Some recent news in the financial industry are indicating that bailout banks that received taxpayer money after the 2007-08 financial crisis may be starting to show signals of recovery and paying back some of the investments made by federal governments.
As Some of the Bailout Banks Recover, Taxpayers Start to See Some Payback
U.K. Government Moves Towards Ratification of 2001 Cape Town Convention for Airline Industry
Following a public consultation during the latter half of 2010, on December 6, 2013 the U.K. Department for Business Innovation & Skills published its response to a call for evidence on the proposed ratification by the U.K. of the 2001 Convention on International Interests in Mobile Equipment and the associated Protocol on Matters Specific to Aircraft Equipment (together, “the Convention”).
SEC Suspends Trading in 255 Shell Companies
The Securities and Exchange Commission recently announced further actions in its ongoing microcap fraud-fighting campaign. The commission suspended trading in 255 dormant shell companies which were seen as “ripe for abuse” in the over-the-counter market.
CFTC Announces Cross-Border Substituted Compliance Determinations, Provides Limited Phase-In for Some Swap Requirements
On Friday, just ahead of the expiration of the CFTC’s exemptive order delaying the applicability of some CFTC swap regulations for non-U.S. swap dealers and foreign branches of U.S. swap dealers, the CFTC issued a press release and summary table announcing comparability determinations that will allow non-U.S. swap dealers and foreign branches of U.S. swap dealers to comply with local law instead of CFTC requirements in cases where substituted compliance is available under the CFTC’s cross-border guidance.
China’s GlaxoSmithKline Investigation
GlaxoSmithKline’s (GSK) investigation serves as a cautionary tale to American companies, particularly health-focused companies, interested in operating in China. GSK’s pharmaceutical sales plummeted sixty percent in the third quarter due to a Chinese anti-corruption investigation. In July 2013, the Chinese government accused the pharmaceutical giant of funneling approximately $500 million to government officials, medical associations, hospitals, and doctors in order to boost sales of their products. China has arrested several GSK officials and will likely require the company to pay a fine above $2 billion. The investigation is part of China’s efforts to curb business corruption and clean up its health industry, which is undergoing a massive expansion.
International Business: Airline Regulatory Woes on Both Sides of the Atlantic
The past few weeks have seen the airline industry suffer from regulatory issues both in the U.S. and abroad.
In the United States, the proposed merger of American Airlines and U.S. Airways is causing a headache. Officially bankrupt since 2011, American Airlines’ bankruptcy exit plan was approved by a federal judge in late September of this year, such plan being contingent upon its merger with U.S. Airways going ahead successfully.
U.S. Sanctions and Export Controls Update: Amended Regulations Expand Opportunities for Companies to Export and Reexport to Syria and Iran
[Editor’s Note: The following update is authored by Kirkland & Ellis LLP]
At the end of July, U.S. administering authorities for economic sanctions and export control regulations took actions to expand the potential for U.S. and other companies to export and reexport certain items to Syria and Iran. Such actions are particularly notable in the current political environment in which U.S. authorities have continuously expanded sanctions and other restrictions with regard to exports and other transactions related to these two countries. U.S. authorities, however, have described the recent liberalization as consistent with U.S. national security and other policy aims. These actions are intended to allow the provision of important assistance to the ordinary people of these countries who have suffered under the current governmental regimes, which are primary targets of U.S. punitive international trade measures. U.S. and other companies in numerous sectors have the potential to benefit from these latest actions. (more…)
Experience from the Anti-Monopoly Law Decision in China – Part II
[Editor’s note: This post continues yesterday’s article, found here.]
3.2. Methodology and Assumptions
This “legal discount” test provides how much Coca Cola may lose in the acquisition of Huiyuan Juice if the application were rejected because of improper enforcement of law.
The potential loss Coca Cola suffered was the potential net income of the Huiyuan Juice for fiscal year 2009, the first year of operation if the transaction were approved.
It was difficult to predict whether the profit of the new company would increase because it was a component of the Coca Cola (by economies of scale, for example) or decrease (as actually occurred with Huiyuan in year 2010). We assumed that the annual profit of the new company was stable.
