Heinz Case May Involve a Side Bet in London

Regulators have escalated an investigation into suspicious trades placed ahead of the $23 billion takeover of H. J. Heinz, focusing on a complex derivatives bet routed through London, according to two people briefed on the matter.

The development builds on a recent regulatory action on a Goldman Sachs account in Switzerland that bought Heinz options contracts. It also comes a week after the Federal Bureau of Investigation said it opened a criminal inquiry.

An unusual spike in trading volume in Heinz options a day before the deal was announced first attracted the scrutiny of investigators. The Securities and Exchange Commission is also examining fluctuations in ordinary stock trades. The Financial Industry Regulatory Authority, Wall Street’s self-regulatory group, recently referred suspicious stock trades to the S.E.C., one of the people said.

Now the S.E.C. is looking into a more opaque corner of the investing world, examining a product known as a contract-for-difference, a derivative that allows investors to bet on changes in the price of stocks without owning the shares. Such contracts are not regulated in the United States, but are popular in Britain.

The expansion of the Heinz investigation illustrates the growing challenges facing American regulators. Charged with policing the American exchanges, authorities increasingly find themselves having to hunt through a dizzy! ingly complex global marketplace.

Following a number of prominent crackdowns on insider stock trading, a campaign that scared the markets, investors are seeking subtler and more sophisticated tools to seize on confidential tidbits. Trading operations also flocked overseas, a careful move that forces the S.E.C. to navigate a maze of international regulations before identifying suspect traders.

The Heinz case illustrates the shift, as the S.E.C. relies on Swiss authorities to expose the trader behind the Heinz options bets.

The suspicious options trades were routed through a Goldman Sachs account in Zurich, where laws prevent the firm from sharing details of the account holder’s identity. In a complaint filed two weeks ago, the S.E.C. froze the account of “one or more unknown traders.” A federal judge upheld that freeze last week, a move that will prevent the traders from spending their winnings or moving the money.

The series of well-timed options trades, bets that produced $1.7million in profits, came just a day before Berkshire Hathaway and the investment firm 3G Capital announced that they had agreed to buy the ketchup maker. News of the deal sent the company’s shares, and the value of the options contracts, soaring.

The S.E.C. called the trading “highly suspicious,” given that there was scant options trading in Heinz in previous months.

“Irregular and highly suspicious options trading immediately in front of a merger or acquisition announcement is a serious red flag,” Daniel M. Hawke, head of the commission’s market abuse unit, said recently.

While the identity remains a secret, the account holder is a Goldman private wealth management client, according to a person briefed on the matter who was not authorized to speak on the record. Goldman executives in Zurich know the identity of ! the perso! n, but laws prohibit those executives from sharing the name with American regulators and even Goldman executives outside of Switzerland.

Finma, the Swiss regulator, is the gatekeeper for American regulators. The S.E.C. contacted Finma in an effort to learn more about the trading, and the Swiss regulator has promised to help. It could take weeks to identify the traders.

Goldman has hired outside counsel to advise it on the situation, according to people briefed on the situation who were not authorized to speak on the record. The bank, which is not accused of wrongdoing, is cooperating with the investigation.

An S.E.C. spokesman declined to comment.

The agency’s inquiry may cast a cloud over the Heinz deal. After the traders are identified, the focus will turn to the many insiders who had information on the deal and could have leaked details. Dozens of people had confidential information about the deal, including bankers, lawyers and executives for both the buyers and the seller.

p>As the agency continues to build its case against the options trades, it also is examining suspicious contracts-for-difference.

Investors increasingly favor the contracts because they require little capital investment and can be traded on margin. They are popular on the London Stock Exchange, where regulators are now focusing some attention.

In essence, the derivatives contracts are a side bet on the price of a stock. They have drawn criticism for being opaque, in part because users are not actually trading the shares of a company, but rather a contract linked to those shares.

Regulators have examined the use of the contracts before when accusations of insider trading have arisen. In 2008, the British Financial Services Authority fined an investor for market abuse, saying the investor h! ad used a! contract-for-difference to profit from inside information on the Body Shop, a retailer. The person was making a bet in this case that the shares would fall in value.

Despite the focus on such complex products in the Heinz case, the S.E.C. is also examining more mundane activity in equity trades ahead of the deal.

Finra is helping the agency build its investigation. The group created an Office of Fraud Detection and Market Intelligence as a sort of clearinghouse of information.

A Finra official declined to comment on Wednesday.

Argentina’s Bond Case Is Being Closely Watched for Ramifications

A federal appeals court on Wednesday heard impassioned arguments from two of the nation’s most prominent lawyers in a case that pits a group of bond investors in a long-running battle with the country of Argentina.

Legal specialists who observed the proceedings at the United States Court of Appeals for the Second Circuit said they felt that the judges showed little sympathy for Argentina, which is refusing to make payments on the disputed bonds.

“At least two of the three judges seemed to have no patience with Argentina,” said Anna Gelpern, a professor at the Washington College of Law at the American University. “They were rolling their eyes and shaking their heads.”

The dispute started out over a relatively small amount of debt that Argentina defaulted on over 10 years ago. But, as the case progressed in the United State courts, its significance has grown. Its outcome will test the extent to which an American court can pressure a foreign government to take actions to comply wih American laws. Some debt market specialists believe a defeat for Argentina could make it harder for countries overwhelmed by debt to ease their obligations through a managed default.

The appeals court case is being watched closely by legal experts, and on Wednesday, the overflow from the courtroom filled two other rooms in the court building.

Theodore B. Olson, of Gibson, Dunn & Crutcher, spoke on behalf of the hedge fund that is leading the litigation against Argentina. The fund is an affiliate of Elliott Management, an investment firm founded by Paul E. Singer. The fund’s argument is that it should be paid on its defaulted bonds when investors holding another type of Argentine bond get paid.

Those investors, represented on Wednesday by David Boies of Boies, Schiller and Flexner, hold bonds that emerged from two debt restructurings that forced creditors to agree to large losses on their bonds. Argentina has made payments on those so-called exchange bonds since they were issued after the restructurings. Elliott Management and others never included their bonds in the exchange, and for that reason they are called holdouts. Argentina refuses to pay the holdouts, and there is almost no support for paying these investors in Argentina.

A federal district court, under Judge Thomas P. Griesa, has already ruled largely in favor of the litigating investors. The appeals court has already issued an opinion agreeing with Judge Griesa’s main points. The judge as become gradually more frustrated with Argentina and last year issued a ruling that included a sanction that upped the ante on the country. It effectively said that a bank would be in contempt if it processed the payments from Argentina to exchange bondholders when knowing that the holdouts weren’t also getting paid.

The appeals court asked Judge Griesa to clarify which financial entities would be affected by this order and how much the holdouts might get paid.

Of the three appellate court judges, Judge Reena Raggi was the most pointed questioner and was concerned that Argentina was effectively holding out the threat of not paying the exchange bondholders to get a favorable decision in the United States. “It hardly seems appropriate for a court not to enforce one of its orders because a party will breach another ! of its ob! ligations,” she said.

Mr. Olson echoed that, saying, “The hostage holding is being done by Argentina.”

The Bank of New York Mellon, which processes Argentina’s bond payments, would almost certainly stop channeling money to the exchange bondholders if Judge Griesa’s injunction is upheld. Default would then be likely.

Mr. Boies, representing the exchange bondholders, argued that the district court injunction goes against parts of commercial law and the Constitution that safeguard property rights. “It is designed to prevent us from accepting money we are contractually owed, he said. “We are the innocent parties.”

