Valued by private investors at more than $10 billion, the future listing on the stock market of Twitter, is an eagerly anticipated event. The necessary forms have been submitted to the US Securities and Exchange Commission (SEC) ahead of the initial public offering (IPO). Twitter will be looking to avoid the mistakes made by Facebook when they were first listed in May last year. Twitter has also announced its intentions to purchase MoPub, which is a firm specialising in mobile advert exchanges.
So, what will this listing mean for Twitter? The public will now be able to purchase shares in Twitter, in much the same way as you can buy shares in RBS or Facebook. The financial performance of Twitter will come under much greater scrutiny from its shareholders, who will be interested in short term returns and long term stability. Becoming a public limited company will attract investors and is likely to provide a much larger scope for expansion for Twitter. However, as yet no details have been released on a likely date for the flotation or on the prices we can expect.
One thing Twitter will be trying to avoid is a repeat of the problems that beset Facebook and indeed of the problems that other public listings have created for giants such as Google, Zynga and Groupon. When Facebook moved to public ownership, its share prices initially fell below its IPO and subsequently Facebook lost more than half its value. More recent success in mobile advertising has restored the fortunes of this company, but Goldman Sachs, which is handling Twitter’s transition will be looking to avoid a similar occurrence. As Sam Hamadeh from PrivCo (a firm that gathers data on private companies) said:
Twitter will learn from Facebook’s flawed playbook and do the opposite … Unlike Facebook, which waited too long to IPO (until its growth rate decelerated), Twitter will IPO at just the right inflection point: while revenue grows in triple digits.
Twitter is a rapidly growing business, but still has significant scope for expansion and this move to public ownership may be just the thing. Setting the right IPO and the right date will be crucial, as a multitude of factors can and do affect the price of shares listed on the stock market. Twitter will also need to ‘focus on doing the right stuff’ to make a success of the listing and its purchase of Mopub looks to be a step in the right direction. For now, all we can do is speculate, but if the launch is successful, then the founders of Twitter are likely to bring in hundreds of millions of dollars each.
Twitte files for IPO The Telegraph, Sophie Curtis (13/9/13)
Twitter plans stock market listing (see also) BBC News (13/9/13)
Twitter files for IPO, hopes to avoid Facebook’s mistakes Independent, Nikhil Humar and James Vincent (12/9/13)
Facebook shares close 11% below flotation price BBC News (21/5/12)
Twitter fails to answer key IPO questions Financial Times, Richard Waters and April Dembosky (13/9/13)
Twitter IPO: how much is it worth? The Guardian, Juliette Garside (13/9/13)
Twitter IPO: Tech float successes and disasters The Telegraph, Gabrielle Putter and Szu Ping Chan (13/9/13
Twitter to see ‘strong demand’ for share sale BBC News (13/9/13)
Twitter IPO: Firm in stock market launch bid Sky News (13/9/13)
Questions
- What are the characteristics of a public limited company? Are there advantages and disadvantages?
- Which factors affect (a) the supply of shares and (b) the demand for shares?
- What mistakes were made by Facebook when it made the transition to public ownership?
- How does advertising generate revenue for Twitter?
- How might you go about valuing Twitter or Facebook?
- Companies such as Twitter and Facebook have hundreds of millions of subscribers. Are there network externalities of this?
- Twitter is purchasing MoPub. What type of takeover would you classify this as?
The growth of emerging economies, such as China, India and Brazil brings with it both good and bad news for the once dominant countries of the West. With growth rates in China reaching double digits and a much greater resilience to the credit crunch and its aftermath in these emerging nations, they became the hope of the recovery for the West. But, is it only benefits that emerge from the growth in countries like China?
Chinese business has grown and expanded into all areas, especially technology, but countries such as the USA have been reluctant to allow mergers and takeovers of some of their businesses. Notably, the takeovers that have been resisted have been in key sectors, particularly oil, energy and technology. However, it seems as though pork is an industry that is less important or, at least, a lower risk to national security.
Smithfield Foods is a US giant, specialising in the production and selling of pork. A takeover by China’s Shuanghui International Holdings has been approved (albeit reluctantly) by the US Committee on Foreign Investment. While the takeover could still run into obstacles, this Committee’s approval is crucial, as it alleviates concerns over the impact on national security. The value of the deal is some $7.1bn, including the debt that Shuangui will have to take on. While some see this takeover as good news, others are more concerned, identifying the potential negative impact it may have on prices and standards in the USA. Zhijun Yang, Shuanghui’s Chief Executive said:
This transaction will create a leading global animal protein enterprise. Shuanghui International and Smithfield have a long and consistent track record of providing customers around the world with high-quality food, and we look forward to moving ahead together as one company.
