Two pillars of Elon Musk's empire are facing financial crunches as the entrepreneur seeks to combine the two companies through a controversial acquisition.
Tesla Motors Inc.,TSLA0.32% which makes electric cars, disclosed in a securities filing Wednesday that it has to pay $ 422 million to its bondholders in the third quarter, and that it will raise additional money by the end of the year. The purpose of the additional capital, among other things, is to support its proposed merger with home-solar company SolarCity Corp.SCTY-0.14% Mr. Musk is the chairman of both companies.
The filing also revealed that in recent weeks, 15 institutional investors passed on either acquiring SolarCity or injecting equity into it. The company is having difficulty tapping the public markets amid the proposed merger and is facing a liquidity squeeze, the filing indicated. SolarCity's cash declined to $ 146 million on June 30, from $ 421 million a year earlier, the company has reported.
Mr. Musk ignited controversy in June when he proposed combining the two companies. Detractors characterized the proposal as a bailout for SolarCity. Mr. Musk said the deal will save money and create a more diverse company focused on batteries, solar energy, automobiles and heavier vehicles.
In an interview Wednesday, Mr. Musk said that he had envisioned Tesla's role in solar energy back in 2006 when he laid out his initial plan for the auto maker. The combination of the companies, he said, is intended to remove conflicts of interest created when the separate entities do business with one another.
A Tesla spokeswoman said the merger was "the best way for Tesla to bring an integrated clean energy product to market."
Last week, Mr. Musk and his cousins—SolarCity Chief Executive Lyndon Rive and its technology chief, Peter Rive—disclosed they would together buy more than 80% of a $ 124 million SolarCity bond issue. The bonds will pay an annual interest rate of 6.5% and mature in 18 months.
Mr. Musk said he bought half of the SolarCity bonds "as a show of faith in the company."
Before the bond deal was announced, SolarCity's advisers had asked Tesla to "consider providing SolarCity with short-term financing" amid the pending merger deal, according to Wednesday's filing. Mr. Musk said the bond sale was a better option.
"SolarCity needs emergency funds to keep operating, and without the debt they issued to insiders they wouldn't be able to cover their working capital," said Gordon Johnson, a managing director at Axiom Capital Management Inc.
In its 10-year history, SolarCity has notched total revenue of just $ 1.5 billion, while amassing $ 3 billion in debt. Because the company's operating costs are high and its profit margins are thin, it depends on issuing debt. SolarCity has a $ 250 million term loan due Dec. 31, and $ 55 million in bonds coming due between Sept. 3 and the end of the year.
Tesla's debt-to-equity ratio was 145.5% as of June 30, and SolarCity's was 375.6%, according to FactSet
Tesla said in Wednesday's filing it could issue up to 15 million shares to pay SolarCity shareholders to acquire their company. The filing said the stock-swap offer now values SolarCity at $ 24.16 a share, or roughly $ 2.4 billion based on Tesla's closing stock price June 21, before its offer was disclosed. Shareholders of both companies are likely to vote on the proposed deal in October.
Tesla has been able to regularly tap various sources of capital to sustain its operations. In the second quarter, it raised $ 1.7 billion from an equity offering, and its reserves also benefited from hundreds of thousands of $ 1,000 refundable deposits for its coming Model 3 vehicle.
Tesla's core business has burned more than $ 3 billion in cash dating back to late 2014. It has issued equity or convertible debt every year since its initial public offering in 2010.
In the Wednesday filing, Tesla said it would again tap debt or equity markets by the end of 2016 to cover its costs of merging with SolarCity, developing a cheaper electric car, producing batteries and expanding retail operations.
The filing indicated that Tesla's board of directors began seriously considering an acquisition of SolarCity following a board meeting on May 31. Earlier, in February, Mr. Musk suggested to Lyndon Rive, SolarCity's CEO, that they should consider a combination. But the Tesla board, at a Feb. 29 meeting, rejected the idea because of "the potential impact on Tesla management's time and resources," the filing said.
On June 21, Tesla announced on its blog that it had made a preliminary proposal to SolarCity. By the first week of July, SolarCity's liquidity had deteriorated further, the filing showed. At a July 6 meeting, representatives of SolarCity's outside counsel and bankers discussed SolarCity's options and its "near-term operational and liquidity position," the filing said.
At that meeting, the advisers also discussed another development. "Certain lenders appeared to be delaying funding certain financings of SolarCity as a result of the announcement of the Tesla proposal and that SolarCity was unable to access the equity capital markets as it regularly did as a result of the pending Tesla proposal," the filing said.
Between June 21 and SolarCity's ultimate acceptance of Tesla's offer, SolarCity's advisers considered 15 potential suitors, including one private-equity firm and several financial counterparties, according to the filing. By July 21, all the potential suitors except one had backed away, the filing said.
The next day, the final suitor dropped out as well because "it did not believe that it was in a position to make an acquisition proposal within the range of Tesla's original proposal," according to the filing.
Mike Andres, president of McDonald's Corp.'s U.S. division and a key figure at the forefront of the chain's domestic turnaround over the past 18 months, is retiring at the end of the year, the company said on Wednesday.
Chris Kempczinski, currently the executive vice president of strategy, business development and innovation, has been picked to succeed Andres as president of McDonald's USA. The change will be effective Jan. 1.
"Mike has been relentless in his commitment to building a better brand," McDonald's CEO Steve Easterbrook said in a statement. "From significant strides in food quality to meaningful customer initiatives like all-day breakfast and forging an even stronger partnership between U.S. operators and the company, his commitment to our customers is unmistakable."
The change represents only the latest in an executive shakeup that effectively started with Easterbrook's ascension to the CEO job in March of last year. It comes less than a month, for instance, after the announced retirement of the company's chief administrative officer, Pete Bensen.
Andres had been a longtime executive with the Oak Brook, Ill.-based McDonald's but left to run Logan's Roadhouse from 2012 through 2014 — when he returned to the company to run its U.S. business.
He will be replaced by a relative newcomer in Kempczinski, who joined the company last year after a career spent working in strategy and operational positions at consumer companies like Kraft Foods Group.
"We are confident Chris is the right leader to build upon our U.S. progress and bring a new level of convenience and excitement to the restaurant experience," Easterbrook said. "His proven track record of driving change is invaluable as we continue to transform McDonald's into a modern, progressive burger company."
Kempczinski will work alongside Andres in the coming months to "ensure a smooth transition."
He said in a statement that he looks "forward to building on the significant progress in the U.S." while continuing innovation and collaboration with operators and suppliers.
Andres, for his part, said that the company's improved sales means now is the right time to leave.
"With the strides we have made in the U.S. business this is the right time for me to retire," he said in a statement. "I'm proud of the work we have done to put our customers first and enhance our menu so customers can feel good about eating the food they love at McDonald's."
In addition to Andres' retirement, McDonald's said that Doug Goare, president of the company's International Lead Markets, would also take on the role of chief restaurant officer. He'll oversee many functions managed by Bensen.
Lucy Brady, meanwhile, was named senior vice president of corporate strategy and business development. She will take on the role vacated by Kempczinski overseeing strategy development, planning and innovation to drive growth for the company. Brady had been senior partner and managing director with The Boston Consulting Group.
Contact Jonathan Maze at jonathan.maze@penton.com Follow him on Twitter at @jonathanmaze
Image copyright RTÉImage caption The Irish Cabinet met on Wednesday to discuss the issue
The Republic of Ireland’s Cabinet meeting to discuss the European Commission’s decision that Ireland granted undue tax benefits of up to €13bn (£11bn) to Apple has been adjourned.
