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Feb 19, 2020

DealBook: A Presidential Pardon for the ‘Junk Bond King’

9-12 minutes - Source: NYT




Credit...Jae C. Hong/Associated Press
Good morning. Mike Bloomberg will appear onstage for the first time at a Democratic debate tonight, and Senator Elizabeth Warren is ready: “Primary voters curious about how each candidate will take on Donald Trump can get a live demonstration of how we each take on an egomaniac billionaire,” she tweeted. (Was this email forwarded to you? Sign up here.)
A reprieve for the “junk bond king”: Mr. Milken was among the “who’s who of white-collar criminals” pardoned by President Trump yesterday. In a statement, the White House called him “one of America’s greatest financiers” whose “innovative work greatly expanded access to capital for emerging companies.”
A long lobbying effort on behalf of Mr. Milken finally overturned his 1990 securities fraud conviction, for which he served 22 months in prison. (Read the judge’s explanation of the sentencing at the time.) The White House published a list of 33 high-profile names who supported Mr. Milken’s cause, including: Tom Barrack of Colony Capital; the Fox Business anchor Maria Bartiromo; Rudy Giuliani, who led the case against Mr. Milken in the 1980s; Robert Kraft, the New England Patriots owner; the media mogul Rupert Murdoch; Sean Parker, the Napster founder and former Facebook executive; the hedge fund billionaire John Paulson; the activist investor Nelson Peltz; and David Rubenstein of the Carlyle Group.
The NYT’s Jim Stewart wrote the book on Mr. Milken: His 1992 “Den of Thieves” chronicled the financier’s exploits at Drexel Burnham Lambert during the height of the “greed is good” 1980s. “It’s not hard to fathom why Mr. Milken’s saga would resonate with Mr. Trump,” Jim wrote yesterday in his analysis of the pardon. An excerpt:
Seen as an underdog, even a very wealthy and well-connected one, Mr. Milken has long inspired a counternarrative that he was a victim of a media and Wall Street establishment jealous of his wealth and success. However unfounded in fact, that version of reality has now gotten a presidential stamp of approval.
What next? Mr. Milken’s conviction came with a lifetime ban from the securities industry, although he paid $47 million in 1998 to settle a complaint from the S.E.C. that he had violated the order by advising friends, including Mr. Murdoch, on transactions. Could he now be tempted to get back into finance? “Today, that is the farthest thing from his mind,” Geoffrey Moore, Milken’s senior adviser, tells us. “He’s fully dedicated to continuing his lifelong crusade to cure cancer and other life-threatening diseases.”
Speaking of junk bonds, a new O.E.C.D. report sounds the alarm about a growing mountain of low-quality debt being issued by companies around the world. Noninvestment grade issues account for around a fifth of all corporate bonds issued over the past 10 years, the longest period that junk debt has been so prevalent since Mr. Milken’s 1980’s heyday, the O.E.C.D. notes. That suggests “default rates in a future downturn will likely be higher than in previous credit cycles.”
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Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York and Michael J. de la Merced and Jason Karaian in London.
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Mike Bloomberg caught the attention of many on Wall Street yesterday when he proposed policies to rein in the financial industry. Then he made more waves when his campaign said he would sell his financial empire if he became president.
Bloomberg L.P. could be valued at up to $60 billion, according to analysts at Burton-Taylor International. Campaign officials said Mr. Bloomberg would put the company into a blind trust should he win, with the intent of selling it.
The company is best-known for selling terminals that serve up reams of financial data to banks and trading firms around the world, for the nonnegotiable price of $24,000 per seat. Burton-Taylor estimates that the company brought in $10.5 billion in revenue last year. (Bloomberg’s news business accounts for a tiny fraction of its revenue.)
Who would want Bloomberg L.P.?
• Data-hungry exchanges like the Intercontinental Exchange, which owns the N.Y.S.E. The London Stock Exchange bought Refinitiv, a Bloomberg competitor, last year.
• Banks like Goldman Sachs and JPMorgan Chase, which have invested in Symphony, a rival to Bloomberg’s chat service.
• A cash-rich tech giant like Google or Microsoft.
Our colleague Ed Lee has thoughts on a potential sale:
