indeed, some have criticised the restructuring for carrying considerable risks, because John Lewis and Waitrose are very different businesses operationally. Additionally, the changes remain subject to formal agreement by the John Lewis Partnership Council – the company’s elected democratic body.


2. US Discussions to Delist Chinese Stocks (by Flora)

The story:

Last week, it was reported that the US are considering delisting Chinese companies from US stock exchanges. This comes after US lawmakers put forward a bill which would force Chinese companies to comply with US stock exchange regulations or be delisted in June.

As of February, 156 Chinese companies were listed on the major US exchanges, with a total market capital of $1.2 trillion. Chinese law currently shields these companies’ financial statements from audit by US regulators, citing national security concerns as the reason for this.

US Senators advocate that delisting would protect investors by offering them financial transparency and accountability. Though, these are only preliminary discussions and nothing has yet been decided. As the trade war between the US and China continues, the US may be using this as leverage over China, ahead of talks due to take place this week.

Impact on businesses and law firms:

On hearing about these discussions US stock exchanges and shares in Chinese companies listed in the US, such as Alibaba and JD.com, fell. Share prices fall when there is more supply than demand, i.e. where there are more people wanting to sell shares than buy them.

If Chinese companies were delisted it could cause disruption well beyond the hundreds of billions in tariffs the US and China have levied against each other in the past year. Chinese stocks and bonds are now part of international indices, groups of securities created to represent some aspect of the global market. Investors look at such global benchmarks to get a sense of how particular funds and sections of the market are performing, evaluate risks and make informed investment decisions. Hence, benchmarks are systemic in that they affect the system they are part of. If Chinese stocks are delisted, this could cause the global benchmarks they underpin to fluctuate, which could in turn hinder investors’ ability to ‘read’ the market and affect their behaviour.

China’s stock market may move to other countries and weaken the US’s global financial and capital market. Investment bankers and lawyers who advise Chinese companies listed in the US, could lose exposure to some of the fasted growing companies and the world’s second largest economy, as well as millions in listing fees. For example, Alibaba raised a total of $25 billion in its 2014 IPO.

Chinese companies could lose access to the world’s deepest pool of capital (the US) and the stock market of choice (New York).

3. Paypal's Exit From Libra (@Sairah)

The Story:

Last week, PayPal became the first company to exit from the Libra Association, the 28-member non-profit organisation established in June to oversee the cryptocurrency project.

The reason behind the exit was due to two concerns. Firstly, the increasing regulatory scrutiny, and the lack of attention Facebook executives have paid to this considerable backlash. Secondly, how the Libra platform will combat money laundering activity. Despite this concern, Facebook’s CEO Mark Zuckerberg expressed the opportunity of Libra - to build an asset that can fight against money-laundering, rather than being a facilitator.

By way of background, banks (including investment banks) currently approach money-laundering by relying on “electronic monitoring” to identify suspicious activity (e.g. large cash deposits). Many will view this as a neutral approach, as information is often kept across multiple systems. As a result, providing neither banks or regulators a comprehensive view over the whole network of interconnected payments, deposits and money transfers.

The nature of Libra (a blockchain), as a single connected ecosystem means that information can be shared across a network, allowing banks to develop a more concrete view of money-laundering activity. By joining together activities which might not on their own seem suspicious, but taken as a whole indicate a criminal activity. With PayPal no longer supporting Libra, Facebook actually has an opportunity to change its mind and deliver on its intention to advance anti-money laundering enforcement in the digital currency industry.

Impact on Businesses and Law Firms:

Although losing PayPal certainly does not present Libra’s future well, there are still plenty of high profile companies in the Libra Association - including the likes of MasterCard, Uber, Spotify, Visa, and others. Libra is also still on schedule for a release in the beginning of 2020, and it will be interesting to see if any other companies follow in PayPal’s footsteps between now and then.

