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Jun 22, 2016

DealBook Today's Top Headlines - June 22, 2016: Elon Musk Wants to Merge SolarCity With Tesla | Hedge Fund Manager Charged With Insider Trading Is Found Dead | Why Law School Is Still a Solid Investment

 
Wednesday, June 22, 2016
TODAY'S TOP HEADLINES
By AMIE TSANG
ELON MUSK WANTS TO MERGE SOLARCITY WITH TESLA Tesla Motors has offered to buy SolarCity in an all-stock deal that could value the solar panel provider at as much as $2.8 billion, Michael J. de la Merced and Peter Eavis report in DealBook.

Elon Musk, the chairman of SolarCity and chief of Tesla Motors, argued that it would create a renewable-energy giant, collecting clean electricity to propel cars. "I think it's an obvious thing to do," he said on Tuesday. He said it made sense, as Tesla had begun introducing rechargeable batteries for home use that can store electricity and smooth fluctuations in power grids.

But his offer also highlighted the unusual moves that Mr. Musk has made to support the various arms of his empire, where he is the largest shareholder of each company. He has taken out loans to buy shares in Tesla and SolarCity, some backed by his personal stock holdings in both companies - a risky decision that leaves him exposed to margin calls if their stock prices slide too far. He defended the practice as low-risk for other shareholders, given the sheer size of his personal net worth of more than $10 billion.

If an agreement were reached, it would still be some time away. Still, shareholders in SolarCity pushed the company's stock up 19 percent in after-hours trading, to $25.26. Shares of Tesla, however, tumbled more than 13 percent, to $190.59.

Both companies have grown fast and consumed enormous amounts of cash along the way. But SolarCity has been buffeted by changes in solar energy regulations - local policies have cut into the savings that solar providers have promised. Its troubles have left the company with a $2.6 billion in long-term debt and growing losses. Last year, interest payments on its debt equaled nearly a quarter of its sales.

Tesla has had a better run of news, although its shares have also fallen over the past year. Analysts have also said that Tesla's main business may be in batteries. It is expanding its $5 billion "Gigafactory" near Reno, Nev.

It may be able to help SolarCity generate more cash or reduce its cash consumption, but the solar company could be a burden. In theory, a combination of Tesla and SolarCity would have burned through nearly $5 billion of cash last year. Investors will have to be willing to lend to, or buy the stock of, a high-growth company consuming a lot of cash if they believe it will eventually generate healthy cash flows.
HEDGE FUND MANAGER CHARGED WITH INSIDER TRADING IS FOUND DEAD Sanjay Valvani, a high-flying hedge fund manager at Visium Asset Management, has died, apparently the victim of a suicide, Alexandra Stevenson and Matthew Goldstein report in DealBook.

Mr. Valvani was discovered by his wife in their brownstone in Brooklyn Heights, a police official said. He was face down on the bedroom floor with a cut to his neck and a knife near his body. He had left a note. He was 44 and is survived by two daughters.

Mr. Valvani was charged last week with insider trading and his death brought the government's case against him to a shocking end. He was accused of using confidential information from a former Food and Drug Administration official to reap $32 million in illegal gains.

Barry H. Berke, a lawyer for Mr. Valvani, said the death was "a horrible tragedy that is difficult to comprehend."

The death is still being investigated and it is not known whether other factors could have affected Mr. Valvani's state of mind.

Legal specialists said on Tuesday that they did not expect the death to cause prosecutors and Preet Bharara, the United States attorney for the Southern District of New York, to back away from the case if they believed wrongdoing had occurred. "I don't think he's going to lose sleep over it, because it comes with the territory," Thomas A. Sporkin, a lawyer at BuckleySandler and a former Securities and Exchange Commission enforcement lawyer, said.

The news of Mr. Valvani's death on Tuesday stunned those who had worked with him on Wall Street.

In a statement, Visium's founder, Jacob Gottlieb, said: "We mourn the tragic loss of Sanjay, a devoted father, husband and friend. Our thoughts are with his family during this difficult time."
ON THE AGENDA The House Judiciary Committee will hold a hearing to examine the allegations of misconduct against the I.R.S. commissioner John Koskinen at 10 a.m. Thomas J. Donohue, the president of the U.S. Chamber of Commerce will speak about financing America's economic growth at the Nasdaq MarketSite in New York at 10 a.m. Blackberry's annual general meeting starts at 10 a.m. Janet L. Yellen, the chairwoman of the Federal Reserve, will testify before the House Financial Services Committee at 10 a.m.
WHY LAW SCHOOL IS STILL A SOLID INVESTMENT The rise in associate salaries at big law firms has brought a predictable but undeserved fresh round of law school bashing, Steven Davidoff Solomon writes in Deal Professor. The increase has highlighted the dichotomy between those at the top and everyone else.

For the lucky few who get jobs at these firms, law school is a good investment. These young lawyers can earn more than $40,000 in one summer while they are still in law school and pay back their loans quickly. Many find that there are private firms willing to refinance their loans at rock-bottom interest rates.

But only about 17 percent of graduates earn salaries this high and to be in this group, you need to go to a top 10 school or graduate in the higher ranks of the top quartile of law schools.

