Author: Charlotte Gill

Samsung Chairman’s heart attack puts company at crossroads

Posted on by Charlotte Gill

The news that Samsung Electronics’ Chairman Lee Kun-Hee has been struck by a heart attack has led to considerable uncertainty at the South Korean technology empire. After suffering the heart attack on Sunday evening, 72-year-old Lee underwent emergency surgery. He remains unconscious, but has been described as being in a stable condition.

What happens next for the technology giant is unclear. Lee was responsible for transforming the company into one of the leading electronics manufacturers in the world over the last two decades. Assuming control of the firm in 1987, Lee focused heavily on transforming the company away from merely imitating other technology firms and into one of the leading television, memory chip and smartphone makers in the world.

It is thought that Lee will be succeeded by one of his three children. His son, 45-year-old Lee Jae-Young is currently Vice-Chairman of Samsung, while his youngest daughter, Lee Seo-Hyun, is President of Samsung Everland’s fashion division. Elder daughter Lee Boo-Jin currently heads up high-end hotel group Hotel Shilla.

It is thought that Lee will be succeeded by one of his three children

It is not the first time Lee has fallen ill. In 2000, the Samsung Chairman was treated for lung cancer, but managed to make a full recovery. He has also suffered from pneumonia. Over his career he has amassed a fortune of $12.9bn, making him South Korea’s richest person. Plans for his succession have been underway for a number of years as a result of his poor health, but it will certainly be a blow for the firm once he is replaced.

However, while many draw comparisons between Lee and Steve Jobs, former leader of Samsung’s biggest rival Apple, some don’t believe that his departure will affect the company in the same way that Jobs’ 2011 did to the US firm. Telecoms industry analyst Chetan Sharma told The New York Times that Lee’s influence at the firm has not been as significant. “Steve was the driving force behind all the products down to the last detail. [At Samsung] there are many senior executives who can step in and the world won’t notice. While Mr Lee built an empire in Samsung, he isn’t identified with the brand or the products as Mr Jobs was with Apple.”

Samsung is currently embroiled in a number of patent disputes with Apple, and was in 2012 ordered to pay almost $1bn to its US rival. However, the relationship between the two firms remains confused, as Samsung became Apple’s primary supplier of displays for the iPad during the first quarter of 2014. Settling these disputes and ensuring that Samsung remains at the forefront of consumer electronics will undoubtedly present Lee’s eventual successor with many decisions.

$35bn Publicis-Omnicom merger collapses despite high hopes

Posted on by Charlotte Gill

Publicis and Omnicom have agreed to call off a $35bn merger deal, bringing an end to months of flat advances and stuttered negotiations. And whilst the initial plans promised to create the world’s largest advertising firm by revenue, the risks of doing so proved too great for either firm to bear.

“The challenges that still remained to be overcome, in addition to the slow pace of progress, created a level of uncertainty detrimental to the interests of both groups and their employees, clients and shareholders,” wrote Maurice Lévy, Chairman and CEO of Publicis Groupe, and John Wren, President and CEO of Omnicom Group in a joint statement.

Since the initial plans for the deal were penned
last July, negotiations have been plagued by internal disputes

“We have thus jointly decided to proceed along our independent paths. We, of course, remain competitors, but maintain a great respect for one another.”

The deal was originally drawn up as a response to social media companies and search engine giants, such as Facebook and Google, which have recently come to account for a far larger piece of the advertising pie. The combined might of Publicis and Omnicom, however, would have been able to fetch far lower prices, rivalling even those on offer in the online advertising space.

The merger, once completed, would have seen Wren and Lévy join forces as co-chief executives, and the two firms combine the likes of BBDO and Ketchum with BBH and Saatchi & Saatchi to create nothing short of an advertising behemoth. What’s more, the deal would have united 130,000 employees under the Publicis Omnicom Group name.

Since the initial plans for the deal were penned last July, negotiations have been plagued by internal disputes, tax uncertainties and regulatory red tape, according to an unnamed source with knowledge of the situation, cited by the FT.

Publicis’s Wren estimated that the failed merger would cost the firm somewhere in the region of $55m to $60m, representing a stark contrast from the $500m in annual savings the two firms originally anticipated they would make as a result of the merger.

