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Updated, 8:32 p.m. |
When the billionaire hedge fund manager Kenneth C. Griffin was a sophomore at Harvard, he was betting on convertible bonds in his dorm room â€" thanks to a satellite dish he had hooked up on the roof â€" while his fellow students were going to classes.
Twenty-eight years later, that formative experience will be paying dividends for his alma mater.
Mr. Griffin said on Wednesday that he was donating $150 million to Harvard, the biggest single gift to the college ever. The money will largely go the college’s financial aid program as Harvard seeks to blunt criticism that higher education has become the province of the 1 percent. (The estimated annual cost of attending Harvard College is nearly $60,000, according to the College Board.)
“This was an opportunity to make a statement about Harvard as one of the most important higher education institutions in the world,†Mr. Griffin said in an interview.
Other universities have drawn bigger individual donations: Michael R. Bloomberg pledged $350 million to Johns Hopkins University last year, the latest in a one-man $1.1 billion capital campaign. John W. Kluge, a former television mogul, donated $400 million to Columbia University’s financial aid program seven years ago.
But Harvard has long been the powerhouse of the university fund-raising circuit, with its latest campaign aiming to collect a staggering $6.5 billion.
Thursday’s donation is part of that initiative, which kicked off with $2.8 billion already in the bank.
“I was absolutely thrilled,†Drew Gilpin Faust, Harvard’s president, said in an interview. “Financial aid has been one of my highest priorities as president.â€
The gift is also the largest by Mr. Griffin, the founder and chief executive of the investment giant Citadel, which is based in Chicago. With an estimated net worth of $4.4 billion, Mr. Griffin has been previously known more as a benefactor of the arts and a supporter of conservative politicians like Mitt Romney.
But his latest donation will support one of Harvard’s most ambitious initiatives. About $140 million of the donation will go toward creating 200 Griffin scholars and providing matching funds for a new program that is to create 600 scholarships. (The remaining $10 million will endow a new professorship at the Harvard Business School, where Mr. Griffin said he spent hundreds of hours poring over finance books in the pre-Internet era.)
In return, Harvard will rename its college’s financial aid office and its director’s title after Mr. Griffin.
Though Mr. Griffin did not receive financial aid when he attended Harvard, he did get assistance from a benefactor, his grandmother, who helped pay for his education. That experience, he said, instilled in him a recognition that others needed help to pay for a college degree.
“I was lucky to have a relative in a position to do that,†he said. “ A lot of kids don’t.â€
Mr. Griffin went on to found Citadel in 1990, one year after graduating Harvard, setting him on a path that has made him a billionaire. He admitted that having a diploma from the college opened doors that would otherwise be closed for a 21-year-old college graduate.
Despite his not receiving financial aid, Mr. Griffin said that such assistance had long been a focus of his philanthropic efforts. For his 10-year class reunion, he established a scholarship named after his grandfather. He later joined the task force that helped give rise to the school’s first financial aid overhaul, what he described as “an incredibly bold and expensive undertaking.â€
Still, as his 25-year class reunion approached several years ago, Mr. Griffin began considering what else he could give. Conversations with another Wall Street titan â€" Lloyd C. Blankfein, the chief executive of Goldman Sachs and a fellow alumnus â€" helped him focus on financial aid as an issue. (Though he lives in an aerie on the south edge of Central Park, Mr. Blankfein made his way through Harvard with a combination of scholarships and work.)
“I take my hat off to Lloyd for engaging with me and thinking about this gift,†Mr. Griffin said.
Ms. Faust of Harvard said that she considered the donation a model that should entice more contributions from alumni. The financial aid program has made significant strides since Harvard first announced its expansion a decade ago: 60 percent of undergraduates receive aid and pay an average of $12,000 in tuition and room and board, while 20 percent of their families pay nothing because they earn less than $65,000 a year.
“We’ve been able to send a message very clearly that we want these students and want them to consider Harvard,†she said.
Given Harvard’s existing enormous war chest, with nearly $31 billion in its endowment, did Mr. Griffin consider steering his money elsewhere? After all, he has already given $19 million to the Art Institute of Chicago and sponsors numerous education programs in that city.
He replied that he considered Harvard to be the natural recipient of his generosity, given how much its resources shaped his present. (Among them was a dorm superintendent who looked the other way when a 19-year-old Mr. Griffin climbed onto the roof to install the satellite dish.)
“I hope that this helps the next generation of Harvard have an experience that parallels mine,†he said.
Shares of Safeway climbed in after-market trading on Wednesday after the supermarket chain disclosed that it was “in discussions concerning a possible transaction involving the sale of the company.â€
Safeway, with a total enterprise value of $13.5 billion, has had on and off talks with private equity firms since last year. One of the private equity firms it had previously been in discussions with, Cerberus Capital Management, is said to be the lead suitor this time around, according to Reuters. A deal would be one of the largest buyouts in years.
Cerberus last year acquired some brands of Supervalu, another supermarket chain, for $3.3 billion
The Pleasanton, Calif.,-based company said in a statement that “Although the discussions are ongoing, the company has not reached an agreement on a transaction, and there can be no assurance that these discussions will lead to an agreement or a completed transaction. The company will not comment further on these discussions at this time.â€
Last fall, Safeway installed a poison pill plan to prevent investors from acquiring more than 10 percent of the company after an activist hedge fund, Jana Partners, took a 6.2 percent stake. The hedge fund has since sold off some of its position and now own 4 percent.
Also on Wednesday, Safeway reported fourth-quarter earnings that were stronger than expected.
The two advisers who helped Facebook make its largest acquisition to date stand to earn tens of millions of dollars for their work.
On Wednesday, Facebook confirmed it had agreed to buy the messaging start-up WhatsApp for $16 billion in cash and stock, plus $3 billion in in restricted stock units that will be granted to WhatsApp employees and founders. Morgan Stanley advised WhatsApp and could earn $35 million to $45 million on the deal, according to estimates from Freeman Consulting Services, a boutique mergers and acquisitions advisory firm.
Allen & Company advised Facebook and could earn $32 million to $41 million, according to Freeman.
