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CEO Daily: Wednesday 13th September

Good morning.


I spent this morning with a group of business leaders and entrepreneurs in Guangzhou, China, which we announced yesterday is hosting the 2017 Fortune Global Forum. It was a diverse group, ranging from auto giant GAC (number 303 on the Fortune Global 500) to entrepreneurial start-ups in robotics, biotech and other industries.


I’ve been skeptical that a Chinese economy dominated by State-Owned Enterprises could become a leader in developing disruptive technologies. But this morning, my skepticism began to fade. A number of companies here appear to be at the leading edge of the technology revolution that is changing the nature of business.


One of the most impressive was EHang, a drone manufacturer that last night staged a demonstration for us over the Pearl River, using 30 brightly lit drones to spell out the letters FGF (Fortune Global Forum) just under a nearly-full moon. This morning we learned that, beyond such marketing stunts, EHang is producing drones for a variety of business uses, and has developed what it bills as the world’s first “safe, smart and eco-friendly autonomous aerial vehicle,” the EHang 184. (See Fortune’s coverage of the EHang 184 here.) Among other things, the company’s founder says it is working with United Therapeutics to provide a timely way to transport organ recipients for transplant surgery.


Another Guangzhou company, iFLYTEK, is doing research in artificial intelligence and speech recognition. Yet another, Nexwise, is working on the application of blockchain technology to finance. Risong Intelligence is producing cutting-edge robotics for the region’s auto manufacturers. Gizwits is developing a software platform for the Internet of Things. And Medprin is using 3D-printing to make implantable medical devices.


One takeaway from the morning session is that, at a time when government and business are increasingly at odds in the U.S., government and business are working hand-in-hand in Guangzhou. Another is the grand ambition of this city: a representative of Grandview Group, which operates the largest shopping mall in the region, said Guangzhou’s goal is to become “the leading world city” and the “number one city of choice for tourists.” A single-minded focus on moon-shot goals is surely an economic advantage.


A third takeaway is that several of the entrepreneurs were educated in the U.S., but returned to Guangzhou to start their businesses. One can only hope misguided U.S. immigration policies didn’t drive them away.


Separately, I’d urge you to take time this morning to read Erika Fry’s excellent saga about one man’s effort to rehabilitate SeaWorld, which was devastated by the documentary Blackfish and subsequent attacks from animal rights advocates. The story is running in the new issue of Fortune magazine, but available online now.


More news below.


Alan Murray

Top News

Bayer/Monsanto Almost Over the Line

Bayer and Monsanto have been taking lessons from The Hobbit director Peter Jackson in spinning things out well beyond feasible limits, but it appears we’re into the final act of part 3 of the trilogy: Monsanto’s board is reportedly ready to accept Bayer’s merger proposals after the German company raised its offer again to nearly $130 a share, valuing the U.S. company at $65 billion. Bayer’s supervisory board is set to meet Wednesday afternoon in Germany, according to The Wall Street Journal. The WSJ also reports that Bayer considerably increased its break fee from the earlier $1.5 billion. Bucking the previous trend, Bayer’s shares are among the best-performing in Europe on the news this morning, suggesting that shareholders may be coming round to management’s views that the benefits of the deal outweigh the higher debt burden, a diluted focus on higher-margin pharma and intense antitrust scrutiny WSJ, subscription required

A Gentler Squeeze on the Middle Class

The median American income grew faster in 2015 than at any point on record, by 5.2% after adjusting for inflation, according to a report released Tuesday by the Census Bureau. While that’s a welcome counter-point to the depressingly familiar narrative of the ‘squeezed middle’, it’s obviously not enough on its own to justify claims that things are getting better for average people: the median income level has fallen in 11 of the last 16 years, and 2015 saw the first meaningful increase since 2007. Median incomes are still lower today than they were nine years ago. Nor does it signal an end to higher inequality: incomes among the wealthiest 10% grew by nearly 8%, but by less than 4% for the poorest 20%. Fortune

