Note fiasco sends Samsung profit up in smoke

BY Richard Summerfield

The smartphone industry is a fast moving and fickle market. As Samsung Electronics well knows, a company’s fortunes can rise and fall on the strength of a single device. When the company released its Galaxy S7 line of phones earlier this year, Samsung recorded its strongest profits in over two years.

In July, revenue of $45.2bn was up 5 percent on the previous year, while the firm’s operating profit was up 18 percent to $7.22bn.

However, as quickly as things can improve, they can fall apart. The debacle surrounding the release, replacement and subsequent recall of its Galaxy Note 7 device has plunged the company’s brand and reputation into chaos. Indeed, the furore surrounding Samsung’s exploding ‘phablet’ could not have come at a worse time for the South Korean firm, with major rivals Google and Apple launching competing devices in the last few weeks. It appears that Samsung’s brand and balance sheet may be adversely affected, contrary to what the company originally claimed.

Just last week, Samsung issued earnings guidance which claimed that the company’s recall of the device would not adversely impact its balance sheet. However, on Wednesday it said it expects third quarter profits of $4.7bn or 5.2 trillion won, around a third lower than its original estimate of 7.8 trillion won. The company has also dramatically reduced revenue expectations, cutting them by 2 trillion won to 47 trillion ($41.8bn).

Samsung also noted that in light of the difficulties it has had with the Note 7 device, it was stopping all sales and production of the phablet, citing consumer safety concerns. “For the benefit of consumers' safety, we have stopped sales and exchanges of the Galaxy Note 7 and have consequently decided to stop production," Samsung said in a statement.

The day before the company made the announcement, Samsung saw $18bn wiped off its market capitalisation. The following day the company’s shares continued to fall. How Samsung recovers from here will be telling. Undoubtedly, the momentum the firm built up through the release of the Galaxy S7 device has slowed considerably.

News: Samsung slashes profit forecast over Galaxy Note 7 crisis

The danger within: internal risks increasing, claims new PwC report

BY Fraser Tennant

Amid a complex and constantly changing risk landscape, internal cyber attacks are an increasing threat that can damage a company’s profits and reputation, according to PwC’s ‘Global State of Information Security Survey’, published this week.

Indeed, a multitude of data is lost each day in this way through mistakes, misuse or malicious attacks; however, the PwC survey contends that the threat to an organisation no longer comes purely from outsiders and that insider risk is now a matter of growing concern.

Drilling down, the top insider risk and source of security incidents for UK organisations is current employees, with former employees a close second. In addition, third parties, including service providers, consultants or contractors, are also now increasingly likely to be the cause of a cyber threat to a business.

In light of the reconfigured threat, the survey highlights four key trends: (i) digital businesses are adopting new technologies and approaches to cyber security; (ii) threat intelligence and information sharing have become business-critical; (iii) organisations are addressing risks associated with the internet of things (IoT); and (iv) geopolitical threats are rising.

“Organisations spend so much time focusing on protecting themselves from external threats that it’s often easy to forget the insider risk – stemming not only from employees, but also a wider ecosystem of business partners," said Richard Horne, cyber security partner at PwC. “Business leaders need to shine a light on who has access to their critical systems and data. Poor access governance and controls can damage not only your reputation but ultimately profit.”

The report also examines the likely impact of the EU’s General Data Protection Regulation (GDPR), which is due to come into effect in April 2018. In essence, the GDPR means an uptick in privacy demands that will require companies to refocus their data privacy arrangements.

“GDPR requires a level of internal control over privacy practices we’ve never seen before,” said Jay Cline, cyber security and privacy principal at PwC. “A half-billion EU citizens will be poised to hold multinationals accountable to this higher bar through new rights they will begin exercising one spring morning a year and a half from now.”

