Axios Pro Rata
May 17, 2018
Top of the Morning
CBS was all chuckles yesterday at its annual upfronts, even though the company's future was being decided in a courtroom 200 miles to the south.
- “So, how’s your week been?“ — CBS CEO Les Moonves
- “CBS has some of the most exciting legal dramas and some great TV shows.” — Stephen Colbert
Axios' Sara Fischer was in the room, and says the big takeaway was that Madison Ave. loves Moonves and CBS execs seem confident in their future.
But the bubble could be burst as early as today, as Delaware Chancery Court is being asked to rule on a lawsuit brought by CBS to strip company control from Shari Redstone (and, thus, prevent a merger with Viacom).
- The court did grant CBS an emergency restraining order against Redstone after she tried to change company bylaws shortly before the hearing began. It's a small win from a legal perspective, but CBS execs were crowing about it during their afterparty at the Plaza hotel.
- Remember that these sorts of legal disputes are almost unheard of in dual-class stock structures, but arose here because Sumner Redstone included a "nuclear option" in the CBS charter 12 years ago. It's unclear exactly why, but the bottom line it's certainly causing major headaches for his daughter.
• Chip chat: Chinese regulators have approved Toshiba's $18 billion sale of its memory chip business to a Bain Capital-led consortium. I'm not too surprised this happened —recall last week's caution on a WSJ report that Toshiba had given up hope —although I had also figured that approval might be delayed until U.S.-China trade talks concluded.
- One big complication to the trade negotiations is that members of the White House's delegation aren't all on the same page, per Axios' Jonathan Swan.
• Hmmmm... Google last week demonstrated an AI-powered voice assistant that made haircut and restaurant reservations, without betraying that it wasn't human. But we have questions about the demos, which purported to be recordings of real phone calls with real businesses. And Google is refusing to answer. Go deeper.
• Beyond boilerplate: Boston-based venture firm Underscore.vc this week closed on $117 million for its second fund, and founder Michael Skok tells me that it made one key change to its "cloud intelligence" thesis, amending it to "trusted cloud intelligence."
• Crypto: The SEC yesterday launched its own ICO. Well, sort of. It created a website and white paper, for the purpose of helping investors avoid being scammed.
- SEC chair Jay Clayton speaking yesterday at the NVCA's annual meeting: "Come nine o’clock at night, sometimes I’m bored I surf the net, I see these initial coin offerings and, 'Hey, buy the 25% discount today because tomorrow it’s gonna be full value, get in!'—are you kidding me?"
The BFD
Staples, which was taken private last year by Sycamore Partners for $6.9 billion, yesterday disclosed a 9.9% stake in workplace supplies wholesaler Esesendant (Nasdaq: ESND) and offered to buy the rest for $11.50 per share in cash ($940m enterprise value, including debt).
- Why it's the BFD: Because it's highly unusual for private equity sponsors to use their portfolio companies to put equity hooks into listed acquisition targets. Sycamore, however, has been known to use this strategy on its own.
- Complication: Essendant already had agreed to a reverse merger with S.P. Richards, the wholesale distribution unit of Genuine Parts (NYSE: GPC). Staples' offer, if accepted, would scuttle that deal. Genuine Parts already has replied by increasing its deal to a contingent $12 per share.
- Bottom line: Essendant's decision is likely to be based as much on anti-trust analysis as on dollars, with each suitor arguing that it offers the more promising path.
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