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Credit Suisse and UBS to Merge

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2 years ago

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Credit Suisse and UBS have entered into a merger agreement on Sunday following the intervention of the Swiss Federal Department of Finance, the Swiss National Bank and the Swiss Financial Market Supervisory Authority FINMA (FINMA). UBS will be the surviving entity upon closing of the merger transaction. Under the terms of the merger agreement all shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse. Until consummation of the merger, Credit Suisse will continue to conduct its business in the ordinary course and implement its restructuring measures in collaboration with UBS. The Swiss National Bank will grant Credit Suisse access to facilities that provide substantial additional liquidity. On March 19, 2023, Swiss Federal Department of Finance, the Swiss National Bank and FINMA have asked Credit Suisse and UBS to enter into the merger agreement. Pursuant to the emergency ordinance which is being issued by the Swiss Federal Council, the merger can be implemented without approval of the shareholders. The consummation of the merger remains subject to customary closing conditions.

Credit Suisse and UBS have entered into a merger agreement on Sunday with UBS being the surviving entity. After negotiations that took place during the weekend leading up to the signing of the merger agreement, UBS and Credit Suisse concluded that it would be in the best interest of their shareholders and their stakeholders to enter into the merger. This move comes after the Swiss Federal Department of Finance, the Swiss National Bank and FINMA asked both companies to conclude the transaction to restore necessary confidence in the stability of the Swiss economy and banking system.

The merger transaction provides for the following key terms:

All shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse as merger consideration. This exchange ratio reflects a merger consideration of CHF 3 billion for all shares in Credit Suisse.

The merger transaction remains subject to customary closing conditions. Both parties are confident that all conditions can be met. The merger is expected to be consummated by end of 2023 if possible.

The Swiss National Bank will grant Credit Suisse access to facilities that provide substantial additional liquidity.

For the purpose of a seamless integration of Credit Suisse into UBS, UBS is expected to appoint key personnel to Credit Suisse as soon as legally possible.
Credit Suisse continues to operate in the ordinary course of business and implement its restructuring measures in collaboration with UBS.
UBS has expressed its confidence that the employment of the staff of Credit Suisse will be continued.

On Sunday, Credit Suisse has been informed by FINMA that FINMA has determined that Credit Suisse’s Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion will be written off to zero.

In consideration of the unique circumstances affecting the Swiss economy as a whole, the Swiss Federal Council is issuing an emergency ordinance (Notverordnung) tailored to this particular transaction. Most importantly, the merger will be implemented without the otherwise necessary approval of the shareholders of UBS and Credit Suisse to enhance deal certainty.

Axel P. Lehmann, Chairman of the Board of Directors of Credit Suisse said: “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome. This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome.”

Credit Suisse

Credit Suisse is one of the world’s leading financial services providers. The bank’s strategy is built on its leading Wealth Management and Swiss Bank franchises, with strong Asset Management as well as Markets capabilities. Credit Suisse seeks to follow a balanced approach to wealth management, aiming to capitalize on both the large pool of wealth within mature markets as well as the significant growth in wealth in Asia Pacific and other emerging markets, while also serving key developed markets with an emphasis on Switzerland. The bank employs more than 50,000 people. The registered shares (CSGN) of Credit Suisse are listed in Switzerland and, in the form of American Depositary Shares (CS), in New York. Further information about Credit Suisse can be found at www.credit-suisse.com.

Cautionary statement regarding forward-looking information

This document contains statements that constitute forward-looking statements. In addition, in the future we, and others on our behalf, may make statements that constitute forward-looking statements. Such forward-looking statements may include, without limitation, statements relating to the following:

our statements as to the proposed transaction between Credit Suisse and UBS;
our plans, targets or goals;
our future economic performance or prospects;
the potential effect on our future performance of certain contingencies; and
assumptions underlying any such statements.

Words such as “may,” “could,” “achieves,” “believes,” “anticipates,” “expects,” “intends” and “plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We do not intend to update these forward-looking statements.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other outcomes described or implied in forward-looking statements will not be achieved. We caution you that a number of important factors could cause results to differ materially from the plans, targets, goals, expectations, estimates and intentions expressed in such forward-looking statements. Additionally, many of these factors are beyond our control.

These factors include, but are not limited to:

  • the consummation of the proposed transaction between Credit Suisse and UBS, and the timing and implementation thereof;
  • the ability to maintain sufficient liquidity and access capital markets;
  • market volatility, increases in inflation and interest rate fluctuations or developments affecting interest rate levels;
  • the ongoing significant negative consequences, including reputational harm, of the Archegos and supply chain finance funds matters, as well as other recent events, and our ability to successfully resolve these matters;
  • the impact of media reports and social media speculation about our business and its performance;
  • the extent of outflows of deposits and assets or future net new asset generation across our divisions;
  • our ability to improve our risk management procedures and policies and hedging strategies;
  • the strength of the global economy in general and the strength of the economies of the countries in which we conduct our operations, in particular, but not limited to, the risk of negative impacts of COVID-19 on the global economy and financial markets, Russia’s invasion of Ukraine, the resulting sanctions from the US, EU, UK, Switzerland and other countries and the risk of continued slow economic recovery or downturn in the EU, the US or other developed countries or in emerging markets in 2023 and beyond;
  • the emergence of widespread health emergencies, infectious diseases or pandemics, such as COVID-19, and the actions that may be taken by governmental authorities to contain the outbreak or to counter its impact;
  • potential risks and uncertainties relating to the severity of impacts from the COVID-19 pandemic, including potential material adverse effects on our business, financial condition and results of operations;
  • the direct and indirect impacts of deterioration or slow recovery in residential and commercial real estate markets;
  • adverse rating actions by credit rating agencies in respect of us, sovereign issuers, structured credit products or other credit-related exposures;
  • the ability to achieve our strategic initiatives, including those related to our targets, ambitions and goals, such as our financial ambitions as well as various goals and commitments to incorporate certain environmental, social and governance considerations into our business strategy, products, services and risk management processes;
  • our ability to achieve our announced comprehensive new strategic direction for the Group and significant changes to its structure and organization;
  • our ability to successfully implement the divestment of any non-core business;
  • the future level of any impairments and write-downs resulting from strategy changes and their implementation;
  • the ability of counterparties to meet their obligations to us and the adequacy of our allowance for credit losses;
  • the effects of, and changes in, fiscal, monetary, exchange rate, trade and tax policies;
  • the effects of currency fluctuations, including the related impact on our business, financial condition and results of operations due to moves in foreign exchange rates;
  • geopolitical and diplomatic tensions, instabilities and conflicts, including war, civil unrest, terrorist activity, sanctions or other geopolitical events or escalations of hostilities, such as Russia’s invasion of Ukraine;
  • political, social and environmental developments, including climate change and evolving ESG-related disclosure standards;
  • the ability to appropriately address social, environmental and sustainability concerns that may arise from our business activities;
  • the effects of, and the uncertainty arising from, the UK’s withdrawal from the EU;
  • the possibility of foreign exchange controls, expropriation, nationalization or confiscation of assets in countries in which we conduct our operations;
  • operational factors such as systems failure, human error, or the failure to implement procedures properly;
  • the risk of cyber attacks, information or security breaches or technology failures on our reputation, business or operations, the risk of which is increased while large portions of our employees work remotely;
  • the adverse resolution of litigation, regulatory proceedings and other contingencies;
  • actions taken by regulators with respect to our business and practices and possible resulting changes to our business organization, practices and policies in countries in which we conduct our operations;
  • the effects of changes in laws, regulations or accounting or tax standards, policies or practices in countries in which we conduct our operations;
  • the discontinuation of LIBOR and other interbank offered rates and the transition to alternative reference rates;
  • the potential effects of changes in our legal entity structure;
  • competition or changes in our competitive position in geographic and business areas in which we conduct our operations;
  • the ability to retain and recruit qualified personnel;
  • the ability to protect our reputation and promote our brand;
  • the ability to increase market share and control expenses;
  • technological changes instituted by us, our counterparties or competitors;
  • the timely development and acceptance of our new products and services and the perceived overall value of these products and services by users;
  • acquisitions, including the ability to integrate acquired businesses successfully, and divestitures, including the ability to sell non-core assets; and
  • other unforeseen or unexpected events and our success at managing these and the risks involved in the foregoing.
  • We caution you that the foregoing list of important factors is not exclusive. When evaluating forward-looking statements, you should carefully consider the foregoing factors and other uncertainties and events, including the information set forth in “Risk factors” in I – Information on the company in our Annual Report 2022.

