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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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Donald Trump ‘has come to the realisation that NATO is very valuable’ | World News

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Donald Trump “has come to the realisation that NATO is very valuable,” the outgoing US ambassador to the alliance has told Sky News.

Kay Bailey Hutchison also said that if the US president wins a second term, he will honour the commitment demanding that all NATO countries come to the defence of another if called to.

The Article 5 commitment has only been invoked once – by the US after the 9/11 attacks.

Donald Trump attends a meeting with NATO Secretary General Jens Stoltenberg
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Donald Trump has previously criticised NATO

Speaking from Brussels, Ms Hutchison said that NATO was stronger because of the pressure Mr Trump put on the alliance early in his presidency.

“The president has been very clear that he asked our allies to step up, and they are,” she said.

“We all know that we have more to do to get the capabilities needed to become the security umbrella for our transatlantic alliance, but we are doing that.”

Mr Trump described NATO as “obsolete” shortly before taking office and threatened to withdraw the US from the transatlantic alliance if more countries didn’t meet the minimum spending requirements of 2% of GDP.

Asked how Mr Trump would react if NATO joint-spending fell as a result of financial pressures from the coronavirus pandemic, Ms Hutchinson urged members to keep to their commitments.

She said: “I don’t think we can afford to go in the other direction. We can’t afford to let a health crisis become a security crisis. If we are going to look at what our adversaries are doing, like Russia and a rising China – they’re not stopping their malign hybrid attacks; they’re not stopping the Belt and Road initiative; they’re not in any way lessening their defence capabilities.”

US NATO Ambassador Kay Bailey Hutchison looks on as she attends a session at the Fortune Global Forum event in Paris on November 18, 2019. (Photo by ERIC PIERMONT / AFP) (Photo by ERIC PIERMONT/AFP via Getty Images)
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Ms Hutchison says NATO can’t afford to go backwards

She also urged leaders to be “clear-eyed” about China “taking over port after port, including in Europe”.

“The belt and road initiative is one more area where we see China use economic power for taking assets when predatory loans cannot be repaid and we consider that malign activity,” she said.

“We’ve got to stand together and understand the importance of security is what has kept our economies strong and it will rebuild the economies when this COVID has been defeated.”

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Trump calls Germany ‘delinquent’ over NATO

On Russia, Ms Hutchison said that NATO’s actions had limited Russian behaviour, which “would have been more aggressive had we not taken that stand after Crimea”.

“We know Russia is trying to divide us with many areas of aggression,” she said.

“I think we are making a difference and the deterrence we are producing is the signal to Russia that we would like for them to become a legitimate partner, we would like to trade with Russia, we would like to have partnerships. But they would need to change their behaviour to achieve that.”

Britain's Prime Minister Boris Johnson (L) greets US President Donald Trump upon arrival for the NATO summit at the Grove hotel in Watford, northeast of London on December 4, 2019
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Prime Minister Boris Johnson greets Mr Trump at a NATO summit in the UK last December

Ms Hutchison conceded that Russia was ahead of the US in developing hypersonic missiles, but said the US would catch up.

“Certainly we are going to get the defences for all missiles that we know Russia are producing,” she said.

“We know they have built up more missiles. We have not violated the INF (Intermediate-Range Nuclear Forces) Treaty, they have. So they are ahead on those.

“But we are going to catch up and we are going to deter against all their missiles, whether intercontinental or shorter range.”

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Near-indestructible beetle is so tough it can survive being run over by a car | Science & Tech News

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The key to making stronger buildings and planes could lie in the anatomy of a crush-resistant insect that can survive being run over by a car, scientists have found.

To understand the secret behind the impressive strength of the inch-long diabolical ironclad beetle, researchers tested how much squishing it could take – and discovered it could handle about 39,000 times its own weight.

The study, led by engineers at the University of California, Irvine (UCI) and Purdue University, found the insect has two armour-like elytron that meet at a line, called a suture, which runs through the abdomen.

