Bershidsky on Europe: More Calls for 'Google Tax'
Here's today's look at some of the top stories on markets and politics in Europe:
Italy's biggest party calls for 'Google tax'
The center-left Democratic Party, the senior partner in Italy's ruling coalition, has proposed legislation to force Google, Facebook and other U.S.-based internet giants to pay local taxes on their Italian revenues. The measure, known as "Google tax", would make the U.S. companies collect advertising revenue though Italy-based firms rather than vehicles in low-tax countries like Luxembourg or Ireland. The legislation's sponsor, budget committee chairman Francesco Boccia expects the "Google tax" to raise about $1.35 billion a year. He joins French digital economy minister Fleur Pellerin in calling for the internet multinationals to be taxed where they make money, not where they choose. These calls may be hard to turn into workable legislation because of the nature of electronic business, but will slow the EU-U.S. free trade talks, in which two rounds are planned for the next two months.
Alcatel calls for $1.3 billion in extra capital
Money-losing French telecom equipment maker Alcatel announced a $1.3 billion capital increase, offering existing shareholders, except those in the U.S., a chance to buy eight new shares in the company for every 41 they owned at $2.83, compared to the current market rate of about $4. The company's stock is up almost 180 percent since January, and chief executive Michel Combes, who started Alcatel's turnaround last summer, is seeking to capitalize on the increased investor confidence. The diluting nature of the capital call is not likely to dampen it too much: The company's management is seen to be steering it in the right direction. Alcatel is actively cutting costs and preparing to sell off non-core assets. Strategically, however, the company would probably benefit more from an alliance, such as a link-up with Nokia after it sheds its mobile handset unit. The telecom equipment market is too competitive even for a streamlined Alcatel to be sure of survival.
BMW reported a slight drop in sales and a tiny rise in operating profit in the third quarter, saying it faced increased competition. It certainly does – from Volkswagen's luxury division, Audi, which reported its results a day earlier, posting a 17 percent drop in operating profit. The two firms are engaged in an investment race as Audi vies for first place in the premium car segment. BMW has hired 5000 workers in the past year, and Audi is investing billions of dollars in new factories in Mexico and China. Meanwhile, other competitors are gaining on BMW and Audi. Daimler, the maker of Mercedes cars, has just had an excellent quarter, reporting more profit than BMW thanks to a new product line that has made it more attractive to younger buyers. The luxury car market is turning into a gladiators' arena. As soon as the main players are done with their expansion plans, they may see intensified competition eat into their profit margins.
Ryanair issues new profit warning
Europe's leading discount airline Ryanair issued its second profit warning since early September, saying it would clear $675 million to $700 million in the year to March 31, 2014 instead of $770 million to $810 million as previously announced. Chief executive Michael O'Leary explained the company was lowering ticket prices in response to weak demand. The company's average fare will drop 4 percent in this financial year after growing steadily for the last five years. "If a couple of competitors get blown up as part of that process – well and good," O'Leary said. Price wars have repeatedly driven the traditional airline industry to the brink of collapse, and now they are starting among discounters, who have benefited from the economic crisis as passengers went bargain-hunting. It is no accident that Ryanair shares were not the only ones to drop after the profit warning: Competing on prices will not be good for the bottom lines of EasyJet, Norwegian, Vueling and other budget airlines.
Belarus game developer buys stake in Cyprus bank
Wargaming.net, the developer of the popular multiuser game World of Tanks, in which players try to annihilate each other's World War II-era tanks, has acquired a 30 percent stake in Cyprus' Hellenic Bank. The bank is not part of the bailout of the island's largest financial institutions by the EU and the International Monetary Fund, which turned bank depositors into their shareholders. Until recently, the Cyprus Orthodox Church owned a majority stake in Hellenic. Now the game developer, founded by Belarussian Viktor Kisly and working out of Minsk, Kiev in Ukraine and St. Petersburg in Russia, is a key shareholder sure to have influence on the bank's lending policies. Kisly is making Cyprus his main base of operations: His holding company, which made $316 million in sales in the first half of 2013, is also Cyprus-registered and traded. In the aftermath of the bailout, the island is basically owned by former Soviet entrepreneurs who lost money to the haircut. Add to that a favorable tax regime for technology companies and the country's EU membership, and Cyprus' attraction to an ex-Soviet tech multimillionaire becomes clear.
(Leonid Bershidsky can be reached at email@example.com).