Important Information

This announcement does not constitute an offer of securities for sale, or a solicitation of an offer to purchase or subscribe for, any securities in the United States and does not constitute an offer or invitation to subscribe for or purchase any securities in any country or in any other jurisdiction where to do so might constitute a violation of the local securities laws or regulations of such jurisdiction.

Investors and others should note that we announce important company information (including quarterly earnings releases and financial reports as well as our annual sustainability report) to the investing public using press releases, SEC and Swiss ad hoc filings, our website and public conference calls and webcasts. We also routinely use our Twitter account @creditsuisse (https://twitter.com/creditsuisse), our LinkedIn account (https://www.linkedin.com/company/credit-suisse/), our Instagram accounts (https://www.instagram.com/creditsuisse_careers/ and https://www.instagram.com/creditsuisse_ch/), our Facebook account (https://www.facebook.com/creditsuisse/) and other social media channels as additional means to disclose public information, including to excerpt key messages from our public disclosures. We may share or retweet such messages through certain of our regional accounts, including through Twitter at @csschweiz (https://twitter.com/csschweiz) and @csapac (https://twitter.com/csapac). Investors and others should take care to consider such abbreviated messages in the context of the disclosures from which they are excerpted. The information we post on these social media accounts is not a part of this document.

Disclaimer

This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Any reference to past performance is not necessarily a guide to the future. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof.

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Businessuite News24 International

FedEx’s Bold Move To Spin-off Freight Division Signals Strategic Shift in Logistics

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2 days ago

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December 20, 2024

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“FedEx shares are jumping 8.6% in premarket trading after the company said it plans to spin off its freight division into a separate publicly traded company in a deal that will streamline the parcel giant.” Bloomberg.com

FedEx shares surged 8.6% in premarket trading following the company’s announcement that it would spin off its freight division into a separate publicly traded entity. This ground-breaking decision marks a major shift in FedEx’s strategy as it seeks to streamline its operations and sharpen its focus on parcel delivery services, while allowing the new freight entity to pursue its own growth path.

As the logistics industry continues to evolve amid growing competition from e-commerce giants and global supply chain disruptions, FedEx’s move reflects a broader trend of corporate restructuring aimed at unlocking value for shareholders and enhancing operational efficiencies.

FedEx: A Legacy of Innovation and Growth

Founded in 1971 by Frederick W. Smith, FedEx revolutionized the logistics industry with its pioneering overnight delivery service. Over the decades, the company expanded its portfolio through a series of acquisitions, including the purchase of American Freightways in 1998, which became FedEx Freight, and the integration of TNT Express in 2016, helping the company solidify its international footprint.

Today, FedEx is a global logistics behemoth, offering a wide range of services spanning express parcel delivery, freight services, and e-commerce solutions, with annual revenues surpassing $90 billion.

Despite its success, FedEx has faced mounting pressure in recent years from increased competition, rising fuel costs, and changing customer expectations. The COVID-19 pandemic only accelerated these challenges, highlighting the growing importance of e-commerce and fast delivery services, as well as the need for enhanced operational agility. In response, FedEx has been focusing on restructuring its business model, optimizing its supply chain, and embracing new technologies to stay ahead of the curve.

The decision to spin off its freight division marks the latest chapter in this ongoing evolution.

The Spin-Off: A Strategic Move to Streamline and Enhance Focus

The decision to separate FedEx’s freight division is a strategic one aimed at unlocking value for both the parent company and the new spinoff entity. FedEx’s freight business, which includes ground and less-than-truckload (LTL) services, has been a significant contributor to the company’s overall revenue. However, the division has faced operational challenges, including rising labour costs and supply chain inefficiencies, which have sometimes resulted in underperformance relative to the company’s express parcel services.

By creating a standalone, publicly traded company, FedEx aims to achieve several key benefits:

  1. Unlocking Value for Shareholders: The spin-off allows the freight division to operate independently, enabling it to pursue its own growth strategy and unlock shareholder value. For investors, this creates a more straightforward opportunity to invest in the segment they find most appealing, whether that be parcel services or freight logistics.
  2. Greater Operational Focus: FedEx has long been a diversified logistics company, but separating the freight business from its parcel division will allow both entities to concentrate on their core operations. The parcel division can continue its focus on global e-commerce growth, while the freight business can double down on industrial and B2B logistics.
  3. Increased Flexibility: A separate freight company can more effectively tailor its offerings to meet the needs of its specific customer base. This could include expanding its LTL network, improving last-mile delivery, or exploring new technologies such as autonomous trucks and electrification.
  4. Boosting Shareholder Confidence: Investors have often expressed concerns about the complexity of FedEx’s sprawling operations. A clear separation of its various business units should make the company’s financials easier to analyze, thereby boosting investor confidence and potentially driving up stock prices.

