Friday26 July 2019 ★ † FINANCIAL TIMES 15COMPANIES
FT REPORTERSCobham’s largest shareholder has come
out against the company’s agreed £4bn
takeover by US private equity fund
Advent International, arguing that it
does not see the deal as “compelling”.
Silchester International, which owns
11.8 per cent of the FTSE 250 aerospace
and defence group, said it was urgingmanagement to “seek and respond to
other parties who might offer better
value to the stakeholders of Cobham”.
The fund said Cobham, which has
undergone a restructuring under its
current management, had had its bal-
ance sheet restored by public share-
holders and that the fruits of the turn-
round would flow through in the next
few years.
The fund’s rejection of the offer came
after Cobham unveiled the 165p a share
takeover by Advent yesterday.David
Lockwood, chief executive,defended
the sale, saying investors were beingoffered “cash certainty now” without
further execution risk.
Mr Lockwood, who embarked on a
turnround strategy two-and-a-half
years ago, told the Financial Times: “We
are not selling out on the cheap. This is a
fair price for the business today.”
Advent’s offer is a 34.4 per cent pre-
mium to the group’s closing price of
123p on July 24 and a 50.3 per cent pre-
mium to its average share price over the
past three months. Shares in Cobham
soared 35 per cent yesterday to 165.5p.
Despite the premium, another top 10
shareholder said it was “disappointed”that another UK industrial group was
being bought by an overseas fund.
“It is also very good timing by the pri-
vate equity house as management has
sorted out a lot of problems,” said the
shareholder, which would “wait and
see” if another offer materialised.
The proposed sale will test the appe-
tite of Boris Johnson’s government for
takeovers of important parts of Britain’s
industrial base.
Analysts welcomed the premium, but
Sandy Morris at Jefferies said: “We were
looking forward to a rejuvenated Cob-
ham adjusting its portfolio and flexingits financial muscle. We feel robbed.”
The aerospace and defence group,
founded in 1934 by Alan Cobham, the
aviation pioneer, is best known for its
aerial refuelling technology which is
used on almost all western fast jets. The
group also makes parts for passenger
jets and satellite communications.
It was shaken by a string of profit
warnings in 2016 and 2017 and forced to
raise cash from shareholders. But Mr
Lockwood had recently managed to put
the group on to a more secure financial
footing, notably settling a dispute with
Boeing, one of its customers. Cobham isexpected to begin discussions with the
Ministry of Defence and other relevant
authorities on national security grounds
as early as next week as it looks to clear
regulatory hurdles.
Advent did not anticipate any signifi-
cant problems and the deal was
expected to clear in the next three to
four months, people close to the com-
pany indicated.
Reporting by Javier Espinoza, Arash Mas-
soudi and Michael Pooler in London; Eric
Platt and James Fontanella-Khan in New
York. Additional reporting by Sylvia Pfeifer
See LexHANNAH MURPHY— SAN FRANCISCO
KIRAN STACEY— WASHINGTONMark Zuckerbergwas in full hand-
wringing mode as he unveiledFace-
book’s second-quarter earnings.
Hours after beinghit with a $5bn fine
from the Federal Trade Commission for
leaking data to Cambridge Analytica,
Mr Zuckerberg said Facebook was mak-
ing “major changes. ..to how we run
this company”.
The changes demanded by regulators
were so onerous, he said, that Facebook
will have to invest a “significant amount
of our engineering resources” on build-
ing tools to make sure the social net-
work remained compliant.
As well as the fine, Facebook will have
to set up an independent committee to
scrutinise its privacy practices and Mr
Zuckerberg will have to personally sign
off each quarter that the company is not
in breach of its commitments.
The tech group has already nomi-
natedMichel Protti, a formerMcKinsey
andYahooexecutive who has been with
Facebook for nearly six years,as chief
privacy officer, subject to approval from
the new privacy board.
Mr Zuckerberg warned that putting
resources into building the new tools
meant that Facebook will take “longer
to ship new products”.
Some analysts, while buoyed by Face-
book’s bumper quarterly results, fretted
over the warning, especially after
research and development costs rose
29 per cent year-on-year to $6.2bn in the
first half, while monthly user numbers
remained flat in the US and Europe.
“The real question is — if it takes
longer to ship a product, can they
have the same type of revenue growth?”
asked Brent Thill at Jefferies. “And if
they have more privacy committees,
can they have the same type of profita-
bility. There are still open questions
about that.”
But others suggested that the focus on
privacy, and the FTC’s requirements,
will do little to dent Facebook’s advertis-
ing model, which relies heavily on offer-
ing companies the chance to target spe-
cific Facebook users. “It feels very light,”
said one executive at a big advertising
agency about the FTC requirements.
Ad revenues, which make up the
overwhelming majority of Facebook’s
sales, were $16.6bn in the second quar-
ter, up 27 per cent from the same period
last year.
Alex Stamos, Facebook’s former
security chief and now a researcher at
Stanford University, even said the pri-
vacy commitments would play to Face-
book’s advantage, allowing it to cutoff work with some third-party apps
and developers.
“Facebook paid the FTC $5bnfor a let-
ter that says, ‘you never again have to
create mechanisms that could facilitate
competition’, ” he said.
While analysts debate how effective
the FTC’s requirements will be, Face-
book is also facing another privacy
crackdown — not from regulators but
fromApple, its neighbour in Silicon
Valley.
