In Brief: CLO Edition
2018 Sep 24
Today's Top Story
Asian Firms Shuffle Production as China Tariffs Take Effect
Many Asian manufacturers, including SK Hynix of South Korea and Komatsu of Japan, have begun to move production from China to other factories in the area following U.S. President Donald Trump's tariffs on Chinese imports. Some companies are waiting and making contingency plans, such as Taiwanese computer-maker Compal Electronics and South Korea's LG Electronics, in case the trade war escalates, reports Reuters (23 September, Park, Yamazaki). Many large manufacturers are able to move quickly because they have facilities in multiple countries and can transfer at least small amounts of production without building entirely new factories. In July, the United States levied 25 percent duties covering US$50 billion of Chinese-made goods, and a second round of 10 percent tariffs covering another US$200 billion of Chinese exports will come into effect soon.
Mergers and Acquisitions
Randgold and Barrick to Merge
Canada's Barrick Gold is merging with its U.K.-listed rival Randgold Resources in an US$18 billion deal. The new company, which will be the world's largest gold miner, will be listed in Toronto and New York, meaning that London would lose its biggest gold stock. Randgold shareholders will own 33.4 percent of the combined company and the rest will be controlled by investors in Toronto-based Barrick. The deal comes after a tough year for the gold mining sector, which has struggled to attract investor interest, reports the Financial Times (24 September, Hume, Sanderson).
Airbnb Proposes Giving Stock to Hosts
Airbnb sent a letter to the U.S. Securities and Exchange Commission (SEC) asking it to adjust its rules to allow the online home-sharing platform to grant its hosts stock in the company while it is still private. A spokesman for the San Francisco-based firm recently said the company has not yet come up with guidelines the hosts would need to meet to potentially get a stake in the company, reports the Wall Street Journal (21 September, Al-Muslim, Farrell). The SEC should increase eligibility for receiving stock because it would give more ordinary Americans who participate in the sharing economy the ability to benefit when a private company goes public, Airbnb said. If the SEC follows up with a formal plan, regulators would need to seek public comment on it before the SEC could vote to adopt the changes.
Labor and Employment
Employers Struggle to Respond to Opioid Epidemic
A 2017 survey by the National Safety Council estimated that 70 percent of employers reported their businesses had been affected by prescription drug abuse among workers, reports the New York Times. (21 September, Gold) Meanwhile, the Bureau of Labor Statistics found a minimum of 217 workers died from an unintentional drug or alcohol overdose while at work in 2016, up 32 percent from 2015. Workplace overdose deaths have been rising at least 25 percent annually since 2010, not counting the overdoses that do not end in death or accidents caused by drug impairment. Unfortunately, many employers ignore addiction within their workforce, or are poorly equipped or unwilling to address the issue. The Centers for Disease Control and Prevention determined that construction workers had the highest numbers of heroin- and methadone-related overdose deaths from 2007 to 2012, and many workers become addicts when they take a prescription intended to help get them back to work after an injury. Theoretically, employers are uniquely positioned to confront opioid misuse via random testing and spotting erratic behavior or absenteeism, and they could amend their health insurance policies to limit opioid prescriptions to five days and waive deductibles for addiction treatment.
Labour Would Require British Firms to Hand Equity to Staff
If the Labour party wins the next election, U.K.-based firms with more than 250 employees would have to award 10 percent of their equity to staff. The shares would be provided at a rate of 1 percent per year and held in Inclusive Ownership Funds that would pay annual dividends to a maximum of 500 pounds (US$653) per employee, according to John McDonnell, the man who would decide economic policy if the U.K.'s main opposition party comes to power. McDonnell said business should not be concerned because "it's one percent a year over a 10 year period, it's hardly draconian." The funds would cover roughly 40 percent of the workforce, reports Bloomberg (24 September, Penny).
Twitter Says Direct Messages May Have Been Leaked
Twitter told some of its users that a software "bug," which has since been fixed, may have caused their private messages to have been leaked to third parties for more than a year. The "bug" involved direct messages between users and businesses that offer customer services via Twitter. The company said the issue "has persisted since May 2017." Twitter did not specify how many people it had notified, but said it amounted to fewer than 1 percent of its total users, reports BBC News (21 September, Lee).
