Mergers, Hackers and Steakhouses

Also Amazon, Google, Greece, taxes, and big to large to jumbo bonds.


Anthem is buying Cigna at a $54.2 billion enterprise value, "potentially creating the largest health insurer in the U.S.," though antitrust remains a hurdle. "The merger push among health insurers comes as they look to gain greater scale to reduce costs and capitalize on growing opportunities in the government and individual markets." And here is the story of how Glenview Capital Management made $3.2 billion betting on Obamacare by buying hospital and insurer stocks. It is possible that the boom in insurer mergers and profitability is an ever so slightly awkward consequence of health care reform.

Yesterday's big merger news was Pearson's sale of the Financial Times to Nikkei, which was certainly news to Axel Springer:

Axel Springer has been in talks with Pearson for nearly a year, while Nikkei only entered the picture in the last five weeks. But two people close to the situation said the German company did not know it had been trumped by Nikkei until 15 minutes before the cash-rich Japanese company’s deal with Pearson was announced.

That is some pretty impressive M&A secrecy, and it's pleasing that it comes from a newspaper company. Here is Andrew Edgecliffe-Johnson on the history of the FT under Pearson. Nikkei paid 844 million pounds, or about $1.3 billion, or about $2.4 million per journalist, or more than five Washington Posts, though less than one J.K. Rowling. It perhaps "raises once more the question of whether Japanese companies pay too much for overseas acquisitions." Felix Salmon is pleased. The Guardian hopes that the FT can remain disrespectful. And here is Ezra Klein on whether media companies will become wire services.


Here Bloomberg News explains what is actually going on with the story of the JPMorgan hackers: Authorities didn't catch the JPMorgan hackers. ("The men charged simply don’t have the kind of computer skills needed for the JPMorgan attack.") They caught some guys who, allegedly, talked to the JPMorgan hackers in the Russian underworld. Perhaps they bought e-mail addresses from the hackers, to use in pump-and-dump scams. And perhaps, while under federal indictment, they will help lead authorities to the hackers. "These were fraudsters, not hackers," but I guess fraudsters and hackers sometimes flock together?

Elsewhere, "the U.S. government intends to increase its use of a law designed for catching terrorists and spies to fight what officials call a surge in corporate-espionage cases," which is possibly best not to think about. I feel like I read a lot of sentences of the form "the U.S. government intends to increase its use of a law designed for catching terrorists to catch nonviolent minor criminals." In this case, the full weight of anti-terrorist law has been brought to bear on -- this is true -- a guy accused of smuggling corn seeds "by hiding them in boxes of Orville Redenbacher microwave popcorn." Here's an FBI "Economic Espionage Awareness Campaign." And in other news: "Lax security left the U.S. Treasury's computer system for tracking overseas threats to America's financial system vulnerable to hackers." Also: Suspected Meth Lab Explodes in U.S. Government Building.


Amazon announced a profit of $92 million on $23.2 billion of revenue, a 0.4 percent net margin that "immediately pushed Amazon shares up 17 percent in after-hours trading Thursday to $566," adding $40 billion to Amazon's market capitalization and making it bigger than Wal-Mart on an equity market cap basis. (Though still not on a total enterprise value basis.) Of course Wal-Mart doesn't have much of a cloud computing business, and Amazon Web Services is much of what's impressive about Amazon, but still. "They are showing investors that if they want to deliver profits, they can," says an analyst, and that is both an enviable position and, for most companies that aren't Amazon, an odd thing not to want. 

Meanwhile here is a story about how Ruth Porat is bringing financial discipline to Google in her new role as chief financial officer there, slowing expense growth and impressing investors. I have to say that when Porat got the CFO job, I was skeptical of claims that it was primarily a cost-cutting role: She was a former tech banker going to a giant tech company that is building driverless cars, surely she was not going to pinch pennies? But I seem to have been wrong. In other finance-to-tech news, Airbnb "is close to hiring" Laurence Tosi, the Blackstone CFO, as its CFO. That one, I'm pretty sure, is more about primping for an initial public offering than it is about cutting costs, but I guess you shouldn't listen to me.


