For Facebook, It’s Users First and Profits Later

Technology companies have always been paranoid about missing the next big thing, be it email, e-commerce or social media.

Yet today, with Google, Facebook and others all fighting for the same customers and wallets, the competition has never been more intense, and big companies have never had to act so quickly â€" and with such conviction â€" to avoid being left behind.

This changed landscape helps explain why Facebook on Wednesday made what appears to be one of the largest gambles in the recent history of corporate America, agreeing to buy the text messaging start-up WhatsApp for up to $19 billion.

In doing so, Facebook has wagered a full tenth of its own market value on a belief that phone calls will become increasingly obsolete, while short messages sent from mobile devices will remain ascendant.

Mark Zuckerberg, the co-founder and chief executive of Facebook, is also betting that at some point down the road, his company will be able to make huge sums of money from Whats
App, a service that has 450 million users. And by offering such a staggering sum, Facebook achieved a critical strategic goal: ensuring that WhatsApp remained out of the hands of its chief rival, Google.

The purchase â€" among the largest Internet deals ever and the biggest by far in Facebook’s 10-year history â€" is a milestone that signals the arrival of an intense new phase of corporate competition in Silicon Valley.

“These big companies feel like they can’t afford to lose mind share and time share to competitors,” said Aileen Lee, a partner at venture capital firm Kleiner Perkins Caufield & Byers. “And they are willing to pay a lot of money for large user bases.”

Google was among the companies that wanted to buy WhatsApp and recently offered $10 billion for the company, which has just 55 employees.

WhatsApp turned Google down, unimpressed. Instead, WhatsApp’s co-founder and chief executive, Jan Koum, paid a visit to the suburban home of his friend, Mr. Zuckerberg.

The two men had shared dinners and hikes in recent years, and Mr. Zuckerberg had also expressed an interest in acquiring WhatsApp. So last weekend, as the two men negotiated over a plate of chocolate-covered strawberries, Mr. Zuckerberg agreed to nearly double Google’s price.

There is concern that by valuing the number of users above revenue, Facebook is merely inflating another dot-com bubble.

“Back in 1999, when we started looking at valuations on a per-eyeball basis, that was the beginning of the end,” said Youssef Squali, an analyst at Cantor Fitzgerald who follows Facebook.

But by the unique logic of Silicon Valley, Facebook may have in fact negotiated a good deal. WhatsApp has grown faster than almost any company in the history of the web, faster than Facebook itself. It is adding a million users a day and is on track to reach a billion before long.

And while WhatsApp has nominal revenue right now â€" charging users just $1 a year, with the first year free â€" other messaging services make money through a mix of user fees, advertising and the sale of virtual goods.

“Services in the world that have one billion people using them are all incredibly valuable,” Mr. Zuckerberg said on a conference call on Wednesday. “We see a pretty clear trajectory ahead, and we were just very excited to work together on this.”

Facebook, Google and others have been accused of overpaying for unproved start-ups before. Yet these leaps of faith have helped define Silicon Valley’s most successful corporations.

When Google bought YouTube for $1.6 billion in 2006, critics called the search giant crazy. YouTube is now the dominant video platform on the web.

When Facebook acquired Instagram for $1 billion in 2012, it, too, was assailed for a supposedly bad investment. But today, with Instagram thriving and beginning to sell advertising, that deal looks like a bargain.

In WhatsApp, Facebook sees not a trove of patents or a lucrative advertising model but the future of communications â€" mobile, cross-platform, cheap and international. If the company can increase the number of Whats-
App users and the amount of time they spend with the product, it will theoretically be able to cash in one day. After all, when a product has a billion users, it needs to earn only a few dollars a year from each of them to be a robust business.

“As staggering as $19 billion seems as a number, when you think about the size of the market at stake, and the impact it might have on the firm’s long-term trajectory, you can understand the price,” said Josh Lerner, a professor at Harvard Business School.

For the price it plans to pay for WhatsApp, Facebook could have acquired companies like United Continental, Best Buy or Sony. Instead, it spent the money â€" $16 billion in cash and stock plus up to an additional $3 billion in restricted stock units â€" on a fast-growing text-messaging service with nominal revenue. Facebook’s stock was up 2.3 percent on Thursday as investors endorsed Mr. Zuckerberg’s philosophy of attracting users first and worrying about profits later.

“We’ve had multiple instances of companies that focused on growing the user base, growing the engagement, and then turning on the monetization,” said Mr. Squali of Cantor Fitzgerald. “Facebook itself is the greatest example of that, and it ended up paying off tremendously.”

Yet Facebook’s acquisition of WhatsApp can also be viewed as a window into its own insecurities.

With new consumer Internet companies being started every day â€" and online consumers notoriously fickle â€" a next big thing will always be rising up to threaten Facebook’s dominance. As a result, Facebook, like other technology companies, is left playing an expensive game of Whac-a-Mole, scrambling to buy its newest competitors and keep those users out of the hands of its rivals.

“This exposes the strategic fallacy behind Facebook, which was the idea that there was going to be a monopoly on the social graph, and that Facebook was going to own it,” said Keith Rabois, a partner at venture capital firm Khosla Ventures. “That’s not true, and I don’t believe Facebook will constantly be able to buy its way out of this structural challenge.”

For now at least, Facebook can do just that. After a weak first few quarters as a public company, Facebook is solidly profitable. Last month, it reported $523 million in net income on $2.6 billion in revenue for the fourth quarter, and the company can afford to make some expensive mistakes.

Google also has billions of dollars in cash to spend on deals. Its stock, like Facebook’s, is trading near a record high, making it easy to pay for deals with shares. And other companies, like Apple, Twitter and Microsoft, are all similarly flush.

It probably won’t be long before the next big deal is announced. Line, a WhatsApp competitor that is popular in Asia, is reportedly considering a public stock offering that would value it at $10 billion or more. Kik Messenger, another popular mobile company, is thought to be a takeover target.

And Snapchat, the photo-sharing application, turned down a $3 billion offer from Facebook last year. The founders’ decision to reject such a princely sum was mocked at the time, but after the price paid for WhatsApp, it could be seen as prudent.

It is not inconceivable that any of these companies â€" or yet unknown start-ups that attract millions of users in a matter of months â€" could soon attract multibillion-dollar bids from the technology giants.

For venture capitalists, the deal for WhatsApp is a welcome justification of their business model at a time when many funds have faltered. Sequoia Capital, the firm that invested about $60 million in WhatsApp for an ownership stake of 15 to 20 percent, stands to make more than 50 times its money, or $3 billion.

“Returns like that are the strange attracters that keep V.C.s in the game of placing large bets on early-stage companies that are just as likely to go broke as to hit it out of the park,” Erik Gordon, a professor at the University of Michigan, said, referring to venture capital firms.

Bankers are chasing Silicon Valley’s megadeals, too. Morgan Stanley and Allen & Company, the investment banks that advised WhatsApp and Facebook, respectively, could each collect more than $30 million for their work on the deal.

For the year, tech deals are at their highest level since the dot-com boom, according to Thomson Reuters.

And entrepreneurs will take this as a cue to continue founding companies and accepting big investments, betting that they can create the next application to attract millions of users on the web, and billions of dollars in a deal.

Two Senior Living Companies to Merge

Many octogenarians will not have to travel far to find senior living housing after the merger of two of the country’s leading elder care companies.

Brookdale Senior Living and Emeritus Corporation announced on Thursday that they would merge in a deal valued at $2.8 billion, including about $1.4 billion of Emeritus mortgage debt.

After the merger, 6.5 million people 80 years or older will live within 10 miles of a Brookdale community, according to the announcement.

Company executives expect $45 million in annual cost savings from the deal, and they noted the expanded real estate portfolio of more than 1,100 assisted living communities.

The companies also want to take advantage of what they say will be $4.5 billion in annual health care expenditures from their combined 100,000 residents.

“More people are seeking out senior living solutions than ever before,” said Granger Cobb, the president and chief executive of Emeritus.

Emeritus shareholders will swap each share of their common stock for .95 shares of Brookdale’s common stock. The deal is expected to close in the third quarter of 2014.

Based on each company’s closing share price on Wednesday, the deal represents a 32 percent premium on Emeritus’s stock, according to the companies’ announcement. Emeritus stock was up more than 30 percent in after-hours trading on Thursday. Brookdale’s stock remained nearly flat.

After the merger, Brookdale’s service offerings will include dementia care, skilled nursing and independent and assisted living in 46 states. Andy Smith, the current chief executive of Brookdale, will serve as the chief executive of the combined company.

“It is anticipated that certain members of Emeritus’ senior management team will continue in senior positions after the merger,” according to the announcement on Thursday.

Bank of America Merrill Lynch and CS Capital Advisors advised Brookdale, which received legal counsel from Skadden, Arps, Slate, Meagher & Flom and Bass, Berry & Sims. Wells Fargo and Moelis & Company served as financial advisers, while Perkins Coie provided legal advice.

With Ban on Ads Lifted, Hedge Funds Test Waters

It looks like the kind of motivational poster on a college student’s dorm room wall. Snowboarders stand at the peak of a steep mountain, reveling in victory, with the tag line, “Performing in all conditions.”

