Sotheby’s Poison Pill Is Upheld by Court

A Delaware state court judge has blocked efforts by the hedge fund mogul Daniel S. Loeb to overturn a crucial corporate defense at Sotheby’s, the famed auction house.

In a ruling issued Friday evening, Donald F. Parsons, a vice chancellor of Delaware’s Court of Chancery, decided that he would not overturn a so-called poison pill plan that limits Mr. Loeb to no more than 10 percent of Sotheby’s shares, while letting passive investors hold as much as 20 percent.

The company’s annual shareholder meeting is May 6, where shareholders will cast their vote in what may be a watershed moment in the company’s 270-year history. And it may pave the way for companies to enact tougher defenses against outspoken activist investors pushing for change.

Mr. Loeb and his firm, Third Point, have nominated three director candidates, including himself, pitted against the current board at Sotheby’s.

Sotheby’s poison pill, formally known as a shareholder rights plan, had set off debate within the corporate governance community. While companies have used such defenses for decades, the auction house’s version specifically discriminated against activist investors, a move that Third Point had contended was unfair.

But in his ruling, Vice Chancellor Parsons wrote that Mr. Loeb’s primary argument â€" that the poison pill unfairly impedes his ability to wage his campaign â€" was flawed. Sotheby’s had presented evidence that the rationale behind its defense could be seen as both rational and proportional to the threat of an activist investor.

And even with his current 10 percent stake, Mr. Loeb has been able to fight the company to a draw. Vice Chancellor Parsons noted that the hedge fund manager had roughly 10 times the number of shares that Sotheby’s board currently owns, and that his own expert witness testified that even now, Third Point has a roughly 50-50 chance of winning the proxy contest.

Mr. Loeb even testified in a deposition that nothing has hurt his ability to reach out to other shareholders.

“There is a substantial possibility,” the vice chancellor wrote, “that Third Point will win the proxy contest, which would make any preliminary intervention by this court unnecessary.”

Mr. Loeb has already won the support of Marcato Capital, another activist hedge fund and Sotheby’s third largest shareholder. Last week, the influential proxy advisory firm Institutional Shareholder Services weighed in with support for Mr. Loeb, advising shareholders to vote for two of his three board nominees.

The hedge fund manager has criticized Sotheby’s for not adapting quickly enough to sweeping changes in the art industry in recent years, and has accused it of falling behind its main rival Christie’s in crucial parts of the auction business, Impressionist and Modern art. He has also railed against the compensation packages of board members, specifically singling out the pay of the chief executive, William F. Ruprecht, who received $6.3 million in 2012.

Sotheby’s implemented its poison pill last October, after Mr. Loeb called for Mr. Ruprecht to step down, arguing that it was in the best interests of all shareholders to ”encourage anyone seeking to acquire the company to negotiate with the board prior to attempting a takeover.”

During the hearing earlier this week in Delaware, Vice Chancellor Parsons was shown emails in which board members discussed the merits of some of Mr. Loeb’s criticisms. In one email a board member, Steven B. Dodge, wrote that Mr. Ruprecht’s compensation was “red meat for the dogs.”

Mr. Dodge also wrote that the board was “too comfortable, too chummy and not doing its jobs,” in an email to another director, Dennis M. Weibling. “We have handed Loeb a killer set of issues on a platter.”

A rival proxy advisory firm Glass Lewis has supported Sotheby’s slate.

Representatives for Mr. Loeb and Sotheby’s declined to comment.

Gregory P. Taxin, president of the activist hedge fund Clinton Group, said the ruling was disappointing: “In Delaware, stockholders are apparently supposed to be like children in the 1950s: the good ones do not speak unless spoken to.”

A version of this article appears in print on 05/03/2014, on page B7 of the NewYork edition with the headline: Sotheby’s Poison Pill Is Upheld By Court.

Weekend Reading: Targeting Big Banks. No, Not Those Big Banks.

The news this week that federal prosecutors were nearing criminal charges against a French bank and a Swiss bank received a mixed reaction from a public weary over the mantra that Wall Street is “too big to jail.”

“C’mon G-Man trough feeder; go after the real crooks, they live in Manhattan, not in Zurich or Paris,” Jeff Burkhart of Lemoore, Calif., wrote in one of more than 550 reader comments published with Tuesday’s article.

Prosecutors have opened criminal investigations into fraud at American banks, but those inquiries are at an earlier stage.

A look back on our reporting of the past week’s highs and lows in finance.