Siemens Rolls-Royce deal another strong move by CEO Joe Kaeser

Posted on by Charlotte Gill

Making major management changes, streamlining Siemens‘ structure and forging a billion-dollar deal to expand its energy business, chief executive Joe Kaeser is making his mark on the company he took over in August 2013.

In a £785m ($1.32bn) deal, the German industrial giant will buy most of Rolls-Royce‘s civil energy operations, which builds small electrical turbines. In this respect, the deal is a significant boost to Siemens’ turbine business, which is already one of the largest in the world. The firm’s energy sector alone has around 83,500 employees and made a profit of €1.9bn in 2013.

Siemens said in a statement that it expects the cost reductions and re-organisation will boost productivity by about £1bn a year

The acquisition will contribute 2,400 employees to Siemens’ energy division, which generated 38 percent of total revenue last year. Rolls-Royce will also receive £200m from Siemens in a 25-year licensing agreement.

Rolls-Royce, best known for making jet engines and luxury cars, generated about £1bn in underlying sales from its energy unit in 2013. The businesses being sold to Siemens contributed £871m in revenue and £72m in profit. Still, the British company has struggled to drive profits in the unit; hence a sell-off was planned, which would make the energy unit more competitive.

“This agreement will give the energy business greater opportunities as part of a much larger energy company and allows Rolls-Royce to concentrate on the areas of business where we can add most value,” Rolls-Royce CEO John Rishton said in a statement.

In addition to the deal, Siemens also appointed Lisa Davis to the company’s management board, as she takes over from Michael Süss in leading the group’s US energy businesses.
Kaeser simultaneously announced the de-emphasising of other units such as healthcare in order to streamline the business.

Siemens is planning a public listing of its hearing-aid unit, which employs more than 4,000 people, while the remaining health-care business will be managed separately from Siemens’s other operations and focus on digital products.

Siemens said in a statement that it expects the cost reductions and re-organisation will boost productivity by about £1bn a year starting with the fiscal year that ends in September 2016. The firm hopes that productivity will rise three to five percent a year, boosting profits, which slumped under Kaeser’s predecessor, Peter Loescher.

German pharma giant Bayer buys Merck consumer unit for $14.2bn

Posted on by Charlotte Gill

German pharmaceutical firm Bayer has agreed to acquire US rival Merck’s consumer care business for in a deal that will make Bayer one of the largest providers of over-the-counter products.

For a purchase price of $14.2bn Bayer gains control of well-known brands such as Claritin, Coppertone and Dr Scholl’s, as well as the sales of Claritin and Afrin in countries where they are prescription drugs.

Merck…will make an upfront payment of $1bn, as well as additional payments of up to $1.1bn depending on sales

Bayer also entered into a co-development and commercialisation agreement with Merck related to the treatment of cardiovascular diseases. Merck, which has been eager to step up its product innovation in order to boost revenues, will make an upfront payment of $1bn, as well as additional payments of up to $1.1bn depending on sales.

“The sale of our consumer care business is part of our efforts to ensure that assets within our portfolio align with our core strategy, have industry-leading potential and generate long-term shareholder value,” said Merck’s CEO and Chairman, Kenneth C Frazier, in a statement.

It is estimated that if the consumer care businesses of the two companies had been combined last year, the revenue would have been €5.5bn or about $7.6bn.

Bayer’s Chief Executive, Marijn E. Dekkers, told The New York Times that he jumped at the chance to buy Merck’s consumer portfolio in order to enlarge Bayer’s significant consumer products line.

Dekkers added that the deal would allow for global expansion of some of Merck’s most popular products, of which 70 percent are currently sold in the US.

“Bayer has a much more global presence, particularly in Europe and in emerging countries,” he said. “Our intention is to take some of these very good Merck brands and really aggressively promote them in other geographies.”

The deal is the latest in a series of major transactions in the pharmaceutical industry. Last month, the Swiss pharmaceutical giant Novartis and Britain’s GlaxoSmithKline swapped more than $20bn in assets, including combining their consumer drug businesses.

What’s more, Pfizer, the maker of best-selling drugs like Lipitor and Viagra, continues to pursue AstraZeneca despite the rejection of its $100bn offer last week.