Finance Minister Michael Noonan said the Irish government will appeal the ruling.
Independent ministers have sought the recall of the Irish parliament if they are to back an appeal.
The meeting was adjourned until Friday.
After Wednesday’s meeting, the Irish government said it had a “thorough discussion” on the European Commission’s decision based on Mr Noonan’s proposal that an appeal be lodged.
It said the cabinet had received a “detailed briefing” from Mr Noonan.
“Following the discussion, it was agreed to adjourn the meeting to allow further time to reflect on the issues and to clarify a number of legal and technical issues with the Attorney General’s Office and with officials,” the statement added.
“The government meeting will resume on Friday at 11am to make a decision on the matter.”
Irish broadcaster RTÉ reports that independent ministers also sought a strong statement on tax policy if they are to back any government appeal.
Independent minister Katherine Zappone welcomed the adjournment and said it was important to allow time for the issues to be further explored.
Another independent minister Shane Ross said there had been a frank exchange of views at the meeting.
He said they had difficulties with taking any of the courses proposed at the meeting and did not know if those concerns would be met. He confirmed that the recall of the Irish parliament had been discussed.
The Irish government has said it “disagrees profoundly with the commission’s analysis”.
“Ireland did not give favourable tax treatment to Apple,” it added.
“Ireland does not do deals with taxpayers. No fine or penalty has been levied against the Irish State.
“This decision has no effect on the 12.5% rate of corporation tax and is not about Ireland’s wider corporation tax regime.”
Speaking ahead of the meeting, Irish Prime Minister Enda Kenny said time was needed to absorb the European Commission’s decision, which runs to 150 pages.
He said the decision created an “unprecedented situation” and it was important people had the opportunity to have any anxieties addressed and to raise questions that they may have.
Image copyrightBrian LawlessImage caption Irish Finance Minister Michael Noonan wants to appeal the European Commission decision
“The government has made its position very clear as outlined by Mr Noonan so we will have a good discussion with our colleagues around the table about it,” he said.
Minister for Public Expenditure Paschal Donohoe rejected appeals for an early recall of the Irish parliament to discuss the Apple case.
The Independent Alliance said it is reviewing the commission’s decision.
Office ‘existed on paper’?
The European Commission said Ireland’s tax rulings had allowed Apple to pay substantially less tax than other businesses.
The Irish system had allowed profits to be attributed to a head office that “only existed on paper”, said Margrethe Vestager, the European Commissioner for Competition.
Image copyrightRTÉImage caption Enda Kenny said the decision created an ‘unprecedented situation’
Analysis: BBC Ireland Correspondent Shane Harrison
It all comes down to Ireland’s reputation.
The Irish government has been criticised, particularly in the US, for almost being a tax haven similar to the Cayman Islands, something it strongly denies.
But €13bn is a huge amount of money: It would go a long way towards solving the housing crisis in the Republic for example.
Fine Gael, Fianna Fáil and Labour are more or less of the view that the government should appeal against the ruling.
But Sinn Féin are calling for an independent assessment of whether or not Apple did get unfair treatment, whether it was human error or whether the system colluded to create this situation as the European Commission seems to believe.
It believes the government should not appeal and should spend the money.
The left-wing parties also believe the money should be spend in citizens’ interests.
For them, it is a moral issue as to whether or not Apple are being getting unfair treatment given the amount of money ordinary people pay in their taxes.
Thirteen billion euros is approximately equivalent to a quarter of what the Irish government spends per year, and what it spends on health in total.
The Republic of Ireland’s government is a minority one, with Fine Gael being propped up by independents.
It is not clear whether the Independent Alliance cabinet members will vote to appeal the decision.
Apple itself is appealing against the decision, saying: “The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process.
Image copyrightGetty ImagesImage caption Apple intends to appeal the European Commission’s ruling demanding it pays €13bn in taxes to Ireland
“The commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money. It will have a profound and harmful effect on investment and job creation in Europe.
“Apple follows the law and pays all of the taxes we owe wherever we operate. We will appeal and we are confident the decision will be overturned.”
The appeal will be made first to the General Court of the European Union in Luxembourg and then to European Court of Justice.
ALL of Ireland’s healthcare budget
66% of its social welfare bill
15 million iPhones
27% of Apple’s 2015 profit
Getty
Apple chief executive Tim Cook has said the company is committed to Ireland and plans to continue investing.
Mr Cook has published a message on the company’s website reiterating the organisation’s commitment to Ireland.
It was supposed to be the beginning of a new era when Elizabeth Holmes, the chief executive of the beleaguered blood-testing company Theranos took the stage at a major scientific conference earlier this month and presented a new technology and data on a Zika test. The company, Holmes told thousands of scientists, had already submitted the test to the Food and Drug Administration, seeking emergency use authorization.
But federal inspectors visited Theranos soon after and found that that some of the Zika data collection had gone forward without an essential safeguard to prevent patient harm, according to a Wall Street Journal report published late Tuesday. The company confirmed that it has withdrawn its Zika test from consideration for emergency clearance from the Food and Drug Administration.
The setback comes as a separate agency — the Centers for Medicare and Medicaid Services — considers Theranos’s appeal of harsh sanctions that included a two-year ban on Holmes owning or operating a laboratory after numerous deficiencies were found at its Newark, Calif. laboratory.
“It’s unfortunate for Theranos to be caught in another compliance issue so soon after the major issues were reported with their clinical testing laboratory,” Stephen Master, director of the central lab at Weill Cornell Medicine, wrote in an e-mail. “Given the amount of scrutiny they’re under, I would have expected them to be particularly careful about the regulatory issues surrounding research on human subjects.”
[How Theranos's reboot could backfire]
Citing unnamed people familiar with the matter, the Wall Street Journal reported that inspectors found that some of Theranos’s Zika data was collected without approval by an institutional review board, a committee that performs a critical stopgap function in medicine — overseeing and monitoring research, to make sure it doesn’t pose a threat to patient safety.
“The FDA cannot confirm the existence of or comment on any current/pending product applications,” agency spokeswoman Tara Goodin said in an e-mail.
According to the company’s earlier news release about the Zika test, finger-stick blood samples were collected from patients in the Dominican Republic and shipped to its lab in Palo Alto. That release also specified that the data that were presented in its scientific presentation in early August were conducted under protocols that had been approved by an institutional review board.
The company plans to resubmit the test for approval.
"In my mind, this was a positive interaction with the FDA, and I'm grateful for its collaborative approach,” Dave Wurtz, Theranos’s vice president of regulatory, quality and clinical affairs said in a statement. “We hope that our decision to withdraw the Zika submission voluntarily is further evidence of our commitment to engage positively with the agency. We are confident in the Zika tests and will resubmit it."
Theranos also announced last week that it was appealing sanctions imposed by regulators.
Since the announcement of the sanctions, “Theranos has made substantial progress toward correcting the deficiencies CMS identified, including appointing new laboratory leadership; enhancing Theranos' clinical policies and procedures; and revamping training programs,” the company said in a statement.
CMS spokesman Tony Salters said the appeal is under review and that as with any ongoing enforcement issue, the agency would not comment further.
Read More:
What happened when I tried the new blood test that was promised to change the world
The sobering thing doctors do when they die
Emails reveal that concerns about Theranos's FDA compliance date back years
The cast of Season 23 of “Dancing With the Stars” was revealed Tuesday morning on “Good Morning America.”
