The week in GRC: Third Point keeps pressure on Nestlé, and Singapore to allow dual-class share listings

Jan 26, 2018
This week’s governance, compliance and risk-management stories from around the web

The Wall Street Journal reported that, according to people familiar with the matter, Xerox’s biggest and third-biggest investors, Carl Icahn and Darwin Deason, respectively, have formed an alliance to encourage the company to explore a potential sale. The two investors plan to call on the company to explore strategic alternatives, which could include a sale or other transaction, to break its joint venture with Fujifilm Holdings, and immediately fire CEO Jeff Jacobson, the people said.

Xerox split itself in two just a year ago. It has said that since the breakup it is ahead of its transformation plan, and the board is willing to take any necessary steps to create more value. ‘The Xerox board of directors and management are confident with the strategic direction in which the company is heading and we will continue to take action to achieve our common goal of creating value for all Xerox shareholders,’ a company spokesperson said.

– Singapore Exchange (SGX) said it will allow companies with dual-class share structures to list, a month after Hong Kong announced a similar proposal, Bloomberg reported. SGX will consult on the rules this quarter and expects the first listing ‘soon after,’ CEO Loh Boon Chye said at the company’s quarterly earnings briefing. The moves by the two Asian exchanges come as some of the world’s largest technology companies use stock with enhanced voting power to protect the influence of their founders and management. Such structures have faced opposition from investors, which fear their rights could be eroded amid corporate governance concerns.

– Daniel Loeb’s activist hedge fund Third Point is maintaining pressure on Nestlé, urging further changes including selling more divisions, better defining its corporate strategy and buying back more shares, according to the Financial Times. The company should act ‘with greater urgency’ to sell off ‘ill-fitting businesses’ while focusing on growing categories including coffee, pet care, water and nutrition, Third Point said.

A spokesperson for Nestlé said the company’s board and management ‘welcome the continued input of all shareholders’ and added: ‘We keep an open dialogue with all of our shareholders and we remain committed to executing our accelerated value creation strategy.’

Bloomberg reported that Templum, which operates a digital assets exchange, said it executed the first trade on its platform, which complies with US securities regulations. ‘We believe this is the first security token to trade in a fully compliant platform,’ said Chris Pallotta, co-founder and CEO of Templum. ‘We’re embracing regulation to provide a secure market and a level of comfort for both investors and issuers that hasn’t been the norm in the digital assets market so far.’

Bloomberg Businessweek reported that bond rating agencies such as Moody’s Investors Service and S&P Global Ratings are looking at whether they should be including more natural disaster forecasting in calculating the grades they give to government debt and companies in industries ranging from insurance to construction. The agencies have looked at these risks for years and issued reports on them, but in recent months they’ve been working to integrate this research more into individual ratings. In November, for example, Moody’s warned coastal cities and states to address their climate risks or face possible downgrades. Investors are pushing ratings firms to give them more of a warning about the risks.

– According to the FT, Tesla founder Elon Musk has agreed a new compensation deal under which he will be paid nothing unless the company can become one of the most valuable groups in the world, and finally turn a profit. The company announced a new 10-year performance scheme under which Musk would be rewarded based on a combination of ambitious market cap and operational milestones. Tesla said the new plan – which was first reported by The New York Times and will be put to shareholders at a special meeting in March – is ‘designed to ensure that as Tesla’s market cap grows, the company is also executing well on both a top-line and bottom-line basis.'

– The UK’s Competition and Markets Authority (CMA) dealt a setback to 21st Century Fox’s planned £11.7 billion ($16.3 billion) takeover of Sky, saying the deal would give Rupert Murdoch too much control over the country’s media, Bloomberg reported. Fox’s bid to buy the TV broadcaster wouldn’t be in the public interest, the CMA said in provisional findings in which it called for the companies to offer remedies. ‘We will continue to engage with the CMA ahead of the publication of the final report in May,’ Fox said.

Reuters reported that New York City sued eight companies that make or distribute prescription opioids, blaming them for fueling a deadly epidemic. Mayor Bill de Blasio said the lawsuit sought $500 million in damages to help fight the crisis, which kills more people in the city annually than homicides and car accidents combined. The defendants include manufacturers Allergan, Endo International, Johnson & Johnson (J&J), Purdue Pharma and Teva Pharmaceutical Industries and distributors AmerisourceBergen, Cardinal Health and McKesson.

