Financial Times Europe - 14.09.2019 - 15.09.2019

(Axel Boer) #1

14 September/15 September 2019 ★ FT Weekend 11


The We Company is struggling to
launch its initial public offering at
anything like the $47bn valuation of its
last private funding round. This has
generated more Schadenfreude than
sympathy and it is not hard to see why.
The office sharing group’s founder
and chief executive Adam Neumann
would be an over-the-top character in
satirical TV seriesSilicon Valley. He
likes hitting a punch bag at work; he
bans employees fromclaiming meat
dishes n expenses; he wanders aroundo
shoeless; he keeps people waiting for
hours; and he is fond of forming
mission statements such as “elevating
the world’s consciousness”.
Even as Mr Neumann elevates
sanctimoniousness to an art form,he
has withdrawn massive amounts of
cash from his pre-IPO, pre-profit
company and embraced huge conflicts
of interest.Mr Neumann has taken out
$700m inshare sales and loans. He

charged the company $5.9m for the
trademark “We”. He part-owned four
properties that were leased to the
company for $8m last year.
It is easy to mockhim. But others
share responsibility. To lay all the
blame at his door is to fall into the old
trap of seeing all unicorns through the
prism of their founder-gods.
There is a board, which is supposed
to provide checks and balances. In
descending order of tenure: Bruce
Dunlevie, a founding partner at
venture capital firm Benchmark, who
has been there since July 2012; Steven
Langman, co-founder of private equity
firm Rhône; Lew Frankfort, former
chief executive of luxury goods brand
Coach; John Zhao, chief executive of
Chinese investment firm Hony Capital;
Mark Schwartz, former Goldman Sachs
Asia head; and Ron Fisher, a SoftBank
director, who joined in November 2017.
The all-male composition of the

board is just the most glaring example
of its tone deafness. The directors
signed off on all of Mr Neumann’s
efforts to extract money from the
company. WeWork previously said
such transactions were disclosed to
shareholders. Belatedly, the group is
improving corporate governance as it
tries to win over public investors.
Their indulgence is surprising when
you consider that Benchmark acted
decisively to push out the chief
executive of an even glitzier portfolio
company, Uber’s Travis Kalanick,
before its IPO. Mr Kalanick’s perceived
sin was to preside over a rotten culture
where sexual harassment was
unchecked and a reckless acquisition
brought an expensive lawsuit. Mr
Neumann’s faults may be less egregious
but they are also more blatant.
One reason might be the differing
interests of the board members.
Benchmark was savvy enough to invest

$17m in 2012 when the company was
valued at only $75.5m. Even if the IPO
only achieves a heavily discounted
$15bn valuation, Benchmark will see a
200 times return. What point in
holding management’s feet to the fire?
The VC firm just needs to cash out.
SoftBank, the lead investor, had a
much igher entry point, pledgingh
$4.4bn at a $17bn valuation in 2017 and
upping its stake, as recently as January,
at $47bn. That first investment was
decided by Masayoshi Son, SoftBank’s
chief executive, after a 28-minute
meeting with Mr Neumann. He is not
the man to order extensive due
diligence. These investors and
directors were so ready to suspend
disbelief, to pour in cash and to allow
Mr Neumann to take so much out. The
public markets will not be so forgiving.
The clash of styles is going to be epic.

Flunkies share

blame at court

of the royal We


were ready

to suspend

pour in cash
and allow

to take so

much out

For most 16-year-olds, being assigned
to work as an offshore oil driller in
the extreme temperatures of China’s
northern Bohai Bay would seem like
a prison sentence. For Charles Li,
architect of the Hong Kong stock
exchange’s rejected bid for its London
counterpart this week, it was better
than the alternative — tilling the land
in China’s arid north-west, his home
during the chaos of Mao Zedong’s
Cultural Revolution.
“Being a petroleum worker meant
you wouldn’t be ‘sent down’ to the
countryside,” Mr Li, 58, told a
Chinese magazine shortly after the
former corporate lawyer and
investment banker became Hong
Kong Exchange and Clearing’s chief
executive in 2010. “There was free
food and every year you got two pairs
of leather boots, which at that time
felt pretty fortunate.”
Working on that oil platform would
prove the start of a long run of
fortune for Mr Li, who was coming of
age just as China embarked on a new
era of “reform and opening” that
would lead to previously
inconceivable opportunities for a
poor boy from Gansu province.
These included a university place
studying English literature in the
early 1980s; a stint as a journalist,
rising to editor at the state-run China
Daily newspaper; a journalism degree
from the University of Alabama
followed by a Columbia law degree;
and 20 years at two New York law
firms and at Merrill Lynch and
JPMorgan efore joining HKEX.b
Mr Li, married with two children,