But, with the loss of PayPal, regulators have started to warn they would block the launch of Libra in their respective territories, citing concerns over the stability of the traditional currency markets. To avoid this situation, Facebook will need to act fast and provide sufficient answers to the European Commission, who last week issued a questionnaire. This was done in an effort to assess whether projects such as Libra should be regulated, if new EU regulation is required or whether the cryptocurrency should be allowed to operate. Another way, Facebook can voice its positivity about Libra, and its commitment to making the cryptocurrency a success for the financial and business markets, is on 14th October when the Libra Council meet for the first time.

 

[Bugsy Malone]

4. London Stock Exchange Delistings (@Moni)

The Story

A few weeks ago, Shore Capital, a London stockbroker chose to delist from AIM, a sub-market of the London Stock Exchange for smaller, fast growing companies, after 20 years as a listed company. The firm said lack of trading volume on its London listing have left the company undervalued and the cost of being on AIM now outweighed the benefits. Shore is one of many small and midsized listed companies who have complained about the lack of liquidity in shares negatively affecting valuations. These firms’ blame Mifid II rules which came into force last year and has cut investor interest in trading some European equities, as well as uncertainty around Brexit. Shore’s delisting is illustrative of a broader decline in the LSEs appeal to both investors and companies.

Impact on Businesses and Law Firms

Brexit uncertainty, amongst other factors, has led to a decline in trading volumes and new listings. New listings on the LSE totaled less than $5 bilion, while the two New York stock exchanges saw over $20bn each in new listings. Overall, more companies have left the LSEs’ main market than have joined. The combined effect of all these factors is that the UK’s stock market is shrinking and valuations have declined.

A decline in the UK stock market, especially liquidity concerns, means that companies will look to list in other jurisdictions where they feel that they will enjoy better liquidity and investor interest. This has a knock-on effect on the Equity Capital Markets groups of city firms who advise companies listing on the LSE, and may see a decline in business as a result of decreased company interest. However, firms with ECM groups in other jurisdictions such as New York, or with groups that also work on international listings, may be able to profit from the dislocation of business from the LSE to other exchanges.


5. UK Listings at a Ten-Year Low (@Alice G)

The Story:

The ongoing political turmoil in the UK has ensnared another victim, the London listing market, which has suffered its quietest quarter in a decade. Between July and September of 2019, EY has stated that only four companies launched initial public offerings compared to the previous quarter which had 15 listings. It is said that companies are mindful of Brexit as well as the potential for a UK election, the outcome of which would be very hard to predict. Another worrying report is that more companies have left the London Stock Exchange this year than those who have joined it. However, despite the damning outlook for London, this has been a global trend with the third quarter being particularly poor for all.

Impact on Businesses and Law Firms:

IPOs offer an opportunity for companies to raise finance and capital which they can then reinvest in their business. Due to these uncertain times, businesses are clearly trying to bide their time for things to stabilise yet this could be damaging their cash flow and ability to execute their business strategies.

Law firms will also be apprehensive. Public M&A is a particular strength for firms like Slaughter and May and HSF who will no doubt be experiencing a considerably less busy period as a result. If public M&A comprises a decent chunk of a firm’s revenue, then it is possible that their financial results for this year will be slightly worse than anticipated.


6. Back to Basics: US-China Trade War (@Jaysen)

The Story

Let’s bring you up to speed on the trade war so far.

Trump, unhappy with the US’s trading relationship with China, decided to impose a series of increasing tariffs on Chinese imports. China has responded with its own set of retaliatory tariffs. This tit-for-tat escalation of tariffs is what we call a trade war.

China has long been criticised for unfair market practices, including forcing the transfer of technology from US to Chinese companies, stealing intellectual property and restricting access to its market.

Along with Trump’s concerns over the US-China trade deficit (the fact that the US imports from China far more than it exports to China), these are the ‘official reasons’ for the imposition of tariffs. However, it’s worth remembering that China is a threat to the US’s dominance on the world stage, especially in a future world of high tech and AI. There is every incentive to stem the growth of the second-largest economy in the world.

