Fined Billions, Bank Approves Raise for Chief

A year after an embarrassing trading blowup led to millions of dollars being docked from Jamie Dimon’s paycheck, the chairman and chief executive of JPMorgan Chase is getting a raise.

JPMorgan’s board voted this week to increase Mr. Dimon’s annual compensation for 2013, hashing out the pay package after a series of meetings that turned heated at times, according to several executives briefed on the matter. The raise â€" the details were not made public on Thursday â€" follows a move by the board last year to slash Mr. Dimon’s compensation by half, to $11.5 million.

When it made that deep pay cut, the board was giving a stern rebuke over the fallout from the “London Whale” multibillion-dollar trading blunder. This week, directors, gathered in a conference room at the bank’s Park Avenue headquarters overlooking a snow-covered Central Park, discussed what message their next decision on the bank chieftain’s compensation would send.

The debate pitted a vocal minority of directors who wanted to keep his compensation largely flat, citing the approximately $20 billion in penalties JPMorgan has paid in the last year to federal authorities, against directors who argued that Mr. Dimon should be rewarded for his stewardship of the bank during such a difficult period. During the meetings, some board members left the conference room to pace up and down the 50th-floor corridor.

Details on the chief executive’s compensation will be disclosed in the coming days, possibly as soon as Friday.

A spokesman for the bank declined to comment.

Mr. Dimon’s defenders point to his active role in negotiating a string of government settlements that helped JPMorgan move beyond some of its biggest legal problems. He has also solidified his support among board members, according to the people briefed on the matter, by acting as a chief negotiator as JPMorgan worked out a string of banner government settlements this year.

Also under his leadership, the bank has generated strong profits and its stock price is up more than 22 percent over the last 12 months. Some board members fault what they consider to be overzealous federal prosecutors for the hefty fines, rather than Mr. Dimon or the bank, arguing that JPMorgan is being penalized for the sins of firms like Bear Stearns that it scooped up during the financial crisis.

But many of those very problems arose under Mr. Dimon’s watch, including $1 billion in fines from regulators over the trading blowup. Leaving his compensation unchanged could have sent a symbolic message of contrition to authorities.

Instead, the board’s decision to raise his pay may energize critics who have questioned whether the directors can provide an effective check on the charismatic Mr. Dimon, who is both chairman and chief executive. Some shareholders have argued for those jobs to be split to limit his power, but a proposal for such a division was handily defeated at the bank’s annual meeting last spring.

It is unlikely that Mr. Dimon will receive anything near the $23.1 million he got for 2011, when he was the highest-paid chief executive at a large bank. So far, none of the biggest Wall Street firms have released the 2013 compensation for their senior executives. Last year, Lloyd C. Blankfein, the chairman and chief executive of Goldman Sachs, took home $21 million for 2012, about double what Mr. Dimon got once the board slashed his pay. At Wells Fargo, John Stumpf, the bank’s chief xecutive, received $19.3 million for his work atop the country’s largest mortgage lender.

Early signs, like stock payouts, suggest that bank chief executives are headed for a pay increase this year. Morgan Stanley, for example, gave James P. Gorman, its chief executive, a stock bonus valued at approximately $5 million as part of his total compensation for 2013. That is about double the stock bonus he received a year earlier.

JPMorgan’s directors may have decided that Mr. Dimon, as his peers may, should get a raise, but to ordinary Americans â€" and possibly to regulators â€" the decision to increase his compensation may seem curious given the banner penalties that federal authorities have extracted from the bank. It is not unheard-of for chief executives to lose their jobs when their companies have been battered by regulators.

But a crucial difference is that JPMorgan’s legal travails have not threatened the bank financially. While steep legal fees did weigh on the bank’s bottom line, JPMorgan still reported annual 2013 profits of $17.9 billion. And while other bank chief executives stumbled during the financial crisis, Mr. Dimon never did, emerging from the wreckage even more powerful.

Mr. Dimon’s star has risen more recently as he took on a critical role in negotiating both the bank’s $13 billion settlement with government authorities over its sale of mortgage-backed securities in the years before the financial crisis and the $2 billion settlement over accusations that the bank turned a blind eye to signs of fraud surrounding Bernard L. Madoff.

Just hours before the Justice Department was planning to announce civil charges against JPMorgan over its sales of shaky mortgage investments in September, Mr. Dimon personally reached out to Attorney General Eric H. Holder Jr. â€" a move that averted a lawsuit and ultimately resulted in the brokered deal. Just a few months later, Mr. Dimon acted as an emissary again, this time, meeting with Preet Bharara, the United States attorney in Manhattan leading the investigation into the Madoff Ponzi scheme.

Still, JPMorgan’s board struggled to strike the right balance in determining Mr. Dimon’s compensation, according to the people briefed on the matter. Too large a pay increase might send the wrong message to shareholders and regulators. Yet cutting Mr. Dimon’s pay would, some board members feared, alienate the chief executive.

Ultimately, those board members arguing to hold the line pay lost out, conceding that while the perception of the increase might be off-putting, the impact of cutting or keeping a lid on his pay could have more profound implications within the bank.

Mr. Dimon is also benefiting, the people say, from a view among some board members that the government’s assault on JPMorgan is driven less by the bank’s actual transgressions and more by a desire, stoked by anti-bank sentiment, to appear tough against Wall Street, the people said.

Echoing that sentiment, Mr. Dimon said during a television interview on Thursday in Davos, Switzerland, that “I think a lot of it was unfair.”

T. Rowe Price Wants Time Warner Cable and Charter to Talk

T. Rowe Price, one of the biggest investors in the country, wants Time Warner Cable and Charter Communications to sit down at the bargaining table.

According to people briefed on the matter, T. Rowe sent Time Warner Cable a letter urging it to engage in discussions with Charter Communications, which has made a proposal to acquire the cable operator.

T. Rowe is one of only a couple shareholders that have stakes in both Time Warner Cable and Charter. Between its various portfolios, T. Rowe owns about 5.2 percent of Charter and about 2.3 percent of Time Warner Cable. Vanguard, another major investor, also has positions in both companies.

Earlier this month, Charter made a proposal to acquire Time Warner Cable for $132.50 a share, valuing the country’s second largest cable operator at about $37.8 billion. Time Warner Cable called that “grossly inadequate” and said it would consider a bid of $160 per share.

