Rio Tinto to pay $9.1bn dividend as profits boom on iron ore demand


Rio Tinto PLC updates

Rio Tinto reported record half-year profits that topped its total for all of 2020 as the price of its key commodity iron ore hit an all-time high on the back of booming demand from China.

The strong earnings growth enabled the Anglo-Australian company to reward shareholders with the biggest half-year payout in its history: dividends of $9.1bn, or $5.61 a share.

The profits and dividend highlight the huge amounts of cash being generated by the mining industry, which has been one of the biggest beneficiaries of China’s rapid economic recovery from the coronavirus pandemic and huge stimulus packages announced by governments worldwide.

Rio’s peers, including Anglo American, BHP, Glencore and Vale, are also expected to deliver blockbuster results and cash returns when they report over the next month.

Based on production and commodity price forecasts, PwC expects the world’s top 40 miners to record after-tax profits of $118bn in 2021, up 68 per cent from the previous year.

In contrast to previous cycles, big diversified miners have resisted the temptation to invest in ambitious new projects and increase supply, in part because of few development options, particularly in metals such as copper. As a result, big miners are generating record levels of cash.

Rio said net income rose 271 per cent to a record $12.3bn in the six months to June on revenues of $33bn. Profits were higher than expected by analysts, and $2.5bn larger than Rio achieved in all of 2020.

The company will pay out 75 per cent of its earnings as dividends as it swung to a net cash position of $3.1bn from net debt of $664m at the end of 2020. Its stated dividend policy is to pay out 40 per cent to 60 per cent of earnings.

Alexander Pearce, analyst at BMO Capital Markets, said Rio’s dividend announcement set a “positive precedent for shareholder returns from its peers”.

Iron ore was Rio’s main driver of profits, accounting for almost 85 per cent of net income. The company is the world’s biggest producer of the commodity, which hit an all-time high above $233 a tonne in May amid demand from China, which has churned out record amounts of steel this year. Although the price has eased, it remains around $200 a tonne, almost 90 per cent higher than 12 months ago.

Booming iron ore prices helped divert attention from a weak operational performance. The volume of iron ore shipped from Rio’s mines in the Pilbara region of Western Australia fell 12 per cent year on year in the three months to June because of adverse weather conditions, labour shortages and a new approach to cultural heritage.

Rio last year blew up two ancient aboriginal rock shelters to make way for a mine expansion, drawing international condemnation and the resignation of then-chief executive Jean-Sébastien Jacques.

“We are making progress on our four priorities, identifying opportunities for operational improvement, advancing our ESG agenda, taking important investment decisions and stepping up our external engagement,” said chief executive Jakob Stausholm.

Outside of Australia the company is struggling to develop Oyu Tolgoi, a huge underground copper mine in Mongolia’s Gobi desert, because of disagreements with the government. It has also been forced to curtail operations at its Richard Bay Minerals business in South Africa because of security issues.

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Tokyo Olympics Daily: Japan gets in the Olympic spirit


Tokyo Olympics updates

Japan switches on to the Games as nation secures first golds 

Judoka Naohisa Takato won Japan’s first gold medal at the Tokyo Olympics, securing early glory for the host nation that organisers hope will trigger more widespread enthusiasm for the Games. 

Though there were no fans present to witness the historic moment, commentators on public broadcaster NHK were in tears as they described the moment Takato secured an ippon against Yang Yung Wei of Chinese Taipei to win the bout.

“I’m glad that I could help fire up the Japan team by winning the first gold,” Takato said after his victory in the men’s under-60kg weight class.

Japan’s first triumph was followed up with two more golds on Sunday: Yui Ohashi won the women’s 400-meter individual medley in swimming and Yuto Horigome took home the first-ever Olympic gold in the men’s street skateboarding.

In the run-up to the Games, opinion polls suggested that the majority of the Japanese public opposed hosting the Games during the pandemic. But on the first full day of action on Saturday, the International Olympic Committee reported that 69.4m people, representing around half of Japan’s population, had watched at least part of the Games on television. 

Japan’s Yuto Horigome
Japan’s Yuto Horigome added another gold for Japan in skateboarding, which made its Olympic debut this year © AFP via Getty Images

Within the IOC, there has long been a belief that early successes in competition would win Japanese viewers over to the world’s biggest sporting event happening on home turf, despite the public health crisis. 

