This newsletter focuses on business. But few things undermine the business environment faster than a foreign policy crisis. So it’s worth spending a moment this morning on events of the last three days.
First, the Trump-Xi summit at Mar-a-Lago. My colleague Clay Chandler covered this in his new, Saturday China edition of CEO Daily, which you can read here. My summary: it was an admirable show of reserve and discipline – two words not frequently applied to Trump’s first 80 days. The President resisted the temptation to repeat his outdated charge of currency manipulation and avoided public talk of broad tariffs. It looks like early trade action will be limited to the fairly narrow area of steel dumping. That reduces the risk of a counterproductive trade war, creates space for the two leaders to build a relationship, and allows the North Korea problem to assume top priority, as it should.
Similar discipline was demonstrated in the administration’s response to Syria’s use of chemical weapons. My summary: the Trump team’s response was forceful but well-measured. It demonstrated U.S. willingness to enforce global norms, but was carefully calibrated to avoid sparking a broader crisis. I’m fortunate to have some in-house expertise on that score – Dr. Lori E. Murray, whose credits include playing a central role in the bipartisan Senate confirmation of the Chemical Weapons Convention in 1997. She gave her analysis of the action in an interview with the Council on Foreign Relations, which you can read here.
Also encouraging were reports that Stephen Bannon, keeper of the administration’s nativist and protectionist flames, is being sidelined in decision making. The White House has denied the reports, but watch this space.
Taken together, the events provide reason to think the adults are gaining control over administration decision-making. That will help create a better climate for action on tax reform and infrastructure.
Working against that, however, was the Senate’s use of the “nuclear option” to confirm Supreme Court Justice Neal Gorsuch, which will inflame partisan anger. As I’ve argued here before, ambitious tax reform will be nearly impossible without some degree of bipartisan cooperation.
More news below.
• Russia, Syria Raise the Stakes
A joint command center made up of the forces of Russia, Iran and militias supporting Syrian President Bashar al Assad said the U.S. strike on a Syrian air base Friday crossed “red lines” and it would respond to any new “aggression”. The statement is remarkable not least for the fact that it speaks on behalf of both Russia, a permanent member of the UN Security Council, and Hezbollah, a Shia militia designated as a terrorist organization by the west and by most Arab states. Secretary of State Rex Tillerson is due in Moscow for talks on Wednesday and will likely press Russia to rethink its support for the Assad regime. Fortune
• Barclays CEO Shoots the Messenger. Twice.
Barclays said it would slash the bonus of its new CEO Jos Staley and issued him a formal reprimand after he tried to unmask a whistleblower who criticised one of Staley’s senior hires. Staley repeated his attempt to identify the whistleblower (whose concerns were ultimately overridden by the board) weeks after he had been warned that his action was inappropriate. The bank said its board believed Staley had acted “mistakenly, but honestly,” but the U.K.’s two leading bank regulators have both launched formal investigations. Fortune
• Mondelez Looks Beyond Irene Rosenfeld
Mondelez, the maker of Oreos cookies and Ritz crackers, has hired headhunters to look for a successor to CEO Irene Rosenfeld. The company’s shares have drifted for the last 18 months as changing consumer preferences have raised questions about its dependence on snack foods. Rosenfeld failure last year to force sectoral consolidation with her bid for Hershey has left Mondelez vulnerable to a takeover itself, some believe. A company executive told The Wall Street Journal that it “has succession plans in place for all executives,” calling the measure “simply good corporate governance.” Rosenfeld, who will be 64 next month, said in February she had no plans to move on. Fortune
• Truckers Respond to E-Commerce Challenge
Two of the largest players in a fragmented U.S. trucking market are to merge, a response to alarming weakness in their share prices as the rise of e-commerce disrupts the logistics business. Swift Transportation and Knight Transportation will combine to create a company worth some $5 billion, according to The Wall Street Journal. Swift shareholders will get only 54% of the new company in what is an all-share deal, despite having more than three times as much annual revenue. The deal comes only a week after Schneider National Inc. raised money through an IPO to fund what is likely to be an aggressive growth strategy. WSJ, subscription required
Around the Water Cooler
• Elliott’s Latest Target: BHP Billiton
Activist investor Paul Singer’s Elliott Advisors has a new target: Australia’s BHP Billiton, one of the world’s largest mining groups and the biggest foreign owner of U.S. shale assets. Elliott said it wants the group to spin off the oil assets into a separate company listed in New York, and give up its costly dual-listing structure (BHP is also listed in the U.K.). The mining sector has shown signs of taking life a little easier in recent months, scaling down plans to cut debt and overcapacity as commodity prices have recovered. Reuters
• Big Pharma Wannabes
Merger activity in the pharma sector continues unabated, with two mid-tier deals catching the eye. Germany’s Stada said it would support a $5.6 billion bid from private equity groups Cinven and Bain Capital, which outbid an alliance of buyout firms Advent and Permira. Late Friday, Fresenius (another German firm) had confirmed it was in talks to buy generic drugmaker Akorn, which is currently valued at some $3.7 billion. Fresenius is better known for its non-pharma lines such as drug feeding tubes and dialysis services. Under a new CEO, it also branched out into private hospital management with a $6 billion acquisition of Spanish group Quironsalud last September. Reuters
• The Scattergun Reloaded
Chinese conglomerate HNA snapped up another foreign asset in a bizarrely diverse acquisition spree. The latest target is CWT, a Singaporean logistics business, which it bought for $1 billion. That brings the total up to over $40 billion in the last two years, according to the Financial Times. The company, which drew attention in the U.S. by buying electronics group Ingram Micro and 25% of Hilton Worldwide, has also bought multi-billion dollar stakes in German banks and Glencore’s oil storage business. The only unifying thread seems to be its ability to raise money from nowhere and to escape an otherwise comprehensive crackdown on outbound investment. The company isn’t explaining either achievement thoroughly, so speculation as to how it manages the trick will no doubt fill the vacuum. FT, metered access
• Garcia Finalmente!
Spain’s Sergio Garcia, a hero of multiple European Ryder Cup triumphs, won a major golf tournament at only the 74th time of asking. Garcia beat the U.K.’s Justin Rose in a play-off for the Green Jacket at Augusta, after threatening to blow up on the final nine, as so many times before. It was a tournament to forget for the U.S.’s leading lights, with Dustin Johnson having to pull out after falling down some steps on Thursday, while Jordan Spieth never recovered from a disastrous quadruple bogey in the first round. Sports Illustrated
Summaries by Geoffrey Smith; email@example.com