Good Monday morning. Here’s what we’re following today:
• Elliott Management is demanding that Qualcomm pay a lot more for NXP Semiconductors.
• The frenzy over Bitcoin showed no sign of stopping with the introduction of futures tied to the digital currency.
• Mario Batali is stepping back from his restaurant empire after accusations of sexual misconduct.
• Lawmakers are quickly trying to plug holes in the tax overhaul.
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Carl Icahn has picked another board fight with Xerox
The activist investor launched his second campaign to change the management of the copy-machine maker.
Mr. Icahn named four nominees to Xerox’s board of directors Monday. The move follows the resignation of Jonathan Christodoro, the Icahn-appointed member to Xerox’s board. His decision to step down ended a standstill arrangement between the company and the Icahn Group.
“The CEO is the most important person in the company. We believe Xerox still has potential, but it will go the way of Kodak if there aren’t major changes. The times have changed but not the old guard that controls the board,” Mr. Icahn said.
The question is whether Mr. Icahn can solve what ails Xerox. Breakingviews’ Lauren Silva Laughlin argues that Xerox has few options to right itself and might do better “realigning itself inside a larger firm, or finding a buyer to take it private.”
“Corporate actions taken by Xerox, though commendable, are no match for the ravages of the digital world. Selling the company may be the logical next move.”
It’s a deal that seemed destined to happen: Shazam-Apple.
Apple confirmed Monday that it has reached a deal to buy Shazam, the maker of an app that identifies songs after listening to just a few seconds of them.
Apple did not disclose the price tag on the deal, but The New York Times reported Friday that it was expected to be far less than the $1 billion that Shazam was valued at in its most recent fund-raising round in 2015.
In 2016, Shazam had about $54 million in revenue and $4.9 million in net losses, according to public filings in Britain, where the company is based. That performance was an improvement over 2015, when the company reported $47 million in revenue and $22 million in losses.
Shazam’s technology was introduced in 2002 as a dial-up service that would listen to a song for 30 seconds and send its user a text message identifying it. It eventually became one of the most popular mobile apps on Apple’s App Store. Last year, the company said that it had surpassed a billion mobile downloads and was used by “hundreds of millions of people each month.”
For Apple, the deal is all about Siri, writes VentureBeat’s Emil Protalinski:
Apple likely wants Siri to do what both Amazon and Google are working on: help the user figure out the world around them, and also sell them content. Siri should be able to extract valuable information for the user from what it hears and what it sees. It could also then let you add that song to your Apple Music playlist, watch the trailer, or even buy the movie on iTunes, and so on. That’s much easier to achieve once Siri has swallowed Shazam.
Paul Pendergass, formerly DealBook’s “Jack Flack” columnist, offers up his unique take on the deal:
Is Elliott a headache for Qualcomm — or a useful tool?
In arguing that NXP Semiconductors is worth $135 per share — on an independent basis, and therefore leaving aside Qualcomm’s takeover bid — the activist hedge fund is threatening to add more to Broadcom’s hostile acquisition campaign for Qualcomm.
Elliott argued in a presentation this morning that the market hasn’t appreciated how much of a revival NXP’s business has enjoyed, particularly now that it has fully processed its acquisition of fellow chip maker Freescale Semiconductor. And Qualcomm’s $110-a-share bid is currently acting as a cap on how much higher the stock can go.
“While NXP’s operating performance has fully bounced back over the past year, its stock price has not – again, likely due to, in our view, the ceiling created by Qualcomm’s low priced offer.”
The bigger picture: Qualcomm has been fighting off Broadcom’s $105 billion takeover offer. But Broadcom said that its current bid is contingent in part on the NXP transaction being completed at the original level of $110 a share. Analysts and investors have speculated that, by paying more for NXP, Qualcomm could effectively persuade Broadcom to walk away — though some also have suggested that Elliott’s move could be a useful way to persuade Broadcom to raise its price.
Where things stand: Qualcomm is currently in the middle of a tender offer for NXP shares. A small fraction of NXP shareholders have currently agreed to accept the bid, with many waiting until the end of the offer period. At the moment, the earliest that Qualcomm’s tender could wrap up is middle-to-late January.
The Qualcomm response
For now, the chip maker said that it disagrees with Elliott’s analysis. Its statement:
“Elliott’s value assertion for NXP is unsupportable and is clearly nothing more than an attempt to advance its own self-serving agenda. We remain fully committed to closing the acquisition of NXP and believe that the agreed-upon price of $110 is full and fair.”
— Michael J. de la Merced
Bitcoin mania now extends to futures trading.
Cboe’s recently introduced futures proved so popular that the Chicago exchange’s website went down amid overwhelming traffic and circuit breakers were triggered — twice.
As of this morning, Bitcoin futures hit $17,540, from an open of $15,000.
“It is rare that you see something more volatile than bitcoin, but we found it: Bitcoin futures,” Zennon Kapron, managing director of the Shanghai-based consulting firm Kapronasia, told Bloomberg.
