4 April/5 April 2020 ★ FTWeekend 11
COMPANIES. WEEK IN REVIEW
T
he world is frozen. People
are locked down. Industry
is shut down. The toll on
business is unknowable.
Optimistic economists,
who last week were projecting a sharp
rebound in the third quarter, are
sobering up. Without a big advance
in testing or treatment, normality
might not return for a year or more.
Surely nothing can preserve companies
in a state of suspended animation for
that long.
Against this backdrop, consider the
admirable resilience of two groups:
cruise passengers and bond investors.
They think we might soon be floating
on the high seas sipping piña coladas.
This week Carnival Corporation
pulled off an audacious refinancing,
raising $6bn from investors. The cruise
line’s chutzpah is impressive. Against
stiff competition, Carnival’s shares are
among the worst-performing this yearfor companies worth more than $1bn,
having fallen 85 per cent.
As Carnival acknowledged this week
in the “recent developments” section of
the bond offering’s prospectus, it has
experienced a few problems.
First, the virus struck its Diamond
Princess, which was then quarantined
in a Japanese port; “a substantial
proportion” of passengers were
infected, and some died. “Numerous”
passengers and crew on its Grand
Princess were infected, and some died.
The infection spread on other Carnival
ships, including Zaandam, Costa
Luminosa, Ruby Princess, Costa Magica
and Costa Favolosa. Some of those
passengers have died, and some of
those disease-ridden ships were left at
sea with ports refusing to accept them.
Carnival has stopped all operations
across its remaining fleet. It is trying to
encourage passengers whose trips have
been cancelled to forgo a refund andtake a voucher for a future cruise, with
generous credit for onboard
entertainment. If enough passengers
demand cash, the drain on liquidity
could hasten the company’s demise. It
is already at $1bn a month.
To buttress its finances, Carnival had
to offer debt investors an annual
coupon of 11.5 per cent. But it is
remarkable that it raised the money at
all, after the experiences of so many
passengers. As rival Norwegian Cruise
Line noted drily last month,
“coronavirus is also impacting
consumer sentiment regarding cruise
travel generally”.
Nevertheless, bond investors are
somehow betting that the impact will
be temporary and that cruise lovers
will put the horror out of their minds.
They might be right.
During a trading update on
Thursday, Saga, a UK-listed company
that offers cruises targeted at the over-fifties on its Spirit of Discovery and
Spirit of Adventure, highlighted the
stoicism of its customers. Saga’s ships
were 86 per cent full in March, better
than normal, even as the pandemic
engulfed more countries.
“They were very keen to continue
cruising right until the government
effectively locked the sector down,”
chief executive Euan Sutherland said.
“Almost 60 per cent of them
immediately rebooked cruises with us,
so they didn’t ask for their money
back, even with a period of
uncertainty. They said, ‘Right, when
can I book again?’”
Even for cruises scheduled for this
autumn and early next year, Saga’s
cabins are 80 per cent full. As Mr
Sutherland said: “There’s a huge
appetite from our customers to get
back out there.”[email protected]Stoical passengers
help cruise lines
stay above water
Carnival
pulled offa bold
refinancingwhile Saga’s
ships were86% full in
March,better than
normalSince the start of the crisis, Alex
Gorsky, Johnson & Johnson chief
executive, has started every video
call by asking his colleagues to talk
about something positive in their
lives. People recounted getting in
touch with old friends or spending
time with family. But last weekend,
they all had something to celebrate: a
potential vaccine for coronavirus.
With a half-billion dollar
investment from Mr Gorsky,
matched by the same amount from
the US government to speed up the
process, J&J’s researchers had come
up with a drug they believed could be
ready for human trials by September.
The vaccine, J&J said, would be
available on a not-for-profit basis.
The world’s largest healthcare
company, which makes drugs,
medical devices and the eponymous
baby shampoo, is proud of its 77-
year-old “Credo” — its corporate
mission statement that the
company’s “first responsibility is to
the patients, doctors and nurses, to
mothers and fathers and all others
who use our products and services”.
After eight years leading the
company, Mr Gorsky, a 59-year-old
pharma and military veteran, has
tried to extend this philosophy
outside the company.
He was heavily involved in work by
the US Business Roundtable, one of
the country’s biggest business
lobbies, to redefine the purpose of
corporations. The new definition,
published last year, states that
companies must try to serve all
stakeholders, including staff andcustomers, not just shareholders.
But J&J has been criticised in recent
years for straying from its Credo. It is
battling litigation related to the US
opioid crisis and to claims, which it
contests, that its talcum powder
contains a carcinogen. Democrats and
Republicans have condemned the
wider pharmaceutical industry for
soaring drug prices, and some have
pointed to pay packages, like the
$25m Mr Gorsky made in 2019, as a
part of the problem.
