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Aug 8, 2018

DealBook Briefing: How on Earth Will Tesla Go Private? I Business I DealBook I NYT




Elon MuskCreditRobyn Beck/Agence France-Presse — Getty Images

The huge questions about taking Tesla private

Shares in the embattled electric carmaker jumped yesterday after the FT reported that Saudi Arabia had bought a stake. Then Elon Musk dropped a bombshell on Twitter: He was considering taking the business private at $420 a share, and funding was “secured.” That would be the biggest ever leveraged buyout, and at a 20 percent premium on where Tesla’s trading.
The audacity of the plan dumbfounded traders and reporters — as did the casual way Mr. Musk announced it.
It makes sense for him. Investors have battered Tesla for missing production targets and failing to turn a profit in the eight years since it went public. One precedent Mr. Musk endorsed was Michael Dell, who revived his computer company after taking it private.
Huge questions remain, though. Does Mr. Musk really have that financing? (CNBC couldn’t find any banks aware of it.) How could Tesla afford the debt payments without free cash flow? Was Mr. Musk just trying to squeeze short sellers? And did his tweet violate securities rules?
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A port in Zhangjiagang, China.CreditJohannes Eisele/Agence France-Presse — Getty Images

China’s exporters are just fine, for now

President Trump’s tariffs against China — 25 percent on $34 billion worth of goods — started in early July. You wouldn’t know from China’s exports, which showed 12.2 percent annual growth that month. (A currency devaluation definitely helped.) The trade surplus with the U.S. did fall slightly, to $28.09 billion, from $28.97 billion in June.
That’s not nearly enough for the Trump administration, which is bringing in tariffs on another $16 billion of Chinese imports on Aug. 23, and talking about $200 billion more.
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CreditRobyn Beck/Agence France-Presse — Getty Images

We may have hit peak social media

Snap, which makes the Snapchat app, said yesterday that it lost three million daily active users between the first and second quarters. Facebook revealed late last month that its U.S. user growth had flattened. And Twitter said its monthly active user base had shrunk.
Kate Conger of the NYT considers what that means:
The declines and flattening growth raise questions about whether the social media companies have reached a saturation point in some markets, especially in developed countries. That may have been compounded by a steady stream of bad news about social media in recent months, which may have also deterred users.
Time spent on social media is also declining, according to an analysis by Pivotal Research reported by Axios — down 10 percent for Facebook, and 6 percent for Instagram and WhatsApp.
Toss in misinformation, Russian manipulation, and privacy fears, and it looks pretty rough to be a social media company right now.

Former employees accuse Wilbur Ross of stealing from investors

The commerce secretary has been criticized for inflating his net worth and investigated for shorting stock in a company he owned ahead of a negative news report. Now, Forbes reports on accusations that Mr. Ross essentially stole from business associates and investors in his private equity funds. (It also says he pilfered sweetener from a local restaurant.)
More from Dan Alexander of Forbes:
All told, these allegations — which sparked lawsuits, reimbursements and an S.E.C. fine — come to more than $120 million. If even half of the accusations are legitimate, the current United States secretary of commerce could rank among the biggest grifters in American history.
“The S.E.C. has never initiated any enforcement action against me,” Mr. Ross told Forbes. It did, however, fine him $2.3 million in 2016.
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CreditBrendan Smialowski/Agence France-Presse — Getty Images

Why most companies shouldn’t mention Trump

C.E.O. activism has become routine, but what do consumers think of it? The main takeaway from new polling on the subject by Morning Consult is that talking about the president isn’t a good idea. From its analysis:
Just 30 percent of people will have a more favorable impression of your company if you issue a positive statement about Trump. Alternatively, just 32 percent will have a more favorable impression if you issue a negative statement. No matter what you say about Trump, roughly 70 percent of the country will be upset or won’t care.
Advocating gun control, the poll found, would put 39 percent of Republican consumers off a brand, while attracting 48 percent of Democratic ones. Supporting anthem protests was another top turnoff for Republicans, and calling for abortion restrictions has a similar effect on Democrats.
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CreditLucas Jackson/Reuters

Be like us and don’t I.P.O., Spotify’s C.F.O. says

Spotify made waves when it listed shares directly on the N.Y.S.E. rather than through an initial public offering. Its finance chief, Barry McCarthy, has written an FT op-ed urging other companies to do the same.
The main reason? Not giving away money:
First, we saved on the underwriting fees, which range from 3.5 to 7 percent of the money raised. But the bigger cost saving was avoiding the I.P.O. discount. Think of it this way: the bigger the first-day gain in the closing price of your newly-issued stock, the higher the “cost” of your I.P.O. The investors who bought shares before the market opened pocket the gain in the stock price, instead of the company.

The F.C.C.’s phantom cyberattack

When the Federal Communications Commission’s comment system crashed during its net neutrality consultation, officials blamed a cyberattack.
But Gizmodo has obtained an investigation by the commission’s inspector general that says the problem was just viral traffic after John Oliver highlighted the consultation on “Last Week Tonight.” From the report:
While we identified a small amount of anomalous activity and could not entirely rule out the possibility of individual DoS attempts during the period from May 7 through May 9, 2017, we do not believe this activity resulted in any measurable degradation of system availability given the minuscule scale of the anomalous activity relative to the contemporaneous voluminous viral traffic.

Revolving door

Salesforce.com named Keith Block, its president, as co-C.E.O. alongside Marc Benioff.
Lior Ron, who sold the autonomous trucking start-up Otto to Uber two years ago, will now run Uber’s freight business.
Jeff Gattis, Magic Leap’s vice president of product marketing, has left the augmented-reality start-up months before its glasses are scheduled to go on sale.
Under Armour added Mohamed El-Erian, the chief economic adviser at Allianz, to its board.

The speed read

Deals
■ AT&T bought Otter Media, an online video company founded by Peter Chernin, for more than $1 billion. (NYT)
■ The Hollywood mogul Jeffrey Katzenberg raised $1 billion from Walt Disney, Alibaba and others for his mobile video start-up. (NYT)
■ Slack is reportedly raising financing at a $7 billion valuation. (TechCrunch)
Politics and policy
■ Michael Cohen, the former lawyer and fixer for President Trump, is reportedly under investigation for tax fraud. (WSJ)
■ Business leaders seem increasingly willing to accept President Trump’s dinner invitations. (Politico)
■ Poor planning means that President Trump’s border wall could cost more than expected. (WaPo)
Tech
■ Twitter defended its decision not to block Alex Jones, founder of Infowars. Mr. Jones accused other tech firms of a “concerted plan to erase my electronic identity.”
■ M.I.T.’s plan for tracking police surveillance: a cryptographic ledger. (ZDNet)
■ Over half of I.C.O.’s in the second quarter failed. (Business Insider)
Best of the rest
■ Would a better minimum wage take into account where people live? (WSJ)
■ Najib Razak, the former Malaysian prime minister, has been charged with money laundering in the 1MDB scandal, over which U.S. prosecutors are scrutinizing Goldman Sachs.
■ The American billionaire Stan Kroenke now has total control of the British soccer club Arsenal. (NYT)
■ Old banks are becoming churches, pharmacies and pizza parlors. (NYT)