What I’m Thinking… About More Tesla Voodoo, BuzzFeed’s I.P.O., and Shari’s ‘Succession’ Endgame

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Tesla Voodoo, BuzzFeed’s I.P.O., and Shari’s ‘Succession’ Endgame

As Mike Milken once said, “When the ducks are quacking, you have to feed them.” The ducks are doing some serious quacking these days.

WILLIAM D. COHAN

Each week, I receive feedback from readers and sources about Wall Street’s biggest characters and concerns. I’ll be engaging with some of those questions here—in addition to a few observations of my own.

Buzzfeed is down 40 percent from its I.P.O. price on Monday. Is this a sign of the decline of the SPAC market or systemic troubles in the company?

I think it’s a sign of both trouble in the SPAC market and a withering of confidence in whatever BuzzFeed is these days. On the one hand, the Securities and Exchange Commission is stepping up its scrutiny of, and investigation into, a variety of SPACs, including whether or not Donald Trump’s Trump Media and Technology Group jumped the gun in its merger discussions with Digital World Acquisition Corp., as well as the financial projections that Lucid Motors used in its merger with Churchill Capital Corp IV, a SPAC sponsored by former Citigroup investment banker Michael Klein. Gary Gensler, the former Goldman partner who is now chairman of the S.E.C. is on the case. “I believe the investing public may not be getting like protections between traditional I.P.O.s and SPACs,” he said in a speech this week. He also criticized sponsors for taking as much as 20 percent of the SPAC economics, for very little money, at the expense of the SPAC I.P.O. investors.

Although the bloom is off the SPAC rose, 2021 has been a barnburner: There have been 590 SPACs born this year, raising $158 billion. But, according to SPAC Insider, some 485 SPACs are still looking to do a deal and there is a two-year clock ticking away.

As for BuzzFeed, the vultures started circling early with the news that 94 percent of the initial investors in the SPAC that merged with BuzzFeed voted to get their money back, plus interest, rather than put their money toward the BuzzFeed deal. That’s not surprising, given that the SPAC was trading below its $10 redemption price in the weeks before the BuzzFeed listing. Indeed, BuzzFeed planned for just this scenario, which is why the company separately raised another $150 million in convertible debt. The bigger problem for Jonah Perretti, BuzzFeed’s precocious C.E.O., is that a stock down 40 percent in a week is not much use as a currency to effect the digital media roll-up that he had envisioned. On the other hand, it’s still early days for BuzzFeed as a public company, and it could rebound. But this was not a good week for the BuzzFeed crowd.

GM, which has a market capitalization that’s 1/10th of Tesla, just pledged a $3bn investment toward an electric car plant in Detroit. How come America’s most revered car maker can’t get a boost in the markets?

It’s a good question. But it’s the wrong one. The better question is why Tesla is worth more than every other car company on earth combined. (Actually, that’s no longer true, if it ever was; Tesla is worth more than its next nine largest competitors combined and there are some 50 car manufacturers globally.) That’s the breakdown in thinking, not that GM should be worth more than it is. Given that GM went through a bankruptcy and is still trying to right its proverbial ship, a market value of around $90 billion doesn’t feel crazy to me. It only feels crazy compared to Tesla, especially since Tesla—as we have discussed many times now—makes most of its money from selling carbon credits, not cars.

Tesla is a meme stock. It’s just one of those companies that people love to invest in because they think its stock price will keep rising forever and it’s one of those companies that Wall Street research analysts like to fall all over themselves to promote in the hopes that some of the Tesla pixie dust will rub off on them. Who knows when this ends, or how. But when it does, that’s when investors will be looking for companies such as GM and Ford that generate actual cash flow from selling cars and trucks.

The Information reported this week that Apple signed a “secret” $275 billion deal with Chinese authorities in 2016, filled with concessions to Beijing such as enlarging the scale of several contested islands in the East China Sea. What’s Wall Street’s view? Anyone fearing that Tim Cook might get a wrist slap from Mitt Romney?

$275 billion is a big deal for sure. If it were an M&A deal, it would be the biggest deal in history, by far (the biggest M&A deal remains Vodafone’s $183 billion acquisition of Mannesmann). Although a deal with Chinese authorities of this magnitude in 2016 feels a little bit like ancient history, I am also wondering why the company never disclosed this deal, as it sure sounds material to me. (I can only imagine the lengths that Apple’s lawyers went to in order to conclude that the agreement in toto did not need to be disclosed.) As for the politics of these devil’s bargains, well, good luck finding any multinationals with a clean nose.

