BusinessDay 13 Jul 2018

Friday 13 July 2018
FT FINANCIAL TIMES
C002D5556
BUSINESS DAY
A3
World Business Newspaper
Trump knows Europe needs America
more than America needs Europe
The most lethal demagogue is one with a grasp of underlying reality
EDWARD LUCE
Donald Trump claims
Nato allies have agreed
to spending increase
Theresa May unveils
plans for softer Brexit
UK white paper sets out proposals for ‘association
agreement’ similar to that reached with Ukraine
GEORGE PARKER AND JIM PICKARD
Prime minister Theresa May
on Thursday unveiled her
proposals for the UK’s future
relationship with the
EU in a Brexit white paper
that sets out plans for an “association
agreement” of the kind recently
agreed between Brussels and Ukraine.
The white paper, which this week
sparked the resignation of two Eurosceptic
cabinet ministers, confirms
that Mrs May is moving towards a
softer form of Brexit, with Britain
aiming to retain close economic ties
with the EU.
The 98-page document is meant
to accelerate negotiations in Brussels
so as to clinch a Brexit deal in the autumn.
Mrs May said she wants talks to
move “at pace”.
While some European leaders
have given a polite but guarded welcome
to the proposals, the expectation
in Brussels — and among Tory
Eurosceptics — is that Mrs May will
have to make more concessions to
meet EU demands.
Speaking at the Nato summit in
Brussels on Thursday, US president
Donald Trump said the UK was taking
“a little bit of a different route”,
adding “I don’t know if that’s what
they voted for”.
“I have been reading a lot about
Brexit over the last couple of days
and it seems to be turning a little bit
differently where they are getting at
least partially involved back with the
European Union,” he said, before flying
to London to begin a three-day
visit to the UK.
Meanwhile, the new Brexit secretary
Dominic Raab dismissed complaints
by Conservatives MPs about
the soft Brexit plan thrashed out by
the cabinet last Friday at Chequers,
Mrs May’s country residence.
Mr Raab, who succeeded David
Davis after he resigned over the plan
on Sunday, urged colleagues to abandon
any attempts at “parliamentary
riots and sabotage”. Boris Johnson,
who quit as foreign secretary on
Page A4
Monday in protest at the plan, is now
plotting his next move from the Tory
backbenches.
The white paper, which is based
on the Chequers deal, creates the
framework for what Whitehall officials
expect Brussels will call an “association
agreement”— the type of deal
struck by the EU with third countries
including Ukraine and Georgia, and
providing them with “privileged links”
to the bloc.
The document confirms that
Britain would seek a “free trade area”
with the EU for goods, coupled with
a complex plan to keep Britain inside
the bloc’s customs territory, to avoid
“any friction at the border”, including
Ireland.
But the white paper also sets out
proposals for a looser relationship
between the UK and the EU on services,
which represent 80 per cent of
the British economy. This includes
financial services, led by the City of
London.
The white paper says Britain would
seek the “freedom to chart its own
path” on services, but acknowledges
that with regulatory autonomy would
come a significant problem. “There
will be more barriers to the UK’s access
to the EU market than is the case
today,” it adds.
Michel Barnier, the EU’s chief
Brexit negotiator, has previously
warned Britain that it cannot seek
single market-style access for goods
while excluding itself from equivalent
arrangements on services and the free
movement of people.
Other key features of the white
paper include:
A hint of a generous British approach
to EU migration. The white
paper says that tourists and people
travelling for “temporary business
activity” would be free to come to the
UK without a visa.
Confirmation that the government’s
“facilitated customs arrangement”
plan between the UK and the
EU would be “phased in”. Officials
said there could be a delay of 12 to
18 months after the end of the Brexit
transition period in December 2020.
Punch-drunk Europe would do
well to study the fate of American
liberals. The more Donald
Trump denigrates Nato, the greater
outrage he provokes in Europe. Moral
certainty feels good. But it can bring
on intellectual blindness. Time and
again, Mr Trump’s domestic critics
have chosen righteous indignation
over analytic clarity. Women could
never vote for Mr Trump, Democrats
reassured themselves. Then a majority
of white women did. The US would
never withdraw troops from Europe,
says Brussels. Yet Mr Trump could
do precisely that. Which side of the
Atlantic would have the most to lose?
Mr Trump knows more than his
critics give him credit for. He invents
his own facts. But he instinctively
grasps other people’s bottom lines. Mr
Trump’s portrayal of Nato is profoundly
error-ridden. It is also fundamentally
correct. On the first, America accounts
Continues on page A4
Spare oil capacity to be ‘stretched to limit’, IEA warns
Crude prices rally after steepest one-day fall in two years
DAVID SHEPPARD
The International Energy Agency
warned on Thursday that spare
oil production capacity risks
being “stretched to the limit” as supply
disruptions and US sanctions
against Iran tighten the market.
