Flotations, corporate collapses and Brexit: the year in business
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Version 0 of 1. From WeWork’s crash and burn to the corporate world’s waking up to the climate crisis, 2019 was not a year we’ll forget in a hurry For business and finance, 2019 was a year of big-name corporate collapses, investigations into alleged scandals and the inevitable arguments about Brexit. Bankers and tycoons tried to get on with things by attempting huge flotations, large mergers and sizeable refinancings – with mixed results. Here is a review of the year in business. Floats Saudi Aramco secured its position as the most valuable listed company in history after investor appetite for the world’s biggest fossil fuel producer pushed its market value to just under $1.9tn (£1.4tn) after its long-awaited listing. Shares in the Saudi state-backed oil company defied Aramco’s critics by climbing nearly 11% above the $1.7tn valuation set before its market debut on Riyadh’s stock exchange. However, despite those numbers, it was still difficult to class the float as an unmitigated success. The word’s most profitable company was supposed to be worth $2tn when it listed (the number coveted by Saudi Arabia’s crown prince, Mohammed bin Salman) while a secondary goal was to insert Aramco shares into the portfolios of international investors. But the Aramco offer morphed into a smaller affair in which the main contributors were locals and other Gulf investors. Comparatively, however, Aramco was a triumph, when judged next to the planned float of WeWork. The office-space provider, whose only unique selling point seemed to be its comically self-regarding co-founder Adam Neumann, went from publication of grand flotation prospectus to an emergency rescue by its key shareholder Softbank, the Japanese investment firm, two months later in October. WeWork had reported a net loss of $1.6bn in 2018 on revenues of $1.8bn but, in the last private-funding round, Softbank had injected the last portion of its investment at a valuation of $47bn. By October WeWork was valued at $8bn and Softbank had to throw in another $6.5bn in equity and debt to gain control. Neumann, who has expressed a desire to live forever, discovered that in terms of his WeWork career his ambition to be a corporate immortal proved a bit of a stretch. As part of the rescue deal Neumann agreed to sell his shares – albeit with a healthy profit for this acceptance of mortality. He walked away with roughly $1.7bn. Collapses Thomas Cook ceased trading in late September after talks failed to produce a funding lifeline for the travel company, triggering a huge repatriation effort to bring home 150,000 UK holidaymakers overseas. John and Irene Hays, a husband-and-wife team who built the Sunderland-based Hays Travel, pledged to save the jobs of all 2,500 former Thomas Cook staff who worked on UK high streets after buying the collapsed tour operator’s 555 shops for an undisclosed fee. Other big names to call on the insolvency practitioners included the retailer Debenhams, which was taken over by its lenders after the department store group fell into administration. The move wiped out shareholders, including Mike Ashley’s Sports Direct, but 165 UK outlets continued to trade under the pre-pack administration deal that affected its listed holding company only. The celebrity chef Jamie Oliver closed all but three of his 25 UK restaurants in May, with the loss of 1,000 jobs, after the business called in administrators. Mothercare was another huge name to suffer, announcing in November that it would close all of its 79 UK stores and its online business, with the potential loss of 2,800 jobs. The administration did not include Mothercare’s profitable overseas operations, which have more than 1,000 stores in more than 40 countries – all run via franchise agreements. Only 50 UK head office staff will remain to deal with running the international business. The rescue of British Steel, which collapsed into liquidation in May, also looked in the balance as the year drew to a close. Jingye, a Chinese firm poised to buy the British firm that was founded by a former Communist party official, has yet to complete the deal after agreeing to acquire the business in November, when an earlier round of talks with the pension fund of the Turkish military broke down. Investigations Sir Philip Green could not avoid controversy again in 2019, as he was charged with four counts of misdemeanour assault in the US after a pilates instructor alleged he repeatedly touched her inappropriately. He denies the allegations. A trial is scheduled for next year. The UK’s Serious Fraud Office announced in December that it had launched an investigation into suspicions of bribery at the mining and commodity trading group Glencore. The company, which is listed on the London stock exchange but has its headquarters in Baar, Switzerland, said it would cooperate with the investigation. In March the SFO also arrested and later released four individuals in Kent and Sussex as it confirmed it was investigating London Capital & Finance, whose 11,000-plus investors poured £236m into its bonds – only for the company to collapse earlier this year. About £58m was taken as commission by the Brighton-based marketing company, Surge Financial, that promoted the bonds. Much of the rest went into highly speculative property developments, some in the Dominican Republic, oil exploration off the Faroe Isles and even a helicopter bought for a company controlled by LC&F. Brexit Britain’s withdrawal from the EU dominated much of the year, inevitably, and while business does not appear to have voted 52-48 in favour, there was a split of views. In January, Airbus, the European aerospace group that employs more than 14,000 people in the UK, called the UK government’s handling of Brexit a “disgrace” and warned it could pull out of the UK if the country crashes out of the EU without a deal. In April, Jürgen Maier, the British-Austrian chief executive of the UK arm of the German manufacturing group Siemens, said Brexit was making Britain an international “laughing stock” and urged MPs to pursue a softer withdrawal from the EU. However, other big names weighed in on the other side including (inevitably) Tim Martin, the entertaining founder-chairman of JD Wetherspoon. He ended up in a bar room brawl with the City, lashing out at the investor advisory group Pirc, which had publicly rebuked him for spending £95,000 of company money on pro-Brexit literature without first seeking approval from shareholders. Martin also dismissed UK corporate governance rules as “up the spout” and criticised two major institutions that own a chunk of the company he built. Meanwhile Sir James Dyson, the British billionaire inventor and outspoken Brexiter who called on the government to walk away from the EU without a