The Bayer-Merck deal is subject to regulatory approval and is expected to close in the second half of 2014.

Apple awards new Retail Chief Angela Ahrendts $68m in shares

Posted on by Charlotte Gill

Apple has awarded incoming Retail Chief Angela Ahrendts stock compensation potentially worth $68.1m. The golden handshake is in keeping with Apple’s tradition of rewarding executives well in order to retain top talent. According to a 2013 proxy data review by Equilar, four of the six top paid tech executives have worked at the company.

Ahrendts has finally debuted in her role of Retail Chief at the tech giant, after her departure from Burberry was announced last October. She has replaced John Browett, who left the position after just six months. Ahrendts is now the only woman in Apple’s ten-strong executive team, under the leadership of CEO Tim Cook.

Ahrendts is now the only woman in Apple’s ten-strong executive team

In addition to the generous welcome package offered by Apple, Ahrendts has also been awarded a generous farewell package from her previous employer. Burberry has revealed in a statement that the former CEO will receive her annual salary of £1m, as well a cash bonus worth up to £2.1m, though she will miss out on a series of other share bonuses which might have netted her as much as £17m, if taken at current share prices. She will, however, walk away with 112,500 shares relating to her performance since 2009, and a further number of shares relating to her performance from 2011 onwards – neither of which will be vesting before June.

Ahrendts left Burberry after orchestrating a revival of the traditional British brand. Christopher Bailey, who has held a creative role at the company since 2001, but has never exercised an executive position, has replaced her at Burberry.

The majority Ahrendts’ Apple stock will vest over four years, so long as she remains with the company, though a portion of it, worth $10.3m today, is tied to her performance, measured by relative total shareholder return.

Since Browett’s departure in October 2013, the position of Retail Chief at Apple has remained vacant, which has impacted the performance of its stores. Average revenue per location has dropped from $29.4m in the first six months of 2013, to $29.1m over the same period this year. Close to 11 percent of Apple’s revenues come from its stores.

General Electric bids $16.9bn for Alstom – but France blocks deal

Posted on by Charlotte Gill

General Electric’s push into the European energy sector has hit a snag after the French government said it would oppose any takeover bid for domestic firm Alstom’s power business. At the end of April, GE had a $16.9bn offer accepted by Alstom’s board for its energy business, which makes up the vast majority of the company’s operations. However, in response to the news, France’s socialist government has said it would be against any takeover by the American firm.

In a letter to GE’s CEO Jeff Immelt, France’s Industry Minister Arnaud Montebourg said that the current terms of the deal did not do enough to maintain a French influence. Instead, Montebourg said the offer amounted to a full takeover that would not necessarily be good for France’s energy sector.

Montebourg said the offer amounted to a full takeover that would not necessarily be good for France’s energy sector

“While it is natural that GE would be interested in Alstom’s energy business, the government would like to examine with you the means of achieving a balanced partnership, rejecting a pure and simple acquisition, which would lead to Alstom’s disappearing and being broken up.” He added, “In its current form, we unfortunately cannot give backing to the proposals that you have made, based solely on the purchase of Alstom’s energy activities.”

Montebourg said that it was hoping to maintain the country’s “technological sovereignty” at a time where many international investors are looking to pick off some of the country’s leading businesses. With France’s economy stuttering in recent years, the country’s energy sector has appeared ripe for foreign takeovers.

A rival bid from German technology giant Siemens is said to be on the cards that would potentially lead to swaps between the two companies’ power and rail businesses. While the French government is reportedly keen to strengthen France-German business ties, any such deal would almost certainly lead to large-scale job losses at Alstom. Aside from its power business, Alstom is the manufacturer of the high-speed TGV trains that directly compete with Siemens train designs.

After news of the bid, Montebourg said in a statement that both offers would be considered. “General Electric and Siemens are two important investors in France, and top-ranking players in our national industrial fabric. The government is prepared to consider their plans, with the concern of preserving the interests of France’s industrial base, and to participate financially.”