Though the letter from T.-Rowe did not name a specific price at which it would like to see a deal get done, the money manager’s holdings suggest it may have more of an incentive to see Charter get a good deal than to see it over pay.

T. Rowe price has various portfolios overseen by different managers, who can sometimes disagree on what the same company should do. But people briefed on the letter said it was signed by the T. Rowe analyst that is in regular dialogue with the company, as well as three portfolio managers, suggesting that in this case at least, T. Rowe is speaking with one voice.

This is not the first time T. Rowe has gotten involved in a deal. Last year it opposed the buyout of Dell, and has previously protested the buyout of Cablevision. But in this case, it is urging two companies it owns to proceed with discussions, rather than trying to block a deal.

Yet if all T. Rowe is doing is asking the two companies to talk, it may have already gotten its wish. Time Warner Cable and Charter executives have met repeatedly in recent months, but have so far failed to reach an agreement over price.

Time Warner Cable is set to announce earnings next Thursday, and plans on holding an extended conference call during which it will address Charter’s overtures. It remains to be seen if Charter will make another move before that call.

 

Brevan Howard, Europe’s Largest Hedge Fund, Apologizes for Poor Results

For at least one hedge fund, sorry does not seem to be the hardest word.

Alan Howard, co-founder of Europe’s largest hedge fund, Brevan Howard Capital Management, apologized to investors in his year-end letter, calling its 2.6 percent return for 2013 “somewhat disappointing.”

“We are all fully aware that 2013 was a disappointing year in terms of returns and we are determined to deliver a more satisfactory outcome for 2014,” he wrote in his annual letter. Its performance stands in stark contrast to the returns on the Standard & Poor’s 500-stock index, which was up almost 30 percent last year.

Brevan Howard’s focus is not stocks but currencies and interest rates (though it trades in many asset classes). HFR indexes for global macro were down 0.22 percent and 0.75 percent.

The year was particularly painful for the Brevan Master Fund, the company’s flagship fund, which had notched a 13 percent performance through the end of May, according to The Wall Street Journal. But interest rate trading, one of the firm’s main focuses, proved a tough slog and helped bring the year’s returns down significantly, the letter said.

Mr. Howard said the fund traded on three broad themes: Japan’s recovery (long Japanese equity indexes and short the yen), a bet on the United States recovery (long the dollar compared with a basket of other currencies) and a bet that Europe would have to cut rates further to deal with disinflation. He said the first two strategies made money but the third did not.

The Master Fund started trading in 2003 and has never incurred a loss. In 2008, it returned 20.32 percent against a backdrop of carnage in the markets during the financial crisis, when the S.&P. 500 sank 38.5 percent. The firm is known for solid risk management and not swinging from the chandeliers.

Though 2013 ended badly, it started on a high note. “We are more optimistic about the opportunity set for macro trading now than we have been for some time,” he wrote at the end of last year.

After a Failed Tender Offer, McKesson Clinches Deal

After a failed bid to gain control of the German pharmaceutical wholesaler Celesio, the health care company McKesson Corporation announced on Thursday that it had gained enough shareholder support to push a deal through.

McKesson said it would buy shares from the hedge fund Elliott Management and Franz Haniel & Cie., the majority shareholder, for 23.50 euros a share.

Both companies had previously agreed to the tender offer, but McKesson said earlier this month that it still had not reached the 75 percent diluted shares it needed for the $8.3 billion deal.

But McKesson was able to secure enough convertible bonds from an affiliate of Elliott Management to push it over the threshold, McKesson said in a statement.

A representative for McKesson was not immediately available for comment.

McKesson is one of the largest American drug wholesalers, and Celesio is one of the largest in Europe. The new acquisition will create one of the biggest pharmaceutical distributors in the world, with combined annual revenue of more than $150 billion and operations in 20 countries.

Both companies sell prescription and over-the-counter drugs to pharmacies and hospitals.

McKesson said it expected the deal to close within 10 business days.

“We are excited to move forward with our acquisition of Celesio,” said John H. Hammergren, McKesson’s chairman and chief executive.

The company said it expected to pay for the deal with a combination of cash and bridge financing.

McKesson expects that annual synergies could reach $275 million to $325 million, the company plans to begin a voluntary tender offer to the remaining minority shareholders.

McKesson had raised its offer from 23 euros after much agitating from Elliott, which had insisted that the company could afford to pay a “fairer” price to shareholders and bondholders and still end up with a good deal.

 

What’s Behind Time Warner’s Response to Charter’s Offer

Time Warner’s response to Charter Communications’ $37.8 billion offer is all about subtlety.

Charter has proposed to acquire Time Warner for a price of $132.50 a share, consisting of $83 in cash and $49.50 in Charter stock. Charter went public with its offer after negotiations with Time Warner stalled.

Time Warner has not rejected Charter’s overtures, but insisted that Charter’s offer was way too low. In Time Warner’s statement announcing its board’s rejection of the Charter offer, Time Warner Cable’s chairman and chief executive, Robert D. Marcus, stated that “our Board is open to a transaction with Charter at a price of $160 per TWC share, consisting of $100 in cash and $60 per share of Charter common stock.”

That’s a pretty wide gulf between the parties, about $10 billion.

So why did Time Warner even announce a price it was willing to sell at?

This is where the subtlety comes in. Time Warner is posturing, both to set up a defense and to nudge Charter away from making a full-on hostile bid.

Or to put it another way, the Time Warner board is executing an “Airgas defense.” In 2010, Air Products made a hostile bid for Airgas. The Airgas board took the position that the Air Products bid undervalued the company, despite Airgas’ shareholders’ protests to the contrary. Air Products sued Airgas in Delaware Chancery Court seeking to force the Airgas board to accept Air Products’ takeover offer of $72 per share. Air Products claimed that since its offer fairly valued Airgas, the Airgas board was required to eliminate its poison pill and let the shareholders decide whether to accept Air Products’ bid.

The Delaware court held that the “just say no” defense by Airgas was acceptable so long as the Airgas board had a reasonable belief that the bid undervalued the company. The court thus allowed Airgas to keep its poison pill in place. It would be the board, not shareholders, that could decide whether to reject the Air Product’s offer. In the wake of this decision, Air Products dropped its bid.