Here's the sad story of the decline of Wall Street North in Stamford, Connecticut, where UBS and Royal Bank of Scotland had armies of employees and vast trading floors all of which are looking pretty redundant as banks generally, and those banks particularly, retrench from high-touch high-risk high-return trading activities.

In Stamford, the cutbacks have left the area around the train station somewhat desolate. The Morton’s closed at the end of last summer, and at the end of a recent trading day, the sidewalks between RBS, UBS and the station had only a slow trickle of people. 

No one talks much about the effect of Dodd-Frank on train-station-adjacent steakhouses, but obviously it is dire.


It is still happening! Greece's parliament yesterday approved a bank resolution process that includes the possibility of "bail-ins" from bondholders, though surely if you owned Greek bank bonds before yesterday you were not expecting a 100 percent probability of 100 percent repayment. Christine Lagarde and Angela Merkel are still at odds about Greek (government) debt restructuring, with Lagarde and the IMF in favor and Merkel and Germany reluctant, though surely if you own Greek government bonds you were not expecting a recovery of 100 percent of net present value. George Magnus thinks Grexit is still quite possible. James Surowiecki asks how Greece can take charge of its economy. In other distressed sovereign news, Ukraine made a bond payment, somewhat surprisingly.


We talked a while back about how U.S. prosecutors would investigate and perhaps punish U.S. (or foreign) banks for FIFA's corruption, because the banking system is a good tool with which to leverage U.S. prosecutorial power. That is happening:

U.S. authorities have ramped up investigations into whether banks should have raised alarms about money flows linked to alleged corruption at soccer’s governing body, according to people familiar with the matter.

Look forward to the WKSI waivers!


Here's a story about how teachers unions that don't like Dan Loeb's charter school advocacy are criticizing him for avoiding taxes using hedge fund reinsurance. The taxes he avoids could be used to pay for public schools, "this unconscionable tax avoidance scheme must end," etc. One nice (?) thing about the U.S. tax code is that it provides limitless ammunition for personal attacks: If you have a rich (or corporate) enemy, you can pretty much always criticize him, her or it for avoiding taxes. Because everyone is always doing something that reduces his taxes, relative to some other universe where he did different things to increase his taxes. This is sometimes described as a product of tax complexity but it isn't really; people criticize Warren Buffett because most of his economic earnings come in the form of unrealized capital gains, which is a pretty simple way to avoid taxes. You can pick any arbitrarily simple tax code, and pick any arbitrary rich person, and you will find him doing something to reduce his taxes under that code. And then you can get mad, if you want. 

People are worried about bond market liquidity.

There's lots of talk about reduced dealer inventories and increased regulation, but one thing to remember is that bonds were never all that liquid, because bonds come in lots of idiosyncratic little issues so you are trading unique snowflakes rather than the undifferentiated fungible mass of a company's stock. So one possible solution to liquidity worries -- counteracting the regulatory and inventory stuff -- would be to just issue bigger bonds: Sell $10 billion all at once, instead of $1 billion at a time in different issues, so that people who buy your bonds have lots of people to sell them to. That seems to be happening. "Big to large to jumbo deals are occupying a larger portion of deals coming to market than ever before," says Goldman's Jonny Fine, and I hope that "big," "large" and "jumbo" are in fact separate clearly defined size categories.

Things happen.

Lawsuit accuses 22 banks of manipulating U.S. Treasury auctions. Bank of America's bench is getting thin. "Create a compelling narrative for your exit." Junk CDS Run Away From VIX as Stock Dread Is Nothing Like Credit. Is $50 billion systemic? Herbalife goes to court to unmask Twitter user who criticized company. Renewable energy and the grid. Billionaire Steve Cohen still can't sell his $79 million penthouse. Jefferies: Baby Boomers Will Spend Their Retirement Money on Golf and Travel. David Katz: The Changing Dynamics of Governance and Engagement. Buttery coffee. The Rider-Waite Tarot deck. Meet Pickle, the Dog Taking Over the New York City Art Scene. Several Works of Micro-Fiction Based On the Madewell Fall Lookbook. Lobster beer

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    Matt Levine at

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