TheChek News Flow

Walt Disney Co.‘s board decided not to recommend Nelson Peltz’s board candidacy to shareholders because he had not presented a “single strategic idea” in two years of seeking a seat and “seemed oblivious to the ongoing secular change in the media industry,” the company revealed in a securities filing. The comments come as Peltz’s proxy contest to win seats on Disney’s board is ramping up.

The company also said the board decided not to recommend Peltz’s other nominee, former Disney CFO Jay Rasulo, because the media business had changed so much since he had left the company and that “an outdated perspective on the business would be damaging to the ongoing strategic transformation underway.”

The securities filing also detailed the history of Disney’s interactions with Peltz, which the company said numbered more than 20 since last February, when Peltz ended his last proxy contest against Disney. It said that in a meeting between CEO Bob Iger and Peltz in November, Iger asked Peltz what he would recommend the board do to lift the company’s stock price, and Peltz “responded that he was not there to put forth a plan, he was only there to get a Board seat.”

Last month, OpenAI board director Adam D’Angelo called Databricks CEO Ali Ghodsi to see if he might consider joining OpenAI’s board, according to a person familiar with the situation. That kind of request might not seem unusual—except that Ghodsi has positioned Databricks as a kind of anti-OpenAI through its business of helping companies develop AI applications instead of relying on OpenAI’s technology.

Ordinarily, companies don’t invite representatives of quasi rivals to join their board. Even if Ghodsi doesn’t end up joining, the fact that D’Angelo made such an approach signals the potential for further turmoil on the board and new challenges for OpenAI’s CEO, Sam Altman, who was fired and rehired in November after a battle with the company’s then-board.

As OpenAI’s business has taken off, Ghodsi, a well-known figure in AI, and his colleagues at Databricks have argued publicly and privately to major software buyers that in the long run, for both performance and security reasons, companies may be better off developing their own AI models or customizing open-source ones rather than getting hooked on OpenAI’s closed-source models. The two companies are on different sides of a brewing debate about the societal and geopolitical ramifications of open-source AI models.

D’Angelo’s approach to Ghodsi may be in keeping with the board’s nonprofit mandate to prioritize limiting societal harms from AI over making money, said a person who has spoken with him. In 2019, when Altman was still a director of the nonprofit, he started the for-profit arm so that OpenAI could raise more money while still adhering to the mission of the nonprofit, which oversees the commercial unit. D’Angelo, whose day job is CEO of question-and-answer site Quora, believes the board should keep that unit—and Altman—in check, said a person who has spoken to him.

But the inherent conflict between the nonprofit’s charter and Altman’s push to build OpenAI’s business while also using his role to pursue deals outside the company—such as AI devices and investing in OpenAI vendors—contributed to Altman’s short-lived ouster. Board directors such as D’Angelo weren’t privy to some of those dealings, multiple people with knowledge of the situation said at the time.

D’Angelo, the only holdover from the OpenAI board that fired and rehired Altman, is now playing a key role in a search for new board members. He, along with two board members appointed following the drama in November, former Treasury Secretary Larry Summers and former Salesforce co-CEO Bret Taylor, have said they are looking to fill at least several open seats. (As part of his deal to return as OpenAI CEO, Altman agreed that he will not regain his seat on the nonprofit board for now.)

Among other candidates, OpenAI board representatives have approached Alexandr Wang, CEO of Scale AI, a firm whose services OpenAI has used to train its models, and former Microsoft and GitHub executive Nat Friedman about potentially joining as directors. The status of those talks also isn’t clear, but neither choice would raise eyebrows among OpenAI and Databricks employees the way Ghodsi’s appointment to the board would. It’s also unclear how advanced the talks between Ghodsi and D’Angelo are.

D’Angelo talked to another OpenAI competitor during the period after Altman was fired and before he was reinstated. D’Angelo talked to Dario Amodei, CEO of OpenAI’s archrival, Anthropic, about possibly becoming OpenAI’s new CEO, The Information previously reported at the time. Those talks didn’t go anywhere, but it showed the lengths D’Angelo would go to secure a future for OpenAI without Altman.