FRIDAY

AstraZeneca Rejects Pfizer’s Improved Offer | DealBook »

Wall Street’s Quiet Turnabout on Swaps | DealBook »

THURSDAY

U.S. Looks Into Wagers, Pro and Con, on Herbalife | DealBook »

Merck Said to Be Near Closing Deal With Bayer | DealBook »

Ares Management Set to Go Public, Joining Rivals | DealBook »

K.K.R. Aims at Smaller Investors for Capital | DealBook »

WEDNESDAY

Big Banks Erred Widely on Troubled Mortgages, U.S. Regulator Confirms | DealBook »

Funds for Troubled Mortgages Are on the Rise | DealBook »

Profit at Carlyle Falls 18% as Real Estate Investments Underperform | DealBook »

Hoping for Stability, Utility Operator Exelon Agrees to Buy Pepco | DealBook »

BNP Paribas Says U.S. Penalties May Top the $1.1 Billion It Set Aside | DealBook »

TUESDAY

Two Giant Banks, Seen as Immune, Become Targets | DealBook »

Busted by the Boom Time | DealBook »

Top Officer of Barclays in America Is Leaving | DealBook »

Alstom’s Board Is Said to Back $13 Billion G.E. Bid for Energy Unit | DealBook »

Big Chinese Pork Producer Cancels Its $1.9 Billion I.P.O. | DealBook »

Alliance Battles to Save Fannie and Freddie | DealBook »

Deal Professor: Yahoo Chief’s Pay Tied to Another Company’s Performance | DealBook »

MONDAY

Pfizer Proposes a Marriage and a Move to Britain, Easing Taxes | DealBook »

Bank Finds a Mistake: $4 Billion Less Capital | DealBook »

News Analysis: Bank of America’s Bad Accounting | DealBook »

U.S. Report Sees Deeper Bank Flaws on Loans | DealBook »

Key U.S. Prosecutor Is Latest to Join Law Firm | DealBook »

Charter and Comcast to End Fight Over Time Warner Cable | DealBook »

Charges in Libor Case for 3 From Barclays | DealBook »

SUNDAY

Pfizer Is Said to Pursue AstraZeneca | DealBook »

Soured Mortgages Attract Institutional Dollars | DealBook »

France Defers G.E. Plan to Buy Energy Business | DealBook »

WEEK IN VERSE

‘Under the Bridges of Paris’ | Blacklisted in the United States, Eartha Kitt remained popular in France. YouTube »

Readers Get to Weigh In on Apologies

Our goal in starting “Apology Watch” is to elevate the conversation about authentic apologies. In that vein, we are introducing an “Apology Metric” survey to give readers an opportunity to share their insight. Through these surveys, we hope to change the shortsighted lens through which apologies are typically viewed. People review them as theatrical performances for a few days and quickly forget about them. Instead, as I’ve argued before, we ought to track the apologizer’s behavior over time to see whether he or she has genuinely committed to a new course of action, which is why we are offering these surveys.

Our surveys will present recent apologies with questions to predict whether the apologizers will commit themselves to meaningful behavioral change. We will also look retrospectively to compare apologies with the actual actions taken by the apologizers.

We will begin this new initiative with an apology by Fitbit.

Fitbit’s Apology

The fitness-device company Fitbit released an activity tracker late last year called the “Force” that caused severe skin-irritation with some of its users. According to early coverage of the issue, users of the Force began voicing complaints near the end of 2013 that the wrist-worn device was causing ailments ranging from “red, itchy skin to painful blisters that would ooze or bleed.” Fitbit responded with a statement in January saying, “We are sorry that even a few consumers have experienced these problems and assure you that we are looking at ways to modify the product so that anyone can wear the Fitbit Force comfortably.”

Users who contacted the company to return their activity-trackers received a letter signed by James Park along with instructions and packaging for returning the device. In the letter, Mr. Park reiterates that the company’s promise to refund the cost of the device will be honored and then apologizes “on behalf of the entire company.” He adds, “While this issue seems to be impacting a very limited number of our users, I know that’s little comfort when you’re one of them” and closes the letter saying he hopes “we’ll have an opportunity to regain your trust again soon.”

In February, a new apology appeared on Fitbit’s website. Mr. Park provided an update and said that the company had hired “independent labs and medical experts” to investigate why the device might have caused some users severe skin irritation. Mr. Park said that the affected users were most likely experiencing “allergic contact dermatitis” that resulted from skin contact with certain materials used to make the device.

After explaining the investigation, Mr. Park announced that the company would stop selling the product and had “decided to conduct a voluntary recall,” since “we have now learned enough to take further action.” Moreover, he repeated that “we are offering a refund directly to consumers for full retail price.” A class-action lawsuit was filed in March against Fitbit contending that it did not sufficiently alert consumers in its marketing about possible rashes.