Judo was the event that the quiet confidence was built upon. Matches are taking place in the beloved Nippon Budokan, built for the 1964 Tokyo Games when the sport made its inaugural Olympic appearance. Japan now has 40 gold, 20 silver and 26 bronze medals in the sport, leading the all-time medal table.

There was even disappointment when Distria Krasniqi of Kosovo beat Japan’s Tonaki Funa in the final of the women’s under-48kg weight class on Saturday, even though the former was the world number-one and favourite. 

Naoki Ogata, a Japanese official at the International Judo Federation, had set expectations high ahead of the competition: “No doubt, we want a gold medal in all weight categories.”

That public enthusiasm was also captured during Saturday’s men’s cycling road race, where masked members of the public disregarded official advice and lined up along the 234km route, which snaked out of Tokyo, to catch a passing glimpse of the riders. 

Similar scenes are expected along the women’s road race, which ends this afternoon at the Fuji International Speedway, where thousands of fans will be able to watch from the stands. The ban of spectators in stadiums does not extend outside Tokyo.

But dissenting voices abound. Pictures of Yasuhiro Yamashita, president of the Japanese Olympic Committee, not wearing a face mask while talking to officials at the judo competition have made local headlines.

Takeshi Kitano, a comedian-turned-director known for films such as Brother and Fireworks, gave a rare scathing assessment of the otherwise well-received opening ceremony during a TV programme on Sunday. 

“It was great, I slept through most of it. Give us back our money,” he said, predicting that people would look back at the 2020 Games and realise how “foolish Japan had been”.

Highlights

Cate Campbell of Australia competes in the women’s 4x100-metre relay at the Tokyo 2020 Olympics
Team Australia won the women’s 4×100-metre swimming relay for a third consecutive time — and set the first world record at the Tokyo 2020 Games © Getty Images
  • The Australian women’s 4×100-metre swimming relay team set the first new world record of the Tokyo Games, securing the gold with a time of 3:29.69. The team finished a full three seconds ahead of Canada, which barely edged the US for the silver. Also in the pool, US swimmer Chase Kalisz won the men’s individual 400-metre medley in a time of 4:09.42.

  • The Japan Meteorological Agency is forecasting a typhoon could make landfall in or around Tokyo as early as Tuesday, which has already disrupted some sports scheduling. Typhoon Nepartak formed south-east of Honshu, Japan’s main island, on Friday. Olympic organisers said they have been monitoring the storm and the potential for further event postponements. 

Britain’s Jade Jones, right, and and Refugee Olympic Team’s Kimia Alizadeh Zenoorin compete in the taekwondo women’s under-57kg competition
Britain’s Jade Jones, right, took home the taekwondo gold at the London 2012 and Rio de Janeiro 2016 Games. But she was unable to defend her title against the Refugee Olympic team’s Kimia Alizadeh Zenoorin, left © AFP via Getty Images
  • Britain’s Jade Jones, the two-time Olympic champion in taekwondo, was knocked out in the round of 16 in the women’s under-57kg category. The result was a significant upset for the world number one, beaten by Kimia Alizadeh Zenoorin, who was born in Iran and is representing the Refugee Olympic team. Jones had been widely expected to secure Team GB’s first gold in Tokyo. 

  • Australia’s Ashleigh Barty was defeated in the first round of the women’s singles tennis tournament. The world number-one, who came to the Olympics off a win at Wimbledon this month, fell in shocking fashion to Spain’s Sara Sorribes Tormo. On the men’s side, Britain’s Andy Murray announced he was withdrawing from the singles tournament to concentrate on the doubles event, alongside Joe Salisbury. Murray said he was advised not to take part in both events due to a quad strain.

  • The IOC announced 10 new Covid-19 cases at the Olympics on Sunday, bringing the total number disclosed to 132. Among them was Dutch rowing coach Josy Verdonkschot, who has gone into 10-day quarantine.

On the podium

Ahmed Hafnaoui of Tunisia, poses with his gold medal after winning of the men’s 400-metre freestyle
Ahmed Hafnaoui of Tunisia bested Australia’s Jack McLoughlin and Kieran Smith of the US to earn Tunisia’s first-ever Olympic gold in swimming © AP

Likely winners have pristine uniforms prepared by their national Olympic associations to ensure they look the part during the medal ceremony. But that did not appear to be the case for Ahmed Hafnaoui of Tunisia, whose victory in the men’s 400m freestyle was the first gold medal in swimming for his country. 