Morgan Stanley has pulled ahead of the competition recently on M.&A. advisory work. It worked with Time Warner Cable during its negotiations with the cable giant Comcast, which confirmed last week that it had agreed to buy its rival for $45.2 billion.
That deal, the largest of 2014 and the third-largest acquisition since the financial crisis, shot Morgan Stanley to the top of Thomson Reuters ranking of the 100 biggest deal makers.
Facebook was also advised by the law firm Weil Gotshal & Manges, while WhatsApp received legal counsel from Fenwick & West. Law firms are typically not included in adviser rankings because they bill by the hour.
Facebook made a huge splash in the tech world on Wednesday with a $16 billion deal to buy WhatsApp, a messaging start-up â€" the social media giant’s biggest acquisition by far.
Naturally, the deal touched off a torrent of chatter on social media. Some professed shock at the big numbers, including an additional $3 billion in restricted stock units for WhatsApp employees and founders. Some ran back-of-the-envelope calculations to try to make sense of those figures.
While analysts grapple with the implications of the deal, here is the immediate take, courtesy of Twitter.
First, the news.
That’s a big number!
So, what is WhatsApp, exactly?
One thing it’s not is a massage service.
Here’s a word from the founders, who started the company in 2009. The tweet by Jan Koum is from 2012, and those by Brian Acton are from 2009.
Some wondered what the deal meant for Instagram, the photo-sharing company led by Kevin Systrom, which Facebook bought for $1 billion in 2012.
Others drew a connection to Snapchat, which Facebook reportedly tried to buy last year.
There was plenty of speculation about what Mark Zuckerberg, Facebook’s chief executive, was thinking. Facebook assured the founders of WhatsApp that the service would “remain ad free and they will not have to compromise on their principles,†according to Sequoia Capital, a WhatsApp investor.
To many, the deal seemed like a new milestone in the frenzy over tech start-ups.
Brian Moynihan, the chief executive of Bank of America, received about $12.5 million in restricted stock grants for 2013, according to a regulatory filing on Wednesday night.
Combined with a previously announced salary of $1.5 million, that would bring his compensation to $14 million for 2013, though the company has not yet disclosed the full pay package. Mr. Moynihan’s total compensation was about $12 million for 2012.
During Mr. Moynihan’s tenure as chief executive, Bank of America has been digging out from mortgage problems, shoring up its capital levels and laying off employees. Now it is seeking solid ground as it tries to rebuild its business in a sluggish economy. Annual profit increased to $11.4 billion in 2013, compared with $4.2 billion in 2012. Its stock rose 34 percent last year.
Big banks are still reporting the compensation for their top executives.
Jamie Dimon, the chief executive of JPMorgan Chase, received a 74 percent raise in pay for 2013, to $20 million.
Lloyd C. Blankfein, the chief executive of Goldman Sachs, received restricted shares worth $14.7 million as part of his pay package for 2013. Goldman has not yet disclosed the cash portion of Mr. Blankfein’s bonus, but he and other senior executives are typically awarded a 70-30 split between stock and cash. If that holds true, Mr. Blankfein’s total compensation for 2013 will probably be about $23 million.
Morgan Stanley’s chief executive, James P. Gorman, received a bonus of $4.9 million, an 86 percent rise, and the bank said his salary would double to $1.5 million. The firm has not disclosed Mr. Gorman’s full pay package for 2013, but it is likely to be substantially higher than the $9.75 million he received last year.
Leave it to a couple of diamond dealers to show how to make mergers and acquisitions sparkle. The stock of the jewelry retailer Signet rose after it agreed to buy its smaller rival Zale at a 41 percent premium for an enterprise value, which includes debt, of $1.4 billion. That’s what happens when the cost savings effectively cover the purchase price. It makes the shareholder-unfriendly transactions involving Comcast and Jos. A. Bank all the more noticeable.
A good fit usually gets spotted by the market. Together, Signet, the Bermuda-based owner of Kay Jewelers in the United States and H. Samuel in Britain, and Zale, based in Dallas, will have over 3,000 shops selling engagement rings and other baubles. The companies expect to squeeze $100 million out of the combination annually. Taxed and capitalized, those cuts are worth about $700 million today, or just about what Signet is paying for Zale’s equity.
Investors are expecting even more, though. Signet’s shares jumped 17 percent on Wednesday, adding $1.1 billion to its market value. It’s simple, classic deal math that never goes out of style and also the sort that can cast other acquisitions in a poor light.
Comcast’s $45 billion plan to take over Time Warner Cable is one recent example. Comcast, the biggest cable operator in the United States has lost $7 billion in market value since announcing its intentions last week. That suggests owners other than the Roberts family, which controls a third of Comcast in perpetuity, expect the deal to destroy value. The same goes for Jos. A. Bank, the men’s clothier that is using the absurdly expensive tactics of another acquisition and a stock buyback either to goad or to evade its suitor, Men’s Wearhouse.
Signet waited for what seems like an unusually long time to capitalize on the evidently huge benefits of buying Zale. It is perhaps evidence of the hesitation in boardrooms globally to take a chance on mergers and acquisitions. The stark differences in market reception, however, are making it clearer when investors want a deal.
Jeffrey Goldfarb is an assistant editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
Stock traders have the S.&P. 500. Bitcoin bettors will have the Winkdex.
The new financial index takes its name from the Winklevoss brothers, famous for their legal battle with the Facebook founder Mark Zuckerberg. The Winkdex was released publicly on Wednesday and provides a regularly updated figure for the price of Bitcoin, the virtual currency that has risen in popularity over the last year.
Tyler and Cameron Winklevoss announced the creation of the Winkdex in a regulatory filing they made on Wednesday afternoon to the Securities and Exchange Commission in connection with the Bitcoin exchange-traded fund they first applied to create last summer.
The new filing shows that the Winklevoss Bitcoin Trust is moving closer to regulatory approval despite skepticism in some investor circles. The brothers are now hoping to start the fund later this year, making it the first Bitcoin E.T.F.
“We’ve been very encouraged with how responsive and deferential the S.E.C. has been to the application,†Cameron Winklevoss said.
