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How Elliott Prevailed Against Hyundai Motor: DealBook Briefing

Elliott said that the restructuring plan showed management “has failed to act in the best interest of the companies and their respective shareholders.” It instead proposed turning Hyundai Motor into a holding company that it said was more tax efficient and sustainable.

The hedge fund had the backing of shareholder advisory firms like Institutional Shareholder Services and Glass Lewis, both of whom urged investors to vote against Hyundai Motor’s plan. “Despite the board’s claims that the proposed restructuring plan aims to address the circular ownership issues, the transaction itself will have no impact on cross-ownership,” I.S.S. wrote in its report last week.

Why Elliott could win this time

In a presentation earlier this year, the hedge fund noted that Hyundai’s proposed transaction was similar to what Samsung wanted to do in 2015, where the company sold an affiliate to the chaebol’s holding company. There, Samsung was able to rally individual investors, who accounted for nearly a third of its shareholder base, to its cause.

By contrast, retail investors comprise some 5 percent of Hyundai’s shareholder base. Big international institutions, which make up the bulk of Hyundai’s investors, are likely to be more immune to the entreaties of companies under attack from an activist if the campaign makes sense financially.

The bottom line: It’s hard to say whether Elliott’s victory at Hyundai was a one-off. But the hedge fund does have some reason for hope: The chairman of the Fair Trade Commission, one of Korea’s top business regulators, is a former activist investor himself.

— Michael de la Merced


The secretary of the Treasury, Steven Mnuchin.

Jason Lee/Reuters

Can investors now strike a trade war from their list of worries?

Stock markets are up so far this month, suggesting in part that investors were betting that tensions between the United States and its largest trading partners would ease.

That seemed to occur this weekend. The United States and China issued a joint statement on trade and Steven Mnuchin, the Treasury Secretary, said planned tariffs on $150 billion of Chinese goods were on hold. China did not seem to commit to much that is concrete to gain a reprieve from the tariffs, a notable achievement for the country’s negotiators.

The joint statement said China would significantly increase its imports from the United States, but it did not say how much more it would buy and over what time period. The parts of the statement about investing in each other’s country and protecting intellectual property were even vaguer.

President Trump on Monday nevertheless promoted the statement as a win. But influential members of his administration who are still spoiling for a big trade fight will no doubt want to keep up the pressure on China — and Mr. Trump may at times share their desire in the coming months. Still, the events of recent weeks show that the United States was largely isolated in its trade fights and the Trump administration may have lacked the resolve or unity to keep up its hard-edged approach. The Trump administration can, of course,reintroduce the threat of tariffs if it believes China is failing to make concessions in the proceeding trade talks. But after stepping back this weekend, it will be harder for the Trump administration to make an aggressive stance appear credible.

Indeed, the big question hanging over the Trump administration: Why did it withdraw its tariff threat now, before exacting hard, quantifiable concessions from China? One reason may be that the United States needs China’s help in dealing with North Korea ahead of Mr. Trump’s summit with Kim Jong Un planned for June. Another reason may be that China was up for a long fight with the United States and signaled so. Whatever the cause, the takeaway for investors is that the Trump administration passed up an opportunity to show China that it meant what it said.

Still, investors may not want to relax too much. Mr. Trump’s popularity has been rising even as he made combative moves on the trade front that at times roiled the market. In other words, there does not appear to be much political risk domestically, if any, to taking on China, and so Mr. Trump may use belligerent trade talk to stir up his base ahead of the midterm elections in November.

But as long as he steps back from taking tough actions, investors will most likely take his rhetoric in stride. That stance has served them well. The Standard & Poor’s 500 index is now up from where it was in mid-February when the Trump administration outlined its case for steel and aluminum tariffs.

– Peter Eavis

Where did hedge funds put their money during the first quarter?

Analysts over at Goldman Sachs are out with a report on Monday looking at the holdings of 848 hedge funds with a combined $2.3 trillion in stock market bets.

Here are some takeaways:

Individual stocks

• Hedge funds added bets on Facebook more than any other stock during the first quarter, followed by Microsoft, Aetna and Monsanto.

• Amazon had the biggest reduction in wagers on it, followed by Apple, McDonald’s and Citigroup.

Context: The data suggests that overall investors were buying the dip with Facebook. Shares of the social media giant dipped nearly 20 percent as the Cambridge Analytica scandal broke in mid-March. Apple’s shares were under pressure toward the end of the quarter as investors crew concerned about iPhone sales. After hitting an all-time high, during the first quarter, Amazon slipped at the end of the quarter as President Trump targeted Amazon’s business in a series of tweets.


•Tech remained the biggest holding among hedge funds but their holdings overall decreased during the first quarter.

• Hedge funds boosted their bets on the energy sector.

• They remain the most bullish on shares of consumer discretionary companies.

• The hedge funds cut their exposure to financial stocks.

Employers can now block some class-action lawsuits filed by their employees

The U.S. Supreme Court has ruled that employers will be able to include rules in contracts that force employees into individual arbitration, even if they wanted to band together to take legal action as a group, over issues about wages and hours. More details from Adam Liptak in the NYT:

The vote was 5 to 4, with the court’s more conservative justices in the majority. The court’s decision on the matter could affect some 25 million employment contracts.

Making sense of some of the Fortune 500’s biggest movers

The magazine’s annual list of largest U.S. corporations by revenue sees some firms making big leaps. Here’s how to interpret some of biggest changes.

• Tesla made the biggest move up the table this year, jumping 123 places to No. 260. But for some perspective, its revenue of $11.8 billion is still dwarfed by that of fellow automaker G.M., which takes tenth place with $157.3 billion. And profitability—or the lack thereof—remains a huge concern for Elon Musk’s firm.

• Nvidia, the chip maker, has jumped 81 places, from No. 387 to No. 306, with revenue of $9.7 billion. That’s still a shadow of its rival Intel, at No. 46 with $62.8 billion. But while Intel’s profits have fallen 6.9 percent, Nvidia’s have jumped by 82.9 percent—a result of its enormous successes in providing many of the chips that are used to run AI software.

• Charter jumped 22 places from No. 96 to No. 74, with $41.6 billion in revenue. That’s largely thanks to its acquisition of Time Warner Cable and Bright House Networks in 2016.

• DowDuPont rose to No. 47 from No. 62, with revenue of $62.7 billion.

• Coca-Cola fell 23 places, from No. 64 to No 87, reporting lower revenue and profits than in 2016. That’s partly a result of investment in new products as consumers and—governments—shift away from excess sugar consumption.

The trade war might not be on hold after all

Becky Quick of CNBC’s “Squawk Box,” reports that Treasury Secretary Steven Mnuchin is adjusting his comments, made over the weekend, about a pause in the U.S.-China trade war.

She tweeted:

Has China gotten the upper hand in trade negotiations?

Steven Mnuchin said this weekend, “We’re putting the trade war on hold.” S.&P. 500 futures were up on the news. But the pressure is on the Trump administration to back up its tough talk on China — a task that may be more difficult without the leverage of potential tariffs.

The fight inside the White House is still real. Free-trade supporters like Mr. Mnuchin and President Trump’s top economic adviser, Larry Kudlow, are still slinging arrows at hard-liners like the U.S. trade representative, Robert Lighthizer, and the trade adviser Peter Navarro. (While Mr. Mnuchin said the tariffs were “on hold,” Mr. Lighthizer said they were still possible.)

The state of play, from Ana Swanson and Alan Rappeport of the NYT:

The two sides have agreed on a “framework” under which China would increase its purchases of American goods, while putting in place “structural” changes to protect American technology and to make it easier for American companies to compete in China.

But China didn’t guarantee increasing purchases of American products by a specific amount, let alone the $200 billion reported last week. And there has been little detail about fixing the tech issues underlying the trade fight: no firm plans to solve IP theft, and little hope of curbing China’s ambitious plans to become a technology powerhouse.

Critics’ corner: Even a $200 billion Chinese buying spree wouldn’t help U.S. trade, Michael Pettis writes in Bloomberg View.

Elsewhere in trade: Mr. Trump is reportedly happy to wait for as long as it takes to get a good Nafta deal. The British foreign secretary, Boris Johnson, is touring Latin America this week to gin up interest in trade after Brexit. Improving trade relations with Russia is reportedly a top priority for Germany.

The unwinding of G.E. is moving ahead

Update: G.E. has agreed to sell its transportation business to Wabtec in a tax-free transaction, valued at about $11.1 billion. Under the terms of the deal, G.E. will own 50.1 percent of the combined company, while Wabtec will own the remainder. G.E. will also get a $2.9 billion cash payment up front.

G.E. was advised by Morgan Stanley and Dyal Company, the boutique investment bank founded by the former Goldman Sachs deal maker Gordon Dyal, as well as the law firm Davis Polk & Wardwell. Wabtec was advised by Goldman Sachs and the law firm Jones Day.

From earlier: The next deal to shrink the embattled industrial conglomerate, according to Reuters: a sale of its transportation business for more than $20 billion to Wabtec, a rail equipment maker. (The transaction would reportedly be performed using one of Michael’s favorite deal structures, a reverse Morris Trust — a similar tactic to that used by G.E. to merge its oil and gas business with Baker Hughes.)

The chief executive of G.E., John Flannery, has pledged to reduce the company’s byzantine structure and focus on its fastest-growing core businesses. Making train engines isn’t part of that equation.

Elsewhere in deals: Comcast is apparently considering very seriously a bid for parts of 21st Century Fox. Dell is reportedly continuing talks with investors about a deal for VMware. Ant Financial is said to be worth $150 billion (but investors must pledge not to back any Alibaba rivals). A breakup of Britain’s big accounting firms might be a good thing. Blackstone sold its Hilton holdings.