It was a stunning upset. Hafnaoui, only the second Tunisian to ever make an Olympics swimming final, started on the outside lane. But he swam three seconds quicker than the personal best he recorded in the heats to win in a time of 3:43.36. On the podium, he wore a simple grey training T-shirt. All the attention, though, was on the medal draped around his neck.

Click here for the FT’s “alternative medals table”, which ranks nations not just on their medal haul, but against how they should be performing against economic and geopolitical factors.

To keep up to date with the latest Olympic developments, click the button “Add to myFT” at the top of this page

Tokyo Olympics Daily is written by the team behind the Scoreboard business of sports weekly newsletter, with contributions from the FT’s Tokyo bureau. Sign up to Scoreboard here to receive it in your inbox every Saturday morning. 

Hong Kong anti-doxing bill to allow blocking of social media access


The Hong Kong government will gain powers to restrict local access to the world’s biggest technology platforms under legislation to punish “doxing” offences expected to be passed this year.

The measures are the latest government effort to assert greater control over civic freedoms in the territory following pro-democracy protests in 2019, when critics and supporters of the government alike engaged in doxing by publishing the personal information of police officers, lawmakers, journalists and protesters online.

But the anti-doxing bill, which will amend Hong Kong’s privacy laws, has been criticised as being too broad, leaving internet service providers and citizens vulnerable to arbitrary accusations and unfair prosecution. Critics said it could also be used to limit freedom of expression.

The amendment, introduced into the city’s pro-government legislature on Monday, came days after the Biden administration issued a stark warning about the risks to US businesses operating in the Chinese territory and a year after Beijing imposed a sweeping national security law.

Authorities have introduced other restrictions on information in recent months, such as limiting access to data on the companies registry and censoring films deemed to threaten national security.

Police on Thursday arrested five members of the Hong Kong union of speech therapists on suspicion of conspiracy to publish and distribute children’s books that were seditious.

The group had published picture books featuring sheep facing off against wolves that authorities said depicted ideas and scenes from the protests.

Hong Kong’s pro-democracy Apple Daily newspaper, which was frequently critical of the government, recently closed under political pressure. Police on Wednesday arrested more senior editorial staff who worked for the tabloid, including former executive editor-in-chief Lam Man-chung.

Lam Man-chung, former executive editor-in-chief of Apple Daily,  marks the newspaper’s final edition in Hong Kong last month
Lam Man-chung, former executive editor-in-chief of Apple Daily, marks the newspaper’s final edition in Hong Kong last month © Tyrone Si/Reuters

Under the privacy law amendment, Hong Kong could order platforms such as Facebook, Google and Twitter to remove content classified as doxing and block local access to the platform if the company failed to comply.

Employees of the technology companies who are based in or enter the Chinese territory could also face jail time for failing to remove such material under the vast powers that will be granted to the city’s privacy commissioner.

“This makes me nervous,” said Paul Haswell, a technology partner at Pinsent Masons in Hong Kong. “The punishments are among the harshest in the world for doxing.”

Employees who fail to take down material could face two years in jail and a HK$100,000 (US$12,865) fine. Individuals found guilty of doxing could face five years in prison and HK$1m fines.

Supporters of the legislation have argued that tough rules are needed to curb the misuse of personal information.

“Given the severe harm caused by doxing to victims like police and their families, there must be heavy penalties,” Holden Chow, a pro-Beijing lawmaker in the city, told the Financial Times.

However, the Asia Internet Coalition, a lobbying consortium representing US internet companies such as Facebook, Google and Twitter, warned last month that the legislation could force tech groups to stop providing services in Hong Kong because of the heightened risks for their staff. The AIC since added that none of their members planned to leave the city.

Erick Tsang, Hong Kong’s secretary for constitutional and mainland affairs, attempted to reassure tech companies on Monday. “If the employees of these companies in Hong Kong are only responsible for general marketing or administrative work, and they have no authority to act on ‘doxing’ content, they don’t have to worry too much about the legal liabilities,” he said.

The AIC said the planned laws were too vague, as they did not explicitly define doxing or the “psychological harm” caused by it that would be used as a test for prosecution.

The presence of large social media platforms and search engines in Hong Kong supports the city’s attractiveness to international businesses compared with mainland China, where access to information is restricted in a system termed the “Great Firewall”.

Media companies could also fall foul of the legislation. Haswell, the lawyer, warned that it was not clear if even publishing a photo of a person without their consent could count as doxing.

However, the bill’s supporters said normal news reporting was covered by existing exemptions.