The date of September 24th looks to be the decider, when a shareholder meeting is scheduled to take place. There is still resistance to the deal, but if it goes ahead it will certainly help other Chinese companies looking for the ‘OK’ from US regulators for their own business deals. The following articles consider the controversy and impact of this takeover.
US clears Smithfield’s acquisition by China’s Shuanghui Penn Energy, Reuters, Lisa Baertlein and Aditi Shrivastava (10/9/13)
Chinese takeover of US Smithfield Foods gets US security approval Telegraph (7/9/13)
US clears Smithfield acquisition by China’s Shuanghui Reuters (7/9/13)
Go-ahead for Shuanghui’s $4.7bn Smithfield deal Financial Times, Gina Chon (6/9/13)
US security panel approves Smithfield takeover Wall Street Journal, William Mauldin (6/9/13)
Questions
- What type of takeover would you classify this as? Explain your answer.
- Why have other takeovers in oil, energy and technology not met with approval?
- Some people have raised concerns about the impact of the takeover on US pork prices. Using a demand and supply diagram, illustrate the possible effects of this takeover.
- What do you think will happen to the price of pork in the US based on you answer to question 3?
- Why do Smithfield’s shareholders have to meet before the deal can go ahead?
- Is there likely to be an impact on share prices if the deal does go ahead?
Turkey has experienced rapid economic growth in recent years and has attracted large inflows of foreign capital. The chart below illustrates how growth in real GDP in Turkey in most years since 2000 has considerably exceeded that in the OECD as a whole (click here for a PowerPoint). As you can see from the chart, growth in Turkey over the period has averaged 4.5%, while that in the OECD has averaged just 1.8%.
Indeed, Turkish growth has been compared with that of the BRICs (Brazil, Russia, India and China). However, like the BRICs, Turkey has been experiencing slowing growth in the past few months. Indeed, the slowdown has been especially marked in Turkey.
In recent years Turkey has benefited from large inflows of foreign capital. Partly these were direct investment flows, encouraged by a large and rapidly growing internal market, boosted by a rapid expansion of consumer credit, and also by a growing export sector. But to a large extent, especially in recent years, there has been a large rise in portfolio and other investment inflows. This has been encouraged by a large increase in global money supply resulting from policies of quantitative easing in the USA and other developed countries.
But the economic climate has changed. First investors have become worried about the conflict in Syria escalating and this impacting on Turkey. Second Turkey’s large financial account surpluses have allowed it to run large current account deficits and have maintained a high exchange rate. Third the tapering off and possible reversal of quantitative easing have led to recent outflows of finance from various countries perceived as being vulnerable, including Turkey.
The effect of this has been a depreciation of the Turkish lira and upward pressure on inflation. The lira has fallen by 14% since the beginning of 2013 and by nearly 7% since the beginning of August alone.
The question is whether the supply side of the Turkish economy has become robust enough to allow the country to ride out its current difficulties. Will foreign investors have sufficient faith in the long-term potential of the Turkish economy to continue with direct investment, even if short-term financial inflows diminish?
Articles
Turkey’s economy faces uncertainties amid possible military intervention in Syria Xinhua, Fu Peng (29/8/13)
Turkey may cut 2014 growth target to 4% Turkish Daily News (8/9/13)
Turkish lira at record low, threatening growth Daily News Egypt (7/9/13)
Turkish lira may need higher interest rates to escape emerging markets rout Reuters, Sujata Rao and Seda Sezer (20/8/13)
Turkey Economic Crisis: Crises from Both Sides Wealth Daily, Joseph Cafariello (9/8/13)
Western financial prescription has made Turkey ill The Observer, Heather Stewart (1/9/13)
Turkish Deputy PM Babacan calm amid economic fluctuations Turkish Daily News (8/9/13)
The Fragile Five BBC News, Linda Yueh (26/9/13)
Data
Economic growth rates (annual) for Turkey, Brazil, Russia, India and China: 2000–13 IMF Economic Outlook Database (April 2013)
Quarterly growth rates of real GDP for OECD countries and selected other countries and groups of countries OECD StatExtracts
Turkey and the IMF IMF
Turkey: data World Bank
Links to Turkish Official Statistics Offstats
Country statistical profile: Turkey OECD Country Statistical Profiles
Spot exchange rate, Turkish Lira into Dollar Bank of England
Questions
- Why has the Turkish economy experienced such rapid growth in recent years and especially from 2010 to 2012?
- Why has Turkish growth slowed over the past year?
- Why has “Western financial prescription made Turkey ill”
- Why has the Turkish lira depreciated? What has determined the size of this depreciation?
- What are the beneficial and adverse effects of this depreciation?
- Why must any surplus on the combined financial and capital accounts of the balance of payments be matched by a corresponding deficit on the current account?
