Cable Deals and Chat Rooms
Happy Merger Monday.
I mean, Tuesday, but it was in the news yesterday, so we'll count it. Charter Communications agreed to buy Time Warner Cable for cash and stock at an enterprise value of $78.7 billion, in a bid to "become a legitimate national player in the industry." It has been a long and twisty road:
Charter, the fourth-biggest U.S. cable company, is clinching a deal with No. 2 Time Warner Cable after its early 2014 bid was rejected and Comcast Corp. jumped in with a competing offer. Charter got another shot when regulatory scrutiny caused the Comcast deal to fall apart in April and then faced competition last week from Drahi’s Altice SA, which was said to have held merger talks with Time Warner Cable.
And it is not quite done: "The transaction has a breakup fee of $2 billion, which anticipates a possible bid by Drahi’s Altice and antitrust concerns." Charter's biggest shareholder is John Malone's Liberty Broadband, and Malone likes a challenge, so "Charter also confirmed on Tuesday that it would continue with its separate, cash-and-stock bid to acquire Bright House Networks, a smaller competitor."
You can read Charter's press release and presentation here; page 18 of the presentation has the sources and uses of funds for the two deals, including $25 billion of new debt and $5 billion of new equity investments from Liberty Broadband. One fun fact about Liberty Broadband is that it has about $763 million of cash, about $3.8 billion of total accounting assets (most of it Charter stock, plus some Time Warner stock), and a market capitalization of about $5.4 billion. So Liberty Broadband will have to get its own financing for that $5 billion, presumably from Malone.
Here's a story about how the Securities and Exchange Commission whistleblower reward program is slow and secretive about paying whistleblowers. For instance, Yolanda Holtzee "hasn’t been paid a penny—on the Babikian case or any of the other four SEC cases in which she has filed whistleblower claims." Wait hang on what? She's blown five whistles? My previous model of serial whistleblowers was "If you run into jerks all day, you're the jerk," but that was for a two-time whistleblower. A five-timer demands a different model. Holtzee doesn't seem like someone who was involved in a bunch of frauds and then blew the whistle on all her co-fraudsters. She's more of a bounty hunter for penny-stock frauds, who alerts the SEC to frauds "as part of her longtime interest in fraud in the penny-stock markets"; her involvement included things like forwarding the SEC "a copy of a 2012 blast email she had received promoting a stock."
If your model of a whistleblower program is that piles of SEC money are required to encourage insiders to turn on their fellow fraudsters and reveal their secrets, that is one thing. But that does not seem to be a particularly good model of the whistleblower program. Consider, e.g., the "whistleblower" on Nav Sarao, who came to the CFTC with "powerful, original analysis" that he seems to have applied to public data. The term "whistleblower" now just means "person who discovers fraud before the SEC does," even if that person is not an insider in the fraud. Obviously one would hope that the SEC would develop its own expertise to spot fraud at least as well as an amateur hobbyist, but also: The argument for giving the hobbyist millions of dollars for bringing the fraud to the SEC's attention seems at least somewhat attenuated, doesn't it? Like a classic whistleblower turns on her colleagues, loses her job, has trouble getting another job, and is generally haunted by the bad consequences of her good deeds. But the serial whistleblower who just gets scammy e-mails and forwards them to the SEC? Meh.
"The FBI agent who oversaw the Bernard Madoff investigation and helped pioneer the use of wiretaps that yielded dozens of insider-trading convictions is now working for Goldman Sachs Group Inc.," as a vice president in compliance; I would have held out for a bigger title if I was him. The thing about surveilling bank employees is he can just tap their phones any time he wants; he doesn't even need a reason. The trader phones are recorded anyway. Elsewhere, Dan Davies notes that we live in "golden age of fraud detection," as traders do all their crimes in searchable archived text/e-mail/chat messages:
For the past 10 years, traders have inadvertently made wrongdoing by people in their ranks as easy as possible to detect. Is it any wonder so much has been detected? It is enough to make a banker nostalgic for voicemail, which is harder to search. (It is reputedly still widely used at Goldman Sachs, a company that avoided many of the scandals that have engulfed its peers.)