It is tougher for other law graduates. While 17 percent of graduates earned a median salary of $160,000 in 2014, about half had a median starting salary of $40,000 to $65,000.

It is the fate of these graduates that drives the criticism of law school as a "scam." They dream of big jobs, but are often the lawyers who become solo practitioners, district attorneys, public defenders and other lower-paying jobs.

Critics of law schools also focus on the number of law graduates who secured jobs as lawyers or jobs that preferred a law degree. According to American Bar Association figures analyzed by the Legal Whiteboard, for the 2015 class, the rate of employment was 70 percent. The bar passage rate also declined to about 75 percent so many law graduates could not practice law even if the jobs were there.

This has led to arguments that law school is not worth it for 90 percent of those who attend, but the criticisms ignore the fact that even lower-ranked law schools offer more good outcomes than bad.

The number of law firm jobs rose between 2007 and 2014, while law school enrollment dropped. Most law graduates secure employment that pays them more than they would otherwise have earned. The fact that lawyers do reasonably well over time and better than they would have done had they not gone to law school is reflected in the low default rates on law school loans, Mr. Davidoff Solomon writes.
DEAL NOTES
SoftBank's chief executive, Masayoshi Son, stands before a screen showing Nikesh Arora. A disagreement between the two led to Mr. Arora's departure from the company.
SoftBank President Plans to Step Down The president, Nikesh Arora, a former Google executive, disagreed with the chairman of the Japanese technology conglomerate on when Mr. Arora might take over.
A Departure Leaves SoftBank's Founder Firmly in Charge The succession mess leaves SoftBank and its mercurial founder harder than ever to read, Peter Thal Larsen writes in Breakingviews.
INVESTMENT BANKING »
Secil Watson, the head of wholesale internet solutions at Wells Fargo, using an eye scanner to gain access to her Wells Fargo account.
Goodbye, Password. Banks Opt to Scan Fingers and Faces Instead. Frustrated by thieves stealing personal data from millions of customers, banks are investing in biometric technology to offer better security.
Jefferies Cautious on Strength of Rebound The investment bank Jefferies has returned to profitability, but warned about pressure in some areas, raising questions about the strength of a recovery on Wall Street.
Italian Bailout Fund Prepares to Sell Troubled Lender Atlante, Italy's new bank rescue fund, is preparing a sale process for Popolare di Vicenza, Reuters reports, citing people familiar with the matter. It has considered removing bad loans from the bank's balance sheet.
Oi Bankruptcy Creates Shockwaves in Brazil The bankruptcy filing of the telecommunications company Oi, the largest in Brazil's history, is likely to leave Banco do Brasil, Itau Unibanco Holding and others with steep losses on their holdings of Oi debt and prompt payments on $14 billion of derivatives contracts that are intended to pay out in the event of a default.
Asia's Banks Face a Powerful Storm, Consultancy Says Profit growth may slow to below 4 percent annually from 2016 to 2021, down from about 10 percent in 2011 to 2014, said Joydeep Sengupta, one of the authors of a McKinsey report.

For the latest updates, go to NYTimes.com/DealBook
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I.P.O./OFFERINGS »
Unicorns Face Tough Road to Wall Street Soaring valuations in private fund-raisings, and companies staying private longer than they have in the past, are sharpening concern about the potential returns unicorns might offer to pre- and post-initial public offering investors if they do go public.
VENTURE CAPITAL »
David Morgenthaler with the former House speaker, John A. Boehner, in 2010. Mr. Morgenthaler helped persuade Congress to lower the capital gains tax rate from 49 percent to 28 percent to encourage investment in small businesses.
David T. Morgenthaler, Who Shaped Venture Capitalism, Dies at 96 Mr. Morgenthaler founded his first venture capital firm in 1968 and pushed legislative agendas that would shape the industry.
Samsung to Invest $1.2 Billion in 'Internet of Things' Samsung said the funds would be split evenly between internal research and development, and investments in start-ups.
LEGAL/REGULATORY »
Janet L. Yellen testifying before the Senate Banking Committee Tuesday. She signaled that the Fed had adopted a more cautious stance toward the economy.
Janet Yellen Hints That Fed May Hold Back on Raising Interest Rates Ms. Yellen, the chairwoman of the central bank, told senators that data on the labor market and the weak pace of investment indicated that domestic demand "might falter."
Energy Transfer Shares Surge During Merger Trial With Williams Comments made by Sam Glasscock III, the vice chancellor of the Delaware Court of the Chancery, sent hedge funds and investors scrambling to make trades.
Regulators Say Bitcoin Poses 'Financial Stability Risks' The Financial Stability Oversight Council noted that Bitcoin had experienced "dramatic" increases in trade delays and some transaction failures in recent months.
A mocha latte.
Judge Allows Lawsuit Claiming Starbucks Underfills Lattes Two people in California said the company made a "conscious decision" to save money on milk and underfills the drinks by about 25 percent of the advertised sizes.
The Moody's Economic Report That Clinton Is Using to Attack Trump If all of Donald Trump's plans were put into effect, the analysts say, the economy would go into a recession by the end of his first term.