Argentina’s lawyer, Jonathan I. Blackman of Cleary Gottlieb Steen & Hamilton, understood that the appeals court judges had little sympathy for Argentina. He stated at one point that Argentinawas not intending to pay the holdouts if Judge Griesa’s injunction took effect.

He argued that this didn’t warrant setting off a chain of events that could result in no one getting paid. Countries can’t be thrown into bankruptcy so that creditors can make claims, he noted. The current system of dealing with sovereign defaults, like the sort of debt restructuring Argentina did with exchange bondholders, “is the best system that exists absent bankruptcy,” Mr. Blackman said.

“I beg you, judges of equity, do no harm,” Mr. Blackman said to the bench. “I know it is not easy. I know my client doesn’t appeal to you.”

While the appeals court judges gave Argentina’s supporters few reasons to hope, there a couple of developments that they may cling to. First, the judges asked a lot of questions about how much Elliott Management should receive under a payment formula. Judge Griesa has said they should be paid all that they are owed.

But another solution might be that! they get! a sum proportionate to what the exchange bondholders received. It’s not clear if Argentina would ever agree to paying the holdouts anything. But the questions raised the very slight possibility that the appeals judges might arrive at a payment formula that doesn’t give the holdouts all they are owed under the bonds’ original contracts.

Judge Rosemary S. Pooler, asked Mr. Olson if the investors suing Argentina have done trades that would profit if the country defaulted on its exchange bonds. This could create a conflict of interest, the judge said. When asked if his clients had done such a trade, Mr. Olson said, “I have been informed it isn’t true.”

The appeals court may take several weeks to issue its opinion in the case.

Court Approves Dewey Bankruptcy Plan, Officially Dissolving Firm

Nine months ago, when it filed the largest law firm bankruptcy case in United State history, Dewey & LeBoeuf effectively ceased to exist. But its carcass has languished in court, as restructuring experts handled the messy task of unwinding the firm and negotiating a plan to pay back its creditors.

On Wednesday, a federal bankruptcy judge confirmed that plan, a decision that officially dissolved Dewey, the once-venerable law firm that collapsed after financial problems led to an exodus of its partners.

“The court is very pleased,” said Judge Martin Glenn at the end of a three-hour hearing before a packed courtroom. “I want to congratulate all the professionals.”

Dewey’s liquidation plan lays out how its estate will compensate creditors, which have claims totaling about $550 million. At the heart of the proposal is an innovative arrangement under which about 450 former Dewey partners agreed to return a portion of their pay, raising about $72 million for creditors.

By acceptng the deal, former Dewey partners insulate themselves from future lawsuits connected to the firm’s demise.

Al Togut, Dewey’s lead bankruptcy lawyer, who has been involved in a number of law firm bankruptcies, said that the winding down of Dewey had moved far more swiftly â€" and less contentiously â€" than previous liquidations of other large law firms.

“Here we are about to make history,” said Mr. Togut, just before Judge Glenn approved the plan. “This the diametric opposite of Finley Kumble, which took 20 years, or Shea & Gould, which took nine years, and even the modern-day Coudert Brothers case, which still isn’t done.”

Also not done is a criminal investigation into possible financial misconduct at Dewey. Steven H. Davis, the firm’s former chairman, and Stephen DiCarmine, the former executive director, are the focus of an investigation by the Manhattan district attorney’s office.

Prosecutors recently indicated that the inquiry was still active when it ra! ised the issue that Mr. Davis’s criminal lawyer, Barry A. Bohrer, had a conflict of interest in representing him, according to a person with direct knowledge of the investigation.

The unusual situation arose after Mr. Bohrer left his law firm, Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer, for another firm, Schulte Roth & Zabel. That posed a conflict of interest, the district attorney’s office advised, because Schulte Roth represented JPMorgan Chase, a Dewey lender, in the criminal inquiry, this person said.

Mr. Bohrer declined to comment, and Mr. Davis has previously denied any wrongdoing. Ned Bassen, a lawyer for Mr. DiCarmine, said that his client had done nothing wrong, either criminally or civilly.

While the criminal investigation continues, the judge’s ruling is the coda of the Chapter 11 case. Trustees will now initiate the process of returning money to Dewey’s creditors, which include the firm’s lenders Citigroup and JPMorgan, as well as a car service company and a anitorial services provider. A large portion of the recovery, in addition to the former Dewey partners’ contributions, will come from collecting Dewey’s outstanding legal invoices.

The hearing lacked the drama that many participants had expected after a number of onetime Dewey partners filed protests to the plan this month. Two former Dewey partners, Elizabeth B. Sandza and Andrew J. Fawbush, accused Martin J. Bienenstock, the former head of Dewey’s bankruptcy practice, of devising a plan that paid him $6 million in 2010 while the pay of rank-and-file partners was deferred and ultimately was subject to being clawed back.

That objection, along with a handful of others, was withdrawn just hours before the session, allowing for a smooth confirmation hearing.

In an e-mail, Mr. Bienenstock, who is now a partner at the law firm Proskauer Rose, congratulated the advisers on what he called “the most successful and fastest law firm bankruptcy case.” But he criticized those who trie! d to bloc! k the plan.

“A small number of former partners tried to get special deals for themselves by making vicious accusations of fraud against the executive committee that structured the bankruptcy, having zero basis in fact, and predictably no wrongful conduct was proven,” Mr. Bienenstock said.

During the court session, Mr. Togut praised the former Dewey lawyers who signed on to the so-called partnership contribution plan, which he called “a template for future cases.”

The deal forced them to return a portion of their pay, in amounts based on a complex formula tied to their compensation. Those payments range from a minimum of $5,000 for retired partners to $3.5 million for the firm’s highest-paid lawyers.

“What makes this case so important is that this is the first time that such a large and diverse group of law partners accepted responsibility for their failed firm,” Mr. Togut said. “And they did it while they were still hurting, just after the firm failed, while they weretrying to start their career and soothe unhappy spouses.”

Most former partners of Dewey, a firm that at its peak had nearly 1,400 lawyers across 26 offices globally, have landed on their feet. About 300 Dewey partners sought new employment as the firm failed; nearly all of them found homes at other large corporate firms. Winston & Strawn hired 23, led by the sports-industry litigator Jeffrey Kessler. Proskauer, led by Mr. Bienenstock, brought on 13 former Dewey partners.

Though the formal bankruptcy process has ended, the legal fallout from Dewey’s implosion is not over. In addition to the criminal case, nearly a dozen Dewey-related civil lawsuits are wending their way through the courts. One former partner has sued Citigroup, accusing the bank of conspiring with Dewey to hide the law firm’s true financial condition in the months before its collapse. A Citigroup spokeswoman declined to comment.

While most of the firm’s lawyers have found other employment and the bankruptcy p! rocess wa! s declared a success, Mr. Togut on Wednesday acknowledged the bittersweet nature of Dewey’s demise.

“They say that a good settlement is where no one is happy,” Mr. Togut said. “Well, I can assure you, no one is happy.”

J.C. Penney’s Poor Showing Is Another Retail Miss for Ackman

With J.C. Penney‘s awful fourth-quarter results, William A. Ackman has found success in retail investments elusive once more.

It’s hard to call J.C. Penney’s latest quarterly report anything but breathtaking. The retailer lost $552 million for the quarter, which at $1.95 a share far exceeded the 17-cent loss that analysts had been expecting. Same-store sales tumbled nearly 32 percent from the same time a year ago.