In the meantime, OpenAI is becoming an even more powerful force in the business world. It is now generating more than $130 million in revenue per month. Marquee investors currently value the for-profit entity at $86 billion.

The amount of capital OpenAI may need—Altman has said it might raise another $100 billion on top of the more than $13 billion it has raised already—as well as its fast-growing business and the influence of powerful equity holders such as Microsoft, Sequoia Capital and Andreessen Horowitz could put the for-profit arm at odds with the nonprofit’s mission.

Tensions could also increase if the company’s AI makes more progress following a recent breakthrough. Some OpenAI leaders believe they can develop superintelligent AI that can outperform humans at any task and perhaps help them colonize Mars and beyond. OpenAI says final decisions about whether the company can release new technology, now or in the future, ultimately rest with the nonprofit board, which can “overrule” decisions by leaders of the for-profit arm.

To ease those tensions, OpenAI could rework its structure so the nonprofit entity only owns a small portion of the for-profit arm but receives a percentage of the latter’s profits to fund its mission, a structure similar to those of other nonprofits such as the Lego Foundation, said Josh Wolfe, managing partner at venture firm Lux Capital and a trustee at two nonprofits. (Lux is also a Databricks shareholder.)

For instance, profits from OpenAI could fund AI safety research the board leads or could subsidize access to OpenAI’s technology for students or impoverished communities, Wolfe said. When Altman was reinstated, the new three-person board said it would look at “improving our governance structure” but didn’t imply that it would make any major changes.

Policymakers face deepening property sector crisis along with deflationary and demographic pressures

China’s population decline accelerated in 2023 as its economy grew at one of the lowest rates in decades, pointing to persistent challenges for the world’s second-largest economy from a property slowdown, deflation and demographic pressures.

Gross domestic product expanded 5.2 per cent last year, outpacing growth of just 3 per cent in 2022, when the economy was constrained by Beijing’s draconian zero-Covid restrictions, and exceeding the government’s official target of around 5 per cent, already the lowest benchmark in decades.

But the population dropped by a second year in a row as deaths rose and births fell. Wang Feng, an expert on Chinese demographics at the University of California, Irvine, said the decline of 2mn people revealed the “footprint of Covid-19”, which spread through the country in early 2023 after authorities hastily lifted the anti-pandemic measures.

Analysts said the data highlighted the challenge for President Xi Jinping, who began an unprecedented third five-year term in power last year, to engineering a stronger economic recovery.

The property sector, which has been mired in a debt crisis for three years, continued to suffer in 2023, the official statistics showed on Wednesday. Investment in property development fell 9.6 per cent last year compared with a year earlier, while new home prices in December declined 0.4 per cent on the previous month, the sharpest fall since February 2015.

Chinese equities lost ground following the data release. The Hang Seng Mainland Properties index in Hong Kong fell 4.9 per cent to an all-time low, while the Hang Seng China Enterprises shed 3.5 per cent to be down 9 per cent this month. The broader Hang Seng index declined 3.4 per cent, while the CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 1.1 per cent.

China’s population fell to 1.4bn in 2023, as 11mn deaths outstripped 9mn births, and demographers forecast further falls as the population rapidly ages. The number of deaths last year was almost 600,000 more than in 2022, exceeding the increase of more than 200,000 between 2021 and 2022.

“It is very likely that the rapid increase in number of deaths comes from the chaotic ending of zero-Covid, which led to many excess deaths,” Wang of the University of California said.

The population, which declined for the first time in 60 years in 2022, is the result of a 1980s policy that restricted most couples to one child, well below the average of 2.1 needed to remain level. The national death rate was 7.87 per 1,000 people in 2023, the highest since the early 1970s, and up from 7.37 last year.

China’s premier Li Qiang on Tuesday pre-empted the official data release, announcing the headline GDP growth figure on Tuesday at the World Economic Forum in Davos. Li praised policymakers’ focus on “strengthening the internal drivers” rather than unleashing massive stimulus, which some experts have called for to revive growth.

Economists said the annual growth rate was probably flattered by as much as 2 percentage points because of a comparison with low growth during the pandemic and suggested Beijing would need to do more this year to stabilise the property market and drive up consumption to quash deflationary pressure.

