CEO Daily: The Best in Business Reading

Nov 20, 2016

Good morning.

The gun business, where commerce meets the fraught politics of the Second Amendment, often makes for interesting reading. Add in the complexities of private equity investing and a reclusive billionaire, and well, you've got the makings of a fascinating yarn. That's precisely what you'll discover in New York's richly reported feature on Stephen Feinberg, who runs Cerberus Capital, and his ill-fated foray into the firearms business. It’s entitled “Big Gun’s Big Fail: A secretive Manhattan billionaire’s dreams of creating America’s foremost firearms empire.” Feinberg is presented as a series of contradictions: a quiet New Yorker who likes to hunt elk but also sought military-style weapons training from Blackwater; a Princeton grad who fancies himself a blue-collar billionaire; and a committed conservative whose firm’s troubled investments in Chrysler and the former GMAC benefitted from massive government bailouts.

Feinberg’s love of shooting led him to a plan to roll up many gun companies, including Remington and Bushmaster, into something first called Freedom Group, now Remington Outdoor. It turned out to be an investment thesis that was better on paper than in real life. After some devastating cost (and as a result, quality) cuts by Robert Nardelli, who was briefly its CEO, the company struggled. Fear not, though: Cerberus emerged unscathed. This piece is worth reading for the granular detail—salt-of-the-earth gun-company CEOs opining about the New York private equity fund—and its ability to take you inside a world you rarely glimpse.

Antitrust Opinions for Sale

Anybody even mildly familiar with how litigation works will not be flabbergasted by the notion that a big check will attract an expert who will testify to just about anything. But how about two experts who work at the same firm offering opposing views for opposing clients in the same case? That actually happened in the Apple e-books antitrust case and that’s only one fascinating anecdote in “These Professors Make More Than a Thousand Bucks an Hour Peddling Mega-Mergers,” in ProPublica.
The expert process in antitrust review turns out to be a toxic combination of two factors, according to the article: Expensive paid opinions, which are then kept secret from the public. And that secrecy, the article demonstrates, is hiding the fact that many mergers—despite frequent forecasts to the contrary by the companies involved—lead to price increases for customers. This article is filled with smart, sophisticated reporting
Most antitrust experts are never forced to confront whether their predictions were accurate. Here, though, the reporters delve deep into the never-consummated merger between AT&T and T-Mobile and uncover the expert reports, including one by Dennis Carlton, the leading practitioner at the dominant firm in the field, Compass Lexecon. Hired by AT&T to sell the deal to the Feds, Carlton submitted a report predicting that T-Mobile was doomed to failure without the merger. The article quotes from the report: “Our review indicates that T-Mobile USA’s competitive significance is likely to decline in the absence of the proposed transaction,” then notes that "Five years later, T-Mobile’s stock price and market share are up and its colorful CEO, John Legere, has been credited by the business press for 'singlehandedly dragging the industry into a new era' with innovations such as abolishing cellular contracts." How many other times have the antitrust experts been wrong? Judging by this article, the number may be very high indeed.

The Vengefulness of Theranos

It’s no longer shocking to hear that one-time unicorn Theranos was fudging numbers on its test results. But the account of how it pursued a young whistleblower—who happened to be the grandson of board member (and former Secretary of State) George Schultz—is a reminder of how vengeful the company has been. The tale is told in "Theranos Whistleblower Shook the Company—and His Family," by John Carreyrou, the Wall Street Journal reporter responsible for the revelations about the medical-testing company.

The young Tyler Schultz, now 26, reported fishy numbers to regulators—after trying and failing to get Theranos executives to pay attention to the same points—only to be accused by the company of leaking trade secrets. “Fraud is not a trade secret,” the article memorably quotes the young Schultz as saying. There are chilling scenes of Theranos founder Elizabeth Holmes acting chummy with Tyler in front of his grandfather, and even more chilling scenes of a pair of Theranos lawyers (from David Boies's firm), Michael Brille and Meredith Dearborn, lurking in the home of George Schultz and then descending unannounced on Tyler, trying to intimidate him. If Carreyrou’s account is correct—and based on his track record with Theranos, there’s every reason to believe his reporting rather than the attorneys’ denials—this story provides a bit of justice, leaving readers with the satisfaction of seeing corporate bullies exposed.

The Spy Hub in Manhattan

"TITANPOINTE: The NSA's Spy Hub in New York, Hidden In Plain Sight", from the Intercept, is an impressive piece of reporting. In some ways, it is the profile of a building, a gloomy, windowless 550-foot tower not far from the Brooklyn Bridge in Manhattan that millions of residents and visitors have glanced at over the decades without realizing its shadowy purpose. But it's much more profound than that. The location is an AT&T "gateway switch" for international calls and also, as this article convincingly demonstrates, a surveillance point for the National Security Agency to track phone and satellite data. Written methodically and clearly—it's dense, driven by evidence and logic rather than by drama and color—the story relies on leaked materials from Edward Snowden, among others. It goes on to show how closely AT&T works with the government; that's not a new point, but the level of detail here is striking:

According to the Snowden documents, AT&T has installed surveillance equipment in at least 59 U.S. sites. And on any given day, NSA employees may be working at the company’s facilities. Classified memos dated from April 2013 describe one- to four-day deployments of NSA technical staff to TITANPOINTE and other buildings. Most AT&T personnel at these locations, however, are unlikely to have knowledge of the agency’s presence. NSA staff are encouraged to wear clothes that make them “blend in to the environment.” Even the car hire company the agency uses for its trips to AT&T facilities is kept in the dark. “Some personnel are aware of the FBI link,” states the agency’s travel guidance, “but [they] have no knowledge of NSA’s involvement.”

 
Nicholas Varchaver
@nickvarchaver
nicholas_varchaver@fortune.com

All products and services featured are based solely on editorial selection. FORTUNE may receive compensation for some links to products and services on this website.

Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc. Dow Jones Terms & Conditions: http://www.djindexes.com/mdsidx/html/tandc/indexestandcs.html. S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions