Verizon’s McAdam Steps Down. Here Are His Biggest Deals: DealBook Briefing
• $4.4 billion takeover of AOL in 2015
• $3.1 billion deal for Straight Path, a telecom company whose licenses for wireless spectrum (the network airwaves that are important for data sending) made it the subject of a bidding war with AT&T earlier this year
• $2.4 billion purchase of Fleetmatics, an Irish company that helps companies manage employees on the road, in 2016
There were also big potential deals — the takeovers of CBS and 21st Century Fox to name two — that Mr. McAdam ended up not pursuing.
• Verizon had asked Shari Redstone, the media company’s controlling shareholder, if it would ever come up for sale, according to CBS’s lawsuit against Ms. Redstone last month.
• It briefly looked at buying the assets of Fox that Walt Disney ended up agreeing to acquire for $52.4 billion, including the 20th Century Fox movie studio and cable channels like FX.
But in May, Mr. McAdam told CNBC that he wasn’t interested in buying “linear” properties — that’s industry-speak for traditional content creators. More from that interview:
We’ve looked at that over the years, and we made our decision to go digital. That’s why we bought AOL and Yahoo, and we talk now about superchannels of sports and finance and news and some entertainment.
— Michael de la Merced
Two takes on Lowell McAdam’s legacy
In his seven years as Verizon’s C.E.O., Mr. McAdam was known for his relentless focus on his company’s wireless network and his aversion to striking big, splashy deals.
As Verizon prepares for the telecom industry’s future — where the only certain things are the rise of 5G wireless technology and online video streaming — here’s what two research analysts think about what the company has done and where it’s headed.
Craig Moffett, MoffettNathanson
Mr. McAdam will be defined by the deals that he didn’t do. Unlike AT&T — which paid nearly $50 billion for the satellite TV service DirecTV and is trying to acquire Time Warner for $85.4 billion — Verizon never struck splashy acquisitions, aside from those of Yahoo and AOL (combined purchase price: $9.2 billion).
But that conservatism has worked in Verizon’s favor. DirecTV has steadily lost customers in this age of cord-cutting, dragging down AT&T’s financial health.
“I think he deserves a lot of credit for avoiding some of the traps that some of his peers have fallen into,” Mr. Moffett said of Mr. McAdam.
As for the fear underpinning many telecom companies’ deal-making — that sticking to basic internet and phone service is boring — Mr. Moffett said Verizon has shown that worry to be unfounded.
“What’s so bad about being a distribution channel?” he told me. “Verizon fully understood and embraced that there will always be a place for an advantaged network — and people will pay a premium for it.”
Amy Yong, Macquarie
Mr. McAdam’s relentless focus on making Verizon’s network the best in the U.S. has paid off handsomely, with the company earning a premium from investors based on the strength of its core business.
The big question is whether that will be enough going forward, as rivals AT&T and T-Mobile pursue bold moves.
Verizon’s cautious strategy may ending up costing the company. Though AT&T’s bet on wireless video streaming hasn’t paid off yet, if it works, it will make that company a formidable creator and distributor of content. And T-Mobile and Sprint could prove to be a strong new rival if their proposed union works out.
“The future is looking very different,” she said in a telephone interview. “What worked in the past may not be what works in the future.”
— Michael de la Merced
Don’t sweat Apple’s ordering fewer iPhone parts
A new report suggests that Apple is preparing to sell fewer phones later this year. It may sound worrying. But we’ve seen similar news before, and the fallout is unlikely to be all that bad.
Nikkei reported on Friday, citing unnamed sources, that Apple has warned suppliers that it will order 20 percent fewer components for its forthcoming iPhones than it did for last year’s models. That would obviously suggest that Apple plans to sell fewer phones this year. Apple’s stock is down 1.4 percent on the news.
Sound familiar? Sure. Apple has decreased orders for phones in the past: the 5C, the 6S, the 7, the 8. It’s also shown that it sometimes errs on the side of conservatism ahead of phone debuts: Demand outstripped supply for its current flagship phone, the X, shortly after it went on sale.
The truth is that iPhone sales have been erratic. And sales are likely to struggle in the future because the smartphone market is mature. — most people have one already, and incremental feature improvements mean users don’t need to upgrade as frequently. It may also be expecting a dip if its next device doesn’t push much beyond the technology inside the X.
But Apple’s phones are getting more expensive, so every sale counts for more. And its services businesses — things like Music and Pay — are becoming an increasingly valuable revenue stream, meaning that the company can make more money off existing users even if they don’t upgrade to the latest device.
— Jamie Condliffe
Ant Financial isn’t so small anymore
Private investors in Ant Financial’s latest fund-raising round gave the Chinese financial firm a valuation of $150 billion. Here how that compares to the stock market capitalizations of America’s largest banks.
