Commercial Awareness Update – W/C 14th June 2020

The round-up of the stories that a budding Student Lawyer should be aware of this week. Sign up here to get these updates in your inbox every week.

Charlotte Tilbury’s Acquisition Makes-Up the Latest Deal

Article by Gina Asadi (recent BPP LLM Legal Practice (Solicitors) graduate)

The British iconic luxury makeup and skincare brand, Charlotte Tilbury, has announced a majority stake sale to Puig, a Spanish fashion and fragrances giant and parent of brands such as Paco Rabanne, Jean Paul Gaultier and Nina Ricci. The deal values Charlotte Tilbury, which launched in 2013, around $1 billion (£790 million) and ends the series of competing bids from Unilever, L’Oreal, Estée Lauder and Shiseido Co, a Japanese beauty company.

The transaction will mean that Puig will become the majority stakeholder in the business with Charlotte Tilbury retaining a substantial minority stake. Further, BDT Capital Partners, a boutique investment bank that was advising Puig on the deal will also take up a minority stake in the business. Charlotte Tilbury will continue as Chairman, President and Chief Creative Officer with Demetra Pinsent remaining as Chief Executive Officer.

Having suffered two setbacks in 2018 when it lost fragrance and beauty licensing deals with Prada and Valentino, Puig has been looking to grow in the make-up and skincare business. Puig representatives have stated that Charlotte Tilbury’s ‘product portfolio and digital capabilities’ are key assets and that the brand will reinforce Puig’s global position in the luxury beauty category. Further, the deal comes as a response to the shift in consumer behaviour, which sees young shoppers prefer ‘personality-led’ makeup products with a strong social media presence; qualities that Charlotte Tilbury possesses. Charlotte Tilbury is also set to benefit from this transaction as it will be able to leverage Puig’s global reach to expand its operations worldwide; which will enable the business to better compete with beauty giants such as, Kylie Cosmetics and Fenty Beauty who are supported by Coty and LVMH.

The deal is yet another example of British deal-making during the coronavirus pandemic. It presents a glimmer of hope for the UK economy post lockdown and a reminder of international appetite for British businesses. As with any M&A deal, lawyers will have been involved from the outset, assisting with negotiations, due diligence, arranging finance and drafting the documentations. In the transaction, magic circle firm, Freshfields, advised Charlotte Tilbury, Baker McKenzie advised Puig and Withers advised Charlotte Tilbury.

You can read more here.

Further Rescue Plans for the Airline Industry

Article by Jamie Adair (1st year LLB student at Warwick University) 

Further plans to help save the ailing airline industry have been announced around the world as demand for travel has plummeted amidst the ongoing pandemic.

The International Air Transport Association (AITA) recently released its financial outlook for the global air transport industry and has warned that it expects airlines to record a loss of $84.3 billion in 2020, with a net profit margin of -20.1%. Alexandre de Juniac, the Director General and CEO of the airline industry’s global body stated that “financially, 2020 will go down as the worst year in the history of aviation”, also citing the need for further government financial relief. While the continued resilience of cargo revenue is a silver lining for the industry, passenger revenues have been decimated by the ongoing pandemic and airlines haven’t been able to reduce their costs at the same rate.

The French finance minister, Bruno Le Maire, unveiled on Tuesday a €15 billion support package for the country’s aerospace industry with 100,000 jobs in the sector at risk. Approximately 300,000 people are employed in aerospace in France and Mr Le Maire highlighted the fact that without such support, “100,000 jobs would be threatened within six months.”

Meanwhile, Hong Kong’s government has pledged to take a 6.1% stake in Cathay Pacific with authorities pledging to contribute $5 billion to a rescue package of the airline in the form of a bridge loan, preference shares and warrants. This is an unprecedented decision for the Hong Kong government having never given this amount of money to an airline before.

The European Commission also recently approved the Portuguese government’s plans to grant its national airline TAP a €1.2 billion rescue loan. It’s a welcome surprise for Portugal’s flag carrier as the Commission decided that the loan didn’t go against their competition rules, despite the fact that TAP didn’t qualify for special treatment under the competition authority’s relaxed state aid rules because of its poor financial health from before the COVID-19 crisis.

In the UK a report by the New Economics Foundation has warned that the grounding of air travel has the potential to cause a loss of jobs that rivals the coal mining industry’s collapse in the 1980s.

The airline industry’s gloomy prospects look set to continue for some time and the ongoing cross-border travel restrictions certainly won’t help.

