Boards now wising up to the true value of corporate culture, says new EY report

BY Fraser Tennant

Organisational culture is fundamentally important to corporate strategy and performance and should be embedded into decision-making and oversight processes, according to a new report released this week by EY.

The report – ‘Governing culture: practical considerations for the board and its committees’ – highlights the importance of culture to businesses, but, at the same time, suggests that the deliberation and focus in this area by the boards of many companies is often not adequate and appropriate.

Indeed, the EY report suggests that boards could be doing more, and cites a recent survey of FTSE 350 board members (conducted by EY and the FT) which saw the majority of respondents stating their belief that their board should take greater responsibility for shaping and monitoring culture.

Moreover, although 86 percent of survey respondents said that corporate culture was fundamental or very important to their company’s overall strategy and performance, only 19 percent said the board has primary responsibility for embedding it. In addition, 47 percent felt there was little or only partial consensus at board level as to what company culture should be.

“The board has an important role in relation to the political, social, performance and operational architecture that shapes culture”, states the EY report. “This begins with creating the vision for the desired culture within the organisation. Responsibility for bringing that vision to life and embedding it within operations or sometimes driving change falls to management, but the board must then apply rigorous methods for assessing, monitoring and overseeing culture.”

Whilst recognising that the concept of culture poses a great many questions from a governance perspective, the report stipulates that boards and board committees must apply a cultural lens to their roles and responsibilities to fully embrace the governance challenge. “Culture shouldn’t just be a hot topic for discussion, but also for governance action”, the report concludes.

As well as drawing on the findings of the EY and FT board survey on culture, the new EY report also showcases data from a recent paper by EY’s Corporate Integrity team: ‘The route to risk reduction: better rules or better decisions?’

Report: Governing culture – practical considerations for the board and its committees (June 2016)

PwC calls for change

BY Richard Summerfield

The oil & gas industry has endured a turbulent and troubled couple of years and, according to a new report from PwC, there may be more pain on the way unless radical and urgent changes are made within the industry, most notably in the North Sea basin.

PwC’s report 'A Sea Change: The future of the North Sea Oil & Gas' has called on those companies operating in the North Sea to implement a comprehensive programme of reform in the basin in order to meet short term energy needs. For the industry to undergo the necessary changes, however, it will require both government intervention as well as the input of industry organisations.

Given the deficiencies displayed by the industry it is unsurprising that there is a dearth of optimism permeating the oil & gas space; the report found that less than three in five senior executives interviewed by PwC were positive about the industry's future. A fifth of all respondents were pessimistic about the future.

Regardless of the gloomy outlook for the industry, there is a willingness within the space to change, according to Alison Baker, PwC’s UK and EMEA oil and gas leader. When interviewing respondents, PwC “picked up a real sense of urgency to create one last cycle of success that will retain and generate jobs, stimulate growth and ensure security of energy supply. But this was matched by a level of frustration at the fundamental issues that need tackling to avert the risk of rapid and premature decline. Part of the solution is for government agendas across Treasury, DECC and the OGA to be much better aligned to the needs of the whole industry, from super majors to smaller oil field services firms. The majority of respondents also want government to take a lesson from Norway and Saudi Arabia and be bold in setting out their blueprint for the future. This must incorporate onshore activity as well as defining how the North Sea basin will evolve in the short to medium term and, crucially, how the end game - and subsequent transition to a low carbon landscape – will be managed.”

One of the key measures proposed by PwC is the creation of a “super joint venture” comprised of a number of offshore operators which would not only share the risk of operating in the space. They would also split the returns. By combining their efforts under one joint venture banner, it would be easier for organisations to create greater cost efficiencies; indeed, a joint venture approach could see costs fall by around 15 percent, according to PwC’s projections. By pooling their efforts, they would also be in a better position to negotiate with suppliers in the long-term.

Such is the state of the sector, industry leaders have also proposed the transfer of certain assets, including pipeline infrastructure to a third-party company to ensure cooperation. The nationalisation of certain assets has also been mooted.

Report: A Sea Change: The future of the North Sea Oil & Gas

Monumental $26.2bn deal sees Microsoft acquire LinkedIn

BY Fraser Tennant

In a monumental deal which combines the world's leading platform and productivity company with the world’s leading professional network, Microsoft Corp is to acquire LinkedIn Corporation in a transaction valued at $26.2bn.

Under the terms of the definitive agreement, Microsoft will acquire LinkedIn for $196 per share in an all-cash transaction, with the professional network retaining its distinct brand, culture and independence. In addition, Jeff Weiner will remain as CEO of LinkedIn and will report to Satya Nadella, CEO of Microsoft.

The world's largest and most valuable professional network, over the past year LinkedIn’s innovations, have resulted in an increase in membership, engagement and financial results, including: (i) 19 percent growth year over year (YOY) to more than 433 million members worldwide; (ii) 9 percent growth YOY to more than 105 million unique visiting members per month; (iii) 49 percent growth YOY to 60 percent mobile usage; (iv) 34 percent growth YOY to more than 45 billion quarterly member page views; and (v) 101 percent growth YOY to more than 7 million active job listings.

"The LinkedIn team has grown a fantastic business centred on connecting the world's professionals," said Mr Nadella. "Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organisation on the planet."