The brothers and their company, Math-Based Asset Services, are being represented by lawyers at Katten Muchin Rosenman who have helped shepherd some of the most popular E.T.F.’s through the regulatory process.
The Winkelvoss Bitcoin Trust is set to be traded on public stock exchanges. The fund will work with other financial firms to buy and sell Bitcoin each day to remain in line with the number of outstanding shares of the E.T.F. The so-called net asset value of the fund will be adjusted at the close of trading each day, based on the value of the Winkdex.
The brothers first filed for the trust last July, soon after publicly disclosing their own sizable holdings in Bitcoin. The brothers have also invested in several virtual currency start-ups. Their investments recently came under scrutiny after the founder of a company in which they invested, BitInstant, was arrested and charged with money laundering. The brothers said they were passive investors in the company.
The E.T.F. aims to provide an easy way for ordinary investors to bet on the future price movement of Bitcoin, which has gone through several volatile swings. Investors, though, will pay for the work that the Winklevoss’s company will do in maintaining and securing the Bitcoins held by the E.T.F. The size of the management fees have not yet been specified.
There is already one investment fund, the Bitcoin Investment Trust, that allows Americans to bet on movements in Bitcoin’s price. That currently has $50.4 million under management, but it is available only to wealthier, accredited investors, and is not publicly traded.
The new Winkdex will put the brothers in competition with a growing number of companies providing data on the virtual currency industry. The most popular index for the price of a Bitcoin is operated by Coindesk, a news and information website.
Coindesk’s Bitoin Price Index is compiled using prices from two different virtual currency exchanges. Until last week it also used the price from a third, Mt. Gox, but that was removed from the index after the exchange suspended customer withdrawals.
The Winkdex will use data from seven different exchanges and weight the prices based on the volume of trading on each exchange. Early Wednesday afternoon, the Winkdex stood at $627, up 0.7 percent from a day earlier.
A number of exchanges encountered difficulty last week after Mt. Gox exposed a problem in some of the basic Bitcoin computer code. The regulatory filing on Wednesday added a discussion of that problem. The filing also discusses the many governments that have made pronouncements about the legality of Bitcoin since the last revision to the application in October.
Representative Maxine Waters of California is urging federal banking regulators to scrutinize the sale of billions of dollars of mortgage-servicing rights to a fleet of specialty firms, a move that comes amid mounting concerns that some of the most vulnerable homeowners are facing fresh abuses in battles to save their homes.
For some Americans, who saw the value of their homes plummet in the depths of the financial crisis, those battles, alternating between hope and despair, have lasted for years.
And now, more than five years after the financial crisis and just as some of those homeowners were getting back on track, the ground is shifting beneath them.
In just a few years, the specialty servicers, which collect mortgage payments and pass them on to investors, have voraciously bought up servicing rights from the nation’s largest banks.
As they do, some state and federal regulators are raising questions about whether the new raft of servicers, including Ocwen Financial and Nationstar, have the capacity to handle influx.
In a letter on Wednesday to the Comptroller of the Currency, Thomas J. Curry, and Joseph A. Smith Jr., the monitor of the national mortgage settlement, Ms. Waters, the top Democrat on the House Financial Services Committee, wrote that greater attention was needed to “ensure that these nonbank servicers have the operational capacity to manage the increased volume.â€
Ms. Waters is not alone. She joins Benjamin M. Lawsky, New York’s top banking regulator who earlier this month, indefinitely halted the transfer of about $39 billion in servicing rights from Wells Fargo to Ocwen.
Meanwhile, Katherine Porter, who was appointed by the California attorney general to oversee the national mortgage settlement, has been working with banks to address homeowner complaints about the transfers.
Such complaints have soared, Ms. Porter says, adding that the specialty servicers “overpromised and underdelivered.â€
Top officials with the federal Consumer Financial Protection Bureau, which oversees the specialty servicers, are scrutinizing the sales to ensure that homeowners don’t get lost in the shuffle.
Together, servicing companies like Nationstar and Ocwen Financial now have 17 percent of the mortgage servicing market, up from 3 percent in 2010, according to Inside Mortgage Finance, an industry publication.
As they buy up servicing rights a rapid clip, some homeowners are mired in delays and some of the same problemsâ€"shoddy paperwork, erroneous fees and wrongful evictions that led to a $26 billion settlement between the nation’s largest banks and 49 state attorneys general in 2012.
Part of the problems emerging for homeowners, regulators and analysts say, stem from the sheer volume of mortgage servicing rights changing hands.
Flaws in computer systems can spur frustrations and compound delays for some homeowners who can least afford to see their modifications stall as fees mount.
At Ocwen, there is a baffling number of computer codes, approximately 8,400 different varieties, to flag issues within borrowers’ files like a job loss, according to a person briefed on the matter. But large swaths of these codes are duplicates, the person said.
The servicing companies defend their track records of helping homeowners, saying they have had success in keeping borrowers in their homes. Ocwen pointed to its investment in customer service, while Nationstar emphasized that it assisted 108,000 homeowners with some form of modification or other repayment plan in 2013.
Ocwen also notes that it has plowed money into bolstering infrastructure and customer service.
Still, regulators say, there is a knottier problem: specialty services, benefiting from leverage, may be profiting at the expense of homeowners â€" and the investors who own the mortgages. Typically servicers get a fixed fee from investors for handling the mortgage payments, no matter if the borrower is up to date or has fallen behind. But the fundamental arithmetic of that business has changed, in part, because the specialty servicers are buying the rights to collect payments at steep discounts, along with the loan advancesâ€"the money that the servicers pay to investors to cover any delinquent payment.
The faster the servicer can make the loan current again, the faster investors pay back the servicers’ advance in full, resulting in a profit. Such arbitrage, some investors worry, could gives servicers an incentive to offer modifications that cause borrowers to default again.
Ocwen has among the lowest re-default rates among large servicers of the most troubled subprime loans, according to Moody’s Investors Service.
While the modifications can seem like a lifeline, some deals could actually make life worse for borrowers.
Lamica Jacques, a 38-year-old homeowner in Springfield Gardens, N.Y., was thrilled when she got a letter from Nationstar in September, offering to reduce her mortgage payment by 35 percent, according to a copy of the letter.