The Future of the Freight Division: Competing in an Evolving Market

While the new freight division will be operating independently, it will retain many of the key advantages that made it an integral part of FedEx’s global supply chain. The freight industry, particularly LTL logistics, continues to grow as e-commerce drives demand for more flexible and efficient shipping solutions. The spin-off gives the new company a stronger platform to compete in this dynamic environment.

  1. LTL and Freight Services: The U.S. freight industry, valued at over $1 trillion annually, is undergoing significant transformation as companies invest in better technology, more efficient distribution systems, and sustainability. The freight spinoff could focus on expanding its LTL capabilities, which have proven to be a growing market segment in recent years. Innovations in digital freight matching and automated supply chains will allow the new entity to compete more effectively with companies like XPO Logistics and J.B. Hunt.
  2. Autonomous and Electric Trucks: As the logistics industry increasingly looks toward electrification and automation, the freight division could capitalize on emerging technologies such as autonomous trucks and electric delivery vehicles. Companies like TuSimple and Embark Trucks are leading the charge in autonomous freight, while firms like Tesla are pushing forward with electric truck prototypes. FedEx Freight could become a key player in this space by integrating these technologies into its operations, helping it maintain a competitive edge.
  3. Last-Mile Logistics and Supply Chain Optimization: With the growth of e-commerce, last-mile logistics has become a critical battleground in the freight industry. The new company could focus on streamlining last-mile delivery, offering faster and more cost-efficient services, while leveraging FedEx’s global network for greater reach.

Strategic Responses from UPS, Amazon, and Other Competitors

The spin-off of FedEx’s freight division will undoubtedly stir competitive responses from rivals, including UPS, Amazon, and other key players in the logistics and transportation industry. Each of these companies has been heavily investing in its own logistics infrastructure, and the separation of FedEx’s freight business will present both challenges and opportunities.

  1. UPS: As FedEx’s largest competitor in the parcel and freight space, UPS will likely see the spin-off as an opportunity to consolidate its own position in the market. UPS has been aggressively expanding its ground operations and focusing on automation, but it will need to accelerate efforts in areas like LTL shipping and cross-border logistics to stay competitive with FedEx Freight.
  2. Amazon: The e-commerce giant continues to disrupt traditional logistics players with its vast delivery network and technology-driven approach. With Amazon’s growing focus on logistics and its own freight delivery capabilities, the spin-off could signal an opportunity for Amazon to capitalize on any potential operational weaknesses in the separated FedEx freight business. Amazon is also investing heavily in its own fleet of delivery trucks and drones, and any strategic moves by FedEx Freight will need to account for Amazon’s growing presence in the sector.
  3. Other Competitors: Companies like XPO Logistics, J.B. Hunt, and DHL will likely view the spin-off as an opportunity to gain market share. These companies have already been investing in automation, digitization, and sustainability initiatives, and they will likely use the split to adjust their own strategies, offering more competitive solutions for customers.

Conclusion: A Pivotal Moment for FedEx and the Freight Industry

The spin-off of FedEx’s freight division is a pivotal moment for the company and the logistics industry at large. While it poses challenges to competitors, it also presents FedEx with an opportunity to streamline its operations, unlock shareholder value, and enhance its focus on e-commerce growth. For the newly created freight entity, the future is filled with opportunities to innovate and compete in an increasingly tech-driven industry.

As the logistics sector continues to evolve, FedEx’s decision to separate its freight business marks an important strategic shift—one that could have far-reaching implications for the industry and for how logistics giants like UPS, Amazon, and others respond in the future.

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Honda + Nissan Is A Merger That Could Reshape the Japanese Auto Industry and Challenge Toyota

The catalyst behind this potential merger is the urgent need for both Honda and Nissan to strengthen their positions in a marketplace undergoing radical transformations.

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4 days ago

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December 18, 2024

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“Honda and Nissan are preparing to start negotiations on a possible merger, Japan’s Nikkei reported Tuesday. Such a deal—which could eventually expand to include Mitsubishi—would create an automotive rival to Toyota, effectively consolidating the Japanese auto industry into two camps. It would also provide Honda and Nissan with more resources to compete with larger peers after downsizing long-held global partnerships with other carmakers: France’s Renault for Nissan and General Motors for Honda. The move toward a merger would follow a decision by the two companies earlier this year to work together on electric vehicle batteries and software.” Bloomberg.com

In a move that could reshape the global automotive landscape, Japan’s Honda and Nissan are reportedly preparing to start negotiations for a potential merger. If successful, this deal would create an automotive giant capable of rivaling Toyota, long considered the dominant player in Japan’s automotive sector. The proposed merger, which could potentially extend to include Mitsubishi, would consolidate the Japanese auto industry into two main camps: Toyota on one side and Honda-Nissan on the other. This ambitious move signals a shift in the way automakers are rethinking their strategies in an increasingly competitive and rapidly changing market.

The catalyst behind this potential merger is the urgent need for both Honda and Nissan to strengthen their positions in a marketplace undergoing radical transformations. Both companies have seen their global partnerships evolve over the years, with Nissan’s long-standing alliance with Renault and Honda’s diminishing relationship with General Motors no longer offering the same strategic benefits they once did. With the global automotive landscape changing fast, especially due to the rise of electric vehicles (EVs), merging could provide Honda and Nissan the resources they need to compete with their much larger peers.

A Look Back: The Legacy and Performance of Honda and Nissan

Honda
Founded in 1948, Honda has grown into one of the most well-known and respected automotive brands globally. Known for its innovation in engineering, fuel efficiency, and quality manufacturing, Honda has made significant strides in both the consumer and commercial vehicle markets. The company is also renowned for its expertise in motorcycles and power equipment, diversifying its portfolio to reduce reliance on just cars. Historically, Honda has emphasized a reputation for building reliable and affordable vehicles, from the compact Civic to the larger Accord and the CR-V SUV.

