Uber Shareholder Drops Lawsuit Against Kalanick, Clearing Way For Softbank Investment

Tuesday’s meeting of the Uber Inc. board – the first following Kalanick’s unilateral decision to appoint former Xerox Corp. Chairwoman and CEO Ursula Burns and former Merrill Lynch Chairman and CEO John Thain – appears to have been a productive one.

Reuters is reporting that the board voted to move ahead with two issues, a change in governance rules, and an investment by Japan’s Softbank Group, which it was reported last month has been in talks to invest as much as $10 billion in the cash-burning ride-share giant.

To anyone who hasn’t been following the ongoing boardroom struggle between former Uber CEO Travis Kalanick, who was ousted after an investor revolt in June, and Benchmark Capital, these might seem like routine housekeeping matters.  

But in reality, they’re signs that two warring factions have agreed to put aside their differences - for now, at least - for the good of the company (not to mention their bank accounts). Benchmark has been trying to change the board"s rules to try and limit Kalanick"s power with the ultimate goal of ensuring he never returns as CEO. But today, Kalanick assented to the governance changes, albiet in a watered-down form. Meanwhile, Kalanick also gave his blessing to the Softbank deal, letting go of his reservations despite reports that Softbank had struck an agreement with Benchmark to do everything in its power to oppose Kalanick’s return as CEO as a condition of its investment, which should result in the Japanese company gaining control over at least one board seat.

Of course, by allowing both of these proposals to proceed, Kalanick is making some major concessions. What is he getting in return?

A lot, it turns out. In a separate report, Reuters said that Benchmark has agreed to drop its lawsuit alleging that Kalanick defrauded Uber’s investors. The lawsuit is related to how Kalanick managed to assert control over the two board seats to which he recently appointed Thain and Burns.

That’s a major win for Kalanick. And that"s not all. As Axios later clarified, the governance changes approved by the board will limit his power, but wouldn"t preclude the possibility of him ever returning to the helm the company.

But perhaps the most important outcome of this grand bargain is that it clears the path toward an IPO. As Axios noted, it’s the type of deal that leaves everybody feeling like a winner.

Here’s more on the governance proposal, courtesy of Axios:

What passed?

• Super-voting rights are gone, which means shareholders are all "one share, one vote." Note that only early employees actually have shares, whereas over 90% have restricted stock units (which don"t have any voting rights).


• The board will be expanded significantly, which means Kalanick would need support of a majority of independent directors to ever regain the CEO spot or be named chairman.


• If Uber doesn"t go public by two years from now, share transfer restrictions are lifted.

What didn"t pass:

• Eliminating any path to the CEO or chairman seat for Kalanick, although it"s now a much higher hurdle.

To be sure, just because Kalanick and Benchmark have put aside their differences (for now, at least) in the interest of guiding the company toward its inevitable public offering (an eventuality that holds substantial rewards for all parties involved) – doesn’t mean their plan will succeed. As we learned back in April, Uber is burning through an embarrassing amount of cash. And while an offering appears likely within the next 18 months, it could still be derailed by souring public sentiment, or the company’s disastrous finances.

In a statement addressing the meeting, Kalanick praised the board’s decisions, insisting that they were made in the best interest of the company.

travis kalanick statement pic.twitter.com/uXzLDYX0uJ

— ?_? (@MikeIsaac) October 3, 2017

And Uber"s statement, courtesy of Axios:

"Today, after welcoming its new directors Ursula Burns and John Thain, the Board voted unanimously to move forward with the proposed investment by SoftBank and with governance changes that would strengthen its independence and ensure equality among all shareholders.

SoftBank"s interest is an incredible vote of confidence in Uber"s business and long-term potential, and we look forward to finalizing the investment in the coming weeks."

* * *

One person familiar with the matter said that a group of investors led by SoftBank will be allowed to buy $1 billion to $1.25 billion of new Uber shares at a company valuation of $69 billion and 14% and 17% of the company"s stock from current investors at a discounted valuation.

Earlier media reports suggested Softbank would pay $1 billion at the $69 billion valuation, and $9 billion at a valuation closer to $50 billion.

