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World

UK raises its windfall tax on energy companies and bets on nuclear power

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London
CNN Business
 — 

The UK government is hiking a windfall tax on oil and gas companies and extending the levy to electricity generators, as it scrambles to balance its budget amid an economic downturn. It is also investing in nuclear power for the first time in decades.

UK finance minister Jeremy Hunt announced the measures on Thursday while delivering the government’s medium-term budget, which laid out plans for higher taxes and cuts to public spending.

Beginning January 1, the Energy Profits Levy on oil and gas companies will increase from 25% to 35% and remain in place until the end of March 2028. That takes the total tax on the sector to 75%, according to the Treasury.

There will also be a new, temporary 45% levy on the excess profits of electricity generators over this period. In the United Kingdom, electricity prices are tied to wholesale gas prices, which means many power generators are also enjoying mega profits.

Together, these measures will raise £14 billion ($16.5 billion) next year and more than £55 billion ($65 billion) between 2022 and 2028.

There have been growing calls in Britain for higher taxes on the windfall profits of oil and gas companies, which have enjoyed record earnings this year thanks to rising prices driven by Russia’s invasion of Ukraine.

At the same time, households and businesses are being squeezed by decades-high inflation as a result of spiraling energy and food bills. The annual rate of UK inflation rose to 11.1% in October, its highest level in 41 years.

“I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy prices,” Hunt said in parliament on Thursday. “Any such tax should be temporary, not deter investment and recognize the cyclical nature of energy businesses,” he added.

The United Kingdom will spend an additional £150 billion ($176.9 billion) on energy bills this year compared to pre-pandemic levels, according to Hunt. That’s the equivalent to paying for a second National Health Service.

Hunt on Thursday also extended government support for energy bills by another 12 months until April 2024, but said average households should expect to pay £3,000 ($3,451) annually, up from £2,500 ($2,951) currently.

As well as hiking energy taxes, Hunt affirmed a £700 million ($824 million) investment into Sizewell C, a nuclear power station operated by France’s EDF in the east of England.

The deal was first announced by former prime minister Boris Johnson last September and is the first state backing for a nuclear project in over 30 years.

It will provide power to the equivalent of six million homes for over 50 years and represents “the biggest step” in Britain’s “journey to energy independence,” Hunt said.

Hunt reaffirmed the United Kingdom’s commitment to a 68% reduction in carbon emissions by 2030. “Last year nearly 40% of our electricity came from offshore wind, solar and other renewable sources,” he said.

He added that from April 2025 electric vehicle drivers will no longer be exempt from paying car taxes.

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Business

US oil producers reap $200bn windfall from Ukraine war price surge

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US oil producers have raked in more than $200bn in profits since Russia’s invasion of Ukraine as they cash in on a period of geopolitical turmoil that has shaken up the global energy market and sent prices soaring.

Aggregate net income for publicly listed oil and gas companies operating in the US came to $200.24bn for the second and third quarters of the year, according to an analysis of earnings reports and estimates carried out by S&P Global Commodity Insights for the Financial Times.

The figure — which includes supermajors, midsized integrated groups and smaller independent shale operators — marks the sector’s most profitable six months on record and puts it on course for an unprecedented year.

“Operating cash flow will likely be record-breaking — or at least very close to it — by year’s end,” said Hassan Eltorie, executive director for upstream equity research at S&P.

The cash bonanza has infuriated the White House as elevated petrol prices drag on Democrats’ polling numbers ahead of next week’s critical midterm elections.

President Joe Biden this week dubbed the outsized earnings a “windfall of war” and accused companies of “profiteering” from Moscow’s invasion. Unless they invested the cash haul into pumping more oil to bring down prices at the pump, he said he would ask Congress to hit them with higher taxes.

Windfall tax legislation remains unlikely to pass in Washington. But it has become a reality across the Atlantic: Brussels has introduced a 33 per cent “solidarity contribution” on excess profits, while London has enacted an additional 25 per cent “energy profits levy” that has taken the tax on profits to 65 per cent until the end of 2025. Rishi Sunak, the new UK prime minister, is considering increasing the levy to 30 per cent and extending it to 2028.

The bumper profits have been underpinned by soaring free cash flow, a key industry metric which is defined as cash flow from operations minus capital spending. Elevated commodity prices have pushed up the former; investor insistence on frugality has slashed the latter.