However, recent years have been challenging for Honda. The company has faced intense competition from rivals like Toyota, Volkswagen, and emerging EV startups, as well as difficulties in adapting to the fast-evolving technological landscape, particularly in the realm of electric mobility. Honda’s late entry into the EV market has raised concerns among industry analysts, and while the company is making strides with its new EV models like the Honda Prologue, it has still not reached the level of electrification that Toyota and others have achieved.

Nissan
Nissan’s history dates back to 1933, and the company, alongside Honda, has been a cornerstone of Japan’s automotive industry. Nissan’s strength lies in its reputation for producing reliable, innovative cars like the Nissan Altima, Sentra, and the popular Nissan Rogue SUV. Nissan made a huge splash globally with the launch of the Nissan Leaf in 2010, one of the world’s first mass-market electric vehicles. However, despite the early head start, Nissan has struggled to maintain its position as an EV leader, losing market share to competitors like Tesla, Volkswagen, and even Toyota, which has gained significant traction with its hybrid models.

Nissan’s performance has also been impacted by leadership instability, especially after the dramatic arrest of former CEO Carlos Ghosn in 2018, which led to an era of uncertainty and financial struggles. While Nissan has begun to bounce back, its ability to innovate and scale its EV production has been slower than anticipated.

Why a Merger Makes Sense

The merger of Honda and Nissan could provide several key benefits for both brands, enabling them to overcome their respective challenges and better compete with industry giants like Toyota, Volkswagen, and new EV entrants.

1. Economies of Scale
A merger would enable Honda and Nissan to pool their resources, reducing redundancies and improving cost efficiency. By combining their research and development (R&D) operations, they can share technology, manufacturing processes, and supply chains, making it easier to scale production and reduce costs for both traditional and electric vehicles. This is particularly crucial in an era of significant R&D spending, where smaller automakers can struggle to keep up with the technological arms race, particularly in areas like electric vehicle (EV) development, autonomous driving, and connected car technologies.

2. Strengthened EV Capabilities
Both Honda and Nissan have been slow to embrace the electric revolution compared to their competitors, particularly Toyota, which has pioneered hybrid and fuel-cell technologies. A merger would allow the two companies to accelerate their efforts in electric mobility, pooling their technological and production capabilities to develop competitive EV models. This could help them rival Toyota’s market leadership in hybrids and electrification, especially with Nissan’s experience in EVs and Honda’s expertise in powertrains and hybrid technology.

3. Expanding Global Reach
By merging, Honda and Nissan could significantly expand their global presence, especially in markets where Toyota currently dominates. While both companies have a strong footprint in North America and Asia, a combined entity would have the resources to challenge Toyota more effectively across these and other emerging markets. By leveraging Nissan’s stronghold in the U.S. and Honda’s success in China, the merger could result in an expanded global distribution network and a more competitive global strategy.

4. Greater Investment in Innovation and Sustainability
The automotive industry is undergoing a profound transformation toward sustainability. The shift toward EVs, coupled with increasing regulatory pressure for stricter emissions standards, means that automakers must invest heavily in new technologies and greener solutions. By combining their R&D resources, Honda and Nissan could more effectively compete with global peers like Toyota, which is already heavily invested in hybrid and hydrogen technologies. The merger would allow the combined company to innovate more quickly, adopt sustainable practices, and position themselves as leaders in the green automotive revolution.

Competing with Toyota: The Big Challenge

Toyota has long been the undisputed leader in the global automotive market, with a reputation for reliability, innovative hybrid technologies, and a deep commitment to sustainability. Toyota’s Prius has become the poster child for hybrid technology, while its push toward hydrogen fuel cells, particularly with the Toyota Mirai, demonstrates its forward-thinking approach.

For Honda and Nissan to effectively compete with Toyota, they would need to address several key areas:

  1. Accelerated EV Production: Toyota’s hybrid and hydrogen technology have given it a competitive edge, but Honda and Nissan can close the gap by investing heavily in scalable electric vehicle production. The merger would enable the two companies to streamline EV production and introduce a wider variety of vehicles, from affordable compact EVs to high-performance electric SUVs and trucks.
  2. Improved Hybrid and Autonomous Technology: Toyota has a strong lead in both hybrid and autonomous driving technologies. To catch up, Honda and Nissan must intensify their efforts in autonomous vehicle development and improve the hybrid powertrains they are currently working on.
  3. Leveraging Emerging Technologies: Toyota’s early investments in artificial intelligence, robotics, and mobility services have placed it ahead of the curve. By merging, Honda and Nissan could unite their resources to create a new, technologically advanced product line that includes smart, connected cars with cutting-edge features.

Implications for the Evolving EV Market

The proposed merger has significant implications for the rapidly evolving electric vehicle (EV) market. As automakers are under increasing pressure to electrify their fleets, the merger of Honda and Nissan would create a powerful entity capable of competing with both traditional automakers and EV startups like Tesla.

  • Consolidation of Resources: The merger would allow Honda and Nissan to pool their resources, accelerating their EV development, building more efficient manufacturing capabilities, and reducing costs. This would give them the competitive edge to produce high-quality EVs at a faster pace and lower cost.
  • Innovation in Charging Infrastructure: To effectively compete in the EV space, the merged company could also invest in charging infrastructure, a crucial factor in the widespread adoption of electric vehicles. By partnering with energy companies or building their own infrastructure, they could address one of the key barriers to EV adoption.
  • Sustainability Leadership: As the world moves toward stricter environmental regulations, a merger would provide Honda and Nissan the scale needed to invest heavily in sustainable manufacturing, renewable energy, and carbon-neutral technologies, ensuring they stay relevant in the global transition to cleaner energy.

Conclusion

A merger between Honda and Nissan could create a formidable force in the global automotive market, helping the companies better compete with Toyota and emerging EV giants. By pooling their resources and expanding their capabilities in electric vehicles, the two brands could redefine their futures in a rapidly evolving industry. With the right strategy, the combined entity could emerge as a leader in both the traditional automotive space and the rapidly growing EV market, securing their place as industry powerhouses for the next generation.

