Emails Show Concern on Sotheby’s Board

WILMINGTON, Del. â€" Directors of Sotheby’s have expressed concern about compensation and the board’s performance, according to emails disclosed on Tuesday during a hearing in a dispute with the activist investor Daniel S. Loeb.

The emails were read during a hearing before Vice Chancellor Donald F. Parsons Jr. in a lawsuit brought by Mr. Loeb, the manager of the hedge fund Third Point Capital. He contends Sotheby’s directors violated their fiduciary duty by improperly adopting a one-year poison pill to thwart his efforts to replace three directors on the 12-member board.

One of the board members, Steven Dodge, warned the company’s chief executive, William F. Ruprecht, that executive compensation was “red meat for the dogs.”

Mr. Dodge, who will retire from the board this year, also echoed some of the same concerns that have been aired by Mr. Loeb. “The board is too comfortable, too chummy and not doing its job,” he wrote in one email to a fellow director, Dennis Weibling. “We have handed Loeb a killer set of issues on a platter.”

The main issue is the legality of Sotheby’s shareholder rights plan, which allows passive investors to buy a stake as large as 20 percent but restricts active investors to 10 percent. Third Point, which has a 9.62 percent stake in the auction house, is arguing that poison pills were never intended to obstruct the election of directors. Third Point is asking the judge to remove the poison pill. Mr. Loeb has nominated himself and two colleagues for Sotheby’s board at a vote scheduled for May 6.

The case could have broad implications for corporate governance because it is the first court test for an activist investor facing this type of poison pill.

A lawyer for Sotheby’s said in court that the poison pill was put in place because the board was worried that Mr. Loeb intended to take over the company, something Third Point has denied.

The emails showed Mr. Ruprecht’s concerns about Mr. Loeb’s campaign. “This is about power and the ability to persuade,” he wrote. “Not a single director on our board has experience in a proxy fight.”

“The board is in the crosshairs,” he added.

Lawrence Hamermesh, a longtime corporate law practitioner in Delaware and now the director of corporate and business law at Widener University Law School, was skeptical about Sotheby’s poison pill.

“Here’s the way the Delaware law works: When a board tries to do something to deter a takeover-related effort, they have to reasonably perceive some real threat,” he said. “And I think they are viewing the election contest as a threat. And I’m not comfortable that that’s right. I don’t see how you can think that getting bounced out of office in an election is a real threat to corporate and stockholder interest.”

“It’s up to the stockholders to decide who gets to serve on the board, like a national election for president,” he added.

A lawyer for Sotheby’s declined to comment, but in the past the company has said the board is “independent, active, engaged and focused on further increasing shareholder value.”

Judge Parsons did not indicate when he would rule.

Yahoo Chief’s Pay Tied to Another Company’s Performance

Marissa Mayer has hit it big in the executive compensation lottery.

According to recent public filings and an analysis prepared by Equilar, an executive compensation data firm, by the end of last year, Ms. Mayer, the Yahoo chief executive, had received compensation worth potentially $214 million â€" most of which was for doing nothing.

Her good fortune stems from Yahoo’s stake in the Chinese Internet behemoth Alibaba, a deal that was arranged in 2005 by Yahoo’s co-founder, Jerry Yang. The enthusiasm and hype over a likely initial public offering by Alibaba has driven Yahoo’s stock to a sky-high valuation, a surge that has showered Ms. Mayer with vast riches.

Huge compensation packages for corporate chieftains are not uncommon, of course, and remain the subject of a fierce debate. Yet, the example of Ms. Mayer highlights the absurdities of executive compensation based on stock prices.

When Ms. Mayer was hired away from Google in 2012, it was meant to show that Yahoo, a faltering Internet giant, was again going to be a dynamic and hip place to work. To lure such a rock-star executive, Yahoo awarded her a pay package of $35 million in restricted stock and $21 million in options.

Some $15 million of that was to compensate Ms. Mayer for stock and options she forfeited when she left Google. At the time of her hiring, Yahoo shares were trading at $15.78 a share.

Since then, Yahoo’s stock has been on a tear, reaching a high of $41.72 before retreating in the recent technology sell-off to about $34. It’s up about 140 percent since Ms. Mayer arrived.

As a result of the rise in the stock price, Equilar calculates, Ms. Mayer’s $56 million package had grown to be worth about $186 million as of the end of last year, after Ms. Mayer forfeited some of the stock for failure to meet some performance requirements. In addition, Ms. Mayer was awarded $12.47 million worth of restricted stock in early 2013 that had grown to $23.7 million by year-end. Add in $4.3 million in cash paid to Ms. Mayer, and the figure rises to about $214 million for 15 months of work.

To be sure, for some of this compensation, Ms. Mayer will have to stay at Yahoo for another few years and meet performance goals. And Yahoo’s stock price will have to stay at this level. Yet $57.8 million worth of Ms. Mayer’s stock and options already vested last year alone.

By any measure, this was not the value initially intended to be paid to Ms. Mayer.

These are estimates, because after spending a few hours with Yahoo’s public filings, I found it impossible to calculate an exact figure of her earnings from Yahoo and had to turn to Equilar.

A spokesman for Yahoo declined to comment but directed me to the compensation figures in the proxy.

If you read Yahoo’s filing for its shareholder meeting, it states in a summary compensation table that Ms. Mayer was paid $61.5 million for 2012 and 2013, an amount the filing notes is based not on the current value of Ms. Mayer’s compensation but the value when granted. Nowhere does it say with a single number what Ms. Mayer’s package is worth as of year-end or even what she actually made last year â€" that $57.8 million figure.

A paycheck of more than $200 million is sweet, but the problem is that the value is not primarily a result of anything she has done as chief executive. Yahoo continues to struggle â€" its revenue last year was $4.68 billion, down from $4.98 billion in 2012. In the first quarter of 2014, Yahoo’s income fell 84 percent, to $30 million from $186 million in the quarter a year earlier. Moreover, there has been a bit of turmoil in Yahoo’s executive suites. Ms. Mayer’s trusted lieutenant, Henrique de Castro, who was hired to assist the turnaround, was recently fired as chief operating officer.

Still, Ms. Mayer has some achievements at Yahoo. She has revamped products and replaced much of Yahoo’s staff while reversing two years of losses in the number of people using its sites and services. All told, it’s too soon to know what will happen to Yahoo, and certainly those gains are not what is driving its stock price up right now.

For now, however, Yahoo still holds its crown jewel, its stake in Alibaba.

Yahoo initially bought 40 percent of the Chinese company in 2005. Yahoo sold part of it back to Alibaba in 2012 for $7.6 billion, but retained a 24 percent stake.

Since then, Alibaba has been growing rapidly and is expected to go to market in the coming months in an I.P.O. that may value the company at more than $150 billion, and Yahoo’s stake at $36 billion.

The noise over the Alibaba I.P.O. has drowned out nearly anything Yahoo says about its own business.

Even when Yahoo recently announced the decline in quarterly earnings, its stock jumped as much as 9 percent. It didn’t hurt that Yahoo also reported that Alibaba’s revenue growth had risen 66 percent in the fourth quarter of last year.

An analyst with SunTrust Robinson Humphrey has calculated that Alibaba now adds about $29 to every Yahoo share, assuming that the Chinese company is valued at $150 billion after its I.P.O. Yahoo’s stock closed on Tuesday at $35.83 a share.

Simply put, without Alibaba, Ms. Mayer’s options would probably be close to worthless and her package would be worth about $10 million.

In other words, Alibaba has most likely added most of the money to Ms. Mayer’s pocket, money from her pay package, a pay package intended to provide performance incentives.

What did Ms. Mayer do for this windfall? Sure, she is working hard and getting early results, but not at Alibaba. The Chinese company is managed by Jack Ma and his partners. It appears to want little to do with Yahoo, and has been pushing for Yahoo to sell its stake down. Indeed, as part of an Alibaba I.P.O., Yahoo has agreed to sell 40 percent of its stake, but can hang on to the rest indefinitely.

Ms. Mayer is not alone in her fortunate payday. Mr. de Castro received $58 million when he was pushed out less than a year and a half after his hiring. His pay package when hired was calculated to be worth $17 million by Yahoo.

Such paydays illustrate that it is often good fortune â€" a rise in the stock market or a turn in the economy â€" rather than individual performance that accounts for the bulk of executive pay.

Despite the good luck of Ms. Mayer and others, option and incentive compensation persist, spurred by government subsidies through favorable tax treatment and the fact that, unlike cash, stock compensation appears to cost the company very little to award. Not only that, companies are not required to disclose how much they miss the mark in awarding initial compensation.

It’s time to recognize that stock-based compensation can often be no more than casino chips. Stock is easy for a board to hand out without regard to the true cost, creating a huge win for executives in a game stacked in the chief’s favor.

Ms. Mayer’s case is extreme, but it shows it is time to rethink all stock compensation. Instead, executives can simply be paid in cash based on their effort â€" a novel concept to be sure.

U.S. Close to Bringing Criminal Charges Against Big Banks

Federal prosecutors are nearing criminal charges against some of the world’s biggest banks, according to lawyers briefed on the matter, a development that could produce the first guilty plea from a major bank in more than two decades.

In doing so, prosecutors are confronting the popular belief that Wall Street institutions have grown so important to the economy that they cannot be charged. A lack of criminal prosecutions of banks and their leaders fueled a public outcry over the perception that Wall Street giants are “too big to jail.”

