China baby milk sale costs Reckitt Benckiser £2.5bn  - Godz
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China baby milk sale costs Reckitt Benckiser £2.5bn 

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Reckitt Benckiser has suffered a huge £2.5billion loss from the sale of its struggling Chinese baby milk arm to private equity firm Primavera.

The Slough consumer goods giant, which owns Lysol disinfectant and Dettol soap, took on the business when it bought Mead Johnson in 2017 for £13billion – at the time Reckitt’s largest-ever deal.

But Reckitt struggled against slowing birth rates and intense local competition, and yesterday it announced it is selling the Chinese division for £1.6billion to Beijing- based Primavera.

Sell-off: Reckitt Benckiser’s Chinese baby milk arm struggled due to slowing birth rates and intense local competition

Reckitt expects a loss of about £2.5billion as a result of a goodwill writedown. Analyst Martin Deboo, from Jefferies, said Reckitt’s shareholders ‘would be happy to be out at almost any price’.

Reckitt had already written £5billion off the value of its baby milk business last year, around a third of its book value, before snipping another £985million off in February.

This means the decision to buy Mead Johnson four years ago has, so far, cost Reckitt a whopping £8.5billion. 

Shares fell 0.7 per cent, or 47p, to 6400p yesterday – a market capitalisation of £46.3bn.

The loss adds another black mark against the name of former chief executive Rakesh Kapoor, 62, who raked in close to £100million of pay as boss from 2011 to 2019.

Kapoor wanted to refocus Reckitt towards higher-margin consumer healthcare products.

The board will be unable to claw back his massive bonuses as the rules only apply in cases such as gross misconduct and the complete failure of the business. 

When he retired, his supporters pointed to an increase in the share price from £30 to around £60 during his eight-year tenure.

But critics said he left a legacy of sluggish growth, business disasters and unrest over his pay. 

In the three years before he left, the firm was hit by disruption at its Dutch factory, product failures, an exodus of bosses and a cyber-attack costing £100million.

A scandal in South Korea saw one of its disinfectants blamed for the deaths of children.

Reckitt’s infant formula business in China represented 6 per cent of group sales of almost £14billion in 2020. It will retain an 8 per cent stake in the Chinese division after the sale.

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UK private equity giant CVC to take stake in professional tennis firm

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The UK’s biggest private equity company is preparing to take a stake in a new business combining the men’s and women’s professional tennis tours.

CVC, which is also in talks to buy a stake in the Six Nations rugby championship, has a reputation as a ruthless operator from its time as the owner of Formula 1 (F1).

It is in advanced talks to invest in Tennis One as part of a £420million deal that would transform the sport by combining the organisers of the men’s and women’s tours. 

CVC is in advanced talks to invest in Tennis One as part of a £420m deal that would transform the face of global tennis by combining the organisers of the men’s and women’s tours

CVC is said to be targeting approval from the ATP and WTA boards this month, Sky News reported.

The plans to bring the men and women’s game under one roof had stalled, despite the support of Roger Federer and Andy Murray, but executives think a merger could accelerate the sport’s recovery from the pandemic.

Last year, most top tournaments were cancelled or played behind closed doors, including Wimbledon, which was cancelled for the first time since World War Two.

The French Open, which finishes this week, has increased capacity up to two-thirds of pre-pandemic levels. CVC’s involvement will raise concerns after criticism of its stewardship of F1 motor racing.

During its ownership, between 2006 and 2017, it was accused of ‘raping the sport’ and ‘extracting as much money as possible’.

But CVC has now become a powerful force in world sport. It owns a £200million stake in Premiership Rugby and part of Pro14 and half the RAC, the roadside assistance provider.

It is trying to buy a 14 per cent stake in the Six Nations, which is being investigated by the UK competition watchdog.

CVC also has a stake in the International Volleyball Federation’s commercial rights, and is considering entries into US basketball and women’s football in England.

ATP and CVC were contacted for comment.

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Switch to Britcoin risks higher rates on loans, Bank of England fears

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The Bank of England has warned that loans could become more expensive if it decides to launch its own digital currency.

The Old Lady, led by Governor Andrew Bailey, is exploring whether it should create its own central bank digital currency, already unofficially dubbed ‘Britcoin’, in the UK.

It would offer a number of benefits to consumers including cheaper and faster payments, though the trade-off might be higher interest rates on loans.

Interest rates fear: The Bank of England is exploring whether it should create its own central bank digital currency, already unofficially dubbed ‘Britcoin’, in the UK

Unlike bitcoin and other cryptocurrencies, Britcoin would be linked to the value of the pound and backed by central bank reserves, so it would not swing wildly in value.

Bank of England officials, including the executive director for financial markets infrastructure Christina Segal-Knowles (pictured) and the director of CBDC Tom Mutton, are working on plans for Britcoin with the Treasury.

The currency could make payments quicker and easier, especially online, and drastically cut banking costs for small firms.