The ‘Global State of Information Security Survey’ showcases the views of more than 10,000 CEOs, CFOs, CIOs, CISOs, CSOs, VPs and directors of IT and security practices from more than 133 countries (34 percent of respondents are from North America, 31 percent from Europe, 20 percent from Asia Pacific, 13 percent from South America and 3 percent from the Middle East and Africa).

Report: Moving forward with cybersecurity and privacy - Key findings from The Global State of Information Security® Survey 2017

Global M&A volume down 22 percent YOY, reveals nine months review

BY Fraser Tennant

Mergers & acquisitions (M&A) activity during the first nine months of 2016 is the topic of a new report released this week by Dealogic.

Among the headline figures contained in ‘Global M&A Review: Nine Months 2016’ is the 22 percent year-on-year (YOY) drop in M&A volume, down to $2.55 trillion from $3.27 trillion.  

In terms of key regional headline data, the report reveals that US targeted M&A volume was down 30 percent YOY. Furthermore, domestic US M&A volume fell 38 percent to $771.3bn.

Looking to M&A volume in Europe, the UK reached $62.1bn by the end of 3Q 2016, its highest recorded 3Q figure since 2008.

As far as global cross-border M&A volume is concerned, activity in the first nine months of 2016 was valued at $899.5bn, down 9 percent YOY. Furthermore, US inbound M&A was $327.9bn, only slightly behind the all time record of $330.6bn set in 2015.

In terms of M&A in the Asia Pacific region, China and Japan were the top acquiring Asian nations of US targets. Chinese acquisitions reached an annual record high for both volume and activity, with $35.7bn via 124 deals. Japan announced 132 deals worth $17.4bn, down 39 percent YOY.

Leading the M&A advisor rankings is Goldman Sachs with transactions totalling $613.3bn, followed by Morgan Stanley on $476.3bn and JPMorgan on $459.9bn.

Technology was the top sector (replacing healthcare) with a total of $475.4bn, just ahead of its previous record of $446.1bn in 2015. Conversely, healthcare, which also hit an annual record high in 2015, was down 48 percent YOY to $255.4bn.

The report also showcases the ‘Top 10 Announced M&A Transactions First Nine Months 2016’ with Bayer’s $66.3bn acquisition of Monsanto, announced in May 2016, top of the list. Second is the $46.7bn acquisition of Syngenta by China National Chemical Corp (ChemChina) in February 2016 - the largest ever cross-border transaction by a Chinese acquirer. In third place is the September 2016 deal which saw Enbridge Inc acquire Spectra Energy Corp for $43bn, in the largest Canadian outbound deal on record and the fifth largest utility & energy deal on record.

Finally, Dealogic confirms that the total of withdrawn M&A in the first nine months of 2016 was $752.8bn. This includes the $28.9bn Praxair/Linde deal and the $25.4bn Mondelez International/Hershey transaction.

Report: Dealogic – ‘Global M&A Review: First Nine Months 2016’

Bass Pros Shops catches Cabela’s in $5.5bn deal

BY Richard Summerfield

Fishing and hunting chain Cabela’s Inc. has agreed to be sold to rival Bass Pro Shops in a deal worth $5.5bn.

Under the terms of the deal announced on Monday, Bass Pro Shops has agreed to pay Cabela’s shareholders $65.50 per share held. The price represents a 19.2 percent premium to Cabela's most recent closing price on Friday. According to a joint statement released by the firms, the deal is expected to close in the first half of 2017.

In a separate deal, Capital One Financial Corp. has announced that it will be acquiring Cabela’s credit card business for an undisclosed amount. The sale of the credit card business will create a 10 year agreement which will allow Bass Pro Shops to issue credit cards to Cabela's customers.

News of the deal for Cabela’s has been welcomed not only by the company’s shareholders but also the markets. Indeed, Nebraska based Cabela’s, which has been in business since 1961, has endured a difficult few years which have seen the company’s larger stores outmanoeuvred by smaller, more dynamic rivals, including online retailers. The company’s difficulties have been reflected in its declining share price.