Shares in the company were down nearly 9 percent in after-hours trading.

So far, J.C. Penney’s chief executive, Ron Johnson â€" whom Mr. Ackman recruited from Aple Inc. â€" has asked for patience, citing all the changes that he has rolled out at the formerly dowdy department store chain. (Indeed, he spent the first several minutes of an investor Webcast on Wednesday enumerating the many innovations at the store.)

One wonders whether Mr. Ackman, whose Pershing Square Capital Management owns a 17.8 percent stake in J.C. Penney, can wait that long.

It isn’t the first time that he has taken a bath betting on a retailer. Mr. Ackman’s most recent failure in the industry was a bet on the Borders Group, taking a 17 percent stake in the troubled bookseller by late 2007.

Despite efforts by the hedge fund manager to help prop up the company, including offering to finance a merger with the much larger Barnes & Noble, Borders filed for bankruptcy in late 2010. Mr. Ackman has acknowledged losing at least $125 million on the investment.

Perhaps his most notable troubled investment was in Target, a wager in which Mr. Ackman actually created a special fund dedicated to the discount retailer. He also embarked on a lengthy and expensive campaign to gain seats on the company’s board, to forcefully advocate for a complicated restructuring he said would generate better returns for shareholders.

That didn’t quite work out either. Mr. Ackman lost the proxy fight. He completely sold off Pershing’s stake by early 2011, having lost about 90 percent of his firm’s $2 billion investment.

Last month, it appeared that Mr. Ackman was willing to give Mr. Johnson room and time to prove naysayers wrong. “We put Ron in charge and we’re letting him run the company,” the hedge fund manager told CNBC in an interview.

But he added that he’ll run out of patience â€" in three year’s time.

“If three years from now, Ron Johnson is still struggling to turn around J.C. Penney,” Mr. Ackman said to CNBC, “he’s probably the wrong guy.”

Intel to Invest in Research and Development in Brazil

SAO PAULO - Intel plans to invest $152 million in Brazil over the next five years in research and development, the chip manufacturer said on Wednesday. In doing so, the company will partner with the Brazilian government, which has made increasing the country’s software output a top priority.

The direct investment will go toward increasing head count and resources internally but also funding research at at least seven Brazilian universities, Intel Brazil’s president, Fernando Martins, told Dealbook on Wednesday. Those in the initial group include Unicamp, the University of Sao Paulo, and the University of Brasilia.

The Brazilian government is expected to match Intel’s investment, Mr. Martins said. Last year, President Dilma Rousseff said her government would spend at least $254 million to stimulate software development. That figure is expected to grow and does not even include Brazil’s national development bank’s initiatives. Transitioning to an innovation-based economy is an important issue in this commodity-export dependent economy.

For Intel, Brazil is the company’s third largest market, Mr. Martins said. Additionally, its venture capital arm Intel Capital has also long been active here, making its first investment in 1999. Since, it has invested approximately $100 million in more than 25 companies, according to Dave Thomas, head of Intel Capital.

But the company is far from alone these days as other technology giants have also recently bet on Brazil’s capabilities as a software and software solutions provider. Microsoft last November said it would open a research center in Rio de Janeiro, investing $102 million over up to four years. Also last year Cisco said it plans to invest $508 million over four years.

Mylan to Acquire Injectable-Drug Maker for $1.6 Billion

The drug maker Mylan announced on Wednesday that it was acquiring Agila Specialties Private Ltd., an Indian manufacturer of generic injectable drugs, for $1.6 billion in cash.

The move would double Mylan’s presence in the injectable-drug market, a fast-growing segment of the generic drug industry that nevertheless has been beset by major quality and supply problems in recent years.

Mylan’s chief executive, Heather Bresch, said in a telephone interview Wednesday that the acquisition, expected to be completed in the fourth quarter of this year, would help expand the company’s presence in emerging overseas markets and establish it as a major player in the injectables market, which the company said is expected to grow by 13 percent a year through 2017.

Despite this growth, however, most major manufacturers of injectable drugs have suffered frm serious supply and quality problems in recent years, leading to recalls and a nationwide shortage of critical products like chemotherapy drugs.

Ms. Bresch said Mylan’s recognizable brand - it is the world’s fourth-largest maker of generic drugs - will set it apart from its competitors.

“Our ability to bring real quality leadership in this space is our real opportunity,” she said.

In the past, the injectable business was so competitive that companies drove prices too low, said Rajiv Malik, Mylan’s president. But now that several large manufacturers â€" including Hospira, Sandoz and Teva - have invested millions of dollars in upgrading their plants, that picture has changed.

“I think they won’t be chasing the floor anymore anytime soon,” he said.

Mylan is acquiring Agila from the Indian pharmaceutical company ! Strides Arcolab Ltd. Agila, which is based in Bangalore, sells more than 300 products worldwide, including 61 drugs in the United States. It has nine manufacturing facilities in India, Poland and Brazil, and Mylan says the company has a strong presence in emerging markets like Brazil.

Mylan said it had received a commitment letter from Morgan Stanley for a new $1 billion senior unsecured bridge term loan, which would be used in combination with the company’s existing cash and other lines of credit to pay for the acquisition.

Morgan Stanley is serving as financial adviser to Mylan, and Skadden, Arps, Slate, Meagher & Flom is the legal adviser, assisted by Slaughter and May and Platinum Partners.

Private Equity’s Tax-Advantaged Rivals

U.S. buyout barons have new tax-dodge rivals: master limited partnerships.

The low tax rates on private equity bosses’ so-called carried interests save them $1.3 billion a year, according to the United States Treasury, an advantage critics want wiped out. But new data show investors in energy partnerships are now costing Uncle Sam a similar amount thanks to an outdated Internal Revenue Service perk from the 1980s. Both loopholes should be closed.

Lobbyists for master limited partnerships, or M.L.P.s, have claimed that the sector’s exemption from corporate income tax costs the Treasury only pocket change - about $300 million nnually. But as the sector has grown, so has the amount the Treasury misses out on. The bipartisan Joint Committee on Taxation now reckons the annual bill will reach $1.6 billion by 2016. That’s a big enough chunk of change to attract the attention of deficit hawks in Congress.

Given the sector’s expansion, the tax cost of M.L.Ps is likely to rise further. Since the start of 2006, the market value of the top 50 partnerships has climbed fourfold to around $312 billion - far outperforming the Standard & Poor’s 500-stock index along the way - and the number of M.L.P.s overall has nearly doubled. The tax break has also encouraged the sector to spread beyond its roots in pipelines into oil refining and even mining the sand used in hydraulic fracturing.

The M.L.P. exemption may have looked sensible when it was adopted in 1987 to help stem declining U.S. oil production. With oil output booming and M.L.P.s starting to sprawl, it now seems a wasteful subsidy. Supporters argue that taking awa! y the break would slow energy production and infrastructure building. But just as private equity chiefs are unlikely to cut back their activities if forced to pay somewhat higher taxes, there are still adequate economic returns available on energy-related activities without extra help from the IRS.

Scrapping both tax perks would only bring in about $3 billion a year - around 0.4 percent of the $845 billion budget deficit forecast by the Congressional Budget Office. But it would be a start, with little downside. And with a shortfall this big, every little counts.

