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Seven Days: 22 March 2019

Our take on the biggest business stories of the past week
March 21, 2019

Britain is working

Jobs boost

Despite the wider uncertainty around Brexit and its potential effect on the economy, the UK’s corporates continue to take on new workers. The latest jobless figures for the UK showed unemployment had fallen to 3.9 per cent of the working population in the three months to January, its lowest level since 1975. This came after 222,000 people joined the workforce, taking it to a new high of 32.7m. While some hailed the figures, concerns were raised that the figures were boosted by older people remaining in the workforce for longer, with the number of people in retirement at its lowest in 25 years. But in a further boost to the government, wages are rising at an average 3.4 per cent, well ahead of the latest inflation figure.

 

Rainmakers reign

Worldpay deal

The relative calm in equity markets, with global indices cruising to a five-month high this week, has prompted a resurgence in confidence among dealmakers. This week saw US financial services technology business FIS announce a $43bn deal for payments specialist Worldpay, which is being settled mainly in shares. This represents significant upside on a business that was sold to private equity by RBS for £2bn in 2011. This was followed midweek by confirmation of a $3.3bn bid for satellite technology specialist Inmarsat from private equity bidders led by Warburg Pincus and Apax, and a smaller deal that will see JD Sports acquire rival Footasylum. The past month has also seen mooted offers for Provident Financial by Non Standard Finance, confirmation of Berry Group's offer for RPC, Sports Direct offering to buy online shopping business Findel and Manx Telecom attracting an offer from Basalt Infrastructure Partners. 

 

 

Google hit for €1.5bn

Competition fine

Search engine giant Google has been hit with a €1.5bn fine from the European Union, the third such fine the company has received due to anti-competitive practices in Europe. The latest levy relates to business practices in Google’s AdSense business over a 10-year period up to 2016 and follows on from fines totalling €6.9bn relating to Google’s shopping and Android phone operating system. Further fines are possible if the EU deems changes to these businesses have not been sufficient, while this week Google also said it was making further changes to search results in an effort to head off fines in other areas of its business.

 

Hazard light

Car sector stalls

After a long period of strong growth, the sense of concern among Germany’s powerful automotive sector is growing. This week powerhouse BMW issued a profit warning for 2019 saying figures for this year will be ‘well below’ those published for 2018, which themselves were more than 8 per cent lower than the previous year. In particular, BMW’s management highlighted rising technology costs, global economic conditions and foreign exchange movements as key factors and said it was launching a €12bn cost-cutting plan. Meanwhile, boardroom scandals continue to hit the previously reliable sector, with VW chief executive Herbert Diess, who only took the role last year, attracting criticism for use of language that evoked memories of Nazi concentration camp Auschwitz during a management meeting, putting his survival as chief executive in doubt.  

 

Risers and fallers (%)

STOBART GROUP ORD.+16.88
PREMIER OIL+15.9
HUNTING+14.98
EQUINITI GROUP+14.93
VOLUTION GROUP+13.92
  
JUST GROUP-20.08
CAPITAL & REGIONAL-16.21
NANOCO GROUP-7.65
RENEWI-7.55
MEARS GROUP-6.83
Week to 19 March 2019

 

£1bn shopping bill

Megamerger on shaky ground

The proposed grocery megamerger between Sainsbury and Asda appears to be on shaky ground after an initial take from competition authorities suggested the dominant position of the combined group would hamper competition in the sector. But this week the two companies made a further pitch with plans they say will deliver £1bn of savings to UK shoppers within three years through price cuts of 10 per cent across a vast swathe of everyday products. The savings would be achieved through economies of scale both within the two businesses and in the cost of buying products from suppliers. Further concessions were offered in terms of caps on profit margins on petrol and guaranteed payment terms for smaller suppliers.

 

Italy joins new silk road

China increasing influence

The heightened concerns in the US about China’s increasing influence on the global economy will not have been eased this week with news that Italy is preparing to add its signature to China’s much-heralded ‘Belt and Road’ initiative. The policy, seen by some as a revival of the ancient Silk Road link between east and west is a global infrastructure initiative designed to support trade of Chinese goods throughout the world, and Italy is set to become the 124th country to sign up, and the first member of the G7 group of major global economies to do so.

 

Lyft off

Uber rival floats in the US

Who said turbo-charged tech IPOs had fallen out of fashion? Initial indications coming back from the roadshow for the initial public offering of shares in San Francisco-based ride-sharing business Lyft suggest strong demand for its shares. The float of the rival to Uber is said to have been significantly oversubscribed, which means its value is likely to exceed $23bn when it starts trading on Nasdaq next week, with potential investors overlooking the fact the company remains lossmaking – it posted losses of $991m in 2018 from revenues of $2.2bn.