David Wehner, Facebook’s chief
finance officer, told analysts during
Wednesday’s earnings call that “ad tar-
geting-related headwinds and uncer-
tainties” would lead to a “more pro-
nounced deceleration” in revenuegrowth towards the end of this year and
into 2020.
Alongside data protection regulations
such as GDPR and Facebook’s own shift
towards more private messaging, Mr
Wehner blamed “more of a focus on pri-
vacy from the operating systems” for
the anticipated slowdown.
While Mr Wehner did not mention
Apple by name, the fact that he said the
problems would begin in the fourth
quarter of 2019suggests that the source
of his anxiety is the next version of the
iPhone’s operating system, which is
released in September every year. The
new iOS 13 will choke off several poten-
tially valuable forms of data that Face-
book and other online advertising com-
panies have used to improve their ad
targeting and therefore command
higher prices from marketers.
Changes announced in June to iOS
include a new requirement to add “Sign
in with Apple” to apps that have previ-
ously relied on Facebook’s login creden-
tials to establish a user’s identity. Thisoption, which Apple says will gather less
data than Facebook, Google or other
internet platforms, will also be available
on Android apps.
IOS 13 will also offer stronger privacy
controls relating to location tracking,
address book uploading and accessing
the web through the iPhone’s Safari
browser.
Facebook also continues to face politi-
cal headwinds, with some in Washing-
ton saying it should have faced sterner
punishment and that Mr Zuckerberg
should be held personally liable for
future breaches.
Frank Pallone, the Democratic chair
of the House commerce committee, said
that Facebook repeatedly “prioritises
profit over people”.
“While $5bn is a record fine for the
FTC, monetary damages are not
enough,” he said. “Tough oversight is
needed to prevent the abuse of con-
sumer information by Facebook and
other companies.”
Joe Simons, chair of the FTC, said:
“Our authority in these types of cases is
quite limited, which is why we have
encouraged Congress to consider fed-
eral privacy legislation.”
Meanwhile,a second FTC probe, this
time over competition, was announced
just hours after the agency released the
details of the first settlement.
This may pose a greater threat, ana-
lysts warned, especially if the FTC
decides to order the unwinding of Face-
book’s acquisitions of WhatsApp and
Instagram. “The antitrust problem in
particular could be a big deal, which
could force it to change the way it oper-
ates,” said Ben Koltun, a senior research
analyst at Beacon Policy Advisers, the
Washington consultancy.
See LexTechnology.Regulation
Critics dismiss Facebook’s hand-wringing over privacy rules
Zuckerberg promises change
but warns that restrictions
will delay product launches
Aerospace & defence
Cobham shareholder opposes £4bn Advent offer
Proposed sale will test
Johnson’s appetite for
big industrial takeoversFacebook chief Mark Zuckerberg had to testify at a House energy and commerce hearing last year on the company’s data privacy practices— Andrew Harnik/APSONG JUNG-A— SEOULSamsung Electronicswill relaunch its
much-anticipated foldable phone in
September after months struggling to
fix screen defects, as it aims to revive
slowing sales and restore the tarnished
brand image of the world’s largest
smartphone maker.The South Korean company said it
hoped that the Galaxy Fold would be a
“driving force” for sales growth in a slug-
gish global smartphone market, as it
becomes increasingly difficult to differ-
entiate smartphones’ incremental
upgrades in design.
“Samsung has taken the time to fully
evaluate the product design, make nec-
essary improvements and run rigorous
tests to validate the changes we made,”
the company saidyesterday.
The announcement comes three
months after the company cancelled theApril 26 launch of the world’s first folda-
ble smartphone, priced at $1,980, fol-
lowing some reviewers’ complaints that
their screens had cracked or flickered,
or in some cases failed altogether, after a
protective film was removed.
The delayhas been a setback for the
technologybehemoth, which is keen to
burnish its image as an innovator. Sam-
sung is now conducting final testing of
the much-touted phone after partially
redesigning the product. It has
extended the smartphone’s protective
layer beyond the bezel to stop users
from removing it. It has also added caps
on the fold’s hinges to protect the device
from external particles.
The relaunch will come after Sam-
sung starts selling its large-screen flag-
ship Galaxy Note 10 on August 7, in a bid
to boost second-half sales. Samsung had
initially planned to ship about 1m units
of foldable phones this year, but ana-lysts predict sales are unlikely to match
Samsung’s projections.
“This should be their last chance to
quell consumer concern over this prod-
uct. Any additional defects would be the
worst,” said Kim Young-woo, an analyst
at SK Securities. “What counts here is
their quality control rather than sales.”
Samsungadmits that the phone,
which opens up into a widescreen tab-
let, was rushed out before it was ready.
Huawei has reportedly delayed the
launch of its foldable Mate X smart-
phone until September fortesting.
The race to grab a bigger share of the
premium smartphone market comes as
Samsung and Huawei are grappling
withtrade frictions. Samsung is scram-
bling to secure stable supplies of key
materials used for chipmaking and
smartphone displays after Japan
imposed export curbs on three chemi-
cals shipped to South Korea.Technology
Samsung poised to relaunch foldable phone
‘While $5bn is a record
fine for the FTC, monetary
damages are not enough.Tough oversight is needed’
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