Brent crude, the international oil benchmark, averaged more than $105 a barrel over the second and third quarters — well above an average of around $70/b over the past five years. It hit a high of almost $140/b in early March after Russian tanks rolled into Ukraine.

Meanwhile, Wall Street, still reeling from a decade of profligacy and persistent losses has demanded companies enter a new era of capital discipline — prioritising shareholder returns over expensive drilling campaigns in pursuit of ever-greater output growth. Investment bank Raymond James estimates capital spending by the world’s 50 biggest producers will be around $300bn this year, roughly half what it was in 2013, the last time prices were at a comparable level.

“Over the past five years, the industry has shifted from ‘drill, baby, drill’ to focusing on what shareholders actually want, which is return of capital,” said Pavel Molchanov, an analyst at Raymond James. “Dividends and share buybacks have never been as generous as they are now.”

Big Oil’s newfound discipline stands in contrast to Big Tech, which has frustrated Wall Street through a perceived failure to rein in investment. Tech stocks have been pummelled in recent weeks after companies including Google and Meta reported lacklustre earnings.

Responding to the prospect of a windfall tax, Darren Woods, chief executive of ExxonMobil, which had its most profitable quarter ever, said his company’s chunky dividend should be considered its way of “returning some of our profits directly to the American people”.

“We prioritised for share value creation over the pursuit of volumes,” said Rick Muncrief, chief executive of Devon Energy, a big shale driller. “And we have rewarded shareholders with market-leading cash returns.”

Additional reporting by Alice Hancock in Brussels and David Sheppard in London

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Business

Energy expert says California windfall tax is a bad idea

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California implementing a windfall tax on oil companies would be harmful, according to an energy expert who spoke with FOX Business.

Democratic California Gov. Gavin Newsom on Friday called for a windfall profit tax to be levied on the profits above a set amount for companies involved in the extraction, production and refining of oil. The funds collected by the tax would then be “directed to rebates/refunds to California taxpayers impacted by high gas prices,” according to a press release from Newsom’s office. 

“Crude oil prices are down but oil and gas companies have jacked up prices at the pump in California,” Newsom claimed in a statement. “We’re not going to stand by while greedy oil companies fleece Californians.”

A customer pumps gas into their car at a gas station on May 18, 2022 in Petaluma, California.  ((Photo by Justin Sullivan/Getty Images) / Getty Images)

The average price for regular gas in California was $6.29 as of Friday, according to AAA. That price is up 11.3% from the $5.58 average price a week ago. Meanwhile, the average price for regular gas nationwide Friday was roughly $3.80.

GAS PRICES MOVING IN DIFFERENT DIRECTIONS DEPENDING ON WHERE YOU ARE: GASBUDDY ANALYST

Phil Flynn, a FOX Business contributor and senior market analyst at the Price Futures Group, said such a windfall tax would “further discourage investment in an industry that is desperately in need of capital to stay in business in an increasingly hostile governmental environment.” he said.

In April 2021, Newsom signed an executive order aiming to halt oil extraction in California by 2045. More recently, in August, the California Air Resources Board moved to require all new vehicles in the state to operate on electricity by 2025, a policy the governor previously asked regulators to consider.

California Gov. Gavin Newsom (D) is seen in the U.S. Capitol Rotunda after a meeting with Speaker of the House Nancy Pelosi, D-Calif., on Friday, July 15, 2022.  ((Tom Williams/CQ-Roll Call, Inc via Getty Images) / Getty Images)

“There’s this false perception – created in part by politicians – that somehow energy companies are making too much money,” Flynn told FOX Business. “The truth is their profits are higher than they have been in the past, but they fail to put it into the perspective of how much these companies have to invest to bring supply to the marketplace, and it fails to take into account the government regulations that have restricted supply that have caused the prices to go higher as well. It also doesn’t take into account that most of these energy companies in the past were losing money just a few years ago.”

Flynn told FOX Business the windfall tax Newsom called for is a “tool to shift blame” onto oil companies “that are just trying to do their job and keep the market well supplied.” It would restrict supply and make prices rise in the long run, he said.

California Gov. Gavin Newsom unveils his proposed 2022-2023 state budget during a news conference in Sacramento, Calif., Monday, Jan. 10, 2022.  (AP Photo/Rich Pedroncelli / AP Newsroom)

BIDEN’S ‘PRICE GOUGING’ WARNING TO OIL AND GAS COMPANIES IS ‘MIND-BOGGLING’: ENERGY EXPERT

While a windfall tax may “sound nice to the average person,” Flynn said it actually would also reduce incentive and investment for oil companies and “strangle” their long-term viability. It could also impact people’s 401(K)s, he argued.

