Liberal Judges May Lend a Hand to Justice Department in AT&T Case

Last June, Senior District Court Judge Richard Leon delivered a blistering decision on the AT&T-Time Warner case. Judge Leon concluded that the Justice Department failed to show that the merger of the two behemoths would violate antitrust law by raising prices and hurting competition.

Judge Leon specifically criticized the Department’s top expert witness, U.C. Berkeley economist Carl Shapiro. Judge Leon rejected Shapiro’s argument that a post-merger AT&T would have leverage over rivals on the ground that such an argument was based on thin evidence at best. Judge Leon’s opinion helped the merger move forward — or at least pushed the case to the D.C. Court of Appeals and possibly into the fateful hands of liberal judges.

Typically, liberals and progressives oppose mega mergers like that of AT&T-Time Warner. For example, Senators Bernie Sanders and Elizabeth Warren moved to shut down the merger prior to Judge Leon’s opinion. They claimed that a massive content creator, comprised of phone, internet, and TV services, would hurt consumers. However, political lines were blurred early on when the conservative Department’s division chief, Makan Delrahim, opted to take on the case. Now, the merger could be in the hands of three liberal judges who have the power to aid the Department’s case in the D.C. Court of Appeals.

The Department is appealing Judge Leon’s lengthy decision on the ground that he, along with the district court majority, ignored the government’s main argument — namely, that Time Warner would have added bargaining power over rival distributors that pay for its programming. The decision will undoubtedly determine the future of mergers between media and telecommunication companies for years to come.

Liberal Judges May Lend a Hand to Justice Department in AT&T Case

Scooter Company, Bird, Enters Latin American Market

Bird, a dockless scooter-sharing company, was founded in 2017 in Santa Monica, CA. Since then, Bird has placed more than 1,000 scooters in 22 U.S. cities and the company announced that customers had taken more than 1 million rides in the past year. This past June, Bird announced that it raised more than $400 million in funding and is valued at around $2 billion.

While Bird has seen astounding growth in such a short period of time, they also have faced issues in regard to safety. In September, over 20 scooter accidents, including pedestrian injuries and vehicle collisions, were reported in Indiana alone. While many riders understandably feel unsafe on the street next to cars, pedestrians feel similarly unsafe with Bird riders sharing the sidewalk with them. Bird is weighing their unprecedented growth with the fact that many major cities continue to decide if the public safety concerns will allow for the service to continue. Already, San Francisco, Denver, and parts of Los Angeles, have opted to ban the scooter-sharing service until new city regulations have been passed to ensure the safety of its citizens.

Despite these concerns, Bird has continued its expansion to international markets. Bird already has scooters in Paris, Brussels, Tel Aviv, and Vienna, and recently announced that it will soon enter Mexico City and Brazil as well. Latin America could be a major frontier for Bird. Company officials stated that the region has much less regulatory hurdles for scooter companies as opposed to car ride shares, such as Uber. Further, while it does not have specific permission from local government, the company claims to adhere to local regulations and cites that the cities already have other scooter-sharing services available.

While companies like Bird continue to receive major funding and chances for further growth in new regions, they also face increased competition and regulatory issues. These obstacles could prevent Bird from living up to the lofty expectations created by their evaluations. Excitement regarding convenience and low pricing may continue to fuel Bird’s growth, however, a communal waning of interest and an oversaturated U.S. market could prove detrimental to the company’s long-term sustainability. Expansion into international cities and territories may help to boost revenue and growth as the U.S. market becomes more accustomed to the ever-present scooter found parked on the sidewalk.

Scooter Company, Bird, Enters Latin American Market

Comcast Fights Back

Offsetting its recent loss in a bidding war against the Walt Disney Company for control of 21st Century Fox, Comcast successfully won its September 22 bid to acquire Sky—a British media and telecommunications broadcaster. The takeover comes shortly after Disney outbid Comcast in July in the fight over the acquisition of Fox. With its $40 billion winning bid ($22.57 a share) for Sky, Comcast is giving Fox and Disney a taste of their own medicine.