Addressing those concerns, prosecutors in Washington and New York have met with regulators about how to criminally punish banks without putting them out of business and damaging the economy, interviews with lawyers and records reviewed by The New York Times show.

The new strategy underpins the decision to seek guilty pleas in two of the most advanced investigations: one into Credit Suisse for offering tax shelters to Americans, and the other against France’s largest bank, BNP Paribas, over doing business with countries like Sudan that the United States has blacklisted.

In the talks with BNP, which has a huge investment bank in New York, prosecutors in Manhattan and Washington have outlined plans to extract a criminal guilty plea from the bank’s parent company, according to the lawyers not authorized to speak publicly.

If BNP is unable to negotiate a lesser punishment â€" the bank has enlisted the support of high-ranking French officials to pressure prosecutors â€" the case could counter Congressional criticism that arose after the British bank HSBC escaped similar charges two years ago.

Such criminal cases hinge on the cooperation of regulators, some who warned that charging HSBC could have prompted the revocation of the bank’s charter, the corporate equivalent of the death penalty. Federal guidelines require prosecutors to weigh the broader economic consequences of charging corporations.

With the investigation into BNP, the lawyers briefed on the matter said, prosecutors met this month with the bank’s American regulators: the Federal Reserve Bank of New York and Benjamin M. Lawsky, New York’s top financial regulator.

The prosecutors who attended the meeting and are leading the investigation â€" Preet Bharara, the United States attorney in Manhattan, David O’Neil, the head of the Justice Department’s criminal division in Washington, and Cyrus Vance Jr., the Manhattan district attorney â€" left largely reassured.

During the meeting at the New York Fed’s headquarters in lower Manhattan, the lawyers said, Mr. Lawsky said he planned to impose steep penalties against BNP and its employees but would not revoke the bank’s license. The prosecutors secured similar assurances from the New York Fed, the lawyers said, though the Fed’s board in Washington must still approve the decision about BNP, which has not been accused of any wrongdoing.

Depending on the regulator â€" American and European banks are divided among a patchwork of agencies in New York and Washington â€" the path to filing charges could still be difficult. While regulators might be philosophically aligned with prosecutors, some feel bound by rules that govern their response to criminal charges.

At a meeting last September, a top federal regulator vowed not to interfere if Mr. Bharara obtained a guilty plea from JPMorgan Chase over its ties to Bernard L. Madoff, according to the lawyers and records of the meeting. But the regulator, Thomas J. Curry, a frequent critic of Wall Street, warned that federal law might require him to reconsider JPMorgan’s charter if the bank was convicted of a crime.

The discussions with regulators, recounted in interviews with the lawyers and in records obtained through a Freedom of Information Act request, offer a lens into the political and legal minefields that prosecutors navigate when investigating big banks. The interviews also demonstrate that defense lawyers continue to push prosecutors not to act without assurances that regulators will keep a bank in business.

In a recent speech to Wall Street lawyers, Mr. Bharara said this dynamic creates a “gaping liability loophole that blameworthy companies are only too willing to exploit.”

He noted that regulators often possess many of the same facts, including emails and documents, that underpin a criminal case. The prosecutors and regulators, he said, need to “work in concert.”

His comments echoed concerns that Attorney General Eric Holder raised at a Congressional hearing last year, when he remarked that “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them” amid regulatory concerns that charges could imperil the economy.

The off-the-cuff remarks ignited a national debate that reverberated through the Justice Department and the halls of the Capitol. Mr. Holder’s concerns also reinforced the popular idea that Wall Street, once considered too big to fail, is now too big to indict.

The idea is born from painful experiences like Arthur Andersen, Enron’s accounting firm that went out of business after a 2002 criminal conviction. In the wake of the firm collapsing, prosecutors adopted a more cautious approach when punishing big companies, imposing so-called deferred-prosecution agreements that suspend charges against corporations in exchange for certain concessions.

Those fears helped shape the case against HSBC, accused of “stunning failures” in preventing money laundering. Prosecutors in Washington, unsure how regulators would respond to a guilty plea, imposed a record fine and a deferred-prosecution agreement.

Mr. Holder and Mr. Bharara are now signaling a change in course.

Mr. Holder’s criminal division â€" which a week after announcing the HSBC case hosted a meeting with regulators to discuss “corporate resolutions,” according to records â€" has held discussions with the New York Fed about securing a guilty plea in the Credit Suisse tax shelter case.

While the criminal division might ultimately extract a guilty plea from Credit Suisse’s main banking affiliate in Zurich, the lawyers briefed on the matter said, they have not ruled out charges against the bank’s parent company. The case is expected to be announced before the action against BNP.

Representatives for BNP and Credit Suisse declined to comment.

Mr. Bharara, the lawyers said, has opened his own criminal investigations into a fraud at Citigroup’s Mexican affiliate and other American banks. And in the recent speech, Mr. Bharara warned, “You can expect that before too long a significant financial institution will be charged with a felony or be made to plead guilty to a felony, where the conduct warrants it.”

BNP has said that the consequences of a guilty plea could be dire. In a final bid for leniency, the lawyers briefed on the matter said, the bank is expected to meet with prosecutors next week in the Justice Department’s headquarters in Washington.

BNP, which has earmarked $1.1 billion to pay penalties in the case but might pay more, requested the meeting with Mr. O’Neil, Mr. Bharara and Mr. Vance after learning the prosecutors’ intentions to force a guilty plea from the bank’s parent company. The bank hopes that prosecutors will settle for a guilty plea from a BNP subsidiary.

The investigation into BNP has centered on whether the bank processed transactions for countries â€" including Sudan and Iran â€" that the United States government has sanctioned. The bank, which conducted its own internal investigation that “identified a significant volume of transactions that could be considered impermissible” between 2002 and 2009, may have improperly routed some money through its New York branches.

Prosecutors decided that the conduct warranted more than a deferred-prosecution agreement. But leery of spurring a run on the bank, the prosecutors turned to regulators for assurances â€" which were largely provided at the April 18 meeting at the New York Fed.

Still, to be meaningful, a guilty plea would require some consequences. Mr. Lawsky told prosecutors that he would consider temporarily suspending the bank’s ability to transfer money through New York branches on behalf of foreign clients, a move that could undercut the bank’s revenue.
A spokesman for Mr. Lawsky declined to comment, as did a spokesman for Mr. Bharara, Mr. Curry and Mr. O’Neil. The Fed and Mr. Vance’s office also declined to comment.

In other cases, Mr. Bharara reached an impasse with regulators.

He first met with Mr. Curry, the Comptroller of the Currency, in September 2012 to discuss the potential fallout from criminal charges, records show. A year later, as Mr. Bharara’s investigation into JPMorgan’s business with Madoff was heating up, he made another visit to the regulator.

Joined by his top lieutenants â€" Lorin L. Reisner, Joon Kim and Richard B. Zabel â€" Mr. Bharara sought to clarify the potential repercussions of a JPMorgan guilty plea, according to the meeting records. Mr. Curry, flanked by his own top aides, Paul Nash and Daniel Stipano, was sympathetic to the dilemma.

But Mr. Curry stopped short of promising that JPMorgan’s charter would be safe. He pointed to a federal law that requires the Comptroller’s office to hold a hearing about potentially terminating “all rights, privileges and franchises of the bank.” Ultimately, JPMorgan received a roughly $2 billion fine from Mr. Curry and Mr. Bharara, but did not have to plead guilty. Moving forward, Mr. Bharara is exploring ways around the automatic hearing, which applies only to money laundering convictions. Other charges, including wire fraud, do not automatically require a hearing.

“The revocation of a charter amounts to a death sentence for a bank,” said Daniel Levy, a former prosecutor in Mr. Bharara’s office, who is now a principal at McKool Smith. “Any rational prosecutor would want to know the consequences of a charge, if possible in advance.”

New York State Makes New Efforts to Combat Payday Lenders

Curbing abusive payday lending practices can sometimes resemble a game of Whac-A-Mole: every time regulators manage to push down one method the industry uses, another new method seems to crop up.

Payday lending, which is illegal in New York State, has managed to pop back up through online sites, Native American affiliations and, now, through the use of debit cards.

In an effort to end what he sees as another way into borrowers’ accounts, Benjamin M. Lawsky, New York State’s top financial regulator, is sending cease-and-desist letters to 20 companies suspected of making illegal payday loans, 12 of which appear to use debit card information to do so.

The New York Department of Financial Services and Gov. Andrew Cuomo’s office on Tuesday also announced an agreement with Visa and MasterCard to provide information that could help both companies investigate illegal transactions within their networks. Both card processors have a policy of investigating suspicious activity and taking the appropriate steps to stop it.

“I don’t know that there are that many routes or avenues into the banking system where you can pull money out of New Yorkers’ accounts,” Mr. Lawsky said. “At a certain point, at least, our hope is that they’re going to run out of avenues.”

Payday lenders issue loans tied to a borrower’s paycheck, and online lenders typically deduct money directly from a bank account. But authorities have put pressure on the Automated Clearing House system, which processes those transactions, to reject payments that facilitate illegal activity.

In response, a growing list of lenders are now requiring borrowers’ debit card information as backup, a tactic state regulators hope MasterCard and Visa can help eliminate.

“This is a proactive concerted effort with the state,” said Seth Eisen, a spokesman for MasterCard.

Mr. Lawsky’s latest efforts are part of his office’s broader crackdown on online payday lenders, whose small-dollar loans, often to low-income borrowers, have come under fire for taking advantage of the financially vulnerable.