For additional detail, a more comprehensive review of the facts is available here.

Take the Survey

Based on these details and the information available through the included links, please weigh in with your evaluation of the company’s apology through this survey. You will be able to view aggregate responses to the survey after completing it.

Dov Seidman is the chief executive of LRN, a company that helps corporations develop values-based cultures and leadership, strengthen their ethics and compliance efforts, and inspire principled performance in their operations. He is also the author of “HOW: Why HOW We Do Anything Means Everything.” Twitter: @DovSeidman

Pfizer Has Yet to Make a Compelling Bid to AstraZeneca’s Shareholders

Pfizer’s courtship of AstraZeneca looks like a hate-hate relationship. In January, the British pharmaceutical firm AstraZeneca viewed its larger rival’s takeover proposal of 46.61 pounds a share as too low on cash, too risky, and too cheap to even talk about. Pfizer’s latest proposal, an effort to get AstraZeneca to begin friendly talks, hasn’t moved the needle much.

Pfizer is now offering 50 pounds a share, 32 percent of which is in cash. Pfizer needs to find the right mix of cash and shares that allows it to preserve the tax benefits of relocating to Britain - which would require a minimum of 20 percent British ownership of the combined group - while not diluting itself too heavily with the share component of the bid. The latest proposal would leave the British ownership at 27 percent of the combined company, so there’s still room to up the cash.

The new price represents a mere 7 percent increase on the original offer - not a significant bump. True, it values AstraZeneca at a whopping 20 times forward earnings estimates, double the multiple it traded at a year ago.

Yet it seems cheap to those shareholders who see AstraZeneca’s turnaround as well advanced, and its potential cancer immunotherapy pipeline as a blockbuster in waiting. Citigroup estimates that AstraZeneca could be worth £49 a share on a stand-alone basis.

Pfizer’s share of the synergies and tax benefits could be worth nearly £2 a share, according to analysts at Berenberg. Some investors, who piled into the stock for its high income, will see the £50-a-share bid as an unexpected windfall. But others will be antagonized. AstraZeneca’s board seems to be listening to them, and has rejected the offer.

Pfizer’s chief executive, Ian Read, seems to be having a little more luck in the second leg of his British charm offensive, an effort to get the government on side. Mr. Read said he would complete a research center in Cambridge, retain a manufacturing plant in Macclesfield and keep 20 percent of the group’s research jobs in the country.

Britain’s science minister, David Willetts, gushed that Pfizer “has come a long way.” Maybe someone should tell him that a five-year commitment, with few details, doesn’t amount to much.

AstraZeneca’s stock price of £48 a share is still implying perhaps an 80 percent chance of a bid at £52. It looks as if Mr. Read will have to further loosen the purse strings.

Ares Management Slumps in Trading Debut

The stock market is greeting the initial public offering of Ares Management, a private equity and debt investing firm, with a shrug.

Shares of Ares opened on Friday at $18.15 on the New York Stock Exchange, 4.5 percent below the I.P.O. price. The stock is trading under the ticker symbol ARES.

The offering had a lackluster start on Thursday evening, when the shares were priced at $19 each, below an expected range of $21 to $23. A major shareholder, the Abu Dhabi Investment Authority, which had planned to sell shares, ultimately decided against it.

In going public, Ares is heading down a path blazed by some of the giants of private equity, including the Blackstone Group, the Carlyle Group, Apollo Global Management and Kohlberg Kravis Roberts.

But Ares’s debut comes during a choppy period for the I.P.O. market. An exchange-traded fund created by Renaissance Capital that tracks the performance of recent I.P.O.s was down almost 2 percent this year through Thursday.

Perhaps more important, investors appear to be feeling skittish toward publicly traded private-equity firms. Shares of Apollo, Blackstone, Carlyle and K.K.R., which all rose significantly in 2013, are in the red so far this year. Two firms closer to Ares in size, Oaktree Capital Management and the Fortress Investment Group, are also down this year.

Ares, based in Los Angeles, was founded in 1997 by executives of Apollo, a buyout and debt specialist to which Ares is often compared. Ares grew rapidly after spinning out from Apollo, building up businesses in direct lending and real estate. Its chief executive and co-founder, Antony P. Ressler, holds a stake worth about $1.2 billion based on the I.P.O. price.

The firm tends to fly under the radar. In a rare headline-grabbing deal, it teamed with a Canadian pension plan in September to buy the luxury retailer Neiman Marcus for $6 billion.