Comcast’s victory presents a devastating blow to Fox. Fox holds 39 percent of Sky and Fox’s Executive Chairman Rupert Murdoch had always hoped to take over the rest of Sky. In the growing landscape of video streaming, players like Netflix and Amazon are pushing viewers to abandon traditional cable television. As a result, traditional media companies like Comcast are strengthening their efforts to stay afloat. With its acquisition of Sky, Comcast will not only gain a stake in the streaming business through Sky’s streaming option Now TV, but will also be able to diversify its business across international borders. Sky boasts an impressive and crucial twenty-three million paying subscribers across five European countries. Its strong portfolio in those markets includes original programming, a news channel, exclusive partnerships with HBO, Showtime, and Warner Bros. Studio, and an invaluable deal with the English Premier League of soccer. As a traditional broadcaster, Comcast will greatly benefit from both Sky’s subscriber base and its creative content portfolio.

Comcast is not the only media company making bold moves to gain market share. The age of video streaming is marked by two distinct features: a subscription-based model of membership and the creation of original content. Since beginning to develop its own content in 2012, Netflix has proven to be a formidable player in successfully harmonizing the two features, creating a $142 billion empire. With Netflix’s success, competitors will undoubtedly have to intensify efforts to focus on building competitive advantages across both features while still remaining profitable. From Amazon Video’s distribution of its own original content for Prime subscribers to Apple’s upcoming slate of original television shows, new players are targeting Netflix’s market dominance. And for older companies like Comcast that are not built on subscription-based models of streaming original content, expensive mergers and acquisitions may be a necessary strategy for remaining competitive.

Comcast Fights Back

Tesla Forced to Make Tough Choices as Debt Comes Due

After losing roughly $7 billion in value in late September, Tesla’s stock surged recently in response to Elon Musk’s settlement with the U.S. Securities and Exchange Commission as well as promising Model 3 production numbers. However, many remain worried about Tesla’s ability to pay its debts. Despite Musk’s ability to sell equity investors on the future of Tesla, the company’s serious debt problem has plummeted Tesla’s bond price to a record low.

In its early years, Tesla took on a substantial amount of debt to achieve a sizeable advantage in the electric car space. Tesla was able to successfully seize control of the electric car market and became the most valuable car company in America. Nevertheless, Tesla has yet to turn a profit. Tesla’s newest car, the Model 3, was intended to boost profitability as a result of mass production and relative affordability in comparison to the Model S.

Unfortunately, Tesla has failed to meet Model 3 delivery expectations. Meanwhile, more than $9 billion of Tesla’s debt is scheduled to mature before 2025, $2.7 billion of which will mature over the next two years. Still, Tesla’s cash is rapidly depleting. Tesla has about $2.7 billion on hand and a burn rate of about $6,500 a minute as the company attempts to ramp up production and delivery of the Model 3. Moreover, Tesla is particularly susceptible to financial distress because the electric car business is highly competitive and capital-intensive.

What should the company do? It’s unlikely that Model 3 profits will be substantial enough to simultaneously pay off the company’s debts, maintain market share, and finance Elon Musk’s vision for the future. Given Tesla’s current credit rating, leveraging the company would be extremely expensive as a result of hefty interest payments. Instead, Tesla should capitalize on the recent surge in stock price and renewed sense of optimism among equity investors by selling a sizable chunk of the company to pay the company’s debts, finance its future, and stave off bankruptcy.

Tesla Forced to Make Tough Choices as Debt Comes Due

Thomson Reuters’ Blackstone Deal Raises Questions for Shareholders in an Age of Buybacks

Thomson Reuters (NYSE: TRI) recently announced it would return $10 billion to shareholders after selling the majority position of its Financial & Risk (F&R) unit to private equity firm Blackstone (NYSE: BX). Of that $10 billion, representing the majority of the $17 billion sale price, Thomas Reuters announced it would use $9 billion to buy back shares, largely in connection with a substantial issuer bid (SIB). While some stockholders might be rejoicing, their exuberance may be misplaced.