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Omnicom to Acquire Interpublic Group to Create Premier Marketing and Sales Company

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2 weeks ago

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December 9, 2024

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  • The combined company will bring together unmatched capabilities, including the industry’s deepest bench of marketing talent, and the broadest and most innovative services and products, underpinned by the most advanced sales and marketing platform
  • Together, Omnicom and Interpublic will be strongly positioned for continued growth in the new era of marketing
  • The transaction is expected to be accretive to adjusted earnings per share for both Omnicom and Interpublic shareholders

NEW YORK, December 9, 2024 – Omnicom (NYSE: OMC) and The Interpublic Group of Companies, Inc. (NYSE: IPG) (“Interpublic”) today announced their Boards of Directors have unanimously approved a definitive agreement pursuant to which Omnicom will acquire Interpublic in a stock-for-stock transaction. The combined company will bring together the industry’s deepest bench of marketing talent, and the broadest and most innovative services and products, driven by the most advanced sales and marketing platform. Together, the companies will expand their capacity to create comprehensive full-funnel solutions that deliver better outcomes for the world’s most sophisticated clients.

“This strategic acquisition creates significant value for both sets of shareholders by combining world-class, highly complementary data and technology platforms enabling new offerings to better serve our clients and drive growth,” said John Wren, Chairman & CEO of Omnicom.

Under the terms of the agreement, Interpublic shareholders will receive 0.344 Omnicom shares for each share of Interpublic common stock they own. Following the close of the transaction, Omnicom shareholders will own 60.6% of the combined company and Interpublic shareholders will own 39.4%, on a fully diluted basis. The transaction is expected to generate annual cost synergies of $750 million.

The new Omnicom will have over 100,000 expert practitioners. The company will deliver end-to-end services across media, precision marketing, CRM, data, digital commerce, advertising, healthcare, public relations and branding.

“This strategic acquisition creates significant value for both sets of shareholders by combining world-class, highly complementary data and technology platforms enabling new offerings to better serve our clients and drive growth,” said John Wren, Chairman & CEO of Omnicom. “Through this combination, we are poised to accelerate innovation and harness the significant opportunities created by new technologies in this era of exponential change. Now is the perfect time to bring together our technologies, capabilities, talent and geographic footprints to bring clients superior, data-driven outcomes. We are excited to welcome Philippe and the entire Interpublic team to the Omnicom family.”

“This combination represents a tremendous strategic opportunity for our stakeholders, amplifying our investments in platform capabilities and talent as part of a more expansive network,” said Philippe Krakowsky, Interpublic’s CEO. “Our two companies have highly complementary offerings, geographic presence and cultures. We also share a foundational belief in the power of ideas, enabled by technology and data. By joining Omnicom, we are creating a uniquely comprehensive portfolio of services that will make us the most powerful marketing and sales partner in a world that’s changing at speed. We look forward to working with John and the entire Omnicom team.”

Transaction Highlights

  • Highly complementary assets create an unmatched portfolio of services
    and products that expands client opportunities for each company on day one
  • Omnicom and Interpublic share highly complementary cultures and core values including a foundational belief in the power of ideas enabled by technology and data
  • Creates an industry leading identity solution with the most comprehensive understanding of consumer behaviors and transactions, enabling us to deliver superior outcomes for our clients at scale and speed
  • Advances our ability to continually innovate and develop new products and services, providing higher ROI on marketing spend
  • Significant free cash flow provides greater capacity for internal investments and acquisitions

 

Leadership & Governance

John Wren will remain Chairman & CEO of Omnicom. Phil Angelastro will remain EVP & CFO of Omnicom. Philippe Krakowsky and Daryl Simm will serve as Co-Presidents and COOs of Omnicom. Krakowsky will also be Co-Chair of the Integration Committee post-merger. Three current members of the Interpublic Board of Directors, including Philippe Krakowsky, will be welcomed to the Omnicom Board of Directors.

Transaction Details and Financial Profile[1]

The transaction is expected to generate $750 million in annual cost synergies and be accretive to adjusted earnings per share for both Omnicom and Interpublic shareholders. Omnicom will have an attractive pro forma financial profile:

  • Combined 2023 revenue of $25.6 billion, Adjusted EBITA of $3.9 billion and free cash flow of $3.3 billion
  • Combined 2023 revenue of 57% U.S. and 43% International
  • Strong balance sheet, commitment to investment grade rating with combined debt to EBITDA ratio of 2.1x before the benefit of synergies[2]
  • Omnicom will continue its practice for use of free cash flow: dividends, acquisitions and share repurchases
  • Both Omnicom and Interpublic will maintain their current quarterly dividend through the closing of the transaction

The stock-for-stock transaction is expected to be tax-free to both Omnicom and Interpublic shareholders and is expected to close in the second half of 2025, subject to Omnicom and Interpublic shareholder approvals, required regulatory approvals, and other customary conditions.

The combined company will retain the Omnicom name and trade under the OMC ticker symbol on the New York Stock Exchange.

Advisors

PJT Partners is serving as financial advisor to Omnicom. Latham & Watkins LLP is serving as legal advisor to Omnicom. Morgan Stanley is serving as financial advisor to Interpublic. Willkie Farr & Gallagher LLP is serving as legal advisor to Interpublic.

Conference Call

The companies will hold a conference call to discuss the transaction on Monday, December 9, 2024 at 8:30 a.m. Eastern Time. Live and archived webcasts, along with an accompanying investor presentation, will be available in the investor relations section of www.omnicomgroup.com and www.interpublic.com.

About Omnicom

Omnicom (NYSE: OMC) is a leading provider of data-inspired, creative marketing and sales solutions. Omnicom’s iconic agency brands are home to the industry’s most innovative communications specialists who are focused on driving intelligent business outcomes for their clients. The company offers a wide range of services in advertising, strategic media planning and buying, precision marketing, retail and digital commerce, branding, experiential, public relations, healthcare marketing and other specialty marketing services to over 5,000 clients in more than 70 countries. For more information, visit www.omnicomgroup.com.

About IPG

Interpublic (NYSE: IPG) (www.interpublic.com) is a values-based, data-fueled, and creatively-driven provider of marketing solutions. Home to some of the world’s best-known and most innovative communications specialists, IPG global brands include Acxiom, Craft, FCB, FutureBrand, Golin, Initiative, IPG Health, IPG Mediabrands, Jack Morton, KINESSO, MAGNA, McCann, Mediahub, Momentum, MRM, MullenLowe, Octagon, UM, Weber Shandwick and more.