deal, said in January that he would move the headquarters of his vacuum cleaner and hair dryer technology company to Singapore. The company said the move had “nothing to do with Brexit”. Gender It was not a vintage year for women at the top of business in the UK. In terms of FTSE 100 chief executives, it was announced in 2019 that Véronique Laury, chief executive of DIY retail chain Kingfisher, was off, while Alison Cooper is to stand down as chief executive of tobacco giant Imperial Brands after nine years (although she remains in post). The number of female chief executives running FTSE 100 firms had a boost in November when Alison Rose started as boss of the Royal Bank of Scotland, meaning the current count is effectively treading water at six (and half of them are called Alison). Still, further afield there appeared to be signs of creeping diversity in terms of candidates to be central bankers. London School of Economics director Minouche Shafik and Santander UK chairwoman Shriti Vadera were both widely touted as the next governor as the Bank of England before Andrew Bailey was given the job, while Christine Lagarde became head of the European Central Bank. Pressing business Business and finance was being pressed into making itself look more caring in 2019, with the climate crisis prompting some high-profile interventions. In April Mark Carney, the governor of the Bank of England, and his Banque de France opposite number François Villeroy de Galhau, wrote an open letter to the Guardian arguing that the global financial system faces an existential threat from climate change and must take urgent steps to reform. They argued that financial regulators, banks and insurers around the world had to “raise the bar” to avoid catastrophe. Sometimes steps did appear to be being taken. In November, during the general election campaign, the government halted fracking in England with immediate effect and warned shale gas companies it would not support future fracking projects. Meanwhile, in August the bosses of 181 of the US’s biggest companies changed the official definition of “the purpose of a corporation” from making the most money possible for shareholders to “improving our society” by also looking out for employees, caring for the environment and dealing ethically. Big business bosses signing up to the change implemented by the influential Business Roundtable (BRT) lobby group included Jeff Bezos, the founder and chief executive of Amazon, the Apple boss, Tim Cook, and Jamie Dimon, chairman and CEO of Wall Street bank JPMorgan. The move came after decades of corporate America following Nobel Prize-winning economist Milton Friedman’s 1970 philosophy that “the social responsibility of business is to increase its profits”. On the more micro side, some businesses also responded to calls to be more compassionate to employees. In May Julian Richer, the founder of Richer Sounds, said he would hand control of the hi-fi and TV retail chain to staff, in a move that would also give employees large cash bonuses. High street There was more upheaval on the UK high street, from shop closures to boardroom upheaval. Mike Ashley’s Sports Direct was labelled “an embarrassment to UK corporate governance” by the shareholder advisory firm Pirc, after a chaotic July announcement of its annual results, which included multiple delays and the shock revelation of a €674m (£614m) tax bill. The other controversial big beast of UK shopping, Sir Philip Green, also had his business challenges. The tycoon’s Topshop and Topman chains slumped to a £505m loss last year, it was announced in September, as sales fell and the retail tycoon wrote down the value of two of his flagship brands. At that time Green’s holding company, Taveta Investments, admitted there was “material uncertainty” about its ability to continue trading without new funds, after suffering a £177.3m loss last year. However, in December Green secured a last-ditch £310m mortgage deal for his flagship Topshop store on Oxford Street in London with the US private equity company Apollo Management International. There were other big retailing names who also struggled to have everything their own way in 2019. In April, an attempt by Sainsbury’s and Asda to create Britain’s largest supermarket group was crushed by competition authorities saying it would be bad news for consumer. In a scathing judgment, the Competitions and Markets Authority ruled that combining the two firms would have led to higher prices, lower quality, a worse range on the shelves and a poorer overall shopping experience. Meanwhile, bookmakers warned there would be more empty outlets on the UK high street as they would be forced to shut shops after stakes on fixed-odds betting terminals (FOBTs) were reduced from £100 to £2 in April. Less rich list Sir Philip Green is no longer a billionaire, it emerged in 2019, after a difficult few years. The tycoon’s fortune halved over the past year, according to the Sunday Times rich list published in May, which calculated that Green and his wife, Tina, had fallen from 66th to 156th in the annual rankings after their fortune dropped by just over £1bn to £950m. The couple, who live in the tax haven of Monaco, had wealth valued at as much as £4.9bn in 2007. Ray Kelvin, the founder of the fashion group Ted Baker, also had an eye watering 2019. Shares in the group, of which Kelvin still owns around 35%, fell by about 73% during the year and the company is now valued at just under £200m. Kelvin resigned in March following allegations of inappropriate behaviour towards staff. He has denied all allegations of misconduct. While the percentage drops were less dramatic, the sheer size of the overall numbers meant that Ivan Glasenberg’s personal losses were even more heroic. He lost close to half a billion pounds as shares in commodity trader and miner Glencore – of which he owns around 9% – fell by 16% in 2019. The firm is currently valued at just over £30bn. Still, Glasenberg can probably absorb such losses, which might not be how punters in property schemes such as those run by the TV property guru Kevin McCloud and the entrepreneur Gavin Woodhouse view matters. Small investors in McCloud’s eco-friendly housing ventures, who put £2.4m into one of his bonds, were told in August they could face losing up to 97% of their money. McCloud said he stood “shoulder to shoulder with those who have lost money” and would do everything in his power to improve the situation. Meanwhile Woodhouse’s empire collapsed during the summer following an undercover investigation by the Guardian and ITV News. The entrepreneur, who has raised more than £80m from private investors but whose firms have a multimillion-pound “black hole”, was ruled by a high court judge as running a business model that appeared to be “thoroughly dishonest”. Woodhouse has previously denied any wrongdoing. |