Commercial Awareness Breakdown: 23–27 March 2020

WeWork, Ventilators and UK Networks

Posted at youthlaw.co.uk…

Commercial Awareness Breakdown deconstructs three of the week’s commercial stories in an understandable and jargon-free manner. Terms bolded and underlined may be more difficult to understand and are explained at the bottom.

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1) WeWork

American real estate firm WeWork, known for providing shared workspaces for start-ups, is locked in an intense exchange with its financial backer, SoftBank, who state they are now unprepared to buy shares in the company as promised.

WeWork has had a rocky history of financial problems. Founded in 2010, the company started off as a success story, but over the past few years a failed IPO, along with expensive behaviour on behalf of the firm’s founder and former CEO, Adam Neumann, has caused significant issues. SoftBank, the Japanese conglomerate owning the Vision Fund, gave the firm billions ($10.3 billion) in investments over the past few years in attempts to keep it above water.

SoftBank’s Vision Fund is struggling, with its shares having decreased by 38% in the last month, and has warned it could walk away from an agreement to purchase $3 billion worth of shares in WeWork. The conglomerate cites regulatory disapproval as its reason behind walking away, yet is still contractually obliged to provide the $3.3 billion debt package. In buying the shares, SoftBank would own 78% of WeWork.

Value of SoftBank stock over the past six months, data provided by Google.

SoftBank has argued that the investment package would disproportionately benefit Adam Neumann, an individual who has been accused of self-dealing within the company. In spite of this, many employees at WeWork are attempting to remind SoftBank that they need the package to support their livelihoods, particularly at a time of such financial crisis. According to one employee, people have “planned lives based on having this money”. The financial times report that Mr Neumann could receive between $800 and $970 million if the offer proceeds.

The recent financial crises triggered by the Coronavirus outbreak has applied more pressure to WeWork, who’s losses more than doubled to $1.25 billion during the third quarter of 2019. The firm has reassured investors, stating that it has the cash reserves to survive the duration of the outbreak. Whether this is true, or whether the firm will be another corporate casualty of the pandemic is for time to tell, however the deal with SoftBank will certainly buy it some security.

2) Ventilators

British household appliance manufacturer Dyson has announced plans to manufacture 15,000 ventilators for health services in an attempt to assist with the fight against Coronavirus. The firm’s ventilators, designed from scratch, will be supplied predominantly to the UK’s NHS following a government order of 10,000 units. Sir James Dyson, the company’s founder, is to pay for 5,000 extra units — 4,000 of which will be donated abroad.

Ventilators are essential to treating many of the more severe cases of Covid-19, and despite the government’s claims that 60,000 may be needed, the NHS can currently access only 8,175. Dyson’s CoVent ventilator was developed in 10 days and “can be manufactured quickly, efficiently and at volume” (Sir James Dyson). The device will contain the Dyson motor, manufactured in Singapore.

Alongside Dyson’s efforts, the government has also given permission to Ventilator Challenge UK, a consortium of aerospace and automotive firms including Airbus, Rolls-Royce and Ford, to produce existing ventilator models. One such ventilator is normally found in ambulances, but its production will be increased fourfold to meet demands in hospitals.

The government missed the recent deadline to claim ventilators from the European Union. Initially, it appeared that the government had put Brexit before the Covid-19 pandemic, however, it seems now that the ‘mix-up’ was caused by a communication error — “owing to an initial communication problem, the UK did not receive an invitation in time to join in four joint procurements in response to the coronavirus pandemic”.

Outside of the UK, electric-vehicle manufacturer Tesla has promised to provide New York with hundreds of ventilators — the city currently has the highest number of cases in the US. Elon Musk, Tesla’s owner, recently bought 1,255 ventilators with plans to build more or donate. In similar news, president Donald Trump has attacked automotive firm GM for wasting time in beginning production, and as such has triggered the Defense Production Act from the Korean war — this act allows the president to force companies to make supplies for national aid.

Trump’s orders come after the US Senate approved financial legislation to inject $2 trillion into the American economy over the course of the coronavirus pandemic, an outbreak which has already caused huge global financial devastation. The ‘stimulus package’ was passed 96 to 0, and provides, among other things, for the direct transfers of money to many Americans. The chairman of the Federal Reserve, Jay Powell, reassured citizens and investors alike, stating that the US central bank would not “run out of ammunition” in helping the economy.