“If these companies aren’t making profits, who’s going to invest in their oil stocks?” he said. “And if you have oil stocks in part of your 401(k) – whether you know it or not, most Americans do, they might not even realize – they’re taking money out of your 401(K) to pay for their bad policies because those stocks aren’t going to do as well.” 

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Business

EU countries approve energy windfall levies, turn to gas price cap

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  • EU approves energy windfall profit levies
  • Countries eye gas price caps as their next move
  • States split over how to contain sky-high prices

BRUSSELS, Sept 30 (Reuters) – European Union countries agreed on Friday to impose emergency levies on energy firms’ windfall profits, and began talks on their next move to tackle Europe’s energy crunch – possibly a bloc-wide gas price cap.

Ministers from the 27 EU member countries met in Brussels on Friday, where they approved measures proposed earlier this month to contain an energy price surge that is stoking record-high inflation and threatening a recession.

The package includes a levy on fossil fuel companies’ surplus profits made this year or next, another levy on excess revenues low-cost power producers make from soaring electricity costs, and a mandatory 5% cut in electricity use during peak price periods.

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With the deal done, countries began talks on Friday morning on the EU’s next move to contain the price crunch, which many countries want to be a broad gas price cap, though others – most notably Germany – remain opposed.

“All these temporary measures are very well, but in order to find the solution to help our citizens in this energy crisis, we need to cap the gas price,” Croatian economy minister Davor Filipovic said on his arrival at Friday’s meeting.

Fifteen countries, including France, Italy and Poland, this week asked Brussels to propose a price cap on all wholesale gas transactions to contain inflation.

The cap should be set at a level that is “high and flexible enough to allow Europe to attract the required resources”, Belgium, Greece, Poland and Italy said in a note explaining their proposal seen by Reuters on Thursday.

The countries disputed the Commission’s claim that a broad gas price cap would require “significant financial resources” to finance emergency gas purchases should market prices break the EU’s cap.

Belgian energy minister Tinne Van der Straeten said only 2 billion euros ($1.96 billion) would be required, as most European imports fall under long-term contracts or arrive by pipeline with no easy alternative buyers.

That would be a fraction of the 140 billion euros the EU expects its windfall profit levies on energy firms to raise.

Czech Republic’s Deputy Prime Minister Jozef Sikela and European Commissioner for Energy Kadri Simson hold a news conference after a European Union Energy Ministers meeting on high energy prices, in Brussels, Belgium September 30, 2022. REUTERS/Yves Herman

But Germany, Austria, the Netherlands and others warn broad gas price caps could leave countries struggling to buy gas if they cannot compete with buyers in price-competitive global markets.

A diplomat from one EU country said the idea posed “risks to security of supply” as Europe heads into a winter with tight energy supplies after Russia slashed gas flows to Europe in retaliation for Western sanctions against Moscow for invading Ukraine.

The European Commission has also raised doubts and suggested the EU instead move ahead with narrower price caps, targeting Russian gas alone, or specifically gas used for power generation.

“We have to offer a price cap for all Russian gas,” EU energy policy chief Kadri Simson said.

Brussels suggested that idea earlier this month, but it hit resistance from central and eastern European countries worried Moscow would retaliate by cutting off the remaining gas it still sends to them.

By introducing EU-wide measures Brussels hopes to overlay governments’ uneven national approaches to the energy crunch, which have seen richer EU countries far outspend poorer ones in handing out cash to ailing companies and consumers struggling with bills.

Germany, Europe’s biggest economy, set out a 200 billion euro package on Thursday to tackle soaring energy costs, including a gas price brake.

Luxembourg energy minister Claude Turmes urged Brussels to change EU state aid rules to stop the “insane” spending race between countries.

“That’s the next frontier, to get more solidarity and to stop this infighting,” Turmes said.

($1 = 1.0182 euros)

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Reporting by Kate Abnett and Gabriela Baczynska; Additional reporting by Philip Blenkinsop, Bart Meijer and John Chalmers; Editing by Jan Harvey

Our Standards: The Thomson Reuters Trust Principles.