Vying for the Mirror Ball trophy this time around are:
Olympic swimmer Ryan Lochte and Cheryl Burke
–Fresh off his scandal in Rio, Lochte is diving into the competition.
Olympic gymnast Laurie Hernandez and Valentin Chmerkovskiy
– Like Lochte, Hernandez is leaping into the fray after winning the gold in Rio.
Former “Brady Bunch” star Maureen McCormick and Artem Chigvintsev — Taking a page from her TV mom Florence Henderson who competed in 2010, McCormick will put on her dancing shoes this season.
Talk show host Amber Rose and Maksim Chmerkovskiy
– Rose came to fame as the former girlfriend of rapper Kanye West and ex-wife of rapper Wiz Khalifa, but she’s written her own way since then as a model, actress and host of VH1’s “The Amber Rose Show.”
“Little Women: LA” reality star Terra Jole and Sasha Farber – Jole is both a cast member and an executive producer for the Lifetime reality series which chronicles the lives of little people. She just gave birth to her second child and also stars in the reality show “Terra’s Little Family.”
Former “Taxi” star Marilu Henner and Derek Hough
— The radio host and author is best known for her role as Elaine on the sitcom, which ran from 1978 to 1983.
Former Texas Governor Rick Perry and Emma Slater — Perry didn’t make the cut the two times he ran for President of the United States, but he will be angling for votes on the show.
Former child star Jake T. Austin and Jenna Johnson
– Fans fell in love with Austin on Disney’s “Wizards of Waverly Place” and he’ll be angling to transform that fan base into votes.
Former pro football player Calvin Johnson
and Lindsay Arnold – The former wide receive for the Detroit Lions is newly retired from the gridiron.
Super producer and recording artist Kenny “Babyface” Edmonds and Allison Holker
— The man who helped bring the world such musical acts as Toni Braxton and TLC is also a Grammy-winning artist in his own right.
Former rapper Vanilla Ice and Witney Carson
— “Ice Ice Baby” made him a star in the early 90s, but more recently the man born Robert Van Winkle has found success renovating homes.
Race car driver James Hinchcliffe and Sharna Burgess
— Hinchcliffe survived a horrifying crash on the Indianapolis Motor Speedway in 2015, which the show is sure to address.
Country singer Jana Kramer and Gleb Savchenko
— Kramer joins thecastjust days after thanking fans for supporting her in the midst of a split from her husband Mike Caussin.
“I think it’s time to hang up my Speedos and put on my dancing shoes,” Lochte said Tuesday morning on GMA. “I’m going to treat this kind of like going into the Olympics.”
The new gig comes at a good time for Lochte, who returned from the Olympics under a dark cloud for lying about being robbed at gunpoint in Rio. Four major sponsors walked away from the swimmer.
This season will also welcome back some veterans.
Derek Hough confirmed on Instagram Monday that he would be returning to the dance floor.
Hough took some time off after winning Season 21 with Bindi Irwin. He had been set to star this fall in the Broadway revival of “Singin’ in the Rain.” But he explained that the production had been unable to secure a theater and has been postponed.
“It’s always great to be back with my DWTS family, coaching, creating and making lasting memories,” he wrote.
Two-time champion Cheryl Burke will also return to partner with Lochte. She last competed with partner Antonio Sabato Jr. during Season 19 in 2014.
“For me it was about performing again,” she said following the announcement. “I am ready to be back and do what I was born to do.”
Maksim Chmerkovskiy left after winning the show’s mirror ball trophy with Olympic gold medal ice dancer Meryl Davis in 2014, but has also opted to compete again.
“Dancing With the Stars” returns September 12 on ABC.
The European Commission, the EU’s executive arm, is ordering Apple to pay $ 14.5 billion in taxes to Ireland. But Ireland doesn’t want the money, and Apple says it shouldn’t have to pay. And the kind of tax breaks that the EU accuses Ireland of offering Apple are similar to the kind of deals common in, and legal in, the US.
What happened?
This is what the EU says:
Apple Inc., which is based in California, set up two companies in Ireland: Apple Sales International and Apple Operations Europe. According to the European Commission, these companies had no employees or real offices but still realized large profits. Apple paid virtually no tax to Ireland, or to any country, on these profits because of a former law in Ireland. In the last year that the law was in effect, 2015, Apple Sales International paid just 0.005% tax, according to the commission.
EU Competition Commissioner Margrethe Vestager.Thomson Reuters
The European Commission is led by Margrethe Vestager, a member of Denmark’s social liberal party. The commission is not a tax authority; instead, its job is to maintain fairness between the EU member states. And that brings us to the most important part in this story: The commission says this law specifically favored Apple for special treatment.
When Apple sold iPhones, iPads, and Macs in an EU single-market nation, such as France, the commission said Apple would funnel the profits from France to Ireland and would not pay tax in either country. But this is not really about Apple’s tax-avoidance strategies, which are infamous.
The European Commission’s issue is really not with Apple but with Ireland.
Aid versus tax
How’s this for a tricky balancing act?
EU leaders have no issue with different member nations charging different corporate-tax rates. That’s why it’s acceptable for Ireland to charge businesses a 12.5% income tax whereas France levies 33.3%.
The European Commission released this infographic showing how Apple paid virtually no taxes through its Irish companies. European Commission
This is crucial because nations want to maintain autonomy over their fiscal policies. That’s part of the ongoing power struggle between individual nations and the EU (remember Brexit?). What’s not acceptable is what the EU calls “state aid.” This is when a country offers something special that’s seen as benefiting an individual company.
It can be even more basic. If France taxed companies in the north less than those in the south, that’s generally state aid in the EU’s view. It’s the same with trying to get a German company to move to Denmark by abating property taxes for a new headquarters.
“The view is that not levying taxes that everyone else has to pay amounts to the same result as giving money to just one company,” Philipp Werner, a partner in the law firm Jones Day’s Brussels office who has represented multinational companies appealing state-aid decisions, told Business Insider.
If Apple had just paid the standard 12.5% income tax in Ireland, the country wouldn’t have EU leaders upset in Brussels. Instead, the commission says Ireland gave Apple “selective tax treatment” starting in 1991, with the first of two tax rulings. In effect, Ireland signed off on a plan in which Apple would move money to a stateless “head office” with no meaningful activities.
“Therefore, only a small percentage of Apple Sales International’s profits were taxed in Ireland, and the rest was taxed nowhere,” the commission said in a press release.
Ireland explicitly said this was fine by its standards. But the EU contends that this arrangement “gave Apple an undue advantage that is illegal under EU state aid rules.”
“Apple entered into a deal with Ireland to not pay tax on all those profits,” Edward Kleinbard, a professor of law and business at the USC Gould School of Law, told Business Insider. Instead, Apple paid “an arbitrarily small amount to Ireland in return for a vague promise to keep jobs in Ireland.”
Apple and Ireland aren’t the commission’s first targets. There were similar rulings against the Starbucks’ tax dealings in the Netherlands and a division of Fiat in Luxembourg.
Apple and Ireland have a different view
Irish Finance Minister Michael Noonan.Thomson Reuters
Apple was one of the first major tech companies to set up shop in Ireland. At the time, in 1980, Ireland was in bad economic shape. Unemployment was high, and many people left Ireland to try to find work in other countries.
Low corporate tax was one way Ireland improved its economy and attracted big companies, and Apple was one of the early companies to benefit.
Irish Finance Minister Michael Noonan has categorically rejected the notion that this was a special deal for Apple.
