Posts in category Business


ApprovedBusinessBusiness and finance

Lee Jae-yong dodges arrest on charges of bribery

THE deal which did most to secure Lee Jae-yong’s control over South Korea’s biggest conglomerate threatened this week to ruin him. On January 16th special prosecutors accused Mr Lee, the only son of Samsung’s chairman, Lee Kun-hee, of bribery, embezzlement and perjury. But three days later a court rejected a request to arrest him, as a suspect in an investigation into a vast influence-peddling case that led last month to the South Korean president’s impeachment. It saw “no reasonable grounds” to detain him while prosecutors pursue their probe.

For now, the result is a victory for Samsung. Prosecutors had accused Mr Lee of paying 43bn won ($36m) into sports and cultural organisations controlled by Choi Soon-sil, a former confidante of Park Geun-hye, the president: the biggest-ever sum in a South Korean bribery charge. In return for that grant, they allege, Samsung secured government support for a controversial $8bn merger of two affiliates—Cheil Industries, the group’s de facto holding company, and Samsung C&T, its construction arm—in July 2015. That support, they say, came from a vote cast by the state-run National Pension Service…Continue reading

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ApprovedBusinessBusiness and finance

A big fine for Rolls-Royce is not its only worry

FOR those who still associate Rolls-Royce with its past as a posh carmaker, its home on a scruffy industrial estate comes as a shock. Yet it is there the engine-maker assembles the Trent XWB, the second-biggest commercial jet engine in the world. Some components are made to a tolerance of 50 microns—the width of a human hair. The job of running the firm is a bit messier.

On January 16th, in a deal with American, British and Brazilian regulators, Rolls agreed to cough up £671m ($809m) to settle allegations that it had in the past secured sales with bribery. The fine is the largest-ever imposed by Britain on a firm for criminal conduct. But given the wrongdoing the deferred prosecution agreement outlines, the firm got off lightly (the co-operation of the company’s more recent management helped). It admitted a dozen counts of corruption and bribery in seven countries, spanning decades. This included giving officials money, hotel stays and even a luxury Rolls-Royce car to secure engine sales. Rolls has since cut its use of the freewheeling third-party consultants who got the company in trouble, and promises better oversight of all staff. If it errs…Continue reading

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ApprovedBusinessBusiness and finance

A merger is the latest sign of Big Tobacco’s resilience

BRITISH AMERICAN TOBACCO (BAT) announced on January 17th a final deal to buy Reynolds American for $49bn. BAT already owns 42% of Reynolds; buying the rest of it will create the world’s largest listed tobacco company by sales and profits. It will peddle brands such as Dunhill, Camel and Newport. The casual observer might imagine the deal to be a frantic bid to revive an ailing industry. On the contrary. Cigarettes may kill you, but the big companies that make them are rather healthy.

That is despite a decline in smoking rates. In 2015 just over a fifth of adults smoked, estimates the World Health Organisation, down from almost a quarter ten years earlier. This drop hardly helps companies, but it isn’t ruinous either.

Smoking is still popular in certain spots. More than three-quarters of men light up in Indonesia, for example. The habit is becoming more common among men in Africa and the eastern…Continue reading

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ApprovedBusinessBusiness and finance

Businesses can and will adapt to the age of populism

AS THEY slid down the streets of Davos this week, many executives will have felt a question gnawing in their guts. Who matters most: shareholders or the people? Around the world a revolt seems under way. A growing cohort—perhaps a majority—of citizens want corporations to be cuddlier, invest more at home, pay higher taxes and wages and employ more people, and are voting for politicians who say they will make all that happen. Yet according to law and convention in most rich countries, firms are run in the interest of shareholders, who usually want companies to use every legal means to maximise their profits.

Naive executives fear that they cannot reconcile these two impulses. Should they fire staff, trim costs and expand abroad—and face the wrath of Donald Trump’s Twitter feed, the disgust of their children and the risk that they’ll be the first against the wall when the revolution comes? Or do they bend to popular opinion and allow profits to fall, inviting the danger that, in the run up to their 2018 annual general meeting, a fund manager from, say, Fidelity or Capital will topple them for underperformance?

