Takeda’s acquisition of Shire is Japan’s biggest-ever foreign takeover
Thu, 06 December 2018 15:42:05 GMT

AS BEFITS A deal in the medical industry, this one has been rather hard to swallow. But on December 5th, eight months after Takeda, Japan’s largest pharmaceutical firm, said it was interested in buying Shire, an Irish-headquartered drugmaker of a similar size, shareholders at last voted to approve the acquisition. The purchase will cost Takeda $56bn in cash and new shares. Since the initial news of the deal the firm’s share price has fallen by 25%.

Takeda’s acquisition is unusual. It is by far the largest foreign buy-out ever executed by a Japanese firm (even though the country’s outbound merger-and-acquisition activity is surging). Nor was Shire considered a likely target. Acquiring firms usually seek new technologies or overlaps that allow cost-cutting. Shire does have a strong pipeline of new molecules, but the portfolio did not complement any large drugmakers’ existing suite of drugs, including that of Takeda....

Victoria’s Secret gets ready for a makeover
Thu, 06 December 2018 15:42:05 GMT

SEX SELLS, and it sells few things better than lingerie. Nowhere is that more evident than the Victoria’s Secret fashion show. Befeathered models, known as “angels”, shimmy down a runway to promote America’s biggest underwear retailer. In 2011 more than 10m people watched it on television. But on December 2nd just 3.3m viewers tuned in (see chart).

Victoria’s Secret has around a tenth of a global lingerie market worth $78bn, according to Euromonitor International, a research firm. It shows all the signs of a tired brand struggling to keep up with customer tastes. In America its market share has plunged from almost 33% two years ago to around 24% today, as social media and e-commerce make it easier for new brands to enter the market. Shares in L Brands, its parent company, were worth $100 three years ago; today they go for $30. Newcomers are disrupting every part of retail, but Victoria’s Secret has made its woes worse.


China’s private sector faces an advance by the state
Thu, 06 December 2018 15:42:04 GMT

AN OLD AFFLICTION is settling on China’s entrepreneurial class. It manifests itself in a cold sweat just at the mention of state-owned enterprises (SOEs), and a gnawing sensation that it is out of favour with the Communist-run government. Xi Jinping, China’s leader, last month gathered private businessmen to soothe nerves and to offer a comradely cure: to take an “anxiety pill”.

The remedy is a staple of the Chinese socialist lexicon, a phrase doled out to reassure, usually when individual interests appear to butt up against the state. But its use in the People’s Daily, the Communist Party’s main mouthpiece, has shot up, as one scholar recently calculated, appearing in 119 headlines since January. (One article with satirical intent, “A Brief History of the Anxiety Pill”, was censored and taken down from WeChat, a messaging app.)

Why so uneasy? The success of the private sector in China is...

The gospel according to Paul
Thu, 06 December 2018 15:42:04 GMT

IRONIES ARE rarely so pointed as this. As chief executive for ten years of Unilever, an Anglo-Dutch consumer-goods group, Paul Polman was a champion of business ethics and corporate sustainability. But after shareholders revolted against a plan to move the group’s headquarters to Rotterdam, his own position became, well, unsustainable. He will leave his post at the end of this year.

The company says Mr Polman was always set to leave at some point in 2019. But to announce his retirement only a month in advance strongly suggests an accelerated schedule. It is a shame that he is leaving on a low note. Mr Polman has been one of the most interesting and distinctive chief executives of a large multinational anywhere in the world.

By coincidence, the day after the announcement, Mr Polman was speaking at the Drucker forum in Vienna, an annual gathering for management theorists. He stuck resolutely to his favourite themes,...

The European Union struggles to extract more from tech firms
Thu, 06 December 2018 15:42:04 GMT

THERE IS, SAYS Bruno Le Maire, France’s finance minister, a need for “European sovereignty in the face of digital giants, which are now as powerful as sovereign states”. The issue is tax—or rather a lack of it. The most creative corporate tax minimisers are big, mostly American, technology firms. Countries such as France and Italy harrumph that they are deprived of billions in tax receipts each year as Google, Amazon and their kind magic profits away from where business is done to where they are taxed least. The European Commission reckons digital firms pay 9.5% in income tax on average, compared with 23.2% for firms with “traditional business models”.

The OECD, a club of mostly rich countries, was meant to tackle digital non-taxation as part of a global corporate-taxreform initiative called BEPS (Base Erosion and Profit Shifting). Progress, however, has been glacially slow. Fed up with waiting, Europe vowed to act on...

