DealBook: Take It or Leave It

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Palantir’s chief on stocks and social activism

The data-mining consultancy successfully went public yesterday, getting a valuation of more than $20 billion by directly listing existing shares on the New York Stock Exchange, rather than raising new money with an I.P.O. Palantir’s co-founder and C.E.O., Alex Karp, spoke with Andrew about the debut.

On going public without a traditional I.P.O.:

“With a listing, you can still kind of keep your culture,” Mr. Karp said. “We didn’t bring in the super-experienced but culturally foreign ‘A’ players. We were doing it with people at Palantir.”

On his tight control of Palantir through special classes of stock:

“I think the control structure has to be tethered to a philosophical or mission bent that is deeply intertwined in the company,” he said, adding that a justification of “We’re the founders, take it or leave it” wasn’t satisfactory. He added, “I also think that many people believe that over the long haul, it may be better to invest in a founder-driven company — that the co-founders may look odd, but the results may be really good. And I kind of share that bias.” (For more on Palantir’s unique governance model, check out the Deal Professor below.)

On the debate about companies embracing, or rejecting, social activism:

“Companies should really articulate what they stand for, and then investors should get to judge whether they want to be involved in that company,” Mr. Karp said. “If you’re a consumer internet company, you should say, ‘We believe that monetizing your data is a really good commercial model and it makes people happier because they get free communication services on the back of the fact we can influence their behavior.’”

Palantir helps governments analyze data for a variety of purposes, including tracking the pandemic and supporting military intelligence. “We believe in civil liberties and we believe in stopping terror attacks, and there’s a tension,” Mr. Karp said. “I don’t think people should join Palantir who don’t believe in civil liberties. I also don’t think people will be happy at Palantir if they think the only thing that matters are civil liberties.”


Today’s DealBook Briefing was written by Andrew Ross Sorkin and Lauren Hirsch in New York, Ephrat Livni in Washington, and Michael J. de la Merced and Jason Karaian in London.


Here’s what’s happening

A new stimulus deal is still far from assured. Treasury Secretary Steven Mnuchin said yesterday that bipartisan talks for more pandemic aid had made progress, and foresaw a deal of $1.5 trillion to $2.2 trillion. But Senator Mitch McConnell, the majority leader, said the two sides remained “very, very far apart.” Meanwhile, U.S. airlines said they would begin furloughing tens of thousands of workers today, when the deal that had protected jobs expires.

A technical glitch stopped trading on the Tokyo Stock Exchange. It’s the exchange’s worst breakdown ever, and it’s unclear whether investors lost money during the all-day outage.

Moderna says its Covid-19 vaccine won’t be ready until after the U.S. election. Stéphane Bancel, the drugmaker’s C.E.O., told The Financial Times that he wouldn’t apply for F.D.A. approval until at least Nov. 25, counter to President Trump’s promises of an imminent vaccine. Separately, a study found that Mr. Trump was the “single largest driver” of coronavirus misinformation.

The Fed will maintain pandemic limits on big banks’ dividends and share buybacks. U.S. lenders need to conserve capital, the central bank said. The Fed will also require a second round of financial stress tests.

Coinbase doubles down on its no-politics-at-work stance. The cryptocurrency exchange is offering severance packages for workers who are uncomfortable with its policy of avoiding taking stands on social issues. “Life is too short to work at a company you aren’t excited about,” Brian Armstrong, Coinbase’s C.E.O., wrote in an internal email announcing the plan.

Deal Professor: How Palantir got away with it

Steven Davidoff Solomon, a.k.a. the Deal Professor, is a professor at the U.C. Berkeley School of Law and the faculty co-director at the Berkeley Center for Law, Business and the Economy.

The outcry over Palantir’s unusual share structure misses the point. Its successful market debut shows that a direct listing allows a company to sidestep governance checks that usually come during the I.P.O. stage. It will encourage others to push the envelope.

Palantir’s governance is a variation on the founder-control playbook. Its three founders (Alex Karp, Stephen Cohen and Peter Thiel) hold Class F shares, which give them just under half of the company’s votes as long as they collectively own about 6 percent of Palantir’s shares. They currently own more than 30 percent.

This structure has drawn criticism, but it’s not that different from other tech companies. Many go public with multiple share classes that give founders more votes, and in some cases they issue shares with no votes at all. Granted, companies often put sunset clauses on these structures, so that founders’ super-voting shares convert to common stock if their stakes fall below a certain threshold, or simply expire.

Palantir provides voting control even if the founders sell most of their shares, and there are no sunset provisions. By going public via a direct listing, Palantir’s founders were able to set up this governance structure without pushback.

Recall that the Snap founder, Evan Spiegel, faced significant resistance from investors about dual-class stock, which gave no votes to the public. Since Snap’s 2017 I.P.O., banks and underwriters have pushed companies to reduce the impact of multi-class shares to make investors happier. If Palantir had gone public in the traditional way, its structure probably would have raised questions from bankers and complaints from investors.

A direct listing bypassed that. More important, there was no need to generate demand for new I.P.O. shares, with the compromises that may entail. Palantir has shown that anything is possible in corporate governance with a direct listing. Expect other companies to take notice.