“The Irish Revenue don’t do deals,” Noonan told CNBC on August 30. “They issue opinions to clarify a tax situation for individual companies, but we never do deals.” He continued to say that Apple doesn’t owe any taxes to Ireland. “They may owe it elsewhere, but not to the Irish authorities.”
To underscore the delicate relationship, Noonan accused the commission of meddling in the policies of sovereign governments. For its part, Apple CEO Tim Cook shot back, saying in an open letter that the European Commission “has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process.”
Both Ireland and Apple say the company has become a big part of the Irish economy, with 6,000 workers there. And Cook also objected to the ruling being retroactive. Under EU rules, it can compel a country to collect taxes going back 10 years from the first date it asked for information.
Ireland doesn't want the money
Here’s one of the ironies: The EU is, in effect, ordering Ireland to collect a lot of money. Most, if not all, of the $ 14.5 billion would go to Ireland and could be used to pay down debts. But Ireland is not interested.
“Although they get a huge amount of money back, they also want to fight it,” said Werner at Jones Day. “They’re not only thinking about Apple — they’re thinking a whole lot of other companies established in Ireland.”
Losing this battle will hurt Ireland’s credibility as an inexpensive place to do business, and a place where tax laws are clear and settled.
Why is the US fighting this?
US Treasury Secretary Jacob Lew.REUTERS/Gleb Garanich
Another irony: You might think the US would applaud any effort to collect tax from US-based multinationals using Irish subsidiaries to pay less, or zero, tax. But there are a few reasons the US Treasury department is vehemently against this EU ruling and other pending cases targeting companies, such as Amazon.
One is simple: It wants to protect US businesses, and the Treasury says they’re being unfairly targeted by this EU crackdown.
Second, the US wants to preserve tax revenue it hopes one day will come its way.
Companies like Apple say US taxes are too high, so they keep foreign earnings overseas. But Congress has long debated ways to get multinational American companies to repatriate some of that cash. The Treasury Department says if the commission wins this case, US companies could use these taxes paid in Europe to offset US taxes. That, it says, “would effectively constitute a transfer of revenue to the EU from the US government and its taxpayers,” according to a Treasury white paper.
What about other European countries?
In his letter, though, Cook may have stepped into another debate over its aggressive tax avoidance by saying, ” A company's profits should be taxed in the country where the value is created.” This is a different issue.
If Apple made money in France but realized those profits in Ireland, it is up to France, not the EU, to complain and try to get some of that money back.
The whole reason Apple’s European operations are in Ireland, after all, are for its tax advantages. The question is just whether Apple received illegal special treatment.
Wait, don’t these tax breaks happen in the US all the time?
Tesla’s Gigafactory, in Nevada, received the kind of tax breaks that would be illegal in the EU.YouTube/Above Reno
One reason all this might seem odd to Americans is that the “special treatment” Ireland is accused of giving Apple is similar to incentives American states give companies all the time legally.
Massachusetts, for instance, put together $ 145 million in incentives to persuade General Electric to move from suburban Connecticut to Boston.
Never mind that some research suggests these sweetheart deals often don’t pay off. Politicians can’t stop offering them.
When Tesla said publicly it wanted to build a Gigafactory to produce batteries, states like California, Nex Mexico, and Nevada stumbled over themselves to offer the most generous tax breaks. In the end, Nevada agreed to $ 1.2 billion in tax incentives to win the deal. If these deals were issued by France to attract a company based in Denmark, it would be illegal under EU rules.
What about inversions?
Some American companies have gone further than Apple to take advantage of Irish tax breaks. Pharmaceutical firm Allergan has acquired or formed Irish subsidiaries and then “inverted,” or transferred its legal headquarters to Ireland. Even if its headquarters were in the US, it is effectively an Irish company.
“Inversions are separate but related,” Kleinbard said. Companies that invert “take advantage of an easily manipulated definition of what is a US company.”
Nothing in the European Commission ruling affects inversions. It’s up to US authorities to crack down if they want to stop the practice. Congress, for instance, could change tax law to consider a company American if its leadership and most of its workers are based in the US.
What’s next?
Apple, the most profitable company in the world, and Ireland, which has some of the lowest corporate taxes, made easy targets for the European Commission. But it’s clearly not done yet. It’s targeting McDonald’s for allegedly paying no tax on its earnings in Luxembourg. The antitrust regulators are also looking into Amazon.
Ireland, however, will almost surely appeal the ruling against its dealings with Apple. It has a lot more on the line than $ 14.5 billion.
SEE ALSO: What you need to know about Margrethe Vestager, the politician going after Apple
NOW WATCH: The tax strategy that is about to cost Apple billions
The European Union's finding that Apple Inc. owes Ireland more than $ 14 billion in back taxes reveals the high cost the U.S. Treasury may pay by failing to keep pace in a global effort to stem corporate tax avoidance — and Apple might represent only the first major U.S. loss.
The EU commissioner for competition said Tuesday that Apple's tax arrangement with Ireland constitutes anti-competitive "state aid" to the company. If Apple ultimately has to pay billions in taxes to Ireland, the iPhone maker may be able to reduce its U.S. taxes by using foreign-tax credits available under U.S. law. Apple executives and Irish officials have said they plan to challenge the EU's order.
The EU is already conducting similar investigations of other major U.S. corporations, including McDonald's Corp. and Amazon.com Inc. Additionally, legal experts say that if the precedent for such EU orders is upheld on appeal, regulators may give harsher scrutiny to the hundreds of tax ruling letters that Luxembourg issued to major U.S. companies, including the Walt Disney Co. and Koch Industries Inc. Some of those agreements gave companies a chance to slash billions from their tax liabilities at home and abroad.
No 'Special Deals'
Amazon, through a spokesman, declined to comment. Representatives for McDonald's, Disney and Koch didn't immediately respond to requests for comment. Apple's chief executive officer, Tim Cook, said in a statement: "We never asked for, nor did we receive, any special deals."
At stake for the U.S. Treasury Department is some of the potential tax revenue on more than $ 2 trillion in profit that U.S. multinationals have parked overseas. While the EU isn't directly targeting that cash hoard, the state-aid cases could significantly reduce the revenue that the U.S. government could collect from it. The U.S. tax code, which sets a top corporate income tax rate of 35 percent, allows companies to defer paying that tax on their foreign income until they decide to bring it home via "repatriation." Over the past few years, the U.S. Congress and President Barack Obama's administration have been unable to agree on a plan to induce companies to repatriate their earnings at a reduced tax rate. Obama has proposed 14 percent; House Republicans this year proposed 8.75 percent.
Revenue Transfer
The delay may be costly: Federal law also gives companies credits for the foreign taxes they've paid, which they can use to reduce their U.S. taxes — subject to certain restrictions. The precise effect is unclear, but U.S. Treasury officials have voiced concern that if U.S. companies are forced to pay large new tax bills to European governments, they may be able to use such credits — effectively transferring revenue from U.S. to European coffers.
The prospect that EU regulators might force U.S. multinationals to pay taxes to countries that helped them avoid taxes at home prompted displeasure from Obama's White House and from members of Congress Tuesday. But if U.S. policy makers saw new urgency in the large tax bill that was handed to Apple, there was little immediate sign of compromise.
"Instead of standing by and allowing other countries to deliver multibillion-dollar tax bills to American companies, Washington should act now to ensure this doesn't happen again," said U.S. Representative Kevin Brady, the chairman of the tax-writing House Ways and Means Committee. Brady, a Texas Republican, called the EU's decision "a predatory and naked tax grab" that took advantage of what he called a "broken" U.S. tax code.
