Billionaires’ Latest Trophies Are Newspapers

$250 million.

That’s all Jeffrey P. Bezos paid on Monday for The Washington Post, which was once worth several billion dollars.

$70 million. That’s all John Henry paid on Friday for The Boston Globe, a paper The New York Times had acquired for $1.1 billion in 1993.

Next to nothing. That’s what IBT Media paid to buy Newsweek over the weekend from IAC, which itself had paid only $1 plus $40 million in pension obligations to buy it two years ago.

How do you explain the prices that these storied media institutions have been sold for over the last 72 hours?

The answer has little to do with dollars and cents, spreadsheets and valuation metrics. If it did, in truth, the buyers might have paid even less.

If it wasn’t clear that newspapers have become trophies for the wealthy with an interest in journalism or power â€" or a combination of both â€" it should be now.

“These deals don’t make financial sense,” said Ken Doctor, an analyst at Outsell, a research and consulting firm for the publishing industry.

He suggested that Mr. Bezos’s valuation of The Washington Post was a generous gift. “It is a combination of good will and real estate,” he said, before adding, “I mean good will in the moral sense, not the financial sense.”

Mr. Bezos, the chief executive of Amazon.com, is paying cash for The Washington Post out of his own personal wealth, currently estimated at more than $25 billion. The Post will cost him roughly 1 percent of what he owns in Amazon stock alone.

Some billionaires like cars, yachts and private jets. Others like newspapers.

“Newspapers have gone from the public markets to the hands of a relatively few billionaires who have an appetite for social, civic and financial roles,” Mr. Doctor said.

Based on the math, it is hard to justify a $250 million valuation for The Washington Post. The company reported it lost nearly $50 million for the first half of the year on its newspaper operation that generated $138.4 million in revenue. Of the $50 million loss, nearly $40 million was a noncash pension expense. So you could argue that the company lost only $10 million on operations. But it lost $33 million in the first half of 2012, too, also including pension costs. Circulation fell about 7 percent in the first half of 2013.

At the end of last year, the company valued its newspaper assets at $293.6 million, no doubt a generous figure.

For the Washington Post Company, which will remain publicly traded and renamed, probably to reflect its focus on its education business, Kaplan, and its television stations, the sale of the newspaper represents a very small part of its business. The Washington Post Company’s market value is $4.2 billion.

But the newspaper, which has been owned by four generations of the family since 1933, was not just a business.

Underscoring the size of the newspaper to the company, Katharine Weymouth, publisher of the newspaper, justified the sale by saying this in an interview with The Washington Post: “If journalism is the mission, given the pressures to cut costs and make profits, maybe (a publicly traded company) is not the best place for The Post.”

By taking the newspaper private, Mr. Bezos can afford to be a patient owner. Profit and loss is probably the least of his concerns. A running joke on Monday was this from Ben Popper, the editor at the Web site the Verge, on Twitter: “Jeff Bezos has reputation for building great companies with little to no profit, perfect guy to own a newspaper.”

While Mr. Bezos may not be buying the paper for immediate profits, it may not be entirely altruistic either. His parents, Jackie and Mike Bezos, run the Bezos Family Foundation, which is not expected to be involved in the business.

As part of the deal, Mr. Bezos is assuming the pension obligations of the current employees of the newspaper. Compared with the deal John Henry, owner of the Boston Red Sox, struck for The Boston Globe on Friday, Mr. Bezos looks like a lavish benefactor. Mr. Henry paid $70 million, but The Boston Globe has approximately $110 million in pension obligations, which The New York Times Company is keeping on its books.

One billionaire who has been bullish on newspapers, not just as a benefactor, but as a business, is Warren Buffett. His company, Berkshire Hathaway, has acquired a series of newspapers, including The Omaha World-Herald, where he lives and grew up, and more from Media General.

In my conversations with him over the last year, he has stressed that he likes small, community newspapers because there is a built-in audience that can’t get the news elsewhere. But he has expressed doubts about regional newspapers, like The Los Angeles Times. Berkshire is a major shareholder of the Washington Post Company and Mr. Buffett was on the board for many years, until 2011.

At Berkshire’s annual meeting, Mr. Buffett said he expected his newspapers to make a profit, but “it’s not going to move the needle at Berkshire.”

On Monday night, just hours after The Post announced its sale to Mr. Bezos, James Fallows, a former editor of U.S. News & World Report who writes for The Atlantic, said the deal put him in a state of shock.

“Let us hope,” he wrote, “that this is what the sale signifies: The beginning of a phase in which this Gilded Age’s major beneficiaries reinvest in the infrastructure of our public intelligence.”

Pay Deferrals for Bankers Are Tougher in Europe

Soon after the financial crisis, international regulators identified Wall Street’s lush pay packages as one of the culprits and proposed an overhaul that was meant to apply equally to employees of American investment banks and their big European rivals.

Four years on, the Europeans might be forgiven for wondering what happened to the American effort.

A central theme of the overhaul was to make bankers wait for a significant portion of their pay, so they would have less of an incentive to take the sort of short-term risks that led in 2008 to crippling losses.

Today, however, European firms appear to be holding back, or deferring, substantially more of their top risk-takers’ pay than American banks.

European banks like Barclays and Credit Suisse are deferring as much as 70 percent of the compensation granted to top employees, according to an analysis by The New York Times of the banks’ annual reports. American firms, by contrast, generally appear to be deferring about half.

The compensation overhaul is one of the less recognized efforts to strengthen the financial system. But when it began in 2009, government officials around the world had high hopes for it.

“Action in all major financial centers must be speedy, determined and coherent,” the Financial Stability Board, a body based in Basel, Switzerland, that comprises national financial regulators, said. “Urgency is particularly important to prevent a return to the compensation practices that contributed to the crisis.”

The pay measures apply to more than just a bank’s chief executive and other top-level officers. Large banks are now required to identify the biggest risk-takers and tie their compensation to the fates of their firms. There could be hundreds of such employees at a single large bank. The importance of spreading the net wide was highlighted last year when obscure traders at JPMorgan Chase incurred $6 billion of losses in complex wagers in what became known as the “London Whale” trades.