In August, the Department of Financial Services sent cease-and-desist letters to 35 online lenders, some of whom it accused of charging annual interest rates as high as 1,095 percent. The department says that as a result of the letters, most of those businesses have halted lending to New York State customers.

Over the past few years, a number of states have introduced tougher laws to curtail abusive lending practices. According to Diane Standaert, the senior legislative counsel for the Center for Responsible Lending, no new states have legalized payday lending since 2005.

As a result of tougher laws, many lenders have transitioned from brick-and-mortar stores to online sites, where it can be easier to skirt statewide usury rules and interest rate caps. In the past, borrowers might hand over multiple physical checks to ensure future payment, but online lending has given lenders an automatic payment tool that can be difficult for borrowers to discontinue.

“That trend toward cascading payment authorization means that now more than ever, lenders are prioritizing direct access to a borrower’s bank account to secure payment and force collections,” said Tom Feltner, the director of financial services at the Consumer Federation of America.

Some lenders have also begun partnering with Native American groups, which are often exempt from certain federal and state regulations. Those affiliations have also drawn scrutiny from regulators who worry that the ties give lenders another way to circumvent consumer protections.

But the payday industry says that regulators often go too far, and that their financial products provide a valuable service to people who may not otherwise have access to credit.

In an email, Peter A. Barden, the director of communications and operations at the Online Lenders Alliance, an industry trade organization, emphasized that the group’s members abided by federal laws, including truth in lending rules.

“Members of Congress as well as the financial services industry have expressed deep concern that regulators are continuing to pressure payment processors and banks to bend to their will and choke off legal industries they don’t like from the consumers who want their products,” Mr. Barden said in a separate email. “We need a federal solution that prevents the payment system from being politicized while also preserving and expanding consumer access to credit.”

Prana Living, Yoga Gear Maker, Is Sold to Columbia Sportswear

As more Americans practice yoga, a booming market has sprung up for stretchy pants designed to accommodate poses like downward dog.

On Tuesday, Prana Living, a yoga gear maker, was sold to Columbia Sportswear for $190 million.

Prana will join Columbia’s stable of sports apparel brands, which include its eponymous mountain gear line, the upscale Mountain Hardwear, and Sorel, the boot maker. Columbia, based in Portland, Ore., has a market value of $2.86 billion, but its shares were up 6.5 percent in after-hours trading on news of the deal for Prana, and good first-quarter earnings.

The segment for yoga gear has boomed in recent years. A competitor, Lululemon Athletica, which specializes in yoga clothes, is valued at $8 billion.

Prana was previously owned by Steelpoint Capital Partners, a San Diego-based investment firm with stakes in other health and lifestyle companies including Naked Juice and Tasti-D-Lite, the frozen yogurt chain.

“Prana fits Columbia’s strategic priorities to expand into categories that appeal to complementary consumer segments, reduce our dependence on cold-weather products, and leverage Columbia’s global operational platforms to expand across key geographic markets,” Tim Boyle, Columbia’s chief executive said in a statement.

Prana, based in Carlsbad, Calif., has a progressive corporate culture. It has prioritized sustainable production of its clothing, and works with meditation teachers to teach mindfulness to its employees.

“Of equal importance is the cultural fit and professional camaraderie we’ve found at Prana as we’ve worked with C.E.O. Scott Kerslake and the Prana management team,” Mr. Boyle said. “We look forward to completing the transaction and teaming with them to unlock Prana’s global brand potential.”

Prana’s chief executive, Scott Kerslake, will remain with the company and report to Mr. Boyle.

“Prana is a brand founded on designing stylish, functional, active apparel made in an environmentally sustainable way,” Mr. Kerslake said. “With Columbia’s financial strength, operational expertise, and global market platform, we now will be able to reach a much broader audience of socially conscious consumers worldwide.”

Founded in 1992, Prana also has a robust line of rock climbing gear. Sales at the company grew at a compound annual growth rate of more than 30 percent over the last three full years, and are on pace to surpass $100 million this year, with operating margins in the low double digits, the company said.

Prana operates five of its own stores and sells through other retailers, but said just 5 percent of its sales are outside the United States, giving Columbia an opportunity to grow the brand overseas.

JPMorgan advised Columbia Sportswear Company, while Wachtell, Lipton, Rosen & Katz provided legal advice.

Alliant Techsystems’ Break-Up and the Return of the Morris Trust

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Withdrawn Chinese I.P.O. Is the Least Bad Outcome

This little piggy isn’t going to the market after all.

WH Group has scrapped its Hong Kong listing after investors turned their noses up at its valuation. The Chinese pork producer had already more than halved the size of the fund-raising to as little as $1.3 billion. A delay that gives the company formerly known as Shuanghui more time to integrate its American subsidiary Smithfield is probably the least bad outcome.

WH Group’s private equity backers were so greedy that even its 29 investment banks couldn’t sell the cut-size offer. At the bottom of the range, the initial public offering  implied a valuation for Smithfield 21 percent above the price WH Group paid for the company barely eight months ago, according to an analysis by Reuters Breakingviews.

Such blatant fattening up rankled with investors, who also objected to large share awards to two senior executives. Though WH Group scaled back the size of the offering, it didn’t cut the price - a step made more difficult by Hong Kong’s listing rules.

The current owners had promised not to sell any shares in the cut-size I.P.O. Pushing ahead would have left investors worrying about a stock overhang in the hands of Chinese private equity firms CDH Investments and New Horizon, which own a combined 40.5 percent of the company. The risk was that WH Group would suffer the same fate as Huishan Dairy. Shares in the Chinese farm operator are trading 38 percent below the offer price for its $1.3 billion fundraising last September.

Delaying the offering gives WH Group time to further integrate Smithfield and prove that it is worth a full-fat valuation. The company reckons it can benefit by selling more low-cost  pork to Chinese consumers. Investors will want to see more evidence that is the case. The problem with the delay, however, is that WH Group will now carry its net debt of more than $7 billion for longer. The earliest it could try to go public again would probably be in September.

The pulled pork I.P.O. is embarrassing for all concerned. But faced with an unappetizing deal or a canceled one, WH Group chose the least bad option.

Una Galani is the Asia corporate finance columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Alstom Board Said to Accept Bid by G.E.

The board of Alstom, the French industrial giant, voted on Tuesday to accept General Electric‘s bid of about $13 billion for its power and energy unit, people briefed on the matter said.

The decision, which is expected to be announced as soon as Wednesday morning, came as a French government minister continued to advocate for a rival proposal by Siemens.

A deal would still need to be approved by Alstom’s union.

G.E. declined to comment.

Siemens, Germany’s largest diversified industrial group, said earlier in the day that it intended to pursue an exchange of assets with Alstom that would preserve the French company as a giant in the rail transport business and keep the company in European hands.

Siemens first signaled its interest in Alstom over the weekend as Alstom was considering an offer from General Electric. Siemens said in a statement on Tuesday that it would make a formal offer to exchange its transport assets for Alstom’s energy unit contingent upon it gaining access to the French company’s books and management for four weeks of due diligence.

But both the chief executive of Alstom, Patrick Kron, and the French conglomerate’s biggest investor, the billionaire Martin Bouygues, had favored the proposal by G.E. Under the terms of that bid, Alstom would sell its energy business, which comprises roughly 70 percent of the company’s operations, for around $13 billion.

What would remain is Alstom’s transportation business, long a symbol of French ingenuity and which produces national icons like the TGV high-speed train.

The G.E. talks were advanced enough that Alstom had been expected to announce a deal this past Sunday.

But the French economy minister, Arnaud Montebourg, erupted in public after news of the negotiations leaked late last week. He quickly pressured Alstom’s board to consider other options, including a Siemens offer. General Electric’s chief executive, Jeffrey Immelt, met on Monday with the French president, Francois Hollande, and other government officials pledging G.E.’s commitment to preserving French jobs.

Many analysts say that, from the point of view of maintaining Alstom’s labor force, the G.E. deal appears to be the better one since there is less overlap in the two companies’ work forces than with Siemens’.

But Mr. Montebourg, who loathes the idea of having a national champion disappear into a giant American conglomerate, has been intrigued by the Siemens proposal. In that deal, Siemens would be the undisputed European champion in the power sector and Alstom the dominant rail transport maker on the Continent â€" while still a French company.

Michael J. de la Merced reported from New York and David Jolly reported from Paris.

The Quirk That Bolsters Allergan’s Defense

In the $45.6 billion takeover battle for Allergan, there has been much speculation about what will be the next steps.

But a quirk in Allergan’s governing documents about who can replace removed directors may halt the pursuer, Valeant Pharmaceuticals, and its ally, William A. Ackman’s Pershing Square, in their tracks.

Allergan made the first, predictable move in this battle by adopting a poison pill that is set off if someone acquires 10 percent or more of its shares . This effectively froze the bidders’ stake at 9.7 percent.

More important, because of a so-called “beneficial ownership” provision in the pill that groups together shares of parties acting together, Allergan has effectively limited Pershing Square’s and Valeant’s ability to speak to other shareholders. The two bidders do not want to risk being grouped with those other shareholders and inadvertently tripping the poison pill.

The poison pill effectively forces Pershing Square and Valeant to run a proxy contest to remove directors and redeem the poison pill if they want to force Allergan into a deal. And while these contests seldom go the full distance to an actual vote, the potential of this threat is a stick that Pershing Square and Valeant can use to prod Allergan unwillingly to the table to negotiate.