However, while the prospects for the deal look promising, there’s still time for it to fall apart. If it does, how long before Kalanick’s relationship with Benchmark once again devolves into acrimony?

Carmageddon Continues - Dealers "Wildly Overweight" SUVs As Sales Slow

Authored by Mike Shedlock via MishTalk.com,

The auto boom, one of the key components propping up consumer spending, has come to an end.

Dealers are wildly overweight SUVs just as the market turned.

As auto-industry growth stalls and family sedans go the way of the flip phone, one silver lining had been the trusty “crossover” SUV. Sales in the category boomed amid lower gasoline prices and higher demand for spacious wagons with all-wheel drive.

But more clouds seem to be gathering as the summer car-selling season comes to an end. Incentives on SUVs are skyrocketing amid rising inventories, a trend that promises to dent the fat profits the segment has long returned.

Auto makers report sales on Friday, and August volume is expected to rise 2% compared with the same month in 2016, but only because dealers have an extra selling day this year. On an adjusted basis, the rate of retail sales—stripping out deliveries to fleet buyers—will hit the lowest point of 2017, according to J.D. Power, despite hefty sales incentives and new model offerings.

The U.S. auto market’s slowdown isn’t a new story, as analysts widely expected a seven-year growth streak to end and for sales to plateau at roughly 17 million a year for the foreseeable future. Red flags for the crossover market, however, represent a whole new set of headaches, particularly for companies like General Motors Co.

“The industry is wildly overweight on crossovers,” John Murphy, an auto analyst for Bank of America Merrill Lynch, said in a recent presentation. The number of crossover models sold in U.S. dealerships is expected to rise to 110 nameplates by late 2020, up from 78 today, he estimated.

Auto makers like GM—long dominant in the SUV market—have relied on bigger or heavier vehicles with higher price tags to drive profits, and offset the losses that result from sales of family sedans or compact cars. But in the first half of 2017, incentives for SUVs shot up 33%, according to research website Edmunds.com, with the average discount or rebate in the segment reaching $3,200.

Ford Motor Co. is currently offering a $3,500 cash rebate on the Ford Escape, along with 0% financing for 72 months. A Ford spokesman said the SUV market is “increasingly competitive,” noting average transaction prices last month fell $400 compared to a year earlier.

Economists Expect Plateau

At every peak, economists expect a “plateau”, be it the stock market, the housing market, or cars.

Reasons to Expect a Crash

• Self-driving features are on the way and many people will wait for them


• Lots of retiring boomers purchased their last car


• Anyone who bought with long-term financing in the past few years is deeply underwater, making trade-ins difficult


• Auto sales are increasingly subprime


• After years of record sales, who needs a newer car away?

Vehicles account for 20% of retail spending. A crash or even a significant slowdown will impact retail sales and thus GDP.

School Board Removes "Lynch" From The Name Of Three Schools Because It Was Deemed Offensive

Authored by Daniel Lang via SHTFplan.com,

Every time that the absurdity of political correctness reaches a new peak in our culture, it’s easy to assume that it can’t get any worse.

But if we’ve learned anything over the past few years, it’s that it can always get worse.

For people who have their entire identity wrapped up in being oppressed and downtrodden, the limit to what they can be offended by is absolutely bottomless. Which is why it shouldn’t come as a surprise that a school board in Oregon recently voted to remove the name “Lynch” from several elementary schools.

You can probably guess why.

Lynch Meadows Elementary, Lynch Woods Elementary and Lynch View Elementary were all named after a local family who donated land to the school district in the late 1800s.

 

In recent years, school officials say they have received complaints from people who are concerned about the name’s connotation with lynching.

 

‘There were an increasing amount of questions and some complaints from families of color around the name,’ Centennial School District Superintendent Paul Coakley, who is black, told the Oregonian.

 

‘Our diversity is increasing every year, with families coming in from Northeast Portland and out of state, so [the names] needed to be looked at,’ he added.

The fact that “Lynch” is an actual surname held by perhaps tens of thousands of people and has been around for hundreds of years, was of no consequence to the perpetually offended people who wanted these schools to change their names.