Michael Dell plots his return to the public market
Thu, 06 December 2018 15:42:04 GMT

THERE ARE two ways to make money selling technology, goes an old industry saying: unbundling and bundling. Thanks to the spectacular rise in recent years of cloud-computing services from Amazon and Microsoft, many firms have shifted chunks of software, data and applications previously stored on in-house servers to the new “public cloud” infrastructure. Customers can now access a dizzying array of software and hardware offered as unbundled, cloud-based services.

Dizzying—but also bewildering. The typical chief technology officer (CTO) of a big firm, under pressure to take advantage of every computing advance from data-analytics to artificial intelligence to the internet of things (IoT), is faced with a mish-mash of information-technology options. The next big opportunity should therefore lie in simplifying this balkanised mess.

That insight lies at the heart of Michael Dell’s vision for the future of Dell...

Royal Dutch Shell tries to reckon with climate change
Thu, 06 December 2018 15:42:04 GMT

Cross purpose

INTERNATIONAL OIL companies wrestle with the clash between their duty to deliver value to shareholders and the fact that how they produce those returns threatens the planet. A key question is whether they can reduce greenhouse-gas emissions without gutting their businesses. On December 3rd Royal Dutch Shell went further than any other oil major so far in insisting it could. The firm announced that it would set specific targets for reducing carbon emissions every three to five years, with the goal of shrinking its net carbon footprint by about half by 2050.

Shell will also ask shareholders to reward executives for managing a transition to cleaner energy, though the details are still to be worked out. Remarkably, its targets will cover not only emissions from its own production of oil and gas, but from all cars, lorries, planes and factories that eventually burn the stuff. Shell will use...

A high-profile deep-sea mining company is struggling
Wed, 05 December 2018 14:32:19 GMT

AFTER LISTING on the Toronto stock exchange in 2006 Nautilus Minerals became the public face of a daring new industry: deep-sea mining. It planned to pursue riches on the ocean floor, mining metals such as gold, zinc and copper, desired for lustre, alloys and electronics. Robotic machines (pictured) would cut, grind and gather volcanic rock at a site called Solwara 1, located 1,600 metres beneath the surface of the Bismarck Sea near Papua New Guinea (PNG). The resultant rocky slurry would be pumped up to a support vessel, then shipped to a site at which the metals could be extracted. Investors were convinced; Nautilus’s shares doubled from their initial price of C$2 ($1.80) in a few months.

Today a Nautilus share is worth just a few Canadian cents. Three problems have changed sentiment. First, the firm has had substantial contractual trouble with the government of PNG, in whose territorial waters Solwara sits. The two sides wrangled for years over...

Glencore’s attempt at reinventing mining has run into trouble
Thu, 29 November 2018 15:47:02 GMT

FROM THE edge of the Kamoto Copper Company’s pit, it is hard even to see the mechanical diggers toiling dozens of tiers below. The 280-metre hole on the southern edge of the Democratic Republic of Congo is deeper than Africa’s tallest building is tall. Lorries take the best part of an hour to crawl out from its heart. The greenish ore they lug is given its hue by copper but much of its value by cobalt nestled within. Usually driven to South Africa, then often shipped to China, the cobalt will emerge from a series of factories as the priciest component of a battery powering a smartphone or, increasingly, an electric car.

A sign at the mine indicates it is 1,320km to Kinshasa, the capital, half a week’s drive away. Another arrow points to a less likely destination: Baar, a sleepy suburb of Zurich, 6,600km away at the foot of the Swiss Alps. Located in a business park there are the headquarters of Glencore, the company that...

Poland’s state-owned giants cope with unprecedented turnover
Thu, 29 November 2018 15:47:02 GMT

FOR 17 YEARS the state-owned stud farm in Janow Podlaski in eastern Poland has hosted the “Pride of Poland” auction. In its heyday Arabian horses strutted around a grassy track, tempting foreign buyers into eye-popping bids. In 2016 the new government replaced the stud’s long-standing boss with an inexperienced newcomer. In his first two months two horses died, prompting media headlines; the new boss was ousted. Last year the auction brought in only a tenth of what it made before the changes. The next boss was also sacked.

Executive turnover is not restricted to Janow Podlaski. Since coming to power three years ago, the populist Law and Justice (PiS) party has swept the stables at state-owned enterprises (SOEs) with Herculean energy. The 30 most “strategic”, as defined by the government, have been run by over 100 bosses during the period; average tenure now stands at just under a year. According to an analysis of over 20 big SOEs...