The decision gives an easy avenue for boards to fight a hostile bid. Hence the term “Airgas defense.” It goes like this. A target board adopts a poison pill and makes the determination that the hostile bidder’s offer undervalues the company. Shareholders of the target company are thus stuck, unless the shareholders remove the directors. If a company’s board members serve staggered terms, as they do at Airgas, this means that a bidder has to wait two years and run two proxy contests to unseat a majority of the target’s board. That is a high barrier because few bidders are willing to spend two years on an uncertain venture like a hostile bid.

Time Warner is only partly relying on the Airgas defense, though. Certainly, Time Warner is rejecting the Charter bid in good faith and can therefore withstand a legal challenge if Charter seeks to go to court to force Time Warner to redeem its poison pill. In fact, Time Warner does not even have a poison pill in place at this time, but can adopt one in about a day or so. As in Airgas, this means that Charter will have to either persuade the Time Warner directors to accept Charter’s offer or unseat Time Warner’s directors and replace them with Charter’s nominees. In other words, the Time Warner board is saying that unless you pay our price of $160 per share, you will have to unseat us.

Here is where Time Warner’s defense differs from the one by Airgas. Airgas had a staggered board and so Air Products’ loss in court meant that it was forced to wait a second year to elect a majority of Airgas directors. In this case, all of Time Warner’s board is currently scheduled to be up for election in May 2014. The Airgas defense is really about buying time before a proxy contest can occur to unseat a majority of the target’s board. Here, though, Charter can act in the next six months. It doesn’t have to wait two years.

So why did Time Warner set a price when it didn’t need to use the Airgas defense? I suspect there are probably two reasons. The first is that setting the price allows Time Warner to claim to its shareholders that this fight is all about value and Charter is just trying to underpay. If the Time Warner board had simply rejected Charter’s bid without setting a price, Time Warner shareholders could complain that the board was simply being recalcitrant to preserve members’ jobs. Time Warner shareholders (and hedge funds that might later enter the fray) could then set the price. By setting a $160 per share price, Time Warner is trying to pre-empt the market and claims by shareholders that it should sell at a lower price.

Time Warner is also subtly trying to discourage Charter from running a proxy contest. Again, the reasons are rooted in the Airgas battle.

If Charter was able to replace a majority of the Time Warner directors, these directors would have independent fiduciary duties to assess the Charter bid. This occurred in Airgas, when Air Products succeeded in electing three director nominees to the Airgas board. But when these directors took their positions, the Air Products-selected directors promptly sided with the rest of the Airgas board in rejecting Air Products bid.

The Time Warner board is thus setting up a repeat scenario. By doing the financial and legal work to show that Charter’s bid undervalues the company, the Time Warner board is going to make it harder for Charter-nominated directors to accept a lower price. Time Warner is no doubt hoping that creating this uncertainty will push Charter to forgo the expense of a proxy contest.

Charter’s next decision is thus to decide how hard it wants to push by trying to unseat Time Warner board members. If Charter can line up 25 percent of Time Warner’s shareholders, Charter can call a special meeting of the shareholders to remove all of Time Warner’s directors. But it is easier for Charter to just put up its own nominees at Time Warner’s next annual director election in May. Time Warner’s last annual meeting was on May 17, 2013. The deadline for Charter to nominate directors to replace the Time Warner directors is at “least 90 days and no more than 120 days” before the first anniversary of that meeting. So the time for Charter to nominate directors is between now and Feb. 15. Time Warner can move the scheduled May meeting a bit to fiddle with those dates, but this is the range.

So we’ll know in short order how aggressive Charter wants to be.

Given Time Warner’s defense, any director’s contest started by Charter will really be about having shareholders put pressure on Time Warner itself to overcome this $160 per share price. In this scenario, Charter may simply nominate a short slate of two or three directors, hoping that it is enough to prod the board.

But given the board’s stance, don’t be surprised if Charter decides to nominate a full slate of independent directors and tries to push a claim that the old analysis is flawed, allowing the new directors to accept a lower price if they so choose.

This all means that Charter knows that its best chance at succeeding will probably be in persuading Time Warner’s shareholders to support its bid and pressure Time Warner into a deal, not unseating Time Warner’s directors. And that type of subtlety may take awhile.

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Martoma Defense Attacks Memory of Key Witness

Dr. Sidney Gilman, the government’s key witness in the insider trading trial of Mathew Martoma, a former portfolio manager at SAC Capital Advisors, testified on Thursday that even though he was a consultant to a constellation of prominent hedge funds and investment firms, the only meetings he recalled with clarity were those with Mr. Martoma.

On his second day of cross-examination, Dr. Gilman testified that he could not recall meetings with analysts and traders working for hedge funds like Citadel, Caxton Associates, Magnetar Capital and Maverick Capital, as well as money managers at J.P. Morgan and Putnam Investments.

“I don’t remember these names, just a few stand out in my memory,” the 81-year-old doctor said in response to questions about other consultations he had done.

In a line of questioning that became tense at times, Mr. Martoma’s lawyer, Richard Strassberg, asked Dr. Gilman about his other consulting work in an attempt to cast doubt on the credibility of his detailed testimony about his dealings with Mr. Martoma. During two and a half days of testimony for the prosecution, Dr. Gilman told the jury that he repeatedly gave Mr. Martoma confidential information over two years, including the results of a clinical drug trial for an experimental Alzheimer’s drug in July 2008. Mr. Martoma is charged with using that inside information to help SAC avoid losses and generate profits totaling $276 million in shares of Elan and Wyeth, which were jointly developing the drug.

Dr. Gilman, a former professor at the University of Michigan, was a member of the safety monitoring committee for Elan during the second phase of its clinical trial. In light of his expertise, Dr. Gilman was also a consultant in high demand with hedge fund clients of the Gerson Lehrman Group, an expert network firm.
Mr. Martoma was introduced to Dr. Gilman in January 2006 by Gerson Lehrman, which arranged consultations for the doctor with more than 300 clients, including SAC. Gerson Lehrman also set up meetings for Dr. Gilman with the hedge funds that Mr. Strassberg questioned him about.

“I had many consultations,” Dr. Gilman said. He testified that he earned more money as a consultant for Gerson Lehrman than he did as a professor.
He acknowledged under questioning from Mr. Strassberg that some of his memory of early meetings with Mr. Martoma was refreshed when he was reviewing his calendar appointments in meetings with prosecutors.

