Saturday, April 13

Elon Musk Extends His Anywhere-but-Delaware Campaign With SpaceX

Another Elon Musk-led company has moved its home base from Delaware as the tech billionaire continues to criticize the state after a judge there voided his nearly $56 billion payday at Tesla.

Moving the incorporation of SpaceX, Musk’s privately held rocket giant, to Texas will help bolster the Lone Star State’s standing with business. But it remains unclear whether Tesla itself will be able to make the same journey.

Musk is making good on his threat to pull out of the state. “If your company is still incorporated in Delaware, I recommend moving to another state as soon as possible,” he wrote in his announcement of SpaceX’s shift. It comes shortly after he relocated the incorporation of Neuralink, his brain implant company, to Nevada.

Dozens of states have sought in recent years to lure companies away from Delaware — which became the home base for much of corporate America because of its extensive business-friendly court system — by pitching themselves as being even friendlier. Musk endorsed that view, writing that having a Delaware incorporation is a “guarantee of spurious litigation.”

All eyes are on Tesla now. It’s up to the carmaker’s board and, more important, its shareholders to approve such a move. Those same investors were the focus of the decision last month by the Delaware chancellor Kathaleen McCormick to reject Musk’s pay package: She found that Tesla’s board didn’t sufficiently look out for investor interests in recommending the compensation scheme, and that it was unfair to other shareholders.

That said, Musk can exert significant pressure. He has already demanded a bigger voting stake in Tesla, threatening to move new artificial intelligence ventures into other parts of his business empire if he didn’t get his way. (All this is increasing the scrutiny on Tesla’s chair, Robyn Denholm, whom McCormick accused of having a “lackadaisical approach to her oversight obligations.”)

Bloomberg Opinion’s Matt Levine has examined the legal hurdles in a Tesla Texas two-step, and found that they’re knotty — and potentially laced with irony:

So shareholders will go to the Delaware judge saying “Elon Musk tried to pay himself $55 billion, and you stopped him from doing that because it was unfair to shareholders, and now he is trying to move Tesla to Texas so that he can (1) get rid of you and (2) pay himself $75 billion, so you have to stop him again.” And I think that is an argument that the Delaware judge might find compelling? I mean, she did stop Musk from paying himself $55 billion. Presumably this move will be even more offensive.

Will other companies follow suit? For now, that seems unlikely, according to corporate governance experts. “There isn’t much else going on in Delaware other than corporate regulation, and so it’s viewed by investors and managers as neutral,” Charles Elson of the Weinberg Center for Corporate Governance told CNBC.

Britain and Japan fell into recession last year, new data shows. For Japan, the economic slowdown could complicate efforts by central bankers to finally bring the country out of negative interest rates. But in Britain, it could have the opposite effect, speeding up rate cuts by the Bank of England. (In other global economic news, the European Commission lowered its growth forecast for the E.U. and the eurozone.)

More layoffs loom for Wall Street and Silicon Valley. Morgan Stanley is planning to cut several hundred jobs in its wealth management unit in one of the first big moves by the firm’s new C.E.O., Ted Pick, The Wall Street Journal reports. Meanwhile, Cisco became the latest tech company to announce layoffs, saying it will eliminate more than 4,000 positions.

Berkshire Hathaway cuts its stake in Apple. Warren Buffett’s conglomerate sold about 1 percent of its holdings in the iPhone maker, according to regulatory filings, reducing a stock position that had assumed an outsize proportion of Berkshire’s investment portfolio. That said, Berkshire’s remaining 5.9 percent stake in Apple is worth about $167 billion.

A parade of analyst upgrades and pent-up anticipation for next week’s big earnings call have helped power a blistering rally for shares in Nvidia, pushing the chipmaker closer to the $2 trillion club. But can the biggest beneficiary of Wall Street’s infatuation with artificial intelligence companies keep it up?

Nvidia leapfrogged Alphabet and Amazon this week, making it the third-largest U.S. listed company with a market capitalization of $1.821 trillion.

Its shares have climbed nearly 50 percent this year, adding roughly $560 billion to its market valuation since Jan. 2, as investors bet it will reap huge profits from building the chips that power A.I. services.