Wiser executives…Continue reading

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ApprovedBusinessBusiness and finance

Two big European makers of eyewear agree to merge

GIANT, cross-border mergers in Europe have been rare in recent years. Deals fail to happen even when mid-sized companies—such as family-owned and run specialist manufacturers in northern Italy or the Mittelstand in Germany—have the chance to gain global heft. For that blame founding owner-managers, many of whom are reluctant to lose control of treasured companies. Blame too an artisanal culture, particularly in southern Europe, in which firms’ owners say they are content to remain small and relatively obscure. Occasionally, too, nationalist politicians block efforts by perfidious foreigners to snaffle prized local brands.

Now, though, one of the largest-ever mergers in Europe actually looks set to go ahead. Luxottica, an Italian maker of fancy specs that was founded in 1961—it owns brands such as Ray Ban and Oakley—is to merge with Essilor, a spiffy French producer of lenses. The joint entity is set to combine Italian style with deft French engineering. The deal is supposed to be completed by the end of the year, creating a new entity with a market value of €46bn ($49bn), 140,000 staff and annual revenues of €15bn. It will be…Continue reading

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BusinessBusiness and finance

American regulators accuse Fiat Chrysler of emissions cheating

FOR each of the past three years, Fiat Chrysler Automobile’s (FCA) 3 litre V6 turbodiesel has made it to a list of the industry’s top ten engines compiled by Ward’s, a distinguished American car-industry trade publication. Its place on the shortlist for 2017 must now be in doubt. On January 12th America’s Environmental Protection Agency (EPA) accused FCA (whose chairman, John Elkann, sits on the board of The Economist’s parent company) of using illegal software in conjunction with the engines. This, it says, allowed 104,000 vehicles—mostly Dodge pickups and some Jeeps, fitted with the 3 litre V6 turbodiesel—to exceed legal limits of toxic emissions.

The news sent the firm’s shares plummeting by 17%, before recovering somewhat. Nervous investors feared a repeat of the huge penalty imposed on Germany’s Volkswagen (VW) for cheating American emissions laws. A day earlier VW had agreed to pay a criminal fine of $4.3bn for selling around 500,000 cars fitted with so-called “defeat devices” that are designed to reduce emissions of nitrogen oxide (NOx) under test conditions. With the latest sum included, its final bill…Continue reading

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ApprovedBusinessBusiness and finance

Africa’s largest iron-ore deposit has tainted all who have touched it

Now everyone sees red

ON THE flanks of the Simandou mountains in south-eastern Guinea live remote colonies of West African chimpanzees. They alone should be grinning over the fate of those who have sought to turn their tropical habitat into Africa’s biggest iron-ore mine. No one else is laughing. Rarely has such a group of billionaires, hedge-fund barons, mining firms, government officials and go-betweens been snagged in such a woeful saga.

In theory, the prospect of digging up 2bn tonnes of ore from a country that is among the poorest on Earth should be encouraging, if corruption is kept in check. The government of Alpha Condé promised to do so upon taking office in 2010. But in reality the line between paying go-betweens to help win concessions and lining officials’ pockets is so blurry that it can cause mining firms endless trouble.

In recent months the plotline has shifted. During the past half-decade the businessman painted as the saga’s pantomime villain has been Beny Steinmetz, a globe-trotting Israeli diamond merchant, worth billions, whose lurid battles over Simandou with Rio Tinto, one of the…Continue reading

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ApprovedBusinessBusiness and finance

A handful of startups are launching ride-hailing for children

“HELICOPTER parent” may sound like an insult, but given the chance, most parents would probably opt for the help of a chopper to zoom little ones between school, football practice and piano lessons. Getting children where they need to go is a huge hassle and expense, especially in homes where both parents work. Hailing rides through firms like Uber and Lyft has made life more convenient for adults. But drivers are not supposed to pick up unaccompanied minors (although some are known to bend the rules).

