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Sep 9, 2020
DealBook: What if There Isn’t a Vaccine for Years?
The
conventional wisdom is that a coronavirus vaccine will be widely
available by next summer, if not earlier. But AstraZeneca’s move to halt testing of its treatment calls that into question — and puts into doubt how quickly the global economy can recover from the pandemic. AstraZeneca is investigating a serious suspected adverse reaction
in a volunteer in a late-stage U.K. trial. It isn’t clear whether the
illness is linked to the company’s vaccine, or for how long the drug
maker will keep its trial on hold. The AstraZeneca vaccine, which is
being developed with Oxford University, is reportedly under consideration by the Trump administration for fast-track approval. To be clear, this isn’t necessarily a bad thing.
Medical experts say the point of late-stage clinical trials is to
uncover potential side effects by giving thousands of people a treatment
under controlled conditions. “The perspective we need to keep in mind,“
said Dr. Faheem Younus,
the chief of infectious diseases at the University of Maryland Upper
Chesapeake Health, is this one potential case of a serious side effect
versus the tens of thousands of Covid-19 patients currently hospitalized
in the U.S.
• AstraZeneca was one of nine pharmaceutical companies to sign a public pledge not to submit their coronavirus vaccines for authorization until the treatments have been cleared in clinical trials. Still, the move raises several issues about life without a vaccine:
• Coronavirus infections appear to be leveling off in the U.S., but at a persistently high level, and experts fear a flare-up in the fall. That could lead to more government-imposed social restrictions, something that countries like Britain are reintroducing amid a resurgence in cases.
• Treatments for coronavirus infections, such as remdesivir and antibody drugs, will assume more importance. But they’re also subject to the same questions of safety, efficacy and availability as vaccine candidates.
• Widespread coronavirus testing — at airports, schools, workplaces, restaurants and more — will become even more critical
to restoring the public’s confidence. But the capacity to manufacture
and use virus tests, particularly in the U.S., is limited. How quickly
can that be ramped up?
• What path will the economic comeback take if a vaccine doesn’t come for a long time? Inequality created by a “K-shaped” recovery,
in which circumstances for wealthy people who can afford to isolate are
improving and those for everyone else are not, could worsen.
____________________________ Today’s
DealBook Briefing was written by Andrew Ross Sorkin in Connecticut,
Lauren Hirsch in New York, and Michael J. de la Merced and Jason Karaian
in London.
____________________________
Image
Credit...Katherine Marks for The New York Times
Breaking: LVMH wants out of Tiffany deal
The $16.2 billion deal between LVMH and Tiffany, agreed in November but recently delayed by the pandemic, looks even less certain today. LVMH said it could not complete the deal, and Tiffany has filed a lawsuit to force LVMH to go ahead with it. There has been concern for months that LVMH would seek to renegotiate the deal,in light of the stress the pandemic has put on the jewelry business. LVMH said in a statement
that it wouldn’t do the deal “as it stands,” citing a request from the
French government to delay the acquisition beyond Jan. 6 because of the
threat of U.S. tariffs on French goods. Tiffany claims that LVMH is in breach of its contract.
It rejects the idea that LVMH can avoid the deal by claiming that
Tiffany has undergone a “material adverse effect” that would have
breached its merger obligations. Its lawsuit, filed in Delaware,
also says that LVMH cannot avoid completing the deal because it is “in
some way inconsistent with its patriotic duties as a French
corporation.”
• DealBook hears that Tiffany decided to sue LVMH
over frustration that 10 months after the deal, it had not yet filed for
deal approval in the European Union.
Image
Credit...Vincent Tullo for The New York Times
Here’s what’s happening
Marketstumbled again, with tech leading the way down. Another sharp sell-off in tech stocks
yesterday led to the Nasdaq’s falling over 4 percent — reaching
“correction” territory — and the S&P 500 slipping nearly 3 percent.
Tesla shed a quarter of its value, in part because it wasn’t included in the S&P 500 index (more on that below). Futures are currently looking up, though, suggesting an end to the three-day slide.