Microsoft has said that it will finance the deal transaction primarily through the issuance of new indebtedness and, upon closing, expects LinkedIn's financials to be reported as part of Microsoft's Productivity and Business Processes segment.

"Just as we have changed the way the world connects to opportunity, this relationship with Microsoft, and the combination of their cloud and LinkedIn's network, now gives us a chance to also change the way the world works," said Mr Weiner. "For the last 13 years, we've been uniquely positioned to connect professionals to make them more productive and successful, and I'm looking forward to leading our team through the next chapter of our story."

Unanimously approved by the boards of directors of both LinkedIn and Microsoft, the deal is subject to approval by LinkedIn's shareholders, the satisfaction of certain regulatory approvals and other customary closing conditions.

The Microsoft/LinkedIn transaction is expected to close by the end of 2016.

News: Microsoft to buy LinkedIn for $26.2 billion in its largest deal

World’s top 40 mining companies hit by $27bn collective net loss

BY Fraser Tennant

The mining sector experienced a challenging 2015 with its 40 largest companies hit by a collective net loss of US $27bn, according to a PwC report published this week.

In ‘Mine 2016: Slower, lower, weaker... but not defeated’ – the 13th in a series of PwC reports which analyse financial performance and global trends – it is also revealed that market capitalisation fell by 37 percent (in a number of cases below net book value), a development which PwC says "effectively wipes out all the gains made during the commodity super cycle".

The aggregated results found in the PwC report were sourced from the latest publicly available information, primarily annual reports, with all figures reported in US dollars.

“Last year was undoubtedly challenging for the mining sector,” said Jason Burkitt, PwC’s UK mining leader. “A 25 percent year-on-year decline in commodity prices meant mining companies had to ratchet up their productivity efforts, while some found themselves in a fight for survival, with asset disposals and closures to follow.

“We’re also seeing shareholders persist with a short term focus, impacting the capital available for investment and, as a result, constraining options for growth. But this is a hardy industry, and while miners may be down now they are certainly not out.”

The PwC report also found that: (i) investors punished the top 40 mining companies for poor investment and capital management decisions and, in some cases, for squandering the benefits of the boom; (ii) concerns over the 'spot mentality' from shareholders focused on fluctuating commodities prices and short term returns rather than the long term investment horizon required in mining; and (iii) there was a focus in 2015 on maximising value from shedding assets as well as mothballing marginal projects or curtailing capacity.  

Although Mr Burkitt concedes that the mining sector will continue to face significant market challenges and constraints, he is also confident that there is a still a long-term positive outlook. “In the first five months of the year, we’ve been encouraged by some recoveries in market capitalisations and commodity prices – but with high volatility still in play, hopes of a sustained rebound are tempered.

“Many of the top 40 mining companies appreciate what is required for the marathon of mining and have their eyes firmly fixed on the long term rewards," he concluded.

The PwC analysis of the mining sector was published to coincide with this week’s London School of Mines conference on 8 June.

Report: Mine 2016 Slower, lower, weaker... but not defeated - review of global trends in the mining industry

Thoma Bravo acquires Qlik for $3bn

BY Richard Summerfield

Visual analytics company Qlik has been acquired by private equity firm Thoma Bravo in a $3bn deal, the two firms have announced.

The deal, which will be an all cash affair, is expected to close in the third quarter of 2016, provided the transaction wins the approval of Qlik’s shareholders and satisfies the usual closing conditions, according to a joint statement announcing the merger. The offer will see Qlik’s shareholders receive $30.50 per Qlik share held, a premium of 40 percent over the company's 10 day average stock price prior to 3 March 2016.

According to the statement, Qlik, which went public in 2010, will remain headquartered in Radnor, Pennsylvania. The company will also retain its existing management team.

“We believe the proposed transaction is in the best interest of Qlik’s shareholders and provides the Company with additional flexibility to execute our strategic plan as we continue to diligently provide customers with the premier products and services they have come to expect,” said Lars Björk, chief executive of Qlik. “Thoma Bravo recognises the value that Qlik delivers – a platform that lets our customers see the whole story that lives within their data. Thoma Bravo has an excellent track record of investing in outstanding technology businesses for the long-term, and I am confident our employees, customers and partners will greatly benefit from our partnership with them.”

The future of Qlik had been up for debate for some time. Indeed, the company had been on the hunt for potential buyers and is believed to have received preliminary offers from a number of interested parties, including private equity groups. However, it was Thoma Bravo’s interest in the company that proved decisive.

“We look forward to partnering with the Qlik team as they continue to grow their platform-based approach to business intelligence (BI) and analytics,” said Orlando Bravo, a managing partner at Thoma Bravo. “As the need for analytic solutions grows, Qlik is well-positioned to continue to drive innovation and lead the market.”

Qlik has become the latest in a string of companies to be acquired by private equity groups at the urging of activist hedge fund Elliott Management Corp. Elliott disclosed an 8.8 percent stake in the company in March and began agitating for a sale. Qlik follows Compuware Corp, Riverbed Technology Inc, Blue Coat Systems and Informatica into private equity ownership in the wake of Elliott activism.

News: Thoma Bravo to buy analytics firm Qlik in $3 billion deal