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Power Sheet – March 29, 2016

-To no one’s surprise, Anbang Insurance CEO Wu Xiaohui yesterday increased his offer for Starwood Hotels and Resorts to about $14 billion, continuing his bidding war with Marriott International’s Arne Sorenson. Starwood responded to Wu’s bid with a statement that it was in talks with Anbang, and it expected that the bid was “reasonably likely to lead to a ‘superior offer.’” In that case, based on past behavior, Starwood would likely accept the offer and cancel its current deal with Marriott.

This is now the testing time for Sorenson. If Starwood accepts Anbang’s offer, he’ll have to decide whether to increase his bid yet again. Marriott yesterday issued a statement suggesting it may not; the statement said that Starwood shareholders “should give serious consideration to the question of whether the Anbang-led consortium will be able to close the proposed transaction” in light of possible regulatory or financing problems. Marriott investors liked that message – they sent the stock price up in the expectation that Marriott would now escape a deal in which they thought it was already paying too much.

Marriott has been a terrific financial performer over the past several years, and an important reason has been its extremely disciplined use of capital. We don’t know what kind of returns Sorenson could wring out of Starwood or whether they would exceed Marriott’s capital cost. But if Sorenson now makes his third deal for Starwood, investors will be skeptical for sure. It could turn out, however, that he’s playing a game of auction chicken, gambling that a bid would induce Wu to bid still higher, burdening him with an uneconomic deal that would weaken him for years. But then Wu may not care, perhaps being motivated by a desperate desire to move money out of China into hard, non-Chinese assets. This is major league chess.


-When Nikita Khrushchev was running the Soviet Union, he gave a speech denouncing the horrors committed by his predecessor, Joseph Stalin. Khrushchev had been rising through the Communist Party in the Stalin years and had seen Stalin’s behavior up close. So during his speech, someone in the audience yelled, “Why didn’t you speak up?”

Khrushchev gazed out at the audience, fire in his eyes, and bellowed, “Who said that?
Utter silence. He let it linger awhile. Then he said softly, “Now you know why.”

That story is worth remembering as we read recent news about Chinese President Xi Jinping’s efforts to find the author of an anonymous letter, circulated online, criticizing him and calling on him to resign. At least four employees of an online news site that published the letter have disappeared, as have about ten people from a related company, the WSJ reports. Xi wants to know who said that, so he can demonstrate that dissent of any kind will not be tolerated.

Which prompts at least two questions for business leaders. Will Xi’s Communist Party succeed better than Stalin’s did? And how do business leaders stifle uninhibited speech, deliberately or not?

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What We’re Reading Today

Starwood Hotels gets another sweetened bid  

The auction continues as China’s Anbang Insurance Group yesterday offered a new bid for Starwood Hotels. Thomas Mangas‘s Starwood had agreed last week to an offer from Marriott Hotels that topped Anbang’s previous offer, which had crashed a Marriott-Starwood merger agreement. Now, if Starwood accepts Anbang’s $14-billion all-cash offer, Marriott’s Arne Sorenson will have to consider topping it. ABC News

Theranos receives poor lab results

In a study published in the Journal of Clinical Investigation, researchers found that blood-test results from Elizabeth Holmes‘s Theranos fell “outside of the normal range” 1.6 times more often than did those from LabCorp and Quest. The rate at which Theranos could not produce a result was also higher. Theranos blamed the findings on the testing procedures used and potential bias by two scientists in the study. But it’s another blow to a company that has suffered severe setbacks as regulators and researchers have questioned its science and controls. Fortune

FBI unlocks the iPhone without Apple’s help

Tim Cook‘s company will no longer have to fight a court order requiring it to develop an operating system enabling the FBI to circumvent the security system of the iPhone used by one of the San Bernardino shooters. The Justice Department asked U.S. Magistrate Judge Sheri Pym to vacate the order. Apple reiterated that complying with the order would have “set a dangerous precedent.” CNET

Emails of NHL execs signal recognition of concussion effects

NHL Commissioner Gary Bettman and his inner circle discussed fighting’s impact on the rate of concussions and what it could mean for players. The emails reveal a belief that concussions suffered by “enforcers” (players known for fighting) could have led to higher rates of depression and possibly “personal tragedies.” Former NHL players are suing the league for not warning them of concussions’ effects. Publicly the NHL has said there’s no connection between playing hockey and brain damage. NYT

Building a Better Leader

When a colleague can’t seem to stick to a decision…

…pick the right battle in which to engage your co-worker and share your observations. They might lead to the solution.  Harvard Business Review

If you want flexibility on the job…

…then check the 50 best companies that offer compressed workweeks, telecommuting, and phased retirement.  Fortune

New talent acquisition strategy by Uber

The company is giving potential engineers a coding test while they ride. Business Insider

Control Battles

Wynn Resorts’ founders fight for control

In a court filing, Elaine Wynn argues that ex-husband Steve Wynn‘s “reckless, risk-taking behavior” could harm the company. Since 2012, Ms. Wynn has tried to negate a shareholder agreement she signed while the two divorced, which gave Mr. Wynn voting control of her shares. Mr. Wynn says he can’t allow her to have voting control again because it could prevent him from running the company, diminishing its value in the eyes of public shareholders. But new allegations by Ms. Wynn attacks his leadership of the business, arguing he’s using the hotel to fund his “lavish lifestyle” and leaving it open to lawsuits. WSJ

Pandora replaces CEO with the founder

In an abrupt move, Pandora has parted ways with CEO Brian McAndrews, replacing him with co-founder Tim Westergren. The decision comes amid speculation that the company may be for sale, but it also signals disagreement on the board over the issue. Pandora’s user growth has stalled while Apple and Spotify cut into its market share. Reuters

Sears CEO buys large part of Sears debt

CEO Eddie Lampert has bought $200 million of the $750-million loan Sears has obtained in order to pay down older debt. The loan will give the company breathing room for implementing turnaround strategies. For Lampert, the loan provides an investment that pays four times more than the average loan to a retailer. If the company were to liquidate, Lampert would be paid back in full. Fortune

Up or Out

Revlon named Fabian Garcia CEO. Fortune

Spanish telecomm company Telefonica announced that long-time CEO Cesar Alierta is stepping down. He will remain on the company’s board. ABC News

Fortune Reads and Videos

Another recall for Volkswagen

This one recalls all the electric versions of its Golf compact because a problem with the batteries causes the car to stall.  Fortune

EgyptAir flight lands in Cyprus after hijacking

The hijacker has released all but four passengers and the crew. While the highjacking apparently involves a family matter, it raises questions about security. Fortune

You may want to stay away from China’s best web browsers

Researchers found security flaws that they believe could be deliberate backdoors for state surveillance. Fortune

PepsiCo joins the cage-free trend 

The soft drink company will stop using eggs from caged hens by 2020 in North America. Fortune

Quotes of the Day

“Apple believes deeply that people in the United States and around the world deserve data protection, security and privacy. Sacrificing one for the other only puts people and countries at greater risk.” — Apple responding to the FBI’s decision to drop its request for a court order after finding another way to unlock an iPhone used by a San Bernardino shooter.

“[I]t remains a priority for the government to ensure that law enforcement can obtain crucial digital information to protect national security and public safety, either with cooperation from relevant parties, or through the court system when cooperation fails. We will continue to pursue all available options for this mission, including seeking the cooperation of manufacturers and relying upon the creativity of both the public and private sectors.” — Justice Department statement on the new development.  CNET

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Produced by Ryan Derousseau