SoftBank’s real life problems in 2024

One thing to start: If you have been following Bill Ackman’s activist campaign against the leadership of Ivy League universities, you may enjoy this quiz from our friends over at FT Alphaville. Can you figure out if the comments in question were said by Ackman or by the main character from the 1990s novel American Psycho? 

In today’s newsletter:

• SoftBank’s IRL troubles

• Activist investors change their tactics 

• The younger Orszag battles FTI

IRL: Masa Son’s real life problems 

Last year provided faint relief for investors like Tiger Global and Cathie Wood, who took a highly public drubbing during a plunge in tech valuations in 2022. 

After a rebound in 2023, both firms’ funds remain far below the highs they reached at the apex of the tech bubble and have fallen behind the Nasdaq. But at least they are not SoftBank.

Masayoshi Son’s tech conglomerate enters the new year having missed out on the recovery in public valuations in 2023 and in a familiar position of managing high-profile tech flame-outs.

IRL, a social media company SoftBank backed to the tune of $150mn and believed could become the next Facebook, has kicked off 2024 as a major pain for Son in real life — the start-up’s moniker.

The app, once valued at more than $1bn by SoftBank, has been quietly shuttered while its founders and funders are engaged in duelling lawsuits. An SEC investigation was also launched. The FT has the details on the mess.

It’s a far cry from the enthusiasm SoftBank had for IRL when it was among the “fastest cheques” the fund had ever written, as an employee once bragged at an IRL retreat in Maui, according to employees flown in for the gathering. 

But IRL staffers have told the FT that even during the Hawaiian retreat, they were beginning to suspect the platform was a fraud due to ample evidence of bots proliferating across the site. They raised their concerns soon after the get-together. 

One former employee said they believed SoftBank had been too willing to be persuaded by the app’s “very charismatic” founder, Abraham Shafi, who reminded them of WeWork founder Adam Neumann. In his pomp, Shafi told the media that IRL’s mission was to help “evolve humanity”. 

SoftBank contends that IRL was a “sophisticated, years long” fraud — a “tightly guarded” scheme. 

But Shafi maintains that in seeking a “scapegoat”, SoftBank relied on inconclusive data to shut down the site prematurely in order to avoid further embarrassment and recoup its remaining cash.

Though both sides continue to fight, IRL casts another shadow over SoftBank’s approach to due diligence.

It isn’t all trouble for Son, though. SoftBank won a nice surprise over the holidays when it received $7.6bn in T-Mobile stock on a costless basis as part of its windfall from the sale of Sprint to the wireless carrier in 2020. 

Perhaps the shares will prove to be a valuable card for Son to play in 2024 as his Monopoly game to prop up SoftBank rolls on. 

Backstage corporate activism

The nature of shareholder activism has changed significantly.

Public brass-knuckle fights that earned this cohort of investors the nickname “boardroom raiders” have become rarer. The action is now often happening backstage. 

The reason is twofold. The brash Wall Street tycoons who dominate the field have developed more sophisticated operations, which makes earning the enmity of corporate America no longer ideal. The other is that they often have to convince large institutional shareholders such as Vanguard and BlackRock, neither of which is particularly keen on public sparring. 

And that is why it may surprise you to hear that activists were more active than ever last year, according to data from Lazard. Even with most campaigns happening behind closed doors, companies are seeing a higher number and more diverse group of disgruntled shareholders, DD’s Ortenca Aliaj reports.

Activism has historically been dominated by the likes of Carl Icahn and Trian Partners’ Nelson Peltz — both of whom turned to old-school tactics and launched boardroom battles at gene sequencing company Illumina and entertainment giant Disney, respectively. 

(Icahn, of course, got a taste of his own medicine last year when activist short seller Hindenburg Research released a report targeting his listed holding company Icahn Enterprises.) 

But more than 40 per cent of the activists launching campaigns last year were first-timers, Lazard found, showing that it has become a tool deployed by a wide range of shareholders. 

A good example is the challenge brought by a coalition of labour unions called the Strategic Organizing Center, which is seeking to replace three board members at Starbucks over “severe human capital mismanagement”. 

