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There's almost no presidential election scenario that market forecasters don't like: Morning Brief -

There's almost no presidential election scenario that market forecasters don't like: Morning BriefTop news and what to watch in the markets on Monday, October 26, 2020.

Mon, 26 Oct 2020 05:47:45 -0400

SAP Shares Collapse After Lockdowns Force Cuts to Revenue -

SAP Shares Collapse After Lockdowns Force Cuts to Revenue(Bloomberg) -- SAP SE shares dropped as much as 21%, the biggest intraday fall since 1999, after the software company cut its revenue forecast for the full year and said it expects a fresh wave of lockdowns to hurt demand through the first half of 2021.In a test for Christian Klein, who became sole chief executive officer in April, the pandemic will delay SAP’s goals for cloud revenue, overall sales and operating profit by one or two years, especially in hard-hit industries, the Walldorf, Germany-based company said in a statement on Sunday. The drop in shares on Monday wiped 28 billion euros ($33.1 billion) off SAP’s market value.SAP said it expects limited growth and margin improvement over the next two years, and moved expectations to meet its 2023 strategy plan out to 2025. Klein said on a call Monday he expects a conservative recovery into the first half of next year.The previous outlook “assumed economies would reopen and population lockdowns would ease, leading to a gradually improving demand environment in the third and fourth quarters,” SAP said in the statement. “Lockdowns have been recently re-introduced in some regions and demand recovery has been more muted than expected.”The pessimistic short-term outlook from SAP risked a knock-on effect on the European software industry, warned analysts at Citi. Europe’s Stoxx Technology index fell as much as 6.3%, its biggest one-day loss since March.SAP now expects adjusted revenue of 27.2 billion euros to 27.8 billion euros ($32.2 billion to $32.9 billion) at constant currencies in 2020, lower than the earlier guidance of 27.8 billion euros to 28.5 billion euros. SAP also said it no longer sees a boost from business-travel related revenue this year in its Concur business.It’s difficult to find positive news in the results, Nicholas David, an analyst at Oddo BHF said Monday. “The warning on the mid-term ambitions was expected/feared by the market but the new ambitions are lower than the most pessimistic expectations,” he said in a note.Qualtrics IPOSAP said it is in the advanced stages of a listing for its Qualtrics software unit. It announced the decision in July to list the U.S. unit less than two years after buying the company for a record sum, a surprise u-turn signaling a strategic shift under Klein.“We are well advanced in the preparations of the Qualtrics IPO”, Chief Financial Officer Luka Mucic said on a call Monday. “Qualtrics has had a strong quarter which will set it up for further growth into next year.”New OutlookAdjusted cloud revenue is expected to be 8 billion euros to 8.2 billion euros in 2020, down from a previous estimate of 8.3 billion euros to 8.7 billion euros.Operating profit will be 8.1 billion euros to 8.5 billion euros this year, down from expectations of as much as 8.7 billion euros.SAP updated its mid-term ambition for total revenue to more than 36 billion euros in 2025 compared to its previous estimate of 35 billion euros in 2023.The company sees more than 22 billion euros in cloud revenue and over 11.5 billion euros in operating profit by 2025.Third QuarterThird quarter non-IFRS operating profit decreased by 12% year over year to 2.07 billion euros. That compared to the 2.15 billion-euro average estimate from analysts in a Bloomberg survey.Revenue in the period declined 4% to 6.54 billion euros compared to analysts’ average 6.89 billion euro estimate.Get MoreRead the full statement here.After Losing Co-Pilot, SAP CEO Plots Solo Path Through PandemicU.K.’s CMA to Start Antitrust Probe on Sinch, SAP Unit DealSAP Is Said to Tap Morgan Stanley, JPMorgan for Qualtrics IPO(Updates with shares, additional context.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