The head of a US law firm in Hong Kong said international business groups had asked for new risk assessments in light of the anti-doxing legislation and the Biden administration’s notice.

“There is more urgency about communicating the potential impacts of this issue back to headquarters than I have seen before,” the lawyer said.

Additional reporting by Mercedes Ruehl in Singapore

Video: How the national security law is changing Hong Kong

Global shares drop on fears of Delta Covid variant


European and Asian shares fell as growing concerns over Covid-19 outbreaks clouded the outlook for the global economy.

In early morning trading on Monday, Europe’s Stoxx 600 index fell 1.4 per cent. London’s FTSE 100 dropped 1.3 per cent as England lifted most of its coronavirus restrictions. Optimism about the reopening was overshadowed by more than half a million people, including prime minister Boris Johnson, being told to isolate after coming into contact with infected individuals. Businesses including supermarkets and ports reported staff shortages.

Japan’s Topix fell 1.3 per cent, while Hong Kong’s Hang Seng dropped 1.7 per cent.

After US-listed stocks ended Friday with their worst weekly performance in more than a month, futures markets signalled the blue-chip S&P 500 index would drop 0.5 per cent in early trades.

Stocks stumbled as investors grappled with the rapid spread of the highly transmissible Delta variant of Covid-19, which has struck countries that had previously brought the virus under control. The moves coincided with uncertainty about the path of central banks’ monetary support after inflation rose in the US and the UK.

Michael Hood, global multi-asset strategist at JPMorgan Asset Management, said the rapid spread of the Delta variant was “forcing investors to refocus on the virus at a time when most had been happy to leave that issue behind”.

New York state on Saturday recorded more than 1,000 cases in a day for the first time since mid-May, while authorities in countries including Australia and Vietnam were battling rising infections, Singapore tightened social distancing restrictions and Tokyo’s Olympic Games were set back by a coronavirus outbreak.

The Stoxx and the US S&P 500 hit records earlier this month on the back of exuberance about coronavirus vaccines and companies reaping the benefits of economies reopening.

“Valuations and sentiment all reached extreme growth highs,” said Ewout van Schaick, head of multi-asset investment at NN Investment Partners. “Now of course the revival of the virus is causing uncertainty about economic progress in the months ahead.”

Markets are also grappling with how monetary policymakers will deal with rising inflation after US and UK consumer price increases unexpectedly accelerated in June. The US Federal Reserve is under pressure to taper its $120bn of monthly bond purchases that have boosted markets throughout the pandemic in response to inflation trends while some UK lawmakers are pushing the Bank of England to rein in its own government debt buying.

The yield on the benchmark 10-year US Treasury bond, which moves inversely to its price, dropped 0.02 percentage points to 1.275 per cent as traders bought the haven asset.

The dollar index, which measures the greenback against major currencies, gained 0.3 per cent. The euro lost 0.2 per cent against the dollar to $1.1781.

Brent crude, the international oil benchmark, dropped 1.5 per cent to $72.47 a barrel. The move came after Opec and its allies reached a deal to raise oil production to counter increasing prices, announcing a plan to reverse all output cuts made during the pandemic by the end of 2022.

Brent had soared to a three-year high of more than $74 a barrel as demand recovered this year, and it was uncertain whether the Opec+ cuts will be enough to offset upward pressure on prices as demand is expected to rise further in the months ahead.

More than 1,000 feared missing as floods devastate western Germany


The death toll from heavy flooding in western Germany rose to 81 on Friday and more than 1,000 residents are believed to be missing in one of the country’s most destructive natural disasters in years.

Officials in the Ahrweiler district, south of Cologne, said about 1,300 people appeared to be missing as of Thursday night. Cellular networks are down, however, making it hard to account for the missing.

“Due to the complex damage situation, a final assessment of the situation is not yet possible,” the district government wrote on its website.

Torrential rains on Thursday caused waters from overflowing rivers to wash through many districts of Germany’s North Rhine-Westphalia and Rhineland-Palatinate regions. Transport networks were blocked in some areas, while houses collapsed in the district of Erfstadt, outside Cologne.

Germany’s interior minister Horst Seehofer told the newspaper Spiegel that the government would seek to offer financial support to hard hit districts as soon as possible.

“In my entire political career in Germany I have never seen a flood with such terrible consequences, with so many dead and missing,” Seehofer said. “Nobody can seriously doubt that this catastrophe is related to climate change.”