This leaves the two sides to plot moves around this goal. This is where that quirk comes up.

Allergan has an annual meeting scheduled for May 6. The date for nominations of directors has passed, and so the directors will be up for election unopposed.

This would ordinarily force Pershing Square and Valeant to wait a year to nominate new directors. But the certificate of incorporation and by-laws allow for shareholders holding 25 percent of the shares to call a special meeting. At the meeting, Allergan shareholders can remove directors, but a vote of 50 percent of all the shares is required.

In addition, Allergan’s board has proposed amending the company’s certificate of incorporation at the May 6 meeting to allow shareholders to act by written consent, that is without a meeting and simply by asking shareholders to send in their consent to remove and replace Allergan’s directors. For Valeant and Pershing Square to collect written consents, the two first need 25 percent of Allergan’s shares to agree to begin this process.

Since Allergan’s board put forth the written consent amendment as something its shareholders wanted, the board will have a hard time justifying removing the written consent proposal, and it is now very likely to be adopted.

If passed, this would give Valeant and Pershing Square two routes to remove Allergan’s directors â€" either by soliciting written consents of shareholders or by holding a special meeting.

This sets up an interesting choice. With a special meeting, there is a single date to focus on winning over shareholders. The Allergan board, however, has the right to call its own special meeting within 120 days. If Valeant and Pershing Square picks the special meeting route, Allergan will likely do this to postpone the meeting for another four months.

In the alternative, Pershing Square and Valeant can elect to go without a meeting and just try and collect shareholder consents. Once started, the solicitation of written consents takes a maximum of about three months. Since a solicitation by written consent is likely to go more quickly and give more control of the process to Pershing Square and Valeant they will likely go the written consent route.

So don’t be surprised if Allergan tries to postpone the meeting adopting this amendment or otherwise has the gumption to pull the proposal.

Valeant and Pershing Square cannot begin to gather shareholders to call a special meeting or act by written consent until the meeting happens, giving further incentive to Allergan to postpone.

In either case though, there is that quirk in Allergan’s organizational documents that may give the company a real defense. The documents unusually bar “an identical or substantially similar item” from being presented to shareholders if that item was presented any other meeting of stockholders “within one year prior” to the request.

Allergan’s directors are up for election in May. Would a bid to remove and replace them during the 12 months after the meeting be a similar request to unseating them?

Allergan is aware of this issue and setting itself up to take this position. In a filing made after the unsolicited bid was made public, the company stated that “the election of directors by written consent would be” similar to what is occurring at the annual meeting and therefore barred. However, “the removal of directors by written consent would not.”

Allergan here is doing something very tricky â€" trying to take up the position that if shareholders do adopt the written consent provision, they are also adopting this position.

I may be over-reading this statement, but Allergan also appears to be saying that you can remove our directors, but not elect replacement directors.

If Allergan is correct, the question then becomes what happens if Valeant and Pershing Square do succeed in removing Allergan directors? Presumably, if all the directors are removed, then those directors may just call a new meeting to elect their replacements, but that is uncertain. It’s also unclear whether Allergan’s position that new directors can’t be replaced by the bidders would be legal under Delaware law.

This is all likely to mean a bigger defense position than initially thought for Allergan and more possible delay with likely litigation over what this provision means and how it affects any attempt by Pershing Square and Valeant to remove the Allergan directors. Allergan may even be successful blocking an attempt to put new directors on its board.

Whatever the outcome, though, it likely means that any contest to unseat Allergan’s directors may culminate in the fall at the earliest. This will give Allergan time to sharpen its case, look for another potential acquirer or even try for its own acquisition to bulk up and make itself too expensive to be acquired.

The question now is what will Allergan do with its time?

A Texas Bankruptcy Seeks a Home in Delaware

Energy Future Holdings, the big Texas utility company formerly known as TXU, and its myriad related companies filed their Chapter 11 bankruptcy petitions in Wilmington, Del., on Tuesday morning.

Delaware?

The first to file was the Texas Competitive Electric Holdings Company, which most people have never heard of. Energy Future, of course, is incorporated in Texas and based there. Thus, the only way for it to file in Wilmington was as a case “related to” the case of Texas Competitive Electric, a holding company in the Energy Future group that happens to be a Delaware limited liability company.

But before Energy Future Holdings could file the remainder of its first-day motions, one of the company’s indenture trustees slipped in with a motion to transfer the case to Texas. It also filed a motion for what is known as a 2004 examination â€" a chance to ask the company lots of questions. The indenture trustee noted that Energy Future was mostly a Texas operation and perhaps its executives should spend a bit less time at the Hotel DuPont. The motion suggested that the company was seeking the most advantageous court for approval of the restructuring plan favored by senior lenders and management.

Indeed, it is somewhat rare for a utility company to file outside its home state. PG&E filed in California, and Public Service New Hampshire filed in, you guessed it, Manchester, N.H.

It will be interesting to see whether the indenture trustee’s motion gets some support from Texas regulators, who will have a big role to play in this case. The position of the United States Trustee’s office will also be interesting to watch, especially given the office’s recent moves in New York to object to cases filed in Manhattan with the full support of the parties.

If there was ever a big case that might be transferred out of Delaware or New York, Energy Future might be it. But remember that Delaware was the home to the Los Angeles Dodgers’ bankruptcy case, so who knows.

And it can’t be denied that there are real benefits to the parties to proceeding in front of an experienced judge, especially in a complex case. And Judge Christopher Sontchi, who has been assigned the case in Wilmington, certainly qualifies on that front.

Perhaps more the more interesting takeaway from the indenture trustee’s motion is the tone of hostility in the motion. The indenture trustee clearly feels as though they’ve been shut out of the deal-making. This could suggest that Energy Future’s trip through Chapter 11 might not be a smooth as they might hope.

Stephen J. Lubben is the Harvey Washington Wiley Chair in corporate governance and business ethics at Seton Hall Law School and an expert on bankruptcy.

How Tax Laws Distort the Pfizer Deal

The United States tax code is fueling Pfizer, Inc.’s $98.7 billion bid to take over the London-based pharmaceutical company AstraZeneca. If the deal goes through as proposed, a new parent company in Britain would own the combined entity, making it easier for the new firm to strip income out of its American tax base. The deal is one of several recent transactions known as “inversions,” where a multinational company like Pfizer, based in New York, becomes an expatriate by acquiring a smaller foreign target.

Inversions are especially popular these days for pharmaceutical and biotechnology companies, where most of the value of the company is found in tax-mobile intangible assets. Recent examples include Valeant Pharmaceutical’s acquisition of Biovail, a Canadian company, and Endo Health Solutions’ acquisition of Paladin Labs, another Canadian company. Ireland is another popular haven: the pharmaceutical company Actavis moved to Ireland by way of merger with Warner Chilcott, setting up the expatriation of Forest Laboratories through a merger with the now-Irish Actavis. While the tax treatment of shareholders in the United States in inversions varies â€" they are sometimes taxed on built-in gains at the time of inversion â€" the underlying tax motivations for these deals are consistent.

The United States tax code creates two reasons for these sorts of deals: OK? (1) American corporations must pay tax on worldwide income, not just income in the United States, and (2) American corporations may defer tax on most income from foreign sources until the income is repatriated to the United States.

The first factor â€" worldwide taxation â€" means that American multinationals have an incentive to give up their United States citizenship. Most countries have adopted a territorial system, giving up any tax claim on income from foreign sources. After an inversion, therefore, the new entity pays tax to the United States only on income from the United States. According to the Pfizer news release, the inversion “would not subject AstraZeneca’s non-U.S. profits to U.S. tax,” something the company said would be in the best interests of the combined company’s shareholders.

Left unsaid is that the merger means that Pfizer, like AstraZeneca, will avoid American taxes on foreign profits. Also left unsaid is that for most American multinationals, a lot of income from foreign sources is really American income in disguise. Most large multinationals use aggressive transfer pricing and other techniques to strip income out of the United States. Martin A. Sullivan of Tax Analysts wrote last year that “although Pfizer’s shares of worldwide profits and sales have both been growing, the company’s profits are disproportionately concentrated outside the United States relative to sales.” From 2008 to 2012, he found, 124 percent of Pfizer’s pretax profits came from foreign sources, while only 57 percent of its sales were overseas. Those figures suggest that Pfizer is already artificially shifting profits overseas.

Joan Campion, a spokeswoman for Pfizer said in an email that because “there is no specific offer or consummated transaction at this point, we would not speculate on the potential effects of a possible transaction.” She added that the potential transaction has a number of financially attractive elements, including operating under a more efficient tax structure.

The second factor â€" deferral â€" means that companies like Pfizer have a lot of overseas cash available. Multinationals keep foreign profits overseas to avoid the repatriation tax, and the cash needs somewhere to go. In its most recent annual report, Pfizer reported $69 billion in foreign profits indefinitely reinvested overseas, and each year’s profits generate more cash. Acquiring a foreign company is a tax-efficient use of cash.

From a policy perspective, the problem goes beyond lost tax revenue. In his seminal article, “The Nature of the Firm,” the economist Ronald Coase argued that the boundaries of the firm depend on what is known as the make vs. buy decision. If the costs of making a product inside the firm are less than the costs of contracting out, the company will make the product, not buy it. The advantage of contracting outside the firm is the access to the invisible hand of the marketplace, which helps the firm allocate resources more efficiently. The disadvantage is that it introduces search costs, raises information costs, creates costs for negotiating and enforcing contracts and other transaction costs. The boundaries of the firm are set at the point where the benefits of the market are outweighed by these transaction costs. In this way, according to Mr. Coase and most economists, firms make the most of the invisible hand of the market and allocate economic resources to their highest and best use.

