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Spotify saves millions by direct listing on Wall Street

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Daniel Ek, the chief executive of streaming service Spotify, is clearly a master of understatement.

In a blog published ahead of the company’s stock market flotation today, he warned employees and customers: “I have no doubt there will be ups and downs.”

That is certainly likely to be the case in shares of this business. Markets are choppy enough right now, particularly in shares of technology companies, following Donald Trump’s recent public sabre-rattling against the likes of Amazon.

And Spotify is taking things one step further with a very unorthodox approach to floating on the stock market.

Normally with an Initial Public Offering (IPO), companies coming to market hire investment banks to advise on the process, organise a roadshow with would-be investors and help market the shares.

Crucially, these banks also “underwrite” the offer, meaning that they agree – at a price – to buy any shares that go unsold at the flotation. This ensures that there is stability in the market when the shares begin trading.

In the case of Spotify, it has opted for a so-called “direct listing”. It has hired Goldman Sachs, Morgan Stanley, and the boutique investment bank Allen & Company as financial advisers. But they will not be underwriting the issue as there are no new shares being sold.

The shares will simply float on the New York Stock Exchange, with no banks to mop up any excess stock, no-one to set the share price via the underwriting process and no-one to allocate shares to investors.

This approach will save Spotify tens of millions of dollars in fees. But it could mean trading in the shares will be exceptionally volatile as a result. The shares will simply find their own price, depending on how many buyers and sellers there are, while it could take some time for a price even to be established.

NEW YORK - SEPTEMBER 16:  A Wall St. sign next to the New York Stock Exchange (NYSE) September 16, 2008 in New York City. U.S. stocks continued to drop Tuesday morning for the second consecutive day, following Monday`s loss of 4.4%,  its worst single day loss since 2001.  (Photo by Spencer Platt/Getty Images)
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Spotify has taken an unorthodox approach for its Wall Street debut

There’s also another significant difference between Spotify’s direct listing and the traditional IPO approach.

Under the latter, existing shareholders and “insiders”, such as executives, are usually subject to a lock-in period during which they are restricted from selling shares, typically for 180 days.

This is to prevent the market being flooded with shares, but will not apply in this instance. Mr Ek, who owns 25.7% of the company, will be free to sell from the get-go, as will Martin Lorentzon, his co-founder, who owns 13.2%.

So there are a lot of reasons why trading in these shares will be more choppy than usual.

Yet there are very good reasons why Spotify has taken this approach.

The first, most obviously, is to save money.

The second is that Spotify does not need to raise any new capital – the IPO is merely a way of letting existing shareholders sell some shares.

The third is that, as this is a business well-understood by the public, there is no need to put on roadshows marketing Spotify to investors.

And a fourth is that there is likely to be significant demand from retail investors, mainly subscribers and fans of Spotify, who will take the view that they will want to own shares in it at any price.

Spotify can legitimately argue that, for once, such investors are being allowed to buy its shares on a level playing field alongside the big battalions of institutional investors on Wall Street and in the City.

The market professionals, due to their close relationships with the underwriters, invariably get in first.

Spotify can also point to some of the more volatile stock market debuts endured by other tech companies.

Shares of Snap, the company behind Snapchat, flew to a 44% premium on the day they came to market in March last year. By July, though, they were trading at a discount to their IPO price.

Blue Apron, a meal kit maker that came to market in June last year, is another flopperoo. Its shares are down 80% from the IPO price.

Both had come to market via the traditional IPO route and could be forgiven, given the subsequent turbulence in their shares, for asking what they paid the investment banks advising on the IPO all that money to do.

And, having looked at those examples, Spotify might legitimately ask how much worse it can do.

For that reason, even though they will not profit greatly from this IPO, Wall Street’s major investment banks have much riding on it.

The likes of Uber and AirBnB, too, will be watching closely. They are thinking of coming to market and, as tech companies with a high profile similar to that of Spotify, may be tempted to go down the same route if they see the Swedish company get away with it.

Ironically, this is one instance where an element on Wall Street will be delighted to see a company coming to market and suffering a big drop in its shares.

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Ireland’s health service shuts down IT systems over ‘significant ransomware attack’ | World News

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Ireland’s health service has closed down its computer systems after what it described as a “significant ransomware attack”.

The Republic’s Health Service Executive (HSE) said it had shut down its entire IT network as a “precaution.”

It said COVID-19 vaccinations were not affected by the attack.

“There is a significant ransomware attack on the HSE IT systems,” the HSE said on Twitter.

“We have taken the precaution of shutting down all our IT systems in order to protect them from this attack and to allow us fully assess the situation with our own security partners.”

It added: “We apologise for inconvenience caused to patients and to the public and will give further information as it becomes available.

“Vaccinations not affected are going ahead as planned.”

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Israeli ground forces launch attacks on Gaza as fighting worsens | World News

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Israeli ground forces began launching attacks on Gaza in a widening of hostilities as Israel braced for more internal strife between its Arab and Jewish citizens following Friday prayers.

The Israeli military said air and ground forces were firing at the Hamas-run enclave, though it does not appear to mean the start of a ground invasion, with Sky News witnessing troops launching artillery and tank rounds from Israel’s side of the border.

“I said we would extract a very heavy price from Hamas,” Prime Minister Benjamin Netanyahu said in a videotaped statement. “We are doing that, and we will continue to do that with heavy force.”

Streaks of light are seen as Israel's Iron Dome anti-missile system intercept rockets launched from the Gaza Strip towards Israel, as seen from Ashkelon, Israel May 12, 2021. REUTERS/Amir Cohen
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Israel’s Iron Dome anti-missile system has intercepted many of the rockets launched from the Gaza Strip

Thousands of Israeli forces along with tanks, armoured vehicles and artillery are massing along the frontier with Gaza, preparing to push inside if given the order, in what would be a hugely significant escalation.