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Business

ECB to discuss blocking banks from multibillion-euro windfall as rates rise

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The European Central Bank is looking at ways to stop banks earning billions of euros of extra profit from the ultra-cheap lending scheme it launched during the pandemic once it starts to raise interest rates later this month.

The €2.2tn of subsidised loans provided by the ECB to banks helped to avert a credit crunch when the Covid-19 crisis hit. But with the central bank now planning to raise rates it is set to provide a bonanza of extra earnings worth up to €24bn for eurozone lenders, according to analysts.

The ECB’s governing council is due to discuss how it could curb the extra margin that hundreds of banks will be able to earn from its subsidised loans by simply placing them back on deposit at the central bank, according to three people familiar with the plans. 

The people said it would be politically unacceptable for the ECB to provide banks with a taxpayer-backed profit while it is raising borrowing costs for households and businesses and most commercial lenders are paying bonuses to staff and distributing dividends to investors.

The ECB has said it intends to raise its deposit rate to minus 0.25 per cent at its meeting on July 21, while signalling a bigger raise is likely in September to take the rate above zero for the first time in a decade, followed by further increases if inflation remains high.

One option could be for the ECB to change the terms of the loans to reduce the chance for banks to make an automatic return on the money, just as it made them more attractive after the pandemic began in 2020. 

The ECB defended its cheap loans to banks, saying: “Without them the pandemic would have hit the real economy much harder.” It declined to comment on how it could stop lenders making windfall gains.

Morgan Stanley estimated banks could earn between €4bn and €24bn of extra profit by putting the ECB’s cheap loans on deposit at the central bank from last month until the end of the scheme in December 2024, depending partly on how fast rates rise in the coming months.

One person briefed on the matter said the ECB estimated the total gain available to banks was almost half the maximum estimate by Morgan Stanley. More than 740 banks applied for the loans at their peak in June 2020, when €1.3tn was distributed, but the total number of participants in the scheme is not publicly available.

The ECB started offering the loans — known as targeted longer-term refinancing operations (TLTRO) — in September 2019. Initially they were available at the ECB’s deposit rate of minus 0.5 per cent. But after the pandemic hit, the ECB cut the rate to minus 1 per cent, in effect paying banks even more to borrow money, provided they did not shrink their loan books. 

The ECB returned the TLTRO rate to its deposit rate last month. But crucially, the rate on the loans is calculated as an average over their three-year life. Banks can repay the money early every three months. Last month €74bn of early repayments were made, far less than expected, reflecting the increased attractiveness of the scheme as interest rates rise.

“Some banks double-checked their profit calculations with the ECB, and then ditched the idea of repaying them early,” said one official. 

Fabio Iannò, a senior credit officer at Moody’s, said: “We expect European banks to hold on to their TLTROs as long as they can because it’s just free money.” He predicted the bulk of ECB liquidity would not fund loans but be deposited at the central bank.

Morgan Stanley calculated that if the ECB raised its deposit rate to 0.75 per cent by the end of this year, a bank that took out a TLTRO loan in June 2020 could earn a profit margin of 0.6 per cent on the money until it is due to be repaid in June 2023.

“This trade has been quite profitable for us,” said the chief financial officer of a European bank. “It was difficult for banks to shout loudly about it — you don’t want to say that, as a bank, you were benefiting from the pandemic.”

While the ECB does not break out the data by banks, French lenders were the biggest users of the cheap liquidity with an exposure of close to €500bn in April, followed by their peers in Italy and Germany. 

At Germany’s largest lender Deutsche Bank, the €44.7bn of TLTRO borrowing was equivalent to some 9 per cent of its overall €481bn loan book. 

Last year, Deutsche’s interest income was buoyed by €494mn from the subsidised ECB liquidity, or 15 per cent of its pre-tax profit. Deutsche, which counts TLTROs as a “government grant” on its accounts, declined to say how much was deposited at the ECB. 

A person familiar with the bank’s decision-making said “a carry trade versus cash was not the purpose of Deutsche Bank’s TLTRO participation”. 

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Technology

Activision’s Kotick could see windfall in purchase

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Bobby Kotick, the chief executive of Activision Blizzard Inc., could walk away with as much as $520 million after Microsoft Corp. completes its planned purchase of the videogame company.