Youngsters represent a fresh-faced opportunity. Ride-hailing for kids could be a market worth at least $50bn in America, hopes Ritu Narayan, the founder of Zum, one of the startups pursuing the prize. These services are similar to Uber’s, except they allow parents to schedule rides for their children in advance. Children are given a code word to ensure they find the right driver, and parents receive alerts about the pick-up and ride, including the car’s speed. These services promise more rigorous background checks, fingerprinting and training than typical ride-hailing companies.

Annette Yolas, who works in sales at AT&T, a wireless…Continue reading

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ApprovedBusinessBusiness and finance

A rush to patent the blockchain is a sign of the technology’s promise

FOR fans of bitcoin, a digital currency, the year got off to a volatile start. On January 5th one bitcoin changed hands for nearly $1,150—almost as much as the record set three years ago. It has since dropped by 33%. Elsewhere in the land of monetary bits, things move more slowly but trouble is brewing: a potential patent war looms over the blockchain, a distributed ledger that authenticates and records every bitcoin transaction.

Heated fights over intellectual property are nothing new in promising technology markets. But given that the blockchain is expected to shake up everything from the way precious diamonds are safeguarded to the way shares are traded, the legal fights could be especially fierce.

On the face of it, the blockchain does not lend itself easily to staking out intellectual-property claims. Bitcoin’s creator, known only by his pseudonym, Satoshi Nakamoto, published a paper about his invention, coded the first implementation and then disappeared—meaning that the core of the technology is now part of the public domain and only important additions and variations could be patented. And the blockchain’s components are widely known. In America court decisions as well as a new law on the granting of patents make it difficult to claim ownership for such financial innovations.

This hasn’t stopped firms from trying to get patent…Continue reading

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ApprovedBusinessBusiness and finance

A controversial transaction sits at the heart of Liberty Media’s takeover of Formula One

ON JANUARY 17th shareholders of Liberty Media Corporation, an American firm controlled by John Malone, a billionaire, are expected to approve a transaction that many hail as the sports deal of the decade. In September 2016 Liberty agreed to buy the Formula One (F1) motor-racing franchise from CVC, a private-equity group, for $8bn. F1, which generates annual revenue of $1.8bn, is now central to Liberty’s global plans: in a sign of the importance he attaches to the deal, Mr Malone has installed Chase Carey, a former president of Rupert Murdoch’s 21st Century Fox, as F1 chairman. The main Liberty subsidiary is to be renamed Formula One Group.

The deal has lots of attractions. For F1 it offers a potential solution to the problem of who will take over from Bernie Ecclestone, its 86-year-old impresario. There was no credible succession plan for the man whose wheeling and dealing has long held together the sport and its fractious collection of racing teams. With Mr Carey leading the search, there could be.

As for Liberty, F1 offers the sort of live, exclusive content it needs to lock in audiences that are peeling off to on-demand streaming…Continue reading

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BusinessBusiness and financeIncoming

Adidas’s high-tech factory brings production back to Germany

Impossible is nothing

BEHIND closed doors in the Bavarian town of Ansbach a new factory is taking shape. That it will use robots and novel production techniques such as additive manufacturing (known as 3D printing) is not surprising for Germany, which has maintained its manufacturing base through innovative engineering. What is unique about this factory is that it will not be making cars, aircraft or electronics but trainers and other sports shoes—an $80bn-a-year industry that has been offshored largely to China, Indonesia and Vietnam. By bringing production home, this factory is out to reinvent an industry.

The Speedfactory, as the Ansbach plant is called, belongs to Adidas, a giant German sports-goods firm, and is being built with Oechsler Motion, a local firm that makes manufacturing equipment. Production is due to begin in mid-2017, slowly at first and then ramping up to 500,000 pairs of trainers a year. Adidas is constructing a second Speedfactory near Atlanta for the American market. If all goes well, they will spring up elsewhere, too.

The numbers are tiny for a company that makes some 300m pairs of sports…Continue reading

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ApprovedBusinessBusiness and finance

Ford Motors courts Donald Trump by scrapping a planned plant in Mexico

IT WAS in the spring of 2016 that Donald Trump singled out Ford Motors, calling its plans to build a plant in Mexico an “absolute disgrace” and promising it would not happen on his watch. Back then, it seemed remarkable that the candidate thought he could boss around a firm of Ford’s stature. On January 3rd Ford cancelled its $1.6bn project in the Mexican state of San Luis Potosí and said it would instead invest $700m into an existing plant in Flat Rock, Michigan, to build electric and autonomous cars.