Christopher Swann is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Corvex and Related Dangle Promise of Higher Bid for REIT

An activist hedge fund and the Related Companies offered on Wednesday to raise their takeover bid for CommonWealth REIT to about $2.26 billion, aiming to put additional pressure on the real estate company.

Related and Corvex Management, a firm run by Keith Meister, wrote in a letter to CommonWealth’s board that they were prepared to raise their bid to $27 a share, up from $25 a share. The possible bump was made possible, they wrote, because unnamed suitors had made expressions of interest in buying some of the company’s properties.

But the investors warned that the potential raised offer is subject to CommonWealth beginning negotiations with them within 48 hours.

Corvex and Related added that they will keep in place a lawsuit they had filed earlier on Wednesday meant to stop the company from proceeding with an equity offering that te shareholders contend will destroy value.

The promise of a higher bid appears to have had little allure for CommonWealth: The company said late Wednesday afternoon that it remained committed to its planned stock sale.

Shares of Commonwealth were up over 8 percent by late afternoon on Wednesday, at $22.38.

Corvex and Related Dangle Promise of Higher Bid for REIT

An activist hedge fund and the Related Companies offered on Wednesday to raise their takeover bid for CommonWealth REIT to about $2.26 billion, aiming to put additional pressure on the real estate company.

Related and Corvex Management, a firm run by Keith Meister, wrote in a letter to CommonWealth’s board that they were prepared to raise their bid to $27 a share, up from $25 a share. The possible bump was made possible, they wrote, because unnamed suitors had made expressions of interest in buying some of the company’s properties.

But the investors warned that the potential raised offer is subject to CommonWealth beginning negotiations with them within 48 hours.

Corvex and Related added that they will keep in place a lawsuit they had filed earlier on Wednesday meant to stop the company from proceeding with an equity offering that te shareholders contend will destroy value.

The promise of a higher bid appears to have had little allure for CommonWealth: The company said late Wednesday afternoon that it remained committed to its planned stock sale.

Shares of Commonwealth were up over 8 percent by late afternoon on Wednesday, at $22.38.

Are We in Danger of a Beer Monopoly

Illustration by Jasper Rietman

Every day, the Web site BeerPulse tries to list every single new beer available in the United States. And that’s harder than you might imagine. Recently, the site posted Cigar City’s Jamonera Belgian-style Porter, Odell Tree Shaker Imperial Peach IPA, as well as a rye lager, a cherry blossom lager and a barley wine. And the list goes on, and on. In 1978, there were 89 breweries in the United States; at the beginning of this year, there were 2,336, with an average of one new brewery per day. Most of them are tiny, but a handful, like Sam Adams and Sierra Nevada, have become large national brands. At the same time, sales of Budweiser in the United States have dropped for 25 consecutive years.

So I was surprised to learn that the Justice Department is worried that Anheuser-Busch InBev, the conglomerate that owns Bud, is on the cusp of becoming an abusive monopoly. In January, the department sued AB InBev to prevent it from buying the rest of Mexico’s Grupo Modelo, a company in which it already carries a 50 percent stake. The case is not built on any leaked documents about some secret plan to abuse market power and raise prices. Instead, it’s based on the work of Justice Department economists who, using game theory and complex forecasting models, are able to predict what an even bigger AB InBev will do. Their analysis suggests that the firm, regardless of who is running it, will inevitably break the law.

For decades, they argue, Anheuser-Busch has been employing what game theorists call a “trigger strategy,” something like the beer equivalent of the Mutually Assured Destruction Doctrine. Anheuser-Busch signals to its competitors that if they lower their prices, it will start a vicious retail war. In 1988, Miller and Coors lowered prices on their flagship beers, which led Anheuser-Busch to slash the price of Bud and its other brands in key markets. At the time, August Busch III told Fortune, “We don’t want to start a blood bath, but whatever the competition wants to do, we’ll do.” Miller and Coors promptly abandoned their price cutting.

The trigger strategy, conducted in public, is entirely legal. In fact, it’s how airlines, mobile- phone companies and countless other industries keep their prices inflated. Since that dust-up in the late ’80s, the huge American beer makers have moved in tandem to keep prices well above what classical economics would predict. (According to the logic of supply and demand, competing beer makers should pursue market share by lowering prices to just above the cost of production, or a few cents per bottle.) Budweiser’s trigger strategy has been thwarted, though, by what game theorists call a “rogue player.” When Bud and Coors raise their prices, Grupo Modelo’s Corona does not. (As an imported beer, Corona is also considered to have a higher value.) And so, according to the Justice Department, AB InBev wants to buy Grupo Modelo not because it thinks the company makes great beer, or because it covets Corona’s 7 percent U.S. market share, but because owning Corona would allow AB InBev to raise prices acoss all of its brands. And if the company could raise prices by, say, 3 percent, it would earn around $1 billion more in profit every year. Imagine the possibilities. The Justice Department already has.

Representatives from AB InBev, however, have stated that the potential Corona acquisition is less about dominating the dwindling (albeit still $90 billion per year) U.S. beer market and more about a larger, global strategy. In that regard, AB InBev has been on quite a roll. The Brazilian firm Companhia de Bebidas das Américas, or AmBev, was born in 1999 around the concept of using innovative technology and managerial efficiency to disrupt the competition and channel the profits into buying them out. The company swallowed up several Latin American firms; in 2004, it merged with the Belgian giant Interbrew; in 2008, the new conglomerate, InBev, took over Anheuser-Busch. Along the way, it also picked up China’s third-largest brewer and the Canadian beer company Labatt.

Adam Davidson is co-founder of NPR’s “Planet Money,” a podcast and blog.

A version of this article appeared in print on March 3, 2013, on page MM16 of the Sunday Magazine with the headline: BUZZKILLED.

A Race Against Loeb That Left Ackman Breathless

Even before their battle over Herbalife, the hedge fund managers William A. Ackman and Daniel S. Loeb have had their share of competitions. Some of them, it turns out, were a bit on the petty side.

In an excerpt from his article in the latest Vanity Fair, William D. Cohan recounts what was supposed to have been a friendly long-distance bike ride involving the two in the Hamptons.

Despite not being as practiced as Mr. Loeb, Mr. Ackman could not help himself and rode flat-out at the beginning of the ride, in Mr. Cohan’s retelling. He initially outpaced the serious cyclists. And then the seemingly inevitable happened.

From the excerpt:

But soon enough Ackman faltered â€" at Mile 32, Ackman recalls â€" and fell way behind the others. He was clearly “bonking,” as they say in the ycling world, which is what happens when a rider is dehydrated and his energy stores are depleted.

While everyone else rode back to Loeb’s East Hampton mansion, one of Loeb’s friends, David “Tiger” Williams, a respected cyclist and trader, painstakingly guided Ackman, who by then could barely pedal and was letting out primal screams of pain from the cramps in his legs, back to Bridgehampton. “I was in unbelievable pain,” Ackman recalls.

As the other riders noted, it was really rather ridiculous for him to have gone out so fast, trying to lead the pack, considering his lack of training.

A Race Against Loeb That Left Ackman Breathless

Even before their battle over Herbalife, the hedge fund managers William A. Ackman and Daniel S. Loeb have had their share of competitions. Some of them, it turns out, were a bit on the petty side.

In an excerpt from his article in the latest Vanity Fair, William D. Cohan recounts what was supposed to have been a friendly long-distance bike ride involving the two in the Hamptons.