Pfizer’s increased bid rejected by AstraZeneca board

Posted on by Charlotte Gill

The battle to control one of the UK’s leading pharmaceutical giants has intensified after US firm Pfizer upped its bid to £50 a share, valuing AstraZeneca at a colossal £63bn. The bid came after news that Pfizer was making public its intentions to acquire AstraZeneca. The deal would be the largest foreign takeover of a British firm in history, but was quickly rejected.

AstraZeneca’s stance echoes the one it made in January after Pfizer sounded out the board over an acquisition. Pfizer returned with a public declaration of interest in late April after AstraZeneca’s leadership had recently discussed plans to spin off a number of its operations.

Despite the large amount Pfizer is offering there has been a considerable amount of concern over what the deal would mean for AstraZeneca’s 6,700 UK-based employees and the country’s science community in general. Many in the industry think that Pfizer would look to relocate much of the business to the US, but the company has attempted to address these concerns in a letter to Prime Minister David Cameron.

Pfizer claim they will maintain AstraZeneca’s science campus in Cambridge, as well as relocating much of its business to the UK

Pfizer claim they will maintain AstraZeneca’s science campus in Cambridge, as well as relocating much of its business to the UK. CEO Ian Reed said, “We recognize that our approach may create uncertainty for the UK Government and scientific community given the strategic importance of life sciences to the Government’s Industrial Strategy and the significance of the transaction. We would therefore like to assure the Government of our long term commitment to the UK where Pfizer already employs a significant number of colleagues across Research, Commercial, and Administrative roles.”

Despite these assurances, many still believe that Pfizer’s track record hints at a series of job cuts after it makes a strategic acquisition, pointing to its takeovers of Warner-Lambert in 2000, Pharmacia in 2003, and Wyeth in 2009. For example, after the Wyeth deal the company had an additional 47,000 jobs, taking it to 129,226 employees.

However, this would be steadily reduced over the next few years, with it hitting 116,500 in 2009 and now sitting at 77,700. While not all linked to job cuts, the firm does have a history of axing jobs after takeovers, as the Wall Street Journal points out.

Lord Heseltine, former government minister and an economic advisor to David Cameron, told the BBC that the government should have more say in what happens when a foreign firm is looking to takeover UK businesses. “Foreign takeovers can often be hugely helpful and I have no doctrinal preoccupations – I’ve done enough takeovers of small businesses myself to know how valuable they can be.

“But the important point is that every other advanced economy has mechanisms of some sort on a failsafe basis to scrutinise foreign takeovers and we’re the only country that doesn’t.”

Heseltine added that the UK’s science community is envied around the world, and should be at the centre of the country’s future economic ambitions. This, he believes, should mean even more scrutiny over any potential foreign takeovers. “There are so many issues about the science base, about the supply chains, about employment prospects that ought to be explored and I don’t see any way in which this can be adequately done unless the government has reserve powers.

“It’s a question of where their headquarters are, where the decisions are taken, who determines what research is done and where, how much government money goes into supporting the science base within a co-operative arrangement, where the supply chains are going to be and what the motive is.”

Vehicle sales in Japan drop as Abe struggles to control debt

Posted on by Charlotte Gill

Vehicle sales in Japan have declined to the lowest levels in almost two years, as tax hikes imposed by Prime Minister Shinzo Abe kicked in. The increase in consumption tax is the first of its kind in Japan in over 17 years, causing vehicle deliveries to come tumbling down.

Abe has been struggling to get the world’s biggest debt burden under control, and the increase in consumption tax from five to eight percent in April is a part of his plan. It had caused automobile sales to soar in the seven months before the hike, but now there are fears that the increased levy will cause a fierce consumer backlash.

As this type of spending dwindles, Japan may face the biggest economic compression it has seen since the earthquake and tsunami struck the coast three years ago

Vehicle deliveries in the island nation dropped 5.5 percent year-on-year in April, according to industry data. “We are likely to face a very tough situation in May and June in terms of new orders,” Yoshitaka Hayashi, director of the Japan Automobile Dealers Association told reporters at a press conference.

The decline has brought sales down to their lowest levels since 2012. According to research firm IHS Automotive, automotive sales in Japan are likely to drop by as much as 18 percent between April and June, compared to the same period last year.

The disappointing figures, however, may be symptomatic of a much bigger problem. Since the tax hike was announced, consumers have been preparing for the increase by buying bigger items, artificially inflating spending figures in the months leading to April.