Fourth-quarter GDP was 1 per cent higher than in the third quarter and up 5.2 per cent year on year, narrowly below analyst forecasts of 5.3 per cent.

Fixed-asset investment excluding rural households was up 3 per cent in 2023 over the previous year, with investment in infrastructure 5.9 per cent higher and manufacturing up by 6.5 per cent. Private investment fell 0.4 per cent, though excluding real estate it grew 9.2 per cent, said the National Bureau of Statistics.

Investment in strategic areas prioritised by Beijing also grew faster. Investment in manufacturing of aerospace vehicles and equipment, for example, grew 18.4 per cent.

Retail sales, a gauge of consumption, rose 7.4 per in December cent year on year, compared with 8 per cent forecast by analysts and 10 per cent growth in November, while industrial output grew 6.8 per cent last month against a year earlier, above expectations of 6.6 per cent.

Analysts said it was not clear whether officials planned a more comprehensive programme to stabilise market expectations. Beijing signalled late last year that it was prioritising growth and security over reform at the annual Communist party central economic work conference.

“Recent speeches by China’s top leaders seek to triangulate the message that the economy is on the right course and no panicky stimulus measures are needed but [that] the government still understands the concerns of businesses and households and stands ready to act if needed,” said Eswar Prasad, a senior fellow at the Brookings Institution think-tank.

But the data revealed an economy that is experiencing “at best subdued growth characterised by weak domestic demand and persistent deflationary pressures”, he added. “It seems premature to say the economy is out of the woods.”

Beijing is scrutinizing Shein’s data handling for potential national security risks, a move that might delay its planned share sale

SINGAPORE—China’s powerful internet regulator is conducting a cybersecurity review of Shein’s data handling and sharing practices as the fast-fashion company seeks Beijing’s blessing for its planned initial public offering.

The Cyberspace Administration of China is looking into the ways Shein handles information on its staff, suppliers and partners in China, as well as whether the company can effectively protect such data from leaking to overseas parties, people familiar with the matter said.

Beijing is also interested in the type of Chinese data Shein will disclose to the U.S. securities regulator as it seeks a listing in New York, the people said.

The CAC probe represents an escalation of regulatory scrutiny of Shein’s plans to raise potentially billions of dollars through a stock sale. The company is seeking a greenlight from China’s securities regulator before it can list overseas.

In past cases, similar investigations by the CAC take months to complete, and a prolonged review could result in delays to Shein’s stock sale. In the worst case, the plan could be scuttled altogether if the regulator concludes there are any serious problems. The CAC, whose mandate has grown tremendously under Chinese leader Xi Jinping, has hamstrung the overseas listing plans of several large Chinese technology companies.

Beijing launched a similar probe of the Chinese ride-hailing giant Didi Global in July 2021, two days after Didi raised $4.4 billion in an IPO on the New York Stock Exchange. Within a year, the Beijing-based company delisted from the U.S. exchange. TikTok’s parent, ByteDance, in 2021 put on ice its plan to go public after Chinese regulators suggested it focus on addressing data-security risks and other issues, The Wall Street Journal has reported.

Shein and the CAC didn’t respond to requests for comment.

China has stepped up oversight of the country’s dominant internet companies and the flow of data across its borders. In recent years, Beijing has rolled out rules to regulate data processing and overseas data transfers that it considers could have national-security implications.

Founded in 2012 by a group of Chinese entrepreneurs, Shein moved its headquarters to Singapore from the Chinese city of Nanjing several years later. It counts the U.S. as its biggest market, having soared in popularity during the pandemic, selling inexpensive and trendy clothes to millions of shoppers.

Shein confidentially filed to go public in the U.S. in November and has hired Goldman Sachs, JPMorgan Chase and Morgan Stanley as lead underwriters. Its IPO could be one of the biggest in years, with Shein recently valued at $66 billion.