Impact on Businesses and Law Firms

It’s hard to measure the cost of the trade war. That’s because it’s not just the cost of additional taxes being paid by businesses when bringing goods into a country, it’s also the cost of uncertainty. Businesses and investors don’t know whether the future will lead to a further escalation of tariffs or a trade truce, which makes it very hard to make long-term investment decisions.

What we do know is the trade war has led to weaker global growth forecasts, tech companies scrambling to reconsider supply chains, contractions in a variety of exports to China, lower US interest rates, and much more.

Maybe it's worth it? You might argue that the short-term cost doesn’t matter, that this is a price worth paying if it leads to a China with reformed trade practices and greater market access.

Whatever the case, clients will rely on commercial lawyers to evaluate their existing contracts, draft contingency terms into new contracts and evaluate their options for the future. In times of uncertainty, high-quality legal advice may be the only constant.

 

[Jaysen]

Welcome to this week’s commercial update!

The topics for this weeks write ups are:

1. Back to Basics: GDPR and Law Firms
2. Uber’s Expansion into the Online Grocery Market
3. US Sports Betting Market
4. Neil Woodford’s Investment Funds

1. Back to Basics: GDPR and Law Firms (by @Jaysen)

The Story

In May 2018, the General Data Protection Regulation (GDPR) came into force, radically changing the rules surrounding data protection and data privacy across the EU. Companies scrambled to comply with far more onerous rules related to how they collected, used and stored personal data.

Impact on Businesses and Law Firms

Let me dive into how the GDPR has impacted law firms.

GDPR uncertainty has led to a surge in demand for advisory work. Businesses of all sizes had to hire advisers and implement systems to make sure they were following the rules, especially given the GDPR’s substantial penalties for noncompliance. Lawyers were there to help companies update their privacy policies, ensure they were processing data on a ‘lawful’ basis, and advise on the new rights that users have over their data. Some law firms, like Herbert Smith Freehills and DLA Piper, even turned to technology to help clients comply with the GDPR in the event of particular data breaches.

The GDPR has meant data protection and cyber security issues play a larger role across practice areas. Take Marriott International, for example, which is facing a £99.2m fine by the UK’s data regulator, the Information Commissioner’s Office (ICO). The ICO found that Marriott failed to carry out sufficient due diligence during its acquisition of Starwood Hotels. Following this case, lawyers may well place greater importance on cyber due diligence during M&A deals, as well as seek further contractual protections on behalf of buyer, in case security incidents related to the target company come to light in the future.

Finally, let’s not forget, law firms are a business. Just like any other business, they must also comply with the GDPR. Let’s look at this in the context of the recent growth of legal technology tools within law firms, for instance. Thanks to the principles of ‘privacy by design’ and ‘privacy by default’, law firms must consider data privacy during the design stages (which might involve carrying out a privacy impact assessment), as well as ensuring privacy is the default standard for processing data, so only data that is needed to achieve a specific purpose is processed.


2. Uber’s Expansion into the Online Grocery Market (by Flora Raine)

The Story

Last week, Uber announced plans to acquire Cornershop, the largest home delivery platform in Mexico and Chile, with additional presence in Peru and Toronto. Cornershop delivers goods from Costco, Walmart and bakeries, to customers in around 90mins for a fee. The deal is expected to close in early 2020.

Walmart offered to purchase Cornershop outright for $225m last year. However, this was blocked by antitrust concerns over Walmart’s large presence and potential for an uneven playing field. Uber does not foresee the same antitrust hurdles, as their deal places them as buying a majority share in the service and they do not have competing grocery services, like Walmart.

Impact on Businesses and Law Firms:

For Uber, the deal allows them to continue their expansion geographically, tapping into a well-established network, in Latin America and beyond. Additionally, the deal fits with their vision to be “the operating system for your everyday life”, by offering a multitude of services such as ride hailing, scooter and bike hire, job finder and food delivery. Uber is able to leverage its more than 100 million users to find new lines of revenue which will hopefully boost overall profits.