- How is a tapering off of quantitative easing likely to impact on developing countries? What will determine the size of this impact?
- Istanbul has lost its bid to host the 2020 Olympic Games? How is this likely to affect the Turkish economy?
The 2020 Olympics has just been awarded to Tokyo, beating Madrid and Istanbul. Concerns over the safety of the games in Tokyo, with the city being perceived as relatively close to the Fukushima nuclear plant, were overcome with the help of an address by the Japanese Prime Minister, Shinzo Abe. So, what are the economic implications of this latest development in the sporting world?
When London was awarded the 2012 Olympic Games, estimates suggested that it would generate a £16.5 billion contribution to GDP. With many new construction projects, there was the inevitable injection of government expenditure. This led to the creation of new jobs and thus successive employment multiplier effects were generated. This is also likely to be true for Tokyo, with current proposals suggesting that ten new permanent sites will be built to host the various sports of the Games. This will undoubtedly generate new jobs and will provide an almost certain boost to the construction industry. This, in turn, will generate further multiplier effects across a multitude of industries and across the rest of the country.
There will also be further economic effects, for example on Japanese investment and stocks and shares, with a boost in confidence and optimism. A Tokyo-based fund manager, Hiroshi Fujumonto, said:
Olympics-related stocks are yet to fully price in the decision, even though they’ve already outperformed … In the short term the entire Japanese share market will get a boost from celebratory buying and expectations for the event’s economic impact.
This was also confirmed by Shinzo Abe, when he commented after the victory was announced that ‘I want to make the Olympics a trigger for sweeping away 15 years of deflation economic shrinkage.’ 
The Japanese economy has been struggling for many years and this may be the much needed boost to the country’s optimism, infrastructure and economy.
As the world’s third largest economy, this economic boost is also likely to have knock-on effects on other countries across the world, though it is more likely to be the long-term impact that is important here. Just as it was with the London Olympics, the final effect and cost will only be known some years after the Olympics are held, but for now the work will start for Japan.
Olympics 2020: Tokyo wins race to host games BBC Sport (7/9/13)
Tokyo Olympics win seen boosting infrastructure, recovery Bloomberg, Yoshiaki Nohara and Satoshi Kawano (8/9/13)
Tokyo wins bid to host 2020 Olympic Games Telegraph, Ben Rumsby (8/9/13)
Tokyo chosen as ‘safe pair of hands’ to host 2020 Olympics Financial Times, Benedict Mander (8/9/13)
Japanese bid’s passion earns Tokyo the 2020 Olympic Games Guardian, Owen Gibson (7/9/13)
Olympics 2020: Why Tokyo is a ‘safe pair of hands’ to host Games BBC News, David Bond (8/9/13)
Questions
- What is the multiplier effect and how is it calculated?
- How can the overall economic benefits of the Olympic Games be estimated?
- Which industries in Tokyo are likely to be the ones that benefit from the Olympic Games?
- Outline a cost–benefit analysis of the Olympic Games.
- Why are share prices likely to go up in Japan based on this news? Look at both the demand and supply factors that will affect share prices.
- Is it possible that there will be wider multiplier effects on other countries besides Japan?
House prices in the UK are rising and the rise seems to be accelerating – at least until the latest month (August). They are now growing at an annualised rate of nearly 4%. This is the fastest rate for three years (see chart below: click here for a PowerPoint of the chart).
This may be worrying for Mark Carney, the Governor of the Bank of England, who is committed to avoiding a new house price bubble. 
The problem is that, under the recently issued forward guidance, the Bank of England is set to retain the current historically low Bank rate of 0.5% until unemployment has fallen to 7%. But that could be some time – probably around two years.
So what can the Bank do in the meantime and what will be the consequences?
The following article from The Guardian looks at the options.
Article
How can the Bank of England prick the house price bubble? The Guardian, Patrick Collinson and Heather Stewart (30/8/13)
Data
Links to house price data The Economics Network, John Sloman
Questions
- What constitutes a housing price boom? Is the UK currently experiencing such a boom?
- What factors have led to the recent house price rises? Have these factors affected the demand or supply of houses (or both)?
- Who gains and who loses from rising house prices?
- Explain the policy adopted in New Zealand to curb house price inflation.
- Consider the merits of this option?
- Could borrowers find ways around this measure?
- Are there any other options open to the Bank of England?
Valued by private investors at more than $10 billion, the future listing on the stock market of Twitter, is an eagerly anticipated event. The necessary forms have been submitted to the US Securities and Exchange Commission (SEC) ahead of the initial public offering (IPO). Twitter will be looking to avoid the mistakes made by Facebook when they were first listed in May last year. Twitter has also announced its intentions to purchase MoPub, which is a firm specialising in mobile advert exchanges.