But taxes distort this Coasean view of the boundaries of the firm. We don’t know if Pfizer is targeting AstraZeneca because the combined firm will be more efficient or because of the tax savings.

It’s tempting to look at the Pfizer deal simply as a loss for taxpayers in the United States. But it’s worse than that. A Coasean perspective is useful because it focuses attention on how taxes distort “real” (nonfinancial) management decisions, like how to organize a firm, whether to buy or make major aspects of production, where to locate assets and production functions inside the firm, and how and where to reinvest profits. Because reinvested profits are taxed more lightly than distributed profits, taxes may often have the effect of causing firms to grow larger than is economically efficient.

But the clearest distortion is not size, but location. For multinational corporations based in the United States, taxes create an incentive to expand overseas operations by opening foreign subsidiaries, expanding foreign operations and acquiring foreign companies. Unlike a pure tax shelter, which generates paper losses to avoid taxes, the effects of tax expatriations are real. Taxes distort the organization of corporate activities and shift operations outside our borders.

The silver lining here is that the Pfizer deal, which would be the largest expatriation in United States history, may jolt Congress into action.

Santander Offers $6.5 Billion to Buy the Rest of Its Brazil Unit

SÃO PAULO, Brazil â€" Banco Santander announced on Tuesday a deal to acquire the 25 percent of its Brazilian unit, Santander Brasil, that it does not already own for 4.69 billion euros, or $6.52 billion.

As part of the deal, Santander is offering shares in the parent company in exchange for shares in the Brazilian unit.

The price offered for Santander Brasil is 15.31 reais, or $6.92, per unit, a 20 percent premium over Monday’s closing price.

If all of Santander Brasil’s shareholders accept the offer, Santander would issue 665 million shares in the parent company, the equivalent of 5.8 percent of its current float. The new shares will trade on the São Paulo stock exchange as Brazilian depositary receipts. Owners of American depositary receipts in Santander Brasil would receive A.D.R.s in Santander Spain.

The offer is voluntary, so Santander Brasil shareholders can keep their shares, which will continue to trade in São Paulo. But Andre Riva Gargiulo, senior banking analyst for Grupo Bursátil Mexicano in Brazil, said shareholders had little choice but to accept the offer.

“Even though the shares will continue to trade, they will have very little liquidity and will now be listed in a lower corporate governance tier,” he said.

Although Mr. Gargiulo termed the offer “unfriendly,” he said the price Santander Spain was offering was in line with his estimate for the shares’ potential upside.

Shares of Santander Brasil were up about 16.6 percent Tuesday in São Paulo to 14.91 reais, indicating market confidence that the deal will close.

Santander held an I.P.O. of its Brazilian subsidiary in 2009, when Brazil’s markets were booming. It raised $8.05 billion in the largest I.P.O. in Brazil’s history.

Eduardo Nishio, financial sector analyst for the São Paulo investment bank Brasil Plural, noted that Santander Brasil’s share performance since has been “brutal” for investors.

At the I.P.O., Santander Brasil listed its shares at 23.5 reais apiece. Had investors at the time simply put those 23.5 reais in short-term Brazilian government treasuries, they would now have 36 reais, or nearly 2.4 times the current share price.

“It is clearly a good deal for Santander Spain, which is swapping its own shares, which have done relatively well in recent years, for shares which have done very poorly,” Mr. Nishio said

Mr. Nishio said Santander Brasil’s performance since its I.P.O. had been “disappointing,” with growth and profits lower than its main competitors, while its Spanish parent often used its Brazilian resources to strengthen its own capital position.

In a research report Tuesday morning, J.P. Morgan called the offer “reasonable” because it was well above what the firm estimated to be Santander Brasil’s fair value, 14 reais a share.

J.P. Morgan’s analysts added that they did not expect Santander Spain to make similar offers for its other publicly traded Latin American subsidiaries, Santander Chile and Santander Mexico.

Britain Outlines Stress Test for Its Banks

Imagine that things started to look very gloomy in Britain. The value of the pound falls, inflation rises, interest rates spike to 4 percent. The economy shrinks by 3.5 percent, unemployment reaches 12 percent, and housing prices fall 35 percent, with commercial real estate declining 30 percent. Stocks and bonds weaken and bank funding dries up.

That cheery outlook was presented on Tuesday by the Bank of England as parameters for the stress test it plans to give the country’s eight biggest lenders.

Banks including HSBC Holdings and Barclays will have to maintain a Tier 1 capital buffer of 4.5 percent of risk-weighted assets or they will be forced to raise more capital.

“Much has been achieved in recent years to put the U.K. banking system on a sounder footing so that it can support the U.K. economy,” Mark Carney, governor of the Bank of England, said in a statement. “The bank’s annual stress test will help ensure our banks support that expansion by remaining resilient.”

The British stress tests will take place alongside those conducted by the European Union’s banking supervisor, with the results to be released in the fourth quarter of 2014, after the E.U. results, which are expected in October.

The European Banking Authority announced separate scenarios for its stress tests earlier today, imagining a two-year recession, unemployment across the 28-member bloc reaching 13 percent and house prices falling 20 percent. (The British seem to do better on imagining worst-case-scenarios.) Banks will need to maintain a buffer of Tier 1 capital of 5.5 percent of risk-weighted assets.

The E.U. stress test is meant to restore credibility to the testers after previous examinations determined banks had sufficient capital, only to see them have to raise more money soon afterwards.

In November, the European Central Bank will take over supervision of the big euro-zone banks from their national supervisors.

Following K.K.R. on Twitter

Kohlberg Kravis Roberts, the oldest of the giant private equity firms, is dipping a toe into social media.

K.K.R. is sprucing up its long-dormant Twitter account for a debut on Thursday, when it is expected to post its first-ever tweet. The bite-size dispatch will coincide with the 38th anniversary of K.K.R.’s founding.

The private equity giant, which awed Wall Street in the 1980s with the leveraged buyouts of the Beatrice Companies and RJR Nabisco, and which recently reported that its assets under management had grown to more than $100 billion, is comparatively late to the social media service.

One rival, the Carlyle Group, has been tweeting since 2012. Another, the Blackstone Group, has been communicating in 140 characters or less since 2011, even posting pictures of otters and penguins roaming its office. (SeaWorld is a Blackstone portfolio company.)

But K.K.R.’s Twitter presence, which is being managed by the firm’s public affairs team, seems likely to be more serious for now.

“For the past several years, we’ve tried to be more transparent about our business and engage more with our investors and key stakeholders for K.K.R. and the companies in which we invest,” Ken Mehlman, the global head of public affairs at K.K.R., said in a statement. “We hope that Twitter provides another outlet for this conversation. We’ll use it to share news about our firm and perspectives on key issues impacting investing around the world.”

British Parliament Berates 2 Officials on Royal Mail I.P.O.

LONDON - Usually it is falling stock prices after initial public offerings that cause headaches for bankers and business executives. In the case of Britain’s Royal Mail, it is the company’s soaring value that has ignited outrage.

At a testy hearing in front of a parliamentary committee on Tuesday, Vince Cable, the British business secretary, faced a fresh grilling over how the Royal Mail I.P.O. was priced.

Both Conservative and Labour ministers attacked Mr. Cable and his deputy, Michael Fallon, for selling British taxpayers short in the offering, saying it was priced too low and left up to 1.2 billion pounds of taxpayer money on the table.

Numerous members of Parliament demanded apologies and admissions of regret. They got none.

“Absolutely no apology and a recognition that hindsight is a wonderful thing,” Mr. Cable said in response to one of many requests for contrition. “Given the circumstances at the time, the correct decisions were made.”

Britain’s postal service was floated in October at 330 pence a share, valuing it at £3.3 billion. The price immediately surged and has risen as high as 600 pence a share.

Every aspect of the privatization is now under fire, including how it was priced, who got the shares, whether the bankers involved in the offering deserve bonuses and the value of the Royal Mail’s property portfolio.

Lazard acted as the government’s independent adviser, and Goldman Sachs and UBS acted as the global coordinators for the deal. On Wednesday, the deal bankers will testify before another committee.

The government and its bankers say the deal was a great success because they sold 600 million shares in a company they described as “fragile” and as a “turnaround.” The deal was extensively oversubscribed and the price did not fall. In sum, it did not flop.

Members of Parliament contend that the offering was an unmitigated disaster because the price of the shares soared about 39 percent on the first day and significantly more afterward. They insist the deal was rushed and that the government should have waited to get a better price.

They also say independent research that would have placed a higher valuation on the company was ignored. They told Mr. Cable and his deputy that they had “let these people down” and called their behavior “ridiculous” and “bizarre.”

In a fairly typical exchange from the meeting, Mr. Fallon said: “I haven’t seen any evidence that the shares were undervalued at the time of the flotation.” That comment made the chairman of the committee, Adrian Bailey, apoplectic.

“That’s Alice in Wonderland,” said Mr. Bailey, a Labour member of Parliament, noting that the share price soared on the day of the sale. “It’s an astonishing assertion.”