For investors, the move into the grocery market, may curb concerns over Uber’s ability to make a profit. As the global grocery market is forecast to reach $150b by 2025.

Legal advisers would have been involved in the due diligence process leading up to the deal as well as drafting the specific terms. Law firms with a presence in Latin America and Canada will need to guide Uber through relevant regulation to enable their services to operate fully in different jurisdictions, particularly Chile where they have had regulatory issues previously.

3. US Sports Betting Market (by @Sara Moon)

The Story

Earlier this month, it was announced that Flutter Entertainment, the new name for Paddy Power Betfair, will be merging with the competitor, the Star Group, who owns Sky Bet. The deal will be worth around £10 billion and will create the world’s biggest online betting group. This merger was influenced by the rapid expansion of the sports betting market after the US Supreme Court ruled in favour of New Jersey in its effort to legalise sports betting. The ruling left it to the state legislatures to decide whether or not to legalise sports betting, and so far, 18 states have followed New Jersey’s step.

Impact on Businesses and Law Firms:

This newly opened sports betting market is a lucrative opportunity that many companies and investors are having their eyes on. Since the Supreme Court’s rule, there have been active M&A activities, including the Scientific Games’ acquisition of Don Best last year and Stockholm-listed Better Collective’s acquisition of US sports betting websites VegasInsider.com and ScoresAndOdds.com earlier this year. Strategic partnership had also been created between Boyd Gaming and FanDuel, in which the companies share technology and customer base. The NYC Sports Betting Investor Summit is planned to take place 4th November, providing investors a chance to meet sports betting executives and identify any M&A or partnership opportunities. Thus, it seems likely that a flood of M&A activities and partnership deals is set to come for law firms to advise on. Since sports betting has been legalised only very recently, law firms will be playing a key role in advising on the new regulatory framework, which will differ in each state.


4. Neil Woodford’s Investment Funds (by @Alice G )

The Story

Neil Woodford was sacked from his flagship Equity Income Fund on Tuesday (15th October) by administrators. Angered by the decision, he subsequently announced that his last two remaining investment vehicles would be wound down, bringing an end to his investment fund empire which once managed £14 billion at is peak. The downfall of Woodford largely stems from his poor investment decisions, having opted to invest in poorly performing listed companies and making high stakes investments into tech and healthcare companies he believed had high growth potential. These poor investment decisions and their illiquidity led to the Equity Income Fund being flooded with redemption requests, which are formal requests from investors to leave a fund. Because the fund’s assets could not be sold quicker than the rate of redemption requests, the decision was made to freeze the fund last June. Administrators have decided to wind up the fund because they feel that the fund’s portfolio has not been restructured enough to save it.

Impact on Businesses and Law Firms

An event such as this can make investors incredibly nervous about where to put their money and this will certainly have dented the funds industry to some degree.

There is now increased concern about the liquidity within investment funds and regulators across Europe have now launched their own investigations into this to ensure other fund portfolios do not suffer the same fate. The Financial Conduct Authority has issued new rules, effective from September 2020, for property funds that fall into a newly created category ‘funds investing in inherently illiquid assets.’ These rules subject these property funds to greater disclosure requirements and enhanced depository oversight. Perhaps such requirements will be rolled out across the funds industry more broadly in light of the Woodford collapse.

BlackRock and PJT Partners have been enlisted to wind-up the fund by selling off the assets it holds, and lawyers will be heavily involved in providing the documentation for the sale of these assets.