Elizabeth Holmes, founder of Theranos.

The new book on Theranos dives into the start-up’s scandals

“Bad Blood,” John Carreyrou’s heavily anticipated tome about the blood-testing start-up and its founder, Elizabeth Holmes, is out today. (How anticipated? Jennifer Lawrence is signed to a movie based on the book, and “60 Minutes” did a segment on the failed start-up last night.)

From Roger Lowenstein’s review in the NYT:

Even for a private company like Theranos, disclosure is the bedrock of American capitalism — the “disinfectant” that allows investors to gauge a company’s prospects. Based on Carreyrou’s dogged reporting, not even Enron lied so freely.

Andrew’s bottom line: I read the book in just two sittings — it’s a page-turner. If you love narratives like “Barbarians at the Gate,” Mr. Carreyrou’s tale gets awfully close to that feeling of being inside the room, and watching a spectacular fraud unfold.

The political flyaround

• Rudy Giuliani said that Robert Mueller planned to finish his obstruction investigation by September — but only if President Trump sits down for an interview. The Justice Department’s inspector general has been instructed to look into the president’s allegations of an improper government inquiry into Mr. Trump’s 2016 campaign.

• Donald Trump Jr.’s meeting with an emissary of two Persian Gulf states in 2016 suggests that countries other than Russia wanted to get involved in the election. (NYT)

• The British law firm Linklaters is under scrutiny for its work on behalf of Russian oligarchs. And here’s a closer look at one of them, the billionaire Viktor Vekselberg, who has been linked to Michael Cohen.

• Scott Pruitt has run into some problems in his deregulation campaign at the E.P.A. (WaPo)

• The new U.S. secretary of health and human services, Alex Azar, is the rare Trump regulator who isn’t focused on deregulating. (NYT)

• Don Blankenship may have lost the Republican Senate primary in West Virginia, but the former Massey Energy C.E.O. is still causing headaches for the party. (Politico)


Mastercard’s cybersecurity war room.

Whitney Curtis for The New York Times

Banks look to the military in their cybersecurity defenses

Cybercrime is one of the greatest risks to the American financial sector, according to the Treasury Department.

How banks are taking that threat seriously, according to Stacy Cowley in the NYT:

Former government cyberspies, soldiers and counterintelligence officials now dominate the top ranks of banks’ security teams. They’ve brought to their new jobs the tools and techniques used for national defense: combat exercises, intelligence hubs modeled on those used in counterterrorism work and threat analysts who monitor the internet’s shadowy corners.

Elsewhere in finance: David Solomon’s era atop Goldman Sachs may start at year end — and here’s an argument why Lloyd Blankfein shouldn’t stay on as chairman. Deutsche Bank’s troubles have cast a spotlight on the firm’s chairman, Paul Achleitner. A top Citigroup banker sees investment banking revenues recovering this year.


Joel Saget/Agence France-Presse — Getty Images

The tech flyaround

• Antonio Tajani, the president of the European Parliament, says that Mark Zuckerberg’s hearing with the legislature will be live-streamed. Separately, Germany’s online hate speech law makes the country a lab for testing how to regulate the social network.

• A close look at why Google is under the regulatory microscope. (60 Minutes)

• Europe’s new data privacy laws are proving lucrative for technology consultants. And a new study discovered more than 200 apps and services that can aid would-be stalkers.

• Why America needs an A.I. policy. Microsoft bought an A.I. start-up to make its voice control software sound more natural.

• Tesla’s entry-level car, the Model 3, could cost much more than $35,000, making it look distinctly less mass-market. The company has made public some of the software underpinning its Autopilot system.

• Why investors in tech start-ups in the Midwest shouldn’t look for companies to emulate Silicon Valley. (The Information)

• Sony’s new C.E.O., Kenichiro Yoshida, plans to move the company away from making gadgets. (Bloomberg)


Qi Lu, who is stepping down as Baidu’s C.O.O.

Stuart Isett for The New York Times

Revolving door

• Baidu’s chief operating officer, Qi Lu, is stepping down, raising questions about the Chinese tech company’s A.I. ambitions. (Bloomberg)


Quote of the Day

“Should we own 50 percent of every company in America? That’s ridiculous, and we are a long way from that.”

Jack Bogle, on the need for limiting the power of the three big money managers (including his own firm, Vanguard) in Barron’s cover story

The speed read

• How the “Math Men” — engineers and data scientists — became the kings of advertising. (New Yorker)

• Google has reportedly removed “don’t be evil” from its code of conduct. (Gizmodo)

• Fewer companies are registering in Britain as Brexit nears. (Guardian)

• To understand inflation, think of the U.S. as two economies: one for goods, another for services. (WSJ)

• China is mining for gold in the Himalayas, which could aggravate tensions with India. (SCMP)

• Roman Abramovich’s soccer team, Chelsea, may have won the F.A. Cup, but Britain hasn’t renewed the Russian oligarch’s visa yet. (FT)

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