In Brief: CLO Edition
2018 Aug 14
Today's Top Story
Japan's Decreasing Population is Reshaping How Companies Attract Workers
Japan's population is shrinking, forcing companies to change how they attract job seekers from a small labor pool. Nationwide, there are 1.62 jobs available for every job seeker, the strongest demand for labor in more than 44 years, reports Reuters (13 August, White, Tajitsu). Many companies are beginning to offer flexible working hours and day care. These perks, which are common in the United States and Europe, are only just catching on in Japan, which until recently relied on a culture of complete devotion to an employer in exchange for job security and pay raises.
Lawsuit Brings Verdict Against Monsanto
Ars Technica (11 August, Timmer) reports that a California jury hit Monsanto with US$289 million in damages in a lawsuit brought by a patient suffering from terminal cancer, accepting the plaintiff's claims that his disease was caused by the company's popular herbicide, Roundup. The suit effectively sidestepped the complicated epidemiology of glyphosate, the active ingredient in the herbicide. Instead, it made the claim that the cancer was the result of glyphosate's interactions with other chemicals in Roundup. The suit is one of hundreds in progress and will almost certainly be appealed by Monsanto, which was recently purchased by chemical giant Bayer.
Lawsuits Accuse Tesla's Musk of Fraud Over Tweets
On 10 August, Tesla Inc. and Chief Executive Elon Musk were sued twice by investors who said they fraudulently developed a scheme to squeeze short-sellers, including through Musk's proposal to take the electric car company private. Musk recently announced on Twitter that he might take Tesla private in a record US$72 billion deal that valued the company at US$420 per share, and that "funding" had been "secured." In one of the lawsuits, the plaintiff Kalman Isaacs said Musk's tweets were misleading, and together with Tesla's failure to correct them amounted to a "nuclear attack" designed to "completely decimate" short-sellers. Tesla did not respond to a request for comment on the proposed class-action complaints, reports Reuters (10 August, Stempel).
IOOF Faces Fire Over Governance
Financial services giant IOOF has come under fire from the banking royal commission for conflicts of interest and customer fees. The company was also discovered to have provided hand-written, scribbled board meeting notes in response to questions from the royal commission; however, CEO Chris Kelaher was unable to identify who at IOOF had taken the records. The investment management company was criticized for its responses to queries from the royal commission, and many questioned the employees' lack of knowledge on crucial issues, reports the Sydney Morning Herald (10 August, Williams). The conflict between IOOF's super fund trustee—which is supposed to act in the best interests of fund members—and the company's desire to generate shareholder returns was repeatedly probed.
Service on Boards by Sitting Lawmakers Draws Scrutiny
The recent indictment of U.S. Rep. Chris Collins (R-NY) on insider trading charges is drawing new attention to Capitol Hill lawmakers who serve on corporate boards, reports the San Francisco Chronicle (12 August, Lardner). Collins has denied any wrongdoing from being Innate Immunotherapeutics's biggest shareholder and a member of its board of directors, neither of which are violations of the law. Currently, members of Congress are not prohibited from serving on corporate boards as long as they receive no compensation. Craig Holman of the advocacy group Public Citizen notes that legislators are often privy to sensitive information before it is made public, making the opportunity for insider trading "very prevalent." Ethics attorney Kathleen Clark charges that another downside of allowing federal legislators to be corporate directors is they may feel loyalty to the business and share information with the company they obtained via government service.
Nike Is Hit With Lawsuit Over Alleged Gender Discrimination
USA Today (10 August, Jones) reports that Nike has been hit with a discrimination lawsuit that alleges it pays and promotes women less than their male peers. The class-action suit was filed in U.S. District Court in Oregon by Kelly Cahill and Sara Johnston, ex-employees who say they endured a hostile work culture at the sneaker giant, plus had fewer opportunities and were paid less than their male colleagues despite comparable performance. Additionally, the suit accuses the company of failing to address sexual harassment and other complaints from female employees. Nike has issued a statement asserting that it "opposes discrimination of any type and has a long-standing commitment to diversity and inclusion. We are committed to competitive pay and benefits for our employees. The vast majority of Nike employees live by our values of dignity and respect for others."