“I never said I recalled that first consultation. I only said it happened because I saw the documents,” he said of his initial phone call with Mr. Martoma.
Dr. Gilman also displayed a spotty memory of an October 2006 meeting arranged by Gerson Lehrman for him to meet a number of hedge fund clients including SAC. It was during this visit that Dr. Gilman testified under questioning by the prosecution that he first met Mr. Martoma in person.

It was not until Mr. Strassberg referred to Dr. Gilman’s appointment with SAC and described how another SAC portfolio manager canceled the meeting with Mr. Martoma that Dr. Gilman said he remembered the last-minute cancellation.

“That actually rings a bell,” he said.

To illustrate how little Dr. Gilman remembered of his other consultations, for which he was paid on average $1,000 an hour by Gerson Lehrman, Mr. Strassberg went into a long questioning of a meeting the doctor had with an analyst from a small hedge fund in June 2008.

For roughly half an hour, Mr. Strassberg repeatedly asked Dr. Gilman about specific details about their conversation concerning the clinical drug trial.
The doctor responded to each question saying he could not recall but did not deny something may have been said.

“I may have, but I don’t recall doing so, sir,” Dr. Gilman responded at one point.

At World Economic Forum, Even the Serious-Minded Like to Party

DAVOS, Switzerland â€" For a certain crowd, the big topic in Davos this year has nothing to do with Syrian peace talks, cybersecurity issues or other geopolitical gravitas.

The burning question instead was how to get an invitation to Marissa Mayer’s Yahoo party. Or whether it was true that Mary J. Blige would sing at the Google bash. Or, above all, what the tech mogul Sean Parker might be plotting to outdo his blowout last year.

Welcome to the bling and bacchanalian revelry that is what the Davos crowd calls ‘‘nightcaps.’’ Though many of the events have the de facto blessing of the World Economic Forum held here every year, Klaus Schwab, the group’s founder and its chairman, pleads with participants to avoid commercialism.

Official organizers ask planners of the nightcaps to refrain from scheduling events that draw people away from the serious discussions of issues like climate change and income inequality, and to avoid inviting people who are not among the 2,500 officially registered participants.

This year’s World Economic Forum’s motto may be ‘‘committed to improving the state of the world.’’ But the sincerity of that slogan â€" always suspect to some â€" may be increasingly challenged by what some attendees say is a growing number of side events and soirees that have little or nothing to do with the weighty global problems that the gathering aims to address.

Rich Stromback, a technology investor, former pro hockey player and unofficial expert on the Davos party scene, said that until a few years ago most of the people who came to the forum were either participants or support personnel. But now there are more people who do not fall into either category, coming instead to make connections and do deals.

And there’s always the attendees who come to the forum simply because it is the place to be in late January. ‘‘I noticed that last year,’’ he said. ‘‘That crowd had really increased.’’

And the true measure for just how to throw a showstopper was set last year at the “taxidermy” party, hosted by Mr. Parker, the co-founder of the music-sharing site Napster and a force in the growth of Facebook.

A run-down bar on the ski resort’s main drag was completely transformed with stuffed animal trophies, including heads of buffalo shooting laser beams from their eyes. Wine and cocktails flowed. John Legend sang and played the piano. And the guests included Ms. Mayer of Yahoo, Lloyd C. Blankfein of Goldman Sachs and a crown prince or two.

‘‘You’re getting more of these party parties like with Sean,’’ said Mr. Stromback, who was among the guests. ‘‘It’s definitely evolved.’’

Mr. Parker did not respond to requests for comment about plans for this year. People in a position to know, who could not be named out of concern of being uninvited, said Mr. Parker was indeed planning a follow-up this year.

One of the hot invitations this year is from Google, which planned to return to the party scene on Thursday night. Ms. Blige was indeed scheduled to perform, and food was to be prepared by a Michelin-starred London chef, Tom Aikens.

There was no early word on whether Google would, as in past year, offer guests whiffs of flavored oxygen, perhaps as an antidote to the crush of people.

On Wednesday night, the New York investment firm SkyBridge Capital, in partnership with a group of philanthropic oenophiles calling itself the Wine Forum, held its annual party in Davos. More than 100 people swanned about the Piano Bar in the Hotel Europe, refilling glasses of Château Cheval Blanc and Château d’Yquem.

Mr. Stromback, who has been coming to Davos for nine years, acknowledged that he has rarely spent any time inside the Davos Congress Center, where world leaders deliver speeches and experts debate issues like banking overhauls. But he does not criticize the proliferation of deal-making, which is linked to the social scene. The companies whose dues and fees finance the World Economic Forum, he said, ‘‘pay great sums of money to be there and it’s not to party â€" it’s to do business, and entertaining plays a big role in that.’’

Parties, which may be large gatherings in the luxury Steigenberger Grandhotel Belvédère or small get-togethers in a chalet, provide a setting for top executives to discuss transactions or other issues informally.

Typically, the principals then consummate agreements later in more formal settings. The founder of Facebook, Mark Zuckerberg, bonded with Sheryl Sandberg at the World Economic Forum in 2008 before hiring her as chief operating officer, according to several reports.

Asked about the proliferation of unofficial parties, the forum acknowledged in an email that ‘‘there are numerous events in Davos that are not under the auspices of the forum.’’

‘‘We have no objections to side-events in general, and most of them are broadly aligned with our trademark approach to promoting multi-stakeholder collaboration,’’ the organization said. ‘‘It is true though, that there are also events that do not necessarily live up to our standards.’’

There is little the forum can do to control people’s free time, in any case. The onslaught of visitors is a bonanza for hotels here, which rent venues for parties and rooms at handsome rates and even sell passes granting access to the premises for people who lack an official forum badge.

Some party sponsors, like Infosys, the big Indian outsourcing company that is a longtime backer of the forum, say they make a conscious effort to avoid excess. This year’s event, to be held Friday evening at the Belvédère, will offer Indian food. ‘‘It’s not a lavish party,’’ B.G. Srinivas, president of Infosys, said in an interview Thursday. ‘‘We have kept it in the spirit of Davos.’’

Still, others do not begrudge the soirees. Hubert Burda, a billionaire German publisher, has been sponsoring a party on the opening night of the forum for 25 years and is a longtime supporter of the official event. The Burda event this week, on Wednesday evening, drew guests including the ubiquitous Ms. Mayer of Yahoo; Victor L.L. Chu, chairman of First Eastern Investment Group and one of Hong Kong’s richest men; and top executives of blue-chip German companies like Deutsche Bank and Lufthansa.