Unperturbed, Palestinian militants continued to launch rockets from the strip towards Israel into Friday morning.

At least 109 Palestinians have died since the exchanges began on Monday, including 28 children and 15 women, according to Gaza’s health ministry. Palestinian militants have said 20 of their fighters are among the dead, though Israeli officials said this figure is much higher.

Almost half of the deaths happened on Thursday – the deadliest day so far.

On the Israeli side, seven people have been killed, including two children and a soldier.

But this is a crisis on many fronts, as decades of Israeli-Palestinian trauma erupt into clashes on the streets of many towns and cities inside Israel – with Arabs and Jews, who had lived together peacefully, turning on each other, prompting warnings of a risk of civil war.

Synagogues have been attacked, cars torched and individuals beaten up by mobs in the worst internal violence in decades.

New protests could erupt following Friday prayers, with al Aqsa Mosque in Jerusalem’s Old City a potential flashpoint.

It was at this walled compound – one of the most sacred sites in Islam, which is also revered by Jews and Christians – that violence between Israeli police and Palestinian protesters on Monday sparked the first volley of rockets from Gaza into Israel that ignited the wider crisis.

A Palestinian boy looks at ruins of buildings which were destroyed in Israeli air strikes in the northern Gaza Strip. Pic:  Majdi Fathi/NurPhoto/Shutterstock
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The blockaded strip is home to some two million Palestinians who have no means to flee. Pic: Majdi Fathi/NurPhoto/Shutterstock

There is of course a regional dimension as well.

On Thursday night, three rockets were fired towards Israel from Lebanon. They landed harmlessly in the Mediterranean Sea in what appears to have been a show of solidarity with Gaza by Palestinian groups in Lebanon rather than the start of a separate offensive.

With so much at stake, frantic diplomatic efforts are underway to try to broker a ceasefire.

Egyptian officials have been speaking with both sides as have officials from the United Nations. The US has dispatched a senior diplomat to the region and Russian President Vladimir Putin has added his voice to those calling for both sides to de-escalate.

In Washington, President Joe Biden said he spoke with Prime Minister Netanyahu about calming the fighting but also backed the Israeli leader by saying “there has not been a significant overreaction”.

He said the goal is to “get to a point where there is a significant reduction in attacks, particularly rocket attacks that are indiscriminately fired into population centres”, and called the effort “a work in progress”.

The UN Security Council is due to hold its first public session on the situation on Sunday after the US objected to an open session on Friday, apparently wanting to give diplomacy a little longer to have an effect.

However, with bombardments between the two sides – unprecedented in their intensity – entering their fifth day, there is no obvious sign that diplomacy is cooling heads.

The Israel Defence Forces has hit close to 1,000 targets in Gaza, including multi-storey buildings, rocket launch sites and individual Hamas military commanders. But this blockaded strip of territory is also home to some two million Palestinians who have no means to flee.

Overnight, masses of red flames illuminated the skies as deafening blasts from the outskirts of Gaza City jolted people awake.

The strikes were so strong that people inside the city, several miles away, could be heard screaming in fear, according to the AP news agency.

At the same time, Hamas and Islamic Jihad, a fellow Palestinian militant group, have fired close to 2,000 rockets towards Israel. Many were shot down by the country’s air defence system but some have penetrated deep into Israeli territory, including the commercial capital of Tel Aviv, sending families racing into shelters.

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Fresh uncertainty for UK tourists as Portugal extends ‘state of calamity’ until 30 May | UK News

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Britons hoping for a holiday in Portugal when travel restrictions lift next week are facing fresh uncertainty after the country extended its “state of calamity”.

The second-highest level of alert is going to remain in place until 30 May at the earliest, almost two weeks after the country is added to a “green list” of destinations where holidaymakers can go without having to isolate on their return.

Portugal would have been one of the few options for travellers seeking a quick sunny break, as many of the other countries on the “green list” are either closed to tourists, too cold, or too remote.

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Portugal would have been one of the few options for sun-seeking British tourists

Other popular hotspots such as Greece, Italy, Spain and France are on the amber list, requiring 10 days of isolation and two COVID-19 tests on return to the UK.

The new restrictions cast a shadow over the Champions League final between Manchester City and Chelsea that is due to take place in Porto on 29 May – an event that has already been moved from Turkey, which is on the red list.

When asked whether restrictions on travel from the UK would be lifted, Portuguese Cabinet office minister Mariana Vieira da Silva said she had “no information to give yet”.

In comments reported by the BBC, she said: “Work is going on and as soon as there is a decision it will be announced, but no decision was taken in this cabinet meeting.”

She said British fans could still come to see the football game but they would need to fly on charter planes, arriving and leaving on the same day.

On Thursday, the world’s largest travel firm warned it may be forced to cancel holiday flights to Portugal, just as the UK allows them again, because of a continuing EU ban on non-essential travel from countries outside the bloc.

TUI, which told Sky News earlier this week that people were giving up on booking a break abroad because of a lack of clarity on the rules, said holidays could not happen unless “borders are open”.

The “state of calamity” means non-residents of Portugal can only enter if their travel is essential, a COVID test is required within 72 hours of departure, and even those with a negative result can still be refused permission to board a flight or be made to quarantine in government-approved accommodation on arrival.

It is understood the UK government has been speaking with Portuguese representatives this week about unlocking travel between the two countries.

The government is also talking to the European Commission about how to safely reopen travel on the continent, the PA news agency understands.

Portugal has reported 840,929 cases of COVID-19, with 16,999 deaths.

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