To go forward with its listing, according to people familiar with the issue, Shein will need the blessing of both U.S. and Chinese regulators. Shein has filed the paperwork for its U.S. application with the China Securities Regulatory Commission, an agency overseeing the offshore listings of Chinese companies. According to CSRC rules, it can coordinate with other regulators, including the CAC, should the authority have concerns over whether the company’s overseas listing could potentially jeopardize national security.

Beijing in recent years has required internet platforms holding large amounts of private user data and critical businesses such as banks and telecom companies to engage in a cybersecurity review.

Shein, which sells $5 crop tops and $10 handbags to customers in more than 150 countries, doesn’t sell to shoppers in China. Still, the company’s operations are heavily entwined there, including sourcing from thousands of Chinese suppliers. Such relationships are the main reason why the internet regulator has opened a review into Shein’s data handling, people familiar with the review said.

Shein has also set up and invested in dozens of business entities in China. It is linked to Chinese business entities involved in areas including logistics, warehousing and other supply-chain services, according to Chinese corporate records. It owns a stake in several other Chinese businesses, according to the Chinese corporate database Tianyancha.

Apart from Didi, two other companies that were newly listed in the U.S.—Full Truck Alliance, an operator of truck-hailing apps, and the online recruiter Kanzhun—were also subjected to similar data-security reviews by the CAC around the same time. Regulators said apps operated by the three companies weren’t allowed to register new users until the end of the investigations.

Didi had gone ahead with its share sale without getting a nod from the CAC, the Journal reported. After the CAC opened the investigation, Didi’s share price plummeted. When the company eventually delisted, its shares had fallen 80%. The probe was closed in a year, and Didi was fined about $1.2 billion for flouting China’s cybersecurity, data-security and personal information protection laws.

Full Truck Alliance and Kanzhun resumed adding new users in June 2022 after the two companies issued public statements that they had rectified security issues discovered during the CAC’s probes. Both companies’ shares still trade in the U.S., though their stock prices have dropped significantly.

New rules have been introduced on which companies are subject to cybersecurity reviews.

Meanwhile, the Securities and Exchange Commission hasn’t responded in writing to Shein’s IPO plan, which bankers and lawyers say is unusual. The reasons for the SEC’s silence couldn’t be determined. People close to Shein and in Washington said it could suggest the U.S. regulator’s reluctance to take on a hot-button issue with potential political implications as Shein faces increasing scrutiny over its Chinese roots.

USS, Canada’s CDPQ and Singapore’s GIC push to exit, putting £2.4bn deal with Saudis and private equity at risk

Three shareholders in Heathrow that between them own more than a third of the London airport have said they want to sell out alongside majority owner Ferrovial, according to the infrastructure group, as part of £2.4bn deal agreed last year.

Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ), Singapore sovereign wealth fund GIC and the UK’s Universities Superannuation Scheme all intend to exit, according to a person familiar with the deal.

Ferrovial did not name the trio, and all three companies declined to comment.

Ferrovial agreed to sell its 25 per cent stake in the UK’s biggest airport in November for £2.4bn to French private equity company Ardian and the Saudi Public Investment Fund, ending 17 years of ownership.

As part of that deal, the airport’s other shareholders were given the option to sell their own stakes at the same valuation, with the Saudis and Ardian offered first refusal. Ardian originally agreed to buy 15 per cent and the Saudis 10 per cent.

On Tuesday, Ferrovial said that other shareholders that between them owned 35 per cent of the London airport had decided to exercise their “tag-along” rights, throwing a potential roadblock in the way of the transaction.

With 60 per cent of the airport now involved in the sale process, the £2.4bn deal could collapse if all the shareholders cannot find buyers.

Ferrovial added it was a “condition” of the transaction that the “tagged shares” were also sold.

Neither Ardian nor the Saudis are compelled to buy the new shares on offer. The Saudis plan to stick with their original plan to buy 10 per cent and do not want to increase their stake in the airport beyond this, according to a person familiar with the deal. Ardian is considering raising its offer, the person said. 

Another option being considered is for the Saudis and Ardian to find a third investor to come on board to take the fresh stakes.

The change in ownership would represent one of the biggest shake-ups in Heathrow’s boardroom since it was privatised under the Thatcher government in the 1980s.