Allergan, Endo, J&J, Purdue, Teva, AmerisourceBergen and McKesson in separate statements emphasized the importance of using opioids safely. Endo, J&J and Purdue further denied the city’s allegations, while McKesson declined to comment on the lawsuit. Cardinal Health did not immediately respond to requests for comment.

– Mick Mulvaney, acting chief of the Consumer Financial Protection Bureau (CFPB) has told staff that enforcement actions should be pursued very sparingly, as ‘the most final of last resorts’, signaling a sharp change from the previous regime which imposed billions of dollars in penalties on financial institutions, according to the FT.

– The WSJ said CSX will require the company’s CEO to submit to an annual physical exam that will be reviewed by the board, taking an unusually tough approach to a delicate issue just weeks after the death of Hunter Harrison, its previous CEO. Harrison, who signed a four-year contract with the company in March 2017, died on December 16. CSX’s move is an attempt to address the sensitive issue of CEO health and how much boards are entitled to know about it, particularly in cases where a company’s fortunes are so closely tied to their leaders.

Bloomberg reported that Qualcomm must pay a €997 million ($1.2 billion) fine after the EU’s antitrust arm said payments the company made to Apple were an illegal ploy to ensure only Qualcomm chips were used in iPhones and iPads. Apple was cornered by Qualcomm with a 2011 deal that offered ‘significant’ sums and rebates if it bought only Qualcomm’s chips, the European Commission said.

‘Qualcomm strongly disagrees with the decision and will immediately appeal it to the General Court of the [EU],’ the company said in a statement. The EU decision ‘does not relate to Qualcomm’s licensing business and has no impact on ongoing operations.’

Apple declined to comment immediately. There are ‘no repercussions’ for Apple for accepting the deal with Qualcomm and no evidence of wrongdoing by the Cupertino, California-based company, EU competition commissioner Margrethe Vestager said.

– The WSJ reported that Jelena McWilliams, the nominee to head the Federal Deposit Insurance Corp, told a Senate hearing she plans to focus on easing regulatory requirements for community banks, encouraging the creation of new banks and tackling cyber-security. McWilliams, who is currently the top lawyer for Fifth Third Bancorp, emphasized that she plans to speed up the process for reviewing deposit insurance applications for banks, a key step toward opening a new institution.

– According to the WSJ, General Electric (GE) said the SEC has opened a probe into the company’s accounting practices. The SEC is investigating how the company recognized revenue from long-term service contracts for projects such as power plant repairs and jet engine maintenance, GE said. The firm’s finance chief, Jamie Miller, who disclosed the probe on an earnings call with investors, said the company is co-operating with the SEC. She said the probe was in its ‘very early stages’. In an interview, Miller said she has been conducting a ‘deep review’ of GE finances and hasn’t seen indications of accounting problems. She took over as CFO on November 1.

Bloomberg said that, although European banks have scored a victory in having the Basel III capital standards toned down, there are more battles to come in 2018, in particular lobbying lawmakers on a series of measures designed to reduce risk in the system. A key part of the upcoming rules is the net stable-funding ratio, which will compel banks to put in place more long-term funding and limit their reliance on short-term financing. Banks and industry associations are lobbying the European Parliament on the measures ahead of this week’s deadline for lawmakers to submit amendments.

Reuters reported that Hong Kong Exchanges and Clearing said it had received inquiries from companies for dual-class share listings as both it and the Singapore bourse gear up to allow such initial public offerings (IPOs). Hong Kong bankers expect a slew of large IPOs from Chinese technology firms with an estimated combined market value of around $500 billion over the next two years.

– The SEC’s office of minority and women inclusion (OMWI) introduced a diversity assessment report for entities regulated by the agency. The diversity assessment report is designed to help regulated entities conduct self-assessments of their diversity policies and practices, and gives them a template for submitting information about their self-assessments to OMWI. Conducting self-assessments and providing diversity assessment information to OMWI are voluntary.

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