 

[Jaysen]

5. Hand-picked Commercial News ( by Watson's Daily)

Latest Brexit developments

UK and EU remain locked in race to broker Brexit deal (Financial Times, Jim Brundsen, Sam Fleming, Mehreen Khan, Michael Peel and George Parker) we see that both sides continue to negotiate against the clock to secure a Brexit deal, with EU chiefs warning that it won’t be possible unless BoJo gives more concessions. Mid-cap stocks surge amid hopes of Brexit breakthrough (Daily Telegraph, Louis Ashworth) shows that investors were getting all a-flutter about the prospect of a deal and sent the FTSE250 up by 1.34% as they invested in UK-centric sectors like retailers, landlords, high street lenders and restaurants. The pound also strengthened to a five-month high versus the euro and a four-month high versus the dollar. * SO WHAT? * It’s all noise and bluster at the moment, so we’ll just have to see what (if anything) is actually decided as there are still major hurdles to negotiate. Although the FTSE100 represents our biggest companies, many of them are heavily reliant on profits earned abroad so the FTSE250 is seen to be a more accurate measure of how the UK is doing.

Fragile truce in the US-China Trade War

China ‘keeps champagne on ice’ over fragile truce in US trade war (Daily Telegraph, Tom Rees) signals the rather more cautious tone from state-run newspaper China Daily over a partial trade deal between the two countries than Trump’s typically understated “greatest and biggest deal ever made for our great patriot farmers in the history of our country” assessment of the agreement reached last week. US Treasury Secretary Steve Mnuchin was also less effusive about the deal and pointed out that tariffs on $156bn of Chinese imports would still come into force on December 15th unless this “phase one” deal was signed off. * SO WHAT? * The latest stats show that trade between the two countries has fallen by over 20% so far this year so clearly there is a lot to play for. Having said that, it sounds like there are still a lot of major issues to be addressed so I would agree with China’s assessment of the situation! Trump’s bombastic tweets are just a way of putting a bit of pressure on the proceedings. It ain’t a deal until it’s all signed off by presidents on both sides!

PS: We've partnered with Watson's Daily! Each week, we'll be sharing with you their most relevant commercial stories to keep you updated on a broader range of topics. We hope you enjoy!

 

[Sara Moon]

Welcome to this week’s commercial update!

The topics for this weeks write ups are:

1. Saudi Aramco IPO @Sara Moon
2. IMF Publishes October 2019 Global Financial Stability Report (@ELA)
3. OECD’s New Corporate Tax Regime @Moni
4. WH Smith’s Expansion into the Travel Retail Market (@Sairah)
5. Back to Basics: Facebook (by @Jaysen)

• 1. Saudi Aramco IPO @Sara Moon

• The story:
  Last week, Saudi Aramco, Saudi Arabia’s state-owned oil company, announced to further delay its initial public offering (IPO), which was due on Sunday. IPO refers to the process of a private company first offering its shares to public investors. Aramco originally planned to list part of it in 2018, but it has been continuously delaying its market debut. Last week’s decision to delay was in response to last month’s drone and missile strikes on Aramco’s oil facilities, which destroyed half of Saudi Arabia’s oil capacity. Aramco has decided to wait until the publishing of its quarterly results, which will clarify the impact of the attack, before deciding the right timing for the IPO. This is because the third-quarter results will affect the pre-IPO valuations of the company.
  
  Impact on businesses and law firms:
  The IPO of Aramco is part of Saudi Arabia’s Vision 2030, a plan introduced in 2016 by Crown Prince Mohammed bin Salman to reduce the country’s dependence on oil by diversifying the economy. The IPO is expected to bring several benefits. Firstly, it will allow the company to attract greater cash investments by selling stocks to the general public, and the investments raised will contribute to the Public Investment Fund, the fund that is used for the Vision 2030. Secondly, it will open up once completely state-controlled Saudi’s oil market to foreign investors. However, with Aramco planning to initially list only 1-2% of it on Tadawul (or Saudi Stock Exchange), the impact of IPO could be rather minimal. It is worth noting here that Saudi Arabia opened up its stock market to international investors in 2015.
  
