Commercial Awareness Update – W/C 8th August 2022

First Ship Carrying Grain Leaves Odessa In Deal To Ease Global Food Crisis

The ongoing Russian-Ukraine crisis has had wide-reaching adverse economic and social effects on the nation of Ukraine and its citizens. Moreover, the crisis has also had financial repercussions on the global economy.

These repercussions have materialised in two main ways: changes in commodity prices and the disruption of commodity supply chains. Additionally, the Russian naval blockade of Ukraine’s Black Sea ports halted grain exports, thus contributing to global food shortages.

According to The US Department of Agriculture, Ukraine’s exports account for about a quarter of the world’s total wheat exports and about a fifth of the world’s corn and coarse grain exports. Hence, disrupted supplies due to the ongoing crisis have led to higher coarse grain prices. The disruption of global supply and the rising cost of wheat has led to concerns about food security in Middle Eastern and North African countries which heavily rely on wheat imports from Ukraine.

The Black Sea Grain Initiative 2022

On Monday 1^st August 2022, the first ship carrying Ukrainian grain set off from the port of Odesa, under an internationally brokered deal, since the start of the crisis. The Sierra Leone-flagged ship, the Razoni, is bound for the port of Tripoli, Lebanon, carrying a cargo of 26,527 tonnes of corn and is the first vessel to depart under the Black Sea Grain Initiative signed in Istanbul on 22nd July.

The Black Sea Grain Initiative is an agreement to lift Russia’s blockade and is aimed at helping mitigate a global food crisis that has seen prices soar in some of the world’s poorest nations.

This agreement is the first significant accord involving the two warring sides since the assault began. In a statement issued by his Spokesperson, UN Secretary-General António Guterres said that ensuring ‘existing grain and foodstuffs can move to global markets is a humanitarian imperative.’

The 22nd July agreement ratified in Turkey guarantees the safe passage of commercial ships from Odessa and two other Ukrainian ports. Set to remain in force for 120 days, it relies on monitoring designated maritime corridors by delegations from Ukraine, Russia, Turkey and the United Nations in Istanbul.

The impact of this unlocking of Ukrainian ports.

The corn is headed for Lebanon, a country which, according to the World Bank, has been in the grips of one of the world’s worst financial crises in more than 150 years. A 2020 explosion at its main port in Beirut shattered its capital city and destroyed grain silos. The Ukrainian Foreign Minister Dmytro Kuleba has called the development a ‘relief for the world.’

Ukraine, one of the world’s top grain exporters before the war, says it aims to export some 20 million tons of produce, worth some $10 billion, under the plan. This resumption of grain shipment will provide Ukraine with much-needed foreign currency reserves, boosting the country’s economy and will hopefully go some way in easing the economic strain caused by the war.

The UN Secretary-General hopes this will be the first of many commercial ships moving per the Initiative signed, thus bringing much-needed stability and relief to global food security.

Article written by Rebecca Hunter

GSK Completes Demerger Of Consumer Healthcare Business

On Monday 18 July 2022, GSK completed the spin-off of its consumer healthcare business into a new standalone company called Haleon. The Consumer Healthcare business was a joint venture between GSK and Pfizer, with GSK holding a majority controlling interest of 68% and Pfizer holding the 32% minority controlling interest. The two pharma giants have separated their consumer healthcare business from their biopharma and vaccine divisions.

Haleon, home to brands including Sensodyne toothpaste and Advil painkillers, is now the world’s largest consumer healthcare business. Its shares currently trade on the London and New York Stock exchanges. Pfizer will retain its 32% stake in Haleon, which it intends to sell off over time. GSK will hold up to 13.5% in Haleon, while GSK shareholders will own the remaining 54.5%.

What is the commercial rationale behind this deal?

The rationale for the demerger was that both companies – GSK and Haleon – would work more successfully as separate entities (demerged companies often perform better as standalone entities because management has more freedom to drive strategy rather than having to conform to a parent company’s demands, thus helping to drive earnings and share prices).

Per GSK, this separation will encourage the company to focus on its existing business segments, which comprise pharmaceuticals and vaccines, with Haleon focusing exclusively on consumer health. The demerger also allows GSK to reset its balance sheet, thereby improving the company’s performance and competitiveness.

