Commercial Awareness Breakdown: 3–7 Feb 2020

Ola, Elliott/SoftBank and Exchange Trading Hours

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.

Unsure about what exactly commercial awareness is? Click here to find out.

1) Ola

Uber is facing renewed competition from ride-hailing service Ola as they announce that they hope to take the place as London’s top car-booking service within a year. Ola, an Indian company, makes its London debut on Monday the 10th of February, six months after obtaining the necessary licence from TFL (Transport for London), and says it aims to focus on safety.

Ola, along with Uber, is backed by the SoftBank fund, and claims that it hopes to offer a “better deal for [both] customers and drivers” (Simon Smith, Head of International, Ola). For SoftBank, the victory will be bittersweet. Their Vision Fund helped Ola four years before investing in Uber, however this is the first time the two titans have gone head-to-head in London.

Ola’s specific focus is on safety, with passengers and drivers having to exchange a four-digit passcode as a conformation mechanism, ensuring the passenger has found the correct driver. Along with this, drivers with a poor history (more than six points) will not be permitted to drive for the firm, and any irregular vehicle activity will be reported as it happens.

Uber, the household name for ride-hailing apps, is currently facing suspension after London’s regulator identified a ‘pattern of failures’ that risked the safety of passengers. Uber, understandably, has criticised TFL’s decision, and continues to operate while making a legal appeal.

Ola currently has an edge over Uber through its operation in smaller towns, such as Exeter and Reading, where Uber chooses not to operate. The service, writes Simon Smith, aims to be in every local authority of the country. SoftBank, the owner of the Vision Fund which owns stakes in both Uber and Ola, has been criticised recently for its poor investment strategy. Between August and November of 2019, SoftBank’s shares fell 26%, perhaps not helped by Uber having had one of the worst opening day drops for any US company raising over $1 billion in an IPO. The Financial Times report SoftBank to have suffered more than $800 million in losses since its investment in Uber. Eyes certainly will be on Ola to see whether it can knock Uber from its London-podium.

2) Elliott/Soft Bank

Hedge fund Elliott Management has built a $2.5 billion stake in SoftBank and is now pushing the tech giant for both governance changes and a $20 billion share buyback. Elliott, an activist fund based in the US and worth $38 billion, is hoping SoftBank will narrow the discount between the value of its shares and that of its portfolio. Elliott is well known for its aggressive public campaigns against governments, chief executives and companies, and is of particular threat to SoftBank’s Mr Son, who’s public image has dipped significantly recently.

It is reported that Elliott believes SoftBank’s share price is being unfairly discounted because of the negative attention given to the firm’s Vision Fund. This fund, which owns shares in companies such as Uber and WeWork, is heavily funded by governments of Saudi Arabia and Abu Dhabi.

Elliott Management is hoping not only for a $20 billion share buyback, but also changes to SoftBank’s all-male board. The asset manager hopes for more transparency around the 88 companies in its Vision Fund portfolio, something the firm has been notoriously secretive about. As regards the share price, SoftBank says it agrees it is being “deeply undervalued by public investors”. However, any changes must first go through Mr Son, SoftBank’s largest shareholder (25% stake). Mr Son is known for his risk-ready investment strategies, which have certainly found some success since his founding of the company in the early 1980s.

That said, analysts have said that Son’s decision-making, along with SoftBank’s significant debts, are responsible for the firm’s discounted share price.

3) Exchange Trading Hours

Standard Life Aberdeen (SLA), Schroders and BlackRock, three leading asset management firms, have indicated their support in reducing trading hours at the London Stock Exchange (LSE) and other European indexes. BlackRock specifically has approved the proposed changes in relation to the work-life balance of families, stating that a 9am-4pm trading day would allow working-parents to complete their school runs before coming to work.

This is the first time in two decades that the LSE Group has suggested and consulted on changes to its opening hours, which currently run from 8am-4:30pm. This change, writes Louise Drummond of SLA, could help change the “perception of the finance industry”. This is a view supported by BlackRock, who said the London trading day really did not need to be longer than seven hours. Currently, the day overlaps with Asia’s close and the US’ opening. However, exchanges in New York and Japan both manage to conduct their trading in two fewer hours than the UK.

Mental health and work-life balance represents the main concerns of The Investment Association. However, this is not the only benefit of shortening trading days, with shorter working days resulting in reductions in the costs of buying and selling securities. This is clearly beneficial for clients. Galina Dimitrova, director for investment and capital markets at the Investment Association, highlights the need to take action against the “long hours culture” which, she writes, harms both diversity and mental health.

This change is perhaps indicative of the financial industry’s recent recognition of its wider problems. Alongside these changes to working-hours, the industry has seen a recent shift in its approach to emissions and climate change. These changes will, hopefully, make finance a much more sustainable element within the commercial sector.

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Difficult Terms:

Asset Management — A firm paid to invest individuals’/companies’ capital with the aim of growing their finances.

Hedge Fund — An investment fund which takes assets from various investors and pools it into a variety of assets.

Investment Strategy — A set of rules or pattern of behaviour an investor abides buy in determining when or when not to invest.

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.

Legal Appeal — An appeal against a decision made through the Courts.

Portfolio — A collection of investments held by a fund, institution or individual.

Regulator — The individuals/organisations who create regulations.

Share Buyback — A transaction through which a company buys back its own shares from a marketplace.

Shareholder — An owner of shares/stock in a company.

Share Price — The price of a single unit of ownership interest in a company. The share price is an indication of a company’s valuation, and will rise and fall depending on a variety of factors, including the company’s performance.

The Investment Association — The trade body representing UK investment managers.