What Ms. Jacques didn’t realize at first was that her monthly payments would only cover interest or that by signing the document she was waiving her right to sue the Texas company.
Ms. Jacques, whose lawyer urged her not to sign the document, said she feels used: “Sometimes it feels like the decks are just stacked against you so that you really do fail.â€
In her letter, Ms. Waters emphasized that homeowners like Ms. Jacques may be suffering because of the transfers.
She also asked the regulators to ensure that these sales are not being used “to evade modifications of loans.†Under servicing standards from the Consumer Financial Protection Bureau and the national mortgage settlement, servicers are required to honor any permanent loan modification hashed out prior to the sale.
In Ms. Waters’s California, those borrowers have more protections thanks to the Home Owners Bill of Rights, a state law that went into effect this year.
James P. Gorman, the chief executive of Morgan Stanley, gave away nearly $1 million worth of stock he owned in the bank last week.
Mr. Gorman disclosed the gift of more than 30,000 shares in a filing with the Securities and Exchange Commission on Tuesday. The filing did not say where the shares went.
Nearly all of the donated stock came from something called a “grantor retained annuity trust,†which is a tax-efficient vehicle from which people typically donate to charity or family. Mr. Gorman is left with 35,558 shares in the trust after last week’s transaction.
Mr. Gorman still owns more than a million shares of Morgan Stanley directly.
In 2011, when Morgan Stanley’s stock price fell to $20, Mr. Gorman tried to shore up investor confidence by purchasing 100,000 shares with $2 million of his own money. That investment had netted Mr. Gorman nearly $1 million on paper by the end of January, when the bank’s stock price reached $29.51.
Mr. Gorman, like other bank executives, also receives stock as part of his annual compensation package, and his equity award nearly doubled in 2013.
This is the story of a company and its fortunate chief executive.
Questcor Pharmaceuticals is a biotechnology company with a $4 billion market capitalization. Good things keep happening to Questcor in the middle of the month. Here’s what’s notable: The middle of the month just happens to be the time that the company’s chief executive, Don M. Bailey, sells stock through his regular selling plan.
To understand what seems to be going on here, a little context is in order. Many company executives adopt trading plans through which they arrange to sell stock on specific dates or at specific prices. The underlying idea of these plans is that because the selling is automatic, executives avoid any appearance that they are trading on inside information.
I contacted the company to ask about Mr. Bailey’s sales and the timing of its announcements. A company spokeswoman confirmed by email that he had a regular selling plan. She wrote that the chief executive’s plan was adopted in 2011 “as part of a normal financial diversification strategy.†His plan calls for sales at monthly intervals and has been renewed each year since.
“There have been no changes to any plans since their adoption, and there have been no sales by Don outside of the plan since its adoption,†she wrote. The company did not respond further to an email and a call, did not respond to my request to interview Mr. Bailey or any other executive, and did not comment on the timing of its public disclosures.
Questcor’s rise has been remarkable. The company sells an anti-inflammatory drug called Acthar, developed in the early 1950s and extracted from pig pituitary glands. Questcor bought the drug for a mere $100,000 in 2001 and then increased the selling price by orders of magnitude. The price of a five-milliliter vial jumped to $28,000 from $50.
Today, a full course of the drug can cost more than $100,000. The company has acknowledged its business and marketing practices have fallen under federal scrutiny. The drug was being used to treat a rare condition that afflicts hundreds of infants a year, but Questcor vastly increased sales by marketing it to multiple sclerosis patients and for adults suffering from nephrotic syndrome and rheumatologic conditions.
The company’s explosive growth is “a story for these troubled times in American health care â€" a tale of aggressive marketing, questionable medicine and, not least, out-of-control costs,†as Andrew Pollack of The New York Times wrote in a December 2012 article.
The controversies have drawn short-sellers and skeptical media attention. But so far, the critics have been wrong at least on the company’s stock, which, while slightly off its 52-week high, still trades at $69.28 a share.
By my count, positive news has struck Questcor mid-month at least six times over the last 10 months. Clearly, the timing of the news announcements might be coincidental and these weren’t the only pieces of good news for the company in that time. Securities law requires companies to put out news, good or bad, as soon as they know it. But the timing on some of the announcements raises questions.
Here are the news items, in order of how fortunate their timing was for Mr. Bailey’s stock sales:
OCT. 10, 2013 Questcor disclosed its cash balances in a securities filing. Doing a bit of math, as they tend to do, Wall Street analysts and investors figured out that this meant the third quarter was stronger than expected and would top analyst estimates. “We now expect a sizable 3Q beat and would be buying the stock ahead of earnings,†analysts at Oppenheimer wrote. On Oct. 9, the stock closed at $54.60 a share. The next day, it shot up to $59.62 a share and kept rising.
Four days later, Mr. Bailey sold 40,000 shares, most at $62 and more than $63 a share, highs for that month to that point.
At the end of the month, the company revealed in a post-earnings conference call that the United States attorney in Manhattan and the Securities and Exchange Commission had joined an investigation by the United States attorney in Philadelphia into the company’s marketing and business practices. The stock tumbled 14 percent, to $60.01 from $69.73.
DEC. 11, 2013 Questcor formed some new board committees, and issued a filing with the S.E.C. that disclosed this development. The company said one of panels was a “strategic advisory committee†that would address a “persistent and significant discount in the company’s valuation relative to its peer companies.†The words “strategic advisory†are a dog whistle for Wall Street, signaling that the company is exploring doing a transaction, such as selling itself, to increase the stock. No dummies, investors reacted positively and the stock moved higher.
Two days later, Mr. Bailey sold 40,000 shares, mostly at $53.30 a share. The stock had been falling that month, and was at $51.69 on Dec 9.
MAY 14, 2013 Questcor filed an 8K that included a presentation the company delivered at a Bank of America conference that same day. The stock moved up to the highs for the month, to close at $42.40 from $37.50 the day before. Mr. Bailey sold 20,000 shares at $36.70 on May 13. The next day, he sold 160,000, all at prices at least $40.40 a share. Just a week earlier, the stock had closed at $33.58. The total 180,000 shares sold was far more than his usual sale of 40,000 shares a month.