FORWARD-LOOKING STATEMENTS

This communication contains certain “forward-looking statements” within the meaning of federal securities laws. Forward-looking statements may be identified by words such as “anticipates,” “believes,” “could,” “continue,” “estimate,” “expects,” “intends,” “will,” “should,” “may,” “plan,” “predict,” “project,” “would” and similar expressions. Forward-looking statements are not statements of historical fact and reflect Omnicom’s and IPG’s current views about future events. Such forward-looking statements include, without limitation, statements about the benefits of the proposed transaction involving Omnicom and IPG, including future financial and operating results, Omnicom’s and IPG’s plans, objectives, expectations and intentions, the expected timing and likelihood of completion of the proposed transaction, and other statements that are not historical facts, including the combined company’s ability to create an advanced marketing and sales platform, the combined company’s ability to accelerate innovation and enhance efficiency through the transaction, and the combined company’s plan on future stockholder returns. No assurances can be given that the forward-looking statements contained in this communication will occur as projected, and actual results may differ materially from those projected. Forward-looking statements are based on current expectations, estimates and assumptions that involve a number of risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, without limitation, the ability to obtain the requisite Omnicom and IPG stockholder approvals; the risk that Omnicom or IPG may be unable to obtain governmental and regulatory approvals required for the proposed transaction (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the proposed transaction); the risk that an event, change or other circumstance could give rise to the termination of the proposed transaction; the risk that a condition to closing of the proposed transaction may not be satisfied; the risk of delays in completing the proposed transaction; the risk that the businesses will not be integrated successfully or that the integration will be more costly or difficult than expected; the risk that the cost savings and any other synergies from the proposed transaction may not be fully realized or may take longer to realize than expected; the risk that any announcement relating to the proposed transaction could have adverse effects on the market price of Omnicom’s or IPG’s common stock; the risk of litigation related to the proposed transaction; the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; the diversion of management time from ongoing business operations and opportunities as a result of the proposed transaction; the risk of adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed transaction; adverse economic conditions; losses on media purchases and production costs; reductions in spending from Omnicom or IPG clients, a slowdown in payments by such clients, or a deterioration or disruption in the credit markets; risks related to each company’s ability to attract new clients and retain existing clients; changes in client advertising, marketing, and corporate communications requirements; failure to manage potential conflicts of interest between or among clients of each company; unanticipated changes related to competitive factors in the advertising, marketing, and corporate communications industries; unanticipated changes to, or any inability to hire and retain key personnel at either company; currency exchange rate fluctuations; reliance on information technology systems and risks related to cybersecurity incidents; risks and challenges presented by utilizing artificial intelligence technologies and related partnerships; changes in legislation or governmental regulations; risks associated with assumptions made in connection with critical accounting estimates and legal proceedings; risks related to international operations; risks related to environmental, social, and governance goals and initiatives; and other risks inherent in Omnicom’s and IPG’s businesses.

All such factors are difficult to predict, are beyond Omnicom’s and IPG’s control, and are subject to additional risks and uncertainties, including those detailed in Omnicom’s annual report on Form 10-K for the year ended December 31, 2023, quarterly reports on Form 10-Q, and current reports on Form 8-K that are available on its website at https://investor.omnicomgroup.com/financials/sec-filings/default.aspx and on the SEC’s website at http://www.sec.gov, and those detailed in IPG’s annual report on Form 10-K for the year ended December 31, 2023, quarterly reports on Form 10-Q and current reports on Form 8-K that are available on IPG’s website at https://investors.interpublic.com/sec-filings/financial-reports and on the SEC’s website at http://www.sec.gov.

Forward-looking statements are based on the estimates and opinions of management at the time the statements are made. Neither Omnicom nor IPG undertakes any obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.

NO OFFER OR SOLICITATION

This communication is not intended to be, and shall not constitute, an offer to buy or sell or the solicitation of an offer to buy or sell any securities, or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made, except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.

IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC

In connection with the proposed transaction, Omnicom and IPG intend to file a joint proxy statement with the SEC and Omnicom intends to file with the SEC a registration statement on Form S-4 that will include the joint proxy statement of Omnicom and IPG and that will also constitute a prospectus of Omnicom. Each of Omnicom and IPG may also file other relevant documents with the SEC regarding the proposed transaction. This document is not a substitute for the joint proxy statement/prospectus or registration statement or any other document that Omnicom or IPG may file with the SEC. The definitive joint proxy statement/prospectus (if and when available) will be mailed to stockholders of Omnicom and IPG. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT, JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS THAT MAY BE FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT OMNICOM, IPG AND THE PROPOSED TRANSACTION.

Investors and security holders will be able to obtain free copies of the registration statement and joint proxy statement/prospectus (if and when available) and other documents containing important information about Omnicom, IPG and the proposed transaction, once such documents are filed with the SEC through the website maintained by the SEC at http://www.sec.gov. Copies of the registration statement and joint proxy statement/prospectus (if and when available) and other documents filed with the SEC by Omnicom may be obtained free of charge on Omnicom’s website at https://investor.omnicomgroup.com/financials/sec-filings/default.aspx or, alternatively, by directing a request by mail to Omnicom’s Corporate Secretary at Omnicom Group Inc., 280 Park Avenue, New York, New York 10017. Copies of the registration statement and joint proxy statement/prospectus (if and when available) and other documents filed with the SEC by IPG may be obtained free of charge on IPG’s website at https://investors.interpublic.com/sec-filings/financial-reports or, alternatively, by directing a request by mail to IPG’s Corporate Secretary at The Interpublic Group of Companies, Inc., 909 Third Avenue, New York, NY 10022, Attention: SVP & Secretary.

PARTICIPANTS IN THE SOLICITATION

Omnicom, IPG and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information about the directors and executive officers of Omnicom, including a description of their direct or indirect interests, by security holdings or otherwise, is set forth in Omnicom’s annual report on Form 10-K for the year ended December 31, 2023, including under the heading “Information About Our Executive Officers,” and proxy statement for Omnicom’s 2024 Annual Meeting of Stockholders, which was filed with the SEC on March 28, 2024, including under the headings “Executive Compensation,” “Omnicom Board of Directors,” “Directors’ Compensation for Fiscal Year 2023” and “Stock Ownership Information.” To the extent holdings of Omnicom common stock by the directors and executive officers of Omnicom have changed from the amounts reflected therein, such changes have been or will be reflected on Initial Statements of Beneficial Ownership of Securities on Form 3 (“Form 3”), Statements of Changes in Beneficial Ownership on Form 4 (“Form 4”) or Annual Statements of Changes in Beneficial Ownership of Securities on Form 5 (“Form 5”), subsequently filed by Omnicom’s directors and executive officers with the SEC.  Information about the directors and executive officers of IPG, including a description of their direct or indirect interests, by security holdings or otherwise, is set forth in IPG’s annual report on Form 10-K for the year ended December 31, 2023, including under the heading “Executive Officers of the Registrant,” and proxy statement for IPG’s 2024 Annual Meeting of Stockholders, which was filed with the SEC on April 12, 2024, including under the headings “Board Composition,” “Non-Management Director Compensation,” “Executive Compensation” and “Outstanding Shares and Ownership of Common Stock.”  To the extent holdings of IPG common stock by the directors and executive officers of IPG have changed from the amounts reflected therein, such changes have been or will be reflected on Forms 3, Forms 4 or Forms 5, subsequently filed by IPG’s directors and executive officers with the SEC. Other information regarding the participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the registration statement and joint proxy statement/prospectus and other relevant materials to be filed with the SEC regarding the proposed transaction when such materials become available. Investors and security holders should read the registration statement and joint proxy statement/prospectus carefully when it becomes available before making any voting or investment decisions.  You may obtain free copies of any of the documents referenced herein from Omnicom or IPG using the sources indicated above.