Mr Gorsky grew up with five
siblings in a middle-class family in
Fremont, Michigan. Educated at the
military academy West Point, he
learnt that the people closest to the
problem often know the most about it.
He joined Janssen, J&J’s pharma
division, in sales in 1988, with only a
BA in biology. But Paul Stoffels, J&J
chief scientific officer, said he trusts
his 30,000-strong R&D division: “He
always asks the right questions, about
the risks and how this works. He verymuch understands what we do.”
He is also a deft communicator,
swiftly responding to messages from
employees and other chief executives.
When he was marshalling the almost
200 CEOs of the Business Roundtable
to sign the new corporate purpose
statement, he made an effort to listen
to everyone’s views.
“It was his baby, and he did a
fantastic job,” said Josh Bolten, chief
executive of the lobby group.
The decision to make the vaccine
available on a non-profit basis looks
like the ultimate example of mission-
driven leadership that chimes with
J&J’s corporate values.
“[It] was a no-brainer,” said Joaquin
Duato, vice-chairman of the company’s
executive committee, who has been
mentored by Mr Gorsky for decades.
“We didn’t want to make a dime out
of this.”
Jamie Dimon, chief executive of
JPMorgan, and the former chairman of
the Business Roundtable, said he wroteto Mr Gorsky after J&J made the
announcement. “It’s exceptional. It is
corporate America at its best,” Mr
Dimon said. “When the chips are
down, you worry about doing the best
for mankind.”
But it could also be seen as a
pragmatic and PR-savvy move, at a
time when politicians are already
calling for vaccines and drugs for
Covid-19 to be affordable and
accessible to all.
Rupert Younger, director of the
Oxford University Centre for
Corporate Reputation, said Mr Gorsky
had little choice but to offer the
vaccine without profit. “The idea of
pharmaceutical companies profiting
off a global pandemic would have
made them a global pariah — and very
fast,” he said.
Exactly what non-profit means is yet
to be seen, he added. “The devil is in
the details.”
David Mitchell, founder of Patients
for Affordable Drugs, said even if the
vaccine is available on a non-profit
basis, J&J would still have huge costs to
cover. He added that the promise was
only for the duration of the pandemic.
Nevertheless, Mr Gorsky should be
given credit for choosing to give away
“one of the most attractive price-
gouging opportunities of the century”,
said David Vinjamuri, an assistant
professor of marketing at NYU and a
former J&J employee.
And other companies racing to find
a vaccine will be under pressure to
follow suit. “There’s no question that
whatever economy we inherit once all
this is done will be different from the
one that we left. The smart companies
are actually thinking about that right
now.”Hannah KuchlerPharma chief reclaims prized creed in quest for virus cure
‘Whenthe
chips aredown, you
worryabout doing
the best formankind’
Jamie Dimon,
JPMorganAlex Gorsky is putting J&J profits
aside in developing a coronavirus
vaccine that could see human trials
by September— Christopher Goodney/BloombergWeWork deal pulled
3 SoftBankhas pulled out of a planned $3bn pur-
chase of WeWork stock, a move that is expected to
spark litigation by the lossmaking property group’s
co-founder and one of Silicon Valley’s most prestig-
ious venture capital groups, according to people
briefedontheissue.
The share tender, agreed last year as part of a res-
cue package that the Japanese conglomerate put in
place as WeWork was on the brink of insolvency, was
set to provide a lucrative payout to early backers of
the company including Benchmark Capital and
AdamNeumann,WeWork’sformerchiefexecutive.
SoftBanksaidithad
decided to pull out
after WeWork failed
to meet a set of condi-
tionsbehindthedeal.3 Oilrose nearly 50
per cent after US
president Donald
Trump stoked hopes
of a deal to cut sup-
plies involving Saudi
Arabia and Russia designed to counter the price col-
lapse triggered by the coronavirus outbreak. Brent
crude, the oil benchmark, rose as high as $36.29 a
barrelonsuggestionsthatrecenttalkscouldleadtoa
curb of as much as 15m barrels a day. World demand
averaged100mb/dlastyear.3 Adidas, the sportswear group, came under fire
from German politicians for making use of an emer-
gencygovernmentschemetotackletheCovid-19cri-
sisbyholdingbackrentpaymentsonitsshops.
“Foraglobalgroupwith€3.2bnofprofitsin2019to‘For a global group with €3.2bn
of profits in 2019 to exploitprotection clauses for tenants with
existential problems is shabby’Hotels always have their doors
open but now an unwelcome visitor
has forced many to shut. Since the
coronavirus has spread, it has
caused events to be cancelleden
masseand governments to enforce
nationwide lockdowns, and all travel
has virtually stopped.
