DealBook Briefing: Can Two Tobacco Giants Save Themselves by Merging?

August 28, 2019

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Fabrice Coffrini/Agence France-Presse — Getty Images

Tobacco giants weigh a $200 billion reunion

Altria and Philip Morris International said yesterday that they were in talks to recombine — over a decade after splitting — as they confront slowing cigarette sales and competition from e-cigarettes.

The companies are considering an all-stock merger, which would recreate the old Philip Morris. The company separated its domestic arm, now known as Altria, from its international business in 2008.

Here’s what’s under discussion, according to the WSJ:

• Altria shareholders would receive just under 42 percent of the combined company, with Philip Morris shareholders receiving the remainder.

• The companies would share top management roles and board seats.

Driving the talks are non-cigarette products. Altria and Philip Morris have agreed to jointly sell IQOS, an e-cigarette product, in the U.S. And Philip Morris could help widen the international distribution of Juul, the popular vaping device in which Altria has invested nearly $13 billion.

A deal could be reached within weeks, the WSJ reported. But talks could still fall apart.

News of the merger talks received a frosty reaction. Philip Morris shares fell nearly 8 percent and Altria’s dropped 4 percent, as shareholders worried about regulators blocking the deal, according to the FT. Tom Buerkle of Breakingviews writes that the companies may have waited too long to get back together.

More: An outbreak of a lung disease among American teenagers may point to holes in the regulation of vaping products.

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Today’s DealBook Briefing was written by Andrew Ross Sorkin, Michael J. de la Merced and Jamie Condliffe.

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Toby Talbot/Associated Press

Sacklers could give up Purdue Pharma

The family that owns the maker of OxyContin, the prescription painkiller at the heart of the opioid crisis, has proposed ceding control of the drug company and paying $3 billion of their own money to settle thousands of lawsuits tied to the opioid epidemic, Jan Hoffman of the NYT reports.

Purdue Pharma would file for bankruptcy, and turn itself into a “public beneficiary trust” that would steer any profits from drug sales, including OxyContin, to the plaintiffs, Ms. Hoffman reported, citing a person familiar with the negotiations. It would also promise to provide, without cost, addiction treatment drugs that it’s currently developing.

A total settlement pool of $10 billion to $12 billion would be on the table, Ms. Hoffman writes. That would include the $3 billion Sackler contribution.

“Purdue would be the first among some two dozen manufacturers, distributors and retailers of prescription opioids facing lawsuits nationwide to settle all claims against it for its role in a public health crisis that has killed hundreds of thousands of people” if a settlement is approved, according to Ms. Hoffman.

But it’s not a done deal. Negotiators were dismayed that the news had leaked, and fretted that the publicity could compromise delicate talks.

More: The $572 million ruling against Johnson & Johnson in an Oklahoma lawsuit over its role in the opioid crisis was another blow to the company’s reputation. But investors were prepared for worse.

President Trump and President Xi Jinping of China in June. Brendan Smialowski/Agence France-Presse — Getty Images

The whipsawing trade war

If you can’t keep up with what’s happening, you are surely not alone.

• On Friday, Beijing said it would raise taxes on American goods, and President Trump responded by saying he would increase taxes on all Chinese goods and demanding that American companies stop doing business with China.

• Two days later, Mr. Trump said that he had had “second thoughts” about escalating the dispute. Within hours, the White House released a statement saying that the president regretted only that he had not raised tariffs higher.

• Then Mr. Trump asserted that Chinese officials had called, and that trade talks would resume soon.

• But China says those phone calls never happened, Alan Rappeport of the NYT reports. Treasury Secretary Steven Mnuchin has said that “there has been communication going on” but did not comment on any phone calls.

Mr. Trump’s behavior could risk killing a trade deal. “I think the president’s actions and words are making it increasingly difficult for a deal to come together,” Wendy Cutler, a former U.S. trade negotiator, told Politico. “He’s undermining the credibility of his negotiators.”

Should the Fed hit back at Trump?

A former Federal Reserve official has sparked a furious debate over whether the central bank should allow President Trump’s policies to hurt the economy in order to undermine his re-election chances.

“Trump’s re-election arguably presents a threat to the U.S. and global economy,” the official, Bill Dudley, the former president of the New York Fed, wrote for Bloomberg Opinion.

• By lowering interest rates to offset economic pain caused by the trade war with China, Mr. Dudley wrote, the central bank could give the White House more leeway to escalate trade tensions.

• “If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020,” Mr. Dudley added.

“It is a controversial statement,” Jeanna Smialek of the NYT writes, because the central bank is traditionally apolitical. Some Fed watchers worry that Mr. Dudley’s comments “could feed conspiracy theories that the central bank is trying to influence political outcomes,” she adds.

The Fed pushed back against the suggestion. “The Federal Reserve’s policy decisions are guided solely by its congressional mandate to maintain price stability and maximum employment,” Michelle Smith, a Fed spokeswoman, said. “Political considerations play absolutely no role.”

More: The yield curve, a widely watched indicator of recession, is flashing its biggest warning sign since 2007.

Anthony Levandowski Stephen Lam/Reuters

Star engineer is charged with stealing trade secrets

Anthony Levandowski was once one of Silicon Valley’s star engineers, pioneering self-driving car technology at Google and Uber. But yesterday, federal prosecutors charged him with 33 counts of theft and attempted theft of trade secrets from Google, Mike Isaac of the NYT reports.

Mr. Levandowski downloaded more than 14,000 files containing information about Google’s autonomous-vehicle research, including sensor designs, before leaving the company in 2016, according to the indictment. Prosecutors said he then transferred them to his personal laptop. Mr. Levandowski joined Uber later that year.