Instead, it is an advertisement for the $4.3 billion hedge fund Balyasny Asset Management. The fund says it hopes that viewers associate the ad, which is in the latest issue of the publication Pension & Investments, with prudent money management.

The ad is the boldest example yet of a hedge fund taking advantage of recent changes in Securities and Exchange Commission regulations under the 2012 JOBS Act, which lifted a ban on “general solicitation” of investors.

Until now, the changes had been met with caution by an industry that has long benefited from the appearance of exclusivity. Maintaining and cultivating that image, in fact, has been the primary focus of hedge fund marketing efforts for most of the last three decades.

But years of lackluster performance and growing competition for institutional investors like pension funds have made hedge funds warm to the idea of branding. Just do not call it advertising.

“The move is very interesting,” Donald A. Steinbrugge, managing partner at Agecroft Partners, a hedge fund consulting firm, said of the Balyasny ad. “I think the fact that they are doing that will lead to others replicating it.”

Since changes to the “general solicitations” rule took effect last fall, some new hedge funds have dipped their toes into the advertising waters, creating videos and posting promotional materials on websites. Last December, Topturn Capital, a $100 million hedge fund, created a three-minute ad for its website with images of a professional surfer surveying rocky waters, interspersed with the company’s two founders discussing how managing money is a lot like surfing.

Older hedge funds with big-name founders have joined in less directly. Bridgewater Associates, the $150 billion hedge fund, posted a video on YouTube a day before the new advertising rules took effect, featuring its billionaire founder, Ray Dalio, in a 30-minute lecture called “How the Economic Machine Works.” Other funds are adding more information to their websites, and fund managers appear more frequently on business networks like CNBC and Bloomberg Television, their advisers say.

Yet even as hedge fund managers begin to test the waters, there is little indication that the floodgates have opened.

“Hedge funds are putting more stuff on their websites, but for right now there is very little general advertising,” said Jay Gould, a hedge fund lawyer at Pillsbury Winthrop Shaw Pittman. “Most fund managers, even at the high level, are not interested.”

Private investment funds remain restricted in the types of investors they may tap under the new S.E.C. rules. The regulator stipulates that they raise money only from “accredited investors” who earn more than $200,000 a year or have assets totaling at least $1 million, excluding property.

Proponents of the looser regulations argue that allowing hedge funds to discuss their performance publicly will make them more accountable and cast light on a dark corner of the financial services market, helping to better inform investors.

Detractors have voiced concern that a proliferation of advertisements will lure unsophisticated investors into investments that they do not fully understand and cannot easily leave. Other critics point out that the hedge funds that choose to advertise will be opening themselves to closer scrutiny by regulators and more frequent audits.

The new advertising rules have also presented an opportunity for hedge funds, which are increasingly going after money from institutional investors like sovereign wealth funds and pension funds. Before the financial crisis, money from institutional investors accounted for just a third of the hedge fund industry’s assets, according to a recent survey by Deutsche Bank. Today, they contribute two-thirds of the new money flowing into hedge funds.

As a result, hedge fund executives, once more at home discussing their performance in private clubs and at high society events, are having to adjust to a new reality, where they are competing with larger money management firms like Blackstone and Fidelity. Those firms already spend large sums on marketing.

“The JOBS act rules have permitted investment managers to feel more comfortable about branding their business more generally,” Mr. Gould said.

For Balyasny, the decision to advertise was simple, said Colin Lancaster, senior managing director at the fund. Balyasny, which is based in Chicago, recently began raising new money from investors after having closed its doors to outside investors for two and a half years. When the marketing team at Pensions & Investments asked the hedge fund if it would consider running an ad, the fund agreed and paid roughly $6,000 for a half-page spread, Mr. Lancaster said.

“Businesses like ours are really unsophisticated,” he said, referring to the level of advertising expertise in the hedge fund industry.

The decision to use the image of snowboarders? “It took all of seven minutes,” Mr. Lancaster said. “We said, ‘That’s a neat picture that conveys who we are.’ ” He added that many of the traders in Balyasny’s 41 portfolio teams globally like to participate together in athletic events.

Investments in Brazil Rose Last Year, Study Says

RIO DE JANEIRO â€" Despite its economic woes, Brazil experienced an increase in private equity and venture capital investments in 2013 over the year before, the Latin American Private Equity and Venture Capital Association said on Thursday, in presenting its annual survey.

In 2013, a total of $6.04 billion was committed to Brazil, compared with $5.7 billion in 2012. Investments in Latin America also increased, to $8.9 billion, up 13 percent from the $7.9 billion in 2012. The region had 233 deals last year, a slight drop from 237 in 2012.

Oil, gas and energy were the most popular sectors in terms of dollar volume. The region’s information technology sector continued to ascend, accounting for 48 percent of the number of deals, though only 7 percent of dollar volume.

In fact, start-up activity remains robust. The number of venture capital seed, early and expansion investments in the region in 2013 was 111, just one fewer than in 2012, and that is even as many companies over the past year have shut down and others struggled to reach profitability.

The total dollar amount invested for the region is the highest that the association, which is based in New York, has reported since it started monitoring in 2008, its chairman, Patrice Etlin, said. He presented the findings on Thursday at the yearly Super Return Latin America conference being held in Rio de Janeiro.

At the same time, fund-raising in the region stalled last year, in part because many companies continued to spend capital they had raised in past years. Brazil raised $2.4 billion last year, a 35 percent decline from the previous year.

The region as a whole raised $5.5 billion, a little below the $5.6 billion raised in 2012 but far under the $10.3 billion high-water mark in 2011.

Emerging markets are facing tough times. Brazil, in particular, has struggled to recover the darling status it once held. As one indicator, this week’s Super Return Latin America meeting is taking place in a conference room significantly smaller than the one used last year.

Growth in Brazil has been sluggish, inflation is a growing concern and the country’s fiscal accounts are worsening.

On Thursday, Guido Mantega, Brazil’s minister of finance, said the government would lower its estimates of the primary budget surplus this year to 1.9 percent of gross domestic product and cut 44 billion reais in spending (roughly $18.5 billion).

Still, for some investors, tough times often present opportunities.

In an interview on Thursday, Mr. Etlin said, “I expect this year to be a strong one in terms of capital deployment, at least at same level of 2013.” He said that is, in part, thanks to lower valuations, less competition and also a depreciating currency.

Mr. Etlin, who is also a managing partner at the private equity firm Advent International, added: “I believe we are going to begin to see fund-raising pick up again this year. Levels should be greater than they were in 2013, but not at as high as in 2010-11 levels.”

Brazil continued to lead the region, accounting for 68 percent of 2013 investments in dollar volume, a small drop from 72 percent in 2012.

A year ago, some speculated that Mexico could benefit from Brazil’s troubles, but that does not appear to be the case.

Mexico saw a slight drop in investment dollars last year, to $632 million from $684 million in 2012. But the number of deals increased to 30 last year from 21 the year before.

Fund-raising in Mexico, meanwhile, grew significantly, to $1.044 billion last year. The Andean region, including Colombia and Peru, also had a significant jump in fund-raising, to $1.378 billion.

Mr. Etlin was optimistic about the coming year for Brazil. “I expect Brazil to take a larger share of region in both fund-raising and investments,” he said.

Former Hedge Fund Analyst Charged With Stealing Data

A former hedge fund analyst has been charged with stealing confidential computer data from his previous employer, the latest crackdown by the Manhattan district attorney on suspected violations of cybersecurity.

The five felony charges against Kang Gao, who worked at the hedge fund Two Sigma Investments, include computer trespass and unlawful duplication of computer related material. A grand jury indicted Mr. Gao, a spokesman for the district attorney’s office said. Specific charges in the indictment are scheduled to be disclosed next month.

Mr. Gao was arrested on Feb. 11, and Two Sigma filed a civil lawsuit three days later, according to court documents. The hedge fund, which specializes in a computer-driven investment strategy called quantitative trading, contends that Mr. Gao planned to give confidential information on its models to a competitor or use it to start his own firm in China. Mr. Gao is a Chinese national.

Quantitative trading relies on mathematical modeling software that firms often develop on their own. In its suit, Two Sigma calls its models the “lifeblood of its business” and seeks to ban Mr. Gao from sharing any of its intellectual property while litigation is pending.

Mr. Gao did not appear at a hearing in the lawsuit on Thursday, when a judge ordered an injunction that bars him from using or transferring any of Two Sigma’s proprietary information.

“The distribution of Two Sigma’s intellectual property to current or potential competitors would cause it irreparable harm and grave hardships to the company (and its clients),” according to the company’s original complaint. Two Sigma wants the court to order Mr. Gao to hand over his phone and other hardware, among other demands.

Two Sigma also wants Mr. Gao to forfeit $384,000, his “compensation during his period of disloyalty,” which the firm contends began May 13. The judge ordered that $385,000 remain in Mr. Gao’s Bank of America account.

Two Sigma, which was founded in 2001, has $18.5 billion under management, according to Kelly Howard, Two Sigma’s senior vice president for marketing and communications. The company’s modeling teams “work with vast data sets - from corporate earnings to news and weather reports,” according to its website.