Speaking above an oompah band that provided the musical entertainment, Mr. Burda said he thought it was good that young tech entrepreneurs were coming to the conference. He applauded their success in business and said he had no problem with their parties.

‘‘They are nice boys,’’ Mr. Burda said.

Michael J. de la Merced contributed reporting.

Carlyle Co-Founder’s Formula for Success: Study the Humanities

DAVOS, Switzerland - David M. Rubenstein, the co-founder of the Carlyle Group, believes American students have lost a valuable skill that can help them succeed in business and life: critical thinking.

Speaking on a panel at the World Economic Forum, Mr. Rubenstein, the co-chairman of the private equity firm, said American policy makers and educators have put too much of a focus on the fields of science, technology, engineering and mathematics at the expense of the study of literature, philosophy and other areas in the humanities.

Mr. Rubenstein’s comments offered a sharp contrast to a recurring theme in Davos this year: that more technical-based training could help solve a crisis in youth unemployment since the financial crisis.

Humanities teach problem-solving skills that enable students to stand out among their peers and to achieve success in the business world, Mr. Rubenstein said. Career-specific skills can be learned later, he said, noting that many of Wall Street’s top executives studied the humanities.

“You shouldn’t enter college worried about what you will do when you exit,” said Mr. Rubenstein, who majored in political science.

Students increasingly face pressure to enter fields that are perceived as higher paying â€" many times because of the skyrocketing costs of higher education, said Mr. Rubenstein, chairman of the John F. Kennedy Center for the Performing Arts in Washington.

But the reasoning skills that come with a well-rounded humanities education actually result in higher-paying jobs over time, Mr. Rubenstein said.

He’s even come up for an abbreviation to counter S.T.E.M., the often-cited acronym used by advocates of more career-focused disciplines.

“H=MC. Humanities equals more cash,” Mr. Rubenstein said.

Lessons From Blackstone for BlackRock

Is it time for BlackRock to revisit its Blackstone heritage?

BlackRock, the investment company run by Laurence D. Fink, manages $4.3 trillion. The Blackstone Group, the private equity firm headed by Stephen A. Schwarzman, whose assets under management represent only 6 percent of BlackRock’s, probably generated the same amount of profit last year. That has to make private equity tempting for BlackRock. It could one day buy a firm like, say, TPG.

BlackRock started life as a 50-50 joint venture after Blackstone recruited Mr. Fink 25 years ago and gave him a $5 million credit line, according to a biography of Mr. Schwarzman. Mr. Fink separated from the buyout firm in 1994 and has helped build BlackRock into the world’s biggest money manager. Blackstone, meanwhile, by the end of last September had accumulated nearly $250 billion to invest in private equity, hedge funds and real estate.

There’s a huge gap in the amount of assets the two firms manage, but their bottom lines look remarkably similar. BlackRock just posted net income of $2.9 billion for last year. If analysts are right, Blackstone will unveil nearly identical profit - using the industry’s widely accepted metric of economic net income â€" when it reports next week.

That is, in part, a result of a cyclically strong period for selling investments made by the firm’s funds. It also underscores how lucrative private equity can be compared with BlackRock’s more traditional and competition-prone fee model.

Mr. Fink has tried to get into buyouts before. In 2011, he brought in a high-profile team to invest directly in deals. BlackRock couldn’t generate enough interest, however, and bailed out a couple of years later. The firm now directs about $110 billion of client money to outside so-called alternative investment funds.

The sums must leave a nagging feeling for BlackRock, especially now that it is so big that it can’t hope to increase its existing business as quickly as in the past. What’s more, buyout firms and some hedge funds are starting to chase the same retail investors. Mr. Fink might be reluctant to try building another alternatives operation, but he could buy one.

The satisfying idea of a full-circle deal with Blackstone is financially feasible - BlackRock’s market value is $55 billion and Blackstone’s $38 billion, on a fully diluted basis - but unlikely. Other firms could be more available, though.

Brand-name private equity shops that haven’t tapped public equity markets, including TPG, Providence Equity and Hellman & Friedman, may soon need to let senior partners cash out.

The numbers could stack up, too. BlackRock’s steady earnings allow it to fetch a price-to-earnings valuation multiple of 17, while the lumpier profit profile of buyout shops mean the listed players trade on an average ratio closer to 11. In theory at least, that gives Mr. Fink some leeway to pay up for the assets.

There would be cultural and tax-related complications in any transaction, of course. At some point, though, the stars should align to give BlackRock a chance to return to its private equity funding roots.

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

Bristling Interrupts Amity in Panel on U.S.-China-Europe Ties

DAVOS, Switzerland â€" When asked if China, the United States and Europe can all play nicely together, attendees of the World Economic Forum would be expected to be largely optimistic, even if they disagreed on a few particulars.

But tensions briefly flared at a panel discussion on the topic here, as a Chinese billionaire took umbrage over invocations of the troubles over the South China Sea.

One of the panelists, the Chinese mogul Wang Jianlin, said he was offended by what he described as efforts to inject politics into an economic discussion. Joseph S. Nye Jr., a professor at the Harvard Kennedy School, had mentioned the dispute between China and Japan over the region as an example of countries needing to learn how to balance “hard” military power and “soft” economic and political power.

Professor Nye cited comments by Hu Jintao, the former president of China, about the Chinese government’s need to increase its soft power. And he added that the United States had similarly struck a poor balance between the two types of power when it invaded Iraq in 2003. Europe, he said, had appeared to strike the best balance.

But Mr. Wang still appeared unhappy with the broaching of the topic.

“I’m not happy with what I’ve been hearing from the professor,” the mogul said through a translator. “You shouldn’t deviate into politics.”

Professor Nye later apologized for causing offense, saying that he only wanted to offer advice on how China could enhance its soft power.

Still, many of the panelists â€" who also included Lloyd C. Blankfein, the chief executive of Goldman Sachs; Nick Clegg, Britain’s deputy prime minister; and Angel Gurría, the secretary general of the Organization for Economic Cooperation and Development â€" found common ground on most topics.

- Trade is generally good, and governments should come around to the idea that except for clear-cut examples of national security violations, cross-border deals should be approved. The troubles that bedeviled efforts by Shuanghui of China to buy the American meat processor Smithfield Foods emerged as a clear example of bad protectionism, but something that should eventually disappear.

“Over time, it will get easier,” Mr. Blankfein said.