Bloomberg L.P. generates $10 billion in sales a year, with around $4 billion coming in profit before taxes (and other items). Put it another way: Mr. Bloomberg is used to seeing several billion dollars of cash roll into his personal bank account every year, and even if an all-cash payout incurred a huge capital gains tax, he’s used to it.
Of course, there are good strategic buyers that could offer cash and stock. Microsoft, Google and Amazon — businesses that, like Bloomberg, deal in data and messaging — make sense. But Mr. Bloomberg will be calculating the following trade: giving up a very rich, regular cash dividend for stock in a company he doesn’t control that could go down in price.
Some have suggested a lone buyer could emerge, someone like Warren Buffett or Bill Gates who might appreciate the beauty of the business beyond the balance sheet. But that would create a set of optics no one would want: a billionaire helping out another billionaire so he can become president.
The Japanese tech conglomerate said this morning that it planned to raise about $4.5 billion. This being SoftBank, however, the way it’s doing so isn’t exactly straightforward.
We’d expect nothing less from a company whose $100 billion Vision Fund relies on a complicated, debt-heavy structure. In its latest maneuver, SoftBank will borrow against some of the holdings in its publicly traded Japanese telecom affiliate rather than just selling new bonds.
SoftBank needs quite a bit of money. It’s under pressure from Elliott Management, the activist hedge fund, to buy back about $20 billion worth of its shares to bolster its stock price. And it has been spending more of its own money on tech investments as fund-raising for its second Vision Fund proves to be slow going.
We’ve heard that before, but there are some positive signs. “It’s too early to tell if this reported decline will continue,” said the World Health Organization’s director general. “Every scenario is still on the table.”
Using bonds to fight the epidemic: At the urging of Beijing, Chinese companies have raised more than $3 billion in “virus control” bonds, reports the FT. The debt benefits from a faster approval process and low yields, since there is strong backing from state-backed buyers. Borrowers are required to devote at least 10 percent of the amounts raised to fighting the epidemic.
The usual ways of addressing sexual harassment in corporate America aren’t working, Gretchen Carlson and Roxanne Petraeus write in Fortune. They suggest another approach: rethinking the use of nondisclosure agreements.
When founders are building out their hiring practices, even at the early stages of their companies, they should understand what N.D.A.s are in their employment contracts, and consider the impacts on their colleagues, should those N.D.A.s be applied to sexual harassment cases. Investors should also be asking these questions to their portfolio companies.
Similarly, leaders of more mature companies have a real platform: They can publicly denounce the use of N.D.A.s in sexual harassment cases to set new standards when it comes to what is considered common practice in dealing with sexual harassment.
Deals
• Franklin Resources agreed to buy a fellow asset management firm, Legg Mason, for $4.5 billion. (WSJ)
• The Italian bank Intesa Sanpaolo has bid $5.3 billion to take over a rival, UBI Banca. (Bloomberg)
LendingClub is the first fintech company to buy a real-world bank with its $185 million deal for Radius Bancorp. (CNBC)
• Blue Apron, which went public at a $2 billion valuation in 2017, is now considering selling itself, at a time when its market value has fallen to $57 million. (WSJ)
Politics and policy
• Attorney General Bill Barr reportedly considered quitting over President Trump’s tweets about Justice Department investigations. (WaPo)
• A middle-class U.S. tax increase is inevitable sometime this decade. (Fortune)
• Britain outlined its plans to restrict immigration for low-skilled workers now that it has left the E.U. (Politico)
• Diseases like Covid-19 are deadlier in non-democracies. (The Economist)
Tech
• A federal judge rejected Huawei’s challenge to U.S. restrictions on working with government agencies. (Reuters)
• Employees of Kickstarter voted to unionize. (NYT)
• Alphabet is shutting down a moonshot project to harvest wind energy using kites. (Bloomberg)
• The I.R.S. accused Facebook of “downplaying” the value of its intellectual property to pay less in taxes. (FT)
Best of the rest
• JPMorgan Chase reshuffled the leadership of its investment bank, including creating a new committee of dedicated senior deal makers. (Reuters)
• Boeing is checking 400 grounded but undelivered 737 Max jets for debris — like tools and rags — left in fuel tanks. (Bloomberg)
• Why open-office plans are terrible: They make spaces like “phone booths” and “meeting pods” necessary. (NYT)

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