Senate Republicans plan to vote on their “skinny” coronavirus aid bill.The move
is meant to put pressure on Democrats to compromise on economic
stimulus measures. House Democrats have rejected the $500 billion
proposal as “pathetic,” and even some Senate Republicans are likely to
oppose it. JPMorgan Chase said customers and workers had misused federal relief money.The bank said
it had found “instances of customers misusing Paycheck Protection
Program loans, unemployment benefits and other government programs.”
JPMorgan said it was cooperating with law enforcement. New York real estate faces its biggest challenge since the financial crisis.
Under 10 percent of New York’s office workers had returned as of last
month, and just 54 percent of companies plan to return by July, The Times reports.
Businesses have increasingly put off decisions to sign new leases, and
some are holding out for steeper discounts than are now on offer. The first day of school in the U.S. didn’t go smoothly.Website crashes and cyberattacks
bedeviled many students logging on remotely. “A lot of districts are
just wildly unprepared for online learning,” one expert told The Times.
College students attending in-person classes aren’t faring much better: Tens of thousands have been infected with the coronavirus, and universities are resorting to lockdowns.
Deal Professor: What is Tesla worth?
Steven Davidoff Solomon,
a.k.a. the Deal Professor, is a professor at the U.C. Berkeley School
of Law and the faculty co-director at the Berkeley Center for Law,
Business and the Economy. Here, he and Panos N. Patatoukas, a professor at Berkeley’s Haas School of Business, run the numbers on Tesla and try to make sense of its volatile valuation.
It’s
been a torrid time for Tesla, which has lost a third of its value over
the past week or so. Yesterday alone it erased 21 percent in value,
leading another down day for technology stocks. It follows an amazing
bull run — for tech stocks in general and Tesla in particular.
Is the correction warranted?
Let’s
look at it through the eyes of Tesla investors. What did they need to
believe about its path ahead to have been willing to value Tesla at
almost $500 billion in market capitalization at its recent peak?
Image
We
can apply traditional valuation techniques to see what would need to
happen for this valuation to be justified. In theory, a company’s
fundamental value is the capital in place plus the expected added value.
Value added, the theory goes, should be based on investors’
expectations about growth and profitability. Using this basic framework,
we recasted the Tesla story in terms of fundamental projections over a
10-year horizon.
There are two key aspects: sales growth and profit margins.
If
Tesla is going to justify a half-trillion market capitalization, it
needs to increase its sales from $24.6 billion in 2019 to approximately
$140 billion by 2030. This would require an annualized growth rate of 19
percent, and end up with the company becoming as big as G.M. and Ford
are today.
At the same time, Tesla also needs to expand its net
profit margin, the money earned for shareholders per dollar of sales. By
our calculations, its net margin will need to increase from minus 3.5
percent in 2019 to over 21.5 percent by 2030. That means that by 2030
Tesla’s margin would converge to what Apple’s is today. Toyota is among
the most profitable big automakers, and its margin in its latest fiscal
year was around 7 percent.
Over all, if you were willing to buy
Tesla’s shares at their recent peak, then you should also be willing to
believe that over the next decade Tesla will achieve the scale of Ford
or G.M. with the margins of Apple. This implies that Tesla would become
more than a car company: It would have to become a renewable technology
company in which cars are only a small part of its business. Elon Musk’s
moves into solar panels and batteries suggests that he understands
this.
Eventually, expectations reflect reality and fundamental
valuation drivers come into play. That said, expectations may take a
long time to correct themselves if investors aren’t very focused on
fundamentals. It’s possible that Tesla and other hot tech stocks will
justify their recent highs, but a lot needs to go right in the long
term. Perhaps investors are starting to realize this, and revising their
expectations.
Image
Credit...Hiroko Masuike/The New York Times
Exclusive: A big merger in the business of ethics
One
of the best-known advisers to companies on ethics and compliance, LRN,
will announce today that it is buying a rival to expand internationally.
It comes as the New York-based firm capitalizes on companies’ growing
interest in overhauling their corporate cultures at a time of social
justice movements. LRN plans to acquire Interactive Services,
a Dublin-based provider of compliance and online learning programs.
Interactive Services’ clients include Biogen, BNP Paribas, Citigroup,
FedEx and Hershey. The combined company will count about 40 percent of
the Fortune 500 as clients. The terms of the deal were not disclosed.