In a securities filing Friday, Activision said Mr. Kotick would receive $14.4 million in severance if he is terminated or quits under a variety of circumstances within a year of a change of control at the company. It also said Mr. Kotick owns 4.3 million shares and has the right to acquire another 2.2 million — potentially worth just over $500 million combined at the $95-a-share deal price. Mr. Kotick received $826,549 in compensation in 2021, according to the filing.

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Friday’s disclosure, in Activision’s annual proxy statement, reflects the company’s definitive accounting for Mr. Kotick’s stake in the company and potential severance under existing agreements. It provides investors their best window to date into the potential windfall Mr. Kotick could receive after the acquisition, which is pending regulatory approval. Activision and Microsoft have said they expect it to close by spring 2023.

Robert “Bobby” Kotick, president and chief executive officer of Activision Blizzard Inc. ( David Paul Morris/Bloomberg via Getty Images)

Activision said on Thursday that its shareholders approved the merger.

Mr. Kotick, 59 years old, is part of a group of people who in 1991 acquired the assets of the company that became Activision Blizzard. He has been its CEO ever since, making him one of the longest-serving heads of a publicly traded tech company. Mr. Kotick is expected to step down from Activision when the deal closes, the Journal reported in January.

A spokeswoman for Activision Blizzard said that Mr. Kotick purchased $50 million worth of Activision stock in 2013 and that he, along with all shareholders, got the benefit of a 500% increase in value due to the company’s “extraordinary performance” under his leadership over the past eight years. All equity he has earned is based on performance, she said.

ACTIVISION BLIZZARD SHAREHOLDERS APPROVE PROPOSED $68.7B SALE TO MICROSOFT

In its regulatory filings, Activision also said Mr. Kotick doesn’t stand to receive any additional equity, or to see his rights to any equity awards accelerated, as a result of the acquisition, or if he should depart in the wake of the deal.

 Robert Kotick, president and chief executive officer of Activision Blizzard Inc.  (Daniel Acker/Bloomberg via Getty Images / Getty Images)

Activision reported paying Mr. Kotick $155 million in 2020, mostly in equity, making him the second-highest paid CEO in The Wall Street Journal’s annual analysis of compensation for S&P 500 CEOs. At the time, Robert Morgado, Activision’s lead independent director, said the CEO’s pay was earned over four years and reflected more than three decades of creating value for shareholders.

Santa Monica, Calif.-based Activision, known for its Call of Duty, World of Warcraft and Candy Crush franchises, has around 10,000 employees.

Mr. Kotick has been roiled in controversy, as state and federal regulators have accused Activision of mishandling employee sexual-harassment cases and gender-pay disparity. In October, Mr. Kotick said he asked Activision’s board to reduce his salary to the minimum allowed under California law for salaried workers — $62,500 — and that he would forgo bonuses and equity grants. The announcement was part of a series of changes Mr. Kotick said were aimed at making the company more diverse and safer for employees.

ACTIVISION COOPERATING WITH FEDERAL INSIDER TRADING PROBES

Mr. Kotick himself has been accused over the years by several women of mistreatment both inside and outside the workplace, according to people familiar with the incidents and documents, the Journal reported in November. Activision has said that the Journal’s article paints “a misleading view of Activision Blizzard and our CEO” and that it “ignores important changes under way to make this the industry’s most welcoming and inclusive workplace.”

Bobby Kotick, chief executive officer of Activision Blizzard Inc and Microsoft CEO Satya Nadella  (Photographer: Patrick T. Fallon/Bloomberg via Getty Images  |   Microsoft / Getty Images)

In late March, a California judge approved an $18 million settlement between Activision and the Equal Employment Opportunity Commission, which has been investigating the company over allegations of sexual harassment and retaliation.

Ticker Security Last Change Change %
ATVI ACTIVISION BLIZZARD INC. 75.60 -1.10 -1.43%
MSFT MICROSOFT CORP. 277.52 -12.11 -4.18%

Separately, Activision was sued in July by California’s Department of Fair Employment and Housing for allegedly ignoring complaints by female employees of blatant harassment, discrimination and retaliation. The company has said the lawsuit includes distorted, and in many cases, false descriptions of its past, and that it strives to pay all employees fairly.

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The U.S. Securities and Exchange Commission also is investigating Activision over employees’ allegations of sexual misconduct and workplace discrimination. Activision has said it is cooperating with the agency.