'Awful' Decision
"That's why House Republicans are moving forward with our tax reform blueprint built for growth that will allow more companies to operate in our country, hire our workers and help grow our economy," Brady said. House Speaker Paul Ryan called the EU decision "awful" and said it "should be a spur to action."
White House Press Secretary Josh Earnest, meanwhile, said Obama would "continue, over his next four months remaining in office, making his case" and pushing Congress to address the issue.
The EU's decision was surprising for its blunt language and high assessment of Apple's Irish tax liability, but it's far from certain that Apple will ever pay the $ 14.5 billion bill. The company, along with the Irish government, has announced plans to appeal the ruling to the European Union's general court. Legal experts say the EU's use of antitrust statutes to regulate tax avoidance is a novel enough strategy that it could be struck down.
Dutch Appeal
Already, the Dutch government is appealing an earlier EU order that it collect 30 million euros in taxes from Starbucks Corp. Linda Mills, a spokeswoman for the coffee chain, said in an e-mail that the difference was that "today's Apple decision is in the billions vs. ours which (pre appeal) scaled only in the millions."
But with the potential for a continued EU crackdown, tax specialists expect pressure will escalate for the U.S. government to take action before overseas governments take major bites from companies' offshore earnings.
"Since the U.S. has been very slow to enact reform and get revenue, the status quo has allowed the Europeans the opportunity to move in and get tax money for their governments," said Kimberly Clausing, a professor at Reed College and an expert in international taxation. "I can't imagine that this is going to be allowed to continue indefinitely."
'Make Everything Worse'
But if the EU's actions spur American officials to action, they may have the opposite effect on international cooperative efforts. Already, pressure from corporate lobbyists has helped make the U.S. the only major country that hasn't signed on to a plan devised by the Organization for Economic Cooperation and Development aimed at limiting aggressive tax-avoidance strategies.
The EU's Apple decision "is going to make everything worse" for the prospects of international cooperation, said Edward Kleinbard, a professor at the University of Southern California and the former chief of staff for the congressional Joint Committee on Taxation. "It's leading to finger pointing and will upset the OECD's work" on the issue, he said.
For businesses, the ruling's long-term impact was unclear. Because it's subject to appeal, many accountants and corporate tax lawyers said it was too soon to tell whether it would encourage changes in U.S. multinationals' tax strategies. For example, the effect on corporate inversions, in which U.S. companies move their tax addresses offshore by merging with foreign firms, remained undefined.
Singapore-Bound
But Raymond Wiacek, an international tax lawyer at Jones Day in Washington, said the decision would prompt some multinationals — particularly technology and pharmaceutical companies with valuable intellectual property — to seek out new offshore tax havens.
"You don't have to use Ireland as your base country — people are moving to Singapore," Wiacek said. That shift will accelerate unless Congress lowers the U.S. corporate tax rate from 35 percent, which is one of the world's highest. Singapore taxes companies on profit derived both in Singapore and elsewhere at 17 percent.
Amazon's Change
Amazon, which awaits the European commission's finding on whether its own tax deal with Luxembourg constituted improper state aid, has stopped using its shell company there. That company had received royalty payments from Amazon's subsidiaries in other European countries, effectively moving their profit to Luxembourg. Amazon officials have declined to say what motivated that change.
With the U.S. presidential election two months away, it's likely that any U.S. effort to overhaul its international tax system will take place during the administration of Obama's successor. Republican Donald Trump has proposed to tax companies' offshore earnings at a reduced rate of 10 percent. Trump also proposes to cut the top corporate tax rate to 15 percent, while ending companies' ability to defer U.S. taxes on overseas earnings. Democrat Hillary Clinton hasn't offered a specific proposal on international taxation.
Neither campaign immediately responded to a request for comment on the issue Tuesday. Regardless, some observers believe the U.S. will move to enact a new repatriation tax rate no matter who wins the Nov. 8 election.
'Inevitable' Feature
"There's a fair amount of general agreement that repatriation would be a feature of broader tax reform under a new president, which I would say is inevitable," Jon Traub, the managing principal of tax policy at Deloitte Tax LLP, the tax arm of accounting firm Deloitte LLP told Bloomberg News last week.
As one of the most popular and recognizable brands in the U.S., Apple has thus far avoided congressional action that would alter its tax planning — despite a U.S. Senate panel's investigation that focused on accounting strategies the company had used to avoid what officials called billions of dollars a year in federal taxes.
The Senate Permanent Subcommittee on Investigations held hearings in which then-chairman Carl Levin, a Michigan Democrat, chastised Apple for "seeking the Holy Grail of Tax Avoidance." They ended with committee members telling Apple CEO Tim Cook how much they loved their iPhones. The hearings led to no substantial legislative changes to the tax code. According to EU officials Tuesday, the effective tax rate for Apple's main Irish subsidiary has dropped since the Senate hearings: from 0.5 percent in 2011 to .005 percent in 2014.
'Completely Made Up'
Apple CFO Luca Maestri disputed those figures Tuesday, saying that the commission's depiction of Apple's effective tax rate was "completely made up." Maestri said the EU had calculated incorrectly by neglecting to include all of the $ 400 million in taxes the company paid in Ireland in 2014 and by improperly attributing offshore profit to Apple's Irish subsidiaries.
In Europe, the Apple case is likely to bring heightened pressure to continue the crackdown. While the state-aid cases might slow cooperative international efforts to reach agreement on comprehensive tax policies, they have nonetheless appealed to the populist sentiment in Europe — and may spur U.S. companies and policy makers to take action.
"The arguments are poorly construed, and often target the wrong entities or the wrong countries, but the cases nonetheless are spectacular political statements," said Romero Tavares, an economics professor at the Vienna University of Economics and Business. He recently published a paper titled, "The Intersection of EU State Aid Cases and U.S. Tax Deferral: A Spectacle of Fireworks, Smoke and Mirrors."
"Therefore I do believe more cases will come up, more companies will be scrutinized and not only in the Silicon Valley, but across the board," Tavares said. "The amounts involved are astronomical."
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Most Treasury chiefs across the world would be pretty pleased if they just got a court ruling allowing it to collect $ 14.5 billion in back taxes. Not so Michael Noonan.
Ireland's finance minister is so angry that he's willing to fight the European Commission all the way through the courts for the right not to collect the taxes that Apple supposedly avoided over the last 12 years. Darn it, he's already spent over 670,000 euros ($ 750,000) of taxpayers' money in fighting the Commission. Why the ingratitude?
It's not like his voters or his cabinet colleagues don't want the money. After six years of austerity imposed as part of Ireland's 2010 bailout, Ireland's public sector in particular is gasping for it.
Moreover, Noonan is going to get it in the neck from his rivals if he doesn't take the money. Pearse Doherty, the finance spokesman for Sinn Fein, which preaches an idiosyncratic cocktail of nationalism and left-wing populism, called on the government not to appeal the ruling, telling the newspaper Anphoblacht: "There's an irony here when we see an Irish Government challenging the European Commission when they actually bowed down to the same Commission during the period of austerity and bank bailouts."
"Many people will be mindful that they themselves will be taken before an Irish Court because of their failure to pay water charges, yet this same Government are willing to go to court to defend Apple," Doherty said.
