Good morning.
The world’s most profitable corporation got slammed today with an unprecedented $14 billion dollar tax bill from the European Union. So much to unpack here, but let’s take it a step at a time.
First, the global corporate tax system is an unholy mess. The fact that big tech companies can park their “intellectual property” – which is their most important asset — in whatever country is willing to give them the lowest tax rate makes no sense. Why should Apple pay an effective tax rate near 30% on its U.S. earnings, and a mere 4% on overseas earnings? Crazy.
Having said that, Apple is only doing what the screwed-up system allows it to do. Would its shareholders want any less? And in Ireland, it has found a very willing partner, which gets 5,500 jobs in return for its tax generosity. Does the EU have the power to retroactively undo a deal between one of its member countries and the world’s largest company? We will now find out.
Meanwhile, U.S. companies and officials believe this is all part of a multi-pronged EU campaign against U.S. tech companies. This has the appearance of truth. Europeans don’t like the fact that a handful of powerful U.S. tech companies – Apple, Google, Facebook, Amazon, etc. – appear to hold the keys to their future. (If it makes the Europeans feel any better, those of us in the media business feel much the same way.)
Then there is the issue of who gets the money. U.S. politicians have been eyeing the overseas stash of cash held by Apple – more than $200 billion – and by other companies as a possible salve to its own budget and economic problems. Politicians from both parties have proposed various deals that would allow companies to repatriate earnings for investment in the U.S. economy at a low tax rate. Now, the Europeans are trying to get that money for themselves. How dare they! Whose intellectual property is it, anyway?
And finally there is this: Margrethe Vestager is proving herself to be one tough lady. If you missed Vivienne Wald’s wonderful profile of her in May, you can read it here.
More news below.
| Alan Murray | |
| @alansmurray | |
| alan.murray@fortune.com |
Top News
• Mondelez Says No to More Candy
Mondelez gave up its pursuit of Hershey, saying there was “no actionable path forward to an agreement,” seemingly a judgment on the complex corporate governance issues at the storied candy-maker. Over 80% of Hershey’s voting stock is controlled by a family trust that is unwilling to sell, despite the growing pressure on established food brands to consolidate as consumer tastes evolve. According to The Wall Street Journal, Mondelez CEO Irene Rosenfeld had indicated to Hershey that she was willing to raise the company’s $107 a share offer to $115, valuing Hershey at over $27 billion, but said Hershey CEO J.P. Bilbrey was holding out for $125. As the buyer disappeared over the horizon, the market was telling Bilbrey that $98.63 was a fairer price for it on its own. All this, somewhat poetically, on the day that Willie Wonka died… Fortune
• France, Germany Call Time on TTIP
France and Germany appear to be on the verge of giving up on TTIP, the transatlantic trade deal that the Obama administration would be a counterpoint to the Trans Pacific Partnership and make the U.S.’s trading arrangements with Europe fit for the digital age. Germany’s vice-chancellor Sigmar Gabriel had said on Sunday that 14 rounds of talks, the latest of which took place in July, “have de facto failed but “nobody is really admitting it.” Europe’s left has vigorously campaigned against provisions strengthening companies’ ability to sue governments, claiming that U.S. companies could unfairly avoid EU health, safety and environmental regulations (pssst! nobody mention Volkswagen! Or that Gabriel was a VW director…). On Monday, France’s trade minister Matthias Fekl said he would formally request an end to the talks “so that we can restart them on a good basis.” France has, as usual, pushed back hard against U.S. proposals on cultural and agricultural goods. Reuters
• Kirby’s Gold-Plated Exit From American
United Continental has hired the No. 2 executive at rival American Airlines, Scott Kirby, to be its president, in a move that United CEO Oscar Munoz called the “culmination” of his creation of a new leadership team. The appointment also appears to make Kirby apparent to Munoz, who had heart transplant surgery at the turn of the year after a heart attack last October. Kirby will be free to take up his duties immediately, having done without an employment contract or a non-compete obligation at American. Unusually for such a move, American paid Kirby $13 million in severance in cash and stock, a move that will have some American shareholders raising more than just an eyebrow. United’s shares rose on the news, while American’s fell, a testimony to Kirby’s credentials. Fortune
• Uber Drops off Alphabet’s Drummond
Alphabet executive David Drummond has resigned from the board of Uber due to a conflict of interest that is becoming more and more acute as the two companies develop their respective autonomous car projects. Google’s parent company had been one of Uber’s biggest early backers, putting $258 million into an early funding round. Uber remains dependent on Google Maps at present but is thought to be looking at ways to break that dependency. In a statement, said that “Google Ventures remains an enthusiastic investor and Google will continue to partner with Uber.” Drummond had apparently stopped attending Uber board meetings several months ago. The news comes barely a week after Uber hired several ex-Google executives by buying the autonomous project Otto. Fortune
Around the Water Cooler
• Zuck Sticks to the Party Line on Media
Facebook isn’t a media company and nor does it intend to become one, CEO Mark Zuckerberg told staff at the company’s offices in Italy Monday. Zuckerberg stuck to the traditional line that the social network is simply a technology platform. “We build the tools, we do not produce any content.” The line between the two has blurred as Facebook users come to rely increasingly on the site for the news they’re interested in—a trend that Facebook has only encouraged by commissioning video content from selected sources (at a cost of upwards of $50 million). The company has also had to deal with allegations that it showed editorial bias by suppressing Conservative news sources from its “Trending” module. Zuckerberg made his comments after an audience with Pope Francis and a meeting with Italy’s PM Matteo Renzi about expanding the country’s internet infrastructure. Fortune
• China Makes Further Inroads into U.S. Aluminum
Chinese metals magnate Liu Zhongtian is buying aluminum products maker Aleris for $2.33 billion (including debt) in a further expansion of the country’s influence in the sector. Zhongtian is buying the company through a U.S.-based firm with unclear links to his complex empire of holdings in Hong Kong and mainland China. Zhongtian’s companies have been the subject of two anti-dumping investigations in the U.S. in recent years, and buying local manufacturing will be an insurance policy against any regulatory action on that score. Cleveland-based Aleris, which makes parts for the aviation and auto industries, had filed for Chapter 11 bankruptcy in 2009. It had begun a turnaround under new private equity owners Apollo Capital Management and Oaktree Capital. However, it had failed to realize its hopes of completing an IPO last year. FT, metered access
• "Opportunist" Tantaros is no Victim, Says Fox
Fox News came out swinging against former presenter Andrea Tantaros as it tries to wrest back control of the narrative over allegations of widespread sexual harassment at the channel. Fox said in a court filing that Tantaros “is not a victim, she’s an opportunist,” and said that “contrary to her pleading, she never complained of such conduct.” Tantaros had claimed she was marginalized after rejecting unwanted advances from now-ousted CEO Roger Ailes, but Fox argues that her beef with the company is due to a dispute over her publication of a book without its consent, in breach of her contractual obligations. WSJ, subscription required
• Anthony Weiner Does It Again
A campaign issue, or just prurient interest in a new scandal? Or legitimate interest in a public figure valiantly pushing back the bounds of idiocy? Anthony Weiner has been disappointed yet again in his seeming lifelong quest for a woman who won’t forward his sexts to the tabloid press. The latest episode has triggered a very public end to his marriage with Huma Abedin, a top adviser to Hillary Clinton. Cue media frenzy about its implications for the presidential election. For Republicans, it’s a welcome distraction from allegations about the past marital life of Steve Bannon. For Hillary, while it’s clearly an annoying distraction, one can’t help feeling that she’ll feel she’s survived worse bedroom-related scandals. Fortune