To put the rally into perspective, Nvidia’s rise in market cap since the start of the year is bigger than the entire market valuation of JPMorgan Chase. Its stock rally has outstripped gains by other members of the so-called Magnificent Seven grouping of megacap tech stocks.

Wall Street sees even more growth. Analysts at Bank of America, Goldman Sachs and UBS are among those that have raised their share price targets in recent days to reflect increasingly bullish sales forecasts.

But Nvidia faces some steep challenges. The Biden administration last year imposed an export ban on the sale of most advanced semiconductors to China, one of Nvidia’s fastest-growing markets. And a number of tech companies — including Chinese rivals — have ramped up development of their own A.I. chips, trying to break Nvidia’s hold on the market.

Jensen Huang, Nvidia’s C.E.O., said at the DealBook Summit in November that he wasn’t worried about the rising competition, saying it could take years for some of them to catch up.

With President Biden having put “shrinkflation” back on center stage, congressional Democrats are moving to keep corporate pricing practices in the spotlight.

DealBook is first to report that Senator Elizabeth Warren of Massachusetts and others will unveil the latest version of the Price Gouging Prevention Act. “Giant corporations are using supply chain shocks as a cover to excessively raise prices and sometimes charging the same price but shrinking how much consumers actually get,” she told DealBook.

What the bill does: It would empower the F.T.C. (which would also get $1 billion in additional funding) and state attorneys general to stop companies from charging “grossly excessive” prices, regardless of where alleged price gouging took place in a supply chain. It would also require public companies to disclose more about their costs and pricing strategies.

The legislation would also protect small businesses — those earning less than $100 million — from litigation if they had to raise prices in good faith during crises.

It comes as price increases remain a potent political and economic issue. During the pandemic, the bill’s sponsors say, companies excessively raised prices while blaming supply chain disruptions and inflation in general.

Several years later, rising prices remain a problem: The most recent Consumer Price Index report showed a 3.1 percent increase in January, while producers’ input costs have risen by much less, according to the measure’s sponsors. (The latest Producer Price Index report is set for release tomorrow.)

States are also moving to crack down on unfair increases. Attorney General Letitia James of New York introduced a rule last year that created “guardrails” for companies that use “dynamic pricing” models. And Minnesota is looking to strengthen an anti-price-gouging law its lawmakers passed last year.

That said, the prospects of the new proposal — like those of its predecessors — look uncertain, particularly as conservatives appear eager to blame Biden, not companies, for inflation.

The launch on Thursday of a Moon-bound SpaceX rocket carrying a payload of high-tech research equipment for NASA again casts a spotlight on the agency’s reliance on private industry to explore space.

SpaceX, now reportedly valued at $180 billion, appears to be a stable partner to NASA. But it’s not clear the same can be said for smaller contractors, including some that have gone public via a merger with a blank-check company.

The centerpiece of today’s launch is a lunar lander built by Intuitive Machines, an unprofitable Texas start-up that went public last year via a SPAC, or special purpose acquisition company. Those financial vehicles were briefly the hot way for private companies to go public, but market enthusiasm for such deals has dropped in recent years amid skepticism about those businesses’ financial health.

Investors certainly appear to have cooled on Intuitive Machines: Shareholders in the SPAC taking the company public redeemed a remarkable $279 million before the merger closed, leaving the start-up with less money to finance its deep-space ambitions. In November, Intuitive Machines reported having about $40 million in cash.

The company has multiple contracts with NASA, including a five-year, $719 million engineering services deal. (NASA is paying Intuitive Machines $118 million for this lunar mission.) Stephen Zhang, a company spokesman, described its operations to DealBook as “lean and mean.”

Intuitive Machines got some good news on Thursday. Its stock rose in premarket trading after the launch. But at their current level of about $5, its shares remain well below its I.P.O. price. That may make it hard for the company to retain top talent as their equity packages languish underwater.

As for the wisdom of NASA’s reliance on private players, the approach doesn’t depend on the financials of partners: “Missions are already largely funded by tax dollars,” said Ellis Brazeal, co-lead of aerospace and aviation at the law firm Jones Walker.

It will take a week to learn whether the NASA-Intuitive Machines mission was a success. Other attempts at lunar landings failed, including by Astrobotic Technology and by Israel Aerospace Industries.



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