Pricing of I.P.O.s is a tricky endeavor. Go too high and no one buys. Price too low and the shares skyrocket, giving investors a huge profit (think the tech bubble in the late 1990s. when banks were accused of pricing too low to give investors big first day pops).

In the case of a privatization, the issue is particularly sensitive since the seller is the taxpayer.

Mr. Cable has long insisted that the risks at the time of the deal were such that they could not price the shares any higher. The postal workers union had threatened to strike and the United States was on the brink of defaulting on its government debt, causing concerns of a global economic cataclysm.

Kevin Slocombe, chief spokesman for the Communication Workers Union, expressed disbelief over Mr. Cable’s characterization that the offering was a success. “There really is nothing like ignoring facts, public, everyone else who understands industry,” he said in a Twitter message.

Another issue of contention was who exactly got to buy shares in the I.P.O. The Bureau of Investigative Journalism on Tuesday morning disclosed a list of some of the buyers, including sovereign wealth funds from Singapore and Kuwait, the Capital Group, the Och-Ziff Group and Landsdowne, a British hedge fund known for its close ties to the Conservative Party (one of the top executives was the best man at George Osborne’s wedding).

Many of the investors have sold significant stakes, reaping large profits, the report said.

Mr. Cable has said the priority investors were picked as “high quality institutions of the type that would form the core of a long-term supportive investor base.”

Mr. Cable also insisted that at a higher price, institutions would have walked away from the deal. That caused Brian Binley, an impassioned Conservative member of Parliament, to accuse the ministers and their bankers of being motivated by a fear of failure and ignoring demand that would have allowed a higher price.

“There is no link between oversubscription and the market price,” said Mr. Fallon, citing Facebook, which was 25 times oversubscribed but fell 10 percent on its first day of trading. (“We’re not talking about Facebook,” one politician barked in response.)

In April, the National Audit Office of Britain published its own analysis of the I.P.O. and concluded that £750 million was lost, or more specifically, could have been raised.

Much of the hearing was spent parsing whether the report deemed the transaction a success or failure, leading reasonable people to wonder if they were reading the same report.

At a separate inquiry, Martin Wheatley, the head of the Financial Conduct Authority, told the Public Accounts Committee that the agency would not investigate the Royal Mail offering or the bankers involved. He acknowledged that the first day price increase was large, but said there was “nothing to suggest” any regulatory failure.

Mr. Fallon, who seemed the most visibly annoyed by the line of questioning, said that had the price fallen, they would likely be under similar fire. “You certainly would be critical if it had fallen below its price.”

Pfizer Most Likely Just the Tip of the Tax Sword

Pfizer’s $99 billion tax arbitrage bid will encourage copycats. The biggest charm of the United States drug giant’s offer for AstraZeneca of Britain lies in switching to a lower-tax domicile. The latest and largest such deal to hit the headlines raises the odds Congress will tighten rules - but not yet.

Inversions, in which companies relocate to cut their taxes, constitute a big merger theme. Mylan is seeking to take over Meda of Sweden, which could relatively easily move to Ireland, and Allergan - itself the target of Valeant Pharmaceuticals of Canada - is eyeing Irish-domiciled Shire, according to Reuters.

One big Valeant selling point in its serial acquisition strategy, including its offer for Allergan, is its own low tax rate, achieved through the earlier acquisition of a Barbados operating subsidiary. Mallinckrodt Pharmaceuticals and Actavis have maneuvered into similarly advantageous positions as buyers. Activist investors are on the case, too, pressing Walgreen to move its headquarters overseas. More deals are in the works, advisers say.

If Pfizer takes over AstraZeneca, it would have three beneficial effects on Pfizer’s 27 percent tax rate. First, British companies don’t pay taxes on overseas earnings. Second, the headline rate of tax on earnings is lower than in the United States - it will be 20 percent next year. And third, Pfizer could take advantage of the so-called patent box scheme, which will be fully phased in by 2017. The tax rate on profit made on products patented in Britain will be only 10 percent.

Inversion-related deals have come in waves in recent decades. Each wave has attracted new rules making them harder. Now, for example, a United States company must have substantial business activities in a country if it wants to move its domicile there - hence the use of mergers. Also, the overseas partner’s owners must hold 20 percent to 40 percent of the value and votes of the combined group. The mix of cash and stock in Pfizer’s offer for AstraZeneca would achieve that.

Such a huge deal by a well-known company, and the big loss of tax revenue, could provoke United States lawmakers. Although President Obama has proposed rules that would almost eliminate inversions, his proposal stands little chance of becoming law. Congress is also unlikely to act during this election year. The rules may well change again later - but in the meantime, Pfizer has validated the inversion tactic and more deals will probably follow.

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

New Group Aims to Increase Number of Women in Management

A group of about two dozen chief executives and board chairmen of major companies, along with the billionaire investor Warren Buffett, are joining together to push American companies to voluntarily bolster the number of women in company management, especially senior leadership.

The effort, called the 30% Club, is being announced on Tuesday and is an expansion of an effort in Britain to reshape board compositions. The group is urging American businesses to adopt measures to insure that women are better represented throughout company ranks. They argue that this would improve business performance.

“Real progress can be made if this is looked at as a business issue rather than one of gender or diversity,” said Helena Morrissey, chief executive of Newton Capital Management, who founded the 30% Club four years ago to urge the 100 largest companies in Britain to increase the number of women on their boards to nearly one-third of all directors by 2015.

The 30% Club effort in the United States â€" which has yet to set a percentage goal for women in leadership positions â€" hopes to “develop a pipeline of female talent in American organizations to put women in visible positions for advancement,” Ms. Morrissey said. The group does not want to focus solely on corporate board membership.

“It’s not just a nice thing to do, but it’s fundamental to business priorities,” said John Veihmeyer, global chairman of KPMG and a 30% Club backer, who noted that the research group Catalyst had found that companies perform better financially with higher numbers of women on their boards.

“We are focusing on the longer term to build diversity into leadership ranks,” he said.

When the 30% Club began in 2010, women represented just 12.5 percent of directors on the boards of top British companies. At the time, European countries were adopting laws requiring quotas to assure board diversity. As of March 2014, the 92 British companies that are participating say they have raised the percentage to 20.8 percent female directors.

Even though the effort in the United States has broad leadership goals, female board membership at American companies has stagnated for more than a decade at around 17 percent, according to the latest research from Catalyst and there is no pressure from the government or Congress to make board composition more inclusive.

Even so, Dominic Barton, the global managing director of McKinsey & Company, the international consulting firm, and a member of the 30% Club, said, “You can’t ignore women if a company wants to claim it has the best talent in the world.”

He added, in a telephone interview: “It’s a long process, and the way to help solve it is to look at the recruiting pipeline which funnels people to the managerial level. Companies need to make sure they retain women at that level.”

He said that McKinsey is actively trying to increase the percentage of women from 25 percent of its approximately 10,000 professional staff. The goal, he said, is to double the percentage of women in each region.

Fairholme Backs Campaign to Save Fannie and Freddie

The investor Bruce R. Berkowitz is providing seed money for a new group that is running advertisements in large newspapers and on television to support Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies that lawmakers are trying to wind down.

Mr. Berkowitz’s Fairholme Capital Management mutual fund, which is an investor in both Fannie and Freddie, is a member of the coalition that is backing the group behind the ad campaign â€" United for American Homeownership, said a person briefed on the matter who was not authorized to discuss it publicly. This person also said that Fairholme provided seed money to the group.

The group took out full-page ads on Tuesday in The New York Times and The Wall Street Journal and began running television ads on Sunday on certain stations. The group’s website formally went live on Tuesday as well.

The message of the ad campaign, which prominently features a United States flag and images of families with children, is that political leaders in Washington should work toward “preserving and strengthening” Fannie and Freddie.

Fairholme and other investors who have bought shares in Fannie and Freddie have been concerned that any restructuring of the mortgage giants, which required a government bailout to survive, could harm their investment. In February, Mr. Berkowitz’s firm sent a letter to the boards of the two companies asking them to give investors a greater say in how they are run. The companies are regulated by the Federal Housing Finance Agency.

In November, Mr. Berkowitz’s firm announced a proposal for it and other private investors to purchase the mortgage security insurance business of Fannie and Freddie.

Fannie and Freddie are the main guarantors of mortgage-backed securities in the United States. The companies got into trouble in the run-up to the financial crisis by taking on too much risk by guaranteeing mortgage securities backed by loans to borrowers with shaky credit histories.

The group’s website says its board includes Bob Kerry, the former United States senator; Harry C. Alford, chief executive of the National Black Chamber of Commerce; and Joshua Angel, a bankruptcy and restructuring lawyer with Herrick Feinstein in New York.

The website also provides links to news articles and opinion pieces, including one titled, “Fannie Mae and Freddie Mac must not die,” which was written by the bank analyst Dick Bove.

On Tuesday, the Senate Banking Committee is expected to start considering a proposal to wind down Fannie and Freddie and replace them with a new federal insurance program for mortgage bonds.

A Fairholme representative was not immediately available for comment.

Head of Barclays’ U.S. Business to Step Down

LONDON - The head of the United States business of Barclays is stepping down as the bank prepares to carve out the business to comply with new financial regulations.

In a statement on Tuesday, Barclays said that Hugh McGee III, the chief executive of Barclays Americas and a longtime veteran of Lehman Brothers Holdings, would leave his role at the bank on Wednesday.