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Businessuite News24 International

Why Budget Airlines Are Struggling – And Will Pursuing Premium Passengers Solve Their Problems?

As the LCC model struggles, some budget airlines have begun exploring the idea of catering to premium passengers. This shift involves offering a more robust service package, including additional legroom, better in-flight amenities, and flexibility in ticketing—something traditionally associated with full-service airlines. But is this strategy a viable path forward, or will it merely dilute the distinctiveness of the LCC model?

Published

3 weeks ago

on

November 29, 2024

By

Introduction: The Decline of the Low-Cost Carrier (LCC) Model
For decades, the low-cost carrier (LCC) business model has been a game-changer in the aviation industry, enabling millions of travelers to fly on a budget and reshaping the way airlines approach cost structure and pricing.

Airlines such as Southwest, Ryanair, and EasyJet built empires by offering no-frills flights at lower fares, often with ancillary services and fees adding to their bottom lines. However, in recent years, many budget airlines have found themselves struggling as the model faces mounting pressure from rising costs, competition, and changing passenger expectations.

As the aviation industry begins to recover from the COVID-19 pandemic, one question arises: Can budget airlines continue to thrive in a post-pandemic world, or should they shift their focus to a more premium customer base? The idea of upgrading service offerings and pursuing more affluent passengers has gained traction among some players in the LCC space. But is this the right move? Will chasing premium customers solve the problems facing the low-cost model?

The Rise and Evolution of Budget Airlines
The origins of the budget airline model date back to the 1970s, with Southwest Airlines often credited as the first low-cost carrier. Founded in 1967 and taking off in the early 1970s, Southwest revolutionized the industry by offering simple point-to-point routes, standardized aircraft, and minimal frills. This made air travel more affordable for a broader segment of the population and set the stage for the global rise of low-cost carriers in the decades to follow.

Ryanair, founded in 1984, is another key player in the LCC space. Under the leadership of Michael O’Leary, Ryanair aggressively slashed costs by charging for extras, eliminating complimentary services, and focusing on the most profitable routes. These strategies enabled Ryanair to offer low base fares while generating significant revenues from additional fees, such as for checked bags, seat reservations, and food.

By the 1990s and 2000s, the LCC model had spread across Europe and North America, with EasyJet and other carriers joining the ranks. By 2000, LCCs represented around 30% of all European flights, and by 2010, low-cost carriers had captured about 40% of the market share in the United States as time progressed, the model started to face challenges, and a growing number of budget airlines began to struggle. What had been an industry-defining strategy was no longer as effective in a landscape marked by high fuel costs, fluctuating consumer demands, and competition from established full-service airlines that had adopted similar low-cost features.

The Struggles of the LCC Model: Rising Costs and Changing Passenger Expectations

Several factors have contributed to the struggles of budget airlines in recent years.

The first and most significant challenge has been rising operational costs. The aviation industry is heavily dependent on fuel prices, and the volatility of global oil prices has made cost forecasting a challenge for budget carriers. While LCCs historically thrived by keeping their operating costs low, recent increases in fuel prices have affected their profitability, especially as they typically do not hedge against these increases as aggressively as larger full-service airlines.

Another challenge for budget airlines is the increasing complexity of the ancillary revenue model. While extra fees for baggage, seat selection, and food have been critical to budget carriers’ profitability, passengers are growing increasingly frustrated with the “a la carte” pricing. As more passengers find themselves nickel-and-dimed for basic services, their loyalty to LCCs is weakening. Many now perceive budget airlines as offering a subpar experience, particularly when it comes to customer service, flight delays, and lack of amenities.

The post-pandemic has also revealed that travelers are willing to pay more for a better experience, particularly in the business and premium travel segments. With business travel rebounding and higher levels of disposable income in some markets, more affluent passengers are seeking out quality services and comfort. In contrast, the budget airline model—which offers limited amenities and often no flexibility—no longer seems as appealing to those looking for convenience and quality in their travel experience.

Will Pursuing Premium Passengers Solve Budget Airlines’ Problems?

As the LCC model struggles, some budget airlines have begun exploring the idea of catering to premium passengers. This shift involves offering a more robust service package, including additional legroom, better in-flight amenities, and flexibility in ticketing—something traditionally associated with full-service airlines. But is this strategy a viable path forward, or will it merely dilute the distinctiveness of the LCC model?

Case Study: JetBlue Airways

One of the most high-profile examples of a budget airline attempting to capture premium passengers is JetBlue Airways. While JetBlue has long been a low-cost carrier, it has gradually transitioned towards offering more premium services. In 2021, JetBlue introduced its “Mint” premium service on select routes, which includes lie-flat seats, gourmet meals, and access to airport lounges.

The introduction of premium service allowed JetBlue to compete with full-service airlines on select routes, particularly transcontinental and international flights. However, despite the success of the Mint service, JetBlue has been careful not to abandon its core low-cost business model. It continues to offer more affordable fare options while gradually adding premium services as an additional revenue stream.

Case Study: Ryanair’s Transformation

Ryanair, traditionally known for its extreme cost-cutting measures and no-frills service, has also made moves towards appealing to a more premium customer base. In 2021, Ryanair launched a premium offering, Ryanair Plus, which includes benefits such as extra legroom, priority boarding, and flexible ticket options. However, Ryanair has been careful to maintain its low-cost core by keeping its basic fares highly competitive.