UK economy shrinks by 20.4% in April

Article by Sofiya Stanchak (Third Year LLB student, University of Surrey)

As the UK spent its first full month in lockdown, the country experienced the largest monthly contraction on record. However, analysts predict that April is likely to be the worst month for the economy as government began easing the lockdown in May even further in June. The impact of the pandemic on the economy is much worse compared to the global financial crisis from February 2008 to March 2009 where the GDP shrank by 6.9% throughout the whole 13 months. April’s economic contraction is three times that, even though it is only a figure for one month.

Although the UK is one of the few countries that reports monthly economic data to the public, it is evident that coronavirus has pushed several major economies into recession and the UK is not the only country suffering from deep economic contractions. Japan saw a 3.4% fall in GDP for the first three months of 2020, Germany’s economy shrank by 2.2% in the first three months in the year and France saw a 5.8% contraction in the first quarter of 2020, whilst the UK saw a 2% contraction in the first three months. It has been predicted by the Organisation for Economic Co-operation and Development that the UK economy is likely to shrink by 11.5% in 2020, slightly higher than the predicted falls in other countries.

Although the decline is sharp, Rishi Sunak, the UK chancellor has said that ‘’the lifelines we’ve provided with our furlough scheme, grants, loans and tax cuts have protected thousands of businesses and millions of jobs – giving us the best chance of recovering quickly as the economy reopens’’. So although these mentioned measurements will help the UK to bounce back from this pandemic with time, Tej Parikh, chief economist at the Institute of Directors said the pandemic was ‘’likely to scar the UK economy for some time’’ and ‘’the government must now figure out how to stimulate activity’’.

SpaceX- A new Chapter in Science and Business History Book?

Article by Konstantina Nouka (Law LLB student at University of Reading and aspiring international law and human rights barrister)

On April 12, 1961, Yuri Gagarin became the first man to travel to space and on July 20, 1969, Neil Armstrong became the first human to step foot on Moon soil. Therefore the 20^th century has clearly been the century of the “space revolution.” Few decades ago, we were able to leave planet Earth for the first time and land on the Moon, but due to the huge success of SpaceX and the commercialisation of space travelling, being residents of our red neighbour planet, Mars, will probably be no longer a story taken from a science fiction book. Thus, the greatness of the 21^st century can be equal or exceed the greatness of the 20^th century.

What is SpaceX and what does it do?

Space Exploration Technologies Corp, or simply known as SpaceX, is an American aerospace manufacturer and space transportation services company, founded by Elon Musk with the ultimate goal of reducing space transportation costs to enable the colonisation of Mars and making “space flights” affordable.

Due to the fact that in 2010 NASA decided to shut down its Space Shuttle programme, it was required to contract, until NASA was able to have another Shuttle programme, with Russia in order to send American astronauts to the International Space Station. But, the United States of America and Russia, have never really been “friends”. Therefore, the fact that NASA had to rely on Russia and pay the extreme amount of $80 million per seat in a Soyuz shuttle, has clearly been a bit of a hit for the American scientific ego, as NASA was not complete independent in her “space flights” anymore. And exactly here, is where the success of SpaceX fits…

SpaceX contracted with NASA in 2014 to create a shuttle programme in order to enable NASA to send American Astronauts to the International Space Station from American soil again. Very fortunately for NASA and for the United States of America in general, SpaceX, on May 30, 2020, conducted the maiden launch of its Dragon2 reusable spacecraft, and became the first private company to send astronauts, Bob Behnken and Doug Hurley, to the International Space Station.

What is next now?

The impact of this SpaceX achievement has been huge. Herbert Diess, the Volkswagen AG Chief Executive Officer, used this historic rocket launch by Elon Musk, in order to motivate top executives at the carmaker industry to start thinking big and potentially consider similar achievements themselves. What is important is to consider that this historic flight leads to business creating their own programmes and space flights.Thus space flights will end up being similar to plane flights. Many businesses will try competing against each other in order to ensure best price, best services and highest enjoyment for their potential clients and therefore innovation and greater competition will be required.

However, Mr. Musk never stops dreaming big and setting very ambitious goals. Recently, in a tweet he confirmed that he is still aiming to launch the first spaceships to Mars by 2020. Those spaceships will be carrying cargo in order to support a manned mission in the red planet planned for 2024. More interestingly, Elon Musk claimed that by 2050, Mars will be a place that has sufficient resources to become a self-sustaining civilisation. It is debatable whether Mr. Musk’s aims for a human colony in Mars by 2050 is a realistic target, but again, it is doubtful that in early 20^th century human race really thought that humans would be able to walk in the Moon.