— Jamie Condliffe
Autonomous car safety regulation and investigation needs to catch up with those cars
The job faced by investigators of car collisions is getting more difficult as autonomous car features become more advanced, and the way they do their jobs might need to change to accommodate that.
In March, a Tesla Model X collided with a concrete lane divider as it was driven down a highway in Mountain View, Calif. A new report by National Transportation Safety Board investigators suggested that Tesla’s Autopilot technology played a role in the death of a Tesla owner.
From the N.T.S.B. report:
The driver was using the advanced driver assistance features traffic-aware cruise control and autosteer lane-keeping assistance, which Tesla refers to as “autopilot.” As the Tesla approached the paved gore area dividing the main travel lanes of US-101 from the SH-85 exit ramp, it moved to the left and entered the gore area. The Tesla continued traveling through the gore area and struck a previously damaged crash attenuator at a speed of about 71 mph.
But it’s interesting to consider where the information used to draw those kinds of conclusions actually comes from. The Information today reports on how data about autonomy features isn’t necessarily collected by default on the recorders that are accessible to many crash investigators, such as those employed by insurance firms:
Information isn’t recorded in most cars’ event data recorders, the automotive equivalent of airplane black boxes. Instead, the boxes show more basic information such as steering-wheel input and throttle.
While automakers commonly provide the information if it is requested by the vehicle owner, accident investigators—typically contractors hired by insurance companies—say they sometimes have to seek a court order to obtain crash data.
An update to the rules published by the National Highway Traffic Safety Administration could change that situation, by demanding that automakers log more details about the vehicle’s behavior.
But even data logs might not be enough to fully understand an accident. Autonomy features on cars increasingly make use of artificial intelligence to understand and respond to what they see on the road. But Will Knight of MIT Technology Review has explained how understanding the reasoning that’s happening inside the so-called artificial neural network — one of the core technologies that modern A.I. uses — isn’t straightforward:
The complexity of the mathematical calculations involved means it’s not straightforward to take the network apart to understand how it makes its decisions. This can make unintended behavior hard to predict; and if failure does occur, it can be difficult to explain why. If a system misrecognizes an object in a photo, for instance, it may be hard (though not impossible) to know what feature of the image led to the error.
Many artificial intelligence researchers are trying to develop ways to make it easier to understand the inner working of A.I. systems. But for now, that’s likely to involve looking at complex computer code. That suggests that crash investigation teams, as well as the regulations that are applied to automakers, might require an update in the near future, too.
— Jamie Condliffe
The Justice Department’s antitrust chief weighs in on the Fox battle
Comcast is threatening to challenge Walt Disney’s $52.4 billion bid for most of 21st Century Fox. Behind the scenes, it’s playing down investors’ and analysts’ fears of an antitrust response. We may have just gotten a clue about whether it’s right.
The head of the Justice Department’s Antitrust Division, Makan Delrahim, appears unruffled about a Disney-Fox deal, at least. From an interview at The Deal’s conference yesterday:
“They had good advice and carved out surgically what a transaction is that might be doable and who knows where that transaction leads.”
But Mr. Delrahim also defended his team’s effort to block AT&T’s $85.4 billion takeover of Time Warner, saying it was a merger of a kind that federal regulators had sought to block for decades. (A federal judge is expected to rule on the Justice Department’s lawsuit against the deal on Tuesday.)
Michael de la Merced’s take: That Mr. Delrahim continued to criticize the potential union of a telecom giant and a media company as potentially bad for consumers doesn’t augur well for Comcast’s Fox bid.
Trump will play the G-7 on his terms
The president won’t attend all this weekend’s Group of 7 talks in Quebec — he’ll leave midmorning tomorrow, before sessions on clean energy and the climate. That sums up his approach to the summit, where other world leaders are likely to attack his aggressive trade policies.
Michael D. Shear of the NYT likens the weekend to a Thanksgiving from hell:
Mr. Trump is the black sheep of this family, the estranged sibling who decided to pick fights with his relatives just before arriving to dinner. The dispute, Larry Kudlow, the president’s top economic adviser, acknowledges, is “much like a family quarrel.”
On the agenda: Chancellor Angela Merkel of Germany will urge Europe to tackle President Trump’s policies more assertively, while Prime Minister Theresa May of Britain will counsel restraint. And Prime Minister Justin Trudeau of Canada may do whatever it takes to salvage his image.
It’s unclear how — or if — any of that will affect America’s trade policies. But diplomatic tensions look set to rise, and economic uncertainty would rise with them.
Elsewhere in trade:
• Senate Republican leaders look set to quash Senator Bob Corker’s bid to rein in the president’s tariffs.
• An inside look at how Mr. Trump turned up the heat on trade with China.
• And the people who might make him turn it down again: Iowan soybean farmers.
Did the White House strike a good deal over ZTE?
The Trump administration removed crippling penalties on the ailing Chinese telecom company in exchange for $1.4 billion in fines and other measures. But did some other big gain drive the deal?