Thomson Reuters is not alone in its desire to give back to its investors. Corporate tax cuts and steady earnings have prompted record stock repurchases with no indication of slowing down. By repurchasing shares, companies increase net earnings per share by decreasing the total number of outstanding shares. For instance, Apple (NASDAQ: AAPL) repurchased $112.8 million shares in the second quarter, adding five cents to its earnings. As a result, companies may hope to make their stock more attractive to potential buyers, though the extent to which higher earnings per share are driving stock prices is not without contention.

Not everyone agrees buybacks are a good idea. Critics of stock repurchases argue that buybacks are ineffective and irresponsible. By paying out surplus capital to shareholders, companies may miss out on critical investment opportunities they need to stay competitive. Moreover, stock repurchases that place a premium on the purchased stock, as with an SIB, may be hugely inefficient, overvaluing the company stock. Buybacks may also present a moral dilemma regarding the duties a corporation has towards its shareholders and the duties it owes its employees or society as a whole.

Granted, there are good reasons to like buybacks. Proponents argue they reward investors who carry the risk associated with holding the stock. In addition, stockholders may have a strong sense of how the company’s money should be spent and should only want management to invest that capital if it can produce a higher return with it than they can do with it themselves.

Still, even for those who subscribe to the notion that a corporation’s first priority is its shareholders, it is worth pondering what effect, if any, repurchases of this size and on this scale may have on how directors are expected to manage their money in future markets.

Thomson Reuters’ Blackstone Deal Raises Questions for Shareholders in an Age of Buybacks

Did iPhone Upend the Rule of Law?

A U.S. International Trade Commission judge recently determined that Apple infringed Qualcomm’s microchip patent. Nevertheless, the judge declined to grant Qualcomm’s request to ban the importation of iPhones into the United States. The two tech giants have multiple lawsuits spanning multiple continents, and the aggregate claims amount to billions of dollars.

If Apple did infringe Qualcomm’s patent, does it make sense to allow the infringement to continue? On the surface, it appears that public demand for iPhone has upended the rule of law — the principle that laws should be applied and enforced equally. Whether one agrees with the concept of intellectual property, it is currently the law of the land. The judge’s ruling, however, gives the impression that rules do not apply to Apple products. What happened here?

The details of the ruling have not yet been made available. However, an administrative law judge at the International Trade Commission reasoned that “public interest factors” weighed against banning the importation of iPhones. It is unclear what the judge meant by “public interest factors.” But, one obvious public interest factor is consumer choice. Intellectual property law is about balancing the rights of intellectual property holders with the public interest in better goods and services. It appears the latter was more important in the judge’s mind.

Also, the use of the phrase “public interest” was appropriate because, even had the ban been granted, damage to Apple would have been minimal. Margins on iPhones, even for older models, are insanely high. A hiccup in the rollout of a new model would not hamper the business operations of Apple. Further, users of iPhone, as well as other Apple products, are notorious for their brand loyalty. A delay in the release of the newest iPhone would not damage the company’s goodwill. Therefore, the ruling is, or at least has the appearance of being, about Qualcomm’s interest versus the public interest.

The judge likely saw no reason to narrow consumer choice. Equitable relief in the form of a ban on the importation of a complete iPhone product, of which Qualcomm’s microchip technology is only a part, appears excessive in light of the availability of a legal remedy. Apple is certainly able to pay any monetary judgments to Qualcomm. The court must simply determine the right amount. On balance, the judge’s decision was judicially sound.

Did iPhone Upend the Rule of Law?

Will SB 826 Solve the Underlying Issue?

White males continue to dominate corporate boardrooms, reflecting a “boys club only” mentality at the top of corporations. When signing SB 826, Governor Brown stipulated it is the “high time” that corporate boards begin including women, who constitute more than half of the American population. To promote gender equality within the corporate boardroom, California’s bill requires that publicly traded companies with their principal executive office located in California engage in a two-step process. First, these companies must have at least one woman on their respective boards by the end of 2019. Second, by the end of 2021, these companies must have either two female board members if their board is comprised of five members or three female board members if their board is comprised of six or more members. Failure to comply with either requirement will result in fines.