Arrest of foreign Olympic workers piles pressure on Japanese government


Four foreigners working on the Tokyo Olympics have been arrested on drug offences after what local media reported was an evening out in the nightclub district of Roppongi.

The arrests shattered an unspoken compact that Tokyo would assume the huge risks of hosting an international event during a pandemic and in return, the tens of thousands of visiting athletes, officials, media and support staff would follow Japan’s rules.

The incident will revive opposition to the games and pile greater pressure on the Japanese government to crack down after multiple reports of foreigners out drinking in Tokyo without wearing masks.

Police said the men, who were working as electricians for British company Aggreko, were tested and found to have taken cocaine. Aggreko is among the 81 corporate sponsors and supporters of an event that has cost an estimated $25bn to host and raised more than $3bn in sponsorship.

NHK, Japan’s state broadcaster, reported that police had tested the four for drugs after they allegedly made a drunken attempt to enter an apartment building near the well-known bar district.

Despite government attempts to limit opening hours, bar and karaoke operators in Roppongi said many had remained open since February.

Police named the men as Ray Dalton, 22, and Gustavo Mosqueda, 24, both from the US, and British citizens John Lockwood, 46 and Anthony Kirk, 32.

In an indication of Japan’s fears that the Olympics could become a global superspreader event, organisers decided last week that the whole two-week showcase would proceed without spectators.

The Olympic Village, which officially opened on Tuesday, has been recast as a “bubble” to isolate athletes from the general public and the triumphant final stages of the torch relay through Tokyo will no longer take place on public roads.

Even after slashing the number of attendees, Tokyo still expects 41,000 coaches, officials, media and other staff to travel from abroad, including about 5,800 contractors.

The arrests of the four men over an incident in early July came to light just 10 days ahead of the opening ceremony of an Olympics that was initially postponed because of the Covid-19 pandemic. It is proceeding despite warnings from Japan’s top epidemiologist.

Aggreko said it was assisting the police in their investigation and had suspended the four men. The company provides temporary generators for big events.

“Aggreko sincerely apologises for the concern this has caused the public . . . the athletes and the many thousands of people dedicated to the safe and successful running of the Olympic and Paralympic Games,” it said.

Tokyo 2020 did not immediately respond to a request for comment.

China imposes security checks on tech companies seeking overseas listings


Big Chinese companies that have the data of more than 1m users will need to pass a security review before issuing shares on overseas stock exchanges, the country’s internet regulator said on Saturday.

The announcement from the Cyberspace Administration of China came less than a week after the State Council, China’s cabinet, and the Chinese Communist party’s Central Committee said a new regulatory regime was needed to police overseas listings, which had previously escaped strict government oversight.

President Xi Jinping’s administration is most concerned about listings in the US, where more than 30 Chinese firms raised a record $12.4bn in the first half of this year, according to data from Dealogic.

The CAC’s edict confirmed its status as a powerful entity under the emerging regulatory regime for Chinese overseas listing. The regulator will inform IPO applicants if they have passed its data security review within 60 business days, but the process may take twice as long if there are disagreements.

On July 2, China’s internet regulator told Didi Chuxing, China’s largest ride-hailing group, to stop signing up new users on data security grounds, just days after it had completed a $4.4bn IPO on the New York Stock Exchange.

The CAC had wanted Didi to at least delay its US IPO, but had no legal powers to force it to so. The regulator was concerned the group’s data, including the locations of sensitive government buildings and installations, could be obtained by foreign regulators.

US has passed legislation compelling foreign companies to comply with domestic audits within three years or face forced delisting, but Beijing has ordered Chinese groups to not do so. US politicians have pointed to the Didi saga as justification for tighter oversight of Chinese companies listed in New York.

Didi’s shares fell more than 20 per cent on Tuesday, their first day of trading after the CAC’s intervention.

The CAC also banned downloads of the car hailing group’s main app last Sunday. The previous night, it extended the ban to 25 more Didi-related apps.

In another sign of the increased clampdown China’s technology giants, the country’s market regulator also vetoed a Tencent-proposed merger on Saturday that would have created a dominant video game streaming operator.

The State Administration of Market Regulation said the merger of two US-listed Tencent units, DouYu and Huya, would have created an entity controlling more than 70 per cent of the market.

Tencent, which also operates the popular WeChat messaging app and one China’s largest online payment services, proposed the merger in October, just weeks before Xi’s administration blocked a $37bn initial public offering by Jack Ma’s internet finance platform, Ant Group, which would have been the largest ever. DouYu and Huya have a combined market value of $5.3bn.

