TheChek News Flow

Mars to invest €1bn in European manufacturing as US demand slows

Consumer goods group pledges spending as EU regulators probe its proposed acquisition of Kellanova

Mars has pledged to invest €1bn into its European operations by the end of 2026 as demand for packaged foods slows in the US and the group seeks EU approval for its $35.9bn acquisition of Pop-Tarts maker Kellanova.

The family-owned group behind M&M’s and Whiskas cat food will invest in modernising its factories across the bloc, including its chocolate factory in Poland, and decarbonising its supply chain, by tackling agricultural emissions in countries such as the Netherlands.

Mars chief financial officer Claus Aagaard told the Financial Times the investments were designed to rebalance the company’s operations between Europe and the US.

“If you look at the last 10 years, a lot of growth in the [consumer packaged goods] space has come from the United States [rather than Europe],” Aagaard said. “We would really like to rebalance that . . . because the US [growth rate] is maybe a little bit slower than it has been over the last decades.”

After four years of persistently high inflation US consumers have been cutting back spending, while the snack food industry is also being challenged by the popularity of appetite-suppressing medications, such as Ozempic. Still, Aagaard said he remained confident in the long-term prospects of the American market.

Mars operates 24 factories across 10 EU countries and employs 25,000 people. Its forthcoming investment plans mark a step up from its recent spending on its European manufacturing facilities, which totals €1.5bn over the past five years.

Mars is disclosing the investments as the European Commission conducts an antitrust probe into its proposed acquisition of cereal and snack maker Kellanova, which was formed in 2023 from the break-up of the Kellogg company.

The commission, which began an in-depth probe in June over concerns the deal could result in higher prices for consumers, was set to rule on the transaction by October 31 but that deadline has been delayed until December 19.

Aagaard said there was “no direct link” between Mars’s investment plans and the investigation, but that he remained confident the deal would be approved. The deal has already been cleared by the US Federal Trade Commission.

More than half of Kellanova’s $12.7bn in revenue last year came from North America, while a fifth was from Europe.

Mars’s investments in Europe come amid heightened transatlantic tensions and criticism about the bloc’s lagging economic competitiveness relative to China and the US.

Aagaard said the company, one of the world’s largest family-owned businesses, was committed “to invest in Europe, drive innovation and do our part to drive consumer growth, which in the end drives economic growth”.

Brussels to review Corsia system and consider extending levy to long-haul flights

The world’s biggest airlines are grappling with an expected shortfall in the industry’s flagship climate scheme, as they try to fend off the risk of the EU imposing a carbon tax on long-haul flights to countries including the US. 

The pool of available credits in the scheme is running low and mostly made up of just one forest protection project — in the South American nation of Guyana.

A group of 130 countries including the US, Canada, Australia and the UK has committed to take part in a UN-backed market system to compensate for international aviation’s carbon footprint, known as Carbon Offsetting and Reduction Scheme for International Aviation (Corsia).

Airlines in these countries must either buy carbon credits or procure so-called sustainable aviation fuel — which is also in short supply — to keep net emissions at 85 per cent of a 2019 pre-pandemic peak.

Brussels is due to review next year how effective Corsia has been at encouraging EU airlines to decarbonise, and whether it should consider extending an existing carbon tax on flights inside the bloc to international flights. Any tax would likely be matched by the UK, which has outlined plans to re-link its carbon tax to the EU’s following Brexit.

Marie Owens Thomsen, senior vice-president for sustainability at the International Air Transport Association, told the Financial Times she had an “intense fear” the EU would proceed with a tax on international aviation.

This would be an “existential threat to our global industry”, like “throwing a nuclear bomb into our system”, because of the increased costs and competitive distortion. Iata represents airlines responsible for 80 per cent of global air traffic, including American Airlines and British Airways. 

Countries have been reluctant to greenlight the sale of credits from projects such as national rainforest protection under a recently finalised UN mechanism.

Governments cannot use credits to meet national climate goals once these have been used by airlines, creating a disincentive to sell them. 

As a result, MSCI Carbon Markets, part of the global rating agency, has said that nearly all its scenarios for the scheme’s first phase in 2024 to 2026 predict a shortfall of credits available for airlines to buy ahead of a deadline in January 2028. Its most pessimistic scenario puts compliance costs for participating airlines in this period at $10bn.

The reliance on just one project carries reputational risks. MSCI told clients earlier this year in a note seen by the Financial Times that it had identified material “legal” and “ethical” risks for the project, saying Guyana’s government may have overestimated the CO₂ stored in trees.

Guyana said its forest stock had been independently assessed, and that it had a long-term national commitment to keep forests standing.

MSCI also noted a complaint by Amerindian groups that they had not been consulted on the decision to issue credits linked to land they said they own.