Sinn Fein would love it to be that simple. However, even its Marxist old guard would probably have to accept that the ruling is a devastating blow to a country that has thrived for decades on attracting foreign investment through its favorable tax regime: the stock of foreign direct investment in Ireland at the end of 2014 was 311 billion euros ($ 350 billion), or 165% of GDP. Facebook and Google and many others have their European headquarters in Ireland, due mainly to its 12.5% headline rate of corporate income tax—the lowest in the EU.
If Noonan now enforces the Commission's ruling, it will send a chilling message to other companies that have either invested in Ireland in the past, or were thinking of doing so in the future.
Small wonder that Noonan told state broadcaster RTE that: "It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment." He said a challenge was needed "to defend the integrity of our tax system, to provide tax certainty to business, and to challenge the encroachment of the EU state aid rules."
That second half of Noonan's statement is important. For although the Commission zeroed in on what it thought it to be a very specific abuse of Ireland's tax code, the Irish government is clearly afraid that this ruling will be the thin end of a wedge that ends in its complete loss of sovereignty over setting its own tax rates.
Until this year, such sovereignty hadn't seemed in danger: after all, the government had successfully resisted the attacks on its tax code during the 2010 bailout negotiations, when it was at the mercy of France and Germany. The two countries had the best opportunity in years to stop Ireland luring away investment—and budget revenues—by "racing others to the bottom." At that time, the government of Taoiseach Enda Kenny had successfully argued that its tax code was the only thing keeping the Irish economy alive—and thus the only way the creditors would ever see their 78 billion euros in bailout loans again (to say nothing of another 130 billion euros and more lent to Irish banks by the ECB at the height of the crisis).
But times change. And even though it happened years after the alleged offense, the U.K.'s decision to leave the EU puts today's ruling in an entirely different light. As long as the U.K. was part of the EU, it was a waste of everyone's time and energy to even propose the greater centralization of powers over tax in Brussels. With the Brits gone, the Irish have lost their biggest protector. What was impossible becomes possible (at least if France and Germany agree on an approach that somehow suits them both, which admittedly remains a tall order).
The Commission's press release itself contains a hint of where the first attack on Ireland's tax sovereignty could come from.
"In fact, the tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market. This is due to Apple's decision to record all sales in Ireland rather than in the countries where the products were sold. This structure is however outside the remit of EU state aid control. If other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland."
In other words, the Commission is inviting other member states to calculate how much they may have lost in tax revenue as a result of the alleged violations, and to claw it back from Ireland. That alone is good reason for Noonan to challenge the ruling. The last thing he or any Irish government wants is to establish that kind of precedent.
At least Noonan's Fine Gael party has some support from Fianna Fail, the party that has ruled Ireland for most of the last century (perhaps unsurprisingly, given that a string of Fianna Fail governments devised and presided over the said scheme for years).
"The Commission has opened the door to other countries including the U.S. to seek a slice of the 13 billion euros," finance spokesman Michael McGrath said in a press statement. "It would be deeply unwise of Ireland to make any plans for funds that may not even materialize in reality."
A good basic technique of international tax practice is to convince Country A that your income is earned in Country B, and convince Country B that your income is earned in Country A, because then neither of them will tax it. That is essentially what Apple seems to have done in Ireland, with the tiny wrinkle that it convinced the rest of the world that its income was earned in Ireland, and convinced Ireland that its income was earned nowhere:
The two tax rulings issued by Ireland concerned the internal allocation of these profits within Apple Sales International (rather than the wider set-up of Apple’s sales operations in Europe). Specifically, they endorsed a split of the profits for tax purposes in Ireland: Under the agreed method, most profits were internally allocated away from Ireland to a “head office” within Apple Sales International. This “head office” was not based in any country and did not have any employees or own premises. Its activities consisted solely of occasional board meetings. Only a fraction of the profits of Apple Sales International were allocated to its Irish branch and subject to tax in Ireland. The remaining vast majority of profits were allocated to the “head office”, where they remained untaxed.
That’s from today’s European Commission ruling finding that “Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.” The “head office” of Apple Sales International (an Irish-incorporated subsidiary that essentially books most of Apple’s revenue in the European Union) is not the U.S. parent company. It’s just an expression. It’s just the head office. In, you know. In your head. It exists in a place that is not a place, where the tax rate is zero. There is a helpful diagram:
The stores are in Europe, and Apple Sales International is in Ireland (enlarged to show its exaggerated importance in Apple’s European affairs), and the head office is, appropriately enough for a computer company, in a cloud. It just floats vaporously somewhere between Europe and the U.S., casting its cool mist over Apple’s income. Obviously you don’t have to pay taxes to a cloud. It’s a perfect tax setup.
It was perhaps a little too perfect. “As a result of the allocation method endorsed in the tax rulings, Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of Apple Sales International.” All of this was totally legal under Irish law, because the Irish tax authorities issued specific rulings saying that it was, in 1991 and 2007. But those rulings themselves violated EU competition law, because “Member States cannot give tax benefits to selected companies,” so now Apple has to give the money back. “Apple and the Irish government have both vowed to fight the decision,” and the appeals may take years.
Activism.
Here is Ronald Barusch arguing that whatever Carl Icahn was up to with Herbalife last week — allegedly talking to bankers about maybe selling his shares, but then certainly buying more instead — he could have done a better job disclosing it:
The Securities and Exchange Commission requires shareholders who, like Mr. Icahn in this case, own more than 5% of a company, to be transparent about their plans, so it all raises the question: Should Mr. Icahn have issued some disclosure before he traded?
My bias here is: Of course not! Icahn’s own trading decisions are the most essential sort of proprietary information that he shouldn’t have to share in advance. Disclosing before you trade — saying “hey I think this stock is undervalued (overvalued), so I’m going to buy (sell) some tomorrow, just a heads-up” — is, for a famous influential investor, a way to dissipate all the advantages of trading. There is always a tension in market regulation between the desire for fairness and the desire to reward people for developing information by letting them keep it to themselves. But surely if there’s one sort of information that you can keep to yourself, it’s information about your own state of mind.
I mean, yes, strictly, Schedule 13D requires Icahn to disclose “any plans or proposals” to buy or sell shares, but the standard way around that is to make a boilerplate disclosure that you reserve the right to buy or sell shares, and then try to avoid making any firm decisions until the last minute. (Then you trade, and then you disclose.) That’s obviously Icahn’s approach. For one thing, his 13D includes the boilerplate disclosure that he might buy or sell shares. And as for not making any firm plans … I mean, if you believe the Bill Ackman version of events, Icahn was recently looking to sell all of his shares, and then instead bought more. Really the whole history of the Herbalife fight strikes me as pretty good evidence that Icahn doesn’t have much of a plan, other than entertaining himself and annoying Ackman.
Elsewhere in activism, “the August edition of research provider Preqin’s Hedge Fund Spotlight shows that 100 percent of institutional investors surveyed indicated that returns on their activist hedge fund investments had fallen short of their expectations.” Maybe those institutional investors should get in there and mount some proxy fights! Add some new blood to those activist funds’ boards of directors! Shake up management a bit, force them to cut costs, try out some new ideas! No of course I am kidding, investors in activist hedge funds have no shareholders’ rights and can’t run proxy fights. It is a much-remarked-on irony.
On the other hand, small-cap activism is up, and perhaps more promising than it is in mega-caps:
Because the companies are less well researched by analysts, have access to fewer corporate advisers, and are less likely to follow corporate governance best practices, the potential for unlocking big share price gains may be greater than at larger groups, hedge fund managers say.