A trader affected by the pay measures who gets a $2 million bonus in one year might get half of that soon after it is awarded. The trader would typically get the rest over a three-year period that begins a year after the bonus is awarded. During the waiting period, the bank can take back the deferred pay if the trader’s bets sour.

Certainly, American institutions like Citigroup, Goldman Sachs and JPMorgan Chase are deferring considerable amounts of pay. But the Europeans are going further.

Last year, the investment banking divisions of Credit Suisse and Barclays, which compete on Wall Street, deferred 72 percent of the total compensation earned by risk-taking employees, according to figures in their annual reports. Deutsche Bank deferred 57 percent in its investment bank last year.

Exact comparisons with American banks are hard, because they do not release pay data for all their regulated risk-takers. But British regulators do require the American firms to provide data for such employees in their London subsidiaries. These make a significant contribution to the American banks’ overall trading and deal-making revenue.

Filings for 2011, the most recent available, show that only 40 percent of compensation was deferred for employees at Citigroup’s global markets operations in London. The figure was 43 percent for Morgan Stanley’s London operations and 44 percent for JPMorgan’s. Bank of America deferred 49 percent of London employees’ pay.

Barclays, in contrast, deferred 70 percent of its regulated employees’ compensation across the whole firm in 2011. Credit Suisse deferred 60 percent.

In a statement, a Citigroup spokesman, Mark Costiglio, said, “Citi’s incentive compensation plans are appropriately disclosed and administered through a strong governance process that aligns employee compensation with the long-term interests of all stakeholders and ensures that employee compensation does not incent excessive or imprudent risks.”

In 2012, Morgan Stanley appeared to be an outlier among American firms. Most of the bonuses for top employees, excluding financial advisers, were deferred. Specifically, if total compensation was over $350,000, and the bonus was over $50,000, the entire bonus was delivered over three years. Mark Lake, a spokesman for the bank, declined to say whether that approach would be used for future years’ compensation.

JPMorgan and Bank of America declined to comment. The filing for Goldman Sachs’s London operations did not contain enough data to determine how much pay it deferred.

The Federal Reserve, which oversees compensation at large banks incorporated in the United States, has chosen not to dictate pay levels. It has, however, put a big emphasis on getting banks to carefully construct employment contracts that allow them to take back compensation if investments show losses or fall short.

It is hard for outsiders to tell if the Fed’s approach is having the desired effect. But there may be a way for banks to skirt its impact. They could simply pay out a large share of compensation upfront, as seems to be their practice.

Once the regulated employees have received that pay, it is, from a legal standpoint, much harder for banks to reclaim it. But if the American banks were deferring as much as their European rivals, the clawback provisions that the Fed is keen to see would apply to a bigger portion of their pay.

“You can do everything right in financial reform, but if you don’t get the incentives right, everything is potentially for naught,” said Dennis M. Kelleher, president of Better Markets, an advocacy group that favors strong regulation of banks.

Barbara Hagenbaugh, a Fed spokeswoman, did not comment when asked how well its pay overhaul was working. She added that American banks would expand their pay disclosures in regulatory filings in the future, but she did not give a date.

Stricter regulation may not be the only reason that European banks are withholding more pay. Deferrals may also help financial results for the banks, which have struggled in the Continent’s economic slowdown. When pay is deferred, it typically is not counted as an expense until later periods, which increases nearer-term earnings. As a result, if their overall financial performance strengthens, European banks may choose to defer less.

At the same time, a recently passed law may undermine regulators’ efforts on pay deferrals at European banks. The law, approved by European lawmakers in April, forces strict caps on pay at banks in the European Union.

One provision of the law will ordinarily restrict bonus payments to one year’s base salary. Pay specialists in Europe expect the banks to adapt to this rule by substantially increasing base salaries. With banks paying out a lot more in salaries, employees would get a higher share of their pay immediately. They would also get substantially less from deferred bonuses, the part of compensation that is supposed to hold the risk-takers accountable.

“You would have less available for deferral and clawback,” said Alistair Woodland, a partner at Clifford Chance, a law firm based in London, “and it undermines the good work that has been done.”

Online Lenders Told to Abide by Interest Rate Cap in New York

Government authorities are homing in on a lucrative loophole that allows online lenders to offer short-term loans at interest rates that often exceed 500 percent annually, the latest front in a crackdown on the payday lending industry.

New York state’s financial regulator joined the effort on Monday as he sent letters to 35 of the online lenders, instructing them to “cease and desist” from offering loans that violate local usury laws, according to documents reviewed by The New York Times. The regulator, Benjamin M. Lawsky, ordered the lenders to halt the “illegal” loans within two weeks.

Mr. Lawsky’s investigation is playing out as state and federal officials escalate a broader effort to rein in payday lenders and their practice of offering quick money, backed by borrowers’ paychecks, to people desperate for cash.

It’s an evolving battle. As New York and 14 other states have imposed caps on interest rates in recent years â€" New York outlaws any loans at rates above 25 percent â€" the lenders have migrated from storefronts to Web sites. From their online perch, where they reach consumers across the country, the lenders can skirt individual state laws.

“Illegal payday lenders swoop in and prey on struggling families when they’re at their most vulnerable â€" hitting them with sky-high interests rates and hidden fees,” said Gov. Andrew M. Cuomo.

If the lenders are seen as violating the law, officials briefed on the matter said, the state has authority to either sue the companies or refer their actions to prosecutors.

New York is also widening its scrutiny to include the banks that enable the lenders to operate. The banks, including JPMorgan Chase and Bank of America, are a critical link between consumers and payday lenders, state officials say. They allow the lenders to automatically withdraw monthly loan payments from borrowers’ checking accounts through an electronic transfer system known as A.C.H., or Automated Clearing House.

On Monday, Mr. Lawsky enlisted 117 banks to block online lenders from tapping into checking accounts of New York residents. In a letter to the banks, he questioned why the A.C.H. network had allowed online payday lenders the “foot in the door” they needed to ensnare consumers.