ArtTrees, the certifying body hosted by US non-profit group Winrock International, rejected the complaint as well as later appeal in 2023. It was a “global quality benchmark” aiming to “unlock finance at scale for ambitious climate action”, it told the FT this week.

Guyana said its forest protection scheme afforded indigenous groups “genuine self-determination and direct benefit sharing”. It added that the period covered by the complaint preceded the issuance of credits eligible for Corsia.

Historically, aviation has been responsible for about 4 per cent of man-made global warming including all vapours, scientists have found, or about 2.5 per cent of annual CO₂ emissions from burning fossil fuels.

Countries will gather next week for the first assembly of the UN International Civil Aviation Organization (ICAO) agency in three years, to discuss questions that include the implementation of Corsia.

While the scheme is meant to be mandatory for all members from 2027, some including China, India, Russia and Brazil have yet to confirm they will fully take part. Others that have joined, including the US, have not yet passed domestic laws to make it mandatory.

Iata is pushing to increase the supply of credits, and to defend Corsia’s role in the industry’s climate plans.

“The global world order that has governed civil aviation, now that’s going to fall apart, and we’re all just going to go into our little layers and do what we feel like . . . that will also be to the detriment of everyone in the global economy,” Thomsen said.

Iata had called on diplomats in the EU and UK to encourage developing countries with natural carbon sinks such as rainforests to start issuing carbon credits that airlines can purchase and address the “terrifying” shortfall, Thomsen said.

The UK Department for Transport said it had confidence Corsia would become a “strong, effective tool supporting decarbonisation across the aviation sector worldwide”. The ICAO said that Corsia was on “track and providing crucial momentum” to scale up cleaner aviation fuel, cut emissions and provide a market solution.

A bigger problem, industry climate experts say, is that Corsia aims only to limit the pace of aviation growth, rather than to bring aviation emissions down to “net zero” by mid-century. Credits are much cheaper per tonne of CO₂ than the EU and the UK’s carbon tax on other polluting industries.

“Politically, it [Corsia] runs the risk of unravelling,” said Tim Johnson, director of the Aviation Environment Federation. More importantly, “it’s not getting the carbon price up — it’s in crisis for that reason alone.”

Christie’s to sell rare $50mn Hockney portrait of Christopher Isherwood

Last seen in the British artist’s Paris retrospective, the work is the first of Hockney’s celebrated double portrait series

Christie’s is to sell David Hockney’s first double portrait — his 1968 painting of the English novelist Christopher Isherwood and his younger partner, the artist Don Bachardy — and expects it to make more than $50mn in New York in November. 

The work is the first in Hockney’s celebrated series of seven double portraits produced between 1968 and 1975 — four of which reside in museum collections. The series, which captures relationships through sharp realism and the soft light that Hockney celebrated when he moved to California in 1964, is seen by many critics and collectors as the triumph of the British artist’s varied, and ongoing, career.

The glowing, vast painting — more than two metres high and three metres wide — comes to market straight after appearing in the Hockney’s largest ever exhibition, David Hockney 25, held at the Fondation Louis Vuitton in Paris this year. That show’s guest curator, Sir Norman Rosenthal, describes the Isherwood and Bachardy painting as a “masterpiece” that “encapsulates a moment in life, when they both have great histories behind and after them”.

Drenched in Santa Monica sunshine, the painting’s pared-down, geometric format harks back to art history, Rosenthal says, comparing the double portrait series to works such as Jan van Eyck’s “Arnolfini Portrait” (1434) and Thomas Gainsborough’s “Mr and Mrs Andrews” (c1750), both in London’s National Gallery. 

Hockney’s record at auction stands at $90.3mn, for his 1972 “Portrait of an Artist (Pool with Two Figures)”, a prized swimming painting also in the Paris exhibition, which sold at Christie’s in New York in 2018. A more conventional double portrait from 1969, of the New York-based curator Henry Geldzahler and his partner Christopher Scott, took the second spot when it sold for £37.7mn ($49.5mn) in London in 2019. 

The $50mn-plus price tag for the Isherwood and Bachardy painting is “the right estimate for one of the greatest double portraits”, says Katharine Arnold, Christie’s head of Post-War & Contemporary Art, Europe. She describes Hockney as an artist who “delivers in every single decade of his life and paints ordinary things in beautiful colours, making them available to everyone”. Part of Hockney’s appeal, Arnold says, is that “he is one of the greatest treasures ever to come out of Britain, while others feel he belongs to them too.” This is especially true in the US, because of his time in California, and in France, where Hockney now lives (in Normandy). The artist gets another solo showing next year when London’s Serpentine has its first Hockney exhibition, of recent paintings made on an iPad (March 12-August 23).

