TheChek News Flow

Rare step comes after Brussels fined US biotech for buying Grail without approval

EU regulators will order US biotech Illumina to sell cancer test developer Grail after it bought the $8bn company without the approval of Brussels, according to three people with direct knowledge of the matter.

The step is intended to deepen the punishment for Illumina after Brussels fined the world’s largest gene-sequencing company €432mn in July for defying what regulators described as a “cornerstone” of their authority.

New York-listed Illumina and Brussels have been locked in a legal fight since 2021 when the San Diego-based company completed the purchase of Grail even as EU regulators were still examining whether the deal would hurt competition.

Brussels chose to block the transaction a year later, saying it would stifle innovation and limit choice for consumers. Illumina had disputed the EU’s right to scrutinise the deal, pointing to the fact that Grail does not have any revenues in Europe. It completed the deal in August 2021.

Illumina is already challenging a similar order from the US Federal Trade Commission, which in April demanded the sale of Grail, saying the deal would hurt efforts to develop ways of detecting cancer. The company said it had a “strong case” to appeal the order.

An order from competition regulators in Brussels for Illumina to sell Grail could come as early as next week, the people said. But the timing could still slip, one of these people warned.

The move is a rare one for regulators to take and is designed to dissuade other companies from defying their authority. Under EU law companies must submit deals for scrutiny and can only close a transaction once it has been signed off by regulators.

“They bought something illegally and now they need to sell it,” said a person with direct knowledge of the matter.

Illumina intends to appeal any order to sell Grail, according to people familiar with the matter. Illumina and the European Commission declined to comment.

The fine imposed on Illumina was equivalent to 10 per cent of its revenue — the largest penalty available to authorities for this type of infringement.

When it announced the fine, the commission said that Illumina had “considered the potential profits it could obtain by jumping the gun, even if it were ultimately forced to divest Grail. It then intentionally decided to proceed and to close the deal while the commission was still investigating the transaction that was ultimately prohibited.” 

Grail, which counted Bill Gates and Jeff Bezos as early investors, is aiming to create a cancer screening test for people without symptoms. Illumina has accused Brussels of putting lives at risk by blocking a deal that aims to bring to market a blood test to screen dozens of different cancers.

The acquisition of Grail also angered some of Illumina’s shareholders. Activist investor Carl Icahn attacked the deal as reckless and pushed for the exit of Illumina’s longstanding chief executive Francis deSouza, who in June agreed to step down.

The investigation is examining whether Murtaza Lakhani, founder and chief executive of Mercantile & Maritime Group, traded Russian oil in breach of Western sanctions

The Justice Department is conducting a broad effort to crack down on violations of sanctions imposed on Russia’s energy exports and has homed in on the possible activities of a prominent oil trader.

The effort includes an investigation of Murtaza Lakhani, founder and chief executive of Mercantile & Maritime Group, a major oil trading and shipping company with head offices in Bahrain and Singapore. The probe is examining whether Lakhani traded Russian oil in breach of Western sanctions including a U.S.-led price cap, according to people familiar with the matter.

The investigation is ongoing. It couldn’t be determined whether any charges might result.

A spokesman for Lakhani didn’t immediately respond to a request for comment.

The U.S. and its allies have looked for ways to beef up oil sanctions that industry executives say have lost some of their effect on Russian oil revenues. After Russia’s invasion of Ukraine last year, the Justice Department set up the Task Force KleptoCapture unit last year to enforce policies intended to isolate the Russian economy, and to seize assets of sanctions violators.

Prices for Russia’s oil have risen far above the Western-imposed price cap in recent months, indicating that Russia has found new ways to profit from its oil sales. Western nations targeted Russian oil exports when designing sanctions because they are by far the biggest contributor to the Kremlin’s budget.

Earlier this year, the Justice Department in conjunction with the Treasury Department and the Commerce Department outlined a campaign of enforcement focused on bringing criminal charges against companies that served as intermediaries or used transshipments to evade Russian sanctions.

Treasury Secretary Janet Yellen said the government was likely to take steps to enforce the price cap, in a sign that the U.S. is readying a broader effort to crack down on suspected evasion of sanctions on Russian oil.

“We are looking at enforcement very carefully and we want to make sure that market participants are aware we take this price cap seriously and to the extent Western services are used we mean business about abiding by the cap,” Yellen said in an interview en route to the International Monetary Fund meetings in Morocco this week.

A person close to Rosneft Oil, the Russian state-backed energy giant, said the company is aware of a broad Justice Department probe into Russian oil shipments.

A Rosneft spokesman didn’t immediately respond to a request for comment.

The Justice Department is examining whether Lakhani has a business relationship with Rosneft Chief Executive Igor Sechin, an ally of President Vladimir Putin, according to the people familiar with the matter. Sechin is personally sanctioned by the U.S.

Born in Pakistan and a citizen of Canada and Vanuatu, Lakhani is known in the oil world for operating in complicated places. He has facilitated trades of oil produced in Saddam Hussein-era Iraq, Iraqi Kurdistan and Venezuela. Before Putin ordered the invasion of Ukraine in early 2022, Lakhani had long done business with Rosneft, both inside and outside Russia.