- Don’t count the United States out. Professor Nye said that even when China catches up to American gross domestic product, it will still need 40 to 50 years to catch up to U.S. per capita income.

- Level playing fields are important. Mr. Gurría asked whether Chinese companies investing in the United States and Europe were receiving preferential tax treatment. And both Professor Nye and Mr. Blankfein noted that the existence of state-owned enterprises, like some of China’s biggest corporate players, could possess inherent advantages over their fully privatized counterparts.

Ultimately, Mr. Clegg delivered a quintessentially World Economics Forum-type conclusion: working together will help everyone.

“If major powers were able to align their strategic interest, that’d be a very, very good thing,” he said. “We do need to be open, but civilized about these things. Otherwise, we’re not going to achieve our goals.”

Senator Calls for Inquiry Into Herbalife

Herbalife, the nutritional supplements company that has long been in the crosshairs of a powerful hedge fund manager, is coming under increased scrutiny in Washington.

Senator Edward J. Markey, a Democrat from Massachusetts, sent letters on Thursday to the Securities and Exchange Commission and the Federal Trade Commission urging those agencies to look into the business practices of Herbalife. The senator also wrote to Herbalife’s chief executive, seeking more information about the company.

Herbalife’s stock fell about 13 percent in morning trading on Thursday to around $64 a share. The stock closed at $73.53 on Wednesday.

A multilevel marketing company that sells vitamins and drink mixes through a network of individual distributors, Herbalife came under attack in late 2012 from the hedge fund manager William A. Ackman, who contended that the operation was an abusive pyramid scheme. Mr. Ackman, the head of Pershing Square Capital Management, maintains a large bet against the company’s shares.

The company has forcefully denied Mr. Ackman’s assertions, spending millions of dollars last year on an effort to defend its reputation.

Herbalife’s stock price rose sharply in 2013, as other big investors took the opposite side of Mr. Ackman’s bet, creating hundreds of millions of dollars in paper losses for Mr. Ackman. As part of his campaign against Herbalife, Mr. Ackman has met with regulators to express his belief that the company should be shut down.

Mr. Ackman met with staff of Mr. Markey last fall, but he has not met with the senator himself, a spokeswoman for Mr. Markey said.

In the letters, which are dated Wednesday, Mr. Markey said he had heard complaints about Herbalife from constituents. One family in Norton, Mass., said it lost $130,000, including its entire 401(k), from investing in the company, and that “involvement in Herbalife caused significant stress within their family,” he wrote.

Another resident of Massachusetts said that she was pressured to buy more products to qualify for a higher level in the distribution network, and that “she was encouraged to stay in the program even after she said she wanted out,” Mr. Markey wrote.

“I have seen reports from Massachusetts residents that suggest Herbalife is a pyramid scheme,” wrote Mr. Markey, a member of the Senate committee on commerce, science and transportation.

Representatives of Herbalife, which is based in Los Angeles, did not immediately respond to requests for comment on Thursday.

In the letter to Herbalife’s chief executive, Michael O. Johnson, Mr. Markey included a number of questions about the company’s business, including requests for information that it does not publicly disclose.

“How much profit (net earnings after expenses) can the average distributor expect to make from retailing to non-distributors (i.e. people who are not directly involved in Herbalife themselves)?” Mr. Markey asked.

The letter continued, “What’s the correct number of sales outside the network as a percentage of total sales” for each of the past five years? He asked for information on the sales outside the network measured by product, quantity and dollars.

“There is nothing nutritional about possible pyramid schemes that promise financial benefit but result in economic ruin for vulnerable families,” Mr. Markey said in a statement on Thursday. “I have serious questions about the business practices of Herbalife and their impact on my constituents, and I look forward to receiving responses to my inquiries.”

NewsCred, a Content Marketing Start-Up, Raises $25 Million

Doug Pepper, a venture capitalist, spent two years researching one particular type of start-up, those that help companies find articles and other content to use in marketing.

He finally found his mark. NewsCred, which licenses articles from major publications and also draws upon a network of freelance writers, announced on Thursday that it had raised a $25 million round of financing, led by Mr. Pepper’s firm, InterWest Partners.

NewsCred had not been planning to raise money so soon, according to Shafqat Islam, its chief executive and co-founder. The start-up, which is based in New York, secured $15 million last March from investors including the venture capital firms Mayfield Fund and Greycroft Partners.

But Mr. Pepper wanted in. The company did not disclose the valuation at which it raised the new money, but confirmed that it was between $100 million and $200 million. Mr. Islam called it “pretty aggressive.”

“A year ago, when we did our Series B, we were educating the investors,” Mr. Islam said, referring to the previous round of financing. “We had to teach them about content marketing. In the span of a few months, it has completely flipped around.”

What changed, Mr. Islam said, was that big companies increased their use of social media and other online channels for marketing. Now, they needed content to share with their Twitter followers and visitors to their websites.

NewsCred sells software that helps companies find articles they feel would bolster their marketing efforts. The start-up has licensing deals with a number of big publications, including The New York Times, allowing companies to publish those articles on their own websites.

In addition, NewsCred has a network of freelancers, who get paid to write articles that support a company’s point of view. One rival, Contently, was recently the subject of a column by David Carr in The Times.

Mr. Pepper, who is joining the board of NewsCred, said he was attracted to the company’s software. NewsCred says its revenue grew fivefold last year, with clients including Procter & Gamble, Bank of America and Sprint.

Existing NewsCred investors, including Mayfield Fund, FirstMark Capital and IA Ventures, participated in the latest financing round.

“Producing high quality content,” Mr. Pepper said, is “core to any marketing process.” He added: “We became very compelled by the vision of creating a marketing platform to serve that need.”

Bixi Stumbles, but Bikes May Still Benefit Bank Sponsors

There is an adage that half of all money spent on advertising is wasted, we just don’t know which half.

The risk of a promotion not paying off may have come to mind on Monday when Bixi, the Canadian company behind sponsored bike-sharing programs in many cities, filed for bankruptcy. Citigroup, which sponsors New York’s program, and Barclays, the sponsor in London, have spent tens of millions of dollars to promote their brands through bike-sharing.

But while bike-sharing programs might not have been successful for Bixi and its financial backers, the bank sponsors care more about the popularity of the bike-sharing programs. And they are popular.

There have been more than five million rides on Citi Bikes in New York. In London, the sharing program has recorded more than 26 million rides. For the sponsors, those eyeballs may count more than any investment return.

