WeWork’s lifeline could wipe $39 billion off its valuation

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WeWork’s tough choice on a bailout

The board of the cash-starved office space company must now pick between two financial lifelines, Peter Eavis, Michael de la Merced and Andrew report in the NYT. Either option would be humbling.

The two proposals that WeWork’s board is considering:

• SoftBank has offered to take control of the company by accelerating a $1.5 billion investment that was planned for next year, and buying $3 billion worth of shares held by other investors, according to unnamed sources. It would also lend the company $5 billion.
• JPMorgan Chase has put together a $5 billion debt financing plan from several outside institutions, which would include bonds with high interest rates and secured financing.

SoftBank would slash WeWork’s valuation to just under $8 billion, having valued the company at $47 billion in January. That’s a huge fall for WeWork, which canceled its highly touted I.P.O. last month amid concerns from prospective investors. (It isn’t clear what value JPMorgan’s offer would give the company, though it would dilute existing shareholders’ stakes much less.)

SoftBank would also curb the power of Adam Neumann, the WeWork co-founder whose ambitious growth plans put the company into cities around the globe but also led to its current crisis. Axios reports that Mr. Neumann would receive about $200 million in exchange for giving up his voting shares and backing the conglomerate’s offer.

WeWork is in a cash crunch. It reported having $2.5 billion in cash at the end of June, but is burning through hundreds of millions of dollars every month. The WSJ reports that it had to delay thousands of job cuts because it couldn’t afford the severance costs.

Expect a decision from the company within days, and possibly as soon as today.

Fresh delays may await Boeing’s 737 Max

Boeing’s board spent more than five hours yesterday discussing how to manage a worrisome cascade of bad news in recent weeks about its grounded 737 Max jets, David Gelles and Natalie Kitroeff of the NYT report.

Weighing on the board’s mind:

• A scathing report about Boeing, the Federal Aviation Administration and the certification of the 737 Max
• The revelation last Friday that a pilot had voiced concerns about an automated system that played a role in two fatal Max crashes

A worry inside Boeing is that the pilot’s concerns may have further complicated efforts to return the Max to service, unnamed sources told the NYT. The F.A.A.’s administrator, Stephen Dickson, sent a frustrated letter to Dennis Muilenburg, Boeing’s C.E.O., asking why his regulator had learned about the messages only last week, months after the Justice Department reviewed them.

Boeing stock slid again yesterday, falling 4 percent after tumbling 8 percent on Friday. Seth Seifman, an analyst at JPMorgan Chase, said the revelation of the messages “makes it more challenging for regulators to endorse the 737 Max near term.”

More: European regulators have reportedly shelved the idea of lifting the grounding of the 737 Max jets simultaneously with the U.S.

Facebook’s crypto charm offensive

Denounced by regulators and lawmakers, and ditched by partners like Visa and Mastercard, Facebook’s cryptocurrency project, Libra, looks to be in bad shape. But Cecilia Kang and Nathaniel Popper of the NYT report that the company has been on a huge charm offensive to convince Washington of the project’s benefits.

• Last week, Mark Zuckerberg met with the House Financial Services Committee’s Democratic chairwoman, Representative Maxine Waters of California, and its ranking Republican, Representative Patrick McHenry of North Carolina.
• “David Marcus, the head of Facebook’s cryptocurrency effort, ran a parallel track of meetings,” Ms. Kang and Mr. Popper write. “He gave speeches defending Libra to global leaders meeting at the World Bank and a meeting of the Group of 30.”
• “All told, Facebook has dedicated at least eight lobbyists to Libra since the project was publicly introduced in June, according to regulatory filings.”

Over a fried chicken dinner with journalists, Mr. Marcus said that while politicians had been negative about the project, regulators had been much more receptive in private meetings.

We’ll find out whether the charm offensive is working tomorrow, when Mr. Zuckerberg is scheduled to testify about Libra before the House Financial Services Committee.

More: A bank C.E.O. warned that lenders might have to sever ties with Facebook if it can’t allay fears about how Libra could be used for money laundering.

Over half of the world’s banks could fail in a downturn

A majority of banks around the world may not be economically viable if the global economy falters, according to a new study by McKinsey & Company.

Return on equity has fallen below their costs for nearly 60 percent of banks, which is financially unsustainable in the long run. A downturn in the economy, or even a spread of negative interest rates around the world, could make things even worse.

And banks face new competition from all corners, from fintech start-ups with lower costs to tech giants muscling into lucrative banking activities.

“We believe we’re in the late economic cycle and banks need to make bold moves now because they are not in great shape,” Kausik Rajgopal, a McKinsey senior partner, told Bloomberg. “In the late cycle, nobody can afford to rest on their laurels.”

Some of McKinsey’s recommendations for banks:

• Outsource more functions, like trading and compliance
• Cut costs, including through zero-based budgeting
• Grow, including through acquisitions

A new model for opioid settlements?

A last-minute settlement, struck by three major drug distributors and the opioid manufacturer Teva with two Ohio counties, has avoided a landmark federal trial that was scheduled to start yesterday, Jan Hoffman of the NYT reports.

The companies would pay $260 million, including cash payouts and donations of addiction treatments. The judge overseeing the case, Dan Polster of the Northern District of Ohio, announced yesterday that the deal had been struck around 1 a.m.

“We hope it provides a benchmark for a national resolution for other communities to have the resources to do what is necessary to abate the epidemic,” said Peter Weinberger, a Cleveland lawyer who represents some Ohio counties.