Mr. Gao, a 28-year-old graduate of the Massachusetts Institute of Technology, began working at Two Sigma in 2010 as a quantitative analyst. He resigned days before his arrest, according to the company’s lawsuit.

A lawyer for Mr. Gao in the criminal case, Benjamin Yu, said his client had pleaded not guilty to all five charges. It is unclear whether Mr. Gao has a lawyer representing him in the civil case.

Cybercrime has been a top priority for Cyrus R. Vance, the Manhattan district attorney. Mr. Vance has publicly advocated for strengthening the laws against identity and computer code theft, and his office has bolstered its cyberforensic activity and facilities in recent years.

The district attorney’s office pursuing charges against Sergey Aleynikov, a former Goldman Sachs programmer accused of stealing confidential source code from the bank’s computers. Mr. Vance decided to pursue Mr. Aleynikov after a federal appeals court overturned his federal conviction in essentially the same case in 2010.

But while Mr. Vance may want to crack down on white-collar cybercrime, legal experts point to a number of hurdles. For one, few precedents exist in state courts, and similar cases have met with mixed results in federal courts, where the definition of computer trespass and unauthorized access is less well defined.

“This is an increasingly common situation and the law here is pretty murky,” said Orin S. Kerr, a law professor at George Washington University. “The question is, if you violate an employee agreement about use of a computer, is that like hacking into the computer?”

In its complaint, Two Sigma said that Mr. Gao breached his employment agreement by looking at confidential models he did not have a right to view. Mr. Gao admitted to Mr. Vance’s office that he emailed himself models he was not permitted to view, according to the criminal charges.

“Two Sigma takes the protection of our intellectual property very seriously,” Mr. Howard said, adding that the firm alerted Mr. Vance’s office once they began to suspect criminal activity.

Two Sigma also contends that before his arrest, Mr. Gao researched cases of people who stole intellectual property and trade secrets from their employers and tried to transfer $100,000 into what the firm believes was the account of his girlfriend, a research associate at Morgan Stanley.

In court documents, the firm pointed to the transfer as potential evidence that Mr. Gao was trying to start a new business using trade secrets.

Juniper Networks Reaches Deal With Hedge Fund

Juniper Networks, the networking equipment company, said on Thursday that it had reached an agreement with the hedge fund Elliott Management to nominate two new directors to its board and return more money to shareholders, avoiding a possible proxy fight with the hedge fund.

Elliott Management, which disclosed a 6.2 percent stake in Juniper and began pushing for change last month, has agreed to support the company’s director candidates and the other new initiatives, which include efforts to streamline its business portfolio and cut costs, Juniper said.

Juniper said it would nominate Gary Daichendt, a former Cisco executive, and Kevin DeNuccio, the former president and chief executive of Redback Networks, for election to its board. The company also said that Kevin Johnson, who retired as its chief executive last year, would step down from the board at the end of February.

The plan is quite similar to a proposal that Elliott put forward in January. The two director nominees were chosen by Elliott, according to a person briefed on the matter.

Juniper’s shares were up about 1.6 percent in trading after hours.

“Today’s announcement is an incredibly positive development for Juniper and its shareholders,” Jesse Cohn, a portfolio manager at Elliott Management, said in a statement. “Elliott is highly optimistic about the company’s future and looks forward to supporting Juniper in its continued focus on creating shareholder value.”

Under the program announced on Thursday, Juniper plans to return at least $3 billion to shareholders over the next three years through share buybacks and dividends. That plan involves $2 billion in buybacks through the end of the first quarter of 2015 and a quarterly cash dividend of 10 cents a share beginning in the third quarter of 2014, all of which would be financed using cash on hand and newly issued debt.

Juniper also said it would seek to streamline its operations and portfolio and focus more on certain fast-growing markets. That will help it reduce costs and improve operating margins, the company said, adding that it had established a “cost control committee” led by Shaygan Kheradpir, the new chief executive.

“I joined this phenomenal company as an agent of change,” Mr. Kheradpir said in a statement. “The initiatives announced today are based on a comprehensive review of our business and customer needs, and we are confident that they will drive long-term, profitable growth by capturing greater share in the most meaningful market segments.”

The announcement averts what could have been a proxy fight with Elliott Management. The hedge fund hinted that it had found a slate of director nominees that it was prepared to put forward.

Another hedge fund, Jana Partners, had also set its sights on Juniper, telling its investors last month that it took a large stake in the company.

BBVA Buys Banking Start-Up Simple for $117 Million

The online banking start-up Simple, which seeks to distinguish itself from traditional banks by eschewing fees and offering its customers data-rich analysis of their transactions, is selling itself to a giant of European finance.

BBVA, a big bank based in Madrid, said on Thursday that it had agreed to buy Simple for $117 million. The deal helps BBVA enlarge its presence in the United States, where it operates through its Compass subsidiary, and sets up Simple for expansion in this country and abroad.

Simple, based in Portland, Ore., prides itself on its independent spirit, frequently criticizing the traditional banking model of which it is now becoming a part. The company was quick to emphasize, however, that its business would largely remain unchanged, operating as a separate subsidiary with the same management team.

“The biggest difference from a consumer perspective is that we’re going to have significantly more resources so we can grow faster,” Josh Reich, the co-founder and chief executive, said in an interview.

Simple, which offers slick apps that customers use to monitor their activity, is not a true bank, relying on Bancorp to hold customer accounts. With the BBVA deal, accounts will eventually move over to the Spanish bank, a process that would happen behind the scenes.

For BBVA, acquiring Simple gives it about 100,000 new customers in the United States and technology that it hopes will help it attract more. The chairman of BBVA, Francisco González, became intrigued in 2011 when he heard Shamir Karkal, a co-founder of Simple, give a talk criticizing banks’ technology and approach to customer service, Mr. Reich said.

Mr. González sent a handwritten note to Mr. Karkal, saying not all banks were as bad as he made them out to be, according to Mr. Reich. The start-up stayed in touch with BBVA, and talks about a deal entered a serious phase last fall, in meetings in Madrid, Mr. Reich said.

Simple, which was founded in 2009, is still a niche service, though it says it is growing quickly. The company, which recently crossed the 100,000-customer mark, says it had just 19,000 customers at the beginning of 2013. It officially opened its doors for business in July 2012.

“Each month it’s growing faster than the prior month. That’s one of the reasons why the bank was interested in us,” Mr. Reich said.

Customers of Simple get a white card that can be used like a debit card, and they can take advantage of features like direct deposit and money transfers. The company does not have any physical branches, however, and it does not offer paper checkbooks. Last year, it handled more than $1.7 billion in transactions.

Though it is not profitable, Simple has broken even, according to a person familiar with the matter who was not authorized to speak publicly on it. The company makes money from interchange fees when customers swipe their cards. One advantage the company has is that it gains most of its customers through word of mouth or referrals, allowing it to spend little on marketing.

The start-up, which has taken $18.1 million in outside financing and is backed by venture capital firms including IA Ventures and Village Ventures, had the option of raising more money from investors, Mr. Reich said. But doing so would have “involved a degree of compromise to our vision that we thought was short-sighted,” he said.

“We have, at the end of the day, a very low cost model that is revolutionary from a bank perspective but doesn’t fit the short-term mindset that is common at a lot of venture capital firms,” Mr. Reich said, adding that BBVA would allow the company to continue to avoid charging fees.

BBVA initially became involved with Simple through Dave McClure, an investor who backed the start-up in 2010. Mr. McClure’s fund, 500 Startups, counts BBVA as an investor, and it was through that connection that Mr. González found himself listening to Mr. Karkal in 2011.

For now, Simple plans to focus on expanding in the United States, including by moving to a bigger office and hiring more staff members. But it has ambitions to grow abroad, and it hopes the BBVA deal will assist in that effort.

The start-up was advised in the deal by MergerTech, an investment banking boutique based in Emeryville, Calif., with offices in Portland.

Modeling the Financial Logic for Facebook’s Huge Deal

For mere mortals who haven’t partaken in whatever Kool-Aid Mark Zuckerberg is serving at Facebook’s Hacker Way headquarters, is there any way to justify the $19 billion ($16 billion, plus $3 billion in restricted stock units that vest in four years) it is paying for WhatsApp?

It takes extraordinary suspension of disbelief - and a new Breakingviews calculator - to see how the social network can bring the messaging start-up’s valuation in line with its own.

Any fact-based analysis is handicapped by a paucity of hard numbers. WhatsApp says it has 450 million active users and is adding 1 million new users per day. The app is free for 12 months, after which it costs $1 a year. WhatsApp doesn’t say what proportion of its customers pay. What’s clear, however, is that it has, for the time being, no other sources of revenue: WhatsApp has foresworn advertising.

Say Mr. Zuckerberg is right and WhatsApp reaches 1 billion users by 2016. Costs are probably low: rival Viber, which has fewer users, spent around $30 million in 2013. Assume WhatsApp, which has about 50 employees, currently spends $50 million on overhead, servers and bandwidth this year. Maybe that rises to $75 million by 2016.