It was not sufficient that we merely estimated the profit if Coca Cola successfully purchased Huiyuan, because Coca Cola’s funding does not exist in a vacuum, i.e., Coca Cola would not be required to pay for the costs of funding, whether dividends to shareholders or interest expense to creditors, if it did not spend the USD24 billion for the deal.
Thus, potential income should be divided by the weighted average cost of capital (WACC) of Coca Cola.
Because legal risk is variable case by case, the analysis only examines the highest level of loss caused by uncertainty in the rule of law in the Chinese legal environment. This assumption also matches the conservatism in accounting principle, which suggests that expenses should be over-estimated at their highest possibility when the amount is not certain.
To reflect the possibility of judicial intervention, the discount should be multiplied by 1/67, which reflects the highest legal risk.
The potential return on the project resulting from the assumptions made above is that made for USD24 billion in investment funds.
Experience from the Anti-Monopoly Law Decision in China – Part I
1. Introduction – Reasons of Estimating Cost of Legal Risks
The general public typically has a positive view of liberty, democracy, and a reliable legal system. For their part, analysts are likely to take the legal system for granted because they have a positive view of the rule of law and are able to construct airtight arguments explaining why a reliable legal environment is important for investors.
However, simply stating that having the rule of law is always better than not having it may not be sufficient. Scholars rarely evaluate the magnitude of the positive effect of the rule of law. Certain studies may consider that legal risk increases costs at the operating level, such as the risk of suffering litigation expenses, but these studies have not analyzed how legal risk may cause investment loss.
Additionally, scholars may attempt to show that the rule of law is not a foundational concern for investors by developing models based on the interaction between governments and investors; however, these studies may miss the mark when investors hesitate to enter the market because of the perception of an unfair legal environment or when the same model is applied to a variety of industries.
In reality, it is not easy to calculate accurate figures of profit or loss resulting from the stability of the legal environment for an entire society, but a test estimating a rough ceiling of loss that might be caused by the improper application of the rule of law in a particular circumstance might be a valuable indicator for investors.
Robert Hahn et al. suggest a cost-and-benefit approach to examine the enactment of regulations; they apply it to the question of whether legislators should prohibit drivers from using cellphones while driving in 2001 and 2007.
Subject to assumptions and adjustments, such an approach might provide investors with a general idea about how much the application of the rule of law affects profitability by applying the analysis to judicial matters.
BCLBE Russian Market Conference: Cross-Border Investment
Earlier this month, the Berkeley Center for Law, Business and the Economy hosted its latest conference on the “Russian Market: Legal and Business Perspectives.” The Network extensively covered the series of speakers and panel talks, with special attention to its IP and innovation topics. This post considers international investment in the Russian market.
Panelists Michael Sanders and Ramsey Hanna discussed the Russian investment climate and the challenges of completing cross-border transactions. Specifically, Sanders and Ramsey analyzed the joint venture between RUSANO and Domain Associates to highlight the business culture challenges of completing cross-border investment transactions with Russian firms. In March 2012, RUSANO, a Russian open joint stock company, and Domain Associates (“Domain”), a U.S. venture capital firm, entered into an investment agreement. Pursuant to the agreement, the parties agreed to jointly invest in emerging life sciences technology companies, foster transfer of technology into Russia, and establish pharmaceutical manufacturing facilities in the country. Sanders and Ramsey noted the importance of building trust and confidence between RUSANO and Domain. That is, successfully negotiating the joint venture’s terms required developing good working relationships between the parties’ legal teams and those individuals charged with structuring their partnership.
Conducting business with firms from different markets is not without its challenges. Russian firms employ different negotiation tactics and the negotiation process can be lengthy and detailed. As the director of a US pharmaceutical firm wrote, “Russia is a great place to operate – you can really build a strong, profitable business here – but there are no shortcuts.” In negotiating the RUSANO-Domain joint venture, the parties dealt with the counter-effects of corruption. To be sure, there is tendency among Russian firms to focus on procedure and formalities. In the face of corruption and bribery, honest Russian firms strive for transparency and can be “methodical to a fault.” The “rigid business culture” in Russia can be contrasted with the more “nimble start-up culture” present among Silicon Valley firms.