Write to Sarah E. Needleman at sarah.needleman@wsj.com and Theo Francis at theo.francis@wsj.com

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Entertainment

In Netflix’s ‘Windfall,’ Jesse Plemons’ Scummy CEO Nails the Toxic Tech Douchebag

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Around halfway through Netflix’s luxurious new thriller Windfall, Jesse Plemons’ scummy CEO character leans in to whisper something in his wife’s (Lily Collins) ear. It is not sweet nothings, as one might expect from the couple, who, earlier in the movie, were flouncing around their sunny villa together, happily in love. What he says, as the pair are in the middle of a hostage situation, is a far more harrowing request.

“You need to get close to him, win him over,” he says, caressing her shoulder. She’s nonplussed by this idea, so he fires back with his logic. “We don’t know this guy. We don’t know what he intends to do once he gets the money. So, you need to get close to him. Do whatever it takes, okay?”

As shows like The Dropout, WeCrashed, and Super Pumped continue to take aim at morally corrupt (and, in many cases, fraudulent) CEOs, Windfall finally drops the company specificity and allows Plemons to embody every megalomaniacal trait under the corporate umbrella. Instead of expanding on the CEO and attached company’s background in a sprawling biopic saga, Windfall tells us little-to-nothing about this figurehead. What’s more terrifying than knowing absolutely nothing about a man except for how damn powerful he is?

Windfall is Netflix’s latest original film, but, surprisingly, it’s far better than the streamer’s other recent films (Rescued By Ruby? The Adam Project? No, thanks.)

Directed by The One I Love’s Charlie McDowell (who also happens to be Collins’ husband), Windfall is led by a cast of just three folks: Plemons (the CEO), Collins (the Wife), and Jason Segel (the Nobody). When the Nobody crashes the couple’s sunny estate, he holds them hostage until he’s sent a hearty ransom fee—meaning he’s got to spend 24 hours waiting around while the CEO’s assistant wires it over.

This scene noted above, accompanied by the fact that Lily Collins’ wife character doesn’t have a name—she’s simply credited as “Wife,” same with Plemons, who is just called “CEO”—hollows Plemons’ CEO in a way that petrifies beyond comparison. Just a half hour ago, this Wife tossed herself into her lover’s arms; now, pressed to spare a bit of cash, he’s flinging her back into the arms of a Nobody.

What does this CEO want, exactly? It’s a question that seems lost on even him. He wants out of this hostage situation—but maybe not, as Plemons’ character also takes a little bit of pleasure out of watching this poor guy fumble, too. When the Nobody sets his ransom fee at a mere $150,000, the CEO laughs in his face. “You think that’s enough?” he scoffs. It’s as if the CEO wants to be a sick and twisted mentor figure for… working-class citizens.

Another brilliant aspect of Windfall is Plemons’ quieter approach to the role—he lives in a secluded villa, after all. Unlike some of the chaotic CEOs that command all the attention one room holds (think Armie Hammer’s horrifying Steve Lift in Sorry to Bother You), this CEO is reserved. He frightens in ways other than his loud voice or snazzy outfits.

As Plemons wraps up an Oscar campaign this year for The Power of the Dog, Windfall has swept in to remind us just how well he commands a scene. (Plus, how does one go from Game Night to I’m Thinking of Ending Things to this?)

“Though it’s a little too on-the-nose, this rant feels like it was ripped straight from an Elon Musk Twitter thread.”

When the movie nears its bloody conclusion, the CEO pleads with the Nobody to level with him. Even though this guy is broke and floundering his way out of poverty, the CEO goes to great lengths to convince him that his life’s not that bad. Hey, being rich is way worse.

“Do you wanna be me? Is that it? Because let me fucking tell you, it’s not all it’s cracked up to be. Try being a rich white guy these days. Everyone always thinks it must be real fucking nice,” he whines. “There’s a fucking permanent target on my back, and infinite nothing people out there just waiting for me to fail!” Sure.

Though it’s a little too on-the-nose, this rant feels like it was ripped straight from an Elon Musk Twitter thread. Plemons’ nameless CEO could be any of the billionaires among us today: Musk, Jeff Bezos, you name it. We don’t need a specific CEO to play the antagonist—any old megalomaniac will do, thank you very much.

One might feel the urge to glaze over Windfall as too low-key to be a thriller, but Plemons single-handedly makes the film an enticing watch. Instead of bingeing your way through hours of CEOs as they rise and fall and rise and fall and rise—etc., Windfall paints the portrait in a tight 90 minutes. Now, go enjoy life without one of those pesky “permanent targets” on your back!

