May 14, 2018
CBS Escalates Its Fight to Thwart Redstones: DealBook Briefing May 14, 2018. : NYT | DealBook / Business & Policy
CBS Escalates Its Fight to Thwart Redstones: DealBook Briefing
Good Monday. Here’s what we’re watching:
• CBS takes its biggest step yet to block a Viacom deal.
• Tim Armstrong looks like he’s staying put at Oath.
• The complexities of President Trump moving to save ZTE.
• What’s in store for Xerox?
• How the White House is warning Europe over Iran.
Get this in your inbox each morning. Sign up here.
CBS takes its biggest step yet to block a Viacom deal
For Les Moonves and his team at CBS, Monday meant war against Shari Redstone and her desire to merge the media company with its corporate sibling, Viacom.
Let’s break down what happened:
• CBS sued its parent company, the Redstones’ National Amusements, in Delaware’s court of chancery to prevent it from interfering with a meeting of a special board committee scheduled for Thursday.
• Among the options the committee will consider is whether to issue a special dividend to all shareholders, effectively neutralizing Ms. Redstone’s special voting powers. While National Amusements owns just over 10 percent of CBS’s overall shares, Ms. Redstone and her family effectively have just under 80 percent of the company’s voting power. The special dividend would lower Ms. Redstone’s voting interest to “approximately 17 percent.”
• In the lawsuit, CBS accused Ms. Redstone of presenting “a significant threat of irreparable and irreversible harm to the company and its stockholders.”
• CBS also asserts in its lawsuit, “Ms. Redstone told the C.E.O. of a potential acquirer of CBS that he should not make such an offer, thereby depriving CBS stockholders of a potentially value-enhancing opportunity that the board or the special committee should have been free to evaluate.” That chief executive was Lowell C. McAdam of Verizon, according to people familiar with the discussions but not authorized to speak publicly.
The lawsuit was pre-emptive, given that Ms. Redstone has considered replacing CBS’s board if it continued to resist a merger with Viacom. CBS has wanted Les Moonves to become the combined company’s C.E.O. and his C.O.O., Joe Ianniello, to take the No. 2 position. Viacom has pressed for its C.E.O., Bob Bakish, to hold that spot, and Ms. Redstone had largely sided with Viacom.
CBS added that its board believes it is acting out of a fiduciary duty to all of its shareholders, and not just Ms. Redstone.
— Michael de la Merced
Shari Redstone fires back
After CBS essentially declared war against its controlling shareholder and her desire to combine the company with Viacom, Ms. Redstone dropped a bombshell of her own.
From a statement by National Amusements, the vehicle through which the Redstones control CBS and Viacom:
NAI believes CBS’s action today was precipitated following NAI raising specific concerns about incidents of bullying and intimidation in relation to one CBS director, dating back to 2016. NAI has made every effort to deal with this matter privately and confidentially. Unfortunately, CBS’s action today continues to enable and empower such conduct.
Which incidents the statement refers to is unclear. But CBS’s lawsuit does note that its board’s special committee had decided very recently to file its preemptive lawsuit:
In meetings and informal discussions during the week of May 7, 2018 and continuing over the weekend of May 11–13, 2018, the CBS Special Committee finally determined that a CBS/Viacom merger is not in the best interests of CBS stockholders (other than NAI).
CBS asserted that it filed suit because it was worried about Ms. Redstone blocking a meeting of the special committee taking place on Thursday. At the meeting, the committee is set to consider issuing a special dividend to all shareholders that could effectively neuter Ms. Redstone’s 79 percent voting stake in the media company.
National Amusement also said that CBS and Viacom had even reached a provisional agreement on valuation. Viacom’s investors would receive 0.6135 CBS shares for each Viacom share they own, according to a person familiar with the matter who was not authorized to discuss the negotiations. The valuation marked a compromise for both sides and is a sign that CBS had previously supported exploring a merger of the two companies.
— Michael de la Merced
States can now allow gambling on sports
The Supreme Court on Monday struck down a federal law that effectively banned commercial sports gambling in most states.
The betting law, called the Professional and Amateur Sports Protection Act of 1992, prohibited states from authorizing sports gambling. It exempted Nevada, where sports betting has long been legal, along with sports lotteries in Delaware, Montana and Oregon. Other states were given a year to opt in, but none acted in time.
The Supreme Court has said that the federal government may not commandeer state resources to achieve federal objectives. In Monday’s decision in the case, Murphy v. National Collegiate Athletic Association, No. 16-476, the court ruled that the 1992 law amounted to unconstitutional commandeering.
Richard Drew/Associated Press
Tim Armstrong looks like he’s staying put at Oath
Despite the FT reporting last week that he was an outside candidate to become the ad giant WPP’s next C.E.O., in the wake of Martin Sorrell’s ouster, it appears that Mr. Armstrong isn’t leaving his current company after all.