SB 826 seeks to solve the issue of male-dominated boardrooms, but it does not properly address why they are lopsided in the first place. Because shareholders elect the board, could the reason for this unequal representation be that shareholders are biased against women? This rationale may possibly be the answer because the investing community happens to also be heavily male-dominated in both the financial industry and among individual investors. However, I wager that the real issue is that nominating committees, which are usually comprised of the chairman, deputy chairman, and the Chief Executive Officer, only present shareholders with male nominees.

Aside from the bill’s practicability and legal obstacles, including the internal affairs doctrine and equal protection clauses of the federal and California state constitutions, the bill’s larger problem is that it favors equality of outcome over equality of opportunity.

Equality of outcome would be a fifty-fifty distribution of women and men within corporate boardrooms. Many equality of outcome proponents insist that such a requirement would pave the way for a more equal opportunity, but they fail to recognize that such a requirement precludes equal opportunity. Under a typical nomination process, the nominating committee could nominate a pool of two women and twenty men. In the case of a five-person boardroom, the bill would necessitate that the two women be automatically chosen whether the shareholders elect them or not. This scenario circumvents the democratic role shareholders play in electing board members based on merit.

A better recommendation would utilize shareholder activism and ride the coattails of increasing awareness of gender inequalities. Nomination processes should be more transparent, and if quotas are to be used, they should be restricted to the board nominee pool, which would create more diverse selection pools for shareholders to freely elect whom they see fit. This preliminary framework would allow women a more equal opportunity to become elected based on their merit.

While the bill certainly has its drawbacks, it still represents an unprecedented move in the U.S., follows suit with other European countries, and brings more awareness to an ongoing social issue that has plagued our country for too long.

Will SB 826 Solve the Underlying Issue?

Saudi and Softbank Solar Project Setback Ends With Separate Investment

The Saudi Arabian government’s plan, spearheaded by Saudi Crown Prince Mohammed bin Salman (MbS), to reduce their dependency on oil and diversify their economy has upended the tech community with an influx of cash.

Over the past two years, the Public Investment Fund of the Kingdom of Saudi Arabia (PIF) has nurtured a relationship with Softbank Group Corp. Through this effort, PIF has dumping money into Softbank Vision Fund and successfully broke into the United States tech industry. Softbank founder and CEO Masayoshi Son has readily accepted the backing, using the gargantuan fund to aggressively transition the Japanese telecom company into investments.

In March, Son and MbS turned their attention towards Saudi soil, announcing at a New York press conference an agreement wherein SoftBank would build the words largest solar power project in Saudi Arabia. With a 200-gigawatt goal in mind at the price of $200 billion – the stage was set.

However, the Wall Street Journal reported last week that PIF tabled the deal and is instead “working up a broader, more practical strategy to boost renewable energy.” Softbank was quick to retort, stating that it remains “working closely with PIF…to deliver on the New Solar Energy.”

Both actors have an emergent notoriety in the tech industry for flashy deals and substandard diligence. And while most of us recoil in horror at the thought of a $200 billion agreement falling through, this recent “setback” hasn’t seemed to affect the parties relationship or reputation. In fact, MbS just announced that PIF would invest an additional $45 billion in Software Vision Fund.

With seemingly endless amount of oil money involved, it appears that PIF and Software Vision Fund’s relationship will continue to flourish.

Saudi and Softbank Solar Project Setback Ends With Separate Investment

Making a Comeback: Blackberry Goes All-In with Software and Cybersecurity

BlackBerry Limited, a Canadian corporation, announced in 2016 that it would no longer design Blackberry smartphones and that it would outsource production of devices to other manufacturers. While BlackBerry smartphones once dominated the market, it struggled to compete when companies such as Apple and Samsung gained traction among consumers. Now, only two years after the company’s announcement, hardware accounts for a mere 1% of BlackBerry’s revenue.