“Banks have proven to be â€" even if unintentionally â€" an essential cog in the vicious machinery that these purveyors of predatory loans use to do an end-run around New York law,” he said in the letter. Mr. Lawsky urged the banks to “work with us to create a new set of model safeguards and procedures” that will detect illegal loans.

In his separate cease-and-desist letters, Mr. Lawsky took aim at lenders like Western Sky Financial and Advance Me Today, which currently advertises a loan carrying interest and fees amounting to 782 percent annually. Another company, Peak 3 Loans, once charged a 1,095 percent rate on loans, the officials said.

Advance Me Today and Peak 3 did not return requests for comment. A spokesman for Western Sky declined to comment on the investigation, but said that the company “complies with all applicable laws in its business practices.”

The payday loan industry has long noted that it provides credit to consumers who may otherwise lack access to the financial system. The high interest rates, the industry argues, reflect the riskiness of the client and the short-term duration of the loan.

“Like many consumers nationwide, New York residents are looking for more affordable credit options than those currently offered in their state and are increasingly looking to the convenience of Internet for them,” Peter Barden, spokesman for the Online Lenders Alliance, said in a statement. “Rather than restricting consumer choice, state officials should be focused on finding a federal solution to ensure consumers have access to the credit options they need and are demanding.”

While federal and state regulators have sued online lenders before, New York’s scrutiny of the banks represents a new avenue.

Some banks, however, have started to enforce their own overhaul. JPMorgan, for example, is now reporting lenders that try to make unauthorized withdrawals to the group that oversees the A.C.H. system.

Mr. Lawsky has also pressured that group, Nacha, to take action. Nacha, previously known as the National Automated Clearing House Association, is a nonprofit group that has previously said that banks have “no basis or information to make an independent judgment” about whether a withdrawal from a checking account is a “bona fide, legal transaction.”

A Nacha representative declined to comment.

Other federal and state authorities, including the Manhattan district attorney’s office, are investigating the banks for permitting illicit withdrawals from customer accounts, officials briefed on the matter said. State authorities in Maryland, according to the officials, have also referred potential instances of wrongdoing by the banks to the Federal Deposit Insurance Corporation.

In addition to New York, other state regulators have also moved against online lenders for violating state usury laws.

Arkansas’s attorney general sued the operator of a number of online lenders, claiming that the firms were breaking state law that caps annual interest rates at 17 percent. Authorities in Maryland have also announced a series of cases, including as recently as last week, when it took action against MyCashNow.com, one of the 35 lenders that Mr. Lawsky singled out on Monday. MyCashNow could not be reached for comment.

In at least nine states, from Colorado to Missouri, regulators have penalized lenders with connections to Native American tribes. The lenders use these ties to claim that they are part of a “sovereign nation” immune from federal and state law.

The Federal Trade Commission in April 2012 sued AMG Services, which was started by a racecar driver, accusing the company of tacking on inflated and undisclosed fees. In its defense, court records show, the company claimed that it was not under the regulator’s jurisdiction, citing its affiliation with the three tribes. Last month, the agency scored a victory in the lawsuit, which is still pending, when a district court judge ruled that the tribal affiliation did not shield the lender from the regulator’s case.

Western Sky, which says on its Web site that it operates “within the exterior boundaries of the Cheyenne River Sioux Reservation,” is among the other targets.

In April, it tangled with Oregon’s department of Consumer and Business Services, which fined the lender over accusations that it trumpeted loans that came with interest rates of up to 342 percent “through an aggressive TV and radio advertising campaign.” That action came on the heels of another lawsuit against the lender in 2011 from the Colorado attorney general, which claimed that Western Sky flouted state law through roughly 200 loans that exceeded the state’s interest rate cap.

A spokesman for the company said, “Western Sky Financial is the largest private employer on the impoverished Cheyenne River Indian Reservation.”

Western Sky also landed on Mr. Lawsky’s radar after New York consumers complained about the company.

Although Western Sky says its loans “are not available to consumers” in New York and other states with similar rate caps, it nonetheless lent $2,600 to Anne Diaz, a 44-year-old single mother who lives in Syracuse. Despite New York’s 25 percent interest cap, Western Sky charged her a 135 percent interest rate in January.

“I feel really desperate and pretty ashamed that I was duped into this,” Ms. Diaz said.

Sony Rejects Loeb Proposal for Splitting Off Entertainment Unit

Sony said late on Monday that it it planned to hold onto all of its vast entertainment arm, rejecting a proposal by one of the Japanese conglomerate’s biggest investors, the activist hedge fund manager Daniel S. Loeb.

The decision, announced in a publicly disclosed letter to Mr. Loeb, raises questions about whether the famously feisty investor will stage a public fight with the company. Mr. Loeb first disclosed a big stake in Sony â€" now about 7 percent â€" in May, in a big bet that he can successfully shake up a Japanese company when many foreign shareholders have tried, and failed.

The letter followed a meeting between Mr. Loeb and Sony’s bankers on July 17, at the hedge fund manager’s Midtown Manhattan offices.

Sony’s chief executive, Kazuo Hirai, wrote in Monday’s letter that the company had considered Mr. Loeb’s proposal of spinning off a portion of the entertainment unit to the public markets. But after consulting with its financial advisers, Sony believed that owning all of the business would let it better mesh with its core electronics operations, without the legal encumbrances that a partial split-off would entail.

Moreover, Mr. Hirai wrote that Sony had considered and dismissed the notion that the company needs the capital that Mr. Loeb’s plan would have generated. Should it need to raise more money, the conglomerate would look to other avenues for financing.

But Mr. Hirai did make one concession, writing that Sony’s entertainment arm will begin disclosing more information about the performance of the business.

Advisers to Sony had also recommended rejecting the proposal because of the tough history of partial spin-offs, according to a person briefed on the matter. A number of companies have tried listing subsidiaries on the public markets, with many having resorted to buying back the operation afterward.

Among those instances was the News Corporation‘s brief experiment with having its Fox Entertainment arm listed publicly in 1998, only to take it private again seven years later.

A representative for Mr. Loeb wasn’t immediately available for comment.