The month that was

Happy October. Let’s run the numbers…

The stock market had its worst month since March. The S&P 500 was down about 4 percent in September, and at times it flirted with “correction” territory. Investors are getting jittery about the election, and several business leaders despaired at the spectacle of the first presidential debate on Tuesday.

M.&A. picked up, particularly for big deals. The value of $5 billion-plus deals was the most on record for a third quarter, following a pandemic-induced freeze on transactions. Overall, global deal value in the first nine months of the year is down about 20 percent from the same period last year.

I.P.O.s are poised to set records. The amount raised in U.S. listings so far this year is ahead of even the heady dot-com days, with the busiest deal count for a third quarter since 2000, according to Renaissance Capital. It’s no surprise what’s fueling the boom: More than 100 SPACs have gone public so far this year, raising more than $44 billion.

The value of loyalty

The travel and hotel industries are fighting for survival, and JPMorgan Chase thinks it can offer a lifeline. Through a partnership to be announced today with Affinity Capital Exchange, the bank will create tradable securities backed by pools of loyalty points from airlines, hotels and others. Companies have signed up, but the administrators are not yet disclosing their names.

The pandemic has made loyalty programs less secretive. Heavy users are the most lucrative customers: They travel a lot and are willing to pay full price. As a result, the value of these programs has historically been jealously guarded. But with struggling travel companies needing collateral for loans, companies have been forced to disclose more information.

• “It’s a sensitive space,” said Atanas Christov, ACE’s chief executive. “But now we’re seeing it come to the rescue.” Indeed, Delta borrowed $9 billion backed by its frequent-flier program, following similar moves by United and American.

Loyalty programs have made their issuers less precarious. ACE and JPMorgan began talks about the partnership 18 months ago, but the pandemic accelerated their plans, said JPMorgan’s Andreas Pierroutsakos. Airlines have raised $49 billion in bonds and loans since the crisis began, but they will most likely need much more to ride out the downturn. Loyalty-backed securities offer airlines and hotels a way to “raise capital that’s not necessarily issuing more debt,” Mr. Pierroutsakos said.

The structure is untested. Airlines and hotels sell points to banks like JPMorgan that use them to create co-branded credit cards, but they have rarely (if ever) allowed institutional investors to trade these points over an exchange. By doing so, airlines and hotels are ceding precious information about their most powerful marketing tools to investors. If the pandemic forces companies into bankruptcy, the value of their points could fall (though, at least for airlines, loyalty programs have maintained their value through prior restructurings).

• “If one of the major airlines went bankrupt,” said Marc Brown, a managing director at consulting firm AlixPartners, “they’re not going to harm their customers — that’s their lifeblood.” Liquidation is another story, but even then the points have some value, he noted, because a rival airline might want to pick up new customers by honoring their points.

Zillow’s co-founder wants to ‘democratize’ second homes

Spencer Rascoff, Zillow’s co-founder, is starting a new company, Pacaso, aimed at making it easier to buy a second home. The company has $17 million in funding from a group including the former Starbucks chief Howard Schultz and Amazon’s consumer head, Jeff Wilke. Its C.E.O. is the former Zillow executive Austin Allison.

How it works: Pacaso will tap a pool of $250 million in debt it has already raised to help customers buy a second home via an LLC, splitting the cost of a house depending on how long the buyer wants to spend there (paying for half the home’s price gives access for half the year). Pacaso will then sell remaining shares to other buyers, who use an app to schedule stays. Along the way, Pacaso collects a 10 percent fee at the time of purchase and an annual management fee worth 1 percent of the purchase price.

The pitch: The arrangement mixes aspects of commercial property ownership, time shares and Airbnb. Buying a second home is “a luxury to which millions of Americans aspire but which seemed previously inaccessible,” Mr. Rascoff said, adding that the pandemic had made many people rethink living arrangements in favor of “safety, security and serenity.”

• The new company is “posed to scale incredibly quickly,” Mr. Rascoff said. He also recently launched a SPAC, because who isn’t these days?

The speed read


• Caesars clinched a deal to buy William Hill, the British gambling company, for £2.9 billion, or $3.7 billion, but plans to sell its non-U.S. operations. (Bloomberg)

• Carl Icahn’s son, Brett, is rejoining the family business and will run a new investment team. (WSJ)

Politics and policy

• Big companies are swallowing up smaller rivals at an alarming rate, requiring tougher antitrust enforcement, argues Austan Goolsbee, the Democratic economist. (NYT)

• The Justice Department is reportedly investigating whether a string of acquisitions gave Medtronic an unfair advantage in the market for ventilators. (WSJ)

• China is reportedly opening an antitrust inquiry into Google, following allegations by Huawei that it stifles smartphone competition. (Reuters)


• Facebook will forbid ads that seek to undermine the legitimacy of the Nov. 3 elections. (NYT)

• It also began integrating Instagram’s chat feature with its Messenger product. (NYT)

Best of the rest

• Matt Drudge is no longer in President Trump’s camp. (NYT)

• Management lessons from the Miami Heat. (Business Insider)

Thanks for reading! We’ll see you tomorrow.

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