This dual approach—where LCC’s maintain their low-cost offerings while introducing premium services for a select group of customers—has been viewed as a potential solution to the struggles facing budget airlines. The question remains whether this hybrid approach will be sustainable, especially if passengers expect the same level of service across all routes and price points.

A Comparison with Full-Service Airlines
The traditional model of full-service airlines is based on offering a wide array of services, from lounge access and in-flight entertainment to flexible ticketing and loyalty programs. These airlines have a higher cost structure but also benefit from customer loyalty and premium pricing. Airlines such as American Airlines, British Airways, and Singapore Airlines continue to cater to the premium passenger, with higher ticket prices offset by high levels of service.

For passengers, the experience of flying on a full-service airline is markedly different from that of a budget carrier. Full-service airlines generally provide better customer service, more comfortable seating, higher quality in-flight entertainment, and perks such as airport lounge access for business-class passengers. However, these services come at a premium price. In contrast, budget carriers offer a more utilitarian flying experience but are considerably cheaper for those willing to forgo the luxuries of air travel.

The key question for the future of the LCC model is whether budget airlines can maintain their identity as low-cost carriers while introducing premium offerings that will satisfy a more discerning customer base without alienating their core market of budget-conscious travelers. As airlines seek to strike a balance between these two approaches, the outcome will ultimately depend on the ability to deliver a more flexible, high-quality experience without significantly raising prices.

The Future of the Budget Airline Model
As budget airlines continue to face rising operational costs and shifting passenger expectations, many are considering shifting their focus to attract more premium passengers. Whether this strategy will succeed or dilute the appeal of the traditional low-cost model remains to be seen. However, the growing demand for enhanced services and the increasing willingness of travelers to pay for comfort presents an opportunity for budget carriers to evolve.

The future of the LCC model may lie in finding the right balance between low-cost operations and premium offerings, catering to both price-sensitive and service-oriented travelers. For the time being, the success of this hybrid model will depend on how effectively airlines can leverage technology, streamline operations, and introduce high-quality experiences while maintaining their competitive edge in pricing.

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Business Insights

Gig Economy Players Looking To External Partnerships, As They Seek New Avenues Of Growth.

Published

1 month ago

on

November 16, 2024

By

“If you did a bad job with the delivery, all the other benefits are not that attractive,” he said. “The core value proposition is: Did you have a great experience across selection, quality and affordability using the underlying product? Are you using us for restaurants and other categories? That is what is going to differentiate us.”

 

DoorDash Inc. Chief Executive Officer Tony Xu has spent the past 11 years building the company that now owns more than two-thirds of the food delivery market in the US, far exceeding Uber Eats (26%) and Grubhub (6%). The app also has a loyal user base, with more than half of DoorDash users owning a DashPass subscription, according to YipitData. More importantly, for investors, the company finally became profitable from its operations in the third quarter this year.

But Xu says building out the product is only 80% of the work to keep the company successful. The rest will come from external partnerships, a strategy that his gig economy peers, including Uber Technologies Inc., the biggest company in the industry, have also increasingly leaned on as they seek new avenues of growth.

The latest effort to boost paid subscriptions is DoorDash’s partnership with Lyft Inc. announced last month. The tie-up is an example of two brands tapping into each other’s customer base to boost engagement without having to merge or make an acquisition. Uber has a restaurant-delivery partnership with Instacart, while Amazon.com Inc’s Prime membership offers a Grubhub subscription perk.

After spending about a decade offering habit-forming services —whether it’s hopping into a stranger’s car instead of hailing a taxi, or opening a door to someone who picked up a restaurant meal and a bottle of wine from the deli down the block — these companies now have a clearer understanding of the competitive landscape. Even as diners returned to restaurants in the post-pandemic era, take-out has become such an ingrained habit that companies know getting customers into a subscription will mean more dollars and time spent on their apps.

So now it’s about finding partners strategically to build a larger system and lock in a more diverse pool of customers. Lyft CEO David Risher had earlier this year rejected the idea of his company offering food delivery on its own because that would keep people at home and exacerbate the loneliness epidemic. But he sees value in joining with the largest food delivery app because it gives millions of DoorDash members “a reason to prefer Lyft” for their rides and provides Lyft a way to compete better with Uber, which offers rideshare and delivery.

For DoorDash, which launched its membership in 2018, three years earlier than Uber, the deal offers customers Lyft discounts in addition to the existing benefit of free access to the ad-tier version of the Max streaming service. DoorDash is also getting new customers through an expanded partnership that offers certain Chase card holders a free subscription and discounted orders. These external perks have helped it maintain a lead on user penetration over the Uber One subscription. (As of September, 42% of Uber Eats users were subscribers, per YipitData. That percentage is lower if all users including rideshare customers are counted.)

Keeping subscribers isn’t easy, however. According to Bloomberg Second Measure data, only 35% of annual DashPass subscribers who made their first membership purchase in September 2023 were retained after a year. Annual subscriptions to Instacart+ show similar numbers with a 32% retention rate. (These figures do not include free trials and free subscriptions through credit card or other partnerships.) The real challenge will be finding creative ways to retain paying users, or at least keep them in the ecosystem so it’s not as costly to acquire them again.

DoorDash Chief Financial Officer Ravi Inukonda said the data doesn’t reflect how membership really works. The company has increased the flexibility it gives to accommodate consumers’ lifestyles with monthly, annual and student plans. “If you’re traveling with young kids, or you’re traveling in the summer and you want to put the program on hold, that’s completely OK with us,” he said.

These people who churn off the membership program are not leaving DoorDash, Inukonda said. And the company is confident in earning their membership back through offering more benefits in the future, as well as through the core product delivery service, which includes not just restaurant takeout, but also alcohol, grocery, makeup and even mattress deliveries.

“If you did a bad job with the delivery, all the other benefits are not that attractive,” he said. “The core value proposition is: Did you have a great experience across selection, quality and affordability using the underlying product? Are you using us for restaurants and other categories? That is what is going to differentiate us.”

After all, partners won’t matter if the main product isn’t drawing members. Case in point: Grubhub hasn’t been able to reverse a streak of losses in orders and users, ceding market share to DoorDash and Uber even as it has been offering free food delivery to hundreds of millions of Amazon Prime members since 2022. That is one of the reasons parent company Just Eat Takeaway.com NV announced this week it will be selling Grubhub to startup Wonder Group for $650 million, a steep discount to the $7.3 billion price tag at its peak during the pandemic.—Natalie Lung

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