The Paris-based agency said
that while there were signs the rally
in oil prices may start to weigh on
demand growth, for the moment
the key risk is supply capacity, with
moves by producers to raise output
cutting into the thin buffer of reserve
production.
“Rising production from Middle
East Gulf countries and Russia,
welcome though it is, comes at
the expense of the world’s spare
capacity cushion, which might be
stretched to the limit,” the IEA said in
its monthly report.
“This vulnerability currently underpins
oil prices and seems likely
to continue doing so. We see no sign
Broadcom to buy CA Technologies for nearly $19bn
Shares in software maker jumped 16% in after-hours trade
ERIC PLATT, JAMES FONTANELLA-KHAN
AND RICHARD WATERS
Broadcom has announced it
will buy CA Technologies for
$18.9bn, the chipmaker’s first
major takeover since it was blocked
by US President Donald Trump from
pursuing a bid for rival Qualcomm
earlier this year.
CA Technologies shareholders
will receive $44.50 a share in the
all-cash deal, an approximately 20
per cent premium to the software
maker’s closing price of $37.21 a
share on July 11. The transaction has
already been approved by each company’s
board of directors, Broadcom
said on Wednesday.
The deal marks a change in direction
for the chip industry’s most
active acquirer, taking it into the
market for infrastructure software
— the code that runs at the heart of
corporate IT systems. Broadcom’s
shares fell 5 per cent on the news,
as investors worried about its deviation
into a new market after honing
The Cambridge Analytica
scandal echoes
the financial crisis
Page A5
Theresa May’s plans sparked the resignation of two Eurosceptic cabinet ministers © Reuters
of higher production from elsewhere
that might ease fears of market tightness,”
it said.
The IEA’s comments come as a
host of outages, from Venezuela to
Libya, have tightened markets and
boosted oil prices to as high as $80 a
barrel in recent weeks. That has led
Saudi Arabia and other countries to
lift output to make up the shortfall,
partly under pressure from the US and
other big oil consumers.
While in the short-run that should
stop markets tightening too quickly, it
has left traders nervous about whether
producers will be able to respond if
a further supply outage hits.
Oil prices tumbled on Wednesday,
posting the biggest one-day fall in two
years, with Libya’s export situation
improving and fears of a trade war
between the US and China growing.
But traders maintain they still
see significant risks of a supply gap
materialising.
Brent crude stabilised on Thurs-
its dealmaking skills with a string of
chip acquisitions.
“Our job is to look at creating
value relative to our other options,”
said Tom Krause, chief financial officer.
“This is just applying what we
know to an adjacent market.”
The deal will bring Broadcom a
software company with solid cash
flow but little growth. CA has been
linked to a number of potential software
mergers over the years, thanks
to the reliable earnings thrown off
by its legacy mainframe business,
coming close at one point to combining
with BMC. It produced $1.2bn
of operating cash flow last year on
revenues of $4.2bn.
Broadcom does not plan to seek
approval from the Committee on
Foreign Investment in the United
States (Cfius), the inter-agency
government body that blocked its
hostile approach for Qualcomm on
national security grounds.
The company earlier this year
moved its corporate headquarters
from Singapore to the US. While
day, rising 1.5 per cent to near $75 a
barrel.
“Based on current fundamentals
(falling stocks, lack of capacity) and
Iranian sanctions on the horizon, we
see a bit of upside for Brent,” said Jack
Allardyce at Cantor Fitzgerald Europe.
The IEA said it saw only 2.1m barrels
a day of quickly available spare
capacity in three Opec members:
Saudi Arabia, Kuwait and the United
Arab Emirates.
If Saudi Arabia increases output
towards record levels of near 11m
b/d this summer, as it has indicated,
it would cut the kingdom’s spare
capacity to “unprecedented” levels,
the IEA said.
Saudi Arabia is lifting output, in
part, because of the reimposition of
sanctions on Iran’s 2m b/d of oil exports
that take effect from November.
Estimates vary widely for how much
Iranian oil the US will succeed in
cutting, but the state department has
said the aim is to drive them to “zero”.
the group was ultimately prevented
from pursuing Qualcomm, its new
headquarters in San Jose, California
should exempt it from needing Cfius
sign-off now.
Broadcom is being advised by
Deutsche Bank and Bank of America
Merrill Lynch, while Qatalyst Partners
are working with CA Technologies.
Shares of CA surged 16 per cent
in after-hours trading to $43.02 after
the Wall Street Journal reported that
the deal was imminent. Broadcom
stock slipped 5 per cent to $231.21.
CA still gets slightly more than
half of its revenue from selling
software used in mainframe computers,
even though the heyday of
mainframes passed more than 30
years ago. The business produced
an operating profit margin of 64 per
cent last year, a testament to the ability
of business software companies
like CA to milk old technologies for
many years, thanks to the sunk costs
that many customers have made in
their systems.