Mon, 26 Oct 2020 05:46:31 -0400

China Reminds Markets Yuan’s Challenge to Dollar Is Still On -

China Reminds Markets Yuan’s Challenge to Dollar Is Still On(Bloomberg) -- Investors wondering how China plans to evolve its financial markets in the coming years need look no further than the commentary from the weekend’s Bund Summit in Shanghai for guidance.People’s Bank of China Governor Yi Gang said that promoting broader use of the yuan will continue alongside the opening of markets. “The regulator’s main job is to reduce restrictions on the cross-border use of the currency, and let it take its own course,” he said.Those comments were echoed by Zhu Jun, director general of the central bank’s international division. Policy makers will remove obstacles that stand in the way of broader use of the currency with steady liberalization of the capital account, increasing yuan exchange-rate flexibility and improving liquidity in the bond market, she said.The comments by the two officials are a reminder that even though promoting the yuan hasn’t taken off as rapidly as expected since the idea was kicked off a decade ago, monetary officials are pressing ahead anyway. Success would give Chinese policy makers some things they’ve long dreamed about: the use of the yuan as a global reserve currency and a challenge to the greenback’s dominance in trade and finance.“China will stick to its goal of yuan internationalization and there is no going back from its financial opening up,” said Gao Qi, a strategist at Scotiabank in Singapore. “More and better policies are likely to be seen to accelerate the internationalization.”Chinese policy makers set their plan to raise the influence of their currency in the wake of the global credit crisis but it has made halting progress at best, mostly because the ruling Communist Party has little appetite for giving up control on issues such as capital outflows. Calls for expanding yuan usage picked up in the Asian nation over the past summer as tensions with the U.S. spilled over into the financial sphere.The yuan’s share in global payments and in central bank reserves remains at around 2% but China’s efforts continue. The PBOC said last Thursday that it and Bank of Korea agreed to extend a currency swap agreement another five years and boost the amount involved to 400 billion yuan ($59.9 billion).The yuan has rallied 7% from a low in May to its highest in two years. Investor sentiment has gotten a boost from China’s economic rebound from the damage the virus did earlier in the year and the greenback’s weakness. The surge is also being propelled by a wide interest-rate premium over the rest of the world, and by polls that indicate Joe Biden leads incumbent Donald Trump in the U.S. presidential contest on Nov. 3.Chinese authorities have taken steps to slow the ascent by setting the daily fixing weaker than market watchers expect and by eliminating a rule that made it expensive to bet against the yuan.The yuan fell 0.23% to 6.7017 a dollar as of 5:32 p.m. on Monday as a major meeting of the Communist Party started in Beijing. That gathering will map out China’s next phase of economic development, an agenda that is partly determined by the leadership’s desire to protect the nation from more friction with the U.S.“Given how Sino-U.S. tensions have spiked over the past three years, there’s probably a deep worry amongst Chinese officials of a bifurcation in global trade so this may hasten the need to open up the yuan,” said Jian Hui Tan, a foreign-exchange strategist at Informa Globalmarkets (S) Pte Ltd.(Updates with yuan prices in eighth and 10th paragraphs.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

