DealBook Today's Top Headlines - June 13, 2016: Hedge Fund Managers Try to Stanch Loss of Investors | Blue Coat to Be Sold to Symantec | Walgreens Cuts Ties to Theranos.
Monday, June 13, 2016
TODAY'S TOP HEADLINES
By AMIE TSANG
HEDGE FUND MANAGERS TRY TO STANCH LOSS OF INVESTORSHedge fund titans may be used to running their firms like elite clubs, but years of poor performance have forced them to open up admission,
Alexandra Stevenson reports in DealBook.
More big-name investors like MetLife and American International Group have begun to withdraw their money from hedge funds and the investors who stay get a chance to sit dictate lower fees and better terms.
Hedge funds can no longer just operate on a "2 and 20" model, where
investors pay fees of 2 percent of assets under management and 20
percent of any gain in any year. Managers are offering lower fees for investors to keep their money in funds
and setting performance targets where investors would pay a fee only if
they were exceeded. And the favorable terms are not just offered to
longtime loyal clients.
The industry argued that a hedge fund manager's job was to protect in
down years and not outperform in good years, but when hedge fund returns
fell with the markets last summer, the point was moot. Some of the
best-known managers, including William A. Ackman of Pershing Square
Capital Management and Larry Robbins of Glenview Capital Management,
have lost money.
And for some investors, acknowledgement of poor performance is not
enough. In September 2014, the California Public Employees' Retirement
System announced plans to liquidate its $4 billion hedge fund holdings
because of concerns that the investment were too expensive and
complicated. In April, the pension fund for New York City civil
employees voted to exit its portfolio of $1.5 billion in hedge fund
investments. Altogether, investors pulled $15.1 billion from the industry in the first quarter of the year - still a drop in the ocean compared with the $2.9 trillion the industry managers, but the pressure is mounting.
Mr. Robbins apologized to investors recently in an effort to stem the
outflow of investor money from his firm. He pledged to "right the ship
as quickly as possible" and offered the opportunity to put more money
into a new fund that would waive fees. He has continued to lose money -
investors in his flagship fund had lost 6.5 percent at the end of May -
so he is now offering more favorable redemption terms, allowing existing investors that add more money into the fund to step into the shoes of investors who have left.
BLUE COAT TO BE SOLD TO SYMANTECBlue Coat
Systems, the online security software company, is abandoning its plans
for an initial public offering and selling itself to Symantec instead,
Michael J. de la Merced reports in DealBook.
The company said it would sell for $4.65 billion. As part of the deal, Blue Coat's chief executive, Greg Clark, will take over as the chief executive of the combined company.
Bain Capital, a majority investor in Blue Coat, will invest an additional $750 million to help finance the transaction. Silver Lake, which invested $500 million in Symantec in February, will invest an additional $500 million.
The company that results from the merger will combine the traditional
antivirus product that has been Symantec's focus with Blue Coat's new
online protection services. Executives see little overlap between the
"With this transaction, we will have the scale, portfolio and resources
necessary to usher in a new era of innovation designed to help protect
large customers and individual consumers against insider threats and
sophisticated cybercriminals," Dan Schulman, Symantec's chairman, said
in a news release.
Blue Coat had filed plans to go public and did not formally put itself
up for sale, but it received interest from potential buyers and held
talks primarily with Symantec.
The prospectus for its initial public offering said that Blue Coat lost
$289 million on top of $598 million in sales for the 12 months ending April 30.
But the company has been trying to expand under Bain Capital. "This
represented a compelling opportunity for us because we could realize
some gains for our investors but also reinvest into the combined
company," said David Humphrey, a managing director at Bain Capital.
Symantec has been trying to turn around its fortunes after years of
declining sales. Michael Brown stepped down as its chief executive about
two months after Silver Lake invested, amid disappointing performance.
Symantec then hired Ajei Gopal, a Silver Lake operating partner, as an
interim president and chief operating officer. Mr. Clark of Blue Coat
emerged as a candidate for the chief executive job. Silver Lake had
anticipated a transaction like the Blue Coat deal and had set itself up
to provide additional financing. It believes that there may still be other smaller acquisitions to come.
ON THE AGENDA America's Small Business Summit starts at 8 a.m. in Washington, D.C.
Brooke Buchanan, a representative for Theranos, said the company would
continue to do business using the stand-alone retail locations it
already runs, apart from the Walgreens stores. It has five such
locations in Arizona and one in California, she said.