  As part of the Vision 2030, Saudi Arabia is also reforming its laws to bring more transparency and efficiency to attract foreign investors. For example, Saudi lawmakers approved measures to protect investors, such as implementing more efficient dispute resolution processes, and relaxed rules of listing shares on Tadawul. Diversification efforts by the country could open up greater deals for law firms to advise on, such as joint ventures between foreign and Saudi Arabian companies, Saudi Arabian company’s IPO in a foreign stock exchange, M&As and so on. Foreign law firms may form partnerships with Saudi law firms to effectively advise on the associated regulatory matters, which will continuously change and improve as the country works on Vision 2030.
  
  2. IMF Publishes October 2019 Global Financial Stability Report (@ELA )

• The Story:
  Last week, the International Monetary Fund (IMF) published its October 2019 Global Financial Stability Report. It outlines current financial and economic trends, identifies ensuing risks and suggests policies to prevent crises.
  
  The IMF begins by acknowledging that since its last report in April 2019, economic activity has continued to weaken and accommodative monetary policies (when central banks lower interest rates to make borrowing cheaper) have been implemented. It recognises the short-term value of such policies to support economies but expresses fears that in the medium- to long-term, “easy financial conditions are encouraging financial risk-taking and fuelling a further build-up of vulnerabilities in some sectors and countries.”
  
  Impact On Businesses And Law Firms:
  The logic behind lowering interest rates is that it makes borrowing cheaper and encourages companies and individuals to borrow and spend, boosting the economy. However, the IMF notes that the flipside of this policy is that in the event of an economic downturn, some companies may not be able to service all the debt they have taken on.
  
  Moreover, for banks (and some investors), lower interest rates mean lower profit and returns. The IMF is therefore concerned that to maintain financial returns and compensate for low rates, investors take on riskier assets.
  
  To tackle these financial vulnerabilities, the IMF recommends maintaining supervision of bank credit risk assessment and lending practices, and calls for more stringent disclosure and transparency standards for nonbank financial institutions. Note that this recommendation interestingly comes not long after US officials under Donald Trump did exactly the opposite last August, when they relaxed the Volcker rule, which was written after the financial crisis to stop banks from making risky trades with their own money. There is arguably a tension here, between single investing entities for whom profit and political allegiances matter, and global and politically neutral institutions like the IMF, who focus on the need for collective financial responsibility to counter systemic risk.
  
  Businesses, investors and financial institutions are having to balance their quest for profitability with risk-mitigation and compliance with fluctuating regulations. These are concerns for commercial lawyers too, because part of their job is to help clients navigate changing economic conditions and compliance regimes through contractual means.
  
  
  

 

[Sara Moon]

3. OECD’s New Corporate Tax Regime @Moni

The Story:
The Organisation for Economic Co-operation and Development (OECD) recently proposed a new global corporate tax regime that would change tax rules that have allowed large tech companies like Facebook and Google to move profits around the world in order to minimize their tax bills. Under the proposal countries would have increased rights to levy taxes on corporate income earned from sales earned in their territories. Importantly, the proposals go against the standard rules that companies can only be taxed in jurisdictions where they have a physical presence. The proposals would negatively impact tax havens and low tax jurisdictions. The OECD’s argument is that existing rules are no longer sufficient to ensure a ‘fair allocation’ of taxing rights and believes that their proposals will get the support of leading economies who may be encouraged to implement changes through cooperation rather than unilaterally.

Impact on Businesses and Law Firms:
Many view the OECD proposal as a useful foundation for further discussions, in addition to significant technical work which would need to be done, there would also need to be broad global support in order for the proposals to become law. However, initial support for the proposal shows that countries are seriously considering solutions to what they see as flaws in tax regimes that give tech companies an unfair advantage. The development and implementation of the proposal would also present a significant opportunity for tax lawyers, who in addition to influencing the development of new regulations, will also need to help their clients’ understand the potential impact on their businesses.