A spokesman for Lakhani said in July that he and every company in which he has an interest were no longer involved in the Russian oil trade. The spokesman said Lakhani and his companies had undergone “a complete cessation of all trade in Russian oil” to comply with sanctions, including those imposed by the Group of Seven nations.

Lakhani appeared on camera in June at Putin’s flagship St. Petersburg International Economic Forum. He sat in the front row of the audience during a session headlined by Rosneft’s Sechin and applauded a speech in which the chief executive described the establishment of “new, secure logistical chains which provide one with access to new markets.”

The spokesman said in July that Lakhani has attended the economic forum in Russia every year since 2017.

It is legal for Western companies to trade and transport Russian petroleum if the oil is priced at or below the $60 cap imposed by the G-7 countries plus Australia last December. There are separate caps on products such as diesel. The aim of the cap is to keep supplies flowing from Russia and maintain market stability, yet also reduce the Kremlin’s income. The sanctions also ban imports of Russian oil to Europe and the U.S., but allow oil to be sold to places such as China, India and Turkey.

Traders say that, although operating in Russian oil markets is allowed, there are reputational dangers from being seen to finance Putin’s war. The trade got even more complicated for Western companies after the recent price rises in oil markets. Prices for Russian crude and fuel have surged above the various caps.

Some of the biggest commodities traders say they largely withdrew from Russia after the invasion. Rosneft and other Russian producers came to rely on a new group of companies to get their oil to market. Many of these traders and shipowners—such as Tejarinaft, Amur and Bellatrix Energy—are registered in Dubai or Hong Kong and have opaque ownership.

The ships owned or used by these firms are known in the industry as the shadow fleet because they operate without Western financing and insurance.

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Lakhani started out as an oil trader in the 1980s. He was Glencore’s representative in Baghdad in the early 2000s, making payments to the Iraqi government during the oil-for-food program, a failed United Nations attempt to restrict Saddam Hussein’s oil income without causing a humanitarian crisis. He later helped arrange oil sales from Iraqi Kurdistan, including doing deals with Rosneft.

Lakhani lived in Monaco and London in recent years and cultivated connections to Britain’s upper echelons of power. Mercantile & Maritime gave 500,000 pounds, equivalent to about $610,000, to the U.K.’s Conservative Party in 2019—among the biggest donations of the past decade to the ruling party.

Lakhani’s Rosneft relationship deepened in 2019 when the Russian company sought to export oil from Venezuela, whose oil industry was under U.S. sanctions. Lakhani found buyers and helped transport the oil.

Lakhani’s spokesman said that, as of 2019, the sanctions permitted such an operation. After the U.S. sanctioned Rosneft’s Geneva trading arm in 2020, Mercantile & Maritime said it wound down these operations to comply with the sanctions.

Around the same time, Lakhani bought a majority stake in an Austrian trading firm called Cetracore Energy, according to the 2020 annual report. A Rosneft subsidiary owned a minority shareholding.

When Rosneft was hunting for outside investment in a giant Arctic oil project, it tapped Lakhani. In 2021, Mercantile & Maritime teamed up with trading firm Vitol to buy a 5% stake in the project. Lakhani’s joint trading venture with Rosneft, Cetracore, stepped up its activity in Russian oil immediately after Russia invaded Ukraine in February 2022, data from shipping analytics firm Petro-Logistics showed.

The spokesman said in July that Cetracore and all other companies in which Lakhani has an interest stopped trading Russian oil.

In December, Vitol and Lakhani’s Mercantile & Maritime said they had sold their stake in Rosneft’s Vostok oil project. Rosneft exited its Cetracore stake in May this year, company filings show.

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Nelly Rody reveals some up-and-coming beauty brands.

PARIS – There’s a new normal for department stores when it comes to beauty selling.

According to the International Association of Department stores, or IADS, the retailers’ cosmetics and beauty business grew on average 1 percent between 2021 and 2022, to practically reach their pre-pandemic level. However, the category’s fundamentals have shifted dramatically.

During the peak of the health crisis, big brands shifted to direct-to-consumer, while in tandem, people’s expectations and tastes changed, shaking up the market. Big beauty names became challenged like never before by upstarts and niche brands, which sometimes streaked past them.

As a result, department stores adjusted their strategy and invested in niche fragrances and rising makeup brands. They also entered the wellness market, backed by revamped loyalty programs and strong social media presences.

“Interestingly, these evolutions forced department stores to adapt their offer, but not their price structure: In ’22, segmentation remained stable compared to ’21, with luxury representing 47 percent of the business, premium products 24 percent and prestige products 10 percent,” AIDS said in a statement. “The only notable evolution comes from the mass-market segment decreasing to 8 percent and benefiting the ultra-accessible business (7 percent), which had already been increasing before inflation hit.”

In department stores during the period, fragrance was far and away the bestselling beauty category, generating on average 36 percent of the business. Bolstering that turnout were niche fragrances that were increasingly attractive to consumers, IADS said, adding its members mentioned such brands as Creed, Maison Francis Kurkdjian, Jo Malone, Byredo, Kilian Paris, Les Eaux Primordiales, Montale, Ex Nihilo, Mancero and Le Labo.