Despite not being as practiced as Mr. Loeb, Mr. Ackman could not help himself and rode flat-out at the beginning of the ride, in Mr. Cohan’s retelling. He initially outpaced the serious cyclists. And then the seemingly inevitable happened.

From the excerpt:

But soon enough Ackman faltered â€" at Mile 32, Ackman recalls â€" and fell way behind the others. He was clearly “bonking,” as they say in the ycling world, which is what happens when a rider is dehydrated and his energy stores are depleted.

While everyone else rode back to Loeb’s East Hampton mansion, one of Loeb’s friends, David “Tiger” Williams, a respected cyclist and trader, painstakingly guided Ackman, who by then could barely pedal and was letting out primal screams of pain from the cramps in his legs, back to Bridgehampton. “I was in unbelievable pain,” Ackman recalls.

As the other riders noted, it was really rather ridiculous for him to have gone out so fast, trying to lead the pack, considering his lack of training.

In the Hunt for Capital, Private Equity Executives Outnumber Investors

BERLIN - For private equity managers in search of investors, networking at the Super Return conference in Berlin is an exhausting process.

To pitch to potential investors throughout the three-day main event, firms set up shop in private rooms, at tables set apart from the main conference and even at the bar in the conference hotel

The numbers are not in their favor. More than half of the 1,400 attendees are from private equity firms, while only a quarter are institutional investors and the like. The remainder comes from companies that offer services to the industry.

Hunched over tablets and ring-bound presentations, managers from the European industry giants like Apax to smaller boutique firms try to convince wary investors to part with their money. The meetings are jammed pack, with investors shuffling from one presentation to another in the hunt for the right firm.

The financial crisis has made fundraising increasingly difficult.

While private equity raised a combined $312 illion last year, a small increase over 2011, the number of funds that successfully raised capital fell by almost a quarter, to 687, over the same period, according to the data provider Preqin. Still, almost 2,000 firms also are seeking to raise a combined $797 billion.

“Investors are concentrating on fewer managers,” said Bob Brown, head of LP services at Advent International, during one of the many networking breaks at the industry conference in Berlin. “Less capital is going to fewer managers.”

The Boston-based firm has been one of the success stories. In November, it completed an 8.5 billion euros ($11.1 billion) fundraising campaign, or roughly 20 percent higher than its initial target.

The hunt for capital can often blind managers to what’s around them.

At the main conference bar - named after the German-born actress Marlene Dietrich - bar staff complained that some conference participants were overly focused on networking. As such, they had failed to realize t! he drinks were not included in the $7,500 entry fee and thus were not paying their bar tabs on the first day of the event.

By the second day, however, the waiters had quickly solved the problem. As they delivered the 4 euro, or $5, coffees to the waiting private equity managers, the bar staff made sure to include the check.

Activist Investors Ratchet Up Pressure on CommonWealth

A pair of activist investors ratcheted up the pressure Wednesday on CommonWealth REIT, filing a lawsuit to stop a proposed stock offering and reiterating its proposal to acquire the real estate company outright.

Corvex Management, a hedge fund run by Keith Meister, and Related Companies, led by its chief executive Jeff Blau, have turned heads on Wall Street with an aggressive attack on CommonWealth, a Newton, Massachusetts-based business that owns more than 500 office buildings across the country.

On Tuesday, the investors disclosed a 9.8 percent stake in the company and demanded the cancellation of a proposed stock offering that it said would damage existing shareholders. Later the same day, they offered to pay $25 a share to purchase the company, giving it a value of roughly $2.1 billion. If the company did not agree to enter into buyout discussions, they said, they would move to oust its management and board.

Shares of CommonWealth spiked 54 percent to $24.40, up $8.55, on Tuesday. Intheir correspondence with CommonWealth, the investors said they believed that its real estate was worth about $40 per share.

“For reasons unbeknownst to us, you have yet to respond to any and all of our requests, while simultaneously continuing the marketing efforts for your value destructive equity offering,” said the letter, filed with securities regulators early Wednesday morning. “We believe this reaction (or lack thereof) is indefensible and ultimately a dereliction of your fiduciary duties.”

Less than an hour after the investors unveiled the lawsuit, CommonWealth issued a statement announcing that, after considering the investors’ demands, its board determined that the share offering was in the “best interests” of the company.

Corvex and Related disclosed their position in response to CommonWealth’s proposed 27 million share offering announced on Monday. The investors objected to the offering, arguing that CommonWealth’s executives have an incentive to raise ! money because of a perverse structure that pays them based on their assets under management. A Citigroup research report highlighted this in a report, arguing that management was “incentivized to acquire assetsâ€" regardless of the quality â€" and we believe the company has an incentive to issue as much stock as possible to fund acquisitions.”

Another large investor has expressed support for Corvex’s and Related’s stance. Luxor Capital Group, a New York money manager that owns more than eight percent of CommonWealth shares, also sent a letter to the company demanding that it cancel the “ill-advised offering.”

The lawsuit seeking to prohibit CommonWealth’s stock offering, a draft copy of which was filed with regulators, is expected to be filed in Maryland state court on Wedensday morning. The investors are represented by the law firm Gibson Dunn & Crutcher.

Corvex and Related are part of a wave of hedge funds and others investors who in recent months have taken aim at company anagement with activist tactics, launching proxy fights to oust boards and agitating for other corporate governance changes.

Mr. Meister, the head of Corvex, a roughly $3 billion fund started in 2010, worked for years under Carl Icahn, the pioneering activist investor. His partner in the campaign to shake-up CommonWealth is Related, a large New York-based real estate company that built the Time Warner Center and has broken ground on Hudson Yards, a 26-acre
development on the west side of Manhattan.

The investors said that they would not have to raise any debt to finance an acquisition of CommonWealth, but instead fund the purchase with money from funds provided by a Related investment vehicle, the Corvex fund, and other investors who have expressed an interest in the proposed transaction.

Activist Investors Ratchet Up Pressure on CommonWealth

A pair of activist investors ratcheted up the pressure Wednesday on CommonWealth REIT, filing a lawsuit to stop a proposed stock offering and reiterating its proposal to acquire the real estate company outright.

Corvex Management, a hedge fund run by Keith Meister, and Related Companies, led by its chief executive Jeff Blau, have turned heads on Wall Street with an aggressive attack on CommonWealth, a Newton, Massachusetts-based business that owns more than 500 office buildings across the country.

On Tuesday, the investors disclosed a 9.8 percent stake in the company and demanded the cancellation of a proposed stock offering that it said would damage existing shareholders. Later the same day, they offered to pay $25 a share to purchase the company, giving it a value of roughly $2.1 billion. If the company did not agree to enter into buyout discussions, they said, they would move to oust its management and board.

Shares of CommonWealth spiked 54 percent to $24.40, up $8.55, on Tuesday. Intheir correspondence with CommonWealth, the investors said they believed that its real estate was worth about $40 per share.

“For reasons unbeknownst to us, you have yet to respond to any and all of our requests, while simultaneously continuing the marketing efforts for your value destructive equity offering,” said the letter, filed with securities regulators early Wednesday morning. “We believe this reaction (or lack thereof) is indefensible and ultimately a dereliction of your fiduciary duties.”

Less than an hour after the investors unveiled the lawsuit, CommonWealth issued a statement announcing that, after considering the investors’ demands, its board determined that the share offering was in the “best interests” of the company.