If the ban on advertising remains, WhatsApp’s valuation boils down to how many customers will pay and how much they’ll spend. At the moment, the proportion is probably low. If WhatsApp is to justify its price tag, it needs to increase both.

Over time, if it could convince a tenth of users to pay, it would equate to 100 million people. At $1 a month - well above today’s $1 a year charge - it would yield net income of $675 million in 2016. That’s equivalent to 28 times Facebook’s purchase price, the same multiple the market puts on the social network’s stock. Equally, if an improbable 800 million people pay $1.50 a year, the valuation could also stack up.

Charging a bit for messaging sounds plausible, especially if it undercuts existing mobile phone charges. But such apps are ubiquitous and the barriers to switching relatively low. The financial logic for buying WhatsApp can be modeled, but requires a big quaff from Mr. Zuckerberg’s punchbowl.

Peter Thal Larsen is Asia Editor and Rob Cox is editor of Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

An Aggressive Fed Finds Critics on Wall Street

Every time Janet L. Yellen, the chairwoman of the Federal Reserve, testifies in Congress, she can expect some senators to scoff and representatives to question.

But Washington’s critics pale next to Wall Street’s.

Since the financial crisis, the Fed has engaged in an aggressive stimulus campaign, which has helped lift stock and bond markets, greatly enriching Wall Street in the process. Even so, a surprisingly large number of investors and bankers remain deeply skeptical â€" and even angry â€" about what the Fed is doing.

Many of them believe that the central bank’s policies are causing harm â€" and they are confident that Ms. Yellen, who succeeded Ben S. Bernanke as chief this month and is extending his policies, will fail spectacularly.

“I don’t really like the Fed very much,” said Jeffrey E. Gundlach, chief executive of DoubleLine, an investment firm. “I wish the Fed were not manipulating the market the way it is.”

In many ways, the Fed bashing, which remains widespread and undimmed five years after the crisis, is not surprising. Financiers have always weighed in on the economic policy questions of the day. And it is in character for certain top Wall Street figures to believe they are smarter than the government employees who have the actual job of fighting unemployment.

Yet, to hear the Fed’s critics tell it, their antipathy toward the central bank is not motivated by a reflexive opposition to government intervention, but by a desire to end the big booms and busts that have hurt the economy in recent decades.

Some of them have backed progressive causes, and assert that the Fed’s policies are widening the divide between the rich and poor. “It does seem that in spite of all the rhetoric you hear, it is not stopping the polarization of wealth,” Mr. Gundlach said.

The Fed’s critics have gotten some of their biggest predictions wrong. The central bank’s stimulus did not create inflation or debase the dollar. The Fed’s supporters on Wall Street credit it with taking bold actions after the crisis that, they say, averted a terrible slump that would have made life far harder for people on lower incomes. The Fed itself has acknowledged that its easy money policies have costs as well as benefits. Fed officials have made it clear that they are on the lookout for new dangers like excessive speculation in the markets.

“I believe I am a sensible central banker and these are unusual times,” Ms. Yellen said in Congress this month.

Still, the detractors say that the Fed has learned little, and seems doomed to commit the same mistakes as in the past 30 years.

“My guess is that the Fed will play its usual game till we’re in good old-fashioned bubble territory,” said Jeremy Grantham, co-founder of GMO, an investment firm. He took particular umbrage at Ms. Yellen’s recent arguments in Congress for why the stock market is not particularly overvalued. “Either she is ignorant about the markets,” he said, “or on the other hand she is cynical and she is manipulating the market.”

One theory unites the faultfinders â€" and it conveniently allows them to keep issuing warnings even as the economy shows signs of strength. The critics contend that the Fed’s near-zero interest rates and its huge bond-buying programs have acted a lot like steroids, creating an artificial recovery that could wane as the Fed removes the stimulus in the coming months.

“This is the drug that masks the symptoms rather than treats the disease,” said Todd Harrison, a former hedge fund manager and the chief executive of Minyanville, an online financial media company.

One reason that low interest rates cannot create a lasting recovery, the critics said, is that cheap borrowing costs do very little when so many people are already heavily indebted. In this climate, according to the Fed’s opponents, it is wrongheaded, and perhaps futile, for the central bank to encourage people to take out more loans.

“Trying to solve an indebtedness problem by getting further into debt only compounds the problems,” said Lacy H. Hunt, chief economist of Hoisington Investment Management. “You have to clear the debt.”

Many of the Fed bashers promote alternative policies that can sound harsh. They argue that the economy would have bounced back more robustly since the financial crisis if the central bank had done less, because, they assert, capitalism works best when it is allowed to purge itself of uneconomic activity. “The economy might have snapped back a lot more strongly,” Mr. Grantham said. By intervening less, he added, the Fed “would have broken the back of moral hazard, just as Volcker did when he broke inflation,” referring to Paul A. Volcker, a former Fed chairman who pursued tough policies in the 1980s.

Though there are many Fed baiters on Wall Street, most of the financial industry has a generally favorable view of the central bank. And the Fed’s supporters shudder when they hear their peers calling on it to do less.

The Fed’s sympathizers say that it would have risked a bigger banking collapse and a depression if it had not opened the floodgates after the crisis. Short of entirely changing the way in which the global banking system operates, which simply wasn’t going to happen, there was not much else the Fed could do to keep things afloat, they say.

“The Fed has been doing what it can to stabilize this inherently unstable system, but we are still left with the system,” Tony Crescenzi, a portfolio manager at Pimco, said. In addition, defenders of the Fed argue that its policies can foster the economic conditions that enable a lightening of the country’s debt load that is not dangerously jarring. Ray Dalio, founder of Bridgewater Associates, a hedge fund, calls this a “beautiful deleveraging.”

But James S. Chanos, of Kynikos Associates, a hedge fund, asserts that nonfinancial debt is actually higher than it was before the crisis.

“That beautiful deleveraging has not happened,” he said. “We are more leveraged as a society than we were in 2007 at the onset of the financial crisis.”

The longer the Fed fuels borrowing, the worse things are becoming, the critics say. Mark Spitznagel, founder of Universa Investments, a hedge fund that profited during the 2008 crash, argues that by holding down interest rates, the Fed encourages companies to take up unhealthy habits, like borrowing to fund purchases of their own shares. “That’s outrageous behavior,” he said. “The Fed has entirely forced people to do this.”

It has come to the point where the Fed’s detractors wonder whether it has fallen victim to a school of thought that can only resort to easy money policies. “Sometimes you get a groupthink around a base assumption,” David Einhorn, president of Greenlight Capital, a hedge fund, said in a speech in 2012. “We’ve reached that point here with monetary policy.” Mr. Einhorn contends that the extremely low interest rates on savings are actually depriving people of income that could substantially bolster the wider economy.

The Fed’s supporters roll their eyes when Wall Street rushes to the defense of savers. Such remarks, they say, stem from ignorance about how the economy works during periods of adjustment. For instance, Mike Konczal, a fellow at the Roosevelt Institute, points out that John Maynard Keynes noted during the Great Depression that financiers expected unrealistically high returns on their capital. Testifying in Congress this month, Ms. Yellen herself said, “The rate of the return savers can expect really depends on the health of the economy.”

Still, many of the critics expect they will be proved right when, as they predict, the Fed’s policies lose their power. When that happens, a big loss of confidence will occur, which will roil the markets and the economy, they forecast. “They’ve gotten themselves boxed into a corner,” Mr. Gundlach said. Mr. Grantham said that he thought the Fed’s largess would drive stocks so high that they will become vulnerable to even the slightest nudge.

“We all feel like old-fashioned gramophone records,” he said. “It is the same old game and we keep saying the same old things.”

An Aggressive Fed Finds Critics on Wall Street

Every time Janet L. Yellen, the chairwoman of the Federal Reserve, testifies in Congress, she can expect some senators to scoff and representatives to question.

But Washington’s critics pale next to Wall Street’s.

Since the financial crisis, the Fed has engaged in an aggressive stimulus campaign, which has helped lift stock and bond markets, greatly enriching Wall Street in the process. Even so, a surprisingly large number of investors and bankers remain deeply skeptical â€" and even angry â€" about what the Fed is doing.

Many of them believe that the central bank’s policies are causing harm â€" and they are confident that Ms. Yellen, who succeeded Ben S. Bernanke as chief this month and is extending his policies, will fail spectacularly.

“I don’t really like the Fed very much,” said Jeffrey E. Gundlach, chief executive of DoubleLine, an investment firm. “I wish the Fed were not manipulating the market the way it is.”

In many ways, the Fed bashing, which remains widespread and undimmed five years after the crisis, is not surprising. Financiers have always weighed in on the economic policy questions of the day. And it is in character for certain top Wall Street figures to believe they are smarter than the government employees who have the actual job of fighting unemployment.

Yet, to hear the Fed’s critics tell it, their antipathy toward the central bank is not motivated by a reflexive opposition to government intervention, but by a desire to end the big booms and busts that have hurt the economy in recent decades.

Some of them have backed progressive causes, and assert that the Fed’s policies are widening the divide between the rich and poor. “It does seem that in spite of all the rhetoric you hear, it is not stopping the polarization of wealth,” Mr. Gundlach said.