Its offering is being led by JPMorgan Chase and Bank of America Merrill Lynch.

UBS Hires a Senior Barclays Executive

UBS of Switzerland said on Friday that it had hired one of Barclays’ most senior bankers in the United States, Ros Stephenson, contributing to a stream of departures from the British firm.

Ms. Stephenson will become the global chairwoman of corporate client solutions, UBS’s name for investment banking activities like mergers advisory, industry coverage and financing. She will also lead corporate client solutions in the Americas.

In her new role, which begins in September, she will solidify her position as one of the most prominent women investment bankers on Wall Street.

Her departure from Barclays is the latest of a senior executive in recent years, as the British firm grapples with pressure to shrink its size and ambitions, and which in turn have also crimped pay. Earlier this week, Hugh E. McGee III, the head of Barclays’ business in the United States and one of its top deal makers, left the firm.

Both Ms. Stephenson and Mr. McGee were veterans of Lehman Brothers who joined Barclays when it acquired their ailing employer’s American investment banking operations during the financial crisis. They were part of a team responsible for building up the British firm into a formidable Wall Street presence.

While at Lehman, Ms. Stephenson founded the firm’s financial sponsors team, which catered to private equity firms like Kohlberg Kravis Roberts. She rose up the leadership ranks both there and then at Barclays, where she served as co-head of corporate finance and mergers and acquisitions from 2008 to 2013. Her most recent role was chairman of the investment banking division.

But Barclays has been moving to scale back its investment banking amid tougher new regulations and fallout from a rates-fixing scandal that led to the departure of Robert E. Diamond as chief executive. The firm is expected to reveal its outlines for its newly reorganized investment bank next week.

The prospect of more red tape and continued battles over pay have worn down a number of senior Barclays bankers, some of whom ultimately decided to leave.

A Barclays spokeswoman said in a statement: “We wish Ros the best in her new management role.”

Meanwhile, UBS has been rebuilding its investment bank after years of turmoil. Over recent years, it has hired a number of prominent leaders, including Robert J. McCann, the chief executive of its Americas operations; Andrea Orcel, a former Merrill Lynch executive who now leads firm’s investment bank; and Laurence Grafstein, a longtime deal maker who co-heads mergers advisory in the Americas.

At UBS, Ms. Stephenson will report to Mr. Orcel. As at Barclays, her responsibilities will include catering to the firm’s biggest clients and helping bring in new ones.

“Ros is an extremely accomplished, market-leading professional with extensive client and transaction experience,” Mr. Orcel said in a statement. “Her insights and expertise will be invaluable to us as we continue to grow the CCS business, particularly in the Americas.”

Ms. Stephenson added in a statement: “I am excited to be joining a world class organization. As the investment banking landscape continues to evolve, I believe that the firm’s global reach and areas of expertise, coupled with dedication to its client centric model, position UBS as a leading player in global financial services.”

Wall Street’s Quiet Turnabout on Swaps

Wall Street banks have a special loathing for a new and arcane rule, and they have gone to extraordinary lengths â€" like helping to write a bill that is currently in Congress â€" to try and neuter it.

But in recent weeks, the banks have started to eagerly embrace exactly the sort of changes that the hated regulation demands of them. And, as you may have guessed, it’s not because the banks have suddenly come to believe in the rule.

The regulation in question is something called the swaps push-out rule, a part of the Dodd Frank Act, which Congress passed in 2010 to overhaul the financial system after the 2008 crisis. Banks make huge amounts of money from trading in derivative, financial contracts that can be used to bet on things like interest rates, stock prices and the creditworthiness of corporations. Swaps are a type of derivative.

Even though derivatives trading is a quintessential Wall Street business, banks have been able to do virtually all of it in their traditional banking subsidiaries that benefit from deposit insurance and other forms of federal support. Citigroup, for instance, had $63.5 trillion of derivatives on its books at the end of 2013, $62.3 trillion of which were inside its insured banking subsidiary.

Banks can make more money from derivatives trading by locating it in their insured subsidiaries. These subsidiaries usually have higher credit ratings than other parts of the bank, in part because of their implied government support. And these higher ratings enable the banks to get better terms in the derivatives bets they do with their trading partners, bolstering the banks’ profits.

Dodd Frank’s swaps push-out rule seeks to reduce those effective government subsidies on Wall Street trading. It required certain types of derivatives to be “pushed out” of insured banks into another part of the bank that doesn’t benefit from federal backing.

