Top financial market stories of the week — China and Musk vs Crypto, Oatly IPO & more…
Monday 17th May 2021 — Friday 21st May 2021
1. Virgin Media and O2 to merge
The Competition and Markets Authority (CMA) announced on Thursday that they had approved a £31 billion merger between Virgin Media and O2. It is now expected the two giants will complete the merger by June 1st. The CMA approved the merger after finding it unlikely to lessen competition in the market. They had earlier thought it would lead to lower quality of services and increased prices for customers. The CMA believes there is enough competition from firms such as BT Group and Vodafone for competition to still remain strong.
The merger will take the form of a 50:50 joint partnership and has the aim of becoming a powerful internet and mobile firm. Virgin Media is owned by Liberty Global whose owner wanted to get the business ready for 5G rollout in the UK. O2 was the perfect choice for the firm as it is the UK’s biggest mobile phone operator with around 36.6 million customers. Both firm’s competitors will likely feel a pinch and may have to re-evaluate their deals and packages to encourage their customers to stay with them.
The combined companies will have 46 million video, broadband and mobile subscribers in the UK, while their joint revenue is worth £11 billion. The merger will create savings of £6.2 billion, mainly from reducing capital expenditure. This deal is likely to bring benefits for the UK economy too as the merger will lead to a £10 billion investment over 5 years in the economy. This is positive news for the UK after its departure from the EU and likely lead to a boost for the economy.
Main impacts for consumers:
- Both firms customers will be able to access 5G, therefore a better quality of network and broadband services.
- Cheaper prices for consumers, as they will be able to purchase mobile and home broadband from the same supplier.
- Greater options for consumers as they will be able to choose from a larger range of deals.
2. Cryptomarket crashes & stock market reaction
The cryptocurrency market crashed spectacularly on Wednesday, losing approximately $300 billion of its market cap. Bitcoin reached a low of $32,401, which is its lowest level since February 2021. Ethereum, the world’s second-largest cryptocurrency dipped below $3,000 and touched a low of $2,032. The prices of both have since recovered slightly with Bitcoin now trading around $38,000 and Ethereum at $2,559.
One reason for the crash has been Elon Musk’s decision to stop Tesla from accepting Bitcoin payments. On Sunday, Musk replied to a cryptocurrency account on Twitter (seen below) which also caused Bitcoin to plunge.
Bitcoin and other cryptocurrencies have come under significant scrutiny from governments and regulators around the world recently. China, which hosts more than 75% of the world’s Bitcoin ‘mining’, where new virtual coins are minted, banned financial institutions and payment companies from providing services related to cryptocurrency transactions. The ban covers institutions like banks and online payments channels, and includes any service involving cryptocurrency, such as registration, trading, clearing and settlement.
China also warned individual investors about speculative trading: “Recently, cryptocurrency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order.”
Whilst the cryptocurrency market was crashing, investors were more concerned about inflation, displaying nervousness ahead of the Federal Reserve’s meeting. Before the meeting, the Dow Jones Industrial Average lost 1.28%, the S&P 500 lost 1.10% and the Nasdaq Composite dropped 0.81%. The Fed minutes stated that if recovery holds up, they may look to adjust the pace of asset purchases which means policy support may start to ease by the end of the year.
However, inflation concerns have since subsided, as the Dow Jones, S&P and Nasdaq opened 0.5% higher on Friday. This means the S&P erased its weekly loss and is 0.1% on the week. The Nasdaq is 1.3% higher this week, although the Dow is 0.4% lower.
3. UBS, Nomura and UniCredit fined for bond cartel
UBS, Nomura and UniCredit have been fined over $451 million dollars by European Union antitrust regulators for involvement in a bond cartel. The regulators also declared the banks had involvement in a foreign exchange cartel, Euribor and Libor benchmark cartels.
The European government bond cartel ran from 2007 to 2011, with traders from the banks informing each other on their prices and volumes offered in the run-up to the auctions and the prices being shown to their customers or to the market in general via multilateral chatrooms on Bloomberg terminals. This is another example of one of the many poor financial misconduct practices which banks engaged in during the financial crisis.
The European Commission said Bank of America, NatWest, Natixis and WestLB (now known as Portigon) also took part in the cartel. Natwest escaped the fine as it alerted the regulators of the cartel. Portigon also did not receive a fine as it did not generate a net turnover last year.
4. Oatly IPO
Oatly, a Swedish firm, made its debut on the Nasdaq stock exchange on Thursday. The IPO shares were priced at $17, at the top of its range, and the shares began trading at $22.12. This means shares opened at approximately 30% above the offer price. Oatly managed to raise $1.4 billion with its offering of 84.4 million shares. The firm has said it plans to use the IPO proceeds for working capital, to fund incremental growth and other general corporate purposes.
Oatly is the world’s largest oatmilk company and promotes the message that it is healthier and more environmentally sustainable than cow’s milk. The oatmilk industry is still in its infancy, something echoed by the firm ahead of its IPO. Global sales of plant-based dairy products reached $18 billion in 2020, or just 3% of the $600 billion dairy industry. More and more consumers are beginning to try oat-based products as demonstrated by Oatly’s 2020 revenue which more than doubled to $421.4 million. This shows that Oatly’s future is bright and the funds raised in its IPO will likely contribute significantly to the growth of the firm.
An article with further detail on the IPO will be published on Tuesday.