The Bank Behind the Sale of The Washington Post to Amazon’s Bezos

In a week of big media deals, the sale of The Washington Post to Jeff Bezos of Amazon.com takes the cake.

And helping put together the $250 million newspaper sale: none other than Allen & Company.

According to The Post’s own report on the deal, The Washington Post Company‘s chief executive, Donald E. Graham, hired the boutique investment bank some unspecified time ago. The Post Company’s board spoke with a “half-dozen” possible buyers before settling on Mr. Bezos, whose net worth was estimated by Forbes earlier this year at about $25.2 billion.

Mr. Graham and Mr. Bezos were both at Allen & Company’s annual conference in Sun Valley, Idaho, last month. The high-powered gathering of media and technology moguls may have lent cover for the two to cement the deal announced on Monday, the biggest in the newspaper industry since Cablevision bought Newsday for $632 million five years ago, according to Standard & Poor’s Capital IQ.

Mr. Bezos and Mr. Graham have longstanding connections that may have helped the discussions. As The Post’s article notes, Mr. Graham gave the Amazon chief advice on how to promote newspapers on the Kindle device. And Amazon is an investor in LivingSocial, an e-commerce venture led by Tim O’Shaughnessy, Mr. Graham’s son-in-law.

Third Point Reinsurance Fund Arm Seeks Up to $370.6 Million in I.P.O.

The reinsurance arm of Third Point, the hedge fund run by Daniel S. Loeb, disclosed on Monday that it is seeking to raise up to $370.6 million from its forthcoming initial public offering.

Third Point Reinsurance said in an amended prospectus that it plans to sell 22.2 million shares at between $12.50 and $14.50 a share. At the midpoint of that range, the reinsurer would be valued at nearly $1.4 billion.

That shows quick growth for the operation, which was created in October 2011 with $784.3 million worth of equity. Third Point dove into the world of reinsurance â€" in which firms essentially backstop insurance firms’ operations â€" at a time when other hedge funds were setting up beach heads in the sector. SAC Capital, the firm run by Steven A. Cohen, has set up a similar operation, while Greenlight Capital, the hedge fund founded by David Einhorn, has had a reinsurance unit since 2004. (The latter has been public since 2007, and its stock has gone up 10 percent during that time period.)

In its prospectus, Third Point Reinsurance said that it plans to use its cut of the I.P.O. proceeds for both general corporate purposes and to increase its underwriting and investment capacity.

The offering is being led by JPMorgan Chase, Credit Suisse and Morgan Stanley.

Changing State of Smartphone Competition in China

Will Android, a “little rice” and lot of cheap “China Droids” overwhelm Apple’s plans for China?

Xiaomi (“little rice” in Chinese) has just released a new Android phone priced at 799 renminbi ($130). The phone, called “Red Rice,” has good specifications, and one Chinese commentator said that the pricing was so aggressive and that the phone could do so much damage to competitors and component suppliers that it really should be called “Blood Rice.”

Apple reported disappointing results from China in its recent quarterly earnings report. The iPhone is no longer the most sought after phone in the country, and the company still does not have a relationship with China Mobile, the country’s largest mobile operator. Tim Cook, Apple’s chief executive, recently visited Beijing and met again with the chief executive of China Mobile, but no deal was announced.

When the iPhone 4 was the hottest phone in the world, Apple might have had some leverage in negotiating a favorable deal with China Mobile. But that is no longer true. The top end Android phones have caught up, and until Apple upgrades the iPhone with a bigger screen and a new look, it seems unlikely that it can reignite the crazy desire its phones once aroused in China. The iTunes ecosystem “lock-in” effect is also weak in China, making it easier for consumers to switch phones.

Rumors abound that Apple is planning to release a cheaper version of the iPhone. China is flooded with cheap Android phones that continue to get better and cheaper, and Xiaomi’s Red Rice is the latest example, with better marketing. China Mobile has also just announced its own brand of smartphones, priced at 1299 renminbi ($212) and 499 renminbi ($81).

Google’s Android operating system is mostly de-Googled within China, so while its proliferation may not directly benefit Google’s bottom line, it is damaging the prospects for Apple in the world’s largest phone market.

As this column noted last week, in the midst of the surge of downbeat views about China’s economic prospects, at least one sector, the Internet, has offered good returns to investors over several months. The surge in mobile usage has also led to huge interest in mobile game developers listed on the Chinese stock markets, and the top six of those companies have seen their share prices double or more so far this year.

The explosive growth in mobile and Internet usage is one of the factors driving the relative strength in nonmanufacturing activity. Some officials are that there is more consumption than the official data suggest. The Wall Street Journal recently quoted the People’s Bank of China deputy governor Yi Gang as saying, “The official data severely understates household consumption.”

There is still plenty of data to fuel bearish arguments that China is heading for a much harsher slowdown, but the government appears to have drawn the line at how big a drop it will allow while pursuing what it now almost daily says is the needed restructuring and reform of various sectors and the economy overall. China’s Politburo met last week and, according to the official statement, the government plans to keep growth steady in the second half of this year, amid the “extremely complicated domestic and international conditions.”

One way to stabilize growth is through the “mini-stimulus” discussed in last week’s column. Another may be what appears to be a “monetary mini-stimulus,” as described by the Financial News, a newspaper affiliated with the People’s Bank of China.

The newspaper ruled out any move to cut the reserve requirement in the near-term, but said the central bank’s resumption of injections signals its willingness to support the market. “The central bank is telling the market it will maintain the stability of money market rates, and that banks don’t need to deleverage too aggressively on concerns of a shortage of liquidity,” the newspaper said.

“China’s Coming Muddle Through” would never sell as a book. Nor does it make for a good TV soundbite about what is going on in China. But it may be the most likely outcome for the economy.

The Capital Economics research firm wrote an excellent note on Aug, 1 asking, “How Close Is China to a Crisis?” The report, publicly available as a PDF, is a cogent look at the current state of economy from a firm that two years ago predicted sub-8 percent growth for China in 2013, well ahead of many other economists. The short answer to its question is “not too close.”