In the end, the rule only applied to a small selection of derivatives. And the banks were given a long time to comply with the rule; they have until July next year.

Even so, the banks have not stopped pressing for changes to the rule. Citigroup even helped write a piece of legislation in the House that would exempt still more types of derivatives from the rule. (Citigroup declined to comment.) The banks opposed the push-out rule because they said it would make their trading less efficient. They also contended that pushing out swaps would make the system more risky because the moved swaps would end up in less regulated entities that the authorities could not support in times of crisis, a view that some prominent regulators shared.

Though the banks have long had a strong aversion to the idea of pushing out derivatives, something appears to be changing. In recent days, there have been news reports that say the banks have started to shift substantial amounts of derivatives trades into offshore affiliates that the parent banks do not guarantee. In other words, Wall Street is now actively pushing out swaps. It’s not clear whether these moved swaps would originally have been done within the banks’ insured subsidiaries. But the banks are moving swaps into affiliates that have less support, which is exactly the sort of shift that the push-out rule envisioned.

So why are the banks doing this? In short, they are trying to avoid other derivatives regulations that are unrelated to the push-out rule.

Specifically, the banks want to lessen the impact of new rules, also part of Dodd Frank, that aim to improve pricing transparency in the derivatives markets. Trades done through the banks’ offshore nonguaranteed affiliates are more likely to be beyond the reach of the American transparency overhaul.

One interpretation of all this is that Wall Street dislikes the transparency rules more than the idea of pushing out swaps.

Another reading is that big banks will opportunistically say anything to weaken regulation â€" even when they contradict themselves.

Morning Agenda: Scrutiny for Traders of Herbalife

U.S. LOOKS INTO WAGERS ON HERBALIFE  |  “Three federal agencies and one billionaire hedge fund manager have placed Herbalife under the microscope, scrutinizing whether the diet supplements company is a pyramid scheme,” Ben Protess and Alexandra Stevenson write in DealBook. “But Herbalife is not the only one under investigation. Some federal authorities are pursuing other inquiries that might expand the regulatory gaze from Herbalife to the traders who traffic in the company’s stock.”

The authorities are said to have concentrated their focus on traders with contrasting views of Herbalife. As one group has wagered that Herbalife was a pyramid scheme â€' William A. Ackman, the billionaire hedge fund manager, has staked a $1 billion bet on that belief â€' other investors expected the company to emerge intact. Neither side has been accused of wrongdoing, but a number of well-timed bets for and against Herbalife caught the attention of the Securities and Exchange Commission and the F.B.I., raising questions about possible insider trading, disclosure violations and market manipulation.

The Securities and Exchange Commission is said to have sent requests for documents to several investors betting on Herbalife’s success, including investment firms founded by Carl C. Icahn and George Soros. The S.E.C. and F.B.I. are also starting to question whether Mr. Ackman’s hedge fund, Pershing Square Capital Management, improperly encouraged other traders to bet against Herbalife. “Together, the investigations have thrust the authorities into the uncomfortable role of picking winners and losers in the billion-dollar game,” Mr. Protess and Ms. Stevenson write.

ASTRAZENECA REJECTS PFIZER’S IMPROVED OFFER  |  AstraZeneca of Britain rejected a sweetened offer by its rival Pfizer on Friday, calling the deal in excess of $100 billion “inadequate.” Pfizer had increased its bid by about 7 percent in a new takeover proposal announced early Friday, Chad Bray writes in DealBook. Pfizer said Friday that it was willing to pay a combination of cash and shares equal to 50 pounds a share, or about $84.

Pfizer publicly declared its interest in AstraZeneca earlier this week after making several informal takeover approaches. Pfizer had previously offered a share-and-cash combination worth 46.61 pounds a share, which AstraZeneca’s board determined “very significantly undervalued” the company. AstraZeneca had raised concerns about the structure of the earlier proposal, including the risk in executing a so-called inversion, a move that allows United States companies to reincorporate abroad and escape the high American corporate tax rate.

ARES TO MAKE MARKET DEBUT  |  Ares Management, a relatively unknown but rapidly growing private equity and debt investing firm, is expected to debut on the New York Stock Exchange on Friday, becoming the seventh major private equity firm to go public, William Alden writes in DealBook. The initial public offering is said to be priced at $19 a share, below an expected range of $21 to $23. The offering raised $345.7 million for Ares and a large shareholder and valued the company at about $4 billion.

In tapping the public markets, Ares is taking after other private equity firms, including the Blackstone Group, Apollo Global Management, the Carlyle Group and Kohlberg Kravis Roberts, which have used their publicly traded shares to help propel growth. For Ares, which tends to fly under the radar, the I.P.O. is also an opportunity for branding. The firm was established in 1997 before spinning out from Apollo, a buyout and debt specialist to which Ares is often compared.