Corvex and Related disclosed their position in response to CommonWealth’s proposed 27 million share offering announced on Monday. The investors objected to the offering, arguing that CommonWealth’s executives have an incentive to raise ! money because of a perverse structure that pays them based on their assets under management. A Citigroup research report highlighted this in a report, arguing that management was “incentivized to acquire assetsâ€" regardless of the quality â€" and we believe the company has an incentive to issue as much stock as possible to fund acquisitions.”

Another large investor has expressed support for Corvex’s and Related’s stance. Luxor Capital Group, a New York money manager that owns more than eight percent of CommonWealth shares, also sent a letter to the company demanding that it cancel the “ill-advised offering.”

The lawsuit seeking to prohibit CommonWealth’s stock offering, a draft copy of which was filed with regulators, is expected to be filed in Maryland state court on Wedensday morning. The investors are represented by the law firm Gibson Dunn & Crutcher.

Corvex and Related are part of a wave of hedge funds and others investors who in recent months have taken aim at company anagement with activist tactics, launching proxy fights to oust boards and agitating for other corporate governance changes.

Mr. Meister, the head of Corvex, a roughly $3 billion fund started in 2010, worked for years under Carl Icahn, the pioneering activist investor. His partner in the campaign to shake-up CommonWealth is Related, a large New York-based real estate company that built the Time Warner Center and has broken ground on Hudson Yards, a 26-acre
development on the west side of Manhattan.

The investors said that they would not have to raise any debt to finance an acquisition of CommonWealth, but instead fund the purchase with money from funds provided by a Related investment vehicle, the Corvex fund, and other investors who have expressed an interest in the proposed transaction.

Fortress Profit Doubles in 4th Quarter as Returns Rise

Add the Fortress Investment Group to the list of alternative investment firms who ended 2012 flush with strong earnings.

Fortress more than doubled its profit in the fourth quarter, to $107 million, as the value of its investments showed good growth. That quarterly profit amounted to 20 cents per dividend-paying share, surpassing the average analyst estimate of 14 cents a share, according to Standard & Poor’s Capital IQ. For the year, the firm earned $278 million, up from $242 million.

Fortress’ profit was reported as pre-tax distributable earnings, a measure used by alternative investment shops to track payouts to their limited partners. Using generally accepted accounting principles, the firm swung to a quarterly profit of $222 million from a loss a year ago.

Those healthy results reflect the generally improving condtions for private equity firms and hedge funds, which are benefiting from stable, rising markets and an abundance of cheap financing. Publicly traded investment shops like the Blackstone Group, Kohlberg Kravis Roberts and Apollo Global Management all posted big gains in profitability for last three months of 2012.

“We set and achieved aggressive objectives for 2012, and broad-based momentum built into the close of the year and carried into 2013,” Randal Nardone, Fortress’ interim chief executive, said in a statement. “Our fourth quarter distrib! utable earnings were the highest we have recorded in two years, and we believe only begin to reflect the potential of our company.”

For Fortress, which runs both hedge funds and private equity funds, virtually all its businesses had gains.

Its mainstay hedge funds reported a big swing into profitability with earnings of $30 million, as they reported improved investment performance. The firm’s macro hedge funds reported a gain of 6 percent for the quarter and 17.8 percent for the year, while its Asia macro funds were up 9.5 percent for the quarter and 21.2 percent for the year.

The division that invests in debt posted $46 million in profit, up 59 percent, as the firm continued to benefit from frothy credit markets and distressed institutions selling off their holdings at discounted prices. Fortress’ private equity funds reported a slight gain in profits, to $31 million, as their holdings’ value rose 3.9 percent in the quarter.

The firm’s traditional asset management arm, Logn Circle, narrowed its loss for the quarter, to $3 million, as it reported a rise in management fees. Fortress also said that it raised $1.5 billion in capital for its core businesses for the quarter and $6.7 billion for the year.

Despite Uncertainty, Private Equity Remains Bullish on Europe

BERLIN - David Rubenstein is still bullish on Europe.

Speaking at an industry conference in Berlin, the co-founder of the Carlyle Group said European companies were now more open to offloading assets, and that sales related to the bank bailouts from local governments could provide one of the best opportunities.

“Whenever you can buy assets from a government entity in Europe, you should do it,” Mr. Rubenstein told attendees at the Super Return private equity conference on Wednesday. “You will see distressed sellers sell assets at judicious prices.”

His comments echo similar remarks last year when Mr. Rubenstein told the same conference that Europe was “one of the world’s greatest investment opportunities” because “there’s no part of the world that will see so much assets sold at a discount as in Europe.”

On Wednesday, the Carlyle co-founder added that prices for potential investments were gradually falling. In particular, European firms with operations outside th Continent could prove a wise bet because they were not dependent on region’s economy, which has been sluggish.

For many private equity firms, the Continent’s economic troubles and the refusal by some sellers to either sell, or reduce the price tag of, assets has been frustrating. Local banks, for example, have received more than a combined $1 trillion of short-term credit from the European Central Bank, which has reduced the pressure to get rid of defaulting assets.

But as the fears about the debt crisis have eased, some managers now see opportunity in areas that previously had been off-limits.

Lionel Assant, European head of private equity at The Blackstone Group, said on Wednesday that debt-riddled Spain had become an attractive market despite double-digit unemployment and a banking industry that remains troubled
Mr. Assant said the country’s structural reforms aimed at liberalizing its local labor market, close ties to the fast-growing Latin American markets and the l! ikelihood of a domestic economic recovery were three key drivers for potential investment.

“There’s no doubt Spain will recover, it’s just a question of when,” said Mr. Assant, adding that most European deals in the short-term would likely be valued between 500 million euros ($654 million) and 2 billion euros.

Guy Hands, chairman of the private equity firm Terra Firm, also said Europe’s economic conditions had improved over the last 12 months, thanks in part to financial support for many southern European countries from German taxpayers.

While private equity continues to look for deals, Europe still has its risks. On Monday, the financial markets reacted poorly to a political impasse resulting from the Italian national elections that have left no single party in control.

When asked what the result in Italy could mean for investment in the country, Mr. Rubenstein said the election results were a surprise, but declined to comment on how the result would affect the industry.

“Anything I say will get me in trouble,” he said, comments that received laughter throughout the conference hall.

Mr. Rubenstein, who participated in a couple of panel discussions at the private equity conference on Wednesday, showed off his comedic flair.

During a question and answer section, someone told him that at another conference in Las Vegas just before the crisis, the Carlyle co-founder had said the industry was living through a golden age of private equity.

After a moment to think, Mr. Rubenstein responded: “Whatever is said in Las Vegas should stay in Las Vegas,” which was followed by laughter from the packed conference room.

At the end of one of the panels, the conference attendees were asked to vote anonymously for an ‘Open Mike’ award for the conference panelist who had proved to be the most controversial and entertaining. The contestants included Mr. Rubenstein and Mr. Hands.

“For all the Carlyle people here, we do know how you’re votin! g,” the! Carlyle co-founder quipped to the audience.

The S.E.C. Nominee’s Charm Campaign

Mary Jo White, President Obama’s nominee to lead the Securities and Exchange Commission, is trying to quell concerns about potential conflicts of interest as she approaches her Senate confirmation hearing. Facing questions about her lack of regulatory experience and her work defending Wall Street clients, Ms. White recently scheduled meetings with members of the Senate Banking Committee and answered a 20-page boilerplate questionnaire, DealBook’s Ben Protess reports.