Any new investors will buy into an asset that has been lossmaking for three years because of the coronavirus pandemic and travel restrictions, but with a history of generating strong returns for shareholders.

Still, plans to build a third runway to generate significant new growth have stalled amid high inflation and rising interest rates.

Heathrow’s management has instead been exploring less radical options to increase passenger numbers, such as upgrading terminals and its road links, the Financial Times reported last month. 

London and other UK cities unprepared for effects of climate change

Inadequate investment in flood defences leaves capital and other areas at risk, warn two reports

London and other cities across the UK are underprepared for the “disastrous consequences” of climate change, with issues including severe flooding and extreme heat posing a “lethal risk” to vulnerable communities, according to a new report.

The London Climate Resilience Review, commissioned by mayor of London Sadiq Khan and chaired by Emma Howard Boyd, the former chair of the Environment Agency, issued a series of “urgent recommendations”, including that Whitehall should give councils more funding and powers to adapt to global warming. 

Britain’s ruling Conservative party has been accused of backtracking on efforts to tackle climate change after Prime Minister Rishi Sunak rolled back a series of green measures and drew up legislation to encourage more oil and gas drilling in the North Sea.

The review said “significant climate adaptation and resilience action” was already taking place across London, but warned that it would not be enough to meet forecast rises in global temperatures and the accompanying “disastrous consequences” of climate change. 

In 2021, the capital was hit by flash floods that caused damage to homes and businesses across the city, while in the following year there was a heatwave, with temperatures hitting 40C. Last year was the hottest on record globally, and the second hottest in the UK. 

“We need to recognise that Londoners now face lethal risks, and a step change is needed,” said Boyd. “In the absence of national leadership, regional government has a more significant role to play. We need pace not perfection.”

London’s main climate risks included rising sea levels, as well as surface water flooding, extreme heat, wildfires and drought hitting water supplies, the report said. 

It added that the sea level in the Thames Estuary was expected to rise by about 1.15m by the end of this century and warned that only 9km of the 126km in flood defences west of the Thames barrier were “sufficiently high to last beyond 2050”. 

The warnings came as MPs on the cross-party public accounts committee warned that the risk of flooding had increased across the country, with 5.7mn properties in England and Wales at risk in 2022/23.

The MPs pointed out that although the Department for Environment, Food and Rural Affairs (Defra) had pledged in 2020 to create “a nation more resilient to future flood and coastal erosion risk”, it had set no overall targets so could not measure progress. 

They added that the Environment Agency, the regulator responsible for maintaining flood defences, had estimated that 40 per cent fewer properties than planned would receive protection in part because of spiralling construction costs and “the bureaucracy associated with approving projects”. 

The MPs pointed out that lack of funding prevented the agency from properly maintaining assets, such as flood defences and barriers, while Defra had failed to provide adequate support and leadership to local authorities on how to address the risk of flooding. Meanwhile, new housing is still being built on flood plains without adequate protection.

Sir Geoffrey Clifton-Brown MP, deputy chair of the committee, said flood resilience must become an “ever-increasing priority”. The “alarming truth” is that the “approach to keeping our citizens safe in this area is contradictory and self-defeating, not least in the continuing development of new housing in areas of high flood risk without appropriate mitigations”.

Defra has been approached for comment.

Investors raise billions to buy discounted stakes in start-ups

Buyers return after secondary market for private shares was hit by higher interest rates

Investment firms are raising billions of dollars to buy stakes in venture capital-backed technology start-ups, as a long drought in acquisitions and initial public offerings forces early investors to offload their stock at discounts.

The start-up secondary market, where investors and employees buy and sell tens of billions of dollars’ worth of shares in privately held companies, is becoming an increasingly important trading venue, in the absence of traditional ways of cashing out and given a slowdown in start-up funding.

Venture secondaries buyers are primed for a busy year as start-up employees look for a way to sell their stock and investors look to return capital to their own backers or reallocate it elsewhere.

Secondary market specialist Lexington Partners last week announced a new $23bn fund to buy up stakes from “large-scale investors”. Lexington had originally aimed to raise $15bn, but upped its target on the back of high demand, and said it was “in the early stages of a generational secondary buying opportunity” that could last years.