BlackBerry decided to launch itself into new arenas as it attempted to distance itself from its floundering smartphone business. Under the guidance of CEO John Chen, the company is now focusing on its highly successful software business. BlackBerry is even branching out into autonomous cars and cybersecurity, ventures which today account for over 90% of its total revenue. In addition, since over 80% of those sales are recurring, BlackBerry now has a secure annual source of revenue flowing from corporate clients and no longer relies on individual consumers for its success.

According to CNN Business, on September 20, 2018, BlackBerry “topped Wall Street’s forecasts” with its reported profits and sales from its most recent quarter. As a result, the company’s stock bumped up more than 15% in trading. Even more notably, revenue from the business unit encompassing software for connected and autonomous cars grew 30% in BlackBerry’s latest quarter.

BlackBerry’s newfound profitability is largely a result of successfully integrating its software into automotive industry enterprises. This year the company announced a partnership to design software for autonomous cars with Baidu, a Chinese search engine. BlackBerry also boasts big-name automotive clients like Jaguar Land Rover, which announced in March that it will integrate BlackBerry’s QNX software into Jaguar Land Rover cars for navigation and “infotainment” services. BlackBerry also recently launched “Jarvis,” a QNX cybersecurity tool designed to help automakers secure their software supply chain and identify security vulnerabilities in their cars.

BlackBerry’s innovation does not stop with the automotive industry. The company also hopes to revolutionize the health care industry. BlackBerry provides a highly-integrated Spark platform, a medium for “ultra-secure hyperconnectivity” that encompasses enterprise software, secure communications, connected transportation, secure smartphones, and cybersecurity consulting. Spark exemplifies BlackBerry’s goals for its future: integrated and intelligent software and technology grounded in a corporate client base. With stock up over 60% compared to five years ago, BlackBerry is proving that its long-term strategy focused on innovative new business ventures is delivering results.

Making a Comeback: Blackberry Goes All-In with Software and Cybersecurity

Facebook ‘Friends’ Conservatives, to Employees’ Dismay

Amid tweets from President Trump alleging bias against him and against conservatives more generally, the Department of Justice began looking into Facebook, Google, and other tech giants that may be “intentionally stifling the free exchange of ideas.”  The assertion came at the end of a Senate hearing on September 5, where Facebook’s COO Sheryl Sandberg and Twitter’s CEO Jack Dorsey testified.

The DOJ’s latest probe is the culmination of a vigorous online campaign by conservative publications including Fox News, the Daily Wire, and Breitbart, and hits at an area where Facebook in particular has long felt insecure.  Hyperaware of conservative regulators motivated to scrutinize Facebook’s business practices for what they perceive as liberal bias, the company has made a concerted effort in recent years to build relationships with prominent Republicans, and particularly so during the unpredictable Trump Administration.

The problem is that Facebook is now embroiled in significant pushback from its own employees, who are primarily based in the notoriously liberal Silicon Valley.

The tension between Facebook’s regulatory concerns and its employees’ ethos came to a head last week when Joel Kaplan, Facebook’s Vice President of Global Public Policy and former Deputy Chief of Staff for Policy in the Bush White House, attended Justice Brett Kavanaugh’s hearing before the Senate Judiciary Committee.  With Kavanaugh there to answer senators’ questions about his alleged high school sexual assault of Dr. Christine Blasey Ford, Kaplan was there as Kavanaugh’s longtime friend.

But many perceived Kaplan’s appearance as inextricable from his capacity as a top executive at Facebook.  Employees of the company are demanding that Facebook answer for one of its top executives publicly supporting a man credibly accused of sexual assault.

While Facebook’s regulatory strategy has been to round out its policy leadership and lobbying offices with prominent conservatives like Kaplan, Facebook faces an equally pressing business need to keep its employees happy.  Given the ongoing competition with companies like Google and Apple for engineers, data scientists, and AI experts, Facebook needs to maintain its reputation as a good place to work for its predominantly progressive employees or risk an overcorrection that alienates the most valuable commodity in Silicon Valley: talent.

Facebook ‘Friends’ Conservatives, to Employees’ Dismay