JAN. 13, 2014 The company filed its presentation to be made at the JPMorgan Chase conference, with positive earnings news and a reiteration of its exploration of stock-goosing transactions. In contrast with its presentation for the Bank of America conference, the company filed three days before the event. That very day, Mr. Bailey sold 40,000 shares at more than $53 a share.
A few days before the company made its filing, the stock had traded at its low for the month, closing at $50.19 on Jan. 9.
NOV. 12, 2013 The company announced that G. Kelly Martin, the chief executive of the Irish drugmaker Elan, would join the board. The stock moved higher. On Nov. 13, the stock traded right around the highs for the month. And that day, Mr. Bailey sold his regular 40,000 shares.
JUNE 11, 2013 The company announced it was purchasing Synacthen from Novartis. This was good news, because Synacthen is similar to Questcor’s drug. The company was taking out a competitor. The stock rose 15 percent that day. On June 13, Mr. Bailey sold his 40,000 shares, near recent highs.
Questcor may just be an extreme example of what’s going on regularly in corporate America. Questcor has a big stock buyback program, as insiders regularly dump stock. In these heady days of market highs, most big companies are racing to buy back their stock while insiders are unloading. The companies of the Standard & Poor’s 500-stock index bought $459 billion worth of stock last year, according to Thomson Reuters, which also calculated that those corporations’ insiders sold $32.7 billion in the 12 months to mid-February.
As The Wall Street Journal explained in a 2012 series of articles, selling plans are hard for investors, regulators and the public to track. Companies and executives don’t have to disclose their arrangements to any federal agency. The companies can alter and change them without notifying the public.
Oh, and the executives can still trade in the company’s stock at other times not mentioned in the selling plans.
The Questcor situation adds another potential vulnerability to the list: Put out good news and then sell as the world buys.
Any leader who makes a mistake serious enough to warrant a public apology ought to take a look in the mirror and reflect on the root causes of the offense. Not only is this self-reflection essential to ensuring that the apology is a meaningful act of contrition, but it’s also the best way to turn a negative situation into a positive one. Atonement, done properly, involves deep, careful work to change behavior and leads to real improvement.
But in today’s hyper-transparent world of social media and “gotcha†journalism, the mirror is two-way: On the other side of the looking glass, a small army of observers are watching as you reflect (or fail to reflect) on your behavior. The snap judgments of those looking in from the outside can, of course, be merciless. So the temptation after a public transgression is to apologize quickly, then just get on with your life. As I wrote earlier this month, this has given rise to a flood of “inauthentic apologies,†enough so that the apology itself has been devalued, as though it’s merely a public relations crisis management tool. But rather than being used to get out of trouble, an authentic apology should be used to get into the difficult process of grappling with meaningful change.
As such, an authentic apology is best seen as a commitment to change behavior over the long term, a commitment that can’t be made without a pause to carefully consider what just happened and what comes next.
At first glance, the apology by Tim Armstrong, the chief executive of AOL, for insensitive comments at a company town hall meeting didn’t start out as a promising example of an authentic apology.
The apology came at the bottom of a longer memo and did not seem to acknowledge the serious hurtfulness of his remarks, in which he cited two “distressed babies†that cost AOL “a million dollars each†as examples of cost pressures that led the company to cut back employee 401(k) benefits. But rather than make yet another snap judgment about the most recent performance in the never-ending Kabuki of the public apology, let’s take some time to pause ourselves â€" and consider some of the deeper issues, especially the hidden opportunities this situation presents to Mr. Armstrong and AOL to make meaningful changes that can greatly benefit the company.
Individuals are ultimately responsible for their own character, of course, and offensive or insensitive behavior is the responsibility of the individual transgressors. But the context of any poor behavior from a corporate leader is the reaction it receives from the rest of the company. As such, an incident â€" from initial behavior to reaction to response â€" becomes a window into the “character†of a corporation â€" the corporate culture.
Underlying everything, a successful corporate culture revolves around trust, a firm belief that if I do my part, others around me will do theirs. Security, certainty and predictability follow. Without trust, business slows to a crawl as every action and decision is second-guessed by staff members asking themselves, ‘Will I actually be rewarded, recognized and treated fairly?’ With trust, internal negotiations become faster, teams more productive and loyal, and rational risk-taking â€" followed by innovation and progress â€" becomes more ingrained.
With a solid reputation for personal credibility, a leader fosters greater trust and enforces this critical aspect of corporate culture. And for a company like AOL that has gone through a great deal of tumult, trust is the critical ingredient to long-term sustainability.
An intense, divisive internal reaction to the behavior of a leader, especially related to credibility, calls not just for a quick apology and reflexive response but also a careful assessment of the corporate culture and the behavior that created it. If you avoid the real work, cultural problems become more deeply rooted. If you do the real work, then the problems are revealed and can be addressed.
In the case of Mr. Armstrong, it’s probably not a coincidence that he was heavily criticized once before for his behavior at a virtual company town hall meeting, where he publicly fired a senior employee of AOL’s former Patch division for taking photographs. Mr. Armstrong apologized that time, too. But after the resulting furor, and his apology, did he thoroughly explore the related issues of corporate culture at AOL â€" especially trust?
Was the public firing of the employee really just an isolated incident of bad judgment? Or did employees at AOL feel as if top-down decision-making had become too imperious and that the ill-timed firing was just the latest symptom? After all, at the same meeting as the firing, Mr. Armstrong was explaining why he laid off hundreds of Patch employees, albeit in a bid to restore the rest of AOL to solid financial footing. It’s easy to see how trust might become strained in this uncertain environment, all the more so if the decision to fire someone publicly seemed vindictive and haphazard.
If more work had been done to restore trust in the aftermath of the first apology, then perhaps AOL employees might have been more forgiving this time around instead of immediately turning to the media to express their frustrations and mounting a furious internal campaign against the 401(k) changes. Mr. Armstrong’s decision to cut back on the 401(k) benefits was made from the top down, was apparently not broadly inclusive and, crucially, was explained in a manner that not only lacked credibility but was in fact offensive to some. If anything, citing the expense of paying for two specific at-risk babies appeared to be both insufficient to explain the 401(k) changes and unfair for singling out individual employees who properly availed themselves of the company’s insurance.