According to government figures household spending in March peaked to the highest levels since 1975, as consumers binged ahead of the tax hikes; despite real disposable income for working families dropping by 3.2 percent.

As this type of spending dwindles, Japan may face the biggest economic compression it has seen since the earthquake and tsunami struck the coast three years ago.

“It is difficult to tell at this stage whether the economy is doing better than we had expected, or whether the remaining orders had played a big role,” IHS senior analyst Satomi Hamada told Reuters. Historically, however, the last time consumption tax was raised in 1997 from three to five percent, automobile sales dropped 15 percent over the following 21 months.

Mark Fields becomes Ford’s new CEO as Mulally steps down

Posted on by Charlotte Gill

American automaker Ford has revealed that former COO Mark Fields will succeed Alan Mulally as its new Chief Executive on July 1, six months sooner than previously anticipated. The appointment will bring an end to Mulally’s eight years at the helm, through which time he has instrumented an impressive rise from near bust to boom.

“Alan deservedly will be long remembered for engineering one of the most successful business turnarounds in history,” said the company’s Executive Chairman Bill Ford in a press release. “Under Alan’s leadership, Ford not only survived the global economic crisis, it emerged as one of the world’s strongest auto companies. We always will be grateful to Alan for his leadership, compelling vision and for fostering a culture of working together that will serve our company for decades to come.”

The California-born CEO has led the company’s One Ford vision since September 2006 after being brought in from Boeing, and while his initial two years resulted in losses of $30bn, the five years from 2008 onwards reeled in an impressive $42bn. The company this year is expected to post a pretax profit of $8bn, as Fields readies to take the reins at an opportune time for America’s number two automaker.

[W]hile his initial two years resulted in losses of $30bn, the five years from 2008 onwards reeled in an
impressive $42bn

Fields, 53, was made COO as recently as December 2012; however, since October 2005 he has served as Executive Vice President and President of the company’s American operations. The company veteran, who joined Ford in 1989, has been widely accredited with righting the company’s North American business, having led the department from consistent annual losses to record profits in each of the last four years.

Prior to his American endeavours, Fields instrumented a product-led transformation of Ford’s European operations, which again serves to underline his proven ability to lead the company’s global operations onwards and upwards.

What’s more, having worked closely alongside Mulally, Fields is expected to lead the company in much the same way. “Ford’s future is so bright, and Mark – supported by an experienced and dedicated senior leadership team – is absolutely the right leader to continue to deliver on our compelling vision,” said Mulally.

China’s economy could be the world’s number one of 2014

Posted on by Charlotte Gill

China’s economy is catching up to the US’ quicker than anticipated, as it’s set to overtake the country as the world’s number one economy this year. That’s according to a new report from the International Comparison Program of the World Bank.

The 2011 ICP assesses economies based on purchasing power parity, an estimate of the real living costs. The results revealed a different picture of the global economy compared with the last update in 2005, with the ICP concluding that money goes further in poorer countries than previously suggested, prompting the statistical agency to increase the relative size of emerging market economies.

[T]he ICP figures based on purchasing power have caused economists and media such as the FT to predict that China could overtake the US as early as this year

The research puts China’s GDP at 87 percent of the US in 2011. In the 2005 study, the ICP believed China’s economy was less than half the size of the US (43 percent).

“The United States remained the world’s largest economy, but it was closely followed by China when measured using PPPs,” the report said, adding that China’s share of world GDP more than doubled relative to the US.

Rapid growth has led many economists to suggest that China, the world’s second biggest economy, would move into the number one position over the next few years. The latest findings from the ICP could fuel a debate on whether that is likely to happen sooner rather than later.

So far, regular GDP power rankings converting a country’s GDP into US dollars at market exchange rates, have emphasised that China’s economy would not overtake the US for another decade or so. In 2012, the US’s economy was valued at over $16trn, twice the size of China’s, according to the World Bank, suggesting that China, won’t be the world’s biggest economy until 2020 at the earliest.

However, the ICP figures based on purchasing power have caused economists and media such as the FT to predict that China could overtake the US as early as this year. This primarily comes down to the IMF expecting Chinese growth of 24 percent between 2011 and 2014, compared to a US expansion of only 7.6 percent.

