Investors have given the cold shoulder to Uber, WeWork, Peloton and Endeavor, and that could have consequences for Silicon Valley and beyond.
September 27, 2019
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A Peloton exercise bike. Shannon Stapleton/Reuters
The start-up I.P.O. market has gone ice-cold
It isn’t just Uber and WeWork that have struggled to get into the public markets. Wall Street has become much more skeptical of I.P.O.s by loss-making companies, the NYT reports, and the consequences could ripple through Silicon Valley and beyond.
• Peloton, the maker of home fitness bikes, saw its shares tumble 11 percent below their I.P.O. yesterday, one of the worst debuts of the year.
• Endeavor, the entertainment conglomerate run by Ari Emanuel and Patrick Whitesell, pulled its I.P.O. yesterday, after previously cutting the price range.
“The rejection threatens Silicon Valley’s favored approach to building companies,” the NYT writes. Buzzy businesses had relied on huge sums from venture capitalists to grow quickly. But if public market investors are increasingly disdainful of such companies, start-ups may find it harder to get funding in the first place.
One big problem that public-market investors have is price. Companies like Uber, WeWork and Peloton simply asked to be valued at too high a level. “Things have gone a bit nutty,” the venture capitalist Fred Wilson told the NYT.
Possible solutions include companies being more conservative in pricing their I.P.O.s and showing investors that they have a pathway to making money. Even Masa Son of SoftBank, one of the biggest start-up backers around, has started advocating for more sustainable business models. (More on that below.)
The pushback isn’t necessarily a bad thing, if it helps cool an overheated venture-capital environment. “I think that’s very important for private markets,” Mr. Wilson added.
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Today’s DealBook Briefing was written by Andrew Ross Sorkin, Michael J. de la Merced, Lindsey Underwood and Stephen Grocer.
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Masa Son Charly Triballeau/Agence France-Presse — Getty Images
Masa Son faces questions after WeWork’s meltdown
For much of the past three years, Mr. Son, the founder of SoftBank, commanded fear and awe in the tech world because of his willingness to invest billions in start-ups. But WeWork’s troubles have put that strategy into question, Peter Eavis and Michael write in the NYT.
Mr. Son’s M.O. has been to plow huge sums into start-ups, letting them grow even if they rack up big losses. It’s an approach shaped by an early $20 million bet on Alibaba, which earned a return of more than $100 billion.
The humbling of Uber and WeWork has shown the strategy’s limits. If those companies can’t go public at the lofty valuations SoftBank accepted, it could face punishing write-downs.
SoftBank faces other challenges. It paid $21.6 billion for Sprint in 2013, promising that it could become America’s biggest carrier. Instead Sprint has fallen behind, and SoftBank is counting on merging the company with T-Mobile. If that deal fails, the research analyst Craig Moffett warned, “there’s a very solid argument that Sprint’s equity is worthless.”
Mr. Son appears to recognize the new reality. At a retreat for companies backed by SoftBank last week, he said those businesses needed to be able to bring in enough revenue to more than cover expenses within a few years of going public.
Senator Elizabeth Warren Elizabeth Frantz for The New York Times
Wall Street Democrats fear Warren more than Trump
As Senator Elizabeth Warren gains in the polls in the Democratic primary race, Democratic donors in the business world are wondering whether they should sit out the 2020 elections — or even back President Trump, Brian Schwartz of CNBC reports.
Ms. Warren has proposed a wealth tax, and a new rule that would make private equity firms responsible for the debts and pension obligations of companies they acquire.
One regional bank C.E.O. is worried that Ms. Warren would appoint a head of the Consumer Financial Protection Bureau who “sides only with consumers,” would force banks to hold more capital and restrict lending, according to Emily Flitter of the NYT.
And she’s gaining on Joe Biden, the current front-runner and a candidate who is courting the financial elite. Meanwhile, Mr. Trump has continued to woo business moguls with policies like a huge corporate tax cut and a push to eliminate regulations.
Democratic donors feel conflicted. “You’re in a box because you’re a Democrat and you’re thinking, ‘I want to help the party, but she’s going to hurt me, so I’m going to help President Trump,’ ” one told Mr. Schwartz.
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Boeing asked too much of pilots
The National Transportation Safety Board faulted Boeing and the F.A.A. for many erroneous assumptions they had made during the development of the 737 Max, Natalie Kitroeff of the NYT reports.
After a monthslong investigation, the safety board concluded that the company “underestimated the effect that a malfunction of new automated software in the aircraft could have on the environment in the cockpit,” Ms. Kitroeff writes. The system, known as MCAS, contributed to two crashes that killed 346 people. Pilots were not fully informed about how the software functioned until after the first crash.
Boeing has said the accidents could have been avoided if pilots had performed a standard emergency procedure. But the N.T.S.B. concluded that Boeing placed too much confidence in average pilots’ ability to recover, because it hadn’t considered the chaos that situation would introduce.
“The safety board recommended that the F.A.A. require Boeing and other manufacturers to consider the effect of multiple cockpit warnings when assessing how quickly pilots will respond to a malfunction,” Ms. Kitroeff adds. “It also suggested that the agency direct plane makers to develop technology that could diagnose a problem during flight and tell pilots what procedure to follow.”
The N.T.S.B.’s recommendations are not binding, but the F.A.A. typically accepts them.
Arnd Wiegmann/Reuters
Credit Suisse is investigating a big spying scandal
The fate of executives at the Swiss bank who were “responsible for the bank’s most embarrassing scandal in recent years” will likely be decided early next week, Jan-Henrik Foerster and Patrick Winters of Bloomberg write, citing unnamed sources.