The work is being sold by European collectors who bought it privately after an auction at Sotheby’s in 1985 where it had been estimated around $500,000 (a then record for the artist) but failed to sell on the night. This time around, the painting has a guarantee to sell, backed by an unnamed third party. 

The consignment of the Hockney to November’s crucial season of sales adds to a gathering of good news for the struggling art market. This week, Sotheby’s said it will sell the collection of the cosmetics magnate Leonard A Lauder, expected to realise more than $400mn.

Electricity blackouts show how whole swaths of the economy can being easily knocked out by simple cyber attacks

Trains stranded in remote areas for hours, mobile networks down, schools and shops plunged into darkness — the electricity blackout that hit large parts of Spain and Portugal earlier this year had plenty of dystopian echoes.

Similar, more localised blackouts at Heathrow airport and the strategic Swedish island of Gotland have also grabbed the headlines in an era of growing anxiety over the prospect of sabotage, particularly from the likes of Russia.

But experts say there is a less appreciated but just as serious risk in the vulnerability of Europe internet networks. Any problems with them would affect most companies and their manufacturing sites, many public services, and consumers in ways many may never have considered.

“Everything is so interconnected in IT infrastructure, more than most people believe, maybe more than in electricity,” says Patrik Fältström, chief security officer at Netnod, the Swedish group owned by a non-profit foundation that runs crucial online infrastructure around the world, including internet exchanges.

Netnod is sounding the alarm, believing companies and policymakers alike need to think more seriously or risk whole swaths of the economy being easily knocked out by simple cyber attacks.

It is clear many companies are woefully prepared.

“IT was something for the entire IT department only. I didn’t realise how wrong that was until suddenly we lost everything in a cyber attack. We ran our IT pretty efficiently, which was fine — until something went wrong,” says the former chief executive of a European company hit by an attack in recent years.

The company itself was largely paralysed for days, and it took months to get fully back to normal.

A string of sabotage events recently such as the cutting of data cables (and plenty else) in the Baltic Sea and damage to mobile masts across Sweden have highlighted the issue with many politicians across Europe worrying that the region is moving into a state somewhere between war and peace.

To improve resilience for societies and business alike, it cannot be just left to each organisation to act in isolation, often procuring the internet and IT according to cost, not availability under adverse scenarios.

Governments and companies need to think more about how they keep their essential services operating, whether through attack or natural disaster.

Netnod, which runs the largest internet exchange in the Nordics, has plenty of experience of helping with infrastructure in countries involved in various conflicts.

Fältström says one of the biggest problems is that internet users — be they private sector or government — do not tend to have a plan if they lose their main service provider.

So they often they often have no backup if that provider runs into trouble.

If that happens, the issue then becomes that the users find they have dependencies in ways that many organisations do not understand — that the operation of machinery in a plant or delivery of food to the elderly is intimately linked to the internet.

And there are more systemic vulnerabilities.

In Sweden, most of the critical internet infrastructure is centralised in Stockholm with nodes leading away from it into different parts of the country. “The network in Sweden is far too dependent on Stockholm — and it’s the same in many countries,” says Fältström.

That presents an attractive target for a malign actor, aware that they can create maximum impact with relatively limited action. What is perhaps scariest is how many of society’s crucial functions — such as water, television or electricity grids themselves — who are themselves dependent on this vulnerable internet infrastructure.

Russia’s full-scale invasion of Ukraine in 2022 has slowly woken up European countries from decades of thinking there would be eternal peace. But executives and experts say the alarm has been heard more clearly in some areas than others, with defence being one obvious point.

But as the electricity blackouts show, there is a remarkable lack of thinking about societal resilience and paying extra to ensure systems work better in times of a crisis.

The logistics crisis following the Covid-19 pandemic showed companies the importance of bolstering manufacturing supply chain. Those lessons need to learned more broadly. Fältström and others worry that the next event — be it in internet infrastructure or elsewhere — could have more serious consequences.

Bank has ‘no other realistic option but to leave’ to protect its competitiveness, says co-founder of investor

Activist investor Cevian Capital has said it is “not viable” to run a large international bank from Switzerland due to new strict capital proposals, and that unless the position changes UBS would have “no other realistic option” but to leave the country.

Cevian is Europe’s largest dedicated activist investor and holds about 1.4 per cent of UBS’s shares. It added that the government proposals, which would force the bank to have as much as $26bn in extra capital, could not be meaningfully changed through lobbying efforts.

“The board has the responsibility to ensure that UBS protects its competitiveness,” Lars Förberg, Cevian’s co-founder, told the Financial Times. “Under the current proposals, it is not viable to run a big international bank from Switzerland. We therefore see no other realistic option but to leave.”