The fund will predominantly buy shares from private equity funds but also expects to invest as much as $5bn into venture capital secondaries, said a spokesperson.

“We are seeing crazy amounts of LPs [limited partner investors] that are distressed and need to lighten their venture load,” said the head of a $2bn venture capital firm.

The latest Lexington fund “speaks to the sheer demand” from LPs that feel “over-allocated” to private capital including to start-ups, they said.

Other specialist firms such as Pinegrove Capital Partners, a joint vehicle created by Brookfield Asset Management and Sequoia Heritage, and StepStone have also been raising multibillion-dollar funds to target venture secondaries.

StepStone has raised an initial $1.25bn for its latest fund, according to Securities and Exchange Commission filings and earnings transcripts, and is targeting a total raise of more than twice that, said a person with knowledge of the deal.

The large sums of new capital point to a return to high levels of trading after a two-year downturn, according to investors.

The secondary market has grown massively over the past decade, with major banks, asset managers and trading firms all investing in various trading platforms. It has also become a critical release valve for start-up employees who have been unable to realise the value of their stock because of the lack of IPOs. In the last year companies including OpenAI and Elon Musk’s SpaceX have arranged the sale of employee stock via the secondary market.

“The main exit for VCs is primarily IPOs and M&A [mergers and acquisitions], and neither of those are happening,” said Tom Callahan, chief executive of Nasdaq Private Market, a trading venue. “It creates this immense pressure . . . [and] incredible opportunities for investors coming in and buying companies at deep discounts.”

However, it is still more lightly regulated, more opaque and far less liquid than public markets. One venture investor described it as “a messy backwater market dominated by brokers on the phone”.

Carta, a $7.4bn software company backed by investors including Goldman Sachs, Andreessen Horowitz and Silver Lake, last week said it would shut down its employee-focused secondaries platform following allegations that it had tried to trade customers’ shares without their consent.

IPO activity is expected to pick up later this year, but it is still likely to take several months for volumes to normalise.

Secondaries trade stalled in 2022 as start-up valuations were belatedly hit by higher interest rates. Nasdaq Private Market’s Callahan said that at points in the past two years, venture capital firms were demanding prices 30 per cent higher than potential buyers were willing to pay.

Marcus New, chief executive of trading platform InvestX, said valuation gaps had begun to shrink as venture capital firms became “more and more distressed”, leading to an increase in the supply of shares for sale. However, he and Callahan both said hedge funds and institutional investors have remained cautious about buying shares in all but the largest and most well-known private companies.

Investors and trading platforms are hoping the arrival of specialist secondary buyers with billions of dollars to spend will make up for that and drive up volumes.

“Values will get adjusted down this quarter,” said Hans Swildens, a secondaries investor and founder of Industry Ventures. “There will be a markdown across the market. If that happens then the volume [of trade] will start spiking.”

Forge Global, a publicly traded secondary exchange for privately held stock, reported a more than 50 per cent quarter-on-quarter increase in trading volumes in the third quarter of 2023, and chief executive Kelly Rodriques told the Financial Times “that trend will continue”.

On average, recent share sales on Forge were priced at about a 50 per cent discount to each company’s most recent primary fundraising.

InvestX’s New said those willing to brave the market before the broader IPO market recovers could pick up bargains.

“We’ve been successful in putting in low-priced bids [where] we’re the only person in the market,” he said. “I think the next few months will be the best time to be a buyer of these types of securities in the past half decade.”

Universal Music creates a new royalties model for streaming

New year messages from managers do not often set hearts singing. Universal Music chief executive Lucian Grainge’s annual memo to staff is an exception. His musings are closely read by equity analysts as they can set the tone for industry-wide changes.

At the turn of 2023, the head of the world’s largest record company called for a new royalties model for streaming, to combat the rise of what he referred to as “noise”. His 2024 memo suggests the industry is not finished battling threats such as fraud and generative artificial intelligence.

Music is a prime example of a sector that has faced repeated disruption in the past quarter of a century — and has so far managed to survive near existential threats.

