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Redstones Give Up Merger Hopes

Yesterday we got a reminder that the most valuable capital in any business is the human capital. Viacom stock plunged on the shock announcement that Shari Redstone no longer wants to merge Viacom with CBS. She and her 93-year-old father, Sumner Redstone, control National Amusements, which owns 80% of the voting shares in both companies, so what they say is what happens. But why did she change her mind?

It’s all about the CEOs. Last summer Shari forced out Viacom chief Philippe Dauman, who had overseen a three-year decline in the stock, while CBS stock under CEO Les Moonves has performed powerfully and is just shy of its all-time high. Shari’s idea was to combine the companies with Moonves in charge. But after Viacom named veteran executive Bob Bakish interim CEO last month, Shari reportedly liked his plans for the company; he was made permanent CEO yesterday. Perhaps just as important, Moonves didn’t like the prospect of merging with Viacom. He has some leverage; at age 67, with a pay package that has often ranked him among America’s highest paid CEOs for many years, he doesn’t need to be in this game.

Thus, Shari Redstone changes her plans, and Bakish and Moonves get to do what they want, at least for now. Ultimately, capital bows to talent.

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The Dow didn’t quite break 20,000 yesterday, but it came within about 1% of it, and investors are breathlessly anticipating another milestone. The post-election “Trump rally” leaves CEOs of publicly traded companies wondering how they should respond. The right answer obviously depends on the company, but the answer that puzzles me most is a decision to buy back stock. Yesterday Dennis Muilenburg’s Boeing announced a mammoth $14-billon buyback. Ajay Banga’s Mastercard, Michael Corbat’s, Citigroup, Mark Zuckerberg’s Facebook, Matt Murphy’s Marvell Technology, and Steven Kandarian’s MetLife have all announced new or increased buybacks since the election. What gives?

Stocks overall are hardly a bargain. Nobel laureate Robert Shiller’s cyclically adjusted price-earnings (CAPE) ratio, based on inflation-adjusted earnings over the previous decade rather than just the past year, is at 28. While that isn’t as high as the record 44 at the peak of the Internet bubble, it’s the highest in over a decade and almost matches the 30 reached just before the 1929 crash. So why would a CEO buy back shares when prices are so high?

Sometimes there’s a good reason; to repeat, each company is unique. But buying back shares when prices are surging is a common pattern, and sometimes the ugly reason is an attempt to prop up the stock’s high price. The better course is finding strong operating uses for that money and having the courage to let the market appreciate the wisdom of doing so. Of course a company may hold mammoth amounts of cash, and the CEO may believe the stock is grievously underpriced, in which case a buyback could make sense – but only if the CEO’s bet on the stock price is right. History shows that CEOs are no better at timing the market than most other investors are.

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What We’re Reading Today

No new deals for Donald
In a series of vague tweets last night, President-elect Donald Trump tried to clarify his business plans after he enters the White House. His sons would take over management of the businesses, but “no new deals will be done during my term(s).” Earlier in the day, a press conference to outline his business plans was rescheduled for January. CNNMoney

Trump looks to remove NATO’s No. 2
The Trump team has reportedly asked NATO Secretary General Jens Stoltenberg to dismiss Deputy Secretary General Rose Gottemoeller, an American nominated by President Obama in March who began the multi-year assignment in October. Pushing out a NATO employee would be an unprecedented act by the U.S. government. Trump voiced disdain for NATO during his campaign. Washington Post

Viacom-CBS merger talks end
Sumner Redstone and daughter Shari Redstone had pushed the idea of merging the two companies, with CBS CEO Les Moonves as the likely leader. That abruptly changed yesterday as Shari said they’re confident in Viacom CEO Bob Bakish‘s plan to turn around the media giant. Another factor may have been Moonves’s vocal dissent on the proposal. Fortune

IMF chief Lagarde on trial
Christine Lagarde faces accusations of negligence stemming from a $430-million payment of public funds to businessman Bernard Tapie that she approved while French finance minister. Lagarde claims she was not given all the information about the payment by chief of staff Stéphane Richard. Now chairman of the Orange telecoms company, he is under investigation for fraud and denies the allegations. If found guilty, Lagarde faces up to a year in prison. The Guardian

Building Better Leaders

President Obama authorized a 2.1% pay raise…
…for federal workers in 2017, in line with the increase military members will receive. Washington Post

If you hate working for someone else…
…then maybe you should become an entrepreneur. LegalZoom co-founder Brian Liu says he was “one of the worst employees ever.” Fortune

Motivating employees gets harder… 
…the closer we get to the holidays. Develop a plan to keep them engaged, and include the annual appraisal. That will ensure they focus on where they need to improve, starting now. Inc.

Leadership Movements

Chipotle dumps its co-CEO structure
Monty Moran has relinquished his co-CEO title and will depart the company early next year, leaving founder Steve Ells as sole CEO. Chipotle has faced criticism from investors and struggled to revive the restaurants after last year’s E. Coli scare.  Fortune

Goldman Sachs president joins Trump team
The decision by Gary Cohn to head president-elect Donald Trump‘s National Economic Council leaves a void atop the bank. Cohn was long considered heir apparent to CEO Lloyd Blankfein, who shows no inclination to step down soon. Top deputies, including advisory division chief David Solomon and CFO Harvey Schwartz, are the likeliest candidates to succeed Cohn.  NYT

Wang Jianlin outlines succession plan
China’s richest man and head of Dalian Wanda Group announced that his only son, Wang Sicong, does not want to take over the company. Wang Jianlin will leave leadership of the $92-billion company to professional managers when he decides to step down, choosing a CEO through “competition.” Bloomberg

Fortune Reads and Videos

Sea World will open its first park without orcas
The Abu Dhabi location will also be the company’s first international park. Fortune

Bill Gates talks with Trump
In an eight-minute phone call, Gates pushed innovation in energy, medicine, and education. He said it wasn’t a totally unproductive conversation. Fortune 

Carly Fiorina is under consideration as…
…director of national intelligence. She met with president-elect Trump on Monday. Fortune

Nintendo’s NES Classic Edition hits stores again…
…next week. Best Buy expects to have “limited quantities,” which likely won’t last long. Fortune

Happy Birthday

Former Fed Chairman Ben Bernanke turns 63 today.  Biography

Agriculture Secretary Tom Vilsack turns 66.  Biography

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