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Monday, 21 October 2013

Vodafone bosses to collect £56m windfall after sale of Verizon Wireless

Vodafone is selling its stake in America's biggest mobile network in the third-largest transaction in corporate history

Vodafone's senior team will collect a £56m windfall when the mobile operator completes the sale of its Verizon Wireless subsidiary next year.

In the third-largest transaction in corporate history, Vodafone is selling its stake in America's biggest mobile network to its joint venture partner,Verizon Communications, for $130bn (£80.4bn), and has promised to return 71% of the money to shareholders.

The return is worth 112p per share and will be paid in a mixture of cash and Verizon Communications shares, delivering significant gains for Vodafone's top managers. The company has disclosed that its full senior team, about 250 people, has accumulated a total of 50m Vodafone shares. The deal will see them collect £16m in cash plus £40m worth of Verizon shares. Chief executive Vittorio Colao will receive more than £10m, a sum nearly equivalent to his £11m remuneration last year.

Each Vodafone investor will see the number of shares they hold roughly halved as part of the deal, to reflect the fact that the valuable US business has been sold. The formula allows shareholders, including Vodafone executives, to lock in recent gains in the company's stock market value by receiving cash and Verizon shares which can be sold quickly. Vodafone's stock has soared to a 12-year high since the deal was announced.

Unlike outside investors, Vodafone executives have not paid cash for their shares, but were given them under incentive plans, meaning much of the Verizon windfall will be pure profit. Colao stands to make a significant gain, because he has not sold a single share in Vodafone since being appointed chief executive, other than to cover his tax bills.

The torrent of money that will flow into the British economy from the deal has been compared to the Bank of England's quantitative easing injections.

The record for such deals is still held by Vodafone's $200bn acquisition of Germany's Mannesmann, while AOL's merger with Time Warner is considered the world's second largest transaction.

Vodafone is one of the most widely held stocks in Britain. Its ability to pay the highest dividend of any blue chip company listed in London has made it a mainstay choice for pension funds. Many executives are expected to re-invest their gains back into Vodafone, which has promised to increase its dividend by 8% to about 11p a share next year.

A Vodafone spokesman said: "A large part of executive remuneration is based on performance and is paid in shares – ensuring alignment of their interests with those of our shareholders."

The windfall process is more complex than a dividend, leaving investors with a mix of cash, Verizon shares and Vodafone stock equivalent to Vodafone's share price the day before the deal closes.

The Verizon return is worth 112p per Vodafone share, and it is expected one in every two Vodafone shares will be cancelled. If the stock price is 224p when the transaction closes, two Vodafone shares would be worth 448p. An investor owning two shares will be asked to trade in one of them, receiving a 224p windfall and being left with a single share worth 224p. The number of shares cancelled will depend on the final stock price. The stock closed at just under 228p on Friday.

Vodafone's involvement in the American mobile industry dates to its acquisition of Airtouch in 1999. Airtouch was then merged with Bell Atlantic in 2000 to form Verizon Wireless. The company they created went on to lead consolidation of America's regional mobile networks, emerging along with AT&T as one of the two dominant players.

Verizon Wireless was valued at $70bn when it was created, while Vodafone's exit implied that its worth 13 years later had increased to nearly $290m.

Article Source : http://www.guardian.co.uk

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Cider's cool new image to lead the way in British export push

No longer the tipple of teenagers and tramps, quality English ciders are now an integral part of the government's plan for economic growth

It was, in the words of one industry executive, the drink of "students, tramps and the Wurzels". But the perception and popularity of cider has been transformed and now the government wants to get in on the act.

Defra and its agency UK Trade and Investment (UKTI) have published a plan to improve British exports – and cider seems to be its trump card. "As one of the world's leading cider producers, the UK is well placed to leverage this growing opportunity," the plan says. "Worldwide, cider sales are rising rapidly and grew by over 50% in both the USA and Australia in 2011-12."

The drink's place in what David Cameron calls the "global race" for growth is a remarkable turnaround for a product whose appeal was once limited to under-age drinkers and those seeking cheap strong booze.