Frackers Burn Cash to Sustain Boom
U.S. oil companies are seeing their profits erode in the face of rising costs. Two-thirds of U.S. oil producers failed to live within their means in the second quarter, even as oil rose above US$70 a barrel, reports the Wall Street Journal (12 August, Elliott, Olson). Collectively, 50 major U.S. oil companies reported in their second-quarter results that they have spent US$2 billion more than they took in, according to an analysis of free cash flow by FactSet. Pioneer Natural Resources Co., one of the biggest operators in the Permian Basin of West Texas and New Mexico, told investors a year ago it expected to make up for rising operating costs with "efficiency gains" such as producing more from each well. The drilling frenzy has increased demand for materials like sand and water that are used in hydraulic fracturing, driving up prices.
Europe's Telecoms Landscape Opens Up to 'Maverick' Operators
A group of so-called "maverick telecoms" operators are working to disrupt massive groups and are finding that the regulatory environment is helping to bring larger rivals down to size. Executives of the incumbent groups are hoping to demonstrate that fewer, larger carriers are needed to create a healthy telecoms market, but more European governments are starting to think the opposite might be true. In recent weeks, regulators in Germany and Belgium have welcomed new entrants to the mobile sector. Both markets have already consolidated to three networks but could offer spectrum to a fourth operator. The advantages of encouraging a new generation of maverick telecoms groups has been initiated by Iliad, the French company that triggered a sustained price war in 2012, causing mayhem for the established players. This year, Iliad transplanted that model to Italy, having secured network infrastructure as part of the conditions to allow the merger of Three, a former European telecoms maverick itself. Rivals were confident they could fend off Iliad with their own lower-cost brands; however, Iliad added one million users in its first 50 days in Italy with an aggressively priced €6 a month package. Vodafone recorded a 6.7 percent drop in revenue in Italy in the quarter that Iliad launched, reports the Financial Times (12 August, Fildes).
Turkish Lira's Fall Raises Concerns of Contagion
The Turkish lira sank to a record low on 12 August after collapsing last week, raising concerns for emerging-market investors. The currency is now down more than 40 percent this year, while bond yields have skyrocketed, pushing Turkey onto the edge of a financial crisis, reports the Wall Street Journal (12 August, Schlesinger, Wursthorn). Additionally, President Trump doubled steel tariffs on Turkey on 10 August, which deepened the lira's drop and worsened market fears that the weaker currency could exacerbate fragilities in the economy. As a new trading week begins, investors are watching how emerging-market currencies react, as well as foreign government debt for signs of contagion.
Wage Growth Is Being Wiped Out Entirely by Inflation in the U.S.
Increasing prices have erased U.S. workers' wage gains. Cost of living increased 2.9 percent from July 2017 to July 2018, the Labor Department recently reported, an inflation rate that outstripped a 2.7 percent increase in wages over the same period. The average U.S. "real wage," a federal measure of pay that takes inflation into account, fell to US$10.76 an hour last month, 2 cents down from where it was a year ago. The lack of wage growth has confused economists and policymakers, who hoped that after job openings hit record highs and the unemployment rate dipped, employers would give large raises to attract and retain workers. So far, gains have been slight, and small recent increases are being eclipsed by rising prices. The federal government reported that consumers are also paying more for housing, health care, and automobile insurance. Additional price increases could be coming as President Trump's new tariffs increase the prices of cheap imported products on which U.S. consumers rely, reports the Washington Post (10 August, Long).
Wesfarmers Offloads Kmart Tyre and Auto
Wesfarmers has agreed to sell its Kmart Tyre and Auto Service (KTAS) business to Germany's Continental for AU$350 million. The sale of KTAS, which has 258 stores across Australia, is expected to be completed in the first quarter of the 2019 financial year and is subject to competition and foreign investment approvals, reports the Sydney Morning Herald (13 August).
Elliott Takes Big Stake in Nielsen in Bid to Push Company to Sell Itself
According to Reuters (13 August, Palli), activist investor Elliott Management has acquired a sizable ownership interest in Nielsen Holdings as it plans to push the TV-ratings company to sell itself. Elliott has reportedly built an 8 percent stake in New York-based Nielsen, which could be worth at least US$640 million. Nielsen is best known for its TV ratings, which are used to set ad rates for traditional commercials. Elliott believes that Nielsen's "buy" segment, which measures retail and consumer behavior, has failed to keep up with competitors like market research company IRI.