Why the frenzy? Futures are the first way that investors can bet on the direction of Bitcoin without having to buy the digital currency.
The Bitcoin flyaround
• About 40 percent of all Bitcoins are held by about 1,000 users. (Bloomberg)
• Could China be the one to tamp down the Bitcoin frenzy? (MIT Technology Review)
• A sign of the times: A gas station near Newark Airport reportedly has a Bitcoin A.T.M. (Twitter)
Mario Batali is the latest to face misconduct accusations.
He has stepped away from day-to-day operations of his food empire, Batali & Bastianich Hospitality Group in the wake of an Eater story in which four women described what they said were incidents of unwanted groping and sexual harassment.
From the article by Irene Plagianos and Kitty Greenwald:
Batali did not deny all the allegations, saying that they “match up” with ways he has behaved.
“I apologize to the people I have mistreated and hurt. Although the identities of most of the individuals mentioned in these stories have not been revealed to me, much of the behavior described does, in fact, match up with ways I have acted. That behavior was wrong and there are no excuses.
As recently as October, one of his employees had reported inappropriate behavior by the celebrity chef to human resources, according to Eater.
Mr. Batali is the best-known restaurateur to date to face misconduct allegations amid a sweeping wave of accusations against powerful men. (Another well-known chef, John Besh, stepped down in October after the publication of a lengthy investigation by the Times-Picayune of New Orleans.)
— Michael J. de la Merced
How the Republican tax plan tilted toward corporations.
When President Trump lays out on Wednesday how he sees the tax overhaul benefiting the middle class — as reported by Axios — his argument runs counter to how the legislation has actually evolved.
Damian Paletta of the WaPo has outlined the transformation of the tax plan and how it began to emphasize issues like a $1 trillion cut for businesses while scaling back tax cuts for middle-class families. From his piece:
“Fundamentally, the bill has been mislabeled. From a truth-in-advertising standpoint, it would have been a lot simpler if we just acknowledged reality on this bill, which is it’s fundamentally a corporate tax reduction and restructuring bill, period,” said Rep. Mark Sanford (R-S.C.).
One thing that lawmakers are trying to fix, according to Richard Rubin of the WSJ:
Some high-income business owners could face marginal tax rates exceeding 100 percent under the Senate’s tax bill, far beyond the listed rates in the Republican plan. That means a business owner’s next $100 in earnings, under certain circumstances, would require paying more than $100 in additional federal and state taxes.
More on the hits to New York: Wall Street is still lobbying against the current version of the bill, particularly on issues like limits to deductions for state and local taxes. “Over time this will be a major blow to keeping New York City the world’s undisputed financial capital,” Paul Taubman of PJT Partners told the FT.
If you want to understand Alabama and Roy Moore, read this.
This Op-Ed by the former NYT executive editor Howell Raines, an Alabama native, is worth noting as the state’s residents head to the polls tomorrow. At stake: whether the Republicans’ already-slim majority shrinks to just one seat.
From Mr. Raines’s piece:
Mr. Bishop, a veteran of the Battle of the Bulge, said he had drifted over to the Democrats when Franklin Roosevelt’s New Deal paid him and his jobless friends to work on the kind of infrastructure projects promised by candidate Trump. But he sees modern Democrats as detached from common folk. He’ll vote for Mr. Moore and intends to “sway” his wife from her plan to support Mr. Jones.
Who will follow Dina Powell out the door?
As the Trump administration closes in on its one-year anniversary, expect more officials to make their exits. Ms. Powell’s move is notable in that she is leaving on good terms with Mr. Trump, according to the WaPo.
Who else is on deck?
• Rex Tillerson could leave as secretary of state in February, according to Politico.
• The big question remains: When will Gary Cohn leave? He’s currently promoting the Republican tax plan, but will he depart afterward?
The net neutrality fight comes to a head this week.
The F.C.C. is scheduled to vote on Thursday on its proposal to roll back regulations. Expect protesters to keep up demonstrations against the move. “We want members of Congress to think of this as a third-rail issue that they have to support or else they will suffer in their elections,” Craig Aaron of the advocacy group Free Press told the NYT.
In the F.C.C.’s corner
Roger Stone, one of Mr. Trump’s most prominent advisers. From his op-ed in The Daily Caller:
But since the giant edge providers — companies like Google, Facebook, and Twitter — are content providers, they are exempt from “Net Neutrality” rules, free to restrain content by censoring out all conservative and libertarian views at will, without so much as an explanation to anyone why the objectionable views were banned.
Across the pond: Strong competition and regulation have generally prevented bad behavior from internet service providers in Europe — but telecommunications companies have managed to push boundaries in other ways, the NYT reports.
The Fed is likely to raise interest rates this week. What’s next?
Economists are starting to believe that the Fed may have to raise rates more quickly than expected after its meeting — the last to be chaired by Janet Yellen — on Wednesday. Binyamin Appelbaum of the NYT lays out many of the factors that Jerome Powell and the Fed will have to weigh, including strong economic growth and sluggish inflation.