Paul Bartlett of the National Association of Cider Makers said he was delighted the government was waking up to "a gem", and hoped that with promotion and trade missions, cider could enjoy some of the success of Scotch whisky. He added: "There's growth in Canada, the US, Australia and Scandinavia. And there are pockets in Asia, where hopefully the government are going to help. We are looking at Vietnam, Korea, China. It's the holy grail to crack those markets.

"The American beer market has changed dramatically with the rise of craft beers. Consumers are experimenting with different flavours, and looking at the provenance of their drinks. Cider is jumping on the back of that, offering a natural background, the direct link with apples. And men and women both like it, which is important because more drinking is in mixed groups."

Henry Chevalier of Suffolk's Aspall Cyder pointed out that cider is being sold at the top end of the market in America. Restaurants, he said, include Aspall cider on their wine lists, at $26 a bottle, considerably more than its £2.59 UK price tag. Waiters show the label to drinkers before offering a taste, and they store it in ice buckets.

Billboards advertising English cider varieties have appeared in Sydney, exploiting a growing awareness of the drink. And British farmers are waking up to the potential and turning over land to apple orchards.

Chevalier said the change in cider's fortunes came when Bulmers' Irish rival, Magners, launched in Britain in 2005. The following year brought a hot summer and a multi-million pound Magners marketing campaign to encourage serving cider over ice made it the trendy new drink.

But there were other factors in play. "If you go back 15 years, the image was tramps, students and the Wurzels. It was very cheap, it wasn't the best quality and there was a vicious price war going on between Bulmers and Taunton. But when Bulmers owner Scottish & Newcastle was bought by Heineken [in 2008], it was the first time an internationally minded company got hold of a big cider brand. The parochial view was that there was nowhere to sell cider except England. Heineken disagreed, and others have followed."

Article Source : http://www.guardian.co.uk

Sunday, 20 October 2013

JP Morgan close to agreeing $13bn settlement with US authorities

Settlement is greater than the expected $11bn and does not release the JP Morgan from any criminal liabilities

America's largest bank, JP Morgan, is close to finalising a $13bn (£8bn) record settlement with the US authorities over a number of issues related to the subprime mortgage crisis.

The settlement, described as tentative in some reports, is even greater than the $11bn that had been expected and is said not to release the bank from any criminal liability. It would also be the largest ever between the US government and a single company.

The bank's chairman and chief executive Jamie Dimon had been involved personally in the discussions with the US Department of Justice and this month JP Morgan admitted it had incurred legal expenses of $9.2bn from regulatory investigations and lawsuits.

In total the bank has put aside $23bn for potential litigation since 2010 – and has warned this could rise by a further $6.8bn – in moves that illustrate the stunning reversal in fortunes of a bank that had survived the banking crisis relatively unscathed.

JP Morgan now faces more than a dozen investigations globally – from alleged bribery in China to a possible role in manipulating benchmark interest rates set in London known as Libor.

Dimon had steered the bank through the financial crisis without ever reporting a quarterly loss, but that record ended this month when he had to admit that legal expenses drove the firm to a loss of $400m.

The latest settlement relating to mortgage-backed securities follows a fine of more than $900m from a number of authorities over last year's London Whale trading incident, which Dimon had originally attempted to brush aside as "tempest in a teapot".

The Whale episode also lost the bank $6.2bn and Dimon's bonus was halved as a consequence.

At issue in the latest settlement is whether the bank sold mortgages that it knew were riskier than they appeared. Investors, including government-owned mortgage agencies Fannie Mae and Freddie Mac, said that the bank told them loans were safer than they were, or that the bank was negligent in not verifying information from borrowers relating to their income and their ability to repay the debt.

A sizeable chunk of the $13bn relates to customer redress. According to Bloomberg the settlement includes $4bn to the Federal Housing Finance Agency – which incorporates Fannie Mae and Freddie Mac.

Dimon secured the tentative deal in a meeting with the justice department's attorney general, Eric Holder, according to CNBC. Steve Cutler, the bank's general counsel, and Tony West, Holder's deputy, were said to be involved.

