Despite controversy over the Tesco takeover of Booker and concerns that Tesco will thereafter have incontestable power in the market, the Competition and Markets Authority has ruled that the takeover will not lead to higher prices or reduced services. Formal clearance is expected throughout December, however some shareholders, including Schroders and Artisan Partners, have previously spoken against the deal, seeing it as a distraction. LAPFF met with the new Chief Executive in October to discuss the merger and agreed to meet again in 2018 to receive a progress report.
Other mergers have also been discussed throughout the month, including the sale of Time Inc. to its rival Meredith Corporation. The transformative $1.8bn deal was backed by the Koch Brothers, whose contribution of $650m to the merger has raised questions about their interests. At the beginning of the month, SSE and Npower said that they intend to merge their British retail energy business and form a new independent company owned predominantly by shareholders of SSE. The latest M&A deal across the North Sea has been BP’s agreement to sell a package of oil assets to Serica Energy for a total of £300m. The Company was forced to de-list its shares in order to give shareholders an opportunity to fully review the deal. The situation in the North Sea has been further spurred by UK Chancellor Philip Hammond, who announced Government’s plan for tax breaks for transfers of oil and gas fields in the area, to encourage new entrants to bring investment. LAPFF continues to monitor whether the latest M&A deals contribute towards long-term shareholder value.
Saudi Aramco featured in the news after the arrest of a Board member in a corruption crackdown which saw a number of Saudi royals, ministers and businessmen arrested. In light of Saudi Aramco’s expected $2 trillion listing, questions over this listing decision have been raised. Earlier in the month, news emerged about the UK Government’s involvement in the listing, after it offered a $2bn loan guarantee to Saudi Aramco. LAPFF met with FCA representatives in September to discuss the Company’s potential UK listing and to raise concerns that arose from its May consultations. The FCA representatives explained that recommended changes to the listing regime are not related to the Saudi Aramco listing.
Excessive remuneration was the subject of discussion in light of Sports Direct’s announcement to reimburse John Ashley, Mike Ashley’s brother, £11m which he was allegedly denied because of public relations concerns. The proposal was put to a shareholder vote by the Company in December. The Forum issued a voting alert against the resolution, along with recommending that members vote against the payment, and members were also advised to oppose an extension of guaranteed minimum value to two senior employees. Both resolutions were defeated.
The Children’s Investment Fund has urged the Governor of the Bank of England to remove Donald Brydon, the Chairman of London Stock Exchange (LSE) following a dispute between the Fund and LSE after a debatable resignation of the former Chief Executive Xavier Rolet. The Fund is concerned that the LSE is experiencing a corporate governance crisis and a new Chairman is needed. Although Mr Rolet was to stay in his position until 2018, due to the public dispute between the two parties, it was announced that Mr Rolet will be leaving with immediate effect. The LSE has said Donald Brydon will not stand for re-election as it tries to draw line under the row.
Environmental and Carbon Risk
Continued collaborative shareholder engagement with Royal Dutch Shell has borne fruit with Shell pledging to double spending on clean power as well as setting an aspirational goal to cut the net carbon footprint of its products by one-fifth in 2035 and in half by 2050.
A recent Greenpeace investigation revealed that British packaging, supermarket and food and drink trade associations acted against new EU ‘polluter pays’ proposals, which would shift the cost of recycling onto the producers. While the proposals aim to boost recycling and decrease plastic pollution in the ocean, the associations argue that there is no net environmental benefit to implementing such measures. However, companies such as Sky have targeted a reduction in plastic pollution in the last year, as LAPFF heard when Ian Greenwood attended the Company’s 2017 AGM. Therefore, plastics recycling might follow in the steps of climate change action, where companies will be asked to put pressure on industry organisations to conform to the progressive work their corporate members are undertaking.
In a related development, Coca-Cola recently announced new sustainability plans for Western Europe which includes the use of only recyclable or reusable packaging by 2025. HSBC has also claimed that that it will be aligning its strategy with the United Nation’s Sustainable Development Goals and pledged to provide $100bn in sustainable financing by 2025.
As part of the 2017 Autumn Budget, Chancellor Philip Hammond pledged to build a UK economy, that is ‘fit for the future’ by announcing new funding for air quality plans, tax incentives for electric cars, increases in diesel car taxes and new measures to tackle plastic waste through the introduction of a plastics tax. The Autumn Budget also includes a carbon price, however indicators are that it will be at a similar level to today’s, which stands at £24/tonne of CO2. LAPFF regularly discusses carbon pricing with companies and recently published its climate change implementation framework and guidance for member funds, to assist in implementing ‘best practice’ in approaching investment risks and opportunities related to climate change.
The scandal initiated by the publication of the so-called “Paradise Papers” revealed that Glencore made a secret loan of $45m to an Israeli billionaire to secure a controversial mining agreement in the Democratic Republic of Congo in 2009. Dan Gertler allegedly lent money to the DRC president to buy weapons for the army for in exchange for a monopoly in the diamond industry and reportedly paid over $100m in bribes to the DRC government. Glencore has dismissed any allegations of impropriety as the loan was made on commercial terms. LAPFF has been engaging with Glencore for the past three years on various issues including climate change and board composition. However, with the implementation of the new Global Magnitsky Act in the US and Mr Gertler being targeted under the new law, LAPFF will be interested in following up with Glencore on the corruption and human rights implications of the deal.
Apple has also been scrutinised over allegations that have emerged which stated that student interns worked under illegal conditions on the new iPhone X. Students on a ‘work experience’ placement in China completed 11 hours per day, exceeding the legal 40 hours a week allowance for work experience.
The gender pay gap was flagged up with new evidence about EasyJet paying women 52pc less than their male colleagues. EasyJet claimed that such disparity is due to the higher paying jobs, including pilots, being greatly dominated by men – out of 1500 UK pilots, 86 are women.
A recent study found that the number of senior women on the Boards of UK companies has remained unchanged in the past 10 years. However, a new proposal from the European Commission could constitute a step forward, with plans to set a 40% quota for women on EU company boards.
EY has been identified as the most favoured accountant firm, advising big multinational companies including Google, Apple, Facebook and Amazon, all of which have featured in the latest tax-avoidance scandals. In light of the Paradise Papers leak on tax avoidance, the Autumn Budget included an announcement regarding multinational companies, including tech Giants, having to pay more to the Exchequer from 2019 in cases where they divert money to offshore tax havens.