The economy will not be pretty going forward, but in the 24 years I have been in and out of China, I can not actually think of a year where things were ever smooth. Muddle through has worked in the past, and there is a good chance it will work in the future, even if that position will not get me a book deal.

Disney Magic May Not Have Worked on Pixar

Walt Disney boss Robert Iger has another Pixar hit on his hands. “Monsters University” should provide an eighth consecutive animated lift to Disney’s bottom line when it reports quarterly results on Tuesday. The upcoming “Planes,” derived from Pixar’s “Cars,” is bound to be a success, too. But a Breakingviews analysis suggests the studio’s value to the Magic Kingdom falls short of the $7.4 billion purchase price. High-priced deals for Marvel and Lucasfilm may also disappoint investors in the long term.

Sorting out Disney’s relationship with Pixar was one of the first things on Mr. Iger’s agenda when he took over in 2005 and remains a hallmark of his tenure. Their lucrative co-production and distribution deal was on the rocks after Steve Jobs, then Pixar’s chief executive, clashed with Mr. Iger’s predecessor Michael Eisner. The successful Weinstein brothers also were expected to decamp. Disney’s own storied cartoon shop was struggling. The whole movie division was in trouble. Allowing Pixar to fall into a rival’s hands only would have further weakened the company’s position.

Buying Pixar was practically a necessity, one that brought more than just technology and a small library that included “Finding Nemo.” Mr. Jobs became Disney’s biggest shareholder and a director. Pixar’s creative force, John Lasseter, also infused Disney with a fresh spark. To acquire all that from a position of weakness, Disney paid over the odds at an estimated 45 times earnings when the deal was announced.

Disney says Pixar’s value “far exceeds” the acquisition price calculated using “net present value” across its businesses. Absent more specifics, the statement requires a certain amount of wishing upon a star. Begin in the theaters.

According to Box Office Mojo, “Toy Story 3,” “Brave” and the other films have generated some $4.5 billion in ticket receipts worldwide. Margins generally clock in at about 10 percent. Generously assume Disney makes 15 percent, and that’s $675 million of pre-tax profit over the seven years to 2012, excluding the still-developing “Monsters University.”

Consumer products are the second-biggest source of revenue. Some Pixar flicks, like critically acclaimed “Up,” may not lend themselves well to toys and T-shirts, but others like “Cars” certainly do. Princesses, pirates and Mickey Mouse and his pals are still big sellers. Pixar films account for 12 percent of Disney’s lifetime box-office revenue, including oldies like “The Little Mermaid” and “Aladdin.” Suppose they represent the same percentage of merchandise sales. At a 25 percent margin, that would mean some $580 million of profit before tax.

DVDs are another big contributor. Using estimates by research firm the Numbers and an industry standard 50 percent profit margin, this form of home entertainment has reaped around $575 million. Finally, if income from broadcast and pay television, along with streaming video, amounts to 20 percent of total box office - a figure based loosely on estimates by analysts for other film franchises and studios - that would translate into $900 million.

Tot it all up and the average annual profit from Pixar, excluding “Monsters University,” has been about $390 million. If accurate, that’s an impressive 60 percent more than the pre-tax income Pixar generated in the year before selling itself. Subtract the 33 percent that goes to Uncle Sam, however, and put the after-tax figure on the 20 multiple of earnings at which Disney trades, and Pixar would still only be worth around $5.2 billion, or about two-thirds of what Disney paid.

That doesn’t account for any extra allure Pixar characters and rides may bring to Disney’s theme parks. It’s hard to gauge the impact, especially considering the related costs that are attached to revamping these properties. Disney last year, for example, wrapped up a $1 billion renovation of its California Adventure park with new Pixar-themed rides.

After taking all that into consideration, though, shareholders seem to be under a spell, believing Disney - and Mr. Iger - can work magic through acquisitions. Another $8 billion has been splashed out on Marvel and its superheroes - again at some 40 times earnings - and Lucasfilm’s “Star Wars” franchise. Disney nevertheless still regularly trades at a stock market valuation higher than those of its competitors. Suspension of disbelief is part of what Disney sells, but investors shouldn’t so easily fall for it.

Jeffrey Goldfarb is an assistant editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

The Gray Line of ‘Confidential’ Information

The insider trading case against SAC Capital Advisors seems to be all about the trading “edge,” a term the firm’s owner, Steven A. Cohen, once said he hated. Under the securities laws, proving a violation requires showing that the information used was nonpublic, which means it was not already available in the stock market â€" the edge that can make for lucrative profits and sidestepping big losses.

The charges filed last week against Sandeep Aggarwal for tipping off a SAC portfolio manager to give that edge raise the question of when information is sufficiently confidential that its use constitutes insider trading.

Sometimes it is easy to identify information as confidential because a company will go to great lengths to keep it secret by limiting access and using code names. The obvious example is information about a pending merger or acquisition, which companies want to remain secret to prevent a run-up in the stock price of the company being acquired so that the deal announcement gives the appearance of a significant premium being paid to shareholders.

Traders also frequently seek a trading edge on a company’s earnings. That can be especially important when the number falls short of Wall Street’s expectations or blows past the consensus estimate.

Other types of information fall into a grayer area, particularly when there is significant media speculation about pending developments at a company. In those cases, the government has to prove that what was provided to those accused of insider trading was more specific than other speculation already available to the market.

Mr. Aggarwal, who was an Internet research analyst at Collins Stewart, is accused of giving inside information to Richard Lee, a former SAC portfolio manager who has pleaded guilty to insider trading charges and is cooperating in the Justice Department’s prosecution of the firm. As DealBook reported, Mr. Lee will play a featured role in that case because it appears the firm ignored warning signs about his use of inside information.

The information Mr. Aggarwal provided involved negotiations between Microsoft and Yahoo in July 2009 for a strategic partnership that was expected to help bolster Yahoo’s earnings by $500 million. His source was a friend at Microsoft.

Mr. Aggarwal had issued research reports discussing the negotiations, and in June 2009, he lowered the probability of the two companies reaching an agreement to 50 percent from 80 percent. But on July 9, his source at Microsoft said that the negotiations were heating up and that a deal could be announced in the next two weeks. That sounds like inside information because it alters the prior speculation about the deal and was not readily available to the public.