Because AOL’s revenue and profit have been on the rise lately, there’s not much of a risk that employees will run for the exit. But what about the next time there’s a problem? What if revenue and profit are not doing as well? Will loyalty prevail then, or will résumés fly out the door as quickly as damaging information did this time? Now would be the time to ask the difficult questions about corporate culture that apparently went unaddressed the last time.
Listening, of course, is the first crucial step toward rebuilding trust. When he publicly apologized, Mr. Armstrong explained that he had heeded employee feedback after the announcement of the 401(k) changes and had decided to reverse them. We also know from an interview with Andrew Ross Sorkin that he deepened his initial public written apology by privately calling the aggrieved families and listening at length to their criticism. With these two actions, Mr. Armstrong took important steps toward restoring faith in personal and corporate character.
Just by listening more actively, Mr. Armstrong turned one of his most vocal critics into an AOL booster. “I accepted Tim Armstrong’s apology, and I take him at his word that he’s genuinely pained by the pain he caused my family,†Deanna Fei, the wife of an employee, and author of a damning piece in Slate about the incident, told Mr. Sorkin. “He spoke to me on a very personal level, as a human being and a fellow parent, and I think his regret is heartfelt. I am profoundly grateful for the support that my family received from AOL during our medical crisis, and I think AOL does strive to take care of its employees.â€
Listening, though, is only start. Over the long haul, most successful corporations need a culture of inclusiveness, deliberation, intent, communication, transparency, freedom to innovate and freedom to express oneself without fear of repercussion â€" just some of the elements of trust. To get there, AOL would do well to conduct what I’ve described in the past as a moral audit â€" the application of rigorous process improvement and change-management techniques to the values that drive behavior and decisions.
Dov Seidman is the chief executive of LRN, a company that helps corporations develop values-based cultures and leadership, strengthen their ethics and compliance efforts, and inspire principled performance in their operations. He is also the author of “HOW: Why HOW We Do Anything Means Everything.†Twitter: @DovSeidman
Candy Crush is destined to be a heart breaker. The addictive mobile app’s Europe-based maker, King Digital Entertainment, is ready to capitalize on the hype with an initial public offering in the United States. With its top hit Candy Crush Saga generating about 80 percent of revenue, though, investor infatuation would be a dangerous game.
The multilevel matching puzzle was the most downloaded game for smartphones and tablets last year, according to research firm App Annie. The popularity has pushed King Digital’s revenue to an eye-popping $1.9 billion with profit of about $570 million.
Faddish games are all the rage. Last October, an investment by  SoftBank of Japan valued the Finnish firm Supercell at $3 billion. Supercell said its top line clocked in at almost $900 million last year. On the same rough multiple of three, King would be worth nearly $6 billion, or only two-thirds as much as established video game producer Electronic Arts.
By contrast, Zynga’s experience hasn’t been so sweet. Its shares have tumbled by half since going public in 2009 after struggling to repeat the popularity of FarmVille. Instead, Zynga has unsuccessfully tried to buy its way to the next level, including a wasted $200 million on the creator of Draw Something, OMGPOP.
King Digital can at least point to some other modest successes. Pet Rescue Saga was a top 10 mobile game in Britain and France. The company has also introduced two other games in the last four months. Set against such excitement, however, are considerable risks.
Just 4 percent of gamers pay King Digital for extra goodies; the rest just put the apps on their devices for free. And despite an impressive 500 million downloads of Candy Crush, consumers are a fickle bunch. There is no brand loyalty or barrier to entry where mobile games are concerned.
There are already early signs of these problems at King Digital. Quarterly revenue slipped 3 percent and monthly users 7 percent from the previous period. That suggests the allure of Candy Crush may already be waning.
The app developer Rovio managed to turn its Angry Birds smash hit into a franchise that spawned a movie. Likewise, King Digital’s Candy and Saga patents could turn into fresh sources of revenue. To translate into any kind of success for investors, though, all the pieces will have to fall right into place
Dominic Elliott is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
SUGAR RUSH FOR CANDY CRUSH  | King Digital Entertainment’s filing of a $500 million initial public offering on Tuesday had many investors salivating. But it remains to be seen whether the company behind the addictive game Candy Crush can sustain its sweetness and avoid the pitfalls of other game makers, Jenna Wortham and Michael J. de la Merced write in DealBook. Indeed, Candy Crush attracts 93 million players each day and accounts for nearly 80 percent of the company’s revenue, which neared $1.9 billion by the end of 2013 from $164 million in 2012.
The game shows few signs of cooling, but its meteoric rise and King’s pursuit of a lofty valuation have raised fears of a bubble, though a very sweet one. “Already, there are signs that the company might be leveling off. King’s gross bookings and revenue declined in the fourth quarter of 2013, which it attributed in part to a decline in the Candy Crush business. King also emphasized that it expected its blockbuster hit to contribute less to its overall sales over time,†Ms. Wortham and Mr. de la Merced write.
From ReCode: “Candy Crush Saga maker King is preparing to go public, but one look at the ‘key metrics’ in its Securities and Exchange Commission papers tells a seemingly simple story: The company is popular and profitable, but may have already peaked.â€
“The problem is, people like what they already know. King’s most recent title, Farm Heroes Saga, is basically the same game as Candy Crush Saga with different art, and Papa Pear Saga is pretty close to EA subsidiary PopCap’s seven-year-old puzzle game Peggle.â€
BLACKSTONE’S IRISH COUP  | What’s so bad about shadow banking if deals get done and jobs are saved? That’s the question posed by Bennett J. Goodman, a Blackstone executive who engineered an unorthodox arrangement awarding Blackstone 25 percent of Ireland’s telephone giant, Eircom, in return for more favorable terms on its punishing debt burden. Mr. Goodman argues that Blackstone, whose paper profits from the Eircom deal stand at about $1.4 billion, is providing loans that companies could not get from banks, but some are questioning the risks associated with this shadow banking, Landon Thomas Jr. writes in DealBook.