Economists at Citigroup and JPMorgan Chase predict that interest rates across advanced economies will rise by at least 1 percent next year, in what Bloomberg says would be the biggest jump since 2006.
A lament for Ms. Yellen’s one term
From Amy Chozick’s article in the NYT on the departing Fed chair:
“Janet should’ve been renominated, as every past Fed chair has been renominated for nearly the last 40 years,” Senator Elizabeth Warren of Massachusetts said in an interview. “But it’s not the first time and certainly not the last a highly qualified woman is passed over for a job she clearly deserves.”
“Rational exuberance is the stock market’s theme for 2018.”
That’s the prediction that David Kostin, the chief U.S. equity strategist, gave Barron’s for its look at what next year holds for the markets. The publication surveyed 10 strategists at major financial firms. Among the consensus predictions: a 7 percent gain in the S.&P. 500.
But Barron’s also offers some caveats:
The outlook isn’t entirely rosy: Interest rates are headed higher, stocks are expensive, and a tax overhaul could still stall or fail. But so long as corporate earnings keep climbing and the Federal Reserve raises rates in a measured way, the strategists see more room for gains.
Extra credit: Mr. Trump’s overall approval ratings may be low, but Americans surveyed by the WSJ and NBC News in late October gave the president a 42 percent approval rating for his handling of the economy. (WSJ)
How would a Fox-Disney deal remake Hollywood?
First, a status update: The two companies are still in advanced negotiations, and a transaction could be announced this week. The standard caveats of deal reporting, including that the talks could still fall apart, apply here.
If Disney succeeds in buying Fox, it would upend the decades-old status quo of the Hollywood movie system. But what happens with the 20th Century Fox movie studio is still in flux, according to Ben Fritz of the WSJ:
Some people close to the deal talks said 20th Century Fox could become a production label within the Walt Disney Studios, akin to Pixar and Marvel. In that scenario, Fox operations such as theatrical and home-video distribution would likely be cut back, resulting in job losses among the studio’s approximately 3,200 employees.
The M. & A. flyaround
• In selling itself to Apple, Shazam would formally become a part of the company that made it famous. But the sale price will likely be far less than the $1 billion valuation of Shazam’s most recent fund-raising round. (NYT)
• Two hospital networks, Ascension and Providence St. Joseph Health, are in talks about a potential merger, which if completed would leap past HCA Healthcare to become the country’s biggest hospital operator, according to unidentified people. (WSJ)
• GGP, the mall owner, has rejected Brookfield Property Partners’s $14.8 billion takeover bid, though talks between the two will continue, according to unidentified people. (Reuters)
A serial acquirer is in trouble after accounting issues.
Shares in Steinhoff International, a retailer that went on a debt-heavy buying spree in recent years, plunged 84 percent (wiping out nearly $12 billion in market value) over the past week after the company disclosed potential accounting irregularities. The company has hired Moelis & Company and Alixpartners to help with “liquidity management and operational measures.”
The bigger picture
David Fickling of Gadfly writes that there’s a lesson here for other inveterate corporate deal makers — notably HNA of China. From his piece:
There’s a simple reason that few companies spend long on the sort of shopping spree that Steinhoff and HNA followed in recent years: Takeovers tend to destroy shareholder value.
The Speed Read
• Vinnie Viola, the founder of the trading firm Virtu Financial and once Mr. Trump’s nominee for secretary of the Army, is close to selling his 80,000-square-foot Manhattan townhouse for about $80 million, in what would be the highest-priced home sale in New York City history. (WSJ)
• During a conference call with a digital media company, three Snap executives who thought they were on mute were overheard talking about their weekend plans, including hiring prostitutes. (NY Post)
• France is attempting a sweeping national rebranding, changing labor laws and slashing a wealth tax, as it competes to be Europe’s financial capital. (NYT)
• Two organizations founded by Charles Koch have been working in Silicon Valley to advance the argument that innovators are most likely to flourish when legislators and regulators leave them alone. (Politico)
• Banking executives in London say that they would halt, or even reverse, moves out of London if there were an 11th-hour deal to keep Britain in the single market. (FT)
• Tougher bank regulations, ultralow interest rates and low market volatility have raised the prospect of a decline in the Swiss private bank. (FT)
• The recommendation last month that Norway’s sovereign wealth fund sell its oil and gas stocks is pushing Norwegian policymakers to grapple with the question of what the fund and the country should stand for. (FT)
• The government of Qatar and BAE Systems have finalized a roughly $6.7 billion deal for 24 combat jets, training and related items. (WSJ)
• The C.E.O. of Volkswagen said that Germany should consider phasing out subsidies for diesel cars, a startling change of position by the automaker largely responsible for diesel’s popularity in Europe. (NYT)
• Man Group will market a new quantitative hedge fund to wealthy Chinese investors, becoming the first foreign investment company to start an onshore hedge fund there. (FT)
• Loyal customers of Starwood feel uneasy about the takeover by “big, beige” Marriott, which faces the challenge of keeping Starwood’s “cool” culture — its customers. (NYT)
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