was last year paid more than HK$29m
($3.72m) and held more than 1m
HKEX shares, which on Thursday
closed at HK$237.40.
All of Mr Li’s predecessors at HKEX
had been members of the local
establishment. He was an outsider
who spoke Mandarin and English but
not Cantonese, the dominant dialect.
Mr Li’s decade-long tenure at HKEX
has been characterised by an
outward-looking agenda to match his
international background. He has
overseen the launch of “connect”
programmes that allow Hong Kong
investors to buy and sell Shanghai and
Shenzhen-listed stocks, and mainland
Chinese investors to do the same with
those listed in Hong Kong.
He has also allowed companies to
list dual-class shares in an effort to
lure back some groups, such as Jack
Ma’s Alibaba, that chose to list in New
York rather than Hong Kong.
While at JPMorgan in Hong Kong,

where he became chairman of the
investment bank’s China business, Mr
Li’s remarkable journey would come
full circle.
The oil company that provided him
with free food and boots as a teenage
roughneck would later be absorbed
into Cnooc, the Chinese state’s flagship
offshore energy company.
In 2005 Mr Li advised Cnooc on its
$18.5bn bid for Unocal of California,
which was sunk by political opposition
in the US.
Mr Li may face an even tougher
challenge in convincing the London
Stock Exchange to accept — and the
UK government to approve — its
proposed £32bn offer, which if
accepted would derail LSE’s own
audacious $27bn bid for Refinitiv, the
data and trading group.
When he was advising Cnooc in
2005, China had been a member of the
World Trade Organization for only
four years and the government in

Beijing appeared committed to ever
greater economic reform and opening.
But seven years into Xi Jinping’s
transformational and authoritarian
presidency, that no longer holds.
As Mr Li said in an interview
with Asiamoney last year: “China is so
big and so different and no longer
willing to change itself to fit into the
rest of the world because they have
their own ecosystem [and] own
logic... The world is now going to
have to change itself to fit into China.”
Seven of HKEX’s 13 directors are
appointed by Carrie Lam, Hong Kong’s
chief executive, who in turn is
appointed by the Chinese government.
The protest movement against the
territory’s extradition bill, which has
morphed into a larger pro-democracy
campaign, has illustrated how little
room Ms Lam has to make big policy
decisions without Beijing’s approval.
Mr Li is also a member of the
Chinese People’s Political Consultative
Congress, a government advisory body
that convenes alongside the country’s
rubber-stamp parliament in Beijing
every March.
And while HKEX’s statement
outlining its bid for the LSE did not
mention the Belt and Road Initiative,
Mr Xi’s signature foreign policy project
aimed at building infrastructure links
across the Eurasian landmass, it laid
out a similar vision.
HKEX said the LSE deal would
bring together “the largest and most
significant financial centres in Asia
and Europe”.
As David Webb, an activist
shareholder and longtime critic of
HKEX, says of the deal: “This looks
like an ego trip. I just don’t know who’s
driving it.”Tom Mitchell

Country boy turned oilman fronts HKEX’s bid for UK bourse

‘There was
free food

and every
year you got

two pairs of

which at

that time
felt pretty


Charles Li rose from a humble start
to spearhead the Hong Kong stock
exchange’s approach for its London
counterpart— David Paul Morris/Bloomberg

Nissan drops chief

3 Nissan emoved Hiroto Saikawa as chief executiver
following a collapse in profits, loss of investor confi-
dence and revelations that he had been improperly
People close to both the Japanese carmaker and
Renault said Mr Saikawa, pictured, waspushed out
as pressure built up to bring in a new chief to imple-
ment a turnround plan and restore relations with its
French partner, which soured in the wake of the oust-
ing of former chair-
man Carlos Ghosn.
The company has
shortlisted more than
10 candidates for the
post, including exec-
utives and officials
from Renault.

3 California assed ap
bill that threatens the
gig economy model. Assembly Bill 5, which will take
effect on January 1, will make it tougher for ride-hail-
ing companies such as Uber and Lyft to classify driv-
ers as independent contractors.
“This is a huge win for workers across the nation!”
the California Labor Federation said in a tweet. “It’s
time to... ensure all workers have the basic protec-
tions they deserve.” Uber said it would challenge the
new rules.

3 Plans to restructure theChampions League, Euro-
pean football’s most prestigious competition,have
been shelved after the controversial proposals —
pushed by some of the richest clubs, including Italy’s
Juventus and Spain’s FC Barcelona — failed to gain
support from teams across the continent this week.

