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HOW A TRUMP PRESIDENCY COULD IGNITE M&A ACTIVITY IN THE UK

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HOW A TRUMP PRESIDENCY COULD IGNITE M&A ACTIVITY IN THE UK

The rise of Donald Trump has confounded political analysts and economists alike. Viewed with scepticism by the markets and lacking any political experience, Trump has brought volatility to an already unsettled market with his protectionist rhetoric and threats to tear up trade deals. M&A activity,dependent upon market confidence, is predicted to fall in this climate of uncertainty. But despite the fears of American isolationism, the UK/US M&A corridor could benefit from a Trump presidency.

Howard Leigh

Howard Leigh

Lord Leigh of Hurley, Senior Partner at Cavendish Corporate Finance, the leading UK sell-side M&A specialist, which sells more businesses to companies from the US than from any other country, and who was at the Republican convention in Cleveland, Ohio, earlier this year, below shares his insight into how a Trump presidency could boost inward investment into the UK and potentially ignite M&A activity.

Strong historical and cultural links, the comparable strength of the dollar to the pound, and Trump’s suggestion of a preferential UK/US trade deal all suggest that the UK will continue to be an attractive place for US companies to make acquisitions.

The US has been a global leader in M&A deals in recent times. Last year US companies announced acquisitions worth $1.7 trillion, the highest in 15 years and contributing almost 35% to the record breaking $4.3 trillion spent globally on M&A transactions.Historically, US companies have been keen to channel much of this money into UK businesses, with the US/UK M&A market remaining the largest bilateral cross border corridor in the world by value and by volume.

US companies spent $51 billion on acquiring UK companies in 2015, with the combined US/UK deal corridor amounting to $91 billion, and there are almost two US acquisitions in the UK for every one UK acquisition in the US. Apart from purely commercial reasons, US buyers are also far more comfortable with undertaking transactions under UK law, which is far closer to the US legal system than the legal systems in Continental Europe. Leading US corporate such as Fortress Investment Group LLC, AMC Entertainment Holdings, and Liberty Media Corporation have all made substantial UK acquisitions.

However, US/UK transaction volumes fell in 2016. A climate of uncertainty has settled on the market due to a slowing Chinese economy, low oil prices, and Brexit, all generating caution amongst investors. As a result, US acquisitions amounted to only $15.4 billion of deals, down from $18.4 billion in the same period last year.

With Trump as President, however, we may expect policies and actions that will energise a slowing M&A market and channel investment into the UK. Trump’s desire to stimulate the US economy by lowering tax rates on US companies and pledging funds to major infrastructure projects will likely coincide with a loosening of regulation which could inject some positivity into the world economy. Large infrastructure projects could lead to cross-border consolidation, with UK expertise and industrial strength offering much to US build schemes.

The announcement of Trump’s success resulted in relatively benign market fluctuations with the US Dollar Index up more than 2% since the election and making sterling-based purchases attractive. Whilst many M&A deals are part of long term strategies, the weak pound will increase the probability of such transactions being completed and allow buyers to capitalise on the transactional benefit of weak Sterling by achieving faster returns.

Any decline in the competitiveness of American exporters may be balanced by Trump’s promise of a repatriation tax break, promising to cut taxes on funds US companies have stored outside of the country to 10% which could increase outbound deals. US companies have a total of $1.3 trillion in overseas funds. The 35% US corporate tax rate has troubled Trump, making businesses less attractive in domestic markets, and so the prospect of diversifying their company assets by buying UK companies could increase inward investment.

Also, in the UK, HMRC is focusing more on abuses of transfer pricing and this is likely to prompt subsidiaries of US companies in the UK to book more profits here. This could also lead to more US companies using these earnings to target and increase UK acquisitions.

Trump’s rejection of NAFTA and TTP, on the grounds that US companies lose out to under-performing foreign businesses, could result in a new bilateral trade treaty between the US and the UK. Brexit has weakened the significance of TTIP, given that its main attraction for the US was that it included free trade with Britain. With a general rise in political hostility to trade deals between the US and the rest of the world, it is likely that Trump will look to secure ties between countries which offer the most advantageous benefits and culturally similar values to the US. Indeed, during my visit to the Republican convention earlier this year I encountered great enthusiasm amongst delegates for a UK/US trade deal and calls that this should be made a priority.

For US investors looking to duplicate their business models outside their domestic markets, the UK remains an attractive location. The two countries share much in terms of market fundamentals, with similar business and legal environments, and so it makes sense for businesses to deploy their funds in a market that investors believe they understand.

Similarly the technology, media and telecommunication sector continues to drive US/UK deals, with over 25% of M&A takeovers involving TMT companies and assets. What is relevant within the US is equally applicable within the UK and, as tech companies operate in a dynamic sphere, M&A is much more valuable and critical to a firm’s success. With possible restrictions on visas for US based companies, businesses may look to capitalise on the wealth of talent in the UK and the benefits of operating in the world’s biggest tech hub.

Whilst it is impossible to predict the direction a Trump presidency will take, ultimately a Republican president will be more pro-business and light regulation. As Trump wrote in his 1987 bestseller The Art of the Deal: “The worst of times often create the best opportunities to make good deals”.

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Audi aims to sell one million cars in China in 2023

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Audi aims to sell one million cars in China in 2023 1

BEIJING (Reuters) – German premium automaker Audi aims to sell 1 million vehicles in China in 2023, versus 726,000 vehicles in 2020, the brand’s China chief Werner Eichhorn said on Wednesday.

Audi, which is making cars in the world’s biggest auto market with FAW Group, will also add more products in China, Eichhorn said. Audi’s rivals include Daimler and BMW.