4. WH Smith’s Expansion into the Travel Retail Market (@Sairah)

The Story:
Last Thursday, WH Smith confirmed it will be acquiring Marshall Retail Group, a US retailer that operates stores in airports and casino resorts, from private equity investment firm Brentwood Associates. The deal is valued at $400 million (£312m).

This expansion will see WH Smith double its international travel business and strengthen its presence in the $3.2 billion US airport market. Following its $198 million (£155m) purchase of InMotion, a market-leading US digital accessories retailer, last October.

WH Smith will obtain an additional 170 stores across the US and Canada, with 59 of them in airports. This will boost WH Smith up to third position in the airport retail market. An excellent move from WH Smith which will compensate for its slow growth in its UK high street division, which is currently down by 2%.

Impact on Businesses and Law Firms:
The proposed acquisition will be financed through a combination of new debt, a £200 million term loan facility. Also, equity, which will be £155 million being raised through an underwritten equity placing*. WH Smith also announced it will temporarily suspend its current share buyback programme, while it conducts the equity placing of the new shares.

The two financial advisors, North Point Advisors LLC and William Blair & Company LLC, as well as JP Morgan have been involved in the financial checks of WH Smith. WH Smith has performed strongly in their 2019 financial report, with their travel trading profit up by +14% to $150 million (£117m). Investors were pleased with the results, and it is expected the acquisition of Marshall Retail Group, will instantly contribute a $84 million (£65m) revenue for WH Smith in the future.

The law firms acting for WH Smith on this deal are Herbert Smith Freehills and DLA Piper, who will be involved with the necessary M&A process. This includes the comprehensive due diligence checks, as well as drafting the sales and purchase agreement (SPA), the acquisition agreement. Also, if there is any issues along the way, the two law firms acting for WH Smith will also be needed to include any indemnities in the agreement to provide security for WH Smith. Kirkland & Ellis will be acting as legal counsel to Marshall Retail Group. The deal is expected to be completed in the first quarter of 2020.

*To understand these terms, please visit TCLA’s Instagram page.


5. Back to Basics: Facebook (by @Jaysen)

The Story
Facebook’s image has changed.

The Cambridge Analytica scandal showed the world how lax security measures could be used to exploit Facebook users’ data to predict and shape behaviour.

The aftermath of the 2016 US election showed how Facebook could be used by other states to influence elections and spread fake news.

Facebook’s role in the spread of anti-Rohingya propaganda in Myanmar and anti-Muslim violence in Sri Lanka, showed how the platform could be used to incite hatred and violence across the globe.

Facebook is no longer just a US social media company; it now plays a role in the supply of the world’s information. Its newfound position is changing the way laws are used to regulate the digital world.

Impact on Businesses and Law Firms
Facebook’s privacy scandals have turned global regulators against the company. Gibson Dunn recently advised Facebook against its £500,000 fine from the Information Commissioner’s Office, the highest fine under the UK’s pre-GDPR data protection law. Across the Atlantic, Facebook’s practices led to a record $5bn fine from the Federal Trade Commission, while the upcoming California Consumer Privacy Act shows a shift in the US’s previously lax approach to data regulation.

Meanwhile, a recent decision by the European Court of Justice set a new precedent for how and where speech should be regulated on the internet. The EU’s highest court found that judges across the EU could order Facebook to remove defamatory or illegal posts, not just in their own country, but across the world. This aligns with a growing view that Facebook is not just a neutral platform, but a publisher, and therefore accountable for particular content posted on its site.

Most recently, the recent scandals have damaged Facebook’s attempts at disrupting the world of finance. Fears over how its proposed cryptocurrency could be used to facilitate money laundering and terrorist financiers, as well as undermine the strength of currencies, has led to regulatory pushback. France, Germany and Italy are seeking to block Libra in Europe, while today (Wednesday, 23 October 2019) Facebook’s CEO will be attempt to regain favour with US lawmakers at a Congressional hearing.