“El Palacio de Hierro and Breuninger in particular are pursuing a strategy which aims to become leaders and were recognized by experts in Mexico and Germany, respectively,” IADS said.

In department stores, makeup made up 20 percent of the overall beauty business.

“While it has a long way to recover to 2019 levels after COVID slowed down sales, in-store events represent great opportunities to redevelop the business, on top of sourcing and adding exclusives, new trendy brands,” said IADS.

Trend forecaster and consulting agency Nelly Rody, a partner of the department store body, revealed results from its scouting done for IADS’ members of up-and-coming brands. Some findings were:

• In skin care: Topicals, Dieux, Cosmoss, Haeckels, Earth Library and Herbar

• In makeup: Stryx, Isamay Beauty, Youthforia, Eclo Beauty and 19/99

• In hair care: Fur, Oway, La Bonne Brosse, Make My Mask and Everist

• In fragrance: Non Fiction, the Nu Co, Costa Brazil, Les Eaux Primordiales and Aer

• In other categories: V Vardis, Sentara Holistic, Miyé and Gaesk.

Within the department stores’ overall beauty business, the skin care segment represented 34 percent on average and was bolstered by the demand for wellness-related and green/clean products. Department stores jumped on the trend, with Galeries Lafayette on Paris’ Boulevard Haussmann opening its massive Wellness Galerie on a below-ground floor. El Palacio de Hierro in Mexico launched the Origen multibrand space focused on wellness and green beauty. Switzerland’s Manor gave clean beauty product more visibility in-store and online, while in Hong Kong, Sogo’s new Kai Tak store, to open at the end of this year, will target younger consumer and give space to wellness and green brands.

IADS said beauty services are performing well in department stores and that their wellness offer can be boosted by products in the sexual wellness and tech beauty categories.

“Building a captive customer base is critical in the beauty market,” said IADS. “To compete with retailers such as Sephora, developing a loyalty program dedicated to beauty – a sort of ‘beauty club’ – could make a difference. Those that already have a beauty-specific loyalty program note that customers are buying way more than the regular ones.”

Beauty-dedicated social media accounts, on the likes of Instagram and TikTok, are also an efficient way to grow business, according to IADS.

It bills itself as the only expert body specializing in the department stores retail format worldwide. IADS’ permanent members include Centro Beco in Venezuela, Boyner in Turkey, Chalhoub in the United Arab Emirates, Galeries Lafayette in France, Lifestyle International Holding in Hong Kong and The Mall Group in Hong Kong.

The members represent more than 27 billion euros in cumulated annual sales generated through more than 380 stores, with 147,000 associates in 20 countries.

Bank of Israel’s intervention comes after currency slides to seven-year low against US dollar

The Bank of Israel said on Monday it planned to sell up to $30bn of dollar reserves to support the shekel after the market fallout from Hamas’s attacks on the country pushed the currency to a seven-year low.

The shekel fell more than 2 per cent against the dollar to its weakest level since 2016, before recovering slightly to trade 1.8 per cent lower at Shk3.9155 following the central bank’s announcement.

The central bank, which has about $200bn of foreign currency reserves, said it wanted to “moderate volatility in the shekel exchange rate and to provide the necessary liquidity for the continued proper functioning of the markets”.

As well as the $30bn programme, the Bank of Israel said it would provide liquidity to the market of up to $15bn through swap agreements.

“We think it is unlikely that we will see a massive sell-off in the currency because the central bank has ample reserves to keep it stable,” said Kaspar Hense, senior portfolio manager at RBC BlueBay Asset Management.

The move follows one of the deadliest attacks on Israel for decades. Israel’s prime minister Benjamin Netanyahu declared that the country was “at war” after Hamas sent militants across the border from Gaza, killing hundreds of Israelis and taking others captive.

The shekel had already been one of the worst-performing major currencies this year, down 9.8 per cent against the dollar, fuelled by investors’ concerns over the government’s efforts to weaken the power of the judiciary. Analysts said a widening budget deficit could also push the currency lower.

“We believe one important implication from the latest conflict is a possible deterioration in an already uncertain Israeli fiscal outlook,” said analysts at Citi, who said they now see “downside risk” to their forecast of a 2.5 per cent budget deficit in 2024.

Israel’s dollar bonds suffered some of the heaviest losses among emerging markets. Its 2120 “century bond” suffered its biggest ever daily decline of 4.6 cents on the dollar to 64.9 cents, the lowest level since the bond was sold in 2020. Trading was limited on Monday owing to a market holiday in the US.

“We don’t see a reason why you would be long Israel’s currency or bonds,” said Hense. “There is high geopolitical risk.”

Israel’s benchmark TA-35 stock index extended losses on Monday, trading 1.2 per cent lower. On Sunday the index fell 6.2 per cent, its biggest daily loss in almost three years.

The fallout extended to markets across the Middle East, with Dubai’s benchmark index of 20 stocks down 2.9 per cent.