What happened next, however, may give Mr. Aggarwal a defense to the insider trading charge. He participated in a “morning call” at his firm with sales executives in which he discussed the increased likelihood of a Microsoft-Yahoo partnership. One listener followed up by sending an e-mail to clients that said the “deal talks are starting again.”

In addition, the affidavit filed as part of the charges stated that Mr. Aggarwal “spoke to approximately 14 traders or portfolio managers at various hedge funds” about the resumption of negotiations. Those discussions included a recorded call in which he told a trader at an unidentified hedge fund that a “senior guy at Microsoft” had provided detailed information about developments between Microsoft and Yahoo.

Only after that did Mr. Aggarwal speak with Mr. Lee, also in a recorded telephone conversation. In that call, Mr. Aggarwal provided detailed information in response to questions from Mr. Lee about the reliability of the source, after which SAC bought a large number of Yahoo shares. Mr. Lee, too, purchased Yahoo shares for his personal account.

This is not the typical insider trading case because Mr. Aggarwal comes across as willing to tell anyone who would listen about his information, doing so rather freely on a recorded telephone line. The issue is whether his willingness to talk effectively removed the veil of confidentiality over the progress of the Microsoft-Yahoo negotiations so that Mr. Lee’s trading did not violate the securities laws.

In the usual case, the issue of confidentiality would depend on when the company publicly disclosed the information, and the Securities and Exchange Commission requires that the information be made available to all investors at the same time. But the courts have also recognized that when stock analysts have dispensed information to traders, it will usually be incorporated almost immediately into the price of a stock and is no longer confidential.

In United States v. Contorinis, the United States Court of Appeals for the Second Circuit stated that “information is also deemed public if it is known only by a few securities analysts or professional investors.” At that point, the information is not confidential because under what is known as the “efficient capital market hypothesis,” investors rely on the market to quickly reflect all available information in the value of a company’s securities.

So Mr. Aggarwal’s revelation to the sales staff at his firm and other hedge funds may have turned otherwise confidential information from Microsoft into data that was sufficiently available to the market that his later disclosure to Mr. Lee did not constitute illegal tipping.

Whether he may still have violated the securities laws will depend on how much information he revealed to others before the discussion with Mr. Lee. In Contorinis, the court noted that “a tip that provides additional reliability to existing information about the status of a transaction based on the source’s access to inside information may be material because it lessens the risk from uncertainty.”

Other evidence cited in the government’s charges may show that Mr. Aggarwal viewed the disclosures as questionable, which can help to show that he intended to give inside information. When questioned by Collins Stewart about whether he had received the information illegally, he lied about his source by claiming it was from a former Microsoft employee.

The securities laws prohibit schemes to defraud, so even a tipper who tells too many people can still be found guilty for just trying to engage in insider trading. But Mr. Aggarwal may well be able to defend his case by claiming that, at least when he spoke to Mr. Lee, the information about the Microsoft-Yahoo negotiations was no longer confidential.

Hedge Fund Urges EADS to Sell Dassault Stake

PARIS â€" EADS, the parent company of Airbus, confirmed Monday that it had received a letter from an influential shareholder urging it to sell its 46 percent stake in Dassault Aviation, the French maker of the Rafale fighter and the popular Falcon business jet.

European Aeronautic Defense & Space, which last week announced a major restructuring of its military contracting and space operations, declined to elaborate on its plans for the holding, which has a market value of around 4 billion euros ($5.3 billion). But the company did not rule out the possibility of divesting the stake in Dassault, which EADS has held for more than a decade and which management has always stressed is a financial, rather than a strategic, investment.

”We will keep shareholders fully appraised of our plans and progress” with regard to the Dassault stake, said Martin Aguëra, an EADS spokesman. ”Central to our strategy is efficient capital allocation and creation of shareholder value.”

In a letter to the EADS chief executive, Thomas Enders, that was dated Friday and made public Monday, Ben Walker, a partner at TCI, a London-based hedge fund that owns just over 1 percent of EADS, argued that the company’s investment in Dassault was a ”poor use of capital.”

Mr. Walker urged Mr. Enders to dispose of the stake in Dassault ”as soon as possible,” either through a direct sale to a third party or via a public offering, and use the proceeds to buy back shares or pay a special dividend to shareholders.

A quick sale is unlikely, however, and any shake-up of Dassault’s ownership structure would be fraught with political complications, given the sensitivity of its military business as well as the company’s status as a French high-tech corporate jewel. Two-thirds of Dassault’s 11,600 employees are based in France.

”Politics will play a large part in this,” said Howard Wheeldon, an independent strategist and fellow of the British Royal Aeronautical Society, noting that the Socialist government of President François Hollande would be loath to see the stake go to a non-French bidder.

As it happens, the French government owns a single ”golden share” in Dassault and has the preemptive right to purchase any shares EADS might divest. But given France’s current budget constraints and its recent moves to sell down state shareholdings in private companies, any pressure on the government to buy a stake in Dassault would likely be unwelcome, analysts said.

”But if there is no other French company prepared to put up money and buy this stake, then, frankly, he’s not got much choice,” Mr. Wheeldon said, referring to Mr. Hollande.

The situation is further complicated by the fact that Dassault Aviation is controlled by the politically powerful Dassault family, which owns just over 50 percent of the company through a holding company, Groupe Industriel Marcel Dassault. Spokesmen for Dassault Aviation did not immediately respond to requests for comment.

Dassault, while respectably profitable, is struggling to maintain its footing after the latest recession eroded demand for its business jets and austerity-driven cuts in European military budgets have clouded the future of its fighter business. Some analysts have suggested that Dassault would be better off if it split into two distinct businesses - business jets and fighters - but the company’s management has so far rejected any talk of a spin-off or merger.

”Dassault is a relatively small, undercapitalized company in what is an increasingly very large and high-risk world of key defense products,” Mr. Wheeldon said. ”EADS potentially walking away is, for Dassault, a very worrying sign.”