Mon, 26 Oct 2020 05:35:50 -0400

Bayer to Spend Up to $4 Billion for AskBio’s Gene Therapies -

Bayer to Spend Up to $4 Billion for AskBio’s Gene Therapies(Bloomberg) -- Bayer AG agreed to acquire U.S. biotech company Asklepios BioPharmaceutical Inc. for as much as $4 billion, bolstering its pharma division with experimental gene therapies before patents expire on some key drugs.The German chemicals giant will pay $2 billion upfront and another $2 billion in potential milestone payments in cash for closely held AskBio, a North Carolina-based company that’s developing gene therapies for ailments such as Parkinson’s disease and congestive heart failure.Bayer is expanding in the cutting-edge field of gene and cell therapies at a time when its blockbuster drugs age and the company’s crop-protection business reels from the pandemic’s impact on farm commodities after its purchase of Monsanto.Drugmakers including Novartis AG, Roche Holding AG and Bristol-Myers Squibb Co. have snapped up makers of gene therapies because they offer potential to cure a wide range of often-rare diseases by replacing or repairing errors in the body’s instruction manual. Their potential has been matched by breakthrough prices, as companies have sought to charge hundreds of thousands of dollars for them -- or more.Bayer said in a statement it created a special business unit for cell and gene therapies, bringing together research performed by other entities including BlueRock Therapeutics, which it fully acquired last year.“It’s an incredible addition for us in our emerging cell- and gene-therapy business,” Stefan Oelrich, Bayer’s head of pharma, said in an interview. “A puzzle is coming together with AskBio really being our centerpiece.”Bayer shares rose 1% to 42.84 euros in Frankfurt trading.Booming FieldThe U.S. company, founded in 2001, has a contract manufacturing business that makes components used by other cell- and gene-therapy companies -- a division whose returns have helped fund AskBio’s search for its own experimental treatments.The booming industry means “right now there’s not enough manufacturing services available,” Sheila Mikhail, the company’s co-founder and chief executive officer, said in a telephone interview.AskBio has licensed products undergoing clinical trials for treating patients with hemophilia and Duchenne muscular dystrophy to drugmakers including Pfizer Inc. It’s also developing medicines for other neuromuscular, central nervous system, cardiovascular and metabolic diseases, the company said.For Bayer, the planned takeover is “a positive step to bolster the long-term pharma pipeline,” Morgan Stanley analysts led by James Quigley wrote in a note. “However, the financial payment does seem relatively high for an asset that is unlikely to see any sales contribution for at least the next fouryears.”AskBio last year raised $225 million from TPG Capital and Vida Ventures, which took minority stakes in the company. It was the first-ever fundraising, since previously the manufacturing business was paying for therapy developments, according to Mikhail.IPO ScrappedAskBio had been preparing to do an initial public offering when it was first approached by Bayer, Mikhail said. The advantages of being acquired included getting access to Bayer’s extensive library of small molecules, which could help drive down costs of future medicines, and benefiting from Bayer’s experience in conducting clinical trials, she said.Bayer expects the deal to close later this year, and said AskBio will continue to operate as an independent company.The acquisition would be the largest for Bayer’s health-care operations in more than half a decade, and the biggest purchase since the $63 billion takeover of agriculture giant Monsanto. That megadeal saddled Bayer with an avalanche of litigation related to products including the weedkiller Roundup, which has driven Bayer’s market value down by more than half during the tenure of Chief Executive Officer Werner Baumann.Baumann, who received a contract extension this summer, has struggled to put the Roundup litigation fully behind the company so that he can more fully concentrate on another challenge -- proving to investors that it makes sense to keep crop science and health-care businesses under one roof.(Updates with analyst comment in 11th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