Tui, the largest tour operator, has
frozen payments, suspended
contracts with hoteliers, and taken
an emergency €1.8bn state loan as
it copes with the global lockdown.
Hilton, one of the three largest
hotel operators, increased its
borrowing from $255m to $1.75bn to
see it through the crisis. Accor, the
biggest hotel group outside the US,
has like its peers furloughed staff,
scrapped its dividend and cut
executive pay.
Milan, the Italian city at the
epicentre of the European
outbreak, had just one in ten hotels
open for business in the week of
March 23. This week that dropped
to near zero, according to data from
OTA Insight.
In London the number of open
hotels fell from 75 per cent to zero
in a week, after Boris Johnson
imposed strict travel restrictions
and ordered all pubs, cafés,
restaurants and bars to shut.
In New York, the supply of open
hotels has dropped roughly
25 percentage points in the
past week.
Few dare to bet when normality
will return. Analysts at Bernstein
found across a sample of hotels in
five countries an average reopening
date of 3 May.Alice Hancock
and Patrick Mathurinexploit protection clauses for tenants with existen-
tial problems is shabby,” said Katarina Barley, a
prominentSocialDemocrat.3 The UK’s largest lenders are preparing to call a halt
todividendsafter the Bank of England warned them
against paying out billions of pounds while the pan-
demic drives millions out of work and small busi-
nessesintobankruptcy.3 Denver-basedWhiting Petroleumfiled for Chapter
1 1, the first big independent shale producer to suc-
cumb to the turmoil. The move is likely to herald a
wave of bankruptcies in the US oil and gas sector,
with producers facing soaring financing costs just as
theircashreservesdwindle.3 Grant Thornton, the UK’s sixth-largest accounting
firm, has asked staff to take a voluntary sabbatical or
a temporary pay cut of 40 per cent to try to reduce
thefinancialimpactofthevirusoutbreak.3 State-ownedChina Mobilesaiditwouldrelyalmost
entirely on homegrown vendors to build its next-
generation5Gmobilenetwork.
Huawei won 57.2 per cent of the latest Rmb37.1bn
($5.2bn)contracttorollout232,1435Gbasestations,
followed by ZTE with 28.7 per cent. Sweden’s Erics-
son, the only foreign company granted a tender,
received11.5percent.3 World chess championMagnus Carlsenis beating
the virus lockdown by launching a $250,000 online
tournament.
The “Magnus Carlsen Invitational”, the world’s
first computer-based professional chess competition
for elite grandmasters, will be screened online
throughtheChess24websiteandwillpitthe29-year-
old Norwegian grandmaster against players such as
DingLirenandI anNepomniachtchi.BEST OF
BUSINESS
Based on a sample of // star properties per city Source: OTA Insight FT visual journalism: Chris Campbell; Patrick Mathurin of hotels expecting to be open, as at: March March Beijing Shanghai Apr May Jun Apr May JunStockholm MoscowApr May Jun Apr May JunLondon Milan Apr May Jun Apr May JunOn March , almost of London hotels
were expecting to be open during April ...... but by March , as London entered its second
week of lockdown, almost all hotels had closedMoscow has resisted strict lockdown measures but
rising coronavirus cases have seen new restrictions
and some hotels now expect to closeIn some Chinese cities more hotels are expecting to open over the
coming months as quarantine measures are gradually easedIn Milan, which went on lockdown in early March, some
hotels currently anticipate opening in mid-April.
Although, as with other cities, this may just reflect
bookings that have yet to be cancelledUnlike many European countries, Sweden has not gone
into lockdown. In Stockholm, almost all hotels expect
to remain open for the next few months open rate is considered average... with hotels in some Chinese
cities optimistic about
reopening... while it is still business-as-
usual in cities with few
restrictions ...Almost all hotels are closed
in European cities on
lockdown... How the hotel industry is
reacting to the impact of
the coronavirus shutdown50 %
Oil’s rise after
Donald Trump
hinted at a deal
to cut output40 %
Pay cut Grant
Thornton staff
have been
asked to takeThe Top Line
Tom
Braithwaite
Alex Gorsky
CEO, Johnson & JohnsonCorporate
person in
the newsUnder the hoodHoteliers struggle in harshly inhospitable conditions
Travel and tourism industry is forced to suspend contracts and seek emergency loans amid strict restrictions on guests in many countries
APRIL 4 2020 Section:Companies Time: 3/4/2020 - 18: 36 User: cathy.pryor Page Name: CONEWS2, Part,Page,Edition: USA, 11, 1