Walgreens Boots Alliance was frustrated that Theranos was not providing more detail and documentation after learning that it had corrected tens of thousands of blood tests, people familiar with the partnership told The Wall Street Journal.
"In light of the voiding of a number of test results, and as the Centers
for Medicare and Medicaid Services has rejected Theranos's plan of
correction and considers sanctions, we have carefully considered our
relationship with Theranos and believe it is in our customers' best
interests to terminate our partnership," Brad Fluegel, senior vice
president of Walgreens, said in a news release.
The 40 blood-draw sites inside Walgreens stores in Arizona were a
primary source of revenue for Theranos, as well as mark of credibility.
Having easily accessible locations in corner drugstores was part of
Theranos's grand plan to upend the laboratory testing business. For its
part, Walgreens had hoped to add lab testing to increase traffic to
stores and pick up some of the cachet of being associated with a
cutting-edge Silicon Valley start-up.
Walgreens had decided to end the partnership after regulators disclosed problems at Theranos in late January, but held off on completing it because it feared that Theranos might sue, The Journal reports, citing people familiar with the matter.
The center will inform Theranos within the next two weeks about its
decision on sanctions, a person familiar with the matter said. And Walgreens had become more convinced in recent days that the sanctions would be painful.
Chinese Fund Buys Italian Robot Toolmaker Agic Capital, a
Chinese European private equity fund that began last year, bought
Gimatic, an Italian supplier of robotic end-of-arm tools, in a deal that
valued the company at up to 150 million euros, or about $169 million.
Hong Kong Group Invites Bidders for Its Telecom Unit Wharf Holdings
of Hong Kong plans to sell its telecommunications business in a deal
that could be worth more than $1 billion, Reuters reports, citing people
familiar with the matter.
Standard Chartered Cracks Down on 'Above the Law' Bankers The bank is
cracking down after "recent transgressions" concerning employees'
outside business interests, close financial dealings with co-workers and
excessive expenses, Bloomberg reports, citing a series of memos issued
over the past two months.
Trading Floors Go Quiet Across Asia Revenue from
trading stocks in China and Hong Kong could fall 30 percent to 50
percent in the first half compared with a year earlier, Bloomberg
reports, citing senior executives at four firms who spoke on the
condition of anonymity.
HSBC Defends Its Asian Ambitions "I wouldn't
want to be anywhere else," Douglas Flint, the bank's chairman, said in
an interview. "The fact that the market is uncertain about the value of
that today just reflects market sentiment and it will change."
Private Equity Circles Around Japan's Failed Deals Private equity
executives have said that they are considering deals that would take
troubled assets out of the hands of Japanese owners or involve teaming
up with local companies in turnaround efforts.
South Korean Conglomerate Scraps $4.5 Billion I.P.O. of Hotel UnitThe Lotte Group
shelved what could have been the world's biggest initial public
offering so far this year after investigations into the conglomerate
pushed it into crisis.
A Silicon Valley Plan to Create a New Stock Exchange Eric Ries, who
wrote "The Lean Startup," is in early discussions with the Securities
and Exchange Commission to bring the Long-Term Stock Exchange to life.
An Investor Warning for Unicorns The Securities
and Exchange Commission is starting to examine start-up practices and
investors are pushing for start-ups to behave more like their publicly
China's Top Insurer Invests in Competitor to Uber China Life
Insurance is investing more than $500 million into Didi Chuxing
Technology, The Wall Street Journal reports, citing people familiar with
Cable Industry Mobilizes Lobbying Army to Block F.C.C. MovesGiants like
Comcast, AT&T and Verizon oppose plans to limit broadband providers'
ability to share users' data and to open the market for set-top boxes.
Allianz Criticizes European Insurance Stress TestsTobias
Buecheler, who oversees regulatory strategy at Allianz, told The
Financial Times that although insurance stress tests made sense in
principle, the situations in the latest exercise would not produce a
Citigroup Sues AT&T for Saying 'ThankYou'Citigroup is
suing AT&T on the grounds that its use of the term "ThankYou"
amounted to trademark infringement. Citi had run a series of credit card
loyalty plans based on the ThankYou brand.
Gas Is Going Up, but Maybe Not EnoughFew drivers
want to pay more for fuel, but with higher prices comes increased
interest in fuel efficiency and less harm to the environment, Jeff
Sommer writes in Strategies.