IT’S JOBS DAY  |  Month-to-month gains in hiring have been volatile recently, but most economists expect a fairly strong report on the job market when the Labor Department releases its April figures at 8:30 a.m. The consensus is for employers to have added 210,000 in April, with a decline in the unemployment rate to 6.6 percent. If the actual payroll gain meets or exceeds that estimate, it will be the best month for hiring since November 2013.

But don’t get too caught up in the numbers. “Even when the economy is moving in a clear direction, the statistical noise in month-to-month changes can be big enough to obscure any trend,” Neil Irwin and Kevin Quealy write in The Upshot.

ON THE AGENDA  |  In addition to the jobs report, factory orders are out at 10 a.m. Mohamed El-Erian, formerly chief executive and co-chief investment officer of Pimco, is on Bloomberg TV at 9:30 a.m. A happy birthday to Michael L. Corbat, the chief executive of Citigroup, who is turning 54. Berkshire Hathaway’s annual shareholders meeting is on Saturday in Omaha, Neb. Get out your best hats â€' the quest for horse racing’s Triple Crown begins on Saturday with the Kentucky Derby.

K.K.R. SEEKS TO ATTRACT SMALLER INVESTORS  |  Only the wealthiest and most sophisticated investors can put money into the leveraged buyouts done by the Kohlberg Kravis Roberts. But that may soon change, DealBook’s William Alden writes. K.K.R. is working with a third-party firm to allow investors to commit a minimum of $10,000 for exposure to its private equity funds. The move would give K.K.R. access to so-called retail investors, who are seen as an untapped source of capital.

The new investment product, subject to approval by the Securities and Exchange Commission, would be the first time K.K.R. had taken smaller investors into its core business. But this is not the first time a private equity firm has tried to gain access to retail investors. One of K.K.R.’s rivals, the Carlyle Group, introduced a product last year that, in partnership with a third-party firm, allowed investors to commit as little as $50,000 for access to Carlyle’s private equity funds.

 

Mergers & Acquisitions »

Berkshire’s Energy Arm to Buy AltaLink, a Power Transmission Company  |  The deal â€' struck on the eve of Berkshire’s annual investor meeting in Omaha, Neb. â€' is the latest takeover struck by the conglomerate’s energy arm.
DealBook »

Merck Said to Be Near Closing Deal With Bayer  |  The big health care company, is close to a deal to sell its consumer unit to Bayer for about $14 billion, a person briefed on the matter said on Thursday.
DealBook »

As Netflix Resists, Most Firms Just Try to Befriend Comcast  |  “In the middle of an otherwise routine earnings report last week, Netflix took an unexpected detour into the realm of antitrust enforcement: It opposed Comcast’s proposed purchase of Time Warner Cable,” Jonathan Mahler writes in The New York Times. “The statement certainly grabbed the attention of the entertainment and communications industries. What it did not do was rally many others to the fight.”
NEW YORK TIMES

Game Legend at Center of Oculus Dispute  |  The involvement of the technical wizard John Carmack with Oculus VR is prompting accusations from his old employer, ZeniMax Media, that he went too far in helping the company improve its virtual reality technology, the Bits blog writes. ZeniMax Media appears to be stepping up the pressure because of Facebook’s pending agreement to acquire Oculus for $2 billion.
NEW YORK TIMES BITS

INVESTMENT BANKING »

R.B.S. Profit Triples on Lower Loan Charges and One-Time Gains  |  The Royal Bank of Scotland’s quarterly profit of 1.19 billion pounds, or about $2.01 billion, sent the lender’s shares up by 11.5 percent in morning trading in London.
DealBook »

A Dinner Among Survivors of the Financial Crisis  |  At a charity event on Wednesday, the chief of Goldman Sachs was overheard recounting a dinner with Jamie Dimon of JPMorgan Chase and Peter Sands of Standard Chartered, where they traded stories from the dark days of 2008.
DealBook »

Lazard’s Earnings More Than Double on Jump in M.&A. Activity  |  The investment bank reported $81 million in first-quarter net income on Thursday, as the firm claimed significant merger advisory assignments.
DealBook »

PRIVATE EQUITY »

Energy Future Hearing Draws a Crowd  |  Lawyers, advisers and observers packed into three courtrooms for the first hearing in the bankruptcy of Energy Future Holdings, with more than 100 people filling the main courtroom, Bloomberg News writes. The buyout of Energy Future in 2007 defined the money and power of the golden age of private equity.
BLOOMBERG NEWS