Morning Agenda: A Focus on Greed in Tourre Case

Tension mounted among the nine jurors in the federal courthouse in Lower Manhattan last week as they examined the nuances of the Securities and Exchange Commission’s case against Fabrice P. Tourre, a former Goldman Sachs trader. By 3:12 p.m. on Thursday, the jury had reached a verdict, deciding Mr. Tourre was liable on six of the seven counts. “Ultimately, the jurors said, their decision came down to what they saw as the letter of the law and, for some, a broader concern that Mr. Tourre’s actions underscored a fundamental problem with society: Wall Street greed,” Susanne Craig, Ben Protess and Alexandra Stevenson report in DealBook.

“It got really intense; it reminded me of religion,” said one juror, the Rev. Beth F. Glover, a 47-year-old priest who initially struck a skeptical tone about aspects of the government’s case. The jurors, describing the genesis of their decision, expressed sympathy for Mr. Tourre, alternately calling him a “scapegoat” and a “willing participant” in Goldman’s vast mortgage machine. But the S.E.C.’s argument resonated with the jurors. “He is what Wall Street is all about and it scared me,” Evelyn Linares, a school principal from the Bronx, said on Friday in an interview from her porch. “You go in thinking you can make a difference and you get sucked in.”

DELL BUYOUT BID SALVAGED  | When his takeover bid for the company he founded appeared in peril last week, Michael S. Dell sprang into action, holding talks with his main partner in the deal, Egon Durban of the investment firm Silver Lake Partners, about a potential compromise, DealBook’s Michael J. de la Merced reports. The two men reached out to the special committee of Dell’s board, and by Thursday evening the two sides began completing a revised agreement that would keep the takeover effort alive for at least another month.

Under the new terms, Mr. Dell and Silver Lake are paying $13.75 a share plus a special dividend of 13 cents a share. “Mr. Dell is effectively financing the special dividend by taking a bigger discount on the nearly 16 percent stake that he is contributing toward the buyout, people briefed on the matter said,” Mr. de la Merced writes. “In return, the special committee agreed to change the rules by no longer counting Dell shares not cast in a special election as ‘no’ votes.” A shareholder vote is now set for Sept. 12, and the record date, or the day by which investors must have held Dell shares to be eligible to vote, was moved to Aug. 13 from June 3.

CLAWBACKS ARE MUCH DISCUSSED, RARELY ENFORCED  | “In the almost 10 years since clawback policies became a hot topic among investors, there is little indication that they have resulted in significant recoveries,” Gretchen Morgenson writes in The New York Times. “High-profile cases occasionally emerge â€" Ina Drew, the former head of JPMorgan Chase’s chief investment office, returned some pay after the disastrous losses she oversaw in the London whale matter. But examples like these are few and far between. So some investors are taking up the issue again.”

ON THE AGENDA  | 
Tyson Foods reports earnings before the market opens. Vornado Realty Trust reports earnings in the evening. Glenn Hubbard, the dean of Columbia Business School, is on CNBC at 8 a.m.

BANK OF NEW YORK MELLON WINS GENDER BIAS CASE  |  “A federal jury in New York decided on Friday that a woman who was one of 11 people in her division at Bank of New York Mellon laid off in 2010 was not a victim of sex discrimination. The case was unusual in that it even went to trial,” Susan Antilla reports in DealBook.

The plaintiff, Rochelle Cohen, lost her $124,000-a-year job on Sept. 20, 2010, in a round of layoffs after the financial crisis. She testified at the trial that two years before she was fired, she asked her managers why she was not getting paid as much as the men, and she contended that her managers became critical of her after she brought up gender issues. The jury deliberated for just one day before delivering its verdict. A spokesman for the bank said the verdict “clearly confirms that Ms. Cohen’s pay and performance were judged solely on the merits, not on her gender.” Ms. Cohen said she was disappointed, “but I’m glad I fought the fight and hope it will make a difference for other women.”

Mergers & Acquisitions »

Boston Globe Is Sold to Owner of the Red Sox  |  It was a coup for local newspaper owners when John W. Henry, the owner of the Boston Red Sox, agreed to purchase The Boston Globe, along with The Worcester Telegram & Gazette and other properties, from The New York Times Company for $70 million in cash, The New York Times writes. NEW YORK TIMES

Newsweek Is Sold to International Business Times  |  Barry Diller’s company sold Newsweek, the troubled magazine brand, for an undisclosed amount. NEW YORK TIMES

Weinstein Co. Said to Be in Preliminary Talks With Miramax  |  The Wall Street Journal reports: “Weinstein Co. has held discussions with Miramax over a potential deal that would reunite two of the most powerful executives in the independent film world with the studio that made them famous.” WALL STREET JOURNAL

Former Chief of First Direct Said to Lead Bid for R.B.S. Branches  |  Alan Hughes, a former chief executive of the online bank First Direct, is leading a bid of about £1 billion ($1.54 billion) for 315 branches being sold by the Royal Bank of Scotland, according to The Financial Times, which reports that the bidding group includes the Blackstone Group and the private equity firm Anacap. FINANCIAL TIMES

INVESTMENT BANKING »

HSBC’s First-Half Profit Rose 10%  |  HSBC, Britain’s largest bank, said earnings rose 10 percent in the first half of the year, to $14.07 billion, thanks in part to lower charges for bad loans, especially in the United States. DealBook »

Berkshire Hathaway Earnings Rose 46% in 2nd Quarter  |  The conglomerate run by Warren E. Buffett reported big paper gains in the value of its investments and derivative contracts, The Associated Press reports. ASSOCIATED PRESS

Liquidator to Sell $29 Billion in Anglo Irish Loans  |  The loan portfolio consists mostly of commercial real estate loans in Ireland and Britain but also includes residential mortgage loans in those countries as well as Irish corporate loans. DealBook »

At R.B.S., the Bond Salesman Who Wasn’t  |  A situation in which a maintenance worker at the Royal Bank of Scotland apparently posed as a bond salesman shows how banks remain “vulnerable to compliance failings in unexpected places,” Bloomberg News reports. BLOOMBERG NEWS