But the risk is that it will be more costly to borrow from banks if Britcoin takes off. This is because banks use deposits from customers to fund some of the loans they make. But if significant numbers hold Britcoins instead of keeping cash at the bank, lenders would have to tap other, more expensive, sources of finance to support their lending.

The Bank published a formal discussion paper yesterday.

‘On the one hand, the introduction of new forms of digital money may improve the range of transaction services available to people. 

Bank of England officials, including Christina Segal-Knowles (pictured) are working on plans for Britcoin with the Treasury 

‘On the other hand, it might reduce the efficiency of credit provision in the economy,’ it said. 

‘Commercial banks have never faced a large-scale, system-wide displacement of the deposits they create,’ the Bank added.

Planning is now understood to be a top priority. If the currency is adopted, it would create upheaval for high street banks.

Because Britcoins would be issued directly by Threadneedle Street, users would not even need a normal bank account to deposit money.

Sir Jon Cunliffe, one of Bailey’s deputies, said Britcoins could be ‘programmed’ for certain uses, such as children’s pocket money so it can’t be spent on sweets. 

‘There is a whole range of things [programmable] money could do…which we cannot do with the current technology,’ he told Sky News.

The Bank is concerned that, if introduced too quickly and without sufficient care, Britcoin could even interfere with its ability to regulate the economy through monetary policy, such as by raising or lowering interest rates.

Bailey said: ‘The emerging propositions have generated a host of issues that central banks, governments, and society, need to carefully consider and address. 

‘It is essential we ask the difficult and pertinent questions when it comes to the future of these new forms of digital money.’

Etay Katz, a financial regulatory partner at law firm Ashurst, said the discussion paper was ‘a momentous junction in the development of digital money in the UK’.

He added: ‘The time is right for the regulators to embrace technology to enable the digital transformation that financial markets are going through.’

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HSBC bolsters China ties by appointing two new chief execs

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HSBC has shaken up its team of top executives as the banking giant doubles down on China.

The lender announced that it will now have two chief executives focused on its key Asia Pacific region – veteran bankers David Liao, who is likely to zone in on HSBC’s profit engine of Hong Kong and China, and Surendra Rosha, who will oversee the rest of the area.

They will replace Peter Wong, 69, who prompted a backlash from British and US politicians last year when he signed a petition backing China’s draconian national security law in Hong Kong.

Protesters stage a demonstration outside an HSC branch in Hong Kongin 2019. The London-headquartered lender now makes the vast majority of its profits in Asia 

The move was seen as a sign of HSBC’s support for Beijing, and an abandonment of the former British territory’s pro-democracy protesters who were threatened with imprisonment for speaking out. 

But Wong, a member of a political advisory body to China’s Communist party, will stay on as chairman of HSBC Asia Pacific – and will serve as an adviser to the bank’s group chairman Mark Tucker and chief executive Noel Quinn.

The promotion of Liao and Rosha, both of whom have been with the lender, which has its headquarters in London, for more than 20 years, show how much effort HSBC is putting into its Asia expansion.

In firing line: Peterr Wong has overseen a period of protest at HSBC

John Cronin, a banking analyst at Goodbody, said the appointment of two bosses for Asia Pacific was not a surprising move ‘as the bank seeks to forge closer ties with China’.

It already makes most of its profits in Asia, at £9.1billion compared to losses of £3billion in Europe last year, though most of this comes from Hong Kong, where HSBC was established by a Scottish trader in 1865.

China has a rapidly growing middle class, who are looking for wealth management advice and other banking services.

HSBC has more than 150 outlets in the country, employing more than 7,000 staff – the largest network of any foreign bank in mainland China. Despite being the epicentre of the pandemic, China was the first country to regain its pre-Covid levels of economic output.

Figures released yesterday showed its imports ballooned at their fastest pace for a decade in May, as manufacturing picked up further. HSBC is hoping to take a slice of this expanding economy, and Liao and Rosha bring a wealth of experience with them.

But by zoning in on China, HSBC is treading a fine line between East and West.

The bank has already drawn sharp criticism from US politicians for ‘kowtowing’ to Beijing. Last year, then US Secretary of State Mike Pompeo blasted the bank for its ‘show of fealty’ in the face of ‘coercive bullying tactics’.

British MPs have been equally unimpressed – the Foreign Affairs Committee accused HSBC of ‘aiding and abetting one of the biggest crackdowns on democracy in the world’.

Quinn has insisted that the lender must follow the rules of the countries it operates in – even the controversial laws imposed on Hong Kong by China.

Yesterday, he said: ‘I am very excited to have David and Rosha. Their collective experience of our markets across Asia Pacific, together with their combined knowledge of the bank and our customers mean they are ideally placed to grow the business. 

‘We are investing $6billion (£4.2billion) in Asia in the next five years and David and Rosha will lead this next phase of our Asia strategy.’

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