Mr. McGee, known as Skip, joined Barclays in 2008 after Lehman collapsed into bankruptcy and its North American operations were incorporated into Barclays. He took on his current role in May 2013.

He will be succeeded by Joe Gold, the global head of client capital management. Mr. Gold, who joined the bank in 2002, will take on the restructured role of chief executive of the Americas, where he will report to Thomas King and Eric Bommensath, co-chief executives of Barclays’ corporate and investment bank. He will also serve on the corporate and investment bank’s executive committee.

“Skip McGee has delivered outstanding service over the last 21 years, both at Barclays and previously at Lehman Brothers,” Antony P. Jenkins, the chief executive of Barclays, said in a statement. “He has been the longest-serving head of investment banking on Wall Street, and our most senior client-facing executive, responsible for driving some of the industry’s highest-profile transactions.”

Barclays said it was required under the Dodd-Frank Act to establish a holding company for its American business by July 2016, which will require its top management to focus more on regulatory, legal and other matters as part of the transition.

“After 21 years with Lehman Brothers and Barclays, I have made the difficult decision to leave,” Mr. McGee said in a statement. “Banking is a ‘team sport,’ and I am incredibly proud of the team we assembled here. It has been a true honor and privilege to work with so many talented people over the last two decades. We have accomplished a great deal since the combination of Barclays and Lehman in 2008. As for me, I am looking forward to my next challenge.”

Mr. McGee did not indicate what his plans were after leaving Barclays.

The move comes as Barclays is preparing next month to announce plans to restructure its investment bank as part of a huge overhaul of its business. The bank plans to eliminate as many 12,000 jobs this year, or about 8 percent of its work force.

Barclays is expected to be smaller in the future, as it focuses on higher-return, less risky businesses.

The environment has been a tough one for Barclays, whose reputation suffered in 2012 after it agreed to settle accusations by British and American regulators that its employees manipulated global benchmark interest rates. The bank paid $450 million in penalties.

In February, Barclays reported a big fourth-quarter loss of 514 million pounds, or $865 million, which was driven in part by restructuring costs and a £331 million charge for litigation and regulation penalties.

Mr. Jenkins said last week that the challenging trading environment in the second half of 2013 continued into the first quarter in the bank’s fixed income, currencies and commodities business, with “a significant year-on-year reduction” in income. But he said the bank’s efforts to control costs helped offset lower income in that business.

The bank is set to announce its first-quarter results on May 6 and reveal its plan for its investment bank on May 8.

At the same time, Barclays has found itself in the middle of a testy debate over banker bonuses in recent weeks.

The bank increased its pool for bonuses and other incentives to £2.4 billion in 2013 from £2.2 billion a year earlier, despite posting a big fourth-quarter loss.

The pool remained £1.1 billion lower than it was in 2010, but that has not reduced shareholder frustration.

Tealium, an Ad Technology Start-Up, Raises $20 Million From Silver Lake

A start-up that focuses on the not-so-visible business of tagging Internet ads has secured support from a big Silicon Valley investment firm.

Tealium, which specializes in managing the tags that collect information from websites’ visitors, announced on Tuesday that it had raised $20 million in financing from Silver Lake. All told, it has now raised $47 million.

Tealium is aiming to create a platform for companies to manage their digital marketing tools, primarily website tags. The company was founded in 2008 in response to the thicket of tags that companies were putting on their sites, with no real standard.

Tealium’s advantage, according to its chief executive, Jeff Lunsford, is that it has already amassed a large number of clients to create a useful platform. The goal is to become a top manager of tags, much as First Data has become one of the giants of the payment processing industry.

“It’s a rare situation where it’s a win-win-win,” Mr. Lunsford said in an interview. “No one’s actually getting disrupted. We’re just changing how things are today.”

The company has more than 350 corporate clients, with revenue growing 120 percent annually, most recently to $12 million last year.

The new financing came in the form of debt, rather than an equity investment, after the company chose Silver Lake from a number of investment firms looking to partner with Tealium.

Mr. Lunsford said that by raising debt rather than equity, the company would avoid diluting existing shareholders.

“There’s no point in taking serious dilution if people are willing to lend the capital,” he said.

Start-ups often take on debt ahead of a forthcoming initial public offering, and while Mr. Lunsford declined to offer specifics, he said Tealium was headed down that path.

“We’re a public company management team that understands all the different financing options,” he said. “We’re not in a hurry to do it, since we’re really at the beginning and not the end of the process.”

Big Chinese Pork Producer Said to Cancel I.P.O.

HONG KONG â€" The WH Group of China, the world’s biggest pork producer, decided on Tuesday to cancel its $1.9 billion initial public offering in Hong Kong because of lackluster demand, according to a person briefed on the the matter.

Despite the efforts of an unprecedented 29 underwriters, the I.P.O., which had previously sought to raise as much as $5.3 billion, failed to generate enough enthusiasm from investors.

“This particular deal tells you everything that’s wrong with the Hong Kong I.P.O. process,” said the person briefed on the deal, who spoke on the condition of anonymity because the information is not yet public. “With the crazy number of banks working on the I.P.O., people were worried to tell the truth to the company and just said what the client wanted to hear.”

Hong Kong is one of the world’s biggest markets for new share sales, topping the global ranks in terms of the amount of money raised from 2009 to 2011 as more and more Chinese companies go public.

But in recent years, deals have been characterized by the growing armies of banks involved in them â€" a trend that is meant to help ensure success but that also risks a situation in which individual banks devote less time and resources to marketing an offering. The China Galaxy Securities Company, a midsize state-owned brokerage firm, set the previous record for number of underwritersâ€"21â€"in May of last year.

The cancellation of the WH Group’s offering is particularly notable because, as originally presented, it would have been the world’s biggest I.P.O. since that of a Brazilian insurer, BB Seguridade Participacoes, in April 2013

WH, previously known as Shuanghui International, last year paid $4.7 billion in cash for Smithfield Foods, the biggest pork producer in the United States. It was the biggest buyout ever of a United States company by a Chinese one. The I.P.O. of the newly combined businesses originally sought to raise as much as 41.2 billion Hong Kong dollars, or $5.3 billion, when it was announced earlier this month.

But the deal met with a cold reception, and the company announced last Friday that it would reduce the number of shares it planned to sell by more than half but keep the marketed price range the same, at 8 to 11.25 Hong Kong dollars a share. Despite this, investors failed to warm to the deal.

Another factor that hindered WH’s success was an outbreak of Porcine Epidemic Diarrhea virus that started to take hold among pigs in the United States last year. The situation has worsened in recent months, with Chinese regulators imposing temporary restrictions on the importation of live hogs from the United States.

That has driven up hog prices drastically in the United States, creating problems for WH’s business model. Despite the lower labor and other costs in China, hog prices in the United States have typically been cheaper because of more efficient production methods and lower feed costs.

WH has announced plans to use its purchase of Smithfield to export lower-cost United States pork to China, the world’s biggest consumer of the meat, where it can be sold at a premium because of its high quality and because of food safety concerns among Chinese after adulterants and pollutants have been found in everything from eggs to rice to pork in recent years. But rising pork prices in the United States make that a less profitable trade.

Investors were also put off by the company’s high level of debt, largely the result of its borrowings to acquire Smithfield.

Moreover, as part of cutting the size of its I.P.O., WH said that existing shareholders would cancel their plans to sell shares in the offering. But that touched off worries among potential investors that those shareholders would eventually seek to dispose of large stakes, which would push down the price of the stock after it listed.

Those investors include CDH Investments, big Chinese private equity group; Goldman Sachs; the company’s management; the Singapore state investor, Temasek Holdings; and New Horizon Capital, a private equity firm co-founded by the son of Wen Jibao, the former Chinese prime minister.

Among the 29 banks that were involved in the deal, seven had taken the lead as joint sponsors. They were Bank of China International, Morgan Stanley, Standard Chartered, Citic Securities International, Goldman Sachs, UBS and DBS.

The company is expected to make a public announcement about the matter within the next day.

A Failure in Texas

The troubled Texas utility Energy Future Holdings â€' which, as TXU, was private equity’s biggest-ever buyout â€' filed for bankruptcy on Tuesday, Julie Creswell and Michael J. de la Merced write in DealBook. After months of on-again, off-again talks between the company, its owners and creditors, Energy Future Holdings went into Chapter 11 protection with a plan meant to avoid months in bankruptcy court in what will be one of the biggest Chapter 11 filings in history.

Energy Future will probably be split between its regulated electricity arm, Oncor, and its unregulated power-generation business. The talks had long been stymied by an array of issues, including whether such a split would create a tax bill of more than $7 billion.

This is certainly not the ending the Wall Street private equity firms, including Kohlberg Kravis Roberts, TPG Capital and the private equity arm of Goldman Sachs, had in mind in 2007 when they acquired TXU Corporation in an audacious $45 billion deal. The firms’ investments are expected to be all but be wiped out in the bankruptcy.

PFIZER’S BID TO MOVE ABROAD  |  Pfizer no longer wants to be an American citizen, David Gelles and Michael J. de la Merced write in DealBook. On Monday, Pfizer â€' the maker of best-selling drugs like Lipitor and Viagra and a symbol of business prowess in the United States for more than a century â€' proposed a $99 billion acquisition of its British rival AstraZeneca that would allow it to reincorporate in Britain.