“I don’t think any of you have ever seen a picture where one of your decedents was hanging from a tree,” said one man who testified in favor of the name change.

“I know the majority of you guys are white and it’s hard to know how that word could have an effect but it does,” added a young student who testified. “If a simple name change could make students feel safe, then why are we holding back?”

Actually, there is a very good and practical reason why these school names shouldn’t be changed. We have to ask ourselves, where does this end?

Perhaps any “people of color” who happen to work for Merrill Lynch should be outraged.

Maybe director David Lynch should have his name scrubbed from his films.

Maybe the residents of Lynch Town Kentucky, as well as 10 other cities across the country that happened to be named “Lynchburg” should vote to change the names of their communities.

Maybe this surname should be banned entirely. After all, we can’t let these people be a walking reminder of a terrible crime that they had nothing to do with, now can we?

In case you’ve ever wondered why the culture of political correctness is always capable of reaching new levels of madness, now you know.

Once you permit one absurdity, every absurdity is on the table.

The Only Thing That Matters For Bond Traders, In One Chart

Inflation outlook, rate differentials, projected growth, positioning, quants... there are countless explanations provided daily to explain why bonds trade the way they do. And yet, as Bank of America shows today, as of this moment just over 50% of the global bond market returns can be explained with just one thing: central bank balance sheet changes.

BofA explains:

Central bank assets, most of which are held in fixed income assets, are now equivalent to 31% of the $49tn fixed income universe tracked by the BofA Merrill Lynch Global Fixed Income Markets Index (GFIM); and the percentage of global bond market monthly returns explained by the monthly change in central bank balance sheets has dramatically increased in recent years.

And with more than half of bond returns now driven by central banks, BofA goes so far as to say that "Central banks have become the bond market."

BOfA"s evidence:

Note how in the past year, the months in which central bank asset purchases have either declined or been very small have coincided with months of weak performance from global bonds (Table 2). This was particularly the case in the fourth quarter of last year and a similar pattern is emerging this summer.

* * *

Of course, this is a problem because with central bank balance sheet projected to decline for the foreseeable future as Citi showed last month, at least until global stocks tumble and/or the next recession hits, it would suggest that yields have just one direction to go.

Visualizing The Expanding Universe Of Cryptocurrencies

Bitcoin is the original cryptocurrency, and its meteoric rise has made it a mainstay of conversation for investors, media, and technologists alike.

In fact, as Visual Capitalist"s Jeff Desjardins details, the innovation of the blockchain is changing entire markets, while causing ripples with central banks and the financial industry. At time of publication, the bitcoin price now hovers near US$2,200, a massive increase from this time last year.

But the true impact of Bitcoin is actually far more reaching than this – it’s actually helped to birth new markets for over 800 other cryptocurrencies and assets that are available for online trading. And while the market for bitcoins is worth nearly $40 billion itself, the rest of these cryptocurrencies are actually worth even more in combination.

THE ALTCOIN UNIVERSE

For the first time since Bitcoin was founded, it now makes up the minority of the entire cryptocurrency market at about 47.9% of all coins and assets.

So what are the other altcoins that make up the rest of this universe, and where did they come from?

Litecoin

Litecoin is one of the first altcoins, and it is nearly identical to Bitcoin after being “forked” in 2011. Litecoin aims to process blocks 4x faster than Bitcoin to speed up transaction confirmation time, though this creates several other challenges as well. At time of writing, Litecoin’s market capitalization is worth $1.3 billion.

Ethereum

Ethereum, launched in 2015, is the largest coin by market capitalization aside from Bitcoin. However, it is also quite different. While Bitcoin is designed to be a payments protocol first, Ethereum enables developers to build and deploy decentralized applications, while also enabling smart contracts. The tokens used to power the network are called Ether, but they can also be traded online. At time of writing, Ethereum’s market capitalization is $15.4 billion.

Also interesting: the Ethereum network actually split into two in 2016. It’s a complicated situation, but read about it here. There is now a separate Ethereum, based on the original Ethereum blockchain, trading as “Ethereum Classic” with its own market capitalization of $1.4 billion.