Native to desert habitats in Southern California, the diabolical ironclad beetle has an exoskeleton that’s one of the toughest, most crush-resistant structures known to exist in the animal kingdom. UCI researchers led a project to study the components and architectures responsible for making the creature so indestructible. Jesus Rivera / UCI
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The species is native to Southern California. Pic: Jesus Rivera/UCI

This unusual structure is layered and pieced together like a jigsaw, said Purdue civil engineer Pablo Zavattieri, who was part of a group of researchers that used CT scans to inspect the insect and run it over with a car.

The exoskeleton is thought to be one of the toughest structures known to exist in the animal kingdom.

Professor Zavattieri said that when compressed, it fractured slowly instead of snapping simultaneously.

“When you pull them apart, it doesn’t break catastrophically. It just deforms a little bit,” he said.

“That’s crucial for the beetle.

“This work shows that we may be able to shift from using strong, brittle materials to ones that can be both strong and tough by dissipating energy as they break. This beetle is super tough.”

The findings could inspire stronger structures and vehicles made with materials such as steel, plastic and plaster.

That’s because engineers currently rely on pins, bolts, welding and adhesives to hold everything together – techniques that are prone to degrading.

A cross section of the medial suture, where two halves of the diabolical ironclad beetle’s elytra meet, shows the puzzle piece configuration that’s among the keys to the insect’s incredible durability. Jesus Rivera / UCI
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The curvy line in the middle of the body is key to its strength. Pic: Jesus Rivera/UCI

Diabolical ironclad beetles are commonly found in Southern California’s woodlands and can withstand pressure such as bird pecks and animal stomps.

Other local beetles were crushed by a third of the weight it could hold, previous research had found.

The study, published in Nature, is part of an $8m project funded by the US Air Force to explore how the biology of creatures such as mantis shrimp and bighorn sheep could help develop impact-resistant materials.

Brown University evolutionary biologist Colin Donihue, who was not involved in the study, said it was the latest effort to solve human problems with secrets from the natural world.

Velcro, for example, was inspired by the hook-like structure of plant burrs, while artificial adhesives took a page from super-clingy gecko feet.

Professor Donihue said endless other traits found in nature could offer insight, saying: “These are adaptations that have evolved over millennia.”

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Coronavirus: Oxford vaccine trial will continue in Brazil after death of volunteer | World News

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The University of Oxford says it will continue its COVID-19 vaccine trial in Brazil, following the death of a volunteer.

The Brazilian health authority said on Wednesday a volunteer in the clinical trial of the potential vaccine – which has been licenced to pharmaceutical giant AstraZeneca – had died.

But the university said an independent review had revealed no safety concerns.

“Following careful assessment of this case in Brazil, there have been no concerns about safety of the clinical trial and the independent review in addition to the Brazilian regulator have recommended that the trial should continue,” a spokesman said.

Sky News has approached AstraZeneca for comment.

The volunteer, who is understood to be Brazillian, didn’t receive the vaccine, it is understood.

While, Brazilian newspaper O Globo reported that the volunteer had been given a placebo and not the trial vaccine, although this hasn’t been officially confirmed.

AstraZeneca shares turned negative and were down 1.7% after the news broke on Wednesday evening.

A spokesperson from the company said: “We cannot comment on individual cases in an ongoing trial of the Oxford vaccine as we adhere strictly to medical confidentiality and clinical trial regulations, but we can confirm that all required review processes have been followed.

The race for a vaccine

“All significant medical events are carefully assessed by trial investigators, an independent safety monitoring committee and the regulatory authorities.

“These assessments have not led to any concerns about the continuation of the ongoing study.”

AstraZeneca and Oxford University are thought to be among the front runners in a global race to produce a coronavirus jab. The UK Government have signed a deal for 100 million doses.

The vaccine is in phase 3 trials – the last stage before a drug is declared safe – in multiple countries.

In September the UK trial was paused over possible dangerous side effects but it was later restarted when the Medicines Health Regulatory Authority declared it safe to continue.

Brazil has the second deadliest outbreak of coronavirus, with more than 154,000 killed by COVID-19, following only the United States.

It is the third-worst outbreak in terms of cases, with more than 5.2 million infected, after the United States and India.

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