Citi has plunked down $41 million to advertise on all of New York City’s 6,000 bikes and 330 bike-sharing stations. The money is probably a significant portion of the company’s location-based ad spending in New York, but less so globally.

The bank is not an investor in the bike-sharing program. So to figure out just how effective it is as an advertising tool, the bank is going straight to New Yorkers.

Citi surveyed people before and after the program began in May, asking whether they thought the bank was an innovative or socially responsible company.

So far, Citi has been pleased with the results. According to its internal data, the number of people saying they had a favorable impression of the bank climbed 17 percentage points after the bike-sharing program started, while the number saying the bank was for people like them rose 12 percentage points.

“From the sponsor perspective, Citi Bike has exceeded expectations,” said Andrew Brent, a Citigroup spokesman. “Our brand tracking measures show remarkably positive increases, and in just a few months Citi Bike has become a celebrated and highly visible part of New York City’s physical landscape.”

Barclays announced in December that it would not renew its sponsorship of its popular London bike-sharing program past 2015. The program has been extremely popular since it began in 2010, but the bikes became known as Boris bikes, after London’s mayor, Boris Johnson, and not Barclays Bikes. At the time, Barclays said that its decision not to renew had nothing to do with the association.

Barclays declined to comment.

On May 7, 2012, the day New York City’s bike-sharing program was announced, Mayor Michael R. Bloomberg had this to say while introducing Vikram S. Pandit, Citigroup’s chief executive at the time:

“The person who I have the pleasure of introducing next hopes that everyone does exactly the same thing I did four or five times: confuse ‘Citi Bike’ with ‘Citibank,’ ” the mayor was quoted in Bloomberg Businessweek as saying that day. “That is very good for Citibank’s business, and presumably the reason why they are the sponsor of this - and I certainly hope it works.”

This post has been revised to reflect the following correction:

Correction: January 23, 2014

An earlier version of this article misstated Citigroup's internal data on the bike-sharing program. Favorable impressions of the bank rose 17 percentage points after the program began, not 17 percent, and the number of people saying the bank was for people like them rose 12 percentage points, not 12 percent.

Many Regulations Stifle Innovations, Panelists Contend

DAVOS, Switzerland - Government efforts to protect the investing public have had the unanticipated consequence of making it prohibitive for start-ups to seek a public offering, said Bill Gross, chairman of the technology incubator Idealab.

Speaking at the World Economic Forum, Mr. Gross said that efforts in the United States to roll back regulations through the JOBS Act in order to encourage innovation were a step in the right direction.

But the regulatory demands and associated costs remain “way too expensive” for young, innovative companies to engage in initial public offerings.

“I think we have swung overly too far in trying to protect investors,” Mr. Gross said. “I think we need to swing back.”

Mr. Gross was speaking as part of a panel discussion on how regulation and public policy can be engineered to foster innovation.

Clayton M. Christensen, a professor at Harvard Business School, said that regulators needed to take a minimalist approach if they want to encourage growth and innovation.

Government intervention, many times, is driven by the “sins of past generations,” Mr. Christensen said.

“I have a real aversion to the idea we should be guided by the past,” he said.

Apprenticeships Could Help Reduce Youth Unemployment, Business Leaders Say

DAVOS, Switzerland - An old concept may be coming back into vogue as business leaders and governments struggle with ways to address high unemployment rates among young people after the financial crisis: the apprenticeship.

Speaking on a panel at the World Economic Forum, Guy Ryder, director general of the International Labour Organization, said apprenticeships, once common, disappeared in Britain and many other developed nations as economies shifted from manufacturing goods to selling goods.

“You wonder why my generation was not in manufacturing,” Mr. Ryder said. “We were told those were jobs of the past. A bit of a reset is coming up.”

The aftermath of the financial crisis, combined with a lack of technical training programs and a perception that manufacturing jobs are not ones to aspire to, has left a generation of young people without jobs or the highly technical skills needed to get them, panel members said Thursday.

Nearly 75 million young people were unemployed worldwide in 2012, according to the World Economic Forum.

Facing an aging population of skilled workers, business leaders said they were hoping to change that through technical training and programs, including apprenticeships and internships, that are intended to give young people the skills they need to succeed in today’s work force and avoid a “lost generation” of workers.

Klaus C. Kleinfeld, chairman and chief executive of the aluminum maker Alcoa, said the company was working with a program in Whitehall, Mich., to encourage girls to pursue careers related to science, technology, engineering or mathematics. That includes “modern” manufacturing, he said.

“They think it’s a dirty job, a repetitive job,” he said. “It is not dirty at all, not repetitive at all. There are a lot of opportunities for advancement.”

Muhtar A. Kent, chairman and chief executive of the Coca-Cola Company, said Coke had undertaken a program called 5by20 to assist female entrepreneurs, with the goal of empowering five million women by 2020.

“If we do not help create sustainable communities where we operate and where we distribute our products, we will not be able to continue to operate,” Mr. Kent said. “If we do not do something about youth employment, the social mosaic as we know it is going to crack.”

Wall Street Talks Gay Rights at Davos

DAVOS, Switzerland â€" When the World Economic Forum made “inclusiveness” one of its pillar themes, it was safe to assume the assembled corporate leaders would discuss economic issues.

But two of the busiest activist hedge fund managers on Wall Street spent 90 minutes on Thursday morning debating the state of gay, lesbian and transgender rights with an international array of activists. (You can watch video of the event.)

The financiers, Daniel S. Loeb of Third Point and Paul E. Singer of Elliott Management, were among the presenters and sponsors of the event. During their part of the debate, both men spoke of the seeming unlikelihood that prominent investors would take a stand on gay rights.

Mr. Singer recounted how his son told him he was gay at the age of 21, prompting him to examine the issue of gay rights. Despite being one of the biggest donors to the Republican party â€" as the host, the journalist Fareed Zakaria, jokingly put it, the financier is both politically conservative and “really rich” â€" he has become one of the most active gay marriage proponents in finance.

When asked if he used his influence on politicians to push a pro-gay-marriage agenda, however, Mr. Singer demurred. But he added that would-be political beneficiaries are aware of his work.

“I don’t try to proselytize,” he said. “But they know that winning is better than losing.”