The blocking of Ant’s IPO was the first salvo in a wide-ranging crackdown that has ensnared tech giants including Ma’s ecommerce flagship, Alibaba, Tencent and Didi.

Tencent, Didi’s third-largest shareholder with a 6.8 per cent stake, said it had accepted the regulators’ decision on the DouYu-Huya merger and would “fulfil our social responsibilities”. Tencent had previously been fined for not seeking regulatory approval of some acquisitions.

Scott Yu, an antitrust expert at Zhong Lun Law in Beijing, said it was the first time the market regulator had blocked a domestic merger. “It will make other companies more cautious in assessing antitrust prospects,” he said.

Tencent’s business is surging despite the crackdown. For the first quarter it reported a better than expected 25 per cent year-on-year increase in revenues, to Rmb135bn ($20.8bn).

Video: Will China become the centre of the world economy?

Can a global tax deal survive political gridlock in the US?


Joe Biden celebrated last week after 130 countries agreed to make significant changes to the international tax system, reaching a consensus after fresh proposals from the US jolted talks that appeared to have hit an impasse. 

But the momentum that had gathered pace since Biden took office threatens to be lost in Washington, where any tax agreement must secure support in the Senate, where the Democrats have control by the tiniest of margins.

Will the new tax agreement be passed as one bill?

It is highly unlikely. Any eventual OECD agreement will probably be addressed by lawmakers on Capitol Hill in two separate parts. The agreement on a global minimum tax of 15 per cent, known as Pillar 2, will require lawmakers to change domestic tax legislation.

Giving countries new rights to tax large companies based on where they generate revenue, the so-called Pillar 1, is likely to be dealt with as a separate bill, because it alters Washington’s agreements with other countries, meaning the US must alter existing treaties or create new ones.

How many votes in the Senate does Biden need for the bills to pass?

Pillar 2, which changes US domestic legislation, could potentially be passed using the so-called reconciliation process. This can be used by US Congress once a fiscal year and bills passed by this route can clear the Senate with a simple majority. The upper chamber is split 50-50 between Democrats and Republicans, with US vice-president Kamala Harris casting the tiebreaking vote.

However, Pillar 1, which will probably require treaty changes, would need the support of at least 60 senators — that is 10 Republicans assuming there are no Democratic defections — under arcane “filibuster” rules that apply to most US legislation.

What are Biden’s chances of securing 60 votes in the Senate?

Exceedingly slim. Republican senators have lined up to criticise the fledgling agreement. John Barrasso, the second most senior Senate Republican, earlier this month slammed the plans as “anti-competitive, anti-US and harmful”. Pat Toomey, the most senior Republican on the powerful Senate banking committee, has called the plans “crazy”.

Mike Crapo, the top Republican on the Senate finance committee, has also criticised the deal, and has written to Treasury secretary Janet Yellen to express concern that the US is ceding the right to tax its own companies to foreign countries.

Can Biden find a way around this?

Possibly, but any attempt to circumvent the Senate is likely to be the subject of technical and legalistic arguments on Capitol Hill.

Manal Corwin, a former senior Treasury official in Barack Obama’s administration who now works at KPMG, said there could be a way to override existing treaties by passing both Pillar 1 and Pillar 2 using the reconciliation process.

Although under US law, domestic legislation and treaties are given equal weight, Corwin said, a provision known as the “last in time” rule allows new US legislation to override existing treaties.

Because the agreement would give the US the right to tax some large multinationals with annual revenue greater than €20bn and pre-tax profit margins of at least 10 per cent, the US tax code would need to be changed, Corwin added, with the secondary effect of overriding some treaties. 

“A treaty says ‘we would do this, if they would do that’, and we’re overriding that through a legislative vehicle that changes the Internal Revenue Code, which is eligible for reconciliation,” Corwin said. 

But Brian Jenn, another former Treasury official who has worked in both Democratic and Republican administrations, warned that passing legislation through the reconciliation process was subject to strict rules.

Efforts to pass legislation using this method are closely scrutinised by the Senate parliamentarian, who advises on the interpretation of the upper chamber’s rules and precedents. Earlier this year the parliamentarian, Elizabeth MacDonough, ruled that a federal minimum wage increase could not be included in Biden’s $1.9tn stimulus bill.

A bill “clearly overriding a treaty” may not be eligible for reconciliation either, said Jenn, who is now a partner at the law firm McDermott Will & Emery.