“In the last few years Mr. Goodman’s team has been one of the more innovative financiers in Europe, securing outside-the-box lending arrangements with desperate borrowers in Spain, Germany and Britain as well as Ireland,†Mr. Thomas writes, adding, “More so than its competitors, the firm has been quick to branch out into other businesses, including hedge funds, real estate and corporate and government advisory work. And in such a small country as Ireland, with the government under pressure to offload more than $150 billion of distressed assets, it was not surprising that Blackstone’s full-court press raised a few hackles.“
NEW COMPLAINTS FOR HOMEOWNERS  | The problems for homeowners never seem to end. The same abuses that led to an enormous settlement between the nation’s largest banks and federal authorities in 2012, including shoddy paperwork, erroneous fees and wrongful convictions, are once again plaguing borrowers. But this time these issues are dogging the specialty firms that collect mortgage payments, known as servicers, Jessica Silver-Greenberg and Michael Corkery report in DealBook.
These servicing companies, including Nationstar and Ocwen Financial, have been buying up servicing rights with an incredible appetite. But, as a result, “some homeowners are mired in delays and confronting the same heartaches, like the peculiar frustration of being asked for the same documents over and over again as the rights to their mortgage changes hands,†Ms. Silver-Greenberg and Mr. Corkery write, adding, “As the buying bonanza steps up, some federal and state regulators are worried that the rapid growth could create new setbacks like stalled modifications for millions of Americans just as many were getting back on track from the housing crisis.â€
“Some of the problems, analysts and regulators say, come down to the speed. The specialty servicers have not upgraded their technology or infrastructure to accommodate the glut of new mortgages,†they write. “The servicers benefit when they work through the troubled loans as quickly as possible. That has raised questions about whether the companies are pushing homeowners into foreclosure or offering mortgage modifications that will keep homeowners treading water, but ultimately cause them to fall even further behind.â€
ON THE AGENDA  | Housing starts for January are out at 8:30 a.m. The Federal Reserve publishes the minutes for its January policy-making meeting at 2 p.m. Two regional Federal Reserve presidents give speeches â€" James B. Bullard, the president of the St. Louis Fed, discusses the economy in Washington at 1 p.m., and John C. Williams, the president of the San Francisco Fed, takes the stage in New York at 6:15 p.m. The Carlyle Group releases earnings before the bell. Maurice R. Greenberg, the head of the Starr Companies, is on Bloomberg TV at 8 a.m.
EXAMINING A COMPENSATION DOUBLE STANDARD  | It may be time to call a truce on the Wall Street bias in looking at executive compensation, Steven M. Davidoff writes in the Deal Professor column. When Google’s board awarded Eric E. Schmidt, its former chief executive and current chairman, $100 million in restricted stock plus $6 million in cash, few questioned the exorbitant pay package. But compare this with the outcry over the 2013 pay for Jamie Dimon, the chief executive of JPMorgan Chase, or for Lloyd C. Blankfein, the chief executive of Goldman Sachs.
“Wall Street is certainly known for its high-end consumption, but it is also a place where being conspicuous about it is frowned upon. In Silicon Valley, however, the superwealthy can flaunt their toys and no one says a word,†Mr. Davidoff writes, adding, “Wall Street bashing ignores the fact that it is finance that produces the money for tech start-ups. Finance may not be the sexy part of life, but it is integral to success, as much as good roads or telecommunications. And yes, finance has had its problems â€" but so does Silicon Valley.
THE ALLURE OF ‘YOUNG MONEY’  | “Young Money,†the new book by Kevin Roose about the hidden world of today’s junior Wall Street workers, shot into the top 10 on Amazon’s best-sellers list during the book’s first day on shelves (as of Wednesday morning, it had fallen very slightly in the rankings). And, as Mr. Roose noted on Twitter on Tuesday, a collectible version of the book is already on sale.
DealBook » | DealBook: For Icahn, Drug Maker Deal Came After a Long Fight
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Eminence Capital Criticizes Jos. A. Bank’s Eddie Bauer Deal  | Eminence Capital, a hedge fund with a substantial stake in the men’s retailer Jos. A. Bank, is not pleased with the company’s proposed $825 million deal for the parent of Eddie Bauer, calling the merger “a poor strategic decision†at an “excessive†price, The Wall Street Journal reports. Eminence has been encouraging a deal between Jos. A. Bank and its rival, Men’s Wearhouse, in which the hedge fund also has a significant stake.
WALL STREET JOURNAL
MDC Partners Buys Majority Stake in Canadian Proxy Solicitor  | MDC Partners, a media agency holding company, is expanding into a classic Wall Street business, proxy solicitation, with its acquisition of a majority interest in Kingsdale Shareholder Services.
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Chinese Firm and France to Buy Stakes in Peugeot  | PSA Peugeot Citroën, the struggling French automaker, will receive big injections of capital from the Chinese automaker Dongfeng Motor and the French government, Dongfeng announced Wednesday in a filing in Hong Kong, The New York Times reports.
NEW YORK TIMES
Tyson Said to Make Offer for Michael Foods  | Tyson Foods, the largest processor of beef and chicken in the United States, is said to have made a bid for Michael Foods, which is controlled by the private equity arm of Goldman Sachs, Bloomberg News writes, citing unidentified people familiar with the situation.
BLOOMBERG NEWS
General Mills Looks to Expand Into Emerging Markets  | General Mills, one of the world’s largest food makers, said it is looking for deals in emerging markets to expand its business, Reuters reports.
REUTERS
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Lenders Return to Securitized Mortgages  | Some of the same advisers who helped develop new mortgage rules to prevent a return of the subprime boom are now part of a growing industry that is hoping to profit from making loans that fall outside of the new “qualified mortgage†regulation, The Financial Times reports.
FINANCIAL TIMES
Investors Bolster European I.P.O. Frenzy  | Companies backed by private equity are looking to raise more than $8.3 billion in initial public offerings, as private equity firms are looking to capitalize on strong investor interest in the region, The Financial Times writes.