Mon, 26 Oct 2020 05:29:47 -0400

Coca-Cola European Goes Global With $6.6 Billion Deal -

Coca-Cola European Goes Global With $6.6 Billion Deal(Bloomberg) -- Coca-Cola European Partners Plc agreed to buy Australian bottler Coca-Cola Amatil Ltd., creating a global producer of packaged beverages to better withstand a slowdown in the industry and the shift away from sugary drinks.The purchase values Sydney-based Coca-Cola Amatil at A$9.23 billion ($6.6 billion), a 19% premium to where its shares traded last week. The target’s board intends to unanimously recommend the offer.The A$12.75-per-share cash deal would double the European company’s potential market at a stroke, putting almost 300 million consumers within reach in the Southern Hemisphere, including the key developing nation of Indonesia.Such growth opportunities are all the more attractive in an industry facing slowing sales, partly due to the coronavirus pandemic, but also amid a broader shift by health-conscious consumers. Beyond fizzy staples like Coca-Cola, Fanta and Sprite, the Australian company has diversified into whiskey, rum and tequila, as well as beer and ground coffee.‘Scale Up’Damian Gammell, chief executive officer of Coca-Cola European Partners, said the acquisition would create “a broader and more balanced geographic footprint” that will “enable us to scale up even faster.”Coca-Cola Amatil has 32 production facilities in Australia, New Zealand, Fiji, Indonesia and Papua New Guinea, according to its website. The company changed its structure last year around more geographically-focused units.The proposed acquisition, the largest deal involving an Australian company so far this year, would mark the first major cross-border transaction in the country since the pandemic curtailed much of the year’s merger activity. Bloomberg News reported the companies were in talks on Saturday.Coca-Cola Amatil stock soared 16% to close at A$12.50 in Sydney on Monday, shy of the offer value. The deal is subject to due diligence by Coca-Cola European Partners, which rose 8.5% to 35.25 euros in early London trading.“It’s not a once-in-a-lifetime bid, but it’s around the right price for Amatil shareholders,” said Daniel Mueller, a fund manager at Vertium Asset Management in Sydney, which owns Coca-Cola Amatil shares. “It’s a very difficult stock to take over without the parent’s permission, so getting a control premium is an achievement.”Revenue FallsIt’s a sensible time to buy Coca-Cola Amatil from an earnings perspective, as drinks demand should benefit from an easing of Covid-19 restrictions in Australia, Mueller said.Coca-Cola European Partners on Monday reported a 3% slump in third-quarter revenue to 3.18 billion euros ($3.76 billion), and declined to provide full-year financial guidance because of uncertainty over the pandemic.The company will enter a separate agreement to buy Atlanta-based Coca-Cola Co.’s 31% stake in the target on less favorable terms than those offered to other shareholders. It will pay Coca-Cola A$9.57 a share in cash for 11% of the Australian company, and also work with Coke to buy its remaining 20% stake.Coca-Cola has been transforming itself through takeovers as soft drinks face pressure from government authorities over an obesity crisis and consumers increasingly favor lower-calorie options. It has grown in dairy and bought U.K. coffee chain Costa, while ceding bottling operations in India and acquiring others in Africa.Largest BottlerCoke is streamlining its structure, going from 17 global business units to nine and eyeing layoffs in North America and Europe following buyout packages. The company is also cutting the number of products it sells, with a goal of offering about 200 master brands, a 50% reduction from the current level.Coca-Cola European Partners is the world’s largest Coke bottler by revenue, with 48 production sites in Germany, Spain, Great Britain and elsewhere, according to its website. It was created from the three-way merger of Coca-Cola Enterprises Inc., Coca-Cola Iberian Partners and Germany’s Coca-Cola Erfrischungsgetranke AG in 2015.The biggest shareholder is Cobega, an investment vehicle belonging to Spain’s Daurella family, followed by the U.S. parent company, Bloomberg data show.The European bottler decided early this year to halt its buyback program and defer a dividend to preserve cash.Coca-Cola Amatil has been named as a potential bidder for Australian liquor assets being sold by Japan’s Asahi Group Holdings Ltd., which could require a capital raise, according to analysts at Citigroup Inc.(Updates with Coca-Cola European shares, revenue figures from eighth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