‘This is a huge win. It’s time
to... ensure all workers have the

basic protections they deserve’

California Labor Federation

Carmakers lined up their sparkling
new models at the Frankfurt Motor
Show this week but behind
executives’ smiles, they are
grappling with testing times.
Sales are tumbling in most large
markets, while the industry is being
forced to invest in costly lower-
emission technologies.
Nowhere is this more amplified
than in China, the largest car
market. A sales downturn struck
last year for the first time since the
1990s. Japanese and premium
German brands have held up
relatively well but lower-end
marques have been hit hard.
Car sales in China have
traditionally been driven by
younger first-time buyers, with
many choosing cheaper, mass-
produced cars.
But an end totax breaks for small
vehicle purchases, mixed with the
pall of a slowing economy and a
trade war with the US, has left more
mature buyers on their second or
third vehicle as the main force
pushing Chinese sales, analysts say.
“Consumers are pushing back
into traditional automakers who
have reliable vehicles at that
traditional price point,” said Tu Le
of Sina Auto Insights. “People are
thinking: I can’t take risks with this
Rmb300,000 I’m spending.”
Janet Lewis of Macquarie
believes first-time buyers are taking
a pause in part because their
purchases are discretionary and
easily postponed, meaning
companies that navigate the
downturn will be left in a strong
position.Christian Shepherd

3 Appleannounced the iPhone 11 and revealed its
forthcoming Apple TV+ will undercut rival Netflix
with a $4.99 monthly family subscription. The new
iPhone, priced from $699, has a 6.1in screen and
includes a significant camera upgrade. Apple TV+
will launch on November 1 in 100 countries.

3 South Africa’sNaspers reated a €120bn Europeanc
tech behemoth as shares in a Dutch listing of its glo-
bal internet assets soared on debut. Prosus, which
houses Naspers’ 31 per cent stake in Chinese internet
group Tencent among other investments, opened on
the Amsterdam bourse valued at €76 a share, versus
a reference price of €58.70.

3 Alibaba, China’s most valuable public tech com-
pany, marked its 20th birthdayas founder Jack Ma
retired as executive chairman, handing the reins to
chief executive Daniel Zhang.
The 55-year-old Mr Ma, China’s richest man,built
Alibaba from a shared apartment into a company

worth $462bn. His successor is a low-key former

3 Two ofKPMG’s most senior financial consultants
quit the Big Four firm after Tim Howarth, their boss,
was ousted following an investigation into his con-
duct, including his use of WhatsApp messages. Mike
Waltersand Harps Sidhu ill both leave the businessw
at the end of this month.

3 Britain’s second-biggest supermarket chain,
J Sainsbury, promised to halve the plastic packaging
in its stores by 2025. It said the “ambitious” commit-
ment to address an issue that is growing in impor-
tance to consumers would cover all branded food
packaging, Sainsbury’s own-label products and plas-
tics used across the retailer’s operations, such as
when it wraps pallets for transport.

Carmakers battle against a slowdown in China

Sources: LMC Automotive; Jato; Evercore ISI

Jan to Jul 2019 (annual % change)

China remains the largest car market
but is shrinking fast
Rolling  months to Jul  (m units)

- - - -      

Tesla Motors
Borgward Auto
Brilliance Xinyuan
Subaru Corporation
BYD Auto
Isuzu Motors
Jianghuai Automotive
General Motors
Dongfeng Motor
Fiat Industrial
Changan Automobile
Great Wall Motors
Mazda Motors
Fiat Chrysler Automobiles
Brilliance Auto
Other Chinese Manufacturers
Ta ta

Tota l

China is crucial to global carmakers’ earnings
China contribution to pre-tax profit,  ()







Brazil UK

US China

Most large markets are
contracting with China
falling faster than others
in the 12 months to July
(m units)

Ford and PSA have
suered more than
most foreign rivals
with sales in the first
seven months plunging
by more than a half,
year on year

Value of group
created by listing
of Naspers’ global
internet assets

Alibaba’s value
today, 20 years
after its founding
by Jack Ma

The Top Line



Charles Li
Chief executive, HKEX



person in
the news

Under the hood oreign brands weather China car sales slowdownF

First downturn since 1990s sees German and Japanese marques shine as buyers in biggest market pick trusted names

SEPTEMBER 14 2019 Section:Companies Time: 13/9/2019- 17:26 User:cathy.pryor Page Name:CONEWS2, Part,Page,Edition:USA, 11, 1

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