Will it be the era of Space law now?

Environmental law or Human Rights law was not a thing until very recently, since until very recently people were not concerned about climate change or human rights violations. Thus, it is logical to conclude that Space law will become more and more relevant as the space industry becomes even more commercialised than it is now. Questions on ethics and space environment will be part of the everyday legal routine and so space lawyers will have the potential to move beyond the academia and practice daily.

Lastly, does the commercialisation of “space flights” have only advantages or are there significant disadvantages too?

In every story there are advantages and disadvantages and so it is important to consider the negative implications that commercial space flights might have. Firstly, some argue that we as a human race have polluted and destroyed enough our own planet. Therefore, wanting to have the opportunity to colonise the rest of the universe is immoral. Instead of using the financial resources for flying to Mars, those resources should be given to environmental programmes in Earth in order to tackle climate change and improve the life on Earth as a whole. Furthermore, when considering that billionaires already agree to pay quite a few million dollars to book their future “space flights”, it is more than clear that this new opportunity will be limited to a tiny fraction of the human population and the rest of the human race will have to deal the “Earth problems”.

If everything is taken into serious consideration, it is clear that making space flights a commercial activity has some very scary potential implications. However, should any potential fears stop scientists and business from exploring the space and many other planets in the pursuit of greater scientific knowledge?

Facebook invests in Indonesian ‘super app’, Gojek

Article by Ned Gompertz (Cambridge Graduate and GDL student at BPP)

Facebook has continued to expand its influence in Asia by investing an undisclosed sum in Gojek, Indonesia’s biggest unicorn. Gojek is a multi-service platform which boasts over 170 million downloads, offering food delivery, ride-hailing and digital payment services across South-East Asia.

Facebook’s investment is specifically focused on GoPay, the company’s digital payments arm. GoPay is currently used across 370 cities in South-East Asia, giving it an almost ubiquitous presence across the region. Facebook aims to use this platform to launch WhatsApp Pay (an in-chat payment feature which allows users to make transactions via their contact list) in Indonesia. “Together with Gojek, we believe we can bring millions of people into Indonesia’s growing digital economy”, wrote WhatsApp’s Chief Operating Officer, Matt Idema, in a blog post.

This is not the only major investment Facebook has made in the Asian technology sector recently. Only a few weeks ago Facebook announced a $5.7bn investment in Reliance Jio, India’s fastest-growing telecommunications company. WhatsApp are planning to roll out its digital payment service in the region by partnering with JioMart, Jio’s newly-launched e-commerce platform which connects local shops to customers. Facebook are evidently moving quickly to roll out its fintech services across key markets in Asia, strategically partnering with prominent technology companies with established regional networks to achieve this.

However, Facebook are not the only US tech giant trying to monetise Asia’s rapidly growing digital economy. PayPal also invested in GoPay during the current fundraising round, hoping to integrate their services into the Gojek app and provide users with access to its vast network. Other US technology companies including Twitter, Microsoft and Amazon have all also recently invested heavily in Asian markets. Facebook’s foray into Asia should therefore be contextualised as a small part of a much larger trend of American investment into emerging Asian technology markets.

This trend is largely a reaction to growing concerns over Chinese influence in the region. Companies such as Alibaba and Tencent have already built impressive technological networks across Asia with digital payment services at their core. A remarkable two-thirds of Indian start-ups valued at over $1bn have benefited from Chinese backing. The ongoing trade war and concerns over security have forced America and China to become more technologically independent and competitive. As a result, the Asian market has become a big tech battleground with transformed financial and strategic significance. This fight for technological supremacy in such a congested market means that Facebook can expect unprecedented levels of competition from American and Chinese technology giants alike.

You can read more here.

Coronavirus: different strategies adopted by companies that have been successful in the face of the pandemic

Article by Joyce Yiu (LLM student at Queen Mary University of London)

The global crisis is hurting business, but not all companies are losing money. Amid the threats of shops shuttered, cashflow drying up and their staff on furlough, some companies had found ways to thrive.

Zara

Inditex, the parent company of Zara announced that it is closing between 1,000 to 1,200 stores over the next two years and it will invest €1 billion (£0.9 billion) on its online platform over the next three years. It is also spending €1.7 billion (£1.5 billion) on upgrading its stores and further integrating them with its e-commerce platform. A permanent shift to online sales can be observed as Inditex expects a quarter of sales to be online in 2022, up from 14 per cent last year. Online sales surged 95 percent during the global lockdown in April.