In light of the increased competition from a variety of sources, Cabela’s has experienced falling sales of apparel and footwear and has seen same-store sales growth in only one quarter in more than three years. The company had also been under pressure from activist hedge fund Elliott Associates LP, which revealed an 11.1 percent stake in the company a year ago.

Since rumours of a potential sale began to circle in December 2015 the company’s stock has risen 17 percent.

"Cabela’s is pleased to have found the ideal partner in Bass Pro Shops," said Tommy Millner, Cabela’s chief executive . "Having undertaken a thorough strategic review, during which we assessed a wide variety of options to maximise value, the Board unanimously concluded that this combination with Bass Pro Shops is the best path forward for Cabela’s, its shareholders, outfitters and customers. In addition to providing significant immediate value to our shareholders, this partnership provides a unique platform from which our brand will be extremely well positioned to continue to serve outdoor enthusiasts worldwide for generations to come."

The newly combined company will own more than 180 stores across the US and Canada.

“Today's announcement marks an exceptional opportunity to bring together three special companies with an abiding love for the outdoors and a passion for serving sportsmen and sportswomen," said Johnny Morris, founder and CEO of Bass Pro Shops. "The story of each of these companies could only have happened in America, made possible by our uniquely American free enterprise system. We have enormous admiration for Cabela’s, its founders and outfitters, and its loyal base of customers. We look forward to continuing to celebrate and grow the Cabela’s brand alongside Bass Pro Shops and White River as one unified outdoor family.”

News: Cabela’s Agrees to Buyout by Bass Pro in $5.5 Billion Deal

RBS agrees $1bn mortgage mis-selling deal

BY Richard Summerfield

Royal Bank of Scotland has agreed to pay $1.1bn to settle a number of legal claims in the US which alleged that the bank mis-sold mortgage securities in the run-up to the financial crisis.

RBS sold the securities to two credit unions, which failed after the US housing bubble burst in 2008. Accordingly, state-backed RBS, which has admitted no fault under the terms of the deal, has struck the settlement with the National Credit Union Administration Board (NCUA), which regulates credit unions.

The deal will see RBS resolve two lawsuits which had been filed in federal courts in California and Kansas by the NCUA, which had been acting as the liquidating agents for two failed credit unions.

Rick Metsger, chairman of the NCUA, said, "NCUA is pleased with today's settlement and fully intends to stay the course in fulfilling its statutory responsibilities to protect the credit union system and to pursue recoveries against financial firms that we maintain contributed to the corporate crisis."

The settlement brings the agency's recoveries against various banks to $4.3bn in lawsuits over their sale of mortgage-backed securities before the 2008 financial crisis.

Though RBS has finalised this deal with the NCUA, it is not yet out of the woods. The settlement with the NCUA board is just one of the three major issues that bank is currently facing regarding its selling practices in the build-up to the financial crisis. The bank must still address suits being brought against it by the Department of Justice and the Federal Housing Finance Agency (FHFA).

According to RBS, the settlement won’t have a material impact on the bank’s core capital ratio given that the $1.1bn payment will be “substantially covered by existing provisions”. In 2015 the bank agreed to pay $129.6m to settle a separate case with the NCUA. Though the most recent settlement will see the NCUA will dismiss its pending civil lawsuits against the bank, RBS is still defending against 15 civil lawsuits in the US, though it has not yet entered formal discussions with the DoJ.

Going forward, the bank is likely to have to pay out considerably more than $1.1bn to the DoJ and FHFA. Indeed, it is believed that ultimately the bank may be forced to pay a total of $13bn. Accordingly, RBS noted that it “may require additional provisions in future periods that in aggregate could be materially in excess of the provisions".

RBS is not alone in drawing the ire of the DoJ, with Deutsche Bank recently fined $14bn for mis-selling mortgage-backed securities.

News: RBS to pay $1.1 billion to resolve some of its U.S. mortgage claims