He added: “The message from the Federal Council is clear: UBS is too big for Switzerland . . . I respect the Federal Council’s decision, but I do not understand it. It cannot be undone. Lobbyists cannot change that either. That effort can be spared.”

The comments come as UBS is attempting to convince lawmakers to scale back the proposed capital changes, which the bank has called “extreme” and disproportionate.

While UBS executives want the bank’s headquarters to remain in Switzerland if they can convince parliament to reduce the proposed capital hit, they are open to the idea of leaving if the proposals do not change, according to people familiar with their thinking.

The intervention by Cevian is likely to add weight to the idea of UBS leaving Switzerland and could put pressure on the bank’s leadership to increase contingency planning.

Another top 25 Swiss investor in UBS told the FT that the lender should seriously explore moving its headquarters, while one senior executive at another Swiss bank said they believed the Swiss government should take the threat seriously.

“UBS is the largest wealth manager outside the US, with low risk. Any country would want such a bank,” Cevian’s Förberg said. If the bank were to leave, it would likely choose the US or an EU member state for its legal and regulatory headquarters, said one person familiar with the matter.

However, some analysts say that such a move would be mired in complexity and see the threat of UBS leaving as a negotiating tool in its talks with the Swiss government.

In June, the government outlined plans to force UBS to fully capitalise its foreign subsidiaries as part of a wide-ranging package of reforms to guard against another Credit Suisse-style collapse.

At the time, it said that to meet the new requirements, UBS would need to increase its common equity tier one capital by about $26bn, although the bank has put the figure closer to $24bn.

Swiss lawmakers this week also rejected a plan to delay some bank capital reforms, paving the way for the government to introduce some measures via executive order that could increase UBS’s capital requirements by $3bn.

Cevian’s stake in UBS was first disclosed at the end of 2023, less than a year after the bank acquired crosstown rival Credit Suisse in a state-orchestrated rescue. At the time, Förberg said UBS shares could be worth SFr50 — roughly double their value at the time — within three to five years if the bank closed the valuation gap to US peers.

However, UBS’s share price has risen by less than a quarter since Cevian disclosed its stake, trailing other large European banks during the same period in large part due to the uncertainty around the capital proposals.

UBS chief executive Sergio Ermotti last week said the lender wanted to “continue to operate as a successful global bank based out of Switzerland”, adding that it was “too early” to comment on what its response would be to the capital reforms.

Danish drugmaker is racing to beat arch-rival Eli Lilly to market

Novo Nordisk’s anti obesity pill has delivered almost as much weight loss as its Wegovy injectable in a new trial, as the Danish drugmaker races to beat arch-rival Eli Lilly to market with a tablet version of its blockbuster drug.

Patients taking Wegovy in pill form lost 16.6 per cent of their body weight over a 64-week phase 3 trial, just under the 17 per cent that patients taking the injection lost on average in a previous study. One in three participants taking the pill lost 20 per cent of their body weight. 

Ludovic Helfgott, Novo’s executive vice-president of product and portfolio strategy, said it was the first time that an oral and injectable weight-loss drug had been more or less at par. 

One problem with making the drug in tablet form is that the peptides — small strings of amino acids — in its active ingredient semaglutide are mostly broken down in the gut and do not make it into the bloodstream. Novo has added a compound that makes it easier for the drug to be absorbed in the stomach. 

Helfgott said the company was “increasingly convinced of the importance of an oral” to offer patients another way to take weight-loss drugs. “A few years ago it was deemed impossible to put a peptide in a pill,” he added. 

Novo has lost ground to Lilly in the key US market, while investors have become concerned that its pipeline of next generation weight-loss drugs is not as comprehensive. Its shares are down 60 per cent in the past year. 

Its obesity pill could help it win back market share. A decision on whether the US Food and Drug Administration will approve the drug is expected in the fourth quarter, whereas Lilly is slightly further behind in the process, with analysts expecting a decision from regulators next year.

Lilly has taken a different approach to its weight-loss pill, developing orforglipron from scratch with a compound it bought from Japan’s Chugai Pharmaceutical.

Results of the first major trial of orforglipron for obesity sent shares in Lilly down last month, after it reported average weight loss at the lower end of market expectations. The trial is not directly comparable to the latest Novo study.

Novo hopes that because the Wegovy pill has the same active ingredient as the injectable version, regulators and doctors will recognise the broader health benefits of both. Previous trials have found that injectable Wegovy causes a steep fall in the risk of serious cardiac events. 

Martin Holst Lange, Novo’s chief scientific officer, said semaglutide had “well established cardiovascular benefits”. 

Trial participants taking the Wegovy pill experienced similar side effects to those taking the injectable, with nausea and vomiting the most common problems.

Separately on Wednesday, Lilly published data showing orforglipron outperformed oral semaglutide for treating type 2 diabetes in a head to head trial.