Dimon and Holder had met face-to-face in Washington last month. A well-connected figure in financial and political circles, Dimon took the helm of JP Morgan in December 2005. He is now running the biggest US bank in terms of assets.

As well as surviving the financial crisis, the banker has also resisted calls to split his joint roles at the bank.

The settlement is partly the result of JP Morgan saving two firms – Bear Stearns and Washington Mutual – which account for about 80% of the securities involved in the $13bn fine. The US government encouraged JP Morgan to rescue both institutions as they were collapsing during the financial crisis.

This month the bank said Dimon was no longer chairman of JP Morgan's main US retail banking subsidiary.

JP Morgan did not comment, and the US department of justice could not be reached.

Ongoing tempest

For all his smooth talking, it is likely that the most memorable line to emerge from the career of JP Morgan boss Jamie Dimon will be his crack about a "tempest in a teapot". That was his attempt to dismiss reports of problems in the bank's London office, where it turned out that his traders had lost $6bn.

The comment was perhaps the result of confidence gleaned from years of uninterrupted success, which included being one of the few bankers to emerge from the financial crisis with an enhanced reputation. However, the pressure is now increasing on Dimon as he wrestles with a string of legal complaints.

This was not how it was all meant to be, as Dimon has long appeared to have led a blessed life.

A protege of former Citigroup boss Sandy Weill, who is often described as a "Wall Street legend", he graduated as a Baker scholar from Harvard Business School, an honour given only to the top 5% of the graduating MBA class. His classmates included GE boss Jeff Immelt, and Dimon's future wife, Judy.

Article Source : http://www.guardian.co.uk

Tuesday, 15 October 2013

Royal Mail profits expected to result in 'halo effect' in runup to Christmas

Market research firm Verdict says share profits will contribute to increased spending as shoppers feel that 'things are improving'

Windfall profits collected by hundreds of thousands of people on theirRoyal Mail shares are expected to lead to an extra spending splurge in the runup to Christmas.

The market research firm Verdict said profits on Royal Mail shares together with compensation payments from mis-sold payment protection insurance would lead to a "halo effect" – making consumers think that "at last things are getting better".

Maureen Hinton, Verdict's director of research, said shoppers were expected to spend an extra £1.9bn on Christmas compared with last year. Spending in the last three months of the year is expected to come in at £88.4bn, compared to £86.5bn in the same period last year.

The forecast 2.2% rise in spending would be the strongest since the recession began.

Verdict predicted that online sales would jump 12% to £11.6bn, with Amazon named as the biggest beneficiary.

Article Source : http://www.guardian.co.uk

Monday, 14 October 2013

50,000 consumers switch suppliers after energy price rise, claim experts

Other 'big six' firms hold back from upping prices hoping to win over SSE customers after last week's 8.2% increase

More than 50,000 energy consumers have switched their suppliers and many more are expected to follow on Monday in the aftermath of the 8.2% price increase levied by SSE last week, experts say.

Other "big six" energy firms are believed to be temporarily holding back their own plans to raise bills in the hope they soak up new customers opting to leave SSE.

The mass switching will be welcomed by the government, which had urged consumers hit by the price rise to find cheaper options rather than passively accept an increase in the cost of living.

Paul Green, the marketing manager at Energyhelpline, said that at the end of last week his switching company had had six times the activity seen on normal days.

"I would think that around 50,000 people overall have switched their energy providers – not necessarily all from SSE – following the price rise. We would expect to see more activity on Monday ," he explained.

Green said any price rise triggered a frenzy of activity as customers reviewed their energy bills and considered whether their providers would raise prices.

"If British Gas had raised its prices the peak in activity would have been even higher because it is by far the largest supplier but SSE is the second largest so it was bound to be significant."

Often suppliers quickly raise their prices once a rival has taken the first step. While Energyhelpline expected others to follow suit, it believed there might be a delay as rivals try to win those customers who have bailed out of SSE or have just decided to leave their own provider.