Ripple

Ripple (XRP) is the native currency of the Ripple Protocol – a broader catch-all for an open-source, global exchange. It’s already being used by banks such as Santander, Bank of America Merrill Lynch, UBS, and RBC. It solves a different problem than Bitcoin, allowing for settling payments between different currencies and even different payment systems. Today, Ripple’s native coin (XRP) has a market cap of $10.9 billion.

LEARN MORE

With over 800+ altcoins or assets out there, there’s plenty of information to absorb.

Here’s a short 20-minute course on the history of altcoins that might provide useful context, as well as in-depth explanations of Ethereum and Ripple that may help you learn about the important parts of a rapidly growing altcoin universe.

9 Charts Showing Market Bears Are Waking Up

Just when you thought it was safe to stride safely through the forest of stock market investing (hey - banks, Trump, hope, reform, stimulus, earnings, and Trump again); the bears are coming out of hibernation...

The calm in stocks worldwide is giving way to concern, as Bloomberg reports investors in Europe and the U.S. are rushing to hedge against declines and a Credit Suisse index flashing a warning as the list of economic and political obstacles grows. As we detailed earlier,

“While put demand has certainly increased over the past week, the biggest mover actually comes from the call-side,” Xu said in a report dated Wednesday. “Falling call skew indicates investors see less potential for market upside going forward, perhaps in recognition of the increased macro and political headwinds.”

And VIX is considerably decoupled from stocks...

There’s no shortage of potential concerns, notes Bloomberg. Tensions over North Korea"s nuclear program have intensified days after the U.S. fired missiles at a Syrian airfield. There’s uncertainty over the outcome of the French election, with the first round scheduled for April 23, and in Britain doubts are emerging on whether the economy can withstand the political shocks the Brexit negotiations will bring.

Other signs of investor nervousness include:

The S&P 500 broke below its 50-day moving average for the first time since the election...

The cost of hedging against a 5% tumble in the S&P 500 Index over the next month has increased at the fastest rate since June’s Brexit referendum, relative to options betting on a gain of that magnitude.

Correlation in US and European equity markets is resurgent. That’s something that often happens in times of crisis, and is an expression of concern that forthcoming political events will dominate market movements and overshadow company-specific forces.

And risk is rising everywhere, not just stocks...

Safe-Haven Assets are heavily bid...

The benchmark 10-year U.S. Treasury is starting to behave as it did in the run-up to the Brexit vote, as yields fall while volatility climbs in one-month options, according to the Merrill Lynch Move Index...

Gold is closing in on $1300 once again, erasing the post-election losses and breaking through its 200-day moving average...

Finally, if the message is still not getting through, here is why - perhaps - some investors are getting nervous...

Cognitive Dissonance?

Why Robert Shiller Is Worried About The Market

The last time Robert Shiller heard stock-market investors talk like this in 2000, it didn’t end well for the bulls.

As Bloomberg reports, Shiller says when markets are as buoyant as they are now, resisting the urge to pile in is hard regardless of what else might be happening in society.

“I was tempted to do it, too,” he says. “Trump keeps talking about a new spirit for America and so you could (A) believe that or (B) you could believe that other investors believe that.”

What Shiller will say now is that he’s refrained from adding to his own U.S. stock positions, emphasizing overseas markets instead. One factor that makes him cautious on American shares is the S&P 500’s cyclically-adjusted price-earnings ratio: While the metric is still about 30 percent below its high in 2000, it shows stocks are almost as expensive now as they were on the eve of the 1929 crash.

Shiller is not alone.

“I don’t generally call the entire market wrong -- investors are very smart, highly motivated individuals -- but I find it hard to say why stock markets are so un-volatile right now," says Nicholas Bloom, a Stanford University economist who co-designed the uncertainty gauge with colleagues from the University of Chicago and Northwestern University.

For Hersh Shefrin, a finance professor at Santa Clara University and author of a 2007 book on the role of psychology in markets, the rally is just another example of investors’ remarkable penchant for tunnel vision. Shefrin has a favorite analogy to illustrate his point: the great tulip-mania of 17th century Holland. Even the most casual students of financial history are familiar with the frenzy, during which a rare tulip bulb was worth enough money to buy a mansion. What often gets overlooked, though, is that the mania happened during an outbreak of bubonic plague.