The Sweetness of Time Off  |  A growing body of evidence suggests that vacation time fuels greater productivity and more sustainable performance, Tony Schwartz writes in the Life@Work column. The key is to choose something truly renewing. DealBook »

Bid to Honor Austen on British Bank Notes Meets Resistance  |  “There has been plenty of pride, but also a good dose of prejudice, as a small band of feminists in period costumes has initiated a national debate about power, rape and the limits of free speech in the age of social media,” The New York Times reports. NEW YORK TIMES

Thomson Reuters to Expand Instant Messaging Service  |  The move is the latest effort by Thomson Reuters to challenge the dominance of Bloomberg L.P., The Wall Street Journal writes. WALL STREET JOURNAL

PRIVATE EQUITY »

A Prominent Financier Gets Behind Bitcoin  |  The Phoenix Fund, a Zurich-based private equity fund led by the billionaire trader Joe Lewis, plans to invest $200 million in Avalon, which makes computer servers aimed at creating bitcoins, The Wall Street Journal reports, citing unidentified people familiar with the situation. WALL STREET JOURNAL

HEDGE FUNDS »

Clooney Rebuts Loeb’s Critique of Sony  |  The actor and producer George Clooney took time during an interview with Deadline Hollywood â€" ostensibly to discuss his coming movie, “The Monuments Men” â€" to inveigh against the hedge fund manager Daniel S. Loeb and his campaign against Sony. DealBook »

TCI Urges EADS to Sell Stake in Dassault Aviation  |  The Financial Times reports that “TCI, the activist hedge fund, has written to the chief executive of EADS to demand it sell one of its most sensitive assets” in a direct challenge to the military contractor’s management and the French government. FINANCIAL TIMES

I.P.O./OFFERINGS »

I.P.O. Market Is Heating Up Again  |  “Conditions this year are more balanced and healthy” than last year, Jack Willoughby writes in Barron’s. BARRON’S

VENTURE CAPITAL »

Inside a Boarding School for Aspiring Tech Moguls  |  At the Draper University of Heroes, students in their early to mid-20s looking to break into Silicon Valley apprentice at the feet of the venture capitalist Tim Draper, “trying to pick up the tech world’s own brand of magical thinking,” Kevin Roose writes in New York magazine. NEW YORK

LEGAL/REGULATORY »

Goldman Named in Lawsuit Over Aluminum Warehousing  |  Reuters reports: “The London Metal Exchange and Goldman Sachs have been named as co-defendants in a class-action lawsuit in the United States charging anticompetitive behavior in aluminum warehousing, Hong Kong Exchanges and Clearing Limited, which owns the London market, said on Sunday.” REUTERS

Regulator Says Fed Should Change Policy on Commodities Trading  |  Bart Chilton, a Democratic member of the Commodity Futures Trading Commission, said the Federal Reserve should reverse a ruling that allows banks to trade physical commodities, Bloomberg News reports. BLOOMBERG NEWS

Obama Administration Vetoes Ban on Apple Products  |  The Bits blog writes: “The Obama administration has vetoed a federal commission’s ban that would have forced Apple to stop selling some iPhones and iPads in the United States this week, a rare intervention by the White House and a victory for Apple in its heated patent war with Samsung Electronics.” NEW YORK TIMES BITS

The Penalties, and Possible Appeal, for Fabrice Tourre  |  Now that Fabrice P. Tourre, a former Goldman Sachs trader, has been found liable for securities fraud, the case shifts to determining what remedies the court should impose, Peter J. Henning writes in the White Collar Watch column. DealBook »

Rattner Backs Summers for the Fed  |  Steven L. Rattner writes in the Opinionator blog of The New York Times that Lawrence H. Summers should be the next chairman of the Federal Reserve. NEW YORK TIMES

HSBC’s First Half Profit Rises 10%

LONDON - HSBC, Britain’s largest bank, said on Monday that its earnings rose 10 percent in the first half of this year, thanks in part to lower charges for bad loans, especially in the United States.

Profit rose to $14.07 billion in the first six months of this year from $12.74 billion in the same period a year earlier, slightly missing analysts’ forecasts. HSBC’s shares fell 3.4 percent in early trading on Monday in London. Loan impairments fell 35 percent to $3.1 billion during the first half of 2013.

Douglas J. Flint, the bank’s chairman, called the results “solid,” adding that they were a result of “the continuing reshaping of the group and from enforcing appropriate cost discipline.”

Like many of its rivals, HSBC has been closing or selling some operations to reduce costs and improve profitability. Under its chief executive, Stuart T. Gulliver, HSBC has exited 54 businesses worldwide and scaled back consumer lending in the United States, where its 2003 acquisition of the subprime lender Household International has weighed on group earnings.

HSBC said it exceeded its cost-cutting target for this year after saving $800 million in the first half. As part of Mr. Gulliver’s cost-cutting plan, which was announced in 2011, HSBC is reducing about 30,000 positions. The bank also sold its credit card unit in the United States to Capital One Financial and its stake in China’s Ping An Insurance. HSBC would now slow down the pace of its disposals, Mr. Gulliver said.

Provisions for bad loans and other risks in North America fell to $696 million in the first half of this year from $2.2 billion in the same period last year.

Richard Hunter, the head of equities at Hargreaves Lansdown Stockbrokers in London, said the earnings were “safe and dependable.”

Despite the flawed Household acquisition, HSBC has fared better than some of its European competitors during the financial crisis, which started in 2008, because a large part of its earnings come from faster-growing markets, such as Asia.

HSBC acknowledged Monday that growth in China, Brazil and other developing markets has been slowing recently, but said it was confident that those regions would continue to outpace Europe and the United States.

“Despite slower growth in the short term, the long-term economic trends remain intact,” Mr. Gulliver said. “The global economy will continue to rebalance towards the faster-growing markets and trade and capital flows will continue to expand.”

The bank recently became embroiled in a set of scandals that included the sale of an insurance product to clients who did not qualify for it and a record settlement for charges of money laundering.

HSBC agreed last year to a $1.92 billion settlement with the U.S. authorities over accusations that it transferred billions of dollars for Iran and allowed Mexican drug cartels to move money illegally through its American subsidiaries.