But other City experts said companies such as British Gas were holding back increases in the hope that the government would come up with ways of removing some responsibilities and costs, such as the ECO energy company obligation to provide lagging and other measures for poorer homes. Downing Street confirmed last Friday that the government was considering ways of cutting financial support in a bid to reduce overall fuel bills.

Energy companies including SSE have been campaigning for environmental measures to be taken off bills and put on to generation taxation while others want them scrapped completely.

The SSE price rise – the first to be announced by one of the big six this winter – will take effect from 15 November and force up the cost of living for more than 7 million customers.

SSE blamed government policy charges and green levies for the increase, which it insisted equated to an average rise of just £2 a week on most bills.

Michael Fallon, the energy minister, encouraged people to consider switching to one of the company's rivals."The best answer here is more competition. I would encourage customers to look at the tariffs they are on, and see if they can switch. That competition is best," he argued.

But the Labour leader, Ed Miliband, made an impassioned attack on SSE, accusing it of ripping off customers and said the latest "scandal" showed why the government needed to act.

But David Cameron responded by saying the proposal to freeze energy prices, first unveiled by Miliband at the Labour conference two weeks ago, was a "con" because the increases were driven by international pressures and a moratorium would not help.

Article Source : http://www.guardian.co.uk

Nobel prize in economics: will financial crisis adjustment theory win the day?

Those in the know hope Nobel committee makes choice in 2013 that reflects the seismic changes of the past five years

After five years in which many of the pillars of economic theory have been swept away by a financial hurricane that went largely unpredicted by the majority of practitioners of the dismal science, it may be hard to believe anyone deserves to crowned with a Nobel prize in the subject.

But the winner of the Sveriges Riksbank prize in economic sciences in memory of Alfred Nobel, as it is officially called, is due to be announced on Monday, and bookmakers have come up with a packed field of runners and riders.

Yales's Robert Shiller has been high up the list for some years. He wrote a prescient book, Irrational Exuberance, published in 2000, about the stock market bubble, and followed it up with a second edition in 2005, which took the then unfashionable view that US housing looked dangerously overvalued. "If I was a betting man, I would think it had to be Shiller," said TUC economist Duncan Weldon.

Sir Tony Atkinson, of Nuffield College, Oxford, who has long worked on inequality and income distribution – seen as increasingly relevant in recent years – is also frequently mentioned. Inequality has also been a consistent concern of another much-mentioned Brit, Angus Deaton.

A more mainstream choice for the judges might be Robert Barro, of Harvard, who is in the mould of classic, free market, anti-big state economics.

But those who have been fighting for a revolution in the way economics is taught in schools and universities would like to see the Nobel committee make a choice that reflects the seismic changes of the past five years.

Wendy Carlin, of University College London, who is working on a project to shake up the economics curriculum in Britain, favours South Korean-born Hyun Song Shin, of Princeton, for example. Even before the crisis, Shin was studying the importance of leverage in the global financial system.

Carlin said there were encouraging signs that economists were adjusting to changing times. "There's a feeling that at least the occasion of the crisis has led people to think that we should be teaching economics differently," she said.

While physicists can pelt particles around the Large Hadron Collider in search of the Higgs boson, economists have to test their theories by watching messy events and unpredictable human beings in the real world.

Diane Coyle, of consultancy Enlightenment Economics, said in the light of the battering many of their prized theories have taken over the past five years or so, economists needed to switch from building big, mathematical models, to "microeconomics", which studies how firms, individuals and particular markets behave. "Let's confess that we just don't know how the macroeconomy works, and we need to have a bit of a think about that," she said.

Article Source : http://www.guardian.co.uk

George Osborne opens doors to rich Chinese with new visa system

British chancellor moves to improve relations with Beijing after rift over David Cameron's meeting with Dalai Lama

George Osborne has heralded the "next big step" in Britain's relationship with Beijing, unveiling a new visa system to make it easier for Chinese business leaders and rich tourists to visit the UK.

In a sign of Downing Street's determination to reset relations with Beijing, which unofficially downgraded Britain's status after David Cameron met the Dalai Lama last year, the chancellor told an audience in the Chinese capital that no country in the west is more keen to attract Chinese investment than Britain.