The Fed’s critics have gotten some of their biggest predictions wrong. The central bank’s stimulus did not create inflation or debase the dollar. The Fed’s supporters on Wall Street credit it with taking bold actions after the crisis that, they say, averted a terrible slump that would have made life far harder for people on lower incomes. The Fed itself has acknowledged that its easy money policies have costs as well as benefits. Fed officials have made it clear that they are on the lookout for new dangers like excessive speculation in the markets.

“I believe I am a sensible central banker and these are unusual times,” Ms. Yellen said in Congress this month.

Still, the detractors say that the Fed has learned little, and seems doomed to commit the same mistakes as in the past 30 years.

“My guess is that the Fed will play its usual game till we’re in good old-fashioned bubble territory,” said Jeremy Grantham, co-founder of GMO, an investment firm. He took particular umbrage at Ms. Yellen’s recent arguments in Congress for why the stock market is not particularly overvalued. “Either she is ignorant about the markets,” he said, “or on the other hand she is cynical and she is manipulating the market.”

One theory unites the faultfinders â€" and it conveniently allows them to keep issuing warnings even as the economy shows signs of strength. The critics contend that the Fed’s near-zero interest rates and its huge bond-buying programs have acted a lot like steroids, creating an artificial recovery that could wane as the Fed removes the stimulus in the coming months.

“This is the drug that masks the symptoms rather than treats the disease,” said Todd Harrison, a former hedge fund manager and the chief executive of Minyanville, an online financial media company.

One reason that low interest rates cannot create a lasting recovery, the critics said, is that cheap borrowing costs do very little when so many people are already heavily indebted. In this climate, according to the Fed’s opponents, it is wrongheaded, and perhaps futile, for the central bank to encourage people to take out more loans.

“Trying to solve an indebtedness problem by getting further into debt only compounds the problems,” said Lacy H. Hunt, chief economist of Hoisington Investment Management. “You have to clear the debt.”

Many of the Fed bashers promote alternative policies that can sound harsh. They argue that the economy would have bounced back more robustly since the financial crisis if the central bank had done less, because, they assert, capitalism works best when it is allowed to purge itself of uneconomic activity. “The economy might have snapped back a lot more strongly,” Mr. Grantham said. By intervening less, he added, the Fed “would have broken the back of moral hazard, just as Volcker did when he broke inflation,” referring to Paul A. Volcker, a former Fed chairman who pursued tough policies in the 1980s.

Though there are many Fed baiters on Wall Street, most of the financial industry has a generally favorable view of the central bank. And the Fed’s supporters shudder when they hear their peers calling on it to do less.

The Fed’s sympathizers say that it would have risked a bigger banking collapse and a depression if it had not opened the floodgates after the crisis. Short of entirely changing the way in which the global banking system operates, which simply wasn’t going to happen, there was not much else the Fed could do to keep things afloat, they say.

“The Fed has been doing what it can to stabilize this inherently unstable system, but we are still left with the system,” Tony Crescenzi, a portfolio manager at Pimco, said. In addition, defenders of the Fed argue that its policies can foster the economic conditions that enable a lightening of the country’s debt load that is not dangerously jarring. Ray Dalio, founder of Bridgewater Associates, a hedge fund, calls this a “beautiful deleveraging.”

But James S. Chanos, of Kynikos Associates, a hedge fund, asserts that nonfinancial debt is actually higher than it was before the crisis.

“That beautiful deleveraging has not happened,” he said. “We are more leveraged as a society than we were in 2007 at the onset of the financial crisis.”

The longer the Fed fuels borrowing, the worse things are becoming, the critics say. Mark Spitznagel, founder of Universa Investments, a hedge fund that profited during the 2008 crash, argues that by holding down interest rates, the Fed encourages companies to take up unhealthy habits, like borrowing to fund purchases of their own shares. “That’s outrageous behavior,” he said. “The Fed has entirely forced people to do this.”

It has come to the point where the Fed’s detractors wonder whether it has fallen victim to a school of thought that can only resort to easy money policies. “Sometimes you get a groupthink around a base assumption,” David Einhorn, president of Greenlight Capital, a hedge fund, said in a speech in 2012. “We’ve reached that point here with monetary policy.” Mr. Einhorn contends that the extremely low interest rates on savings are actually depriving people of income that could substantially bolster the wider economy.

The Fed’s supporters roll their eyes when Wall Street rushes to the defense of savers. Such remarks, they say, stem from ignorance about how the economy works during periods of adjustment. For instance, Mike Konczal, a fellow at the Roosevelt Institute, points out that John Maynard Keynes noted during the Great Depression that financiers expected unrealistically high returns on their capital. Testifying in Congress this month, Ms. Yellen herself said, “The rate of the return savers can expect really depends on the health of the economy.”

Still, many of the critics expect they will be proved right when, as they predict, the Fed’s policies lose their power. When that happens, a big loss of confidence will occur, which will roil the markets and the economy, they forecast. “They’ve gotten themselves boxed into a corner,” Mr. Gundlach said. Mr. Grantham said that he thought the Fed’s largess would drive stocks so high that they will become vulnerable to even the slightest nudge.

“We all feel like old-fashioned gramophone records,” he said. “It is the same old game and we keep saying the same old things.”

Modeling the Financial Logic for Facebook’s Huge Deal

For mere mortals who haven’t partaken in whatever Kool-Aid Mark Zuckerberg is serving at Facebook’s Hacker Way headquarters, is there any way to justify the $19 billion ($16 billion, plus $3 billion in restricted stock units that vest in four years) it is paying for WhatsApp?

It takes extraordinary suspension of disbelief - and a new Breakingviews calculator - to see how the social network can bring the messaging start-up’s valuation in line with its own.

Any fact-based analysis is handicapped by a paucity of hard numbers. WhatsApp says it has 450 million active users and is adding 1 million new users per day. The app is free for 12 months, after which it costs $1 a year. WhatsApp doesn’t say what proportion of its customers pay. What’s clear, however, is that it has, for the time being, no other sources of revenue: WhatsApp has foresworn advertising.

Say Mr. Zuckerberg is right and WhatsApp reaches 1 billion users by 2016. Costs are probably low: rival Viber, which has fewer users, spent around $30 million in 2013. Assume WhatsApp, which has about 50 employees, currently spends $50 million on overhead, servers and bandwidth this year. Maybe that rises to $75 million by 2016.

If the ban on advertising remains, WhatsApp’s valuation boils down to how many customers will pay and how much they’ll spend. At the moment, the proportion is probably low. If WhatsApp is to justify its price tag, it needs to increase both.

Over time, if it could convince a tenth of users to pay, it would equate to 100 million people. At $1 a month - well above today’s $1 a year charge - it would yield net income of $675 million in 2016. That’s equivalent to 28 times Facebook’s purchase price, the same multiple the market puts on the social network’s stock. Equally, if an improbable 800 million people pay $1.50 a year, the valuation could also stack up.

Charging a bit for messaging sounds plausible, especially if it undercuts existing mobile phone charges. But such apps are ubiquitous and the barriers to switching relatively low. The financial logic for buying WhatsApp can be modeled, but requires a big quaff from Mr. Zuckerberg’s punchbowl.

Peter Thal Larsen is Asia Editor and Rob Cox is editor of Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Herbalife to Make Presentation to Lawmakers

Herbalife, the nutritional supplements company, will conduct a briefing on Friday to educate congressional staff members about its business in what appears to be an effort to ramp up its lobbying efforts in Washington.

The company, which has come under attack by the hedge fund billionaire William A. Ackman, has invited the staff members to ask questions and learn more about its multi-level marketing business during a session it is calling “Direct Selling: An American Tradition.”

The meeting comes as lobbying efforts by both Mr. Ackman and Herbalife to shape public perception have heated up in what has become a political showdown in the nation’s capital. Mr. Ackman has been increasingly vocal about his view that Herbalife is a pyramid scheme that survives by preying on masses of sales representatives who buy Herbalife products they cannot resell. Herbalife denies the contentions and has spent millions of dollars on lobbying efforts to defend its reputation.

The meeting on Friday appears to be the latest effort influence Congress by one of Herbalife’s hired lobbyists, the Raben Group, which confirmed the invitation.

Herbalife could not be reached for comment.

Senior executives including John DeSimone, the chief financial officer, and Ibi Fleming, vice president and managing director of Herbalife North America, will conduct the briefing, according to a copy of the invitation reviewed by DealBook.

In November 2012, Mr. Ackman told an audience at a charity event in Manhattan that he had wagered $1 billion that Herbalife’s share price would eventually be worth nothing. But since then the shares have gained more than 48 percent, putting Mr. Ackman’s short position against the company in the red.

Earlier this week, Herbalife posted fourth-quarter results that slightly beat Wall Street expectations. On a conference call with analysts, the company lowered its forecast for 2014 sales growth but raised its estimates for earnings.

On Thursday, Herbalife’s chief executive, Michael O. Johnson, fired a missive at Senator Ed Markey, Democrat of Massachusetts, who recently waded into the battle by sending letters to the Federal Trade Commission and the Securities Exchange Commission urging them to investigate Herbalife.