Davies thinks that this golden age will come to an end soon as traders wise up and start doing their crimes on Snapchat and unrecorded mobile phones, but I don't know. I think that the electronic-communications death drive is deeply ingrained in a lot of traders, and a lot of humans for that matter; they just can't help admitting to crimes in monitored communications. We all want our little bit of immortality, even if it's just for sending dumb chat messages about currency manipulation. Our discussion of the role of sex chats in bank regulation on Friday may be relevant here.
Tom Hayes's Libor trial starts today and how can you not root for him? From the Wall Street Journal:
As a trader in London and Tokyo, Mr. Hayes was gifted but socially awkward, according to people who knew him at work. ... At one office Christmas party, he sat in the corner reading a book.
I did not know that that was a thing that you could do, but now that I do, I know what I'll be doing at my next office Christmas party. Speaking of socially awkward, here's a short dialogue between Bill Gross and Andrew Ross Sorkin:
Gross: You haven’t been divorced yet, have you?
Sorkin: Nope. I’m happily married.
Gross: Sorry, the “yet” was not appropriate.
"Greece Returns to Talks With Varoufakis Blaming Creditors," is (er, was) one headline; "With Money Drying Up, Greece Is All but Bankrupt" is another. Can you even remember a week where those headlines would not have worked? The news, although not new, is not especially cheery; the second article describes a country with drastically reduced budgets for schools, hospitals and basic government functions, while the first cited IMF Chief Economist Olivier Blanchard saying "that Greece’s pension system is 'often too generous' and there are 'still too many civil servants.'" That gap seems hard to bridge. Here is a story about dissent within Syriza. Here is Paul Krugman arguing that "the bigger question is what happens a year or two after Grexit, where the real risk to the euro is not that Greece will fail but that it will succeed," although the opposite risk is of more pressing concern to Greece right now.
The fun news last Friday was that "Hanergy Thin Film Solar Group Ltd. Chairman Li Hejun increased the size of his short position in the company’s shares days before the stock plunged" 47 percent last Wednesday, news that I at least found odd because Li has a much, much larger long position, and continued to buy shares recently. Why own lots of shares and short a few shares? You can get similar results by just, you know, owning fewer shares. This weekend the Financial Times explained the mystery, and I guess it was not that mysterious:
A pledge of shares is regarded as a change in the nature of interest in the shares. In Hong Kong filings, share pledges can appear as a shareholder’s “short” position, with a reference code to alert investors that the position may refer to share pledges rather than shorting of stock.
Li wasn't actually "short against the box"; he was just borrowing money against his shares in the form of a $200 million margin loan. There also seems to have been a certain amount of intercompany complexity, with Hanergy itself apparently borrowing against its share price, generally an odd way to raise money. (We call it "wrong-way risk," or just, like, sell some shares?) Hanergy's statement on the matter is not entirely reassuring:
"Our group’s operations are normal in all respects and we maintain a good financial position with no overdue loans. There was no forced liquidation of the group shares as cited in some media reports as the cause of the price plunge of the shares of Hanergy Thin Film Power Group Limited."
I could imagine "normal in most respects" but "all" does seem a bit strong. Really no company is normal in all respects.
People are worried about bond market liquidity, and Dan Davies suggests that they consider paying for it. People are worried about a tech bubble. The rates market is less optimistic than the Fed. The Vatican Bank is doing great. It's kind of journalismism, but I really enjoyed this Slate "Working" podcast with Adam Davidson and David Plotz. Say no to meetings. French utility EDF seeks to cut workers’ 10-week holiday quota. Who owns London’s most expensive mansion? What do you learn at Harvard Business School? "On the Upper East Side, the right nursery school opens the track to the Ivy League," etc. Luton Town: Club shop worker called up for World Cup qualifier.
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