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CEO Daily: Tuesday, 28th March

Good morning.

Feeling burned by the House Freedom Caucus, which brought down his health care plan, President Trump now wants to work with Democrats. In principle, that’s a good thing. One of Trump’s advantages as President is that he doesn’t have deep ties to either party. History shows major legislative changes are more stable if they have bipartisan support. And politics is like golf: things usually go better when the ball is near the middle of the fairway.

Problem is, there’s not much in Trump’s tax plan for Democrats to love. A substantial cut in tax rates for corporations and individuals inevitably does more for high-income earners than anyone else. Treasury Secretary Steven Mnuchin has said flatly that “there will be no absolute tax cut for the upper class” and that any rate reductions at the top will be offset by the closing of loopholes. But the math behind that statement remains a deep mystery.

That’s why noises out of the White House this morning suggest the President may push tax reform and infrastructure spending at the same time. At least that would give the working man something to love—jobs.

But how do you do that? Well one tax deal that could get done this year is repatriation. Allow American companies to bring home some of the $2 trillion they have stashed overseas, at a reduced tax rate but with strings attached that require them to use the money either to make job-creating investments or buy infrastructure bonds. That’s a deal that already has bipartisan support in Congress, thanks to the work of Democratic Rep. John Delaney—whose efforts earned him a nod in Fortune’s new list of the World’s Greatest Leaders.

Repatriation is hardly the grand tax reform plan that Trump and others have been touting. But it’s a starting place. Maybe something bigger can be built from there.

In the meantime, the market has clearly lost faith in talk of a grand tax reform. Analysts at Goldman Sachs put together a basket of companies with high tax rates as a bellwether of sentiment. After the election, those shares soared relative to the S&P. But in recent weeks, they have under performed.

More news below.

Alan Murray

Top News

Kushner Met With Head of Sanctioned Russian Bank

Jared Kushner, son-in-law and senior adviser to President Donald Trump, will testify today that he met representatives of VEB, a sanctioned, state-owned Russian bank, last year. The admission raises more questions than answers. VEB these days has an official mission to foster long-term growth in Russia, but might more accurately be described as a piggy bank for those close to power, after it lost billions on loans to well-connected businessmen preparing the Sochi Winter Olympics. Its history as the foreign bank of the USSR has made it a common cover for spies in the past. Last year, its no.2 in New York was convicted on spying charges. Its current CEO, Sergey Gorkov, also graduated from an FSB academy. The White House confirmed Kushner met Gorkov in December. Reuters

EU Demands R&D Carve-Out as Price for Dow-Dupont Merger

The EU approved the merger of Dow Chemical and Dupont, but insisted on a number of asset disposals, including Dupont’s global R&D business, to ensure continued competition in pesticides and other products. Dow in turn will sell two acid co-polymer manufacturing facilities in Spain and the U.S., as well as the contract that gives it a dominant position in the market for ionomers. Antitrust experts said the demands could set the benchmark for the other two megamergers in the sector. The one between ChemChina and Syngenta is set to be approved as early as this week. Bayer and Monsanto are still to seek EU approval for their planned merger. Fortune

Pearson Sues Valeant Over Severance Deal

Michael Pearson, the former CEO of fallen pharma company Valeant, is suing the company for more than 3 million shares he claims he is owed as part of his severance package, according to The Wall Street Journal. At market value, those shares are worth over $32 million. Pearson was pushed out last year as a number of scandals led to the unraveling of a strategy based on acquisitions and questionable distribution agreements. The company’s shares have fallen over 90% from their peak in 2015. The suit comes two weeks after activist investor (and former Pearson ally) Bill Ackman abandoned his bet on the company and said he would also step down from its board. Fortune

Amazon and Souq: First Come, First Served.

Amazon confirmed the purchase of Middle Eastern online retailer, fighting off a last-minute attempt by Dubai’s Emaar Malls to gatecrash the deal. Emaar, which operates some of the Middle East’s glitzier shopping centers, had bid $800 million for Souq, perhaps sensing the threat to what has been one of the most spectacular mall booms of modern times. Amazon didn’t disclose whether it had improved its original offer of $580 million. Fortune

Around the Water Cooler


Oculus Rift Beefs up Management With Apple Vet

Facebook is turning to an Apple veteran to pep up what has reportedly been a lackluster start for its Virtual Reality headset business Oculus Rift. Michael Hillman, helped manage several of the technology giant’s big hardware projects, such as its iMac personal computers, and eventually became the chief architect for all of Apple’s desktop computers during a 15-year stint. Oculus has ground to make up on both HTC and Sony, whose products have garnered more favorable reviews (Sony in particular is offering a much cheaper product). Hillman is the latest high-profile hire at Oculus, following that of Hugo Barra, who left Chinese smartphone maker Xiaomi for the business two months ago. Fortune

Gross, Pimco Settle Dispute

Bill Gross ended his dispute with former employer Pimco in a settlement reported at around $81 million. The proceeds are reportedly going to charity. Arguably the world’s best know bond investor, Gross had left amid acrimony in 2014, alleging that others at Pimco wanted to divide his bonus among themselves. Pimco had in turn alleged “egregious misconduct” by its co-founder. Gross moved on to Janus Capital. Pimco suffered heavy redemptions from its funds as a result, but little of the money pulled out by clients followed Gross to Janus. Fortune

Canada Is Legalizing Recreational Pot

CBC reported that Canadian Prime Minister Justin Trudeau will announce legislation legalizing the recreational use of marijuana next month. The news gave a handy bump to listed pot-growers’ stocks. The measure will be slated to come into force July 1, 2018, which will make for a Canada Day with a difference. According to the draft seen by CBC, states will have the ability to set the minimum age for purchases (a nationwide minimum of 18 will apply) and discretion on regulating distribution. This being Canada, the states will also get to set the price. Fortune

Salve et Vale

Brazilian mining giant Vale tapped Fabio Schvartsman to replace outgoing CEO Murilo Ferreira. Ferreira, appointed by the now-impeached President Dilma Rousseff, was supported by investors but had rankled local politicians by concentrating Vale’s investments in the most economically profitable areas after the collapse in commodity prices. Schvartsman may be only a stopgap, given that he is 63 and Vale has an age limit of 65 on its executives. His biggest challenge will arguably be the legacy of the fatal Samarco dam disaster in 2015. WSJ, subscription required