Mr. Singer reserved his highest praise for the panel that preceded his at the breakfast: Masha Gessen, a Russian lesbian activist who plans to move her family to the United States to avoid persecution; Alice Nkom, a lawyer from Cameroon who works alone to avoid endangering potential colleagues; and Dane Lewis, the head of the Jamaican advocacy group J-FLAG.

For Mr. Loeb, whose wife’s best friends are a lesbian couple and who was enlisted into the fight by Mr. Singer, the playbook for gay-rights campaigns was little different from the battles he has waged at companies like Sotheby’s and Yahoo. There’s the financial lever, spending money to promote one’s agenda; the legal lever; and then there’s social pressure to advance one’s cause. “It’s not cool to be anti-gay,” he declared.

“As an activist, it resonated to see the levers that can be pushed,” Mr. Loeb said.

Tinging the discussion was a recognition of setbacks on the gay rights front in recent months, including an anti-gay laws passed in Russia, Nigeria and Uganda.

Making things more awkward: the presence of some of those governments at the Forum. The Russian government threw a party on Tuesday night to celebrate its hosting of the 2014 Winter Olympic Games, a soiree that featured both the country’s deputy prime minister, Dmitry Kozak, and the Russian-born model Natalia Vodianova. And Nigeria’s president, Goodluck Jonathan, was a featured panellist at Davos only the day before.

“For many, these stories seem like a triple blow to the cause of equality,” said Navi Pillay, the United Nations’ high commissioner for human rights. But she urged the assembled to consider the long-term progress that had been made.

Chad Griffin, the president of the Human Rights Campaign, called for a little activism at the Forum.

“Fifty feet across the street is President Jonathan,” he said. “He wants your business. Ensure that you ask the questions.”

Thursday’s discussion drew in an array of high-profile attendees of the Forum, including Sir Richard Branson; William Browder, the head of the hedge fund Hermitage Capital Management and a critic of the Kremlin; and Brad Smith, Microsoft’s top in-house lawyer.

Also present were two Democratic United States senators, Patrick Leahy of Vermont and Claire McCaskill of Missouri, the latter of whom kidded Mr. Singer about his unusual circumstances as gay rights activist and Republican money-man.

“Paul, it’s a devil and angel situation,” Ms. McCaskill said. “The angel hopes they see the light. The devil hopes they stay there so that we can beat them over and over again.”

She later added, “Let me be clear: I want the angel to win.”

Privacy Concerns a Challenge for Retailers

DAVOS, Switzerland - As technology rapidly increases the amount of personal data that is readily available, companies are trying to strike a balance between better tailoring their message to consumers and protecting an individual’s privacy, said Doug McMillon, the incoming chief executive of Wal-Mart Stores said Thursday.

Speaking on a panel at the World Economic Forum, Mr. McMillon said that the retailing giant routinely discusses internally how to better reach customers through technology, but is well aware of how quickly a consumer’s trust can evaporate if a retailer goes about it in the wrong way.

“We are people and we are families,” Mr. McMillon said. “We have to do it in a way that makes people comfortable and builds trust as we go,”

Mr. McMillon said Wal-Mart is “becoming more of a tech company,” using innovations to streamline its supply chain and to create a better experience for customers.

In Britain, customers of its Asda unit shop using their mobile phones and then pick up their items at a drive-through, Mr. McMillon said.

Paul E. Jacobs, the chairman and C.E.O. of the wireless company Qualcomm, said that his company is working on technology in which consumers will soon be able to receive information and offers for products tailored to their buying habits on their mobile phone or other devices when they approach a store display.

It will be built in a way so that people have to agree to receive such offers, in the name of privacy, he said.

“In the future you’ll get notifications all around you, for breaking news, for health,” Mr. Jacobs said. “It’s not on the phone. It will come to your wrist, your ear, your glasses.”

Maurice Lévy, the chairman and C.E.O. of the advertising company Publicis, said technology can be “extremely useful” in tailoring advertising to “the right person at the right time.” That said, a person’s interest in a product doesn’t always result in sales.

“We should never forget about that: they are human beings, they have the right to think different, they have the right to think with their emotions,” Mr. Lévy said. “At the end, there is a kind of alchemy delivering this message to the right person.”

Lenovo Agrees to Buy IBM Server Business for $2.3 Billion

Lenovo said Thursday it would pay $2.3 billion for IBM’s low-end server business, successfully concluding a deal that had fizzled a year earlier after the two parties failed to agree on a price.

Lenovo said it would settle the transaction with $2 billion in cash and the balance in its own Hong Kong-listed shares. About 7,500 IBM employees in locations including Raleigh, N.C., Shanghai and Shenzhen in China, and Taipei, Taiwan, were expected to be offered employment by Lenovo, the Chinese company said in a statement.

‘‘With the right strategy, great execution, continued innovation and a clear commitment to the x86 industry, we are confident that we can grow this business successfully for the long-term, just as we have done with our worldwide PC business,’’ Yang Yuanqing, Lenovo’s chairman and chief executive, said in a statement, referring to the server industry.

Early last year, Lenovo and IBM were in negotiations about the unit, which includes IBM’s x86 server business. At the time, Lenovo valued the unit at about $2.5 billion, while IBM wanted at least $4 billion.

IBM restarted talks with interested parties recently.

Dell and Fujitsu were among the other bidders.

But because Lenovo had already taken a close look at the business last year, it was able to quickly make an offer that IBM was comfortable with.

Lenovo bought IBM’s ThinkPad personal computer business in 2005 for $1.75 billion.

In the years since then, the Chinese company has overtaken HP and Dell to become the world’s biggest manufacturer of PCs.

The server unit being sold has estimated revenues of about $5 billion a year, but IBM does not break out sales for the division, which has lower margins than its software and services businesses.

With a sale of the division, IBM continues its transformation from primarily a hardware producer to a provider of services and software for businesses and governments.

‘‘This divestiture allows IBM to focus on system and software innovations that bring new kinds of value to strategic areas of our business, such as cognitive computing, Big Data and cloud,’’ Steve Mills, senior vice president at IBM Software and Systems, said in a statement.

For Lenovo, based in China, acquiring the server business is expected to help it weather the slow decline in its core personal computer business. Lenovo is also expanding into tablets and smartphones as it tries to tap into rising consumer demand for mobile devices.

In China, Lenovo is already the second-largest smartphone brand, after Samsung, and it has announced plans for a push into the United States smartphone market this year.

David Gelles reported from New York.