According to Emma Walmsley, GSK’s CEO, the demerger was intended to untangle the company’s complex ‘Gordian knot’ structure and enable it to tackle its long criticized ‘perennial underperformance’. By offloading its consumer healthcare business onto the new venture and later re-listing it on the public market, GSK reduces the size of debt on its balance sheet.

Why is this deal of importance to law students?

The Consumer Healthcare Demerger is one of the largest and most complex demergers in the history of the European public markets and stands as one of the most recent high-profile deals. For law students, understanding key features of the deal and the role the law firm you are applying to plays in such transactions can be an interesting talking point during interviews.

A transaction of this magnitude and complexity typically requires multiple legal advisers across numerous practice groups. Slaughter and May advised GSK on the incorporation of Haleon in 2018 and supported GSK’s in-house legal team (led by Sarah Clements, James Ford, David Rea and Antonio Suarez-Martinez) for the 2022 demerger. It enlisted partners across its corporate, tax, finance, pensions, and employment practice groups. Baker McKenzie was also instructed to advise on corporate, IT, and employment matters.

Cleary Gottlieb Steen & Hamilton and Sidley Austin advised GSK on the US aspects of the transaction (for matters including debt financing and US securities issuances) with a team led by Sebastian Sperber and Sarah Lewis. Wachtell, Lipton, Rosen & Katz worked alongside Clifford Chance UK as legal advisors for Pfizer, and Freshfields Bruckhaus Deringer acted as independent counsel to Haleon, with a team headed by transaction partners Julian Long and Samira Afrasiabi.

From investors’ perspective, Haleon is now the only pure consumer healthcare company trading on the public market. The company’s growth profile is attractive to investors who are now presented with the opportunity to directly buy into a market expected to grow by around 4-7.2% annually and valued at more than 31 billion USD.

Article written by Wanjiru Chigiti

Apple Sued Over Apple Pay

The tech giant Apple has been hit with a lawsuit in the United States regarding Apple Pay following accusations of antitrust violations.

Affinity Credit Union has filed a class-action complaint in California. Affinity Credit Union filed the complaint citing Apple ‘coerces’ its consumers who use Apple products such as iPhones and Apple Watch into using Apple’s wallet for payments. This is opposed to Android devices that provide consumers with the choice of wallets like Google Pay or Samsung Pay. The complaint further alleges that the lack of choice prevents consumers from using wallets capable of competing pay solutions.

Affinity Credit Union said Apple’s ‘conduct harms consumers and competition as a whole.’ The lawsuit seeks to stop Apple’s alleged anti-competitive conduct. Apple charges issues 0.15% on credit card transactions and 0.05% on debit cards. However, Google Pay and Samsung Pay do not charge card issuers fees. Affinity Credit Union report that this fee generated a staggering $1 billion in 2019. Apple is yet to respond to this lawsuit publicly.

In recent years, Apple has been no stranger to legal battles. In May 2022, EU regulators said Apple faces a heavy fine after abusing its dominant position by limiting rivals’ access to technology essential to making contactless payments via electronic devices. After nearly two years of investigations, the European Commission accused Apple of ‘setting the rules’ and arguing Apple has been limiting access to near field communication (NFC) that rival companies require for payments made via mobile wallets. Other ‘tap-to-pay’ services such as PayPal and American Express cannot launch their own iPhone apps with their own interface.

Margrethe Vestager, the European Commission’s executive vice-president in charge of competition policy, announced in early May that Apple ‘abused its dominant position.’ The European Commission revealed it had evidence from some of Apple’s competitors indicating they could not go ahead with the development of mobile payment apps as they could not reach iPhone users. The Commission further issued a statement saying Apple may have ‘illegally distorted competition in the market.’

Apple could face fines of up to 10% of its global revenue, which was reported to be $365bn in 2021.

Article written by Maddy Preedy

Regulating Social Media Influencers

According to influencermarketinghub.com, social media influencers ‘are people who have built a reputation for their knowledge and expertise on a specific subject’, and according to sproutsocial.com, what constitutes an influencer is someone in a particular industry with niche or sway over a target audience.