Australian Mining Industry's Image Worsens Pain of Labor Shortage
The Australian mining industry is lacking skilled applicants and diversity. "If [the mining industry] could attract more women, it could go a long way to helping any future skills shortage," said Paul Cooper, regional CEO of mining for service provider Sodexo. Enrollments in mining engineering courses across Australia have dropped to about 30 this year from more than 250 during the last boom a half decade ago, reports Reuters (21 September, Burton). Top global miner BHP Billiton set a goal of achieving gender balance globally by 2025, but did not meet its yearly target, upping the proportion of female employees by just 1.9 percent to 22.4 percent. In senior management positions, the proportion of women fell by 1 percentage point. Gabriela Love, a mining engineer at ASX-listed Newcrest and chairwoman of Women in Mining and Resources Victoria, said part of the problem is the industry's marketing, which appeals to masculine stereotypes. "Mining is marketed as dirty and dull. You think of BHP and its ads are all trucks and high-vis gear; that's painting the industry in a certain way," she said. "But now we're in a digital age, with robotics, big data, high tech. Mining is all of that."
U.S. Investigates Drugmakers Over Free Services
U.S. prosecutors are probing whether major drugmakers potentially violated laws by providing free services to physicians and patients, reports the Wall Street Journal (21 September, Loftus). Drug companies claim that the services, such as nursing and reimbursement assistance, help doctors and those in their care. The practices, though, are drawing scrutiny over whether they serve an illegal commercial purpose: inducing sales. Amgen Inc., Bayer AG, and Eli Lilly & Co. are currently facing whistleblower lawsuits alleging the services are illegal kickbacks. Meanwhile, California's insurance commissioner has sued AbbVie Inc., charging the company with providing kickbacks in the form of insurance assistance and nursing support to compel doctors to write prescriptions for its Humira arthritis drug.
Google CEO Warns Employees Against Bias
Google CEO Sundar Pichai sent a memo to all employees late last week saying the company does not engineer its services to privilege any political view, reports CNet (22 September, Moyer). The memo went on to warn staffers that anyone violating that policy will be taken to task. Pichai wrote: "The trust our users place in us is our greatest asset, and we must always protect it. If any Googler ever undermines that trust, we will hold them accountable." Pichai's note came one day after a report was published in the Wall Street Journal that said Google employees discussed changes to the company's web search functions to counter the Trump administration's travel ban that went into effect in 2017.
Uber and Grab Fined by Singapore
Uber and Grab were fined more than S$13 million (US$9.5 million) by the Competition and Consumer Commission of Singapore over their "anti-competitive" deal to merge the two ride-hailing companies' operations in the country. Still, the penalty stops short of rolling back the March deal in which Singapore-based Grab acquired Uber's southeast Asian business in return for a 27.5 percent share in the combined business, reports the Financial Times (24 September, Woodhouse, Palma). Singapore's competitive watchdog said that this was its final decision on the merger, leaving Grab free to proceed with its planned takeover.
Companies' Profits Fueled by Stock Buybacks
The Wall Street Journal (23 September, Rapoport, Francis) reports that companies' record stock repurchases this year are causing profits to appear stronger and fueling the stock market's record run. Last December's tax overhaul has been a key driver in the surge of stock buybacks. The legislation not only lowered companies' tax bills, it also freed up funds that many firms are using to repurchase shares. From January through March, S&P 500 companies bought back a record US$189 billion of their own shares. A similar number is expected for the second quarter, reports S&P Dow Jones Indices. Apple Inc. has been among the more aggressive companies. The firm bought back 112.8 million shares from April through June. During that same time span, Union Pacific Corp. repurchased about 4 percent of its shares. And thanks to buybacks, Southwest Airlines Co.'s quarterly per-share earnings increased even though its profit declined year-over-year.
Comcast's Sky Win Extends Media Empire to Europe
Comcast won a bidding war for European satellite broadcaster Sky with a US$39 billion offer, Bloomberg (23 September, Mayes, Smith, Sakoui) reports, beating competitors to extend the U.S. cable giant's empire internationally. The rare auction was overseen by U.K. regulators. On Saturday, Comcast bid 10 percent more than 21st Century Fox, all but assuring that Sky shareholders will tender their shares to the U.S.-based cable carrier. Fox is in the process of selling its 39 percent ownership interest to Disney as part of a deal reached in 2017. The company is considering pledging the Sky shares to Comcast if Disney backs the move. The merger's outcome marks a victory for Comcast CEO Brian Roberts following a string of M&A setbacks.