Crisis in Ukraine Could Make Infrastructure Deal Making Difficult  |  Infrastructure investors are concerned that politicians may diversify Europe’s energy away from Russian gas, pushing up the prices of renewables, shale gas and new pipelines, The Wall Street Journal writes.
WALL STREET JOURNAL

HEDGE FUNDS »

Sony Expects Less as Its Computer Sales Tail Off  |  Sony had expected a profit at the beginning of its fiscal year, but its personal computer sales fell after the announcement that it would leave the business, The New York Times writes. Sony’s growing losses add to problems for Kazuo Hirai, the company’s chief executive, who last year rejected a proposal made by the activist investor Daniel S. Loeb to spin off part of Sony’s entertainment units.
NEW YORK TIMES

JPMorgan Trader Joining Och-Ziff  |  Jeremy Wien, the head of VIX trading at JPMorgan Chase and a regular participant in the World Series of Poker in Las Vegas, is joining the hedge fund Och-Ziff Capital Management, Bloomberg News reports.
BLOOMBERG NEWS

I.P.O./OFFERINGS »

Searching For Yield, at Almost Any Price  |  Investors are desperate for better returns on their investments but are largely having to settle for lesser quality these days, Floyd Norris writes in the High & Low Finance column.
NEW YORK TIMES

Call Operator Atento Files for I.P.O.  |  The Spanish call operator Atento, which is owned by the private equity firm Bain Capital, filed with United States regulators to raise up to $300 million in an initial public offering of its ordinary shares, Reuters writes.
REUTERS

Vestar Preparing I.P.O. of National Mentor Holdings  |  The private equity firm Vestar Capital Partners is said to be preparing an initial public offering of shares in National Mentor Holdings, which provides health services to adults and children with disabilities, The Wall Street Journal writes, citing unidentified people familiar with the situation.
WALL STREET JOURNAL

VENTURE CAPITAL »

Environmentalists Sue Over San Francisco Tech Shuttles  |  Activists, union leaders and environmentalists filed a lawsuit on Thursday against the Bay Area’s 20 technology shuttle operators, including Google and Genentech, demanding that the city complete an environmental assessment of the commuter system’s impact, ReCode reports.
RECODE

BookBub Raises $3.8 Million  |  A start-up called Pubmark, also known as BookBub, has raised $3.8 million to help publishers and authors sell e-books online, The Wall Street Journal writes. The Series A funding round was led by NextView Ventures and Founder Collective.
WALL STREET JOURNAL

LEGAL/REGULATORY »

EBay Settles Antitrust Case Over No-Poaching Deal  |  The Justice Department accused eBay of having a secret deal with Intuit not to try to hire each other’s employees, The New York Times writes.
NEW YORK TIMES

Call for Limits on Use of Data From Customers  |  The White House released a long-anticipated report on Thursday that recommends developing government limits on how private companies make use of the flood of information they gather from their customers online, The New York Times writes. Because the effort goes so far beyond information collected by intelligence agencies, the report was viewed warily in Silicon Valley.
NEW YORK TIMES

Why U.S. Growth Slowed to a Halt at the Start of the Year  |  The readings were weaker than expected. Consumers are doing their part to drive the economy, but they’re nearly alone, Neil Irwin writes on The Upshot.
NEW YORK TIMES UPSHOT

S.E.C. Fines NYSE Euronext for Rigging Markets  |  The New York Stock Exchange and its affiliates agreed to pay $4.5 million for failing to comply with rules related to co-location services, block trades and net capital requirements, The Financial Times writes.
FINANCIAL TIMES

R.B.S. Profit Triples on Lower Loan Charges and One-Time Gains

LONDON - The Royal Bank of Scotland said Friday that its first-quarter profit tripled as the lender benefited from a reduction in loan impairments in its Irish business and several one-time gains.

Shares of R.B.S. jumped 11.5 percent to 341.80 pence in trading in London on Friday morning.

For the first three months of the year, R.B.S., based in Edinburgh, posted profit of 1.19 billion pounds, or about $2.01 billion. That compares with profit of £393 million in the same period a year ago.

Impairments on bad loans declined 65 percent to £362 million in the quarter from the previous year, including an improvement in its Ulster Bank unit, which operates primarily in Ireland and Northern Ireland.

R.B.S., which is 81 percent owned by the British government, was plagued by charges on bad loans last year, taking an impairment charge of £5.1 billion in the fourth quarter. The lender posted a larger-than-expected pretax loss of £8.2 billion in 2013 and said that it could be three to five years before it had fully recovered.