The bank hired private investigators to follow a former star banker, Iqbal Khan, after he decamped for UBS, out of fear that he might poach former colleagues.
Mr. Khan noticed that his car was being followed last week, and took pictures of his pursuers, according to Bloomberg. That led to a fight in which the men tried to take away his phone.
Lawyers at the Swiss law firm Homburger have been “interviewing bank officials and reviewing whether the surveillance was justified, legal and ethical,” Bloomberg adds.
Kathryn Murdoch Hilary Swift for The New York Times
Meet the Murdoch fighting climate change
Kathryn Murdoch, the wife of James Murdoch, is stepping into the spotlight to talk about her environmental activism. It’s a rare moment, John Schwartz of the NYT writes: a member of the billionaire media clan claiming independence from “the more conservative arm of the family.”
Her work involves “countering the efforts of those who block progress by stoking partisan rancor or by attempting to muddy the scientific consensus” on climate change, Mr. Schwartz writes.
That pits her against the Murdoch empire and its crown jewel, Fox News. As Mr. Schwartz notes, “This could be awkward.”
But Ms. Murdoch and her husband, the younger son of Rupert Murdoch, have given millions to environmental causes over the years, and they’ve alluded to their differences in opinion with other relatives. James Murdoch recently told The New Yorker: “There are views I really disagree with on Fox.”
Revolving door
The Senate confirmed Eugene Scalia, the son of the late Supreme Court justice Antonin Scalia, as Labor secretary.
Nissan’s board has reportedly narrowed its C.E.O. search to three candidates: Takeshi Niinami, the head of Suntory, the beverage giant; Jun Seki, a top Nissan executive; and Ashwani Gupta, the C.O.O. of Mitsubishi.
Barclays appointed two new board members: Dawn Fitzpatrick, the former investment chief for Soros Fund Management, and Mohamed El-Erian, the chief economic adviser at Allianz.
Jason Ng, a lawyer for BNP Paribas in Hong Kong, has left the bank after posting comments on social media supporting anti-Beijing protests.
The speed read
Deals
• Two big shareholders in Marathon Petroleum reportedly said that they not only backed a proposal by Elliott to break the company up, but thought that its C.E.O., Gary Heminger, should resign. (WSJ)
• Exxon Mobil agreed to sell its Norwegian oil and gas assets to Var Energi for about $4.5 billion. (Reuters)
• Delta Air Lines plans to buy a 20 percent stake in LATAM, the big Latin American airline, for about $1.9 billion. (CNBC)
• Toyota said it will invest $650 million to increase its stake in the rival carmaker Subaru to 20 percent, from 17 percent. (Reuters)
• The investment firm Cachette Capital promised to dole out $1 billion to venture capitalists. That money never appeared, and Silicon Valley is now asking whether it was ever there. (Bloomberg)
WeWork
• The company is said to have stopped signing new leases, putting the global corporate real estate market on edge. (FT)
• It has also reportedly put three side businesses, including the meeting organizer Meetup, and its private plane up for sale. (Bloomberg)
• Its new C.E.O.s reportedly plan to oust nearly 20 executives who are seen as allies of the former leader, Adam Neumann. (WSJ)
• And start-ups that WeWork bought in exchange for stock are now worried they ultimately received nothing for their businesses. (WSJ)
Politics and policy
• Crown Prince Mohammed bin Salman of Saudi Arabia accepted responsibility for the killing of the writer Jamal Khashoggi, but denied knowing of the plot ahead of time. Meanwhile, his kingdom is finding fewer friends in Washington these days. (NYT, WSJ)
• Central banks around the world are increasingly split over easy-money policies. (WSJ)
• Joe Biden is reportedly considering a proposal to levy a new tax on Wall Street to counter the rise of the senators Elizabeth Warren and Bernie Sanders. And his allies are considering starting a super PAC to buy ads and help his campaign. (WaPo, NYT)
• The E.P.A. accused California of numerous environmental problems, as the Trump administration retaliates against the state for supporting tough car emissions standards. (NYT)
• The whistle-blower is said to be a C.I.A. employee who had been detailed to the White House and was an expert in Eastern European affairs. (NYT)
• President Trump complained that the whistle-blower’s sources were acting almost as spies and suggested they be punished for treason. (NYT)
• Behind the scenes, Fox News executives and hosts reportedly worried about the damage the scandal would inflict on Mr. Trump. (Vanity Fair)
Tech
• Uber has overhauled its app to merge its ride-sharing and food delivery services and add safety features. (Verge)
• Twitch, the live-streaming platform, says it isn’t just for gamers anymore. (NYT)
• Locast, a nonprofit free streaming service, has sued ABC, NBC, CBS and Fox, accusing them of colluding against it. (NYT)
• DoorDash announced a data breach affecting 4.9 million customers, delivery workers and merchants. (TechCrunch)
• Facebook says a data-breach lawsuit should be dismissed for lack of evidence that anyone was harmed. (Bloomberg)
Best of the rest
• Negotiations between G.M. and the United Auto Workers are reaching the final stretch. (WSJ)
• The number of people with vaping-related illnesses has risen to 805, the C.D.C. reports. (NYT)
• ABN Amro, the Dutch banking giant, is facing a criminal investigation for failing to report suspicious transactions. (Bloomberg)
• The collapse of the travel company Thomas Cook could cost the British government and insurers more than 500 million pounds, or about $614 million. (FT)
• McDonald’s will test a plant-based burger called the “P.L.T.” — plant, lettuce and tomato — in Canada. (NYT)
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