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Business

Tencent hands shareholders $16.4 bln windfall in the form of JD.com stake

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A Tencent logo is seen in Beijing, China September 4, 2020. REUTERS/Tingshu Wang

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  • Move comes as Beijing cracks down on technology firms
  • JD.com shares plunge as much as 11.2%, Tencent up 4%
  • Tencent has no plans to sell stakes in other firms-source

BEIJING/HONG KONG, Dec 23 (Reuters) – Chinese gaming and social media company Tencent (0700.HK) will pay out a $16.4 billion dividend by distributing most of its JD.com (9618.HK) stake, weakening its ties to the e-commerce firm and raising questions about its plans for other holdings.

The move comes as Beijing leads a broad regulatory crackdown on technology firms, taking aim at their overseas growth ambitions and domestic concentration of market power.

Tencent said on Thursday it will transfer HK$127.69 billion ($16.37 billion) worth of its JD.com stake to shareholders, slashing its holding in China’s second-biggest e-commerce company to 2.3% from around 17% now and losing its spot as JD.com’s biggest shareholder to Walmart (WMT.N).

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The owner of WeChat, which first invested in JD.com in 2014, said it was the right time for the divestment, given the e-commerce firm had reached a stage where it can self-finance its growth.

Chinese regulators have this year blocked Tencent’s proposed $5.3 billion merger of the country’s top two videogame streaming sites, ordered it to end exclusive music copyright agreements and found WeChat illegally transferred user data.

The company is one of a handful of technology giants that dominate China’s internet space and which have historically prevented rivals’ links and services from being shared on their platforms.

“This seems to be a continuation of the concept of bringing down the walled gardens and increasing competition among the tech giants by weakening partnerships, exclusivity and other arrangements which weaken competitive pressures,” Mio Kato, a LightStream Research analyst who publishes on Smartkarma said of the JD.com stake transfer.

“It could have implications for things like the payments market where Tencent’s relationships with Pinduoduo and JD have helped it maintain some competitiveness with Alipay,” he said.

JD.com shares plunged 11.2% in early trade in Hong Kong on Thursday, the biggest daily percentage decline since its debut in the city in June 2020, before recovering partially to a 7% decline by 0450 GMT. Shares of Tencent, Asia’s most valuable listed company, rose 4%.

Shares of Tencent and JD on Dec 23

The companies said they would continue to have a business relationship, including an ongoing strategic partnership agreement, though Tencent Executive Director and President Martin Lau will step down from JD.com’s board immediately.

Eligible Tencent shareholders will be entitled to one share of JD.com for every 21 shares they hold.

PORTFOLIO DIVESTMENTS?

The JD.com stake is part of Tencent’s portfolio of listed investments valued at $185 billion as of Sept. 30, including stakes in e-commerce company Pinduoduo (PDD.O), food delivery firm Meituan (3690.HK), video platform Kuaishou (1024.HK), automaker Tesla (TSLA.O) and streaming service Spotify (SPOT.N).

Alex Au, managing director at Hong Kong-based hedge fund manager Alphalex Capital Management, said the JD.com sale made both business and political sense.

“There might be other divestments on their way as Tencent heed the antitrust call while shareholders ask to own those interests in minority stakes themselves,” he said.

A person with knowledge of the matter told Reuters Tencent has no plans to exit its other investments. When asked about Pinduoduo and Meituan, the person said they are not as well-developed as JD.com.

Tencent chose to distribute the shares as a dividend rather than sell them on the market in an attempt to avoid a steep fall in JD.com’s share price as well as a high tax bill, the person added.

Kenny Ng, an analyst at Everbright Sun Hung Kai, said the decision was “definitely negative” for JD.com.

“Although Tencent’s reduction of JD’s holdings may not have much impact on JD’s actual business, when the shares are transferred from Tencent to Tencent’s shareholders, the chances of Tencent’s shareholders selling JD’s shares as dividends will increase,” he said.

Technology investor Prosus (PRX.AS), which is Tencent’s largest shareholder with a 29% stake and is controlled by Naspers of South Africa, will receive the biggest portion of JD.com shares.

Walmart owns a 9.3% stake in JD.com, according to the Chinese company. Payments processor Alipay is part of Tencent rival Alibaba Group .

