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Jun 13, 2016

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 INVESTORS Hedge 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 SYMANTEC Blue 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 two businesses.

"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.
WALGREENS CUTS TIES TO THERANOS Walgreens said on Sunday that it was terminating its nearly three-year-old partnership with Theranos and shutting down Theranos lab-testing services in Walgreens locations, Reed Abelson and Andrew Pollack report in The New York Times.

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.
MERGERS & ACQUISITIONS »
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.
INVESTMENT BANKING »
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."

For the latest updates, go to NYTimes.com/DealBook
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PRIVATE EQUITY »
Private Equity Fights Tax Changes in Italy Private equity groups are protesting new guidelines from Italy's tax agency that would lead to higher levies on profits from deals struck in the country.
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.
I.P.O./OFFERINGS »
South Korean Conglomerate Scraps $4.5 Billion I.P.O. of Hotel Unit The 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.
VENTURE CAPITAL »
Oren Falkowitz, left, and Blake Darché, two of the founders of Area 1 Security, at Cate Machine and Welding in Belleville, Wis. Cate is among the businesses allowing Area 1 to monitor activity on their servers in order to alert potential victims of an attack.
A Computer Security Start-Up Turns the Tables on Hackers Area 1 Security heads off online attacks by tapping into servers known to be compromised by hackers and monitoring the attackers' activities.
Cate Machine & Welding has allowed Area 1, a digital security company, to monitor the activity on a dusty, old server taken over by Chinese hackers so that potential victims of an attack can be warned.
The Chinese Hackers in the Back Office A dusty old computer in a mom-and-pop Wisconsin welding shop is giving a digital security firm a window into the operations of Chinese hackers.
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 listed counterparts.
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 the situation.
LEGAL/REGULATORY »
Since joining Gawker Media three years ago, Heather Dietrick, 35, the company's president and general counsel, has become the main source of support during a chaotic time.
Gawker's General Counsel Takes On a Leadership Role Heather Dietrick, president and general counsel of Gawker Media, has taken a prominent role in dealing with a legal judgment, bankruptcy and sale.
A Comcast worker in Miami. The cable giant is fighting new proposals by the Federal Communications Commission as part of the industry's largest lobbying effort since the government set net neutrality rules in 2009.
Cable Industry Mobilizes Lobbying Army to Block F.C.C. Moves Giants 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 Tests Tobias 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 meaningful result.
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 Enough Few 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.