If the proxy fight goes ahead, it will be a test case for whether larger shareholders and proxy firms such as Glass Lewis will support single-issue campaigns that some believe are not tied to economic performance. 

Look out for two things in 2024. First, the impact of the universal proxy rules, which guarantee that all board nominees will appear on the company’s ballot. 

And, secondly, the “wolf pack” effect, where multiple activists go after the same target, a feature we have started to see more of in large cap companies and that is complicating the landscape not only for the businesses but also for the activists themselves. 

The younger Orszag battles FTI

Wall Street has spent the better part of the past decade getting to know Peter Orszag, the mild-mannered policy wonk who late last year took the helm of boutique investment bank Lazard. Now, his younger brother is finding himself in the spotlight.

Jonathan Orszag is not an investment banker. But he is a rainmaker no less: an expert in antitrust law who testifies on behalf of clients in regulatory disputes. 

Until last November, he was a top executive at Compass Lexecon, a division of management consulting firm FTI Consulting. The company terminated his employment, claiming that Jonathan was attempting to start a rival firm with the intent to poach hundreds of Compass Lexecon’s staff.

FTI had acquired Compass more than 15 years ago for $70mn in cash and stock, turbocharging it into a business that now accounts for a sizeable portion of its overall $7bn enterprise value. In 2022, the unit that includes Compass generated a fifth of FTI’s $3bn of revenues.

As DD’s Sujeet Indap recently wrote, expert witnesses such as Orszag now command $2,000 an hour for their work — a sum more commonly billed by top law firms like Wachtell or Paul Weiss. It explains why consulting groups like FTI have invested so heavily in the business.

Both Orszag brothers were Compass partners at the time of the acquisition before Peter joined the Obama administration and later became a Wall Street dealmaker.

Jonathan Orszag has denied the charges levelled by FTI and has argued that, regardless, his noncompete with his former employer is not legally enforceable. It may now be up to a federal judge to decide. 

Job moves

• Linklaters has hired veteran dealmaker George Casey, a global managing partner at Shearman & Sterling, as UK “magic circle” firms seek a stronger footing in the US. 

• Deutsche Bank has hired former Citi banker Alison Harding-Jones as global head of mergers and acquisitions, based in London. 

• Law firm White & Case has hired Paul Weiss partner Taurie Zeitzer as co-head of its global private equity industry group.  

• US law firm Wachtell, Lipton, Rosen & Katz has named Steven Green, Randall Jackson and Meng Lu as new partners. 

• BlackRock has hired Leigh Farris as global head of corporate communications, replacing Jim Badenhausen, who will retire. She joins from private equity group Carlyle. 

• Carlyle has named its head of impact Megan Starr to a new role as global head of corporate affairs, overseeing communications, government affairs and sustainability. 

• UK gambling group Entain has appointed Ricky Sandler, who runs the US hedge fund Eminence Capital, to its board. Eminence is one of Entain’s largest activist investors.  

Smart reads

High-level problems Drugs consumed by Elon Musk over the years have become the latest concern raised by senior executives and board members at the companies managed by the eclectic billionaire, The Wall Street Journal reports.

Health probe Following Palantir’s lucrative deal with the NHS, the UK healthcare provider is investigating if the US data analytics group violated the agreement by starting a marketing campaign to address criticisms of its patient platform, Bloomberg reports.  

Woke shale Harold Hamm, the US shale magnate, is trying to lure an increasingly sceptical younger generation to the oil and gas industry as climate concerns and job insecurity dent the attractiveness of the industry for Generation Z, the FT reports.  

News round-up

Blackstone forges ahead with retail private equity fund (FT) 

Novartis in advanced talks to buy Cytokinetics (WSJ)

Bet365 chief Denise Coates’s salary rises to £221mn (FT) 

Chris Hohn’s hedge fund TCI beats markets with 33% gain (FT) 

Tronchetti Provera increases stake in tyremaker Pirelli (FT)

Thames Water’s new boss faces task of persuading investors over turnaround plan (FT)

Berkshire Hathaway settles dispute over value of Pilot Travel Centers (FT) 

Thrive Capital plots new fundraising as it doubles down on tech (FT) 

Private equity targets UK accounting firms (FT) 

Largest US banks set to log sharp rise in bad loans (FT)