“People were dying left and right,” Shefrin says. “So here you have financial markets sending signals completely at odds with the social mood of the time, with the degree of fear at the time.”

But while the academics can look back and study and reflect on the nature of bubbles, the Wall Street types will always find excuses:

“It’s been a period of repeated shocks, and I think people get toughened against that,” Ethan Harris, Bank of America Merrill Lynch’s global economist in New York, says. “It seems like uncertainty is the new norm, so you just learn to live with it.”

We leave it to Mr. Shiller to sum it all up...

“The market is way over-priced," he says. "It’s not as intellectual as people would think, or as economists would have you believe."

Trade accordingly.

SEC Freezes Accounts Of "Highly Suspicious" Traders Who Made $3.6 Million On Fortress Takeover

First, it was the leak of the massive Heinz-Unilever deal that may have scuttled the Warren Buffett-inspired transaction, now it appears that another recent megamerger was leaked 4 days ahead of the announcement. On Wednesday morning, the SEC froze brokerage accounts of several unnamed traders who made more than $3.6 million in profits by trading in the four days before the $3.3 billion takeover of Fortress Investment Group was announced by Japan’s SoftBank.

According to the FT, the traders placed “highly suspicious” orders for shares and contracts for difference, or CFDs, through Singapore-based Maybank Securities and a brokerage in London, R.J. O’Brien. Breaking the second cardinal rule of insider trading, i.e., never to buy stocks in bulk in the day ahead of the announcement (the first such rule is never to buy calls the before a deal is announced although the "insiders" did that too), all the trades through Maybank were made within a 24-hour period before the deal to buy the US-listed private equity firm was announced to the market; meanwhile trade through R.J. O’Brien took place between February 10 and 14, the day the deal was disclosed the SEC reported.

“The timing, size and profitability of these trades are highly suspicious,” the SEC said in a court filing asking for the freeze.

As the FT adds, the SEC is seeking a judgment to force the traders to disgorge the profits and pay a penalty. SoftBank’s offer for Fortress was a 30 per cent premium over the private equity firm’s closing share price that day. Also, as the SEC further notes, it appears that the rookie traders decided to really bring attention on themselves by also breaking Cardinal rule #1: a burst of option buying ahead of the deal. Just like in the case of the Unilever deal, which saw a surge in call option volume for both Unilever and Kraft Heinz ahead of the announcement...

...  the size of bets in the options market prior to the deal raised eyebrows in the US, leading several market experts to believe that information had been leaked ahead of the deal.

The volume of options trading in Fortress was more than eight times the normal level ahead of the deal’s public announcement. Specifically, customers of Maybank bought 950,000 shares in Fortress hours before the announcement, selling them the next morning for $1.7 million. R.J. O’Brien’s customers bought CFDs and shares in Fortress, which they sold on February 15 for $1.9 million, according to the SEC’s complaint seeking the freeze.

Also notable is how quickly the leak appears to have emerged: the Maybank clients began placing the trades on February 14, building up a $5 million position, 33 minutes after Fortress’s board of directors received an email with draft resolutions approving the deal, according to the SEC. Only two days before, there was “serious doubt” as to whether the deal would even go through, the SEC complaint said.

Discussions between SoftBank and Fortress had begun in December, and the two companies initially planned to finalise the deal over the weekend of February 10-12, putting it to a board vote at Fortress on February 12.  The R.J. O’Brien clients began buying CFDs on February 10, through an account with Merrill Lynch, just before that weekend. The only other time Maybank bought any Fortress stock through its account at UBS was in February 2016, when 10,000 shares were bought and later sold in April.

As the FT notes, the emergency court order obtained by the SEC on February 24 will prevent the traders from accessing any of those gains. As yet, the SEC said they do not know the identities of the traders, but said in the complaint they are “believed to be foreign traders trading through foreign accounts”.

In recent years, suspicious trading before deals has been under increased scrutiny by the SEC and regulators around the world after insider trading prosecutions in New York over the past decade exposed the extent of the crime. The SEC has yet to launch a probe into the far larger Unilever leak(s).