Mon, 26 Oct 2020 05:23:48 -0400

China to Sanction Boeing, Raytheon Over Arms Sales to Taiwan -

China to Sanction Boeing, Raytheon Over Arms Sales to Taiwan(Bloomberg) -- China will impose unspecified sanctions on the defense unit of Boeing Co., Lockheed Martin Corp., and Raytheon Technologies Corp. after the U.S. approved $1.8 billion in arms sales to Taiwan last week.The sanctions will be imposed “in order to uphold national interests,” Chinese Foreign Ministry spokesman Zhao Lijian told reporters Monday in Beijing. “Boeing Defense” would be among those sanctioned, he said.The State Department last week approved $1.8 billion in new weapons for Taiwan and submitted the package to Congress for a final review. The submission comes two months after the U.S. and Taiwan completed the sale of 66 new model F-16 Block 70 aircraft from Lockheed, and as tensions between the two superpowers continue to escalate ahead of the American election.Boeing Defense is one of the broader company’s three business units, according to its website. Shares in Boeing, down almost 50% this year, dropped as much as 2.2% in U.S. pre-market trading.A spokesperson for Boeing emphasized the firm’s relationship with China in the aviation space. Boeing has “worked together successfully with the aviation community in China for almost 50 years to support Chinese efforts to ensure a safe, efficient and profitable aviation system to keep pace with the country’s rapid economic growth.”“It’s been a partnership with long-term benefits and one that Boeing remains committed to,” the spokesperson said in the emailed statement.One China PrincipleRepresentatives from Raytheon weren’t immediately available for comment outside of normal U.S. business hours.Zhao condemned Lockheed’s F-16 Block 70 sale at the time, saying it violates the One China principle, interferes in China’s internal affairs and will have a “major impact” on U.S.-China relations. Taiwan’s presidential office thanked the U.S for the sale. In July, China -- which considers Taiwan part of its territory and resists any recognition of its de facto independence -- had announced sanctions on Lockheed Martin for a previous arms sale to the island.Read more: Taiwan Walks Tightrope Between China and Not China: QuickTakeU.S. arms manufacturers face strict limitations on what kind of business they can do with countries deemed by Washington to be strategic rivals, such as China. Lockheed generated 9.7% of its revenue in the Asia-Pacific region last year, according to data compiled by Bloomberg, though that’s not broken down by individual countries.China has previously threatened to sanction U.S. companies, including General Dynamics Corp. and Honeywell International Inc., on numerous occasions over arms sales to Taiwan. It also warned it could blacklist FedEx Corp., while Ford Motor Co.’s main joint venture partner in China was fined 162.8 million yuan ($24.3 million) last year, days after the U.S. put a ban on doing business with Huawei Technologies Co.While China has often invoked the threat of putting U.S. companies on a blacklist -- or list of “unreliable entities” -- in response to various actions by U.S. President Donald Trump’s administration over the past year, it has yet to name any, at least publicly.Delicate TimeFor Boeing, China’s action comes at a delicate time. The company, reeling from the hit to air travel from the coronavirus pandemic, is trying to get its besieged 737 Max plane back into the air after two fatal crashes saw it grounded around the world. China was the first place to ground the plane, and also has the world’s biggest 737 Max fleet.Europe’s top aviation regulator said earlier this month the plane will be safe enough to fly again before the end of this year, while U.S. Federal Aviation Administration chief Steve Dickson flew the Max in September and said the controls were “very comfortable.”China, which had nearly 100 Max planes in operation prior to the grounding, doesn’t have a clear timetable for allowing the plane back into the air, Feng Zhenglin, director of the Civil Aviation Administration of China, told reporters in Beijing last week.(Updates with share move, additional detail.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

Mon, 26 Oct 2020 05:15:50 -0400

No Appropriate Mechanisms To Resolve Thailand’s Crisis, ISEAS' Montesano Says -

No Appropriate Mechanisms To Resolve Thailand’s Crisis, ISEAS' Montesano SaysOct.26 -- ISEAS-Yusof Ishak Institute Visiting Senior Fellow Michael Montesano believes mechanisms appropriate to solving Thailand’s current crisis do not seem to be available. He was speaking with Haslinda Amin and Rishaad Salamat on "Bloomberg Markets: Asia."