The deal would allow Pfizer to escape the corporate tax rate in the United States and “tap into a mountain of cash trapped overseas, saving it billions of dollars each year and making the company more competitive with other global drug makers,” Mr. Gelles and Mr. de la Merced write. For its part, Pfizer says that its main reason for the deal is broadening its portfolio of drugs and saving money through combined operations with AstraZeneca. Still, a deal would allow Pfizer to follow dozens of other large American companies that have already incorporated abroad through acquiring foreign companies.

These types of corporate moves do not sit lightly with lawmakers on Capitol Hill, who on Monday blamed the current tax code for providing an incentive for American companies to move abroad, where tax rates are lower. For companies that have already begun the process of moving abroad through these types of deals, known as inversions, the result will be hundreds of millions of dollars in annual tax savings, and an equivalent amount of money lost to the United States Treasury.

BANK OF AMERICA’S $4 BILLION MISTAKE  |  Bank of America disclosed on Monday that it had made a significant accounting error in the way it calculated a crucial measure of its financial health, another bump in the road for the sprawling bank, Peter Eavis and Michael Corkery write in DealBook. The mistake, undetected for several years, led the bank to report recently that it had $4 billion more capital than it actually held.

After Bank of America disclosed the error, the Federal Reserve required the bank to suspend a share buyback and a planned increase in its quarterly dividend. The reporting of the accounting error will most likely add fire to the debate over whether banks are too big to fail and too complicated to manage.

The error also raises questions about the quality of Bank of America’s own accounting employees, who did not detect the mistake, which stemmed from Bank of America’s acquisition of Merrill Lynch, the Wall Street giant, during the financial crisis. The bank will now have to go back to the Fed to try and resolve the issue and regain permission to make some payouts.

ON THE AGENDA  |  The Federal Reserve’s policy-making committee convenes for its two-day meeting. February’s Standard & Poor’s/Case-Shiller home price index is released at 9 a.m. The consumer confidence index is out at 10 a.m. Twitter reports earnings after the market closes. Herbalife holds its annual shareholder meeting at 10:30 a.m. Pacific time. The N.B.A. holds a news conference at 2 p.m. about its investigation of the Los Angeles Clippers owner Donald Sterling. Bernard L. Madoff turns 76.

On the Hill: The Senate Banking Committee holds a hearing at 10 a.m. on the Johnson-Crapo housing reform bill. The committee will also vote on the nomination of Stanley Fischer for vice chairman of the Federal Reserve. Mary Jo White, chairwoman of the Securities and Exchange Commission, testifies at 10 a.m. before the House Financial Services Committee on the S.E.C.’s agenda, operations and budget request.

FRANCE PLAYS AN AGGRESSIVE HAND  |  Shortly after news leaked last week that General Electric was working on a deal to buy part of the French industrial giant Alstom, France’s economic minister, Arnaud Montebourg, demanded an explanation from Alstom’s chief executive. Why would Alstom, the pride of France, be negotiating to sell its energy business to the American conglomerate without first informing the government? Mr. Montebourg has since made it clear that he would rather see G.E.’s German rival, Siemens, win the bidding for Alstom’s energy business, Liz Alderman and David Jolly write in DealBook.

Ms. Alderman and Mr. Jolly write: “On a day when many European heads of state were preoccupied with economic sanctions on Russia, the French government’s intimate involvement in a corporate takeover battle spoke volumes about France’s continued efforts to shield its economy. It was only the latest in a series of efforts by the Hollande administration to protect iconic French companies as the nation struggles to regain its industrial might.”

The deal-brokering came two months after France’s president, François Hollande, sought to convince international investors that France was “open for business.” And it raised questions about whether the government was out of step with globalization. For its part, France’s Socialist government said it was reacting normally. In demanding that the interests of the public be paramount over the shareholders’, Ms. Alderman and Mr. Jolly write, the government is upholding the tradition of dirigisme, an interventionist approach that historically has informed French economic thinking.

 

Mergers & Acquisitions »

Disney Considered Buying BuzzFeed, but Balked at $1 Billion Price  |  Disney’s interest in the fast-growing digital media company BuzzFeed, part of a routine effort to identify acquisition targets, faded after BuzzFeed provided a high valuation. DealBook »

Alibaba Buys Stake in Chinese Web TV Company for $1.2 Billion  |  The e-commerce giant Alibaba’s deal for a minority stake in Youku Tudou extends a recent frenzy of acquisitions in China’s fast-growing technology sector. DealBook »

Merger Talks of 2 Mining Giants Devolve Into Dueling Statements  |  Barrick Gold and Newmont Mining had appeared eager to strike a deal, but merger talks turned into a war of words. DealBook »

Forest Labs to Buy Furiex Pharmaceuticals  |  The deal, for up to $1.46 billion, expands Forest Laboratories’ position in gastroenterology as it prepares to be acquired for $25 billion by Actavis. DealBook »

Why Pfizer Needs to Do More to Win AstraZeneca  |  If the British drug company AstraZeneca cannot make Pfizer go away, it can certainly make it pay, Neil Unmack of Reuters Breakingviews writes. DealBook »

INVESTMENT BANKING »

Bank of America’s Bad Accounting  |  If a new accounting rule had been in effect, it appears that the bank would not have made the mistake that led it to withdraw its capital plan. DealBook News Analysis »

Deutsche Bank Returns to Profit as Legal Costs Ease  |  Deutsche Bank, Germany’s largest, said it made a profit in the first quarter of the year as it avoided the huge litigation expenses that characterized the end of 2013. DealBook »

Santander Profit Rises 8% on Improving Economy and Loan Charges  |  The Spanish bank Santander reported that net income of $1.8 billion outpaced its earnings in the period a year earlier but was slightly below expectations. The nonperforming loan rate fell for the first quarter since 2007. DealBook »

Charges in Libor Case for 3 From Barclays  |  Britain’s Serious Fraud Office said the three men, all former employees of Barclays in New York, would face charges of conspiracy to defraud. DealBook »

PRIVATE EQUITY »

Arle Capital to Buy Supplier of Plastic Bank Notes  |  The private equity firm Arle Capital Partners agreed to acquire the Innovia Group, a company set to supply materials for Britain’s new plastic bank notes, for about $690 million. DealBook »

Managing Partner of Leonard Green to Step Down  |  Peter J. Nolan will become a senior adviser at Leonard Green & Partners, a private equity firm based in Los Angeles, and will continue to serve on the boards of several of its portfolio companies. DealBook »

HEDGE FUNDS »

Time to Broaden the Definition of Insider Trading  |  William A. Ackman’s actions in the bid for Allergan have raised questions about how well the insider trading rules have protected investors. White Collar Watch »

Buffett Bites Back  |  Warren E. Buffett said that abstaining on Coke’s executive compensation plan had sent a loud message that Berkshire Hathaway did not approve, Joe Nocera writes in a New York Times Op-Ed. NEW YORK TIMES

Hedge Funds Betting Against Small Caps  |  Large speculators like hedge funds are betting $2.8 billion this month that the small-cap Russell 2000 Index will decline, Bloomberg News writes. BLOOMBERG NEWS

I.P.O./OFFERINGS »

I.P.O. Linked to Football Player Opens for Trading  |  Stock linked to Vernon Davis, the San Francisco 49ers tight end, opened for trading on Monday on an exchange operated by Fantex, a start-up. DealBook »

Brazilian Telecom Firm Oi Raises $3.7 Billion in Offering  |  The share offering is part of the company’s merger plans with Portugal Telecom. DealBook »

VENTURE CAPITAL »

Amadeus Capital Partners Leads Funding Round for Brazil’s Bidu  |  The $8.9 million funding round is the British venture capital firm Amadeus Capital Partners’ first investment outside Europe, the United States and Israel and is the first of several investments it anticipates in Latin America. DealBook »

Surviving the Silicon Valley Gold Rush  |  “Starting a company has become the way for ambitious young people to do something that seems simultaneously careerist and heroic,” Gideon Lewis-Kraus writes in Wired. But, he adds, a founder’s life can be fearful and distraught. WIRED

Owners to Invest $800 Million More in Shanghai Disneyland  |  The Walt Disney Company announced a deal on Monday to increase spending by $800 million on its coming huge resort in Shanghai, The New York Times writes. Disney and the Shanghai Shendi Group, a consortium of state-owned companies, had already committed to spend $4.7 billion on the theme park resort, which is scheduled to open at the end of 2015. NEW YORK TIMES

LEGAL/REGULATORY »

Prominent Justice Dept. Official Is Latest to Join Law Firm  |  Mythili Raman, who led the Justice Department’s criminal division until last month, is the latest former senior official to join Covington & Burling. DealBook »

G.A.O. Report Sees Deeper Bank Flaws in Foreclosures  |  When regulators ended a review of foreclosures last year, most banks had not finished examining their practices, according to a draft report by the Government Accountability Office. DealBook »

Revenues at the Top 100 Law Firms Rose 5.4% Last Year  |  The top partners at the group of 20 “super rich” law firms fared particularly well in 2013, according to the latest rankings from The American Lawyer. DealBook »

At Meeting, Fed Likely to Cut Bond Buying Again  |  The Federal Reserve’s policy wing is expected to reduce its monthly bond purchases by $10 billion, to $45 billion, staying on track to end the purchases this fall, The New York Times reports. NEW YORK TIMES

U.S. Announces More Sanctions Against Russia  |  The Obama administration ordered travel bans and asset freezes for seven Russian officials, including two said to be in President Vladimir V. Putin’s inner circle, and froze assets for 17 companies, The New York Times reports. NEW YORK TIMES