Ford’s manoeuvre seems more wheel-spin than U-turn. Mr Trump’s strong-arming of corporate America is real enough, and the carmaker will have gained much favour with the president-elect. But its decision can be explained largely in operational terms. The original plan was for the new Mexican plant to build chiefly Focus cars—small passenger vehicles for which demand has fallen, thanks to America’s love affair with SUVs, crossovers and pick-up trucks and to low petrol prices. The decision to scrap the new plant looks far more like Ford reducing its exposure to the small-car game in North America than reducing its footprint in Mexico, says George…Continue reading

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ApprovedBusinessBusiness and finance

The three Rs behind global banks’ recovery

IN THE Bible, seven years of feast were followed by seven years of famine. For banks there have been ten lean years. Subprime-loan defaults started to rise in February 2007, causing a near-collapse of the industry in America and Europe. Next came bail-outs from governments, then years of grovelling before regulators, mass firings of staff and quarter after quarter of poor results that left banks’ shareholders disappointed. Now, a decade later, the moneylenders are quietly wondering if 2017 is the year in which their industry turns a corner.

Over the past six months the FTSE index of global bank shares has leapt by 24%. American banks have led the way, with the value of Bank of America rising by 67%, and that of JPMorgan Chase by 39%. In Europe BNP Paribas’ market value has risen by 52%. In Japan shares in the lumbering Mitsubishi UFJ Financial Group—the rich world’s biggest bank by assets—have behaved like those of a frisky internet startup; they are up by 57%. Predictions about global banks’ future returns on equity have stopped falling, note analysts at UBS, a Swiss bank. Some of the biggest casualties of the financial crisis are even…Continue reading

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ApprovedBusinessBusiness and finance

Toshiba admits to a ruinous overpayment for an American nuclear firm

Ritual contrition

THE probe in 2015 into one of Japan’s largest-ever accounting scandals, at Toshiba, an electronics and nuclear-power conglomerate that has been the epitome of the country’s engineering prowess, concluded that number-fiddling at the firm was “systemic”. It was found to have padded profits by ¥152bn ($1.3bn) between 2008 and 2014. Its boss, and half of the board’s 16 members, resigned; regulators imposed upon it a record fine of $60m.

Now its deal-making nous is in doubt too. In December 2015—the very same month that it forecast hundreds of billions of yen in losses for the financial year then under way, as it struggled to recover from the scandal—Toshiba’s American arm, Westinghouse Electric, bought a nuclear-construction firm, CB&I Stone & Webster. One year on, on December 27th, Toshiba announced that cost overruns at that new unit could lead to several billions of dollars in charges against profits.

Its shares fell by 42% in a three-day stretch as investors dumped them, fearing a write-down that could wipe out its shareholders’ equity, which in late September stood at…Continue reading

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BusinessBusiness and finance

Nestlé looks for ways to boost stale growth as consumers snub unhealthy food

LARGE food companies have long been among the world’s most solid, with reassuringly consistent returns even in hard times. None would seem steadier than Nestlé, based in the Swiss town of Vevey, on a lake near snowy peaks. For its 150th anniversary in 2016 it opened a new museum filled with corporate heirlooms: the first written notes about a new product called milk chocolate, laid out in black cursive; an old tin of Nescafé, used by soldiers as a stimulant in the second world war; and an early can of Henri Nestlé’s infant formula, which in 1867 saved the life of a premature baby.

It has come a long way since then. It sold goods worth nearly $90bn in 189 countries in 2015. Of the 30,000 cups of coffee sipped around the world each second, Nestlé estimates, one-fifth are cups of Nescafé. But the industry it presides over is in upheaval. On January 1st a new chief executive, Ulf Mark Schneider (pictured), took over. He is the first outsider to get the top job since 1922, and his background—running a health-care firm, not selling chocolate bars or frozen pizza—suggests the main source of worry for the business.

More and more…Continue reading

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