I don’t know, that just seems obviously true. You’re more likely to find shady nonsense at a $ 100 million company than at, you know, Apple, that EC ruling notwithstanding. But of course a 9 percent position in a $ 100 million company is just $ 9 million, and if you run a multibillion-dollar activist fund, that is hardly worth the filing fees for the proxy fight. There is a widespread sense that the hedge fund industry generally is sort of over capacity, that promising strategies have so much money chasing them that they are no longer promising. Activism is one pretty obvious place to see the results of that. The pickings in mega-cap activism are slim, and are mostly about share buybacks; the pickings in small-caps might be richer, but no big funds can afford to claim them.
Meanwhile, activists are looking at big U.S. banks, but what are they going to do with them?
That activists have not bothered the banks much so far, is partly a function of size. These are very big bites. ValueAct's $ 1.1bn investment in Morgan Stanley represents just 2 per cent of the shares outstanding.
Investors also recognise that banks have only limited room to manoeuvre to boost their ROEs. In this, the sixth year of annual stress tests, the Fed was willing to let only a couple of midsized banks hand back more than 100 per cent of their profits through dividends or buybacks. For the rest, equity bases keep rising.
Activism as literature.
Here is John Lanchester on the activist letter as a literary genre. “It might be best to regard them as a form of literary fiction,” he writes:
When Carl Icahn was a big investor in Apple, he wrote an annual letter to Tim Cook, its C.E.O., urging him to spend the company's cash on buying back its own stock. "There is nothing short term about my intentions here," he wrote in the first letter, in October, 2013. In October, 2014, he wrote that "Apple is one of the best investments we have ever seen from a risk reward perspective," and that, while he was urging a share buyback, he was also eager "to preemptively diffuse any cynical criticism that you may encounter with respect to our request." In a letter of May, 2015, he said that Apple was "very much a long term growth story from our perspective." The company represented "one of the greatest growth stories in corporate history, as well as one of the greatest opportunities ever for a company to invest in itself by repurchasing its shares." A year later, after the company had spent eighty-seven billion dollars buying back its stock, Icahn announced that he had sold most of his Apple shares, for an over-all profit of around two billion dollars. Fool me once, shame on you. Fool me twice, and you're starting to develop a business model.
To be fair, I doubt too many people were fooled. Elsewhere in literary criticism, here’s a Wall Street Journal A-Hed on central banking metaphors:
Ahead of a European Central Bank decision in March, analyst Naeem Aslam warned clients that ECB officials "craved to trigger" a "final bazooka" to push inflation to its target. His next-day update: The ECB was "drumming big beats and firing on all cylinders."
Some in the field call for a cliché cease-fire, including economist Kallum Pickering at Germany's Berenberg Bank. "Here's the problem I have with metaphors: Sometimes you don't give a true picture of what's happening," he said. "I'm worried that it's reinforcing a view that central banks can do something about the situation we are facing."
I am generally skeptical of financial metaphors, though I softened a bit after reading Lanchester’s article, which spends some time luxuriating in Warren Buffett’s metaphors. Buffett is perhaps the only user of financial metaphors who can get away with it.
Bridgewater on film.
Bridgewater Associates put some new videos on its website. They are pretty Bridgewater-y, so you should watch them if that’s your sort of thing. Ray Dalio describes Bridgewater as a combination of the Navy SEALS and the Dalai Lama, which is … I mean it seems like a unique combination? Like, you go into work each day not sure whether you’ll be working to achieve universal love and compassion, or killing a guy? Later there’s also a comparison to Shackleton’s voyage to the Antarctic. Also there’s a video about a Bridgewater tradition of everyone sort of fighting their way through a river in Bridgewater’s backyard. I guess that’s a little Navy SEALS-like, or perhaps Shackleton-like. My three-quarters-joking model of Bridgewater is that it’s a computer that trades securities and constantly tries to find fun new ways to distract its 1,500 human employees so they don’t interfere with its perfectly rational trading. These videos don’t give me much reason to reject that model.
Blockchain blockchain blockchain.
One weird thing about bitcoin is that it has an immutable verifiable publicly available ledger of every transaction, recording who transferred how many bitcoins to whom. (There are no names — just bitcoin addresses — but those are still potentially useful information.) I mean, that’s a great thing, for many purposes; the immutable traceable history has a lot of useful applications. The weird part is that that history is not ideal for, you know, drug dealing. Or a lot of the other secretive applications for which bitcoin has become popular, and in which it was supposed to replace cash as an anonymous secure payment method. Cash has no traceable transaction history, which is a big part of why criminals like it. Anyway here’s a story about Monero, which is like bitcoin but druggier:
Monero similarly uses a network of miners to verify its trades, but mixes multiple transactions together to make it harder to trace the genesis of the funds. It also adopts "dual-key stealth" addresses, which make it difficult for third-parties to pinpoint who received the funds.
"For any two outputs, from the same or different transactions, you cannot prove they were sent to the same person," Riccardo Spagni, a lead developer of Monero, wrote by e-mail. Jumbling trades together makes it "impossible to tell which transaction, of a set of transactions, a particular input comes from. It appears to come from all of them."
No no no, not druggier, just more privacy-focused. Privacy also has lots of legitimate applications. But Monero’s value “has more than quadrupled this month after gaining support from prominent websites that anonymously peddle drugs.”
Trump PAC.
Here’s the story of American Horizons PAC, a political action committee started by a 25-year-old named Ian Hawes that (sort of) offers donors a chance to win dinner with Donald Trump. It “has collected more than $ 1 million” and “reportedly spent $ 0 on behalf of Trump.” The rest — I mean, the all of it — went to, you know, expenses. Also the branding is superficially similar to that of the Trump campaign.
Of the 156 donors who gave more than $ 200 to Hawes' group in June — the threshold for names to be included in federal filings — POLITICO contacted dozens and spoke with 11. Everyone interviewed said they believed they had given to Trump's campaign, not an unconnected PAC.
"I would say, unfortunately, that's simply a matter of pure chance," Hawes said in an interview defending his group and denying it is a scam.
Pure chance! It is a little surprising that people commit penny-stock fraud, when the American political financing system is available.
People are worried about unicorns.
Well this will end well:
Earlier this month, an attorney at a large law firm got a call from a representative of Midtown Partners, a boutique investment bank in New York and Chicago that sells public equities to private investors. The caller began by asking if the attorney knew what a "unicorn" was. He then asked whether the attorney would be interested in investing in private tech companies like Lyft and Snapchat, for a minimum of $ 20,000.
Cold calling potential investors about private tech stocks is on the rise, as the secondary market for such stocks heats up.
To be fair, “do you know what a unicorn is” is a great ice-breaker; it’s how I begin all of my phone calls. In other news, General Motors apparently offered $ 6 billion to buy Lyft, just barely above the $ 5.5 billion valuation at which it invested in January.
People are worried about bond market liquidity.
Here’s Bloomberg Gadfly’s Lisa Abramowicz on the demise of Direct Match and the lack of central clearing in the Treasury market. Here’s a Bank for International Settlements working paper on “Asset managers, eurodollars and unconventional monetary policy,” which is in part about liquidity in the eurodollar futures market in September 2014, when Bill Gross left Pimco and Pimco unwound his huge eurodollar position. And here is this:
August isn’t over yet, but already U.S.-marketed corporate investment-grade bond issuance has broken another record, churning out nearly $ 60 billion in new deals, according to financial services data firm Dealogic.
Things happen.