• The deal’s roots lie in a 2018 investment by Leeds Equity Partners, a capital infusion intended to help LRN increase its share in an estimated $3 billion market for ethics and compliance training. The sorts of services that LRN provides are in high demand.
“We are being asked to help companies create powerful codes of conduct
that help their people genuinely live company values,” said Dov Seidman,
LRN’s founder and chairman. At DealBook’s 2018 summit, Mr. Seidman was
named a “Groundbreaker” for his role in changing the business world.
“You will be much more effective if you earn the moral authority to lead
rather than rely on the formal authority that goes with your title,” he said at the time.
Image
Credit...Kimberly White/Getty Images For Techcrunch
The long-awaited launch of the Long-Term Stock Exchange
Eric
Ries is launching the Long-Term Stock Exchange today, nine years after
his book “The Lean Startup” laid the foundations of the concept and made
him a mini-celebrity in Silicon Valley.
The big idea:
LTSE’s pitch is that it makes it easier for companies to manage for —
you guessed it — the long-term instead of obsessing about quarterly
targets. The risks of short-term thinking have been called out by the
likes of Jamie Dimon and Warren Buffett, and the embrace of stakeholder capitalism has questioned the wisdom of serving shareholders alone. The exchange says it’s more than just marketing. Companies that list on the San Francisco-based exchange are required to report on and maintain a series of principles
that “focus on long-term value creation.” This should appeal to
institutions like pension funds that tend to take a longer-term view of
returns, Mr. Ries said. He dismissed concerns that even companies with
the best intentions could find themselves vulnerable to activist
investors or takeover threats, forcing them to make short-term,
defensive moves. “The bullying tactics only work if you’re actually
afraid,” Mr. Ries said. It doesn’t have any companies signed up — yet. Today
is “the starting gun” in which LTSE can begin the solicitation process,
beginning with companies that have yet to go public. Asana has explored
the prospect of listing on LTSE, people familiar with the matter said,
as has Airbnb, The Times has reported. “I think this is such a seismic change that to get even one company to do it is unbelievable,” Mr. Ries said.
•
One of the companies that lists on LTSE may be the LTSE itself. The
company would not consider exploring a sale, but would consider going
public — on its own exchange, of course.
The speed read
Deals
•
Berkshire Hathaway will invest $570 million in the I.P.O. of Snowflake,
the cloud database company, in a rare bet by Warren Buffett on
enterprise tech. (FT)
• G.M. agreed to take an 11 percent stake in the electric truck maker Nikola, valuing the start-up at nearly $19 billion. (NYT)
• The merger of the digital ad companies Outbrain and Taboola has fallen apart nearly a year after the deal was announced. (CNBC)
• Sard Verbinnen, the public relations firm, agreed to buy Oakhill Communications of Britain to bolster its U.K. practice. (Sard Verbinnen) Politics and policy
• In an unusual move, the Justice Department is seeking to replace President Trump’s private counsel in a defamation suit. (NYT)
• Britain’s top government lawyer quit yesterday amid plans to override the country’s Brexit treaty with the E.U. (NYT) Tech
•
Uber plans to spend $800 million by 2025 to help drivers switch to
electric vehicles, as part of a pledge to make all rides emissions-free
by 2040. (Bloomberg)
•
Apple countersued Epic Games over their App Store dispute, accusing the
Fortnite developer of plotting to violate payments rules. (The Verge) Best of the rest
• The reality TV hit “Keeping Up With the Kardashians” is calling it quits after 20 seasons. (LA Times)
• If you received a package of mystery seeds from China in the mail, would you plant them? These Americans did. (Vice)
• “Is Zoom on the road to genericide?” (Quartz) Correction:
In yesterday’s newsletter, we should have said that Deval Patrick is a
former executive at Bain Capital, not a current one. He resigned last
November to pursue a presidential bid; the return to politics is why
some think he’s in the mix for a top post in a Biden administration. Thanks for reading! We’ll see you tomorrow. We’d love your feedback. Please email thoughts and suggestions to dealbook@nytimes.com.
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