Mon, 26 Oct 2020 05:03:55 -0400

Stocks, Futures Retreat; Treasuries Edge Higher: Markets Wrap -

Stocks, Futures Retreat; Treasuries Edge Higher: Markets Wrap(Bloomberg) -- European stocks and U.S. futures dropped as coronavirus infections continued to climb and investors doubted that Washington lawmakers will reach an economic stimulus package anytime soon. German software maker SAP SE plunged 20% after cutting its revenue forecast, saying that pandemic will continue to hurt business. Investors sought protection in haven assets. Treasuries rose, sending yields on the 10-year lower. The dollar strengthened against most other major currencies, while gold was little changed. Investors remain focused on the prospect of a U.S. economic aid package, even as time runs out to finish a deal by the November election. U.S. House Speaker Nancy Pelosi said the burden is on President Donald Trump to push forward on stimulus talks. Treasury Secretary Steven Mnuchin said there’s been significant progress but blamed Pelosi for holding up an agreement by not compromising on her party’s priorities.“There is very limited incentive on both sides to get a deal done,” Joseph Shaposhnik, a portfolio manager at TCW, said on Bloomberg TV. “The market has baked that in, has baked in the election and is looking out six months and thinking what are the odds life begins to normalize, a vaccine is introduced.”Pelosi, Mnuchin Trade Blame on Unending Stimulus Stalemate On the virus front, the World Health Organization’s director general said some countries in the northern hemisphere are facing a “dangerous moment” after U.S. infections hit a record for the second day. European countries are tightening restrictions on business. Spain has announced a nationwide curfew and Italy introduced the strongest measures since May.In other markets, Turkey’s lira dropped below 8 per U.S. dollar, extending its loss after retreating for nine weeks, the longest rout since 1999.Oil futures in New York fell slid below $39 a barrel. The MSCI Asia Pacific Index dropped 0.3%, with markets in Japan and South Korea posting declines.These are some events to watch this week:The Chinese Communist Party’s Central Committee holds its all-important plenum, where it’s expected to chart the course for the economy’s development for the next 15 years. Through Oct. 29.Brexit negotiating teams have started intense daily negotiations, and these are likely to continue as both sides push to finalize a deal by the middle of November.Bank of Japan and the European Central Bank have monetary policy decisions Thursday, followed by briefings from Governor Kuroda and President Lagarde.The first reading of U.S. 3Q GDP Thursday is anticipated to be the strongest on record following a record dive in the prior quarter as many businesses were shuttered by the pandemic.Here are the major moves in markets:StocksFutures on the S&P 500 Index dipped 1% as of 8:19 a.m. New York time.The Stoxx Europe 600 Index fell 0.8%.The MSCI Asia Pacific Index dipped 0.3%.The MSCI Emerging Market Index declined 0.3%.CurrenciesThe Bloomberg Dollar Spot Index climbed 0.3% to 1,161.84.The euro fell 0.3% to $1.1827.The British pound declined 0.3% to $1.3008.The Japanese yen weakened 0.2% to 104.87 per dollar.BondsThe yield on 10-year Treasuries declined four basis points to 0.80%.The yield on two-year Treasuries declined one basis point to 0.15%.Germany’s 10-year yield declined two basis points to -0.59%.Britain’s 10-year yield fell three basis points to 0.252%.CommoditiesWest Texas Intermediate crude decreased 3.2% to $38.49 a barrelGold weakened 0.2% to $1,898.64 an ounce.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

Mon, 26 Oct 2020 04:21:15 -0400

Libya Reopens Last Major Oil Field, Adding to Pressure on OPEC+ -

Libya Reopens Last Major Oil Field, Adding to Pressure on OPEC+(Bloomberg) -- Libya is set to restart the last of its major oil fields following a ceasefire in its civil war, a milestone for the OPEC member that’s been largely offline since January.Oil extended losses after the state energy firm lifted force majeure on exports from El Feel on Monday. The move will bolster the Tripoli-based National Oil Corp.’s efforts to boost Libyan production to 1 million barrels each day within a month.Crude production from the western deposit of El Feel, or Elephant in Arabic, will reach normal rates of around 70,000 barrels daily within a few days, the NOC said. Force majeure is a clause in contracts allowing deliveries to be suspended.Monday marks “the end of closures at all Libyan oil fields and ports,” the NOC said.Libya’s output has risen rapidly over the past six weeks after Khalifa Haftar, a commander in the OPEC member’s long-running civil war, ended a blockade of most energy facilities imposed in January. His representatives agreed a permanent truce with the United Nations-recognized government of Prime Minister Fayez al-Sarraj on Friday. The two sides are set to meet in Tunisia next month to appoint a unity government.The speed of the recovery has taken traders by surprise and put pressure on oil prices, which have been hammered since the coronavirus spread around the world. Brent crude dropped 3.3% to $40.41 per barrel as of 8:17 a.m. in London, deepening its fall this year to 39%.Libya’s daily output has risen to 560,000 barrels from less than 100,000 in early September. Sharara, the country’s biggest field, reopened around two weeks ago, while the last oil ports still closed -- Ras Lanuf and Es Sider -- restarted last last week.Libya won’t be able to pump at last year’s levels of around 1.2 million barrels a day due to damaged infrastructure and budget constraints, according to the NOC.The Arab nation is home to Africa’s largest oil reserves. Due to its strife, it was exempted from supply cuts agreed by the OPEC+ alliance of major producers at the height of the pandemic in April.Libya’s return poses a headache for OPEC+ -- made up of the Organization of Petroleum Exporting Countries and others such as Russia -- just as a resurgence in virus cases saps global demand for energy. The group had planned to ease the production cuts by almost 2 million barrels a day in January, but may now opt for a delay.(Updates throughout.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