FINANCIAL TIMES
Private Equity-Backed Poundland Approves I.P.O.  | Poundland, the British variety store, which is 75 percent owned by the private equity firm Warburg Pincus, has given the go-ahead to its initial public offering of about £700 million, The Financial Times reports.
FINANCIAL TIMES
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Herbalife Reports Higher Earnings  | Herbalife, the nutritional supplements maker that has been the focus of a public battle with the activist investors William A. Ackman, who leads the hedge fund Pershing Square Capital, reported a 10 percent rise in fourth-quarter earnings, The Wall Street Journal writes.
WALL STREET JOURNAL
The Farewell Email SAC’s Compliance Chief Probably Did Not Send  | Bloomberg Businessweek has imagined a good-bye letter from Steven L. Kessler, SAC Capital Advisor’s compliance chief who announced last Friday that he would leave the firm.
BLOOMBERG BUSINESSWEEK
Pets At Home Announces I.P.O. Â |Â Pets At Home Group, a British company that sells pet food and other pet products, announced plans for an initial public offering that values the company at about $2.5 billion, Reuters writes. The company is backed by the private equity group Kohlberg Kravis Roberts & Company.
REUTERS
Box Hires SAP Executive  | Graham Younger, a senior executive at the European software maker SAP, was named the executive vice president for worldwide field operations at Box, which is expected to go public this year, ReCode writes.
RECODE
Borderfree Aims to Raise Up to $86 Million in I.P.O. Â |Â Borderfree, a company that helps retailers deal with online customers in foreign countries, has filed for an initial public offering of up to $86.25 million in stock, The Wall Street Journal writes. The company said that it expects to use the net proceeds for corporate purposes.
WALL STREET JOURNAL
Examining King’s Decision to List Its Shares in New York  | The decision by King Digital Entertainment, the maker of Candy Crush, to list its shares on the New York Stock Exchange is “another blow London, which has been touting itself as the new Silicon Valley,†Quartz writes.
QUARTZ
Index Ventures to Benefit From Candy Crush I.P.O.  | The European venture capital firm Index Ventures is set to reap rewards from the initial public offering of King Digital Entertainment, the maker of Candy Crush Saga, The Wall Street Journal reports. King is expected to be valued at $8 billion to $10 billion, making Index’s shares worth as much as $800 million given its 8 percent stake in the company.
WALL STREET JOURNAL
An Everyday Test for Bitcoin  | A Wall Street Journal reporter spent a week using Bitcoin, with surprising results: The virtual currency was neither anonymous or shadowy, he writes.
WALL STREET JOURNAL
Postmates Closes New Financing Round  | Postmates, a delivery service that allows people to order food and other items delivered via bicycle messenger, said it is now processing more than 10,000 deliveries a week and is raising $16 million in a Series B funding round to help it expand to new cities in the next year, the Bits blog reports. The new funding round brings the companies total to $22 million.
NEW YORK TIMES BITS
Teenager Who Sold Start-Up to Yahoo Makes First Investment  | Nick D’Aloisio, the teenager who sold his tech start-up to Yahoo for an estimated $30 million, has used some of his proceeds to invest in Sweden’s Tictail, an online store developer that has attracted attention in the Swedish technology scene, The Financial Times writes.
FINANCIAL TIMES
Duolingo Collects $20 Million  | Duolingo, the addictive language-learning application, announced it had raised $20 million in Series B funding led by Kleiner Perkins Caufield & Byers, adding to the $18.3 million it had raised previously, ReCode reports. The new funding will be used to develop its paid products.
RECODE
Media May Be to Blame for Perkins Controversy  | “None of this would have happened â€" the public discussion, the fracas over one man’s comments, the sheer entertainment value â€" if not for the role of the news media. Specifically, the local newspaper, warts and all, was critical to prodding Thomas J. Perkins’s thinking,†Adam Lashinsky writes in Fortune.
FORTUNE
Start-Up Socialbakers Raises $26 Million  | Socialbakers, a start-up that provides social media analytics to marketers, has collected $26 million in a Series C round of funding led by Index Ventures, bringing its total to about $34 million, ReCode writes.
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Judge to Consider A.I.G.’s Request to Delay Bank of America Deal  | Supporters of Bank of America’s $8.5 billion deal to compensate investors who bought the bank’s faulty mortgage securities said that American International Group is holding the agreement “hostage,†Reuters reports. A judge has called a hearing for Wednesday to hear A.I.G.’s arguments.
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LONDON - The Royal Bank of Scotland said on Wednesday that it would sell its structured retail investor products and equity derivatives business to BNP Paribas.
The Royal Bank of Scotland, which is 81 percent owned by the British government following a bailout in 2008, announced plans last year to sell the business as part of a plan to scale back its investment bank and focus on retail and commercial banking in Britain, its home market.
Terms of the deal weren’t announced.
“The proposed transaction is in line with the strategic repositioning and de-risking of the markets division of the R.B.S. Group,†the bank said.
The deal is subject to approval by competition authorities and is expected to be implemented in phases in 2014 and 2015.
The transaction is expected to transfer risk management and market-making operations for up to 15 billion pounds, or about $25 billion, of liabilities over time.
Last year, the bank announced a broad plan to sell assets and cut jobs to appease regulators and the British government.
R.B.S. also said it would separate £38 billion of troubled assets into an “internal bad bank†in the company and moved up plans for an initial public offering of its Citizens Financial Group unit in the United States to the second half of this year.
Under the leadership of Ross McEwan, the bank’s chief executive, R.B.S. is trying to transform itself into a more customer-focused organization, but has stumbled through a series of setbacks in recent months.
An embarrassing computer malfunction left customers unable to use their debit and credit cards for a time during the Christmas shopping season, and the bank’s chief financial officer abruptly departed last year after only three months on the job.
In January, R.B.S. said it would set aside nearly 3 billion pounds, or about $5 billion, in the fourth quarter to cover potential litigation claims related to mortgage-backed securities and other products sold before the financial crisis. The bank is set to report its year-end results on Feb. 27.
Last week, the credit rating agency Moody’s Investors Service placed R.B.S. on review for a potential downgrade of its debt ratings in light of the planned capital hit.