Senator Markey also sent a letter to Mr. Johnson, asking him to provide specific data on Herbalife’s customer base and the success rate for those who sell its products.

In his reply on Thursday, Mr. Johnson gave few detailed responses to Senator Markey’s queries but affirmed that Herbalife provided “high-quality, science-based products.” He wrote that the company’s multi-level marketing business model was just as valid just as those of Avon and Amway, which are similar.

“Herbalife’s compensation is driven by product sales, not recruitment,” Mr. Johnson wrote.

Citing a survey by the research company Lieberman Research Worldwide, Mr. Johnson wrote that “87 percent of former Herbalife members who have no continuing relationship with the company would recommend Herbalife products.”

Mr. Ackman has argued that the company recruits low-income minorities by selling a story of riches to be made. But these sales representatives end up with piles of debt rather than cash, he contends. Representatives are then urged to recruit new representatives and are offered a cut of the profits from new recruits.

Facebook’s Deal Numbers Don’t Add Up

No algorithm based on terrestrial mathematics can make Facebook’s WhatsApp deal compute.

Mark Zuckerberg’s social network is committing to spend $19 billion for WhatsApp, a 55-employee, 450 million-user, ad-free messaging service. Facebook says growth is the point, not making money. That’s the kind of magical thinking shareholders signed up for when they surrendered control to the founder.

Facebook says the valuation was justified by the ruddy health of the network WhatsApp has created. The company is adding a million new users daily. On that basis, Facebook is paying around $40 for each of them. Using that arithmetic from another planet, the deal compares favorably to the $3,000 or so that Comcast is paying for Time Warner Cable customers, who pay something like $80 a month for its services.

But size is what matters in the Zuckerberg view of the world. And WhatsApp, whose co-founder in fine Silicon Valley fashion is the child of immigrants, is on its way to one billion users. Networks that large are inherently valuable. Twitter and LinkedIn are both worth more than $20 billion. China’s Tencent is worth about $140 billion. And Facebook is worth $173 billion. These valuations are predicated on extraordinary growth. Facebook, for example, trades at more than 50 times estimated 2014 earnings.

Mr. Zuckerberg is similarly taking a long-term view on WhatsApp’s profitability. And with his control of the company indisputable, notwithstanding the dilution this deal will inflict on shareholders, it’s his prerogative. Facebook thinks the acquisition will pay off over the next decade. That’s a long time for any company built on social trends.

But 10 years is the age that Facebook itself now faces. And it is not aging with obvious grace. Deals escalating in size, and seeming desperation, since the $1 billion gulp of Instragram are a worrying signal that Facebook is looking in the rear window, playing defense, rather than innovating in its own right.

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

In WhatsApp Deal, Sequoia Capital May Make 50 Times Its Money

The hottest tech start-ups typically have a roster of outside investors hoping for a big return. In the case of WhatsApp, the messaging service that Facebook bought on Wednesday for $16 billion, there is only one: Sequoia Capital.

Sequoia, a venture capital firm founded in 1972, is poised to make as much as 50 times its money on the deal, according to an estimate by DealBook and a person briefed on the matter. That return, stunning even by the standards of Silicon Valley, is the latest entry in Sequoia’s winning record.

The firm invested a total of about $60 million in WhatsApp, increasing its stake after an initial $8 million investment in 2011, the person briefed on the matter said. This gave Sequoia a percentage of the company in the “high teens.”

At the high end of that range, Sequoia’s stake would be worth about $3 billion.

Three-quarters of the $16 billion deal is in Facebook shares. Using that ratio, Sequoia would come away with roughly $2.3 billion in Facebook stock, making it one of the biggest shareholders of the social network.

While Sequoia is not as flashy as some of Silicon Valley’s newer tech investors, it has built a remarkable track record over the years, as an early investor in technology giants like Apple, Google, Yahoo and Oracle.

The firm has continued that streak in recent years, leading a $50 million investment round in Instagram just days before Facebook bought the photo-sharing company for $1 billion in 2012.

Sequoia was also the only venture capital firm backing YouTube, emerging as a big winner when Google bought the company for $1.65 billion in 2006.

In the wake of the dot-com crash, Sequoia achieved a windfall when eBay bought one of its portfolio companies, PayPal, for $1.5 billion in 2002.

“WhatsApp reminds us of other companies that we partnered with â€" like PayPal, and YouTube â€" whose founders chose a similar path,” Jim Goetz, a partner at Sequoia, wrote in a blog post on Wednesday.

“As with Instagram, which we were fortunate to back with others, for us today’s announcement is bittersweet,” Mr. Goetz wrote. “Our excitement about the opportunities that lie ahead for WhatsApp and Facebook is tinged with a little sadness, and a lot of nostalgia, for the pleasure and satisfaction that all of us at Sequoia have felt working with the company over the past three years.”

Deutsche Bank to Pay $1.06 Billion to Settle Long-Running Litigation

LONDON - Deutsche Bank said on Thursday that it would pay more than 775 million euros, or about $1.06 billion, to the heirs of the late media mogul Leo Kirch to settle a long-running dispute over the collapse of his empire.

The settlement resolves more than a decade of litigation between the bank and Mr. Kirch and his family over the downfall of the Kirch Group and its subsidiaries in the largest corporate collapse in Germany since World War II.

“With today’s agreement, we are resolving a well-known and long-standing legacy matter,” said Jürgen Fitschen and Anshu Jain, the Deutsche Bank co-chief executives, in a statement. “In our judgment, this is in the best interests of our stakeholders. We intend to make further progress in this regard, step-by-step, throughout 2014.”

The Kirch dispute is one of several pieces of legacy issues that Mr. Jain has vowed to resolve this year.

The German lender agreed in December to pay $1.9 billion to settle claims that it had defrauded Fannie Mae and Freddie Mac in the sale of mortgage-backed securities before the United States real estate market collapsed.

European Union antitrust regulators also fined the bank €725 million in December as part of an investigation into the rigging of benchmark interest rates.

In January, Deutsche Bank reported a surprise loss of €965 million in its fourth quarter, reflecting in part €528 million in charges related to lawsuits stemming from prior allegations of misconduct.

The settlement with the Kirch estate is based on a proposal made by the Munich Higher Regional Court in March 2011, the bank said. It provides for a payment of €775 million, plus interest and a lump-sum reimbursement of costs.

The bank said its results would be reduced by €350 million after tax as a result of the settlement and a charge would be reflected in its fourth-quarter 2013 results.

Mr. Kirch sued the bank following an appearance by Rolf E. Breuer, the bank’s former chief executive, on Bloomberg Television in February 2002 in which he commented on the media company’s creditworthiness. The Kirch Group was a client of the bank at that time.

Even though details of the Kirch Group’s problems had been reported in the media prior to Mr. Breuer’s interview, Mr. Kirch claimed that the bank breached confidentiality rules under German law and had tried to damage the company’s reputation.

Later that year, the Kirch Group’s three major subsidiaries declared bankruptcy.

Deutsche Bank has denied the allegations.

At its height in the 1990s, Kirch Group was the second-largest media company in Germany behind Bertelsmann. His media empire included television channels, tens of thousands of movie rights and a stake in Formula One car racing.

Mr. Kirch died in 2011 at the age of 84, but his family had continued to pursue billions of euros in damages from Deutsche Bank.

In December 2012, Deutsche Bank suffered a setback when a German court found the lender liable to pay damages related to the Kirch Group’s collapse. The court didn’t set a damage amount at the time and Deutsche Bank had challenged the decision on appeal.

Activist Begins Board Fight at Abercrombie & Fitch

The activist hedge fund that has been pushing for change at Abercrombie & Fitch stepped up its fight on Thursday by nominating five director candidates despite changes that the retailer has announced in recent weeks.

The investor, Engaged Capital, said that its nominees â€" including a former chief operating officer of J.C. Penney and a former chief executive of Bath & Body Works â€" would introduce much-needed independence to the company’s board.

The proxy fight comes only a few weeks after Abercrombie sought to appease shareholders by splitting the roles of chairman and chief executive, which reduced the power of its longtime chief, Michael S. Jeffries, and adding three new directors to its existing nine-member board.

But Engaged said on Thursday that the changes weren’t enough. Abercrombie is still dominated by the same nine-person board that the hedge fund contends oversaw the company’s fall from onetime teen Mecca to an also-ran.

“We need a board of independent leaders who can set a new direction for Abercrombie,” said Glenn W. Welling, the head of Engaged Capital, said in a statement. “For far too long, stockholders have suffered under the failed leadership of a board that has lacked the independence necessary to properly act as our fiduciaries.”

The full list of Engaged’s slate is:

• Alexander P. Brick, 55, the former chief executive of the Specialty Retail Group, which runs a number of British menswear retailers
• Robert D. Huth, 68, the former chief executive of David’s Bridal
• Michael W. Kramer, 49, a former chief operating officer of J.C. Penney
• Diane L. Neal, 57, the former chief executive of Bath & Body Works
• Glenn W. Welling, 43, the head of Engaged

The activist investor said that it had attempted to negotiate a settlement with the board in recent weeks, but nothing came of the talks. A person close to Engaged added that it has also held discussions with the three new directors, but concluded that their voices would be outweighed by the incumbent board.

