CEO Daily: Tuesday, February 9
CEO Daily has been critical of the recent rash of corporate split-ups driven by activist investors looking for short-term returns. But Alcoa CEO Klaus Kleinfeld made a strong case yesterday that the coming split of 127-year-old Alcoa will actually increase long-term investment.
“It’s essential for the long term,” Kleinfeld told me at his Park Avenue offices, which will be divided in two when the split happens later this year. The company’s core aluminum business is a commodity play, driven by cost, and has been battered by the recent collapse in demand from China and elsewhere. But its growing “value add” business, which provides products to the aerospace and auto industries, “is all about innovation,” including, among other things, 3-D metals printing. It can only survive “if you have a different investor base” interested in investment and growth, not commodity cycles.
Kleinfeld will run the innovation business, which will take on a new name, and he is bullish about its future. He says the split was not driven by activists, although Paul Singer’s Elliott Management has bought the stock since the split was announced.
But Kleinfeld shares the view of other CEOs that “the whole world is getting more short-
More news below, including the take down of another unicorn, human resources software firm Zenefits, which has ousted founder-CEO Parker Conrad in the wake of regulatory problems.
• Japan stimulus could lead to currency war
The Bank of Japan generated a lot of headlines late last month when it adopted negative interest rates for the first time ever, as the voting members faced pressure to revive growth in the world's third-largest economy. But it appears policymakers tussled over the decision – which came down to a tight 5-4 vote – with worries that the move could lead to a competition with central banks in other countries to lower their interest rates even deeper into negative territory. Many analysts in recent months have also raised the possibility of a "currency war" to achieve the weakest exchange rate, which is desirable as exports become more competitive. CNBC
• Investors are nervous about big banks
Here in the U.S., a lot of recent media attention has focused on the poor stock performance of the oil and gas sector (due to weak crude prices) and for the tech industry (slowing growth concerns after heady gains). But globally, the concerns are also resulting in major hits to the stock performance of the world's biggest banks. Why is this a concern? When investors sell bank shares, it can be a signal that a period of financial turbulence has entered a new, potentially more serious phase. And here's the clear proof: KBW Nasdaq Bank Index, a benchmark for the banking sector, was down more than 3% on Monday and had lost nearly 20% of its value this year. New York Times (subscription required)
• Tesla confronts the bears
With a lot of pressure now facing Silicon Valley companies as worries begin to surface about slowing growth, Tesla Motors faces its own pivotal moment this week when the electric luxury car maker reports results on Wednesday after the close. Many investors aren't waiting to see how the company fares against expectations (Wall Street is projecting revenue of $1.79 billion), as they are currently in a selling mood. Tesla's shares closed down 9% on Monday, expending last year's decline of 15% after several analysts cut price targets or lowered revenue estimates. Reuters
• Google CEO gets big stock grant
Google has awarded Chief Executive Sundar Pichai restricted stock worth about $199 million, according to a regulatory filing by parent company Alphabet, a grant that would make him the top-paid U.S. CEO in 2015, according to the Financial Times. Previously, the highest pay for a U.S. CEO last year was for the $156 million paid to David Zaslav of Discovery Communications. Reuters
• Verizon's AOL chief gets look at Yahoo
Verizon Communications has reportedly given Tim Armstrong, chief executive officer of its AOL unit, a leading role in exploring a possible acquisition for Yahoo's assets. While the nation's largest U.S. wireless carrier hasn't hired bankers to conduct an offer yet, Verizon's name has often been floated as a possible acquirer of Yahoo – and a potential merger for the Internet company would be on the table with an interested acquirer, especially after Yahoo last week said it would consider "strategic alternatives" for its core Internet business. Analysts say private equity firms, media and telecom companies, or firms like Softbank could also be interested in Yahoo's core business. Reuters
Around the Water Cooler
• Gold traders bet on a comeback
Investors are finally returning to gold after shunning the metal for three straight years, as a slowing global economy looks to threaten U.S. expansion. That trend also casts doubts over whether Federal Reserve policy makers will raise interest rates anytime soon, news that is sending the dollar lower and raising the allure of gold as a haven asset. Gold reached its highest price in seven months, and Bloomberg reports that investors are betting there are more gains to come by April. Bloomberg
• Chesapeake's woes hurting others
When the market opened yesterday, shares of Chesapeake Energy tanked, losing more than 50% of its value, as investors learned of a report that the shale company was working with bankruptcy advisers. But the complexity and interconnected nature of some energy stocks led to pain for other firms with close ties to Chesapeake. Pipeline giant Williams Cos. shares were also stung, as that company gets 20% of its sales from moving Chesapeake's natural gas from fields to markets. Energy Transfer Equity, which has been trying to merge with Williams, was also hit. Wall Street Journal (subscription required)