Mon, 26 Oct 2020 04:19:31 -0400

Samsung Heirs Owe Billions in Taxes. Here’s How They Might Pay -

Samsung Heirs Owe Billions in Taxes. Here’s How They Might Pay(Bloomberg) -- The heirs of Samsung Electronics Co. Chairman Lee Kun-hee, who died Sunday, could face billions of dollars in inheritance taxes. But that doesn’t necessarily mean they’ll have to cede control over the group by selling shares.South Korea’s richest man had an estimated fortune of $20.7 billion, with the bulk of it comprised of his stakes in four Samsung units, according to the Bloomberg Billionaires Index. With the country’s levy of as much as 60% on inherited shares for large shareholders and 50% on real estate and other assets, Lee’s family could owe a tax bill of about $10 billion -- which could be Korea’s largest -- based on Friday’s closing prices.The heirs are unlikely to sell stock to finance the charge, according to Chung Sun-sup, chief executive officer of Seoul-based corporate-analysis firm On Monday, speculation that Samsung Group companies will increase dividends to help pay for it lifted their shares.“Share sales can cause trouble as they would reduce the family’s control over the group. No conglomerates would do so,” Chung said. “Instead, most of them opt to make the cash payment over five years. Cash can be prepared through means such as dividends or salaries.”That’s how Chairman Koo Kwang-mo, who took over the reins of LG Group in 2018 after his father’s death, is doing it: He and family members are paying their 921.5 billion won ($817 million) inheritance tax over five years.While Samsung Electronics declined to comment on how the family plans to pay and split the fortune, it said “all taxes related to the inheritance will be transparently paid as required by law.”Lee’s stakes included a 4% holding in the world’s biggest producer of smartphones, televisions and memory chips and 21% of Samsung Life Insurance Co., which owns the second-biggest chunk of Samsung Electronics.His only son, Jay Y. Lee, has been leading the conglomerate since a heart attack incapacitated his father in 2014. Should he inherit all of the late leader’s shares in Samsung Electronics and Samsung Life Insurance, he may use dividends and financing from family members to prepare for the tax payment, said Jongwoo Yoo, an analyst at Korea Investment & Securities.“It’s uncertain how much cash assets the family holds now, but dividend income won’t be enough to cover the tax charge,” he wrote in a note. “Therefore, it’s also highly possible that the family will rely on personal financing.”The younger Lee is mired in legal troubles linked to a controversial merger of two Samsung affiliates in 2015 that cemented his control of the group. While he holds less than 1% in Samsung Electronics, through the union he secured a 17% control in Samsung C&T Corp., which in turn directly owns 5% of the tech company.Lee is awaiting a final ruling on a bribery case that sent him to prison in 2017, and he’s facing a separate trial on financial-fraud charges including stock-price manipulation to facilitate his succession. While he has denied any wrongdoing, he made a personal apology for the recurring corruption scandals at Samsung and pledged not to hand down leadership to his children.“I give my word here today that from now on, there will be no more controversy regarding succession,” Lee said at a press conference in May. “There will absolutely be no infringement against the law.”Samsung is the latest among a growing number of powerful Korean family-run conglomerates transitioning to the next generation. Earlier this month, Hyundai Motor Group named Euisun Chung as chairman in a move that completed his takeover of all top titles from his father.The heirs will need to prove how they can bring changes as the so-called chaebols have often come under fire in recent years following a series of corruption scandals, according to’s Chung.“So it’s important to see how the Samsung family will take care of the inheritance issue,” he said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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