Mondelez Drops Offer for Hershey. Caesars Slides After Court Rules It Must Face Bondholder Suits. Buyout firms’ hushed deals with top investors risk SECs’ ire. Hedge funds are hiring quants. The Federal Reserve's Balance Sheet as a Financial-Stability Tool. Blame Headhunters for Increasing Wage Gap. Muni-bond index funds aren’t much of a thing. Vanguard has saved investors $ 1 trillion. Barroso's Goldman job runs into petition protest. SEC and Revolving Doors: Q&A with Eric Ben-Artzi, the Deutsche Bank Whistleblower Who Rejected a Multimillion Dollar Award. Duke Withdraws Claim Against Aubrey McClendon's Estate. Scott Alexander on EpiPen. Should we ban non-self-driving cars? Why Portland-Themed Businesses Are Big in Japan. Goat Yoga: Yoga With Goats.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story: Matt Levine at mlevine51@bloomberg.net
To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net
A customer enters the new Apple store, which is the world’s largest, on its opening day at Covent Garden in London August 7, 2010. REUTERS/Suzanne Plunkett/File Photo
“Remember that the Japanese population is dropping by probably half a million a year, so that’s telling you there’s just less people around, not that employment in itself is growing strongly,” said Harman.
In the rest of Asia, markets mostly rose, with South Korea’s Kospi up 0.38 percent. In Australia, the ASX 200 added 0.43 percent, while Hong Kong’s Hang Seng index was up 0.82 percent. Chinese mainland shares were modestly higher, with the Shanghai composite nearly flat at 3,071.36, while the Shenzhen composite added 0.16 percent.
Analysts said the market would be closely watching the August U.S. nonfarm payroll data due on Friday, as it would likely be the last major data due stateside before the Federal Open Market Committee’s policy meeting in September.
A strong jobs report could set the tone for the Fed’s monetary policy meetings for the rest of 2016.
“Investor odds of liftoff [in U.S. interest rates] are hovering near 70 percent for December and Friday’s jobs data will offer more information about the probability of a hike in September,” said Stephen Innes, a senior trader at OANDA.
Last week, U.S. Federal Reserve Chair Janet Yellen said in a speech at Jackson Hole, Wyoming, that she was optimistic about the U.S. economy and that the solid labor market performance and outlook for economic activity and inflation had strengthened the case in recent months for an interest rate hike. Following her remarks, Fed vice chair Stanley Fischer told CNBC the August nonfarm payroll will likely weigh in the Fed’s decision on when to hike rates.
In the currency market, the dollar index, which measures the greenback’s performance against a basket of currencies, rose to 95.692 as of 12:38 p.m. HK/SIN, up from its previous close at 95.580. The dollar had climbed from levels below 94.500 to levels above 95.500 on Friday after Yellen’s remarks and briefly traded near 95.800 overnight before paring gains.
Mondelez International Inc (MDLZ.O), the maker of Oreo cookies and Cadbury chocolates, said it was no longer pursuing the acquisition of Hershey Co (HSY.N), two months after the U.S. chocolate company turned down its $ 23 billion cash-and-stock bid.
The abandoned deal, which would have created the world’s largest confectioner, underscores the grip that a charitable trust has on the maker of Hershey’s Kisses and Reese’s Peanut Butter Cups. The trust which controls Hershey was set up by the company’s founder over a century ago to fund and run a school for underprivileged children.
Hershey rejected a $ 107 per share acquisition offer from Mondelez at the end of June. An unrelated row between the trust and the Pennsylvania Attorney General’s office ensued over the trust’s governance, which resulted in a reform agreement being announced at the end of July.
The agreement calls for the trust’s board to be expanded from 10 members to 13, and for five members to resign in order for 10-year terms to be enforced. One trustee resigned last month, leaving a total of nine openings.
Mondelez’s Chief Executive Officer Irene Rosenfeld approached Hershey Chief Executive John Bilbrey again last week, and indicated that Mondelez would be willing to offer up to $ 115 per share for Hershey, according to a source familiar with the discussions who asked not to be identified because they were confidential.
Hershey responded that the trust would not be able to consider an offer until it is reconstituted next year, the source said. Even then, Hershey would not be willing to enter into deal negotiations for an offer of less than $ 125 per share, the source added.
Hershey did not respond to a request for comment. Its shares fell 11.4 percent in after hours trading in New York on Monday to $ 99.00.
“Following additional discussions, and taking into account recent shareholder developments at Hershey, we determined that there is no actionable path forward toward an agreement,” Rosenfeld said in a statement.
The Hershey trust holds 81 percent of the company’s voting stock, and so a sale is not possible without its approval. About two-thirds of its $ 12 billion in assets are in Hershey stock.
Mondelez’s offer was half in cash and half in stock, sources have said. This means new board members of the trust, which must approve any sale of Hershey, could use such a transaction to substantially reduce its exposure in Hershey by partially cashing out on its stake.
“While we are disappointed in this outcome, we remain disciplined in our approach to creating value, including through acquisitions,” Rosenfeld said on Monday.
ATTORNEY GENERAL UP FOR ELECTION
Even if the trust does decide to explore a sale of Hershey, it can still be overruled. In 2002, the trust put Hershey up for sale, citing a need to diversify its holdings.
At the last minute, it pulled the plug on a sale to chewing gum maker Wm. Wrigley Jr. Co for $ 12.5 billion, after the attorney general’s office successfully petitioned a court to block the offer amid local community protests.
Pennsylvania’s attorney general Kathleen Kane stepped down earlier this month after she was convicted of leaking secret criminal files to discredit a political adversary, and then lying about it. She was succeeded by her deputy Bruce Castor, and the post is up for election in November.
Pennsylvania state senator John Rafferty, the Republican candidate for attorney general, has said he does not think diversification for a charitable trust is always necessary, and has expressed “serious reservations” about a potential sale to Mondelez.
Democrat candidate Josh Shapiro has said he will “vigorously protect Hershey’s continued success in Pennsylvania” and protect it from “multi-national corporations and Wall Street investors willing to destroy Pennsylvania jobs for their own profit.”
Hershey’s growth has slowed in the last two years as competitors such as Mars Inc expand their offerings, and premium players such as Chocoladefabriken Lindt & Spruengli AG (LISN.S) entered the U.S. market.
Mondelez, which has more of a global footprint than Hershey, is the second-largest confectionary company in the world, while Hershey ranks number five.
Their merger would put them in the top place at 18 percent of the market, according to market research firm Euromonitor International Ltd. The combined company would leapfrog Mars, which has 13.3 percent of the global market.
Last year, William Ackman revealed his activist hedge fund Pershing Square had built a stake worth about $ 5.5 billion in Mondelez, in what was seen as an attempt to push the company to boost earnings or sell itself.
Ackman had joined fellow activist Nelson Peltz as an investor in Mondelez. In a letter to his investors earlier this month, Ackman wrote that Mondelez shares are currently undervalued, and that the issuance of Mondelez stock to fund the acquisition of Hershey would likely be costly for Mondelez shareholders.
(Reporting by Greg Roumeliotis in New York; Additional reporting by Svea Herbst-Bayliss in Boston and Gayathree Ganesan and Sruthi Shankar in Bengaluru; Editing by Kirti Pandey, Tom Brown and Bernard Orr)
Mike Andres, president of McDonald's Corp.'s U.S. division and a key figure at the forefront of the chain's domestic turnaround over the past 18 months, is retiring at the end of the year, the company said on Wednesday.
The change represents only the latest in an executive shakeup that effectively started with Easterbrook's ascension to the CEO job in March of last year. It comes less than a month, for instance, after the announced retirement of the company's chief administrative officer, Pete Bensen.