India’s Silicon Valley Rocked by Water Riots

Bangalore is famously the home of India’s most cutting-edge technology businesses, but the city has been shaken by riots over one of the oldest economic fights known to man: water rights. Two people were killed and over 200 arrested as police dispersed protesters against a Supreme Court ruling last week that ordered the state of Karnataka to release 15,000 cubic feet a second from its reservoirs to relieve drought-stricken farmers in the neighboring state of Tamil Nadu. It subsequently cut the requirement to 12,000 cf/s but inhabitants of Karnataka took to the streets to demand further reductions. CNN said a measure of calm had returned to the city Wednesday after a major deployment of paramilitary forces. CNN

Mylan Hands Over Documents to Congress

EpiPen maker Mylan agreed to hand over documents to lawmakers intent on probing its pricing practices, just about complying with a deadline from the House Committee on Oversight and Government Reform. A wave of pressure from Washington has led the company to offer steeper customer discounts for EpiPen and even offer a generic competitor to its own product. That has wrought havoc with its share price, which is now down 29% year-to-date. Separately, The Wall Street Journal reported that Mylan had the second-highest executive compensation among all U.S. drug and biotech companies over the past five years, paying its top five managers a total of nearly $300 million—a stat that doesn’t seem likely to improve the tone of the dialogue with lawmakers. Fortune


Around the Water Cooler

Alibaba Pays $100 Million for Eye Scanner

Alibaba’s payments arm, Ant Financial, bought EyeVerify, a maker of optical recognition technology used by the banking industry, among others, for $100 million in an all-cash transaction, according to a person familiar with the matter. The deal is significant partly because biometric tools such as eye-recognition software, which lets customers log into accounts with their eyes, are becoming mainstream as banks look for new ways to fight fraud. Unlike in the U.S., where its primary business is consumer banking, EyeVerify’s role in China will be to authenticate payments on Alipay’s vast peer-to-peer network. One of its existing clients in the U.S., alongside numerous regional banks, is Wells Fargo. It’s not clear whether Wells Fargo will be stepping up its efforts to make customers adopt the new technology after a scandal which–one can’t help but think–is the best possible marketing for it. Fortune

SpaceX to Resume Launches in November

This is what competition will do. Only two days after Jeff Bezos unveiled his new heavy-lift rocket, SpaceX president Gwynne Shotwell told a conference that she wants to clear up the recent launchpad explosion of its Falcon 9 and resume launches within three months. SpaceX founder Elon Musk had last week called the explosion “the most difficult and complex failure we have ever had in 14 years,” which suggests that either the company has made unexpectedly quick progress, or that Shotwell’s comments were driven at least partly by the need to raise spirits. Shotwell didn’t elaborate on what repairs would be needed. However, November is the targeted completion date for a second launch site in Florida at NASA’s Kennedy Space Center. Fortune

Israel’s New Aid Package Looks Better for U.S. Contractors

The U.S. finalized the biggest-ever military aid package for Israel, a massive $38 billion over the net 10 years. Unlike previous deals, the new package will not allow Israel to divert the money to supporting its own thriving arms industry but will have to spend it on U.S. military systems instead–a notable victory for U.S. defense contractors. The agreement is all the more notable in the context of the frosty personal relationship between President Barack Obama and Israeli PM Benjanmin Netanyahu, which came under particular strain as a result of the lifting of sanctions on Iran. The New York Times reported that Netanyahu had made several concessions rather than gamble on winning better terms from the next President. Fortune

Towards a European Army?

Meanwhile in Europe, EU Commission President Jean-Claude Juncker called for the creation of a centrally-directed EU defense capability, in a speech that acknowledged how far below its weight Europe punches in terms of hard power. He singled out Europe’s impotence in Syria in saying that ‘soft power’—on which the EU likes to pride itself—is not enough. The departure of the U.K. from the EU removes the biggest ideological obstacle to such a development, but the reality of forging a common defense policy is still hopelessly complicated by the reliance of the EU’s member states on a defense industry fragmented along national lines—a state of affairs that national politicians invariably defend (as evidenced in 2012 by Angela Merkel’s blocking of the merger of EADS and BAE Systems in 2012). Euractiv