Last year, Grainge followed through on his resolutions. In September, Universal struck a deal with French music streaming service Deezer that marked the first major change in streaming royalties since the advent of the industry in the late noughties.

Streaming platforms such as Spotify, which launched in 2008, helped to revive an industry that had, from the late 1990s onwards, struggled against illegal file-sharing and downloads.

Streaming drove global recorded music industry revenues to double between 2014 and 2022. Yet the royalties model had not evolved in the past 15 years, despite the emergence of new threats. The ability for almost anyone to create and stream content led to a surge in uploads, which is only expected to accelerate with the proliferation of generative AI. This threatened to dilute professional artists’ — and music labels’ — share of royalties paid.

Under Universal’s agreement with Deezer, professional artists who generate larger numbers of streams are remunerated better than creators of other content, including computer-generated sounds. Rival Warner Music also later signed up to the Deezer model in France.

Grainge’s 2024 memo suggests other platforms may soon follow what he has coined an “artist-centric” approach. A separate agreement between Universal and Spotify struck last year has similar principles.

Such an approach is, of course, also label-centric. It is in Universal’s interests for the model to become systemic. Industry-wide revenue growth from streaming has slowed in recent years. Universal’s subscriptions and streaming revenue is forecast to rise 7.5 per cent to €5.72bn for 2023, according to analyst estimates on Visible Alpha. It had racked up growth of 19 and 17 per cent respectively in 2022 and 2021.

Shares in Universal fell 11 per cent in the first half of 2023 as investors fretted over the consequences of generative AI, including the rise of “deepfake” songs that mimic the voices of professional artists. However, price rises and the Deezer agreement have since helped push the shares up more than 30 per cent.

Other factors should help growth. Citi’s Thomas Singlehurst points to price rises: platforms including Spotify and YouTube lifted costs for listeners in 2023, but the effects should still be felt this year.

Universal struck an agreement announced in October to start distributing vinyl and CDs from artists signed to rival BMG, although it is expected to be a low-margin activity. Grainge has promised “efficiencies”, or job cuts. This, Singlehurst believes, should help keep margins “at least stable” in 2024.

Other innovations are needed to stay ahead of disruption. Grainge hinted that Universal is looking at how it can monetise the relationship between artists and their closest followers with “superfan experiences”. It is easy to imagine dedicated fans paying for exclusive content.

The music industry’s battle against AI and fake content is only at the start. But investors can at least gain confidence that Universal is on the offensive.

Activist interest suggests the UK has a management problem

The UK’s persistently undervalued stock market is irresistible to global activist shareholders. Campaigns rose across Europe last year, according to data from consultants at Alvarez & Marsal. The UK was the most popular location for the seventh year running.

This is a dubious distinction, given concerns about the UK’s equity market malaise and longstanding underperformance. But the agitators appear to have had some success. Two years after an activist shareholder campaign, according to the data, UK company share prices beat the wider market by 9.2 per cent. Campaigns in the US and Europe generated lower outperformance of 6 per cent on average.

The UK’s appeal to activist investors makes sense. Not only does it have more listed companies than other European markets but share registers are more open. Larger free floats help in two ways. There are fewer large influential owners, including families or founders, who wield influence over the company. A more distributed shareholder register can also mean a more willing investor audience to coalesce behind activists’ demands.

But the market may also simply be ripe for their intervention. A&M’s analysis suggests activist campaigns focused only on dealmaking, governance or environmental and social factors reap lower rewards than those that home in on operational performance. Bumpitrage efforts — where shorter-term activism can boost takeover offers — yielded positive results at deals for tobacco group Swedish Match and UK software group Aveva.

The UK market trades at roughly a one-third valuation discount to global stocks. There is much debate about whether sector composition, growth outlook, income-focused investors or waning domestic pension money is the root cause.

The repercussions, however, are clear given the rise in private equity-backed takeovers and a growing roster of companies, such as Tui, CRH and Ferguson, opting to move their listing overseas. The A&M findings add weight to the optimists’ case that UK stocks trade at lower multiples because they offer lower returns. Once adjusted for this, the discounts often disappear.