Getting Beijing to approve Qualcomm’s takeover of another chip maker, NXP Semiconductors? Maybe. China’s latest trade concessions, which were linked to the Trump administration not imposing certain tariffs? Unlikely.
The answer might be simpler, according to the NYT. Killing ZTE would have left President Xi Jinping of China with a huge political problem, damaging the overall Washington-Beijing trade talks.
A bipartisan group of senators, including Mr. Rubio and the Senate minority leader, Chuck Schumer, introduced legislation to strictly limit ZTE’s operations.
The political flyaround
• The Justice Department said that it won’t defend key parts of the Affordable Care Act. (NYT)
• The I.M.F. has agreed to give Argentina a $50 billion financial lifeline as the country tries to reduce its fiscal deficits. (WSJ)
• Federal prosecutors seized years’ worth of an NYT reporter’s phone and email records as part of an investigation into classified information leaks by a Senate Intelligence Committee aide. (NYT)
• The E.P.A. has changed the way it calculates risks of chemicals — in a way that benefits the chemical industry. (NYT)
Charles Koch may have forced his brother out
When David Koch announced on Tuesday that he was retiring from his family’s industrial conglomerate and political network, he cited his health as the reason. But according to The New Yorker, it was a move by his older brother, Charles, who has long been the dominant partner.
More from Jane Mayer:
A business associate who declined to be identified, in order not to jeopardize his ties to the family, told me, “Charles pushed David out. It was done with a wink, and a nod, and a nudge.”
The deals flyaround
• Jonathan Bush’s resignation from Athenahealth is yet another C.E.O. ouster to come after Elliott Management, known for hardball shareholder activism, invested in a company. (Fortune)
• Deutsche Bank’s chairman, Paul Achleitner, has reportedly revived the idea of merging it with a fellow German lender, Commerzbank. (Bloomberg)
• Bayer of Germany has closed its takeover of Monsanto and dropped the U.S. company’s name. (Bloomberg)
Google won’t work on A.I. weapons, but will work with the military
After an employee backlash over its work with the Pentagon, the tech company has created a set of principles to guide its artificial intelligence projects. The seven rules, published by Google’s C.E.O, Sundar Pichai, rule out projects that could cause injury or violate human rights — but not all forms of defense work.
Jamie Condliffe’s take: Defense contracts are too lucrative for Google to give up on entirely, and there’s certainly scope for building military A.I. that doesn’t cause death and destruction. But the rules’ language is vague in places — it might not rule out the development of A.I. for use in cyberattacks, for instance — and employees may push back.
The tech flyaround
• A National Transportation Safety Board report suggests that an Autopilot mistake contributed to a fatal Tesla crash in Mountain View, Calif., in March. (The Verge)
• During the Bitcoin boom, many long-term holders sold out to new speculators. (FT)
• Sucking carbon dioxide out of the air to fix climate change might be cheaper than we thought. (Ars Technica)
Kentucky Derby winner Justify has a secret co-owner: George Soros
SF Bloodstock and SF Racing Group, a company controlled by top executives at the billionaire’s investment firm, has a 15 percent stake in the horse, which is the heavy favorite to win tomorrow’s Belmont Stakes.
More from Melissa Hoppert and Matthew Goldstein of the NYT:
SF Bloodstock, which according to court filings is owned by SF Agricultural Holdings L.L.C., employs a for-profit model and focuses on the breeding side of the industry, purchasing stallions, or shares in them, and broodmares while selling yearlings at auction. In 2015, it entered into a three-year partnership with WinStar Farm and China Horse Club that allowed them to spend big while spreading risk at yearling and 2-year-old sales. That is how the group partly acquired Justify.
Elsewhere in business and sports:
• Amazon has won exclusive U.K. rights to broadcast 20 Premier League matches.
• Are sports teams now too expensive for the average billionaire?
• Harold Ford Jr., the former congressman who was fired by Morgan Stanley amid allegations of improper behavior, is said to be planning a return to Wall Street. (Fox Business)
• BlackRock has lost David Horowitz and Benjamin Brodsky, the deputy chief investment officers of its biggest hedge fund, Fixed Income GlobalAlpha. (Bloomberg)
• Gavin Patterson will step down as the chief executive of BT, after the British telecom company said it needed new leadership. (BBC)
• The law firm Kirkland & Ellis has poached Kristin Mendoza from Latham & Watkins as a partner focusing on private equity deals. (Kirkland & Ellis)
The speed read
• How the gig economy is reshaping work: not much. (NYT)
• Economists think the Fed will raise interest rates four times this year. (WSJ)
• Inside a factory that aims to solve housing shortages. (NYT)
• A $3.3 million steak with Warren Buffett? Call it a smart tax move. (Forbes)
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An earlier version of this briefing misstated the name of the race that Justify is the heavy favorite to win. It is the Belmont Stakes, on Saturday, not the Preakness.
News credit : Nytimes