“As a government official, I believe I have an established track record and the reputation of being tough, but fair,” Ms. White, who had a reputation as a tenacious prosecutor before going into private practice, said in the document. Her responses shed “new light on her list of Wall Street clients, including little-known work performed for HSBC’s former chief executive,” Mr. Protess writes. The document also “describes her ties to New York Democratic causes and laurels she earned both as a defense lawyer and federal prosecutor.”

Ms. White also vowed “as far as can be foreseen” never to return to her law firm, Debevoise & Plimpton. She had already agreed to recuse herself for one year from most matters involving former clients.

While Ms. White’s nomination is expected to receive Senate approval, some Democrats harbor reservations. They note that Ms. White’s husband, John W. White, is co-chairman of the corporate governance practice at Cravath, Swaine & Moore, representing clients that the S.E.C. regulates. They also fear Ms. White’s recusals may harm her ability to run the agency, Mr. Protess writes. In a meeting on Tuesday, Senator Sherrod Brown, Democrat of Ohio, pushed Ms. White to explain “whether her previous employment or her spouse’s current employment could cause her to recuse herself from key business fac! ing the S.E.C.,” his spokesman said in a statement.

RISKS WITH A WALL STREET TAX  |  The proposal to levy a small tax on financial transactions appears, on the surface, to be a win for everyone involved. But recent history would suggest otherwise, Steven M. Davidoff writes in the Deal Professor column. New York State has had such a tax for decades, although it has changed over the years and is now simply returned to traders immediately after being collected. Mr. Davidoff writes that a study of New York State’s tax over the decades by Anna Pomeranets and Daniel G. Weaver “found that it increased the cost of capital for investors and reduced trading volume. Most important, they found the tax actually increased trading volatility by as much as 10 percent. Increasing volatility is exatly what advocates of the tax don’t want.”

In addition, Mr. Davidoff says, a tax on financial transactions raises the issue that traders may move elsewhere. “In 1984, Sweden adopted a financial transaction tax. Some 30 percent to 50 percent of the country’s trading volume then shifted to Britain.”

DIMON VOWS TO ADDRESS PRACTICES ON PAYDAY LOANS  | 
JPMorgan Chase is among the big banks that allow Internet-based payday lenders to withdraw payments automatically from borrowers’ accounts, even when customers want the withdrawals to stop, as The New York Times reported over the weekend. On Tuesday, Jamie Dimon, JPMorgan’s chief executive, addressed those concerns, calling the practice “terrible.” He said at the bank’s investor day that JPMorgan was examining the issue and would make changes, Jessica-Silver-Greenberg reports in The New York Times.

Mr. Dimon gave a shout-out to Ms. Silver-Greenberg, thanking her for bringing the issue to his attention, according to Heidi N. Moore, an editor at The Guardian. In the original article, Ms. Silver-Greenberg reported that the Federal Deposit Insurance Corporation and the Consumer Financial Protection Bureau were examining banks’ roles in the online loans.

ON THE AGENDA  |  Anheuser-Busch InBev and the Fortress Investment Group report earnings before the market opens. Groupon and J.C. Penney announce results on Wednesday evening. Ben S. Bernanke gives a report on monetry policy to the House Financial Services Committee at 10 a.m. The Senate Agriculture Committee conducts a hearing about oversight of the Commodity Futures Trading Commission at 2:30 p.m. Mario Draghi, president of the European Central Bank, speaks in Munich at 12:30 p.m. On CNBC at 9 a.m. is James Woolery, co-head of JPMorgan’s North American mergers and acquisitions business, who is headed to Cadwalader, Wickersham & Taft.

BAIR ON INCOME INEQUALITY  |  Sheila C. Bair, the former head of the Federal Deposit Insurance Corporation, has an Op-Ed essay in The New York Times in which she laments growing income inequality in the United States. She lays the blame, in part, on the government.

“I am a capitalist and a lifelong Republican,” Ms. Bair says. “! I believe! that, in a meritocracy, some level of income inequality is both inevitable and desirable, as encouragement to those who contribute most to our economic prosperity. But I fear that government actions, not merit, have fueled these extremes in income distribution through taxpayer bailouts, central-bank-engineered financial asset bubbles and unjustified tax breaks that favor the rich.” As a possible remedy, she writes, “Republicans should put fundamental tax reform on the table and make it our priority to end preferential treatment of investment income, which lets managers of hedge funds pay half the tax rate of managers of shoe stores.”

Mergers & Acquisitions »

Clearwire Said to Be Tapping Financing From Sprint  |  Clearwireis planning to tap financing from Sprint Nextel, in the form of notes that convert to stock, The Wall Street Journal reports, citing unidentified people familiar with the situation. The move would complicate the rival bid for Clearwire by Dish Network, the newspaper says. WALL STREET JOURNAL

Best Buy Takeover Attempt May Be in Doubt  |  The effort by Richard M. Schulze, the founder of Best Buy, the take the company private “is in trouble after attempts to secure financing faltered while an alternative strategy to line up minority investors may not pan out either, five sources familiar with the matter said,” Reuters reports. REUTERS

Tribune Hires Investment Banks to Weigh a Sale of Its Top Newspapers  |  The Tribune Company has hired investment banks to pursue a sale of its top newspapers, including The Chicago Tribune and The Los Angeles Times. DealBook »

Rosneft Expected to Win European Approval for TNK-BP Deal  | 
REUTERS

US Airways and American Airlines Executives Questioned by Lawmakers  | 
REUTERS

SFX Entertainment Agrees to Buy Dance Music Site  |  “SFX Entertainment, the company led by the media executive Robert F.X. Sillerman, has agreed to buy the music download site Beatport, part of the company’s plan to build a $1 billion empire centered on the electronic dance music craze,” the Media Decoder blog reports. MEDIA DECODER

INVESTMENT BANKING »

Wall Street Pay Rises, for Those Who Still Have a Job  |  The average cash bonus for people employed in New York City in the financial! industry! rose by roughly 9 percent, to $121,900, in 2012, the New York State comptroller said. DEALBOOK

A Robust Year for Bank Earnings  |  United States banks reported $141.3 billion in net income last year, the second-best on record, according to the Federal Deposit Insurance Corporation. BLOOMBERG NEWS

Goldman Sachs’s Head of Electronic Trading to Step Down  |  Greg Tusar, the global head of electronic trading at Goldman Sachs, is leaving the firm at the end of May after 13 years, Bloomberg News reports. BLOOMBERG NEWS

Nides Rejoins Morgan Stanley From State Dept.  |  Morgan Stanley has announced that Thomas R. Nides, who served as its chief operating officer until early 2011, will return as a vice chairman. DealBook »

Morgan Stanley Had Trading Losses on 37 Days Last Year  |  That was the fewest since 2007, Bloomberg News reports BLOOMBERG NEWS

A! s Banks Sell High-Yield Debt, Risks Loom  | 
BLOOMBERG NEWS

Russian Banks Sell Bonds in Chinese Currency  |  The Wall Street Journal reports: “Russian banks are increasingly selling bonds in the offshore yuan market as growing demand allows them to borrow at cheaper rates and gives them a chance to diversify their funding bases.” WALL STREET JOURNAL

PRIVATE EQUITY »

Private Equity Seeks European Bank Assets, but Deals Are Minima  |  The Continent’s largest financial institutions are offering enticing opportunities for leading firms, but the banks aren’t playing ball just yet. DealBook »

Private Equity Players See Signs of Excess in Buyout Market  |  Speaking at the annual SuperReturn conference in Berlin, several private equity executives discussed concerns about the recent flurry of deal-making activity. DealBook »