Think the Kardashians with a total of 1.2 billion followers across the leading social media platforms, Charli D’Amelio with a sum of 142.3 million followers on TikTok alone and ‘kid influencers’ such as Tiana Wilson, 14, with well over 9 million followers on YouTube and Taytum and Oakley, three year old identical twins with an impressive 3 million plus followers on Instagram; all with uncommon personal wealth primarily generated through advertising partnerships with brand products ranging from toys to luxury cars and pharmaceuticals.

Many would baulk at the idea that social media influencers possess expertise on any subject, that perhaps they are charlatans exploiting the susceptibility of their followers, especially children and vulnerable adults for personal financial gain. Most influencers would declare they do not perceive financial gain as the most critical importance; however, with the social media influencer marketing sector estimated to expand to a staggering £12.57 billion in 2022, any such meteoric rise manifests increasing vulnerability to corruption and deception in the form of blatant and inconspicuous flouting of marketing and advertising rules.

The superintendence of marketing and advertising relationships between social media influencers and brands are in the focus of legislative bodies across the world; for example, the Federal Trade Commission Act of 1914, specifically s 5, governs brand/influencer relationships in America by prohibiting unfair competition or deceptive acts in or affecting commerce. In Canada, the Competition Act 1985 regulates the trade practices involving competition, and in the UK, the Consumer Protection from Unfair Trading Regulations 2008 governs the advertising and marketing relationships between influencers and brands to prevent financial harm to followers.

The primary aim in common is to ensure influencers expound to their followers any incentivisation of posts they make. In the UK, the Advertising Standards Authority (ASA), the Competition and Markets Authority (CMA) and the Committee of Advertising Practice (CAP) are the central governing bodies of these requirements, although, despite such governance, advertising and marketing requirements are sometimes wilfully overlooked.

According to the Guardian, in March 2021, the ASA did a spot-check of 122 social influencer accounts over three weeks to assess adherence to advertising rules, that is, for the influencers to clarify to their followers which of their posts are ads for brands. The ASA discovered that ‘the level of noncompliance with the UK ad code was unacceptable’ with Guy Parker, the Chief Executive of ASA, stating that ‘there was simply no excuse not to make clear when positive messages in posts have been paid for by a brand.’

The result of non-compliance means the increased likelihood of deception and corruption adversely impacting followers. For example, Kim Kardashian partnered with Duchesnay in July 2015, a multinational pharmaceutical company, to advertise Diclegis, a morning sickness drug, to her Instagram followers. The issue with the advertising was not so much its inappropriateness for many of her followers or that she lacked medical expertise, but according to the US Food and Drug Administration (FDA), it was that she ‘overlooked’ the requirement that she was to make apparent any side effects and limitations of the drug, thus posing dangerous and significant risks to her followers.

However, such flagrancy is not isolated. For instance, Perrie Sian, a self-monikered Instagram queen of fashion, was in June 2022, added to the list of non-compliant social media influencers for flouting advertising rules, and according to the Guardian, in June 2021, Jodie Marsh, Chloe Khan, Lucy Mecklenburgh and Chloe Ferry were ‘named and shamed by the UK advertising watchdog for repeatedly flouting social media advertising rules.’

From a moral and ethical standpoint, the endangering of lives through the touting of purported fast accustomed wealth, the mis-selling of pharmaceuticals, and the possible exploitation of vulnerable audiences has foreseeably led to calls for more stringent legislation against social media influencers.

Although the UK government agrees the sector has boosted the UK economy, in response to these calls, it recently ordered an inquiry into influencer culture through the Digital, Culture, Media and Sport Committee, as published in the Committee’s Influencer Culture: lights, camera, inaction? Report. Recommendations include urgent new legislation protecting kid influencers from exploitation, and the ASA’s and CMA’s governance powers increased to include possessing editorial control over social media content.

The urgency at which these suggestions are implemented into legislation remains to be seen, and as Julian Knight, the chair of the DCMS Committee, states, ‘it is now up to the Government to reshape the rules to keep pace with the changing digital landscape and ensure proper protections for all.’

Article written by Aqua Koroma