The profit surge in the first quarter was a positive development for Ross McEwan, the chief executive of R.B.S. Mr. McEwan is trying to change the bank’s focus from becoming an investment banking behemoth to being a smaller institution concentrated on the British market.

“Today’s results show that in steady state, R.B.S. will be a bank that does a great job for customers while delivering good returns for our shareholders,” Mr. McEwan said in a statement. “But we still have a lot of work to do and plenty of issues from the past to reckon with. Everyone at R.B.S. is focused squarely on doing everything we can to earn the trust of our customers and in the process change the banking sector for the benefit of the U.K.”

In the quarter, R.B.S. also benefited from a £200 million gain on sales of government bonds and a £191 million profit on the sale of its remaining stake in Direct Line Insurance Group.

Net interest income - the measure of what a bank earns on its lending after deducting what it pays out on deposits and other liabilities - rose slightly to £2.69 billion in the first quarter. Over all, revenue was down 2 percent to £5.05 billion.

Expenses were down 6 percent in the quarter to £3.19 billion, and the bank said that it remained on track to reduce its costs by £1 billion this year.

The bank warned, however, that restructuring costs are likely “to be considerably higher for the remainder of the year” than they were in the first quarter.

The lender is preparing to spin off its Citizens Financial Group banking business in the United States and its Williams & Glyn branch network in Britain.

The transition to what Mr. McEwan calls “a smaller, simpler and smarter bank” has not been easy.

The bank was recently forced to drop a plan to pay its bankers bonuses of up to two times their annual salaries because United Kingdom Financial Investments, which oversees the government’s stake in the bank, refused to back the plan.

The move puts R.B.S. at a disadvantage to its competitors, who have adopted compensation plans that allow them to pay the maximum bonuses permitted under European rules.

Salaries and bonuses at R.B.S. have been a politically sensitive issue after the bank received £45 billion from the British government during the financial crisis.

The bank’s common equity Tier 1 capital, a measure of its ability to absorb losses, was 9.4 percent at the end of the first quarter, up from 8.6 percent at the end of 2013.

European banks are required to have a minimum of 4 percent common equity Tier 1 capital under the so-called Basel III regulatory scheme, but larger banks are required to maintain a higher minimum capital level, which is set by regulators.

Pfizer Raises Bid for AstraZeneca, Putting Pressure on British Drug Maker to Accept Deal

LONDON - Pfizer increased its bid by about 7 percent for AstraZeneca of Britain on Friday, increasing pressure on AstraZeneca to agree to a deal that would exceed $100 billion.

The deal, if consummated, would be one of the largest-ever acquisition efforts in the pharmaceutical industry, surpassing Pfizer’s $90 billion takeover of Warner-Lambert 14 years ago.

Pfizer said Friday that it was willing to pay a combination of cash and shares equal to 50 pounds a share, or about $84.

Pfizer publicly declared its interest in AstraZeneca earlier this week after making several informal takeover approaches. Pfizer had previously offered a share-and-cash combination worth £46.61 a share, which AstraZeneca’s board determined “very significantly undervalued” the company.

The transaction would represent a 39 percent premium to AstraZeneca’s closing price on Jan. 3, the day before Pfizer first made an offer to the drug maker.

“We believe our proposal is responsive to the views of AstraZeneca shareholders and provides a sound basis upon which to arrive at recommendable terms for the combination of our two companies,” Ian Read, Pfizer’s chairman and chief executive, said in a statement.

AstraZeneca had raised concerns about the structure of the earlier proposal, including the risk in executing a so-called inversion, a maneuver that allows United States companies to reincorporate abroad, thereby escaping the high American corporate tax rate.

Inversions are increasingly popular, and pharmaceutical companies have been among the most eager to complete such transactions.

On Friday, Pfizer sent a letter to Prime Minister David Cameron of Britain to address concerns about potential job losses following a combination of the companies.

In its letter, Pfizer said that it would move its corporate and tax residence to Britain, base key scientific research there and employ a minimum of 20 percent of the combined company’s research and development workforce in the country.

Pharmaceutical companies have been a key driver of acquisition activity this year, announcing potential agreements worth as much as $74 billion.

The deals come as the industry is facing increasing costs for research and development. Larger companies, hoping to pick the next blockbuster drug, are buying or partnering with smaller biotechnology companies as treatments come closer to being released.

AstraZeneca has an attractive portfolio of cancer drugs, an area that remains a priority for Pfizer.