The indictment follows a settlement between Uber and Alphabet’s Waymo in a trade secrets case last year. Waymo had accused Uber, Mr. Levandowski and others of stealing self-driving car technology. But Mr. Levandowski’s situation was referred to federal prosecutors.

Mr. Levandowski pleaded not guilty to all charges after turning himself in at the federal courthouse in San Jose. He put up $300,000 cash, and his parents and a friend posted their houses as collateral for bail. If convicted, he could face 10 years in prison and a $250,000 fine for each count.

Sarah Ransome, left, and Virginia Roberts Giuffre, two of Jeffrey Epstein's accusers. Jefferson Siegel for The New York Times

Epstein’s accusers share their fury

Nearly two dozen of Jeffrey Epstein’s accusers told a packed Manhattan courtroom yesterday how the financier had sexually abused them, the NYT reports.

“For more than an hour, they took turns describing their trauma and voicing their anger that Mr. Epstein had avoided accountability for decades,” according to the NYT. Sixteen women spoke in person; some spoke anonymously or through lawyers.

• “The fact I will never have a chance to face my predator in court eats away at my soul,” said Jennifer Araoz, who has accused Mr. Epstein of raping her when she was 15.

• “I am every girl he did this to, and they’re all me, and today we stand together,” said Anouska De Georgiou.

• “Please finish what you have started,” Sarah Ransome told prosecutors.

The hearing was called to dismiss the sex trafficking charges against Mr. Epstein, who killed himself in his jail cell this month. Although throwing out an indictment after a defendant dies is usually a routine matter, the judge in the case, Richard Berman, said the women deserved their day in court.

More: Investigators have reportedly deemed some security camera footage taken from outside Mr. Epstein’s cell unusable. New Mexico is trying to seize chunks of Mr. Epstein’s ranch. Only 33 percent of Americans believe that Mr. Epstein died by suicide, according to a new poll.

Revolving door

Papa John’s has hired Rob Lynch, the president of Arby’s, as its new C.E.O.

Medtronic said that Omar Ishrak would retire as C.E.O. next April, though he will become executive chairman. Geoff Martha will become C.E.O.

John Rittenhouse will step down as the C.E.O. of EDF’s energy-trading arm. He’ll be replaced by Béatrice Bigois.

Kurt Zumwalt has reportedly stepped down as Amazon’s global treasurer.

Deutsche Bank has hired François Jourdain to run a new team that combines the bank’s treasury arm with investing operations.

Nearly a dozen senior executives in WeWork’s human-resources department have left or reportedly plan to leave this year.

The speed read

Deals

• BP agreed to sell its Alaska holdings to Hilcorp for $5.6 billion. (Reuters)

• Peloton, the at-home exercise equipment start-up, has publicly filed its I.P.O. prospectus, showing growing losses. (TechCrunch)

• The cybersecurity software company McAfee is reportedly preparing for an I.P.O. (Fortune)

• Toyota reportedly plans to take a 5 percent stake in Suzuki for about $910 million. (Reuters)

• The Thai owner of Dean & Deluca plans to sell $60 million worth of bonds to revive the struggling American grocery chain. (FT)

Politics and policy

• Deutsche Bank said in court that it has some of President Trump’s tax returns. (NYT)

• Democrats’ tax plans are increasingly focusing not just on income, but on taxpayers’ overall wealth. (WSJ)

• Trump officials are seizing private land and ignoring environmental rules to finish construction of a wall on America’s southern border by the next election. (WaPo)

• Attorney General William Barr has booked Mr. Trump’s Washington hotel for a party that will cost more than $30,000, raising questions about his independence. (WaPo)

• Facebook plans to tighten its verification rules for political advertisers, requiring them to show that they have registered with the U.S. government. (NYT)

Brexit

• Prime Minister Boris Johnson of Britain has moved to lengthen an upcoming parliamentary break, making it harder for lawmakers to stop a no-deal Brexit. (NYT)

• Mr. Johnson told European leaders that he would ignore calls within his Conservative Party to completely rewrite the agreement for Britain to exit the E.U. (FT)

• Big hurdles are emerging for a post-Brexit U.S.-Britain trade deal. (WSJ)

Trade

• China has readied a new social credit system to reward or punish corporations for their behavior. Critics worry it could become a new trade weapon. (WSJ)

• China also reduced the penalties for the sale and import of unapproved drugs, helping critically ill patients get cheaper medicines from abroad. (NYT)

• President Hassan Rouhani of Iran said he would not meet President Trump unless the U.S. drops trade sanctions on Iran. (NYT)

Tech

• More than 130 U.S. companies have reportedly applied to sell products to Huawei, but none have been cleared by the Commerce Department. (Reuters)

• A last-minute review of the bidding process for the Pentagon’s $10 billion cloud computing contract is said to be unlikely to change its outcome. (FT)

• Researchers studying Facebook’s impact on democracy said they would quit if they did not receive the data that the company promised them. (Reuters)

• Instagram is reportedly testing a new messaging app, called Threads, to take on Snapchat. (Verge)

• How China uses LinkedIn to recruit spies. (NYT)

• Telegram is pushing ahead with its cryptocurrency, and its first tokens could be issued within the next two months. (NYT)

Best of the rest

• President Jair Bolsonaro of Brazil rejected aid pledged at the Group of 7 summit to fight the Amazon forest fires, then accepted money from Britain. The Amazon fires also raise the question of who actually owns the rainforest. (NYT, NYT Op-Ed)

• New York regulators reached a $2.7 million settlement with the hedge fund Atalaya Capital Management over its rent-to-own lending practices. (NYT)

• Millennials aren’t ready for recession. (Axios)

• Fraudulently branded gold bars are being used to launder smuggled or illegal gold. (Reuters)

• A third of U.S. workers would prefer being able to wear jeans to work over a $5,000 raise, according to a new study. (Fortune)

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