Efforts to override treaties using the reconciliation process would “likely offend even Democratic senators” prone to “jealously” guarding the upper chamber’s prerogative, Jenn added.

One European diplomat warned that if the US used “legal chicanery” to pass parts of the deal, it might “open itself [up] to a concerted political challenge” in Washington.

What has the Biden administration said about its strategy?

Not much. On Tuesday Treasury officials said they would need the support of Congress to pass the new deal, and that they expected Pillar 1 would require a treaty. Officials said the details were still being worked out, however, and that a detailed plan on how the US will implement the deal would be agreed in October. 

Separately, a person briefed on the tax negotiations said any discussion on how the US administration would pass the deal through Congress was “premature”.

“There is still a lot that needs to be worked out, and that includes how the administration will deal with Congress,” the person said.

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Carlos Brito brews up second act after 30 years at AB InBev


Carlos Brito, who stepped down from Anheuser-Busch InBev this week aged 61, is already planning a long second act. “Brito 2.0” could involve another quarter-century of working, said the Brazilian businessman who spent three decades at the brewer.

“My dad . . . was a vascular surgeon until he turned 86 . . . I have 25 years ahead of me, at least 25 years,” he said.

Brito built AB InBev from a Latin American regional player into by far the world’s largest brewing company, with brands including Budweiser and Stella Artois.

But his final years were overshadowed by his largest, most contentious deal, the £79bn takeover of rival SABMiller in 2016. AB InBev’s share price is more than 45 per cent below where it was when that deal completed, and it is still saddled with $83bn of debt.

AB InBev’s aggressive dealmaking defined an era of consolidation that cemented the dominance of a handful of global beer makers. Brito leaves the company — and the industry — transformed from when he joined what was then Brahma in 1989.

Trevor Stirling, an analyst at Bernstein, called him “one of the three titans that have shaped the modern brewing industry,” alongside former Heineken chief Jean-François van Boxmeer and the late SABMiller leader, Graham Mackay.

In many respects, Wall Street’s view of Brito’s legacy accords with the former chief executive’s own. “We started from one country in Latin America, one country in Europe, and we built a global brewer . . . one of the top three CPG [consumer packaged goods] companies in the world and the highest by profitability”, he said.

“He has clearly created a lot of value for his shareholders,” Stirling concurred.

With AB InBev rallying from the worst of the pandemic — it reported far better than expected first-quarter results — Brito has handed the reins to Michel Doukeris, a 25-year company veteran known for building up brands and digital sales. 

“He’s very competent; he’s better than me,” said Brito, citing his successor’s achievements in Mexico, Brazil, China and the US.

Doukeris’s career path reflects AB InBev’s evolution into a truly global company, which Brito argued would not have happened without the SABMiller deal. “It was the right thing to do,” he said, for a brewer that thinks “not only about the next few years but the next 50, 100 years”.

But he admitted Covid-19 had set back AB InBev’s debt-cutting plans by about two years, and he preferred to highlight the 2008 hostile takeover of Anheuser-Busch.

That bid came just before the global financial crisis hit. “We needed 10 banks on the closing date to come up with a couple of billion dollars each and some banks were just disappearing every day,” he recalled. But once AB InBev got that financing, “we never looked back”.

The age of brewing megadeals is over, Brito acknowledged, though smaller-scale dealmaking continues. That, analysts said, put more pressure on AB InBev to build brands and grow organically, although its scale has not always helped its agility.

One example is hard seltzer, the flavoured alcoholic fizzy water that has taken the US drinks market by storm. In 2016 AB InBev acquired the pioneering brand, SpikedSeltzer, only to be overtaken by new rivals White Claw and Truly; it still lags behind those brands, despite gaining market share this year, according to Bernstein. 

“I think sometimes, maybe, we took longer to embrace some changes,” Brito admitted, because the company’s size made it wary of cannibalising its huge existing profit drivers. 

Without acknowledging that the US beer market is in decline, he predicted that non-beer products such as hard seltzer would grow in importance. “What people call the fourth category, which is the blurring of beer, wine and spirits . . . endanger[s] a section of existing categories, legacy categories.”

Expectations of chief executives evolved as fast as drinking habits during Brito’s reign but he said AB InBev would not be “an activist company”, campaigning on issues outside its core remit.

“The biggest challenge today [is] that people think CEOs and companies need to have an opinion about everything,” he lamented.

