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CEO Daily: Wednesday 17th August

August 17, 2016, 10:30 AM UTC

Good morning.


If you haven’t been following the epic battle between Gawker media founder Nick Denton, wrestler Hulk Hogan, and billionaire Peter Thiel, you have been missing one of the great sagas of the Internet age.


Denton built his tawdry media empire on the back of countless reports that hounded Hollywood celebrities, professional athletes, and Silicon Valley entrepreneurs. But when he published a grainy sex video featuring Hogan, he went a step too far. Hogan, secretly backed by PayPal Founder Peter Thiel – whom Gawker had outed as gay back in 2007 – sued in his hometown court and won a $115 million judgment, plus $25 million in punitive damages. That forced Gawker and Denton into bankruptcy. Last night, we learned Univision had won a court-ordered auction and will buy Gawker Media’s assets for $135 million.


Here’s the coda: Fortune has learned through some rigorous reporting that, while regularly decrying “tax breaks for the rich,” Denton employed many of the same byzantine tax tactics used by Silicon Valley companies to hide his company’s assets overseas and escape taxes. Gawker had a holding company in the Cayman Islands, and a subsidiary in Denton’s ancestral home of Hungary. Moreover there is a mysterious British holding company called Greenmount Creek, controlled by the Denton family trust, which appears to own 28% of the operation and is obliged to pay an unsecured note that will be worth $12.5 million, tax-free, in 15 years. Whether Hogan, whose real name is Terry Bollea, can get his hands on that distant money remains to be seen. In the meantime, Denton is appealing the verdict.


You can read Jeff John Roberts’ story, which will be in the September issue of Fortune magazine, this morning here. Besides being a colorful account of a high-tech tycoon brawl, it’s yet another lesson in how porous and unmanageable the global tax system has become.


More news below.



Alan Murray

Top News

Trump’s New Team

Republican nominee Donald Trump reshuffled his campaign team again in what observers said was an increasingly desperate attempt to salvage a campaign that has gone off the rails in recent weeks. Trump denied that the appointment of Breitbart executive chairman Steve Bannon and pollster Kellyanne Conway represented a demotion of campaign chairman Paul Manafort, who has been subjected to an unwelcome media spotlight on his services to a string of unsavory rulers, notably the pro-Russian ex-president of Ukraine, Viktor Yanukovych. Trump is trailing Hillary Clinton badly in what had been expected to be key battleground states such as Florida, Virginia and Colorado. Fortune

Soft Inflation Figures Hit Dollar

The dollar retreated against the euro, yen and pound after weak July inflation figures and so-so data on housing starts further dented expectations of an interest rate rise by the Federal Reserve. New York Fed chairman William Dudley did his best to talk up the prospects a rate hike in September, but markets are now focusing on board chairwoman Janet Yellen’s keynote speech at the Fed’s Jackson Hole symposium next week. Over that speech hangs the memory of the last time Yellen tried to prepare markets for a hike, only to pedal back after economic data turned out softer than expected. July’s CPI was flat after two straight rises of 0.2%, leaving the annual rate of inflation at 0.8%, down from 1.0% in June. Excluding the more volatile food and energy components, consumer prices were up 2.2% on the year. Reuters

Ford’s Autonomous Vehicle Plans Advance

Ford said it plans to make self-driving cars for commercial ride-sharing or on-demand taxi services by 2021, a target the automaker says it will reach by doubling the size of its research lab in Palo Alto, Ca., and investing in or buying autonomous vehicle technology startups. An example of that came with the $75 million acquisition of Velodyne LiDAR, a supplier of technology that lets cars see and avoid what’s around them. The company sees stripping the driver out of the experience as the key cost factor that will entrench ride-sharing as the preferred mode of mobility. Uber/Lyft drivers, take note. Fortune

Brexageddon Postponed

The first hard data from the British economy since the ‘Brexit’ vote suggest that the immediate impact on the economy was limited. Jobless claims fall by 9,000 in the period that ended three weeks after the vote and average earnings also held steady, rising 2.3%, while labor force participation stayed at an all-time high. That follows a report Tuesday suggesting that the 11% drop in sterling after the vote had lifted factory gate prices by only 0.1% in July. While it’s still too early to draw meaningful conclusions, the figures so far suggest that the biggest damage has been limited to the construction sector, which was already struggling months before the vote. But unemployment, in particular, is typically a lagging indicator. More forward-looking ones such as confidence surveys still look grim.   FT, metered access


Around the Water Cooler

Hain’s Un-Heavenly Accounting

Shares in organic food maker Hain Celestial fell over 26% after the company said accounting irregularities would delay its fourth-quarter earnings release. They’re now back to where they were three years ago. The irregularities boil down to issues of revenue recognition, specifically, its practise of booking revenue when it ships wholesale to distributors, rather than when its product finally finds an end-buyer.  Variations on this theme (there are echoes of Bill Ackman’s accusations against Herbalife, and of the scandal at U.K. supermarket chain Tesco) typically swell from small beginnings: an “innocent” bit of corner-cutting to keep the current quarter’s figures decent repeats itself in ever-bigger quantities in succeeding quarters, especially if final demand falls short of what management is promising investors. It’s not clear how serious Hain’s issue is yet, but any proof of final demand really softening could have implications for the broader struggle between Big Food and its “healthier” challengers. Fortune

Steve Wynn’s New Xanadu Hits Macau

Undismayed by 25 straight months of falling gaming revenues, Steve Wynn will open his new casino resort--the unimaginatively named Wynn Palace--in the Chinese territory of Macau next week. The $4.1 billion project, which is beating Sheldon Adelson’s new resort to market by about a month, opens as mass-market tourism appears to be partially offsetting the sharp drop in high-rolling by China’s nouveaux riches. The latter has been in decline since Xi Jinping’s cracked down on corruption and conspicuous spending by officials. In June, Macau’s gaming revenues were down only 8.5% on the year, less than expected and a lot less than the 34% drop posted in 2015. Besides the usual constellation of luxury stores, Wynn’s new resort is festooned with $100-150 million worth of art including a $35 million Jeff Koons “tulip” sculpture and a quartet of $15 million antique Chinese vases. Wynn is still preferring not to say when the new project will break even. Fortune

Cisco Slashes Jobs

The blood-letting at Silicon Valley’s more venerable blue-chips continues. Cisco Systems is set to cut 14,000 jobs—nearly 20% of its workforce- as it shifts its focus from hardware to software, according to the tech blog CRN. The company increasingly requires "different skill sets" for the "software-defined future," according to the report. The development follows big rounds of job cuts at Microsoft and HP in recent weeks, both of which are also undergoing major reinventions. Fortune

Tough Times for Hedge Funds Too

Hedge funds are also under the cosh. They have suffered three straight quarters of outflows, according to HFR, as the anesthetizing flood of central bank money has subdued market volatility, neutralizing their traditional advantage vis-à-vis other investors. An average year-to-date return of 3% is poor advertizing for the infamously well-rewarded profession, which is now cutting costs sharply. Paul Tudor Jones laid off around 15% of his staff at Tudor Investment Corp this week, according to Reuters, after the group’s flagship macro fund, Tudor BVI Global, lost 2.5% through July. The Wall Street Journal, meanwhile, reports that assets under management at what used to be called Europe’s most influential hedge fund, Brevan Howard, have shrunk by more than half to $19.4 billion in the last two years, leading staff numbers to fall by over 20%. Bill Ackman’s Pershing Square Capital Management had laid off 10% of its staff earlier in the summer after being hit, among other things, by the decline of his favored stock, Valeant Pharmaceuticals. WSJ, subscription required