Here’s what the current and future C.E.O. of Oath, the Verizon unit that owns AOL and Yahoo, tweeted on Monday morning (note the snarky hashtag):
Totally focused & engaged on building our 1 billion consumer brand ecosystem out and getting @Yahoo @AOL & all brands to growth mode @verizon - w/ awesome talent & challenger mindset & strong leaders. Live Your Oath. Future being built #nofakenews pic.twitter.com/Ya8YpdiDBS
— Tim Armstrong (@tim_armstrong) May 14, 2018
Why was Mr. Armstrong considered a potential candidate for WPP in the first place? From the FT’s story:
Mr. Armstrong, who also declined to comment, ran AOL until its $4.4bn sale to Verizon in 2015. He is chief executive of Oath, the Verizon subsidiary that owns AOL and Yahoo. One person close to the search process said Mr. Armstrong would be a good choice as “he knows all about restructuring”.
A former Google executive, Mr. Armstrong was appointed to the helm of AOL in 2009 to revive a company that had fallen from the dizzying heights it had reached during the dot-com bubble.
Since the FT article was published, I’ve heard arguments that Mr. Armstrong would have made sense as WPP’s next C.E.O., given his commercial and digital savvy. But it was unclear whether the London-based WPP would feel comfortable with an American as C.E.O., and whether Mr. Armstrong would be willing to move to Britain.
— Michael de la Merced
Goldman shakes up its securities division
Pablo Salame and Isabelle Ealet, two of three executives leading Goldman’s securities division, will leave the firm next month, The WSJ’s Liz Hoffman reports. Ashok Varadhan remains as the sole head of the division.
Wang Zhao/Agence France-Presse — Getty Images
Inside Trump’s call to save ZTE
President Trump surprised many when he called on the Commerce Department to lift sales penalties that the Chinese telecom equipment maker said had threatened its existence. His tweet yesterday came before a top Chinese economic adviser, Liu He, arrives in Washington to continue trade talks.
Now Washington is wondering: Is Mr. Trump trying to ease tensions with Beijing and perhaps score some unspecified concessions? And which faction is winning Mr. Trump’s war on trade?
The ZTE primer: The administration has accused ZTE of violating sanctions on Iran and North Korea (which the company says was a mistake). And it’s banned from selling products on U.S. military bases.
Andrew asks: When Mr. Trump says the Commerce Department would act independently on ZTE — after he instructed it to make a deal with the Chinese — is that different from when he said the Justice Department would act independently on AT&T after he urged it to block the Time Warner deal?
It’s official. Sears puts assets on the block.
Shares of Sears jumped as much as 15 percent after the troubled department store chain said it will explore the sale of several assets.
The stock is currently up 6 percent.
The assets being put up for sale include “Kenmore brand and related assets, the Sears Home Improvement Products business of the Sears Home Services division and the Parts Direct business of the Sears Home Services division.”
The move comes just weeks after Edward Lampert, the hedge fund manager and chief executive of Sears, called on Sears to consider selling those businesses. Mr. Lampert also said his ESL Investments, which is Sears largest investor, would be interested in buying them.
Douglas Healey/Associated Press
What’s next for Xerox?
After a series of highly unusual twists — Xerox had ousted its C.E.O., then undumped him — the company said once again that it would replace its chief and some of its board, and withdraw from its deal with Fujifilm. It’s the latest attempt to settle with Carl Icahn and Darwin Deason, two of the company’s biggest investors and consistent opponents of the Fujifilm deal.
The state of play:
• Xerox said that it was withdrawing from the Fujifilm transaction because its Japanese partner had not delivered audited statements on time. Fujifilm said that it may seek damages.
• The new Xerox board will weigh alternative proposals, including other takeover bids.
Elsewhere in shareholder activism: Elliott Management is rallying opposition to a proposed reorganization at Hyundai. Has Jana Partners’ push at Apple opened the door for activists to pursue campaigns based on environmental and social issues?
John Bolton, the national security adviser. Mark Wilson/Getty Images
A shot across Europe’s bow on Iran
As Europe considers how to respond to President Trump’s withdrawal from the Iran nuclear deal, U.S. officials warned that allies should fall in line — or else. John Bolton, the national security adviser, said it was “possible” that European companies who continued to do business with Iran could face sanctions, adding:
“Why would any business, why would the shareholders of any business, want to do business with the world’s central banker of international terrorism?”
Meanwhile, cybersecurity experts expect Iran to resume a global cyberhacking campaign in the wake of the deal’s demise. And Iranian officials have begun a global tour to shore up support from foreign leaders.
Elsewhere in trade: The chaos enveloping companies’ efforts to win exemptions from the Trump administration’s steel and aluminum tariffs. What corporate America plans to say at hearings on the matter.
The political flyaround
• Rudy Giuliani suggested that President Trump personally intervened in trying to block AT&T’s bid for Time Warner — “the president denied the merger” — and then backtracked.