This person added that the hedge fund has been in talks with several big investors over recent weeks, and that the firm believes it has support for a boardroom shakeup.

But it’s unclear how broad that support is. Shares in Abercrombie were little changed in early morning trading on Thursday, at $34.74.

Back to the Future on Tech M.&.A.

With Facebook‘s deal for WhatsApp, the volume of technology mergers and acquisitions in the United States has risen to its highest level since the dot-com boom, Thomson Reuters data shows.

Putting the WhatsApp acquisition at $19 billion â€" when $3 billion in restricted stock units that will vest over the next four years are included â€" it is the fifth-largest technology deal of all time, according to Thomson Reuters. (Its list doesn’t include telecommunications or media mergers like the Vodafone-Mannesmann and America Online-Time Warner deals.)

The most recent of the top four tech deals is Hewlett-Packard‘s takeover of Compaq Computer in 2001 for $23.5 billion.

The total dollar volume of technology deal-making in the United States is up 39 percent, to $42.4 billion. so far this year, compared with the same period a year ago, according to Thomson Reuters. That’s the highest since the watershed year of 2000, when $79.6 billion worth of tech deals had been announced by this date.

Peltz Renews Call for a PepsiCo Split

The activist investor Nelson Peltz is again pushing for PepsiCo to spin off its North American beverage business after the company announced that it had decided against such a split.

In a letter sent to the presiding director of PepsiCo on Wednesday, Mr. Peltz’s fund, Trian Fund Management, said it was “highly disappointed last week with the results of PepsiCo’s strategic review, especially in light of another quarter of uninspiring performance and, most disturbingly, weak 2014 guidance.”

Trian said it would take its case directly to other shareholders and that it would  ”consider conducting public shareholder forums.”

Last week, Pepsico said  that after “an exhaustive review, which included the assistance of bankers and consultants,” its management and board found a number of reasons to keep beverages in its current structure. It said that the business “is expected to benefit from planned productivity and innovation initiatives” and that it “generates substantial U.S. free cash flow which is critical to provide cash returns to shareholders.”

Trian, which owns 0.81 percent of the company, contends that a separation of the beverages and snacks businesses into two publicly traded companies “would unlock value at PepsiCo.”

“A separation would create two leaner and more entrepreneurial companies - a standalone snacks business would offer investors strong growth in sales, margins and free cash flow generation, and a standalone beverage business would provide strong, stable free cash flow that may be optimized through an effective balance sheet and capital return program,” the fund said in a statement.

In the letter, Trian argued that:

The beverage business generates strong, stable free cash flow today and we believe can generate far more cash flow under focused leadership. Freed of allocated corporate costs and bureaucracy, and able to be nimble and lean, we believe a standalone beverage business will not only compete, but thrive. Trian has so much conviction in the value of a standalone beverage business that we would buy additional shares and be willing to join the Board of the newly formed beverage company to help lead it going forward.

In July, Mr. Peltz began campaigning for a PepsiCo merger with with Mondelez International, the snack business spun off by Kraft in 2012, followed by a spinoff of the beverage business.

That campaign cooled off after Mr. Peltz won a seat on Mondelez’s board, which ended his attempts to push the two food giants together.

Morning Agenda: Facebook’s $16 Billion Deal for WhatsApp

BIG DEAL: FACEBOOK BUYS WHATSAPP FOR $16 BILLION  |  When Facebook offered to buy Snapchat last year for $3 billion, the messaging app turned Facebook down. So this time, Facebook made it harder for its target to say no. On Wednesday, Facebook announced it would acquire WhatsApp, a text messaging application with 450 million users, for at least $16 billion in cash and stock, its largest acquisition by far and one that represents a new height in the frenzy to acquire popular technology start-ups, David Gelles and Vindu Goel write in DealBook.

Facebook will pay $4 billion in cash and $12 billion worth of Facebook stock, with an additional $3 billion in restricted stock units granted to WhatsApp employees and its founders, which would vest over the next four years and raise the cost of the deal to $19 billion.

“By any measure, Facebook is paying a steep price for a service that is widely used internationally but is less known in the United States. WhatsApp does not sell advertising and has very little revenue. It charges users a flat fee of $1 a year to use the service, and the first year is free,” Mr. Gelles and Mr. Goel write. The acquisition reflects “a new strategy at Facebook: The company intends to acquire or build a family of applications instead of simply buttressing its core social network.”

“By some metrics, the cash and stock being paid for WhatsApp make it among the richest deals of all time. With 55 employees, WhatsApp is commanding a price equivalent to $344 million an employee, or about $28 a user. And it is the largest acquisition ever of a venture capital-backed start-up,” they write.

On sealing the deal: The two companies have held talks for two years, but the deal came together quickly. Mark Zuckerberg, Facebook’s founder and chief executive, formally proposed a deal to buy WhatsApp over dinner with Jan Koum, WhatsApp’s co-founder and chief executive, on Feb. 9. The two men met again on Valentine’s Day, when Mr. Koum crashed the dinner Mr. Zuckerberg was sharing with his wife, Priscilla Chan. “They negotiated over a plate of chocolate-covered strawberries intended for Ms. Chan,” Mr. Gelles and Mr. Goel write.

On why Facebook needed WhatsApp, from The Verge: “Facebook’s latest acquisition might appear to be a simple land grab for the hottest mobile app in the world, with some delightful side effects, but the reality is far bigger. Each company Facebook acquires is another hedge against the various public and private ways people choose to communicate. Instagram lets people share photos in a way Facebook’s friending model wouldn’t allow. WhatsApp lets people share messages in a way that’s familiar to first-time feature phone and smartphone users â€" something Facebook can’t boast. Facebook’s product portfolio is becoming vast, full of competing services and apps, and that’s okay.”

On WhatsApp’s incredible rise from rags to riches, from Forbes: “Mr. Koum, who Forbes believes owns 45 percent of WhatsApp and thus is suddenly worth $6.8 billion â€" was born and raised in a small village outside of Kiev, Ukraine, the only child of a housewife and a construction manager who built hospitals and schools. His house had no electricity or hot water. His parents rarely talked on the phone in case it was tapped by the state. It sounds bad, but Mr. Koum still pines for the rural life he once lived, and it’s one of the main reasons he’s so vehemently against the hurly-burly of advertising.”

WHATSAPP, FROM THE ARCHIVES  |  From The Wall Street Journal, in December: “WhatsApp has ‘no plans to sell, I.P.O., exit, get new funding,’ Mr. Koum said. ‘Despite the fact that we’re able to monetize today, we’re not focused on monetization,’ Mr. Koum said. ‘We view monetization as five, 10 years down the road. We’re trying to build a sustainable company that’s here for the next 100 years.’”

From The Guardian, in November: “When mobile messaging apps such as WhatsApp first emerged in 2009, they looked like a threat to mobile carriers. Everyone from Vodafone to Dutch operator KPN was mentioning them in sales calls. Mobile operators are estimated to have lost $23bn in SMS revenue in 2012 due to messaging apps, which host free instant messages through a phone’s data connection, which these days is often unlimited. Now these apps are becoming a threat to established social networks too.”

“The future for these messaging apps is still uncertain. Some in the industry expect buyouts from big Internet companies like Google, which was rumoured to have flirted with WhatsApp earlier this year. Facebook already has its own popular Messenger service, while Apple has iMessage - both are popular, but lack the gaming ambitions of Asian chat apps. Still, it is hard to imagine these players consolidating to create a global social network as big as Facebook.”

From the co-founder of WhatsApp Brian Acton’s Twitter, in 2009: “Facebook turned me down. It was a great opportunity to connect with some fantastic people. Looking forward to life’s next adventure.”

SMALLER DEAL: SAFEWAY CONSIDERS SALE  |  Meanwhile, in a land where far away from $16 billion dollar Facebook deals, the supermarket chain Safeway is exploring a sale of the company. “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,” David Gelles writes in DealBook. For those who like to read books: “King of Capital” dates Safeway’s relationship with private equity firms to the mid-1980s, when Kohlberg Kravis Roberts & Company executed a $4.8 billion buyout of Safeway Stores.

HARVARD LANDS $150 MILLION FROM HEDGE FUND FOUNDER  |  Kenneth C. Griffin, the founder and chief executive of the investment giant Citadel, is giving back to his alma mater, to the tune of $150 million. Mr. Griffin’s gift, which will largely go to Harvard’s financial aid program, is the biggest single gift to the college ever, Michael J. de la Merced writes in DealBook. The gift is also the largest by 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,” Mr. de la Merced writes, adding, “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.”

ON THE AGENDA  |  Markit Economics releases its February composite purchasing managers index for the euro zone. The consumer price index for January is out at 8:30 a.m. Weekly jobless claims are released at 8:30 a.m. The Purchasing Managers’ manufacturing index for February is out at 8:58 a.m. The index of leading indicators is out at 10 a.m. Jeffrey Raider, the co-founder of Warby Parker, is on Bloomberg TV at 10:40 a.m. The United States women’s hockey team takes on Canada in the Winter Olympics gold medal game at noon on NBC.