In a statement, CEO Pablo Isla confirmed that speeding up the full implementation of their integrated store concept will be their goal from now on to 2022. By doubling down on expanding its online business, it indicates that e-commerce will be an important platform to boost their sale in the long term.

Although Inditex’s sales tumbled to €3.3 billion (£2.97 billion) for the first three months of 2020, down from €5.5 billion (£4.95 billion) a year ago, its share price rose 2.7 per cent in afternoon trading in Madrid, as of 10^th June 2020. It reflects that investors are still optimistic about the strategy Zara took. The pandemic forced the retailers to acknowledge that the digital age has dawned and it should make changes to adapt the trend.

Nikola

US start-up Nikola Motor, saw its share price more than double on the third day of trading on Nasdaq, increasing its market value to €26.3 billion (£20.5 billion). Its market valuation surpasses car giants that sell millions of cars every year like Ford and FCA group which owns Fiat and Chrysler. It has not yet delivered a single vehicle and it will start taking pre-orders for hydrogen-and battery-powered Badger pickup trucks this month.

After completing a reverse merger with publicly listed VectoIQ, Nikola started its trading on 4^th June on Nasdaq. Although it will not start delivering vehicles until 2021, the enthusiasm from European investors, interest in the company’s pickup trucks and a limited number of shares available have driven up the share price.

It sets out a huge technological ambition. It will invest in hydrogen stations, which will generate hydrogen from water and renewable electricity. There is increasing interest in hydrogen for heavy-duty trucks, as the fuel cell power systems are much lighter than batteries and can be refuelled about as fast as diesel and gasoline models. New methods for generating “green” hydrogen from water and electricity from solar or wind farms make the fuel really compelling to environmental regulators.

You can read more here and here.

Digital yuan to beat Bitcoin?

Article written by Aleksandra Nowicka (LLM graduate & Legal Blogger | Founder of fromlawyerslife.com)

 With blochchain and cryptocurrencies not being only weirdly-sounded inventions any more, but in fact a quite popular ways of structurizing your finances, it was just a matter of time when one of the biggest economies will introduce its own digital currency.

The plan was introduced in 2014, and since then China’s central bank has been working on a “DC/EP”: Digital Currency/Electronic Payments” project. The aim was not to create a new digital currency, but simply to at least on some scope digitise existing monetary system, as well as cash circulation in China.

Whereas, the authorities around the world address concerns as to Libra and the fact that it would leverage Facebook’s yet enormous user base, in late April 2020, China reached a significant milestone: after more than five years of research by its central bank, China became the first major economy to conduct a real-world test of a national digital currency. The pilot project, which is occurring in four large Chinese cities, is a clear sign that China is years ahead of the United States in the development of what is likely to become a central component of a digital world economy. The DCEP had been formally adopted into the cities’ monetary systems, with some government employees and public servants to receive their salaries in the digital currency from May.

Chinese citizens are not new to online ways of payment, and such platforms as Alibaba’s Alipay and Tencent’s WeChat Pay are commonly used, though, they do not replace existing currency. The new system, unlike mentioned platforms, supports online transactions even without internet connection. The function called “touch and touch” allows two users to simply touch their mobile devices together to make a transfer, leaving no payment record with a third party or the banking system.

The main difference between DCEP and bitcoin is that the former does not use blockchain technology, but instead operates through the two-tier operating system. The People’s Bank of China (PBOC) issues the DCEP to commercial banks and other commercial operating agencies without using blockchain, but the lenders and other agencies are allowed to use the technology to distribute the digital yuan to the public.

The advent of digital currencies might degrade the efficacy of US sanctions, limiting the country’s options to respond to national security threats from Iran, North Korea, Russia, and others. It might also hamper the ability of US authorities to track illicit financial flows, according to Foreign Affairs. Digital currencies further the goal of avoiding dollar transactions and US financial oversight, since they provide a scalable cross-border mechanism that circumvents the current system. And undoubtedly, the digital yuan could play an especially important role in advancing such efforts, bolstered by China’s clear interest in facilitating international commerce in a way that undermines US influence and expands its own. Nevertheless, it will take several years for the digital yuan to replace just about 10% of all physical cash in China, according to Financial Times.

You can read more here, here, and here.