(Reporting by Yilei Sun and Brenda Goh; Editing by Himani Sarka

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Netflix forecasts an end to borrowing binge, shares surge

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Netflix forecasts an end to borrowing binge, shares surge 2

By Lisa Richwine and Eva Mathews

(Reuters) – Netflix Inc said on Tuesday its global subscriber rolls crossed 200 million at the end of 2020 and projected it will no longer need to borrow billions of dollars to finance its broad slate of TV shows and movies.

Shares of Netflix rose nearly 13% in extended trading as the financial milestone validated the company’s strategy of going into debt to take on big Hollywood studios with a flood of its own programming in multiple languages.

The world’s largest streaming service had raised $15 billion through debt in less than a decade. On Tuesday, the company said it expected free cash flow to break even in 2021, adding in a letter to shareholders, “We believe we no longer have a need to raise external financing for our day-to-day operations.”

Netflix said it will explore returning excess cash to shareholders via share buybacks. It plans to maintain $10 billion to $15 billion in gross debt.

“This is in sharp contrast to Disney and many other new entrants into the streaming market who expect to lose money on streaming for the next few years,” said eMarketer analyst Eric Haggstrom.

From October to December, Netflix signed up 8.5 million new paying streaming customers as it debuted widely praised series “The Queen’s Gambit” and “Bridgerton,” a new season of “The Crown” and the George Clooney film “The Midnight Sky.”

The additions topped Wall Street estimates of 6.1 million, according to Refinitiv data, despite increased competition and a U.S. price increase. Fourth-quarter earnings per share of $1.19 missed analyst expectations of $1.39.

With the new customers, Netflix’s worldwide membership reached 203.7 million. The company that pioneered streaming in 2007 added more subscribers in 2020 than in any other year, boosted by viewers who stayed home to fight the coronavirus pandemic.

COMPETITION HEATS UP

Now, Netflix is working to add customers around the globe as big media companies amp up competition. Walt Disney Co in December unveiled a hefty slate of new programming for Disney+, while AT&T Inc’s Warner Bros scrapped the traditional Hollywood playbook by announcing it would send all 2021 movies straight to HBO Max alongside theaters.

Disney said in December it had already signed up 86.8 million subscribers to Disney+ in just over a year.

“It’s super-impressive what Disney’s done,” Netflix Co-Chief Executive Reed Hastings said in a post-earnings analyst interview. Disney’s success, he added, “gets us fired up about increasing our membership, increasing our content budget.”

Netflix said most of its growth last year – 83% of new customers – came from outside the United States and Canada. Forty-one percent joined from Europe, the Middle East and Africa.

For January through March, Netflix projected it would sign up 6 million more global subscribers, behind analyst expectations of roughly 8 million.

Revenue for the fourth quarter rose to $6.64 billion compared with $5.47 billion a year ago, edging past estimates of $6.63 billion.

Net income fell to $542.2 million, or $1.19 per share, from $587 million, or $1.30 per share, a year earlier.

Netflix shares jumped 12.5% to $564.32 in extended trading on Tuesday.

(Reporting by Eva Mathews in Bengaluru and Lisa Richwine in Los Angeles; Editing by Sriraj Kalluvila and Matthew Lewis)

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MGM Resorts drops takeover plan for Ladbrokes-owner Entain

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MGM Resorts drops takeover plan for Ladbrokes-owner Entain 3

By Tanishaa Nadkar

(Reuters) – Casino operator MGM Resorts International on Tuesday ditched plans to buy Ladbrokes owner Entain after the British company rejected an $11 billion takeover approach this month, sending Entain’s shares down nearly 12%.

The United States is seen as the next big growth market for sports betting, spawning a series of transatlantic partnerships tapping in to European technology and expertise. These include Caesars Entertainment agreeing last September to buy William Hill in a 2.9 billion-pound deal.

MGM said it would not submit a revised proposal or make a firm offer for Entain, which had said the approach announced two weeks ago significantly undervalued its business.

Entain shares closed down 11.9% at around 12.44 pounds in London. MGM shares were up 2.5% at $30.54 in New York trading late on Tuesday afternoon.

“We look forward to continuing to work closely with MGM to drive further success in the United States through the BetMGM joint venture,” Entain said in a statement.

Online betting firms have benefited during the COVID-19 pandemic-led lockdowns, as customers took to playing from home when casinos and betting shops were off-limits.

MGM had previously said a merger with the British bookmaker would be compelling and believed a deal would help expand BetMGM, which the two have operated since 2018.

The proposal, on the basis of 0.6 MGM share for each Entain share, was also backed by billionaire Barry Diller’s IAC. It valued Entain shares at 13.83 pence each when it was first announced.

Complicating matters, Entain Chief Executive Officer Shay Segev decided to step down just seven months into the role and in the middle of negotiations with MGM to take a job with sports streaming service DAZN.

Segev’s departure, as well as limited engagement in talks shown by Entain and a difference in price expectations between the two sides, led MGM to decide to walk away from the deal, according to a person familiar with the matter.

Entain, previously known as GVC, has itself expanded rapidly through a series of acquisitions and owns the bwin, Coral and Eurobet brands, operating traditional British high street betting shops as well as offering online gambling.

“While we are genuinely surprised MGM didn’t up its consideration … we don’t think this changes MGM’s ability to secure equity value enhancing benefits from the attractively growing US sports betting and iGaming pie,” JP Morgan analysts said.

The brokerage said it would not rule out further discussions with Entain depending on how the company shareholders reacted, adding it would be tough for someone else to buy Entain given so much potential equity value coming from the 50/50 BetMGM joint venture.

(Reporting by Tanishaa Nadkar in Bengaluru; Additional reporting by Joshua Franklin in Miami; Editing by Keith Weir and Matthew Lewis)

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