3) UK Networks

Under government orders, the UK’s population has been required to conduct work from home in an attempt to slow the spread of the coronavirus. The surge in home-based network activity has, however, placed a strain on the country’s internet and phone networks.

Workers in Korea and China are in a somewhat better position, being able to use their countries’ well-developed fibre internet and 5G networks to work from their living rooms. In the UK, however, many workers are forced to use their homes’ dated copper cables, which provide significantly slower speeds. Korea and Japan boast 80% implementation of fibre, whereas Britain’s fibre infrastructure serves only 10% of internet connections.

British Telecoms, the telecommunications giant founded in the UK in 1969, is the largest provider of fixed-line connections in the country, and has recently reassured customers that its connections will withstand the pressure. The multi-national company has previously invested furiously in sports media rights instead of fibre in an attempt to gain customers, fixing any connection issues with a more temporary approach. In spite of this, BT claims that its systems are coping easily.

Copper cables allow for less bandwidth over the connection, resulting in slower data transfer for users. Over time, internet connections have become configured to allow more bandwidth for data download than upload — this is simply because users did not need to upload as often as download. With more and more users working from home utilising applications such as Zoom, Skype and FaceTime, significant bandwidth will be required for transmitting video, meaning traditional connections will struggle to cope.

The UK is not the only country with weaker internet infrastructure. Germany, for example, also has poor fibre implementation. This, combined with the surge in demand for streaming services, has led YouTube, Amazon and Netflix to cut their quality across Europe. These cuts come as a response to the European Commission’s calls to help ease bandwidth congestion. For home users, these cuts will result in a degradation in picture quality. Annoying as this may be, these moves, hope providers, will help to keep services running smoothly.

The problem is not limited to internet connections. The UK has recently seen a 50% surge in the number of phone calls being made, a rise which has placed serious pressure on providers. Alongside internet-based conferencing solutions, many workers having to operate from home are now using their own, less sophisticated phone lines. Following an overload last week, many users are now having their call quality reduced in an attempt to manage the surge.

For the majority of people, the coronavirus pandemic has completely changed day-to-day life. Despite being a devastating tragedy, the outbreak is also a wake-up call. It seems that many of the world’s infrastructures and governments were simply unprepared, in a variety of ways, for such a monumental shift in public behaviour. The coming weeks and months will certainly see many more organisations put under the strain, and it will be up to governments to assist and keep infrastructures functioning through these troubling times.
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Difficult Terms:

CEO — Chief Executive Officer — the most senior officer in charge of an organisation.

Cash Reserves — Funds that companies have set aside. These may be in preparation for emergency situations, but may also be for a variety of other reasons.

Conglomerate — A combination of multiple businesses usually trading in different spheres, but operated under one parent corporation.

Contractual Obligation — Upon entering into a contract, one party may, under law, be obliged to carry out a certain promise.

Debt Package — Debt financing occurs when a firm raises money by selling debt in the company.

European Commission — A body of the European Union involved in proposing laws and managing the day-to-day business of the Union.

European Union — An international organisation in which different countries are members. The union imposes certain trade and legal requirements upon its members.

Federal Reserve — The central banking system of the United States.

Fibre Internet — An internet network that transfers data using fibre optic cables. Generally, the technology is quicker than traditional cable data transfer.

IPO — Initial Public Offering — Stocks (financial units of ownership interest in a company) are offered (for the first time) for the public to buy on a stock exchange — this is often used as a method of raising cash in a company.

Legislation — Written law passed by a legislature, such as Parliament.

Quarter — A financial quarter is a three-month period in a financial calendar, the end of which normally requires publishing of financial reports. There are four financial quarters in a year — Q1, Q2, Q3 and Q4.

Real Estate — Real estate concerns trading in property and buildings.

Regulator — The individuals/organisations who create regulations.

Self-dealing — Self-dealing occurs when an individual takes advantage of their position and acts in their own interests instead of the interests of their clients — this is generally unlawful.

Shares — A financial unit of ownership interest in a company.

Start-up — A new company intending to grow to be a large-scale organisation.

Telecoms — Telecommunications refers to a broad range of matters concerning the transmission of signals, messages, words, writing, images, sounds and information.

US Senate — The United States Senate is the upper chamber of Congress. The lower chamber is the house of representatives, and together they are the law-making body of the United States.