Investors’ new focus on environmental, social and governance, or ESG, concerns might appear an uneasy fit with AB InBev’s embrace of zero-based budgeting. Yet Brito painted the 3G Capital-backed system in which every cost must be justified anew in each budgeting period as making for a greener company.

“Everybody . . . wants companies to manage waste so we minimise the impact on the planet. So, all of a sudden, efficiency became a cool thing,” he said.

Companies now needed to understand that their communities “only allow you to exist if you’re part of the solution”, he said: “The moment you’re portrayed as part of the problem, they’re not going to kill you but they’re going to regulate you, tax you, restrict your business.” 

Brito urged governments not to raise taxes on companies such as his to pay for their Covid-19 outlays, but to impose the burden on those that profited in the pandemic. 

“When they raise taxes to pay for Covid incentives and stuff, they should go after the companies that need to share their wealth because they have consumers that were pushed towards them,” he said. Some businesses tripled or quadrupled their market value: “We didn’t.”

Brito has not yet settled on his next move, but did not rule out another chief executive role, or working again with his mentor, 3G co-founder Jorge Paulo Lemann, who funded his education and hired him into banking in his 20s. 

The calls Brito received after announcing his departure suggested he would have “many options”, he said, and he planned to spend July and August returning them.

But he voiced little doubt this was the right time to relinquish the company he shaped. “We have to pass on the baton to a new generation, otherwise they’ll go elsewhere,” he said. “If the CEO stays forever, the machine doesn’t work.”

 

Elliott ratchets up pressure on Walmsley with call for change at GSK


Hedge fund Elliott Management has called on GlaxoSmithKline’s board to name new directors and launch a process to determine if chief executive Emma Walmsley is the right candidate to lead the UK drugmaker after a spin-off of its consumer division.

The demands form part of a series of recommendations sent to GSK and released publicly by Elliott on Thursday, in which the activist hedge fund criticises “years of under-management” for its poor share price performance.

The 17-page letter from Elliott marks the first public confirmation that it has built a significant shareholding in GSK, which has a market value of £71.5bn, since the Financial Times revealed in April that the hedge fund had taken a multibillion-pound stake.

“Allowing GSK’s long-term operational and share-price underperformance to persist without urgently taking appropriate measures would disappoint all with an interest in the company. The board must rise to the challenge and put forth a more ambitious plan to close the gap,” Elliott wrote to GSK chair Jonathan Symonds.

Bar chart of Total shareholder return since Apr 2017 (%) showing GSK has lagged peers under Walmsley

The calls for changes at GSK come as the UK drugmaker confirmed last week that it would press ahead with plans to separate its consumer health division next year, leaving a slimmed-down business focused entirely on biopharma.

While detailing those plans, Walmsley launched a robust defence of her leadership in which she sought to portray herself as a “change agent” committed to transforming the UK pharma group as it focused on investing in its drugs pipeline.

Walmsley, a former executive at L’Oréal who joined GSK in 2010 and took over as CEO in 2017, has faced questions over her experience in pharmaceuticals given her background in running consumer businesses.

After the investor update, GSK shares rose and analysts were broadly positive about the company’s stated goal of delivering annual sales growth of more than 5 per cent a year.

Elliott said in its letter that the investor update “was an important step in the right direction” but “it was not sufficient to resolve GSK’s credibility challenges”.

It told the GSK board to refresh its ranks, by immediately hiring independent directors with expertise in either biopharma or consumer health who would then break into committees to interview external and internal candidates.

“Elliott is not advocating a specific outcome but is arguing for a robust process, because it is critical that the board assure current and future shareholders that new leadership of both companies was selected through a credible process that conforms to corporate governance best practices.”

The FT reported earlier this month that some GSK shareholders have signalled that Elliott has privately sown doubt about whether Walmsley should stay after the spin-off.

Elliott also called on the board to evaluate any takeover offers for its consumer health division, in a sign that it may yet push for a sale of the unit ahead of the separation if a bid from private equity or an industry rival emerges.

Elliott added that the board should introduce stronger performance incentives, increase its long-term profit targets and avoid fully integrating its pharma and vaccines business.

Founded and run by Paul Singer in New York, Elliott manages roughly $42bn in assets and has built a reputation as a feared activist investor with campaigns at companies including AT&T, BHP and SoftBank.

Its investment in GSK is run out of its London office, managed by Singer’s son Gordon, and led by portfolio managers Mark Levine and Sebastien de La Riviere.