INTRODUCING WINKDEX  |  Not to be confused with the glass cleaner Windex. The Winklevoss twins, of Facebook fame, on Wednesday publicly released a financial index called, appropriately, Winkdex that will provide a regularly updated figure for the price of Bitcoin, Nathaniel Popper writes in DealBook. “The Winkdex will use data from seven 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,” he writes.

The announcement of the Winkdex’s creation came in a regulatory filing the twins made to the Securities and Exchange Commission in connection with the Bitcoin exchange-traded fund they first applied to create last summer and which now seems to be moving closer to regulatory approval.

Mergers & Acquisitions »

Signet Jewelers to Buy Zale in $690 Million Deal  |  The deal would marry the Zales brand with the operator of Kay Jewelers and Jared the Galleria of Jewelry brands, which serve the middle of the jewelry market in the United States.
DealBook »

Signet and Zale Deal Casts 2 Other Deals in a Poor Light  |  The stock of the jewelry retailer Signet rose after it agreed to buy its smaller rival Zale on Wednesday. That’s what happens when the cost savings effectively cover the purchase price, writes Jeffrey Goldfarb of Reuters Breakingviews.
DealBook »

Comcast Tests Investor Appetite With Bond Sale  |  Comcast sold bonds on Wednesday, testing the market’s reaction to its announcement last week that it had agreed to purchase Time Warner Cable for $45.2 billion, The Wall Street Journal writes. The company said the bond sale was unrelated to the deal.
WALL STREET JOURNAL

Google Unveils Growth Equity Fund  |  Google’s new venture capital fund, Google Capital, is “designed to help the company keep abreast of the latest technologies â€" which are often easier to develop in small, entrepreneurial shops, rather than at monolithic companies,” Quartz writes.
QUARTZ

European M.&A. Activity to Bolster Debt Finance Deals  |  European deal activity is expected to increase this year, driven by refinancing transactions and an increase in mergers and acquisitions, The Financial Times writes.
FINANCIAL TIMES

Liberty’s Malone Begins Planning for Succession  |  John C. Malone, the billionaire chairman of Liberty Global, has begun planning his succession at Discovery Communications and Liberty Global by giving their chief executives right of first refusal if he decides to sell his stakes in the media companies, The Financial Times reports.
FINANCIAL TIMES

INVESTMENT BANKING »

Moynihan Receives $12.5 Million in Stock  |  Brian T. Moynihan, the chief executive of Bank of America, received about $12.5 million in restricted stock grants for 2013, according to a regulatory filing.
DealBook »

Morgan Stanley Chief Discloses Stock Gift  |  James P. Gorman, the chief executive of Morgan Stanley, gave away nearly $1 million worth of stock he owned in the bank last week.
DealBook »

R.B.S. to Sell Structured Products Unit to BNP Paribas  |  The bank announced plans last year to sell the structured retail investor products and equity derivatives business as part of a plan to scale back its investment bank and focus on retail and commercial banking in Britain.
DEALBOOK

Denmark Watchdog to Name Banks Flouting Bonus Rules  |  Denmark’s financial watchdog will begin naming banks that fail to adhere to bonus restrictions in a crackdown on incentive programs that may have helped fuel the property bubble, Bloomberg News reports.
BLOOMBERG NEWS

Citigroup Plans Expansion into Africa  |  Citigroup said it planned to invest in Africa, as it saw a rise in mergers and acquisitions as well as debt and equity capital market deals on the continent, Bloomberg News reports.
BLOOMBERG NEWS

PRIVATE EQUITY »

Carlyle’s Profit Soars on Rise in Performance Fees  |  The private equity firm benefited from a number of exits in the fourth quarter, including the I.P.O.’s of Moncler, CommScope and CVC Brasil.
DealBook »

Zale Deal Highlights Private Equity Firm’s Unconventional Strategy  |  In the case of both the jewelry retailer Zale and the clothing retailer Eddie Bauer, Golden Gate Capital swooped in on a company in distress. Now, with deals to sell both companies, Golden Gate stands to achieve a substantial return.
DealBook »

Blackstone Nears Deal for Minority Stake in Kronos  |  The private equity firm Blackstone Group and the Singapore sovereign wealth fund G.I.C. are in talks to acquire a minority stake in Kronos, a resources management software firm, for around $4.5 billion, Reuters writes. The private equity firms Hellman & Friedman and JMI Equity had been exploring an outright sale of Kronos, but rejected takeover bids earlier this month.
REUTERS

British Supermarket Chain Tests Buyout Interest  |  Bankers are working on debt financing packages of about $8.35 billion to back a potential sale of Morrison Supermarkets, the British supermarket chain, to private equity firms, Reuters writes.
REUTERS

HEDGE FUNDS »

Trian Fund Renews Push for PepsiCo Breakup  |  Nelson Peltz’s Trian Fund Management has turned up the heat on its push for PepsiCo to spin off its beverage unit, The Wall Street Journal writes.
WALL STREET JOURNAL

Quant Funds Feel Investor Pinch  |  Investors pulled $4.9 billion from quantitative hedge funds in the last three months of 2013, the most in five years, Bloomberg News reports.
BLOOMBERG NEWS

Man Group Intensifies Search for Acquisition  |  The hedge fund Man Group is looking to acquire another asset management business to diversify revenues away from its $12.5 billion flagship managed futures fund, The Financial Times writes.
FINANCIAL TIMES

Einhorn Urges Caution on Earnings  |  The hedge fund manager David Einhorn of Greenlight Capital said on Wednesday that the stock market rally in 2013 helped many companies beat analysts’ estimates during the earning season, but that conditions that led to the market surge might not be sustainable, Bloomberg News writes.
BLOOMBERG NEWS

I.P.O./OFFERINGS »

British Pet Retailer Plans I.P.O., Hoping to Raise $459.7 Million  |  Pets at Home, which was acquired by Kohlberg Kravis Roberts in 2010, plans to list on the London Stock Exchange later this year.
DealBook »

Why Candy Crush I.P.O. Could be a Dangerous Game  |  King Digital, the fast-growing maker of Candy Crush Saga, could be worth nearly $6 billion given the valuations of rivals. But there are considerable risks for investors, writes Dominic Elliott of Reuters Breakingviews.
DealBook »

VENTURE CAPITAL »

Start-Up Site Hires Critic of Wall St.  |  Matt Taibbi, who made a name as a fierce critic of Wall Street at Rolling Stone magazine, has joined First Look Media, the latest big-name journalist to leave an established brand to enter the thriving and well-financed world of news start-ups, The New York Times reports.
NEW YORK TIMES

Renaissance Learning Draws $40 Million Investment From Google Capital  |  Renaissance Learning, an education technology company, plans to announce on Wednesday that it has received a $40 million investment from the Google fund in exchange for a minority stake. The deal values Renaissance at $1 billion.
DealBook »

ZenPayroll Raises $20 Million  |  ZenPayroll, a web-based payroll service for small business, has raised $20 million from investors including Kleiner Perkins Caufield & Byers as the company plans aggressive expansion, Fortune reports.
FORTUNE

Sequoia Capital Adds 2 Junior Partners  |  The venture capital firm Sequoia Capital has hired a Goldman Sachs banker and a Twitter engineer for its growth equity practice, Fortune writes.
FORTUNE

Online Investment Platform Collects $13 Million  |  Kapitall, an online investing platform that aims to make stock trading fun and addictive, announced it had raised $13 million in Series B funding, The Wall Street Journal writes.
WALL STREET JOURNAL

LEGAL/REGULATORY »

Lawmaker Urges U.S. Regulators to Scrutinize Mortgage Servicers  |  Representative Maxine Waters is urging federal banking regulators to scrutinize the sale of billions of dollars of mortgage-servicing rights to specialty firms.
DealBook »

R.B.S. Said to Place Trader on Leave Amid Currency Investigation  |  A senior currency trader in London is the third to be placed on leave by the Royal Bank of Scotland.
DealBook »

Repeated Good Fortune in Timing of C.E.O.’s Stock Sale  |  Good things keep happening to Questcor in the middle of the month, which coincides with the stock selling plan of its chief executive, Jesse Eisinger writes in The Trade column.
The Trade »

Lehman Bankruptcy Judge to Join Morrison & Foerster  |  After eight years on the bench, James M. Peck will be joining the law firm of Morrison & Foerster.
DealBook »

Undeterred, Fed on Track to Temper Its Stimulus  |  Federal Reserve policy makers were surprised by the strength of the United States economy when they met in January, according to minutes of their meeting, The New York Times writes.
NEW YORK TIMES

Federal Lawsuit Accuses For-Profit Schools of Fraud  |  Former employees of the Premier Education Group say officials falsified records to keep students enrolled in order to secure government grant and loan money, The New York Times writes.
NEW YORK TIMES

Judge Gives Go-Ahead to $8.5 Billion Bank of America Settlement  |  Saliann Scarpulla, a New York State supreme court judge, declined to delay court approval of Bank of America’s $8.5 billion settlement with investors related to the bank’s role in representing shoddy mortgage-backed securities, rejecting a move by American International Group, Reuters writes.
REUTERS