But a global deal is what the drug distributors really want. Along with other corporate defendants in the trial, they are pursuing a settlement worth $48 billion in cash and donated addiction treatments to resolve all opioid lawsuits against them. Four state attorneys general said yesterday that they had reached a tentative agreement to settle cases against the three distributors, Teva, and Johnson & Johnson.

But cities and counties aren’t on board with that plan. They filed lawsuits years ago, and want more money paid out in a shorter time frame than a global deal would provide.

How the N.B.A. is trying to fix its image in China

Two weeks ago, a Houston Rockets executive’s tweet defending Hong Kong protesters brought controversy to the league. Now, the N.B.A. commissioner, Adam Silver, tells the WSJ he’s still trying to mend relations with China, its biggest international market.

Mr. Silver said he was surprised by the controversy. He told the WSJ that he was on a plane to Tokyo without internet access when Daryl Morey, the Rockets’ general manager, posted his tweet.

“What I didn’t know until I got to China was that it was not business as usual,” Mr. Silver told the WSJ. “This was unlike anything any of us had ever experienced before in China.”

The N.B.A. was “collateral damage” in the trade war between Beijing and Washington, according to Mr. Silver, who said it was “a bit of a perfect storm” that primed China to react with anger over the quickly deleted post.

The N.B.A. has made some progress in patching up its image, including having its games restored to Tencent’s sports streaming platform. But the Rockets remain banned from broadcasts, and it isn’t clear whether they’ll ever be allowed back on. Mr. Silver said the league was calculating its losses.

But he rejected calls to abandon China, even as politicians accused the N.B.A. of kowtowing to Beijing. “We have no choice but to engage and to attempt to have better understanding of other cultures and try to work through issues,” he said. “What better way than through sports?”

Revolving door

Namal Nawana has stepped down as C.E.O. of the medical device maker Smith & Nephew over a disagreement about his compensation.

The real estate developer Howard Hughes said it was replacing its C.E.O., David Weinreb, with Paul Layne, the president of its Central region.

Nadiem Makarim, the co-founder and C.E.O. of the Indonesian ride-hailing company Gojek, will step down to join the Indonesian cabinet.

Eric Liedtke, who as Adidas’ global brands director was seen as a potential candidate to lead the sportswear giant, will step down.

Google has hired Javier Soltero, the former head of Microsoft’s Outlook division, as the chief of its G Suite division.

The speed read

Deals

• Coty plans to sell an array of businesses, including the Wella, Clairol and OPI brands, as part of a plan to cut debt and simplify its business mix. (FT)
• Hudson’s Bay, the department store company that owns Saks, agreed to sell itself to a group of investors led by its chairman, Richard Baker, for about $1.45 billion. (Bloomberg)
• The online mattress company Casper has reportedly hired Morgan Stanley and Goldman Sachs to help prepare it for an I.P.O. (Bloomberg)
• Innophos, a maker of specialty ingredients for food companies, agreed to sell itself to the investment firm One Rock Capital for about $932 million. (Innophos)

Trump impeachment inquiry

• President Trump’s distrust of Ukraine was reportedly bolstered by a meeting with Prime Minister Viktor Orban of Hungary, which some White House officials had objected to. (NYT)
• House Democrats plan to slow down the timeline of their impeachment inquiry by holding public hearings over the Ukraine affair. (NYT)

Politics and policy

• President Trump dismissed as “phony” a clause in the Constitution that prohibits presidents from illegally benefiting from their business dealings while in office. (NYT)
• The oil industry is concerned about Senator Elizabeth Warren’s pledge to ban fracking if she becomes president. (WSJ)
• Mark Zuckerberg recommended several candidates for jobs in Mayor Pete Buttigieg’s presidential campaign; two were hired. (Bloomberg)
• Prime Minister Benjamin Netanyahu of Israel failed to form a government after last month’s election, giving his political rival, Benny Gantz, a chance to try. (NYT)
• Prime Minister Justin Trudeau of Canada won a second term last night, but his Liberal Party will lose its majority in Parliament. (NYT)

Brexit

• Prime Minister Boris Johnson of Britain hopes to win support for his Brexit bill from lawmakers today. (NYT)
• British business leaders warned Michael Gove, the government official in charge of Brexit preparations, not to set Britain’s regulations too far apart from the E.U.’s. (FT)

Trade

• President Trump said China had signaled that trade talks were advancing, raising hopes for a November deal. (Bloomberg)
• Chinese officials say the country plans to remain open to foreign investment and global industry despite the trade war. (Reuters)
• China is seeking $2.4 billion in countermeasures against the U.S. relating to a seven-year-old case it filed with the World Trade Organization. (Bloomberg)

Tech

• Facebook recently found and took down four state-backed disinformation campaigns. (NYT)
• Islamic State militants have reportedly been posting propaganda videos to TikTok. (WSJ)
• New, more sophisticated Chinese hacks are targeting the smartphones of the nation’s ethnic minorities, even while they’re abroad, according to security researchers. (NYT)
• IBM researchers say that Google has overstated the power of its latest quantum computer. (FT)
• Why you probably shouldn’t buy the new Google Pixel 4. (NYT)

Best of the rest

• PG&E has warned of a potential second round of planned blackouts in California. Also: San Jose hopes to turn the company into a state-owned utility. (WSJ)
• Exxon Mobil’s climate change accounting goes on trial in New York starting today. (WSJ)
• Women are underrepresented at central banks. (NYT)
• An Ernst & Young training seminar last year instructed women on how to get manicures and be nice to men. (Huff Post)
• Douglas Hodge, the former C.E.O. of Pimco, pleaded guilty to fraud and money laundering conspiracy charges over his role in the college admissions scandal. (Bloomberg)

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