Working for a purpose
Thu, 29 November 2018 15:47:02 GMT

THE MODERN company has morphed into a “money monster” enslaved to the doctrine of shareholder value. That is the thesis of a new book* by Colin Mayer, a professor at the Saïd Business School in Oxford. It is the latest challenge to the principle enunciated by Milton Friedman, an economist: namely, that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.” An influential paper** by Oliver Hart and Luigi Zingales last year argued that profitability is not the only criterion that should apply and that shareholders’ welfare is affected by a broad range of factors, including social and environmental conditions.

Mr Mayer takes a similar line, arguing that companies have relationships with many more people than just shareholders. As well as financial capital, they use several other types—human,...

Russia has emerged as an agricultural powerhouse
Thu, 29 November 2018 15:47:02 GMT

Now yielding a bumper crop

THE DISTRICT of Zernograd, or Grainville, in Russia’s southern Rostov region has many hallmarks of a depressed post-Soviet backwater. Decaying villages dot dusty roads; grey apartment blocks fill sleepy cities. Yet thanks to its namesake crop, times for many here have never been better. Take Yuri and Aleksandr Peretyatko. When the brothers launched their grain farm in the early 1990s, “we didn’t even have bicycles,” says Aleksandr. Now they own 1,500 hectares and cruise around in new white Lexus SUVs. Their children, Aleksandr boasts, “ride Range Rovers”.

The Peretyatko brothers embody the optimism in Russian agriculture, a booming sector in an otherwise sluggish economy. Production has increased by more than 20% in the past five years, despite a broader recession and now stagnation. “That’s what’s called a breakthrough,” President Vladimir Putin gushed as he discussed the...

Can the world produce enough cobalt for electric vehicles?
Thu, 29 November 2018 15:47:01 GMT

THE ONLY thing that can accelerate as fast as an electric car is the price of the most expensive metal in its batteries. Once a niche input used to strengthen turbine blades, cobalt’s value has soared since it started to feature in modern electronics. Most phones need a few grams’ worth, and every car requires 5-10kg. That adds up. Many business models are based on ample reservoirs of cobalt that experts warn do not exist.

Soaring demand for a commodity is usually met by vaulting investment to ensure supply. Cobalt’s case is somewhat different. Nearly all of it is obtained as a by-product of mining nickel and copper. Even the sharp rise in cobalt’s price thus far has not been enough to justify fresh investment in digging more nickel and copper out of the ground. Worse, most of it is in the Democratic Republic of Congo, where neat models of supply and demand count for little.

Most incremental demand for cobalt comes from carmakers, which have invested around $...

Why Barclays and Standard Chartered should merge
Thu, 29 November 2018 15:47:01 GMT

SCHUMPETER WOULD like to propose a merger between two British banks, Barclays and Standard Chartered. The suggestion is not a popular one. It was trashed by some analysts in the City of London when it was first floated in May. Some of the people running the firms dislike it. It would create a bank with a big balance-sheet and it involves two unfashionable geographies: Britain and emerging markets. Nonetheless, a union would turn two flawed international firms into a safer, more powerful and more profitable combination. It deserves serious consideration.

Europe’s banks lack scale. They have global reach but not a big, integrated domestic market. The top four lenders are 50% smaller than the top four American firms and 66% smaller than the top four Chinese ones, measured by median revenues. Return-on-tangible-equity (ROTE) in Europe still languishes below the cost of capital after a decade of grim cost cuts. As banks digitise, the fixed cost of staying at the top is rising...

GM prepares to close five factories, attracting Donald Trump’s ire
Wed, 28 November 2018 17:27:07 GMT

Cruising for a bruising

THE CAR industry’s changing fortunes have left a deep mark on Detroit’s urban landscape. Once-bustling factories such as the Fisher body plant, Ford’s Highland Park and the Packard plant became vast, abandoned graffitied shells—a sad reminder of the former might of America’s “motor city”. Now General Motors’s Hamtramck assembly plant looks likely to join the list of closed facilities. On November 26th GM announced that Hamtramck, along with four other factories in North America, and two more unspecified plants elsewhere, would not be assigned new vehicles or components to put together after next year.

News of the cost-cutting initially sent GM’s shares soaring. In total it will trim its North American workforce by a substantial 15%. Another Michigan plant is among those to be idled, as well as facilities in Ohio and Maryland, and in Ontario, Canada. The day after the announcement, however, criticism from President Donald Trump sent shares the other way. Mr...