I hate to say it, but the view from Wall Street is one of extreme pragmatism, and few companies, or their chief executives, are willing to take principled stands when it comes to dealing with China, a market of some 1.4 billion people. Tim Cook is a fiduciary for Apple’s shareholders and the bigger outcry from them, it seems to me, would be if Cook didn’t find a way to do business in China. Let’s face it, accessing China’s gargantuan market requires some fancy footwork and distasteful compromises. But if you are the C.E.O. of Apple, the maker of some of the most desired consumer products on the planet, you had better find a way to operate in China. It ain’t always pretty, how this sausage gets made, but you asked for the view from Wall Street… and that’s the view.

So far this year, 48 top executives have collected more than $200 million each from stock sales, nearly 4X the average from 2016 through 2020, according to a Wall Street Journal analysis. Meanwhile, in the last six months, private equity firms have been exiting at a higher rate than they have in at least 20 years, according to new Pitchbook research. Should the rest of us be making exit plans, too?

Absolutely. Both the stock markets and bond markets have been on a 12-year bull run and are at or near their all-time highs. Private equity executives are a lot of things but stupid isn’t one of them. As the infamous Mike Milken once said, “When the ducks are quacking, you have to feed them.” The ducks are doing some serious quacking these days. And that’s why the P.E. boys are selling like crazy. Prices are high, money is cheap, and there’s trillions of dry powder looking for an investment home. That’s going to mean a lot of deals are going to get done. In fact, there will likely be around $4 trillion worth of M&A deals this year, the most ever.

For individual investors, the calculus is a bit more complicated. One should not be piggish when it comes to reaping the rewards the stock market has bestowed on us since March 2009. But on the other hand, with many people enjoying huge embedded gains in their stock portfolios, the question becomes how to capture those gains in a tax efficient manner. That is easier said than done. Most people would have to pay capital gains taxes of around 30 percent—accounting for federal and state taxes—meaning that you had better believe the market is going to correct more than 30 percent to make selling worthwhile. So while markets are wildly overvalued these days, it’s tough to think it’s 30 percent overvalued. (That level of correction would send the Dow down nearly 11,000 points.) The better move might be to hope that the Fed can start taking some air out of the balloons by raising interest rates slowly but surely next year, effectively putting some foam on the runway as we try to land this thing safely.

Bill, Succession Season 3 ends tonight. How do you predict the story ends in the media business for the Redstones and Murdochs?

Well, we now know what Rupert is going to do: He’s heading to his newly purchased $200 million ranch in Montana, with Jerry Hall, his wife of five years. He’s 90 years old, so it’s not crazy to think he’s likely to start slowing down and to start smelling the roses. That leaves son Lachlan in charge of what the family didn’t sell to Disney: the Fox News channels and various newspapers, including The Wall Street Journal. That whole collection seems to be worth around $20 billion these days, too small to compete long term with the likes of Disney, Netflix, Amazon, Comcast and Discovery, but big enough—and annoying enough—to continue being a general nuisance.

At some point the family will sell, I would think, but that could be a way off because I am sure Lachlan is having fun running Fox. Furthermore, I am not sure who would actually buy such a toxic asset right now unless Trump’s SPAC has it in its sights. As for ViacomCBS, as we discussed before, Shari Redstone is in a bind. She’s loving being the Absolute Power at a company her father once wanted her to have no part of and being the center of near-constant speculation in media circles about who would pony up the $20B-plus-a-hefty-premium-because-its-the-streaming-wars purchase price to buy ViacomCBS. Unlike the Murdochs, who ka-chinged big time with the sale of many of Fox’s assets to Disney, for around $70 billion, the long-suffering Redstone family still has not had the payday it has been dreaming about for years. Shari recombined CBS and Viacom in 2019 to make it easier for her to sell, taxed efficiently, but the consummation of those two companies has probably made it harder to find one buyer. My bet at this point—total conjecture—is that Amazon might step up to the plate and combine it with the MGM Studio assets it just bought. But who knows?

Have a question you’d like answered in the next edition? Email us at fritz@puck.news.