Rajeev Suri becomes Nokia’s new CEO after Microsoft takeover

Posted on by Charlotte Gill

A week after Microsoft completed its takeover of Nokia’s mobile phone division, it has been announced that Rajeev Suri, a Nokia veteran of 20 years, will take over the helm of the new Nokia Solutions and Networks. The newly created unit will be its new flagship line of operations, after the sale of its phone unit.

Suri has been the head of Nokia’s network equipment unit since 2009, and was instrumental in making that division profitable. According to Risto Siilasmaa, Chairman of the Finnish company, Suri “ has a proven ability to create strategic clarity, drive innovation and growth, ensure disciplined execution, and deliver results.”

Meanwhile, former CEO, Elop, has suggested that Nokia’s mobile devices brand will not survive for much longer in Microsoft

Nokia completed the sale of its mobile phone division to Microsoft last week for close to €7.5bn. It has since announced plans to spend €5n on dividends, share buybacks and debt reduction, as it restructures the remainder of the company. Suri’s appointment reinforces the company’s plans to refocus its energies on wireless-network equipment. According to a statement, Nokia plans to pay over €800m in ordinary dividends covering 2013 and 2014, and an additional €1bn in special dividend payment. It will also create a €1.25bn share repurchase programme over 2013. A further €2bn will be put towards debt reduction over the next two years.

In the same statement the company said it expected billions of connected devices will converge into intelligent and programmable systems over the next ten years, creating great opportunity. “Nokia’s strategy is to develop its three businesses in order to realize its vision of being a technology leader in a connected world and, in turn, create long-term shareholder value,” said new CEO Suri. “Our goal is to optimize the company so that each business is best enabled to meet its goals. Where it makes sense to do so, we will pursue shared opportunities between the businesses, but not at the expense of focus and discipline in each.”

Meanwhile, former CEO, Elop, has suggested that Nokia’s mobile devices brand will not survive for much longer in Microsoft. “Nokia as a brand will not be used for long going forward for smartphones,” Elop said on Nokia’s Conversations blog. “Work is underway to select the go-forward smartphone brand.”

Microsoft remains the world’s largest PC manufacturer and it hopes to break into the competitive mobile devices market with the takeover of Nokia’s phone business. Elop has not shared any more details of how Microsoft plans to take Nokia forward, though it is clear that a brand distinction will have to be created to distinguish the phone business from the rest of the company.

Netflix price rise essential despite healthy first quarter profits

Posted on by Charlotte Gill

In what amounted to an unexpected state of affairs for most analysts, Netflix posted healthy first quarter profits of $53m, owing to an influx of new members. The video streaming firm is now the world’s leading internet television network, and boasts an international user base of 48m, spread across 40 countries.

“We are approaching 50m global members, but that is far short of HBO’s 130m. We are eager to close the gap”, wrote the company’s CEO Reed Hastings in a letter addressed to shareholders.

A price hike for customers should be seen as absolutely essential if the firm is to stay in
the black for the foreseeable future

An influx of 2.25m new US members in the first quarter has been attributed to the company’s focus on exclusive programming, with House of Cards picked out by Hastings as a prime example of the firm’s strengths in this field. That being said, the Netflix CEO expects second quarter domestic net additions to fall 0.11m short of the same period a year previous.

Netflix’s impressive results do, however, coincide with plans to raise its monthly subscription prices for new members at a later date this year.

Hastings, in the letter, goes on to emphasise that existing customers will be exempt from the increase for the rest of this year, and will be required instead to pay the eight dollar monthly fee in place today.

The streaming service has been grappling for some time now with increased licensing costs associated with some of its high-end shows, which has forced the firm to pay out more now than ever before in order to compete with long-established networks.

Therefore, a price hike for customers should be seen as absolutely essential if the firm is to stay in the black for the foreseeable future.

The last time Netflix upped its subscription fees, however, customers cancelled subscriptions, and as a result the firm lost 800,000 subscribers. Nonetheless, the rate increase was 60 percent in last time around in 2011, whereas this year it is expected to be somewhere around the $1-2 mark.