Key-person risk is alive and kicking in global business
Thu, 22 November 2018 15:53:30 GMT

FEW CHIEF executives experience as hard a fall as Carlos Ghosn just has. On November 16th he was the long-standing chairman of Renault, Nissan and Mitsubishi Motors, three car firms, and famed for his Napoleonic manner. By November 20th he was in police custody in Japan, having been accused by Nissan of under-reporting his pay to regulators by around $45m over five years. At least Mr Ghosn can console himself with a different set of figures about how much he is worth. After the news broke the three car firms’ combined market value dropped by $5bn, or 7%. Investors fret that he is the only mortal who can manage the complex alliance between the three companies. Mr Ghosn is at once disgraced and probably impossible to replace.

Key-person risk occurs when an individual’s presence, absence or behaviour disproportionately affects a firm’s value. It might seem counter-intuitive amid the spread of artificial intelligence and a tendency...

Facebook should heed the lessons of internet history
Thu, 22 November 2018 15:53:30 GMT

“BIG TOBACCO” is what the bosses of several large technology firms have started calling Facebook in private and in public. The company has spent the past year fending off critics who claim it is addictive, bad for democracy and overdue for a regulatory reckoning. Being compared to the tobacco giants is one of the business world’s more toxic insults, but it is not the only unflattering analogy circulating. A lower blow is the suggestion that Facebook may become like Yahoo, the once high-flying internet firm that plunged.

Even a year ago the idea would have been unthinkable. The social-networking giant, which runs Instagram, WhatsApp and Facebook Messenger as well as its own core service, was thriving. But since January it has become mired in a series of controversies, misjudgments and missteps. It became clear that it had done too little to stop Russian interference in America’s election in 2016. It had to admit that it had shared...

Americans need to take a break
Thu, 22 November 2018 15:53:30 GMT

AMERICANS CELEBRATE Thanksgiving on November 22nd, and having gorged on turkey and cranberry sauce, will take the next day off as well to do some Christmas shopping. That represents a rare break in what, by global standards, is a Stakhanovite regime. In a typical year the average American works 100 more hours than a Briton, 300 more than a French employee and 400 more hours than a German.

The gap with Europe is partly explained by the number of days’ holiday that Americans take each year. In 2017 the average American took 17.2 days of vacation. That was a slight rise on the 16 days recorded in 2014 but still below the 1978-2000 average of 20.3 days. Around half of all workers do not take their full allotment of days off, which averages around 23 days. In effect, many Americans spend part of the year working for nothing, donating the equivalent of $561 on average to their firms.

In the European Union workers are...

The FDA turns its attention to menthol cigarettes
Thu, 22 November 2018 15:53:30 GMT

A menthol health problem

THE FIGHT against smoking is, by his own admission, deeply personal for Scott Gottlieb, head of the Food and Drug Administration (FDA), an American regulatory agency. Having worked as a doctor and survived cancer, he has seen its effects up close and is determined to get Americans to quit tobacco. On November 15th he announced widely expected measures to restrict the sale of flavoured vaping products. More surprising was a proposed ban on menthol cigarettes.

The minty smokes represent 35% of the American tobacco market. In only a few other countries, such as Hong Kong, Singapore and Thailand, are they as popular. Even as overall rates of smoking in America have been declining recently, consumers’ preference for menthol cigarettes has increased slightly. The FDA laid out no time frame for its potential ban but its announcement sent big tobacco companies’ share prices plummeting...

How a Chinese robotics company made Segway (almost) cool
Thu, 22 November 2018 15:53:30 GMT

THE TESTERS zip past boxes of desiccants, packing crates and mounds of small rubber wheels, wearing helmets and pads on their knees and elbows. They drive the latest batch of electric kick-scooters past the assembly lines and into a pen surrounded by protective nets and multicoloured bunting, over speed bumps and cobblestones, down steps and up ramps. One rider tests around 450 e-scooters a day.

Once each has clocked up 1km doing laps of the 1,200-worker factory in Changzhou, a city in Jiangsu province, they are shipped. On a recent visit three models, each with small customisations, rolled off conveyor belts. One was for Xiaomi, a domestic maker of smartphones and gadgets. The two others were for Bird, an American app-based rental service for scooters which was valued in June at $2bn; and Grin, a new scooter-sharing startup in Mexico. Soon production will begin on a similar fleet for SEAT, a Spanish car company.

Ninebot, which owns the factory, claims to have made over nine-tenths of the e-...