HEDGE FUNDS »

Starboard Said to Push for! Sale of ! Office Depot Unit  |  The activist investor Starboard Value plans to encourage Office Depot “to sell its Mexico unit to Grupo Gigante SAB, said a person with knowledge of the situation,” Bloomberg News reports. BLOOMBERG NEWS

A Former Icahn Lieutenant and a Real Estate Giant Demand Change at CommonWealth  |  Keith Meister, a protégé of Carl C. Icahn, and Jeff T. Blau, chief of The Related Companies, disclosed a 9.8 percent ownership stake in CommonWealth REIT on Tuesday. DealBook »

Why Einhorn’s Win May Be Appleâ™s Gain  |  David Einhorn’s victory against Apple in Federal District Court in Manhattan - over a shareholder proposal - may be more of a win for the technology giant, Steven M. Davidoff writes in the Deal Professor column. DealBook »

I.P.O./OFFERINGS »

Esure of Britain Plans an I.P.O.  |  The Esure Group, a British insurer, plans to raise $76 million in an I.P.O. in London as Peter Wood, its founder, sells stock, Bloomberg News reports. BLOOMBERG NEWS

VENTURE CAPITAL »

PayPal Co-Founder Starts Mobile Payments Company  |  Max Levchin, a co-founder of PayPal who runs an incubator called Hard, Valuable, Fun, is introducing a new mobile payments start-up called Affirm, AllThingsD reports. ALLTHINGSD

Pondering Twitter’s Valuation  | 
WALL STREET JOURNAL

LEGAL/REGULATORY »

With Deadlock in Italy, Fears About Euro Zone Revive  |  “The political gridlock in Italy revives a question that hasn’t been heard lately: Is the euro zone crisis really over” The New York Times writes. “Judging by the panic that seized financial markets on Monday and carried over into European stock and bond trading on Tuesday, the answer seems to be no.” NEW YORK TIMES

Fed Chairman Defends Stimulus Campaign  |  In testimony before the Senate Banking Committee, the Federal Reserve Chairman, Ben S. Bernanke, said the central bank’s economic stimulus program was necessary and effective, and likely to continue for some time, The New York Times reports. NEW YORK TIMES

How Did Bernanke Do on Unemployment  |  Ben S. Bernanke emphasized his record of keeping inflation low, but the Fed chairman’s record on unemployment is less impressive, Floyd Norris writes on the Economix blog. NEW YORK TIMES ECONOMIX

Executive Pay Votes May Be Harming Shareholders  |  As we enter this year’s proxy season, it is corporate advisers rather than corporate shareholders that are reaping the benefits of the new executive pay rules, Manan Shah of Reuters Breakingviews writes. DealBook »

Regulators Developing Proposals for Overhauling Libor  |  A task force of the International Organization of Securities Commissions plans to release proposals for improving benchmark rates by late spring or summer, Bloomberg News reports. BLOOMBERG NEWS

European Regulators Block Ryanair’s Latest Attempt to Buy Aer Lingus

BRUSSELS â€" The European Commission on Wednesday blocked the third attempt by Ryanair to take over Aer Lingus, saying the tie-up of the two Irish airlines would damage competition and raise prices on air routes to Ireland.

The decision was widely expected after Ryanair â€" the largest budget carrier in Europe â€" said earlier that the commission would prohibit the deal, worth about 700 million euros or $900 million.

“The Commission’s decision protects more than 11 million Irish and European passengers who travel each year to and from Dublin, Cork, Knock and Shannon,” the European Union competition commissioner, Joaquín Almunia, said in a statement before a news conference.

Proposals made by Ryanair “were simply inadequate to solve the very serious competition problems which this acquisition would have created on no less than 46 routes,” Mr. Almunia said.

Shares of Ryanair were down 6 euro cents to 5.60 euros by early afternoon in Dublin; Aer Lingus stock was up 1 cent at 1.25 euros.

On Wednesday, Aer Lingus, which had rejected Ryanair’s offers, said that it welcomed the commission decision. Ryanair, which owns about 30 percent of Aer Lingus, reiterated that it would appeal the decision to the European Court of Justice.

Ryanair accused Mr. Almunia of protecting Aer Lingus, the Irish flag carrier, against a takeover by an upstart. The company also contends that the regulator applied a double standard because he approved the takeover by British Airways and Iberia of British Midland International last year under a simplified procedure.

“We regret that this prohibition is manifestly motivated by narrow political interests rather than competition concerns and we believe that we have strong grounds for appealing and overturning this politically inspired prohibition,” said Robin Kiely, a spokesman for Ryanair.

Prolonged litigation could have wider ramifications, making it more difficult for the Irish government to sell its 25 percent stake in Aer Lingus. Ireland agreed to sell that stake under the terms of an international bailout finalized in November 2010, although that agreement did not set a deadline for the sale.

The deal is the fourth Mr. Almunia has blocked since he took over the role of the regionâ€s antitrust chief in February 2010. Earlier this year, the regulator thwarted U.P.S.‘s attempt to buy TNT Express.

The decision on Wednesday marks the latest chapter in years of acrimony between the commission and Ryanair’s pugnacious chief executive, Michael O’Leary, who has repeatedly criticized commission officials for decisions that curtailed his ambitions.

The enmity between Mr. O’Leary and the commission developed early last decade when the two sides began a running battle over whether Ryanair received illegal state subsidies that enabled the airline to open up routes to regional airports. Those airports were often some distance from major transport hubs, but still close enough to lure passengers away from! more est! ablished carriers.

Last year, the commission announced new investigations into the effect of discounts Ryanair had received at the Lübeck-Blankensee airport in Germany and the Klagenfurt regional airport in Austria.

Mr. O’Leary has sharply criticized the commission for failing to do more to save money by booking its officials on low-cost airlines like his own. Ryanair also has said its arrangements with all E.U. airports comply with the bloc’s competition rules.

The E.U. competition authority blocked Ryanair’s first bid for Aer Lingus in 2007 on the grounds that the combined airline would have had a monopoly on too many routes. Back then, Mr. O’Leary accused the commission of bowing to political pressure from the Irish government, which opposed the deal. The airline abandoned a second attempt in 2009 because of opposition from the Irish government.

On Wednesday, Ryanair accused the commission of holding it to a higher standard than other airlines seeking mergers after it hadoffered ‘‘historic and unprecedented’’ concessions.

Among them: allowing two competitor airlines to serve Dublin, Cork and Shannon; giving those airlines more than half of the short-distance business that currently belongs to Aer Lingus; and agreeing to transfer airport slots in Britain to allow British Airways to serve Ireland from both Gatwick and Heathrow. Ryanair also had offered Flybe, a competitor, 100 million euros in funding to make it “a commercially profitable and viable entity” in Ireland.

On Wednesday, the commission spelled out the reasons behind its decision.

It said that both Ryanair and Aer Lingus had strengthened their positions in the Irish market since the commission refused the previous deal in 2007, and that the merger would have created an ‘‘outright monopoly’’ on 28 short-distance routes serving Ireland. The commission also said that there were such high barriers to entry to the Irish market that any new competitors would face too many chal! lenges.

The commission’s “market investigation showed that there was no prospect that any new carrier would enter the Irish market after the merger, in particular by the creation of a base at the relevant Irish airports, and challenge the new entity on a sufficient scale,” it said in a statement. “Higher prices for passengers would have been the likely outcome,”