Osborne, who began a five-day trade mission to China at the weekend, told students at Beijing University: "I don't want us to try to resist your economic progress, I want Britain to share in it.

"And I want, this week, us all to take the next big step in the relationship between Britain and China. Because more jobs and investment in China mean more jobs and investment in Britain. And that equals better lives for all."

As a first step the chancellor announced Britain will make it easier for Chinese business leaders to visit the UK by introducing a 24-hour "super priority" visa service.

In the biggest step, a separate pilot scheme will allow selected Chinese travel agents to apply for UK visas simply by submitting the application form used for the EU Schengen visa.

The scheme is aimed specifically at the high-end tourism market, after figures showed that wealthy Chinese tourists are not bothering to apply for a UK visa after applying for a Schengen visa, which allows them to visit 22 out of the 28 EU member states plus Iceland, Liechtenstein, Norway and Switzerland.

Ministers were understood to be alarmed when one study found that Chinese tourists were buying vastly higher numbers of expensive designer handbags in Paris than in London. The chancellor said: "These changes will streamline and simplify the visa application process for Chinese visitors, while ensuring the system is strong and secure. This is good news for British business and tourism."

The Foreign Office has no difficulty with the relaxed visa system, which will be administered through its embassy in Beijing and consulates in Shanghai and other high-growth cities.

But concerns have been voiced to the chancellor and the prime minister from within the Foreign Office that Britain needs to tread with care in the light of China's human rights record and its aggressive cyber-attacks.

Cameron is understood to have heard the Foreign Office's concerns with sympathy. But he is determined to open a new chapter in Britain's relations with China after declaring that the "Bric" countries – Brazil, Russia, India and China – would be a priority. He has led two trade missions to India but has visited China only once as prime minister, three years ago.

Ed Davey, the energy and climate change secretary, who has recently returned from Beijing, spoke of a "massive Chinese investment" worth tens of billions of pounds in nuclear power and other sources of energy in Britain.

Davey told the Andrew Marr Show on BBC1 that there would also be major energy investments from Japan and South Korea. The China General Nuclear Power Group has been in talks with EDF Energy about taking a stake of up to 49% in the deal to build a nuclear power plant at Hinkley Point.

Osborne's trip – in which he is being accompanied in part by the London mayor, Boris Johnson, and four other government ministers – is designed to pave the way for a long-awaited trade mission to China by the prime minister.

Cameron was forced to abandon a visit to China earlier this year when Beijing punished him for meeting the Dalai Lama, the spiritual leader of Tibet, at St Paul's Cathedral in May 2012 with Nick Clegg.

The prime minister abandoned tentative plans for a trip to China in April after Beijing indicated that he was unlikely to be granted meetings with senior figures. The UK government said no plans had been finalised and the new Chinese leadership, which only took over in March, needed time to bed down.

The Osborne and Cameron trips, which have been pencilled in for the autumn for some months, have been the subject of intense negotiations in Whitehall. The chancellor is said by some ministerial sources to be adopting a gung-ho approach and is keen to explore every opportunity to boost trade links with China. "With George it all comes to pounds, shillings and pence at the end of the day," said one ministerial source.

Britain's nervousness about the Dalai Lama was highlighted when Johnson declined on five occasions on Sky News to say whether he would like to meet Tibet's spiritual leader. On the fifth occasion an exasperated mayor told Dermot Murnaghan: "This is the fifth time, I'm coming up for air again, Dermot, I'm just repeating that it's not my job as mayor to insert myself into controversial areas of international dispute. My job is to promote the interests of the city."

In his speech Osborne said: "There are some in the west who see China growing and they are nervous. They think of the world as a cake – and the bigger the slice that China takes, the smaller the slice that they will get. I totally and utterly reject that pessimistic view. If we make the whole cake bigger, then all our peoples will benefit. That should be the basis of our relationship with China."

In addition to Beijing Osborne will visit Shenzen, Guangzhou and Hong Kong.

Article Source : http://www.guardian.co.uk