($1 = 7.7996 Hong Kong dollars)

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Reporting by Sophie Yu in Beijing and Scott Murdoch in Hong Kong; Additional reporting by Xie Yu, Selena Li, Donny Kwok and Eduardo Baptista in Hong Kong and Nikhil Kurian Nainan in Bengaluru; Writing by Jamie Freed; Editing by Subhranshu Sahu and Muralikumar Anantharaman

Our Standards: The Thomson Reuters Trust Principles.

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Technology

Apple’s privacy changes create windfall for its own advertising business

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Apple’s advertising business has more than tripled its market share in the six months after it introduced privacy changes to iPhones that obstructed rivals, including Facebook, from targeting ads at consumers.

The in-house business, called Search Ads, offers sponsored slots in the App Store that appear above search results. Users who search for “Snapchat”, for example, might see TikTok as the first result on their screen.

Branch, which measures the effectiveness of mobile marketing, said Apple’s in-house business is now responsible for 58 per cent of all iPhone app downloads that result from clicking on an advert. A year ago, its share was 17 per cent.

“It’s like Apple Search Ads has gone from playing in the minor leagues to winning the World Series in the span of half a year,” said Alex Bauer, head of product marketing at Branch.

The market for app advertising is large and fast-growing. AppsFlyer, another analysis company, estimates that marketing spending on mobile apps for both iPhones and Android phones was $58bn in 2019 and would double to $118bn by next year.

Apple, meanwhile, is likely to earn $5bn from its advertising business this fiscal year, and $20bn-a-year within three years, said researchers at Evercore ISI, who said Apple’s privacy push had “significantly altered the landscape.”

Advertising with Apple has become more attractive after the iPhone maker said users would be opted out of advertising tracking by default, a move that left rivals such as Facebook, Google, Snap, Yahoo and Twitter “blind”, said Grant Simmons at Kochava, an ad analytics company.

Since April, data on how users were responding to ads, once real-time and granular, is now delayed by up to 72 hours and only available in aggregate. By contrast, Apple offers detailed information to anyone signing up to its ads service.

One mobile advertising executive, who asked not to be named for fear of retaliation, said Apple had “given itself a free pass” because it is “not subject to the same policy that every other ad network is”.

EasyPark is one app that has doubled its spending with Apple since April. Caroline Letsjö, head of brand, said the strategy resulted in an “all-time high in ad conversion rate,” while the efficiency of reaching iPhone customers via Google “has suffered and thus we have decreased our budget”.

Facebook said last month it had “gotten harder to measure (the effectiveness of ad) campaigns on our platform” and said that many businesses were experiencing a “greater impact” than expected from Apple’s changes. Its shares fell 4 per cent on the announcement.

Some mobile advertisers, dismayed by the lack of visibility on iPhones, are now spending more of their budget on the Android market, said Singular, which said the split in spending — which was 50/50 earlier this year — widened to 70.3 per cent on Android to 29.7 per cent on iPhones by late June.

The parking app SpotHero said the precision with which it was possible to focus ads on users through Apple’s advertising service jarred with the company’s rhetoric around privacy.

Chris Stevens, SpotHero’s chief marketing officer, pointed to the “retargeting” tool, a service offered by Apple to let companies follow users to re-engage with them at a future date.

Apps can advertise to users searching for their competitors, for example, a search for Minecraft serves a Roblox ad, and a search for Netflix brings up an Amazon Prime Video ad

“Apple was unable to validate for us that Apple’s solutions are compliant with Apple’s policy,” he said. “Despite multiple requests and trying to get them to confirm that their products are compliant with their own solutions, we were unable to get there.”

Apple said its privacy features were designed to protect users. “The technologies are part of one comprehensive system designed to help developers implement safe advertising practices and protect users — not to advantage Apple.”

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Business

CEO’s Dad Gets a $3.6 Billion Stock Windfall at Carvana

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Aside from Jeff Bezos, Mark Zuckerberg and members of Walmart Inc.’s Walton family, no individual has earned more from selling stock in their company over the past year than a used-car magnate from Arizona.

Company filings show Ernie Garcia II, the father of Carvana Co.’s chief executive officer, has sold more than $3.6 billion of stock since October. The sales amount to 16% of his holdings in the company. He has benefited from an ownership structure that confers benefits on him and his family and allows them to maintain control of the business, according to company filings. Some of these benefits can come at the expense of other shareholders, according to the filings, a lawsuit, and corporate governance and tax analysts.

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