• States face a tough dilemma: Do they pass on increased revenue from the new federal tax law to residents, or shore up their budgets? (NYT)
• Ken Kurson, an ally of Jared Kushner and a former editor of the N.Y. Observer, is under consideration for an unpaid position in the Trump administration. (NYT)
• Shares in pharmaceutical companies jumped after President Trump unveiled milder-than-expected initiatives for lower drug prices. But pharmacy benefits managers shouldn’t necessarily breathe easy.
• The turmoil at Air France-KLM could test President Emmanuel Macron’s resolve in overhauling the French economy. (FT)
• The Education Department has de-emphasized a unit focused on fraud by for-profit institutions. (NYT)
Michael Cohen, right. Drew Angerer/Getty Images
Michael Cohen’s business pitch: Fire your other consultants
When President Trump’s personal lawyer approached companies fretting about their lack of access to the new administration, he had a blunt message, according to the WSJ: No one outside the White House has a better connection to Mr. Trump than I do.
Obviously, that didn’t work out so well: Uber and Ford turned him down, and AT&T said hiring him was “a big mistake.” Senator Ron Wyden, Democrat of Oregon, wants to know what Novartis hoped to gain by hiring Mr. Cohen.
The big picture: The FT points out that while AT&T and Novartis didn’t break any laws, the swamp is far from being drained.
Tim Cook, left, and Mark Zuckerberg. Eric Risberg/Associated Press
Tim Cook takes more shots at Facebook and Google
Speaking to new graduates of his alma mater, Duke, the Apple C.E.O. touched on topics like gun control and the #MeToo movement. But he also cast shade on two tech rivals as Washington and other governments focus on user privacy, declaring, “We reject the excuse that getting the most out of technology means trading away your right to privacy.”
The next big fight over privacy is coming in Silicon Valley’s backyard. If it becomes law, the California Consumer Privacy Act could restrict what tech companies could do to profit from user data, and those that violate the rules could face lawsuits. (Google and Facebook oppose the ballot measure.)
Elsewhere in tech: Several Mexican banks may have been hit by a cyberattack. HSBC struck a trade finance deal with Cargill using blockchain. Did Elon Musk have his Kanye West moment? Lex tells Silicon Valley to suck it up.
Trying to close the gender pay gap
After Britain passed rules requiring companies to publish disparities in pay between men and women, the country’s businesses have been grappling over how to fix the problem. Here’s a look at some of those efforts:
• The cable company Virgin Media (median pay gap: 17.4 percent) has experimented with requiring that shortlists for every vacant job have at least one woman.
• The law firm Mills & Reeve (median pay gap: 34 percent) is emphasizing part-time work to help recruit and retain mothers.
Elsewhere in gender and the workplace: The actor Benedict Cumberbatch said that he would turn down roles if female co-stars don’t get equal pay. A group of women, including the actress Salma Hayek and the director Ava DuVernay, protested the film industry’s gender gap at the Cannes Film Festival. David Leonhardt wants readers to help make his columns more gender-inclusive.
The deals flyaround
• T-Mobile is hoping to avoid a replay of Sprint’s messy merger with Nextel. Holman Jenkins Jr. says that the AT&T deal’s outcome will be a pivotal test of the Trump administration’s stance on mergers.
• The hurdles that Paul Jacobs will have to overcome to buy Qualcomm. (FT)
• Toys “R” Us shows how lucrative bankruptcy can be for lawyers and other professionals. (NYT)
• The hedge fund magnate David Tepper is reportedly close to buying the N.F.L.’s Carolina Panthers. (Bloomberg)
• A deep dive into the merger of Luxottica and Essilor, which would create a global eyeglasses titan. (Guardian)
A Tesla Model 3. Jason Lee/Reuters
• A top Tesla safety executive, Matthew Schwall, defected to Alphabet’s Waymo. Tesla’s engineering chief, Doug Field, has taken a leave of absence.
• Andrew Smith, a partner at the law firm Covington & Burling who has represented Facebook and Uber, is expected to be named as the new head of the F.T.C.’s consumer protection unit. (NYT)
• Anand Chandrasekher, who led Qualcomm’s server chip business, has left the company. (Axios)
The speed read
• Marvel’s “Avengers: Infinity War” nearly broke a Chinese box office record and has racked up $1.6 billion in ticket sales worldwide. (Deadline)
• How one of Silicon Valley’s favorite charities became ensnared in allegations of harassment and abuse by its former top fund-raiser. (NYT)
• After years of being almost an afterthought, the corporate compliance department is now a hot commodity. (FT)
• A federal fraud investigation has laid bare issues in the world of lawsuit financing. (NYT)
• Why Soho House, the exclusive members club, wants … well, more members. (WSJ)
• Steve Wynn’s bad luck with Picasso continued when his “Le Marin” was damaged before auction. (Bloomberg)