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Keeping the Bubble at Bay — CEO Daily, Monday 25th September

Good morning.

One thing that distinguishes the current tech boom from the bubble of 1999 is that, on occasion at least, sanity has asserted itself without the impetus of a mass market meltdown. Uber is the most recent example – its scandals have subtracted billions from its inflated market value. Zenefits was an earlier case in point. The highflying HR software company, with a freemium model that made its revenue from commissions as a benefits broker, saw its value cut by more than half last year after reports of an out-of-control culture – remember condoms in the stairwell? – and regulatory problems tied to health insurance sales.

While in San Francisco last week, I visited with Jay Fulcher, who became CEO of the company in February. He’s turned Zenefits into a software-as-a-service model, and last week announced he was abandoning the brokerage business altogether, and instead will allow existing brokers to use the software platform.

“We have pivoted from being a digital broker ourselves to being a platform for all the brokerages,” he said. That will enable the company to scale without having to invest in the service-and-people heavy brokerage business, and make its money by selling what it does well – software. Zenefits now has more than 10,000 small and medium sized companies using its software, “and we’ve only gotten started,” says Fulcher.

Investors – which include Andreesen Horowitz, Fidelity and TPG – have got to be happy with the switch. The company may only be worth half what it was deemed worth at its fever-crazed peak. That’s a correction of sorts. But it comes without the chaos of a bursting bubble.

By the way, it was interesting to hear Fulcher talk about how Zenefits helps drive “purpose-driven” company cultures, with “social responsibility” at their core. That sort of talk is becoming more common, not just in the tech sector, but across all industries. And that’s why this morning, Fortune is assembling about 100 CEOs in Manhattan, as part of its new CEO Initiative, to focus on how to turn such talk into action. I’ll report on the day in tomorrow’s newsletter.

News below.


Alan Murray


Top News

Merkel’s Chastening Victory

Angela Merkel won a fourth term as Chancellor but the big news was a surge in support for the far-right Alternative für Deutschland, which garnered an estimated 12.6%. There is no other way to read that except as a rebuke for the migrant crisis of 2015, given that economic insecurity has played a minimal role. The center-left Social Democrats had their worst result in 68 years and refused to renew the “Grand Coalition.” Merkel now has to put together a difficult three-way coalition with the pro-business, euro-skeptic FDP and the environmentalist, socially liberal Greens. That process could take months, leaving major policy questions like Eurozone reform and air quality unanswered for now. The euro slipped and Italian bond yields, a rough and ready barometer of Eurozone political risk, rose moderately. The prospect of the Greens in government hit utility shares and left auto stocks mixed. Fortune

Zuckerberg Bows to Shareholders

Mark Zuckerberg abandoned his plans for keeping personal control of Facebook after transferring his shares to his charitable foundation. Zuckerberg had been facing a legal challenge from institutional shareholders who have turned increasingly wary of leaving founders in control of their companies, in the light of their ability to destroy value through poor governance. NYT

Uber Pleads With London

Dara Khosrowshahi pleaded via social media for talks with London’s transport regulator, in a marked contrast to the days when Uber would lean on Prime Minister David Cameron and Treasury chief George Osborne to stop tighter regulation from City Hall. Transport for London said Friday it won’t renew Uber’s license to operate at the end of the month, saying its poor safety record and corporate irresponsibility made it ‘unfit’ to run a taxi business. The company is allowed to keep operating while it appeals the ruling, a process that may take much longer than forming the next German government. Fortune

Trump Loses Yards on NFL Play

NFL owners clashed with President Trump after the latter’s rough-tongued attack on players who sit or kneel for the national anthem. Player protests widened considerably over the weekend after Trump referred to a notional protester as a “son-of-a-b***h.” New England Patriots owner Robert Kraft said he was “deeply disappointed by the tone” of Trump’s comments. “There is no greater unifier in this country than sports and, unfortunately, nothing more divisive than politics.” New York Giants owners John Mara and Steve Tisch and San Francisco 49ers CEO Jed York also called Trump’s comments “offensive.” Fortune

Around the Water Cooler

Hellman Bags Nets for $5.3 Billion

Private equity group Hellman & Friedman said it had agreed to buy Nets A/S, the largest payments processor in Scandinavia, for $5.3 billion, a price tag that makes it the largest leveraged buyout in Europe for nearly five years. Advent and Bain Capital, which bought Nets three years ago and floated it with a $4.5 billion valuation last year, will reinvest in the company to defend a 16% post-money stake. The deal follows other high-profile ones in the payments sector for WorldPay and Paysafe in recent months. Fortune

Disney’s Exercise in Price Discovery for ESPN

Walt Disney is engaged in a key test of its pricing power in the brave new world of streaming. It’s trying to squeeze higher carriage fees out of Altice, the French-owned parent of cable provider Optimum, for ESPN and ABC, even though ratings for both channels have suffered in recent months. The majority of Altice’s customers live in New Jersey, New York, Connecticut, and parts of Pennsylvania. It’s a rare instance of a cable provider pushing back at an increase in fees for ESPN. The move may reflect confidence at Disney in its fall-back option—the recently announced decision to develop a direct-to-customer model for its most popular products. Reuters

Kushner, Others ‘Using Private E-Mail for Official Business’

President Trump’s son-in-law and senior advisor Jared Kushner has used a personal email account to correspond with colleagues in the White House, Politico reported. It also said other West Wing officials had done the same since January. The Wall Street Journal reported Kushner’s attorney as saying his client exchanged fewer than 100 emails from his personal account with White House colleagues. That’s a lot less than 33,000, but Democrats were quick to pounce on the story as evidence of double standards after the intense focus on Hillary Clinton’s e-mail discipline during last year’s campaign. Politico

7Up Breaks Bad

The health network Banner Health issued an advisory indicating that bottles of 7Up soda in Mexicali, Mexico were contaminated with methamphetamine, apparently as a result of tampering. The Arizona Republic reported that the contaminated drinks have caused one death and sickened seven people. There is no suggestion of local community stalwart Gus Fring being implicated. Fortune

Summaries by Geoffrey Smith;