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Hi and welcome back to Semafor Business, a twice-weekly look at the world of big money from Bradley Saacks and me.

Welcome to the value table, Silicon Valley. Activists are taking aim at California gods, newly made mortal after a half-decade in the untouchable land of growth. Plus, we take a look at the incoming White House chief of staff’s business record (spoiler: It makes Sen. Elizabeth Warren mad) and just how dead the IPO market is.

And check it: Microsoft confirmed a “multiyear, multibillion dollar investment” into OpenAI, the developer of ChatGPT. We broke the news earlier this month that Microsoft was putting $10 billion into the next-level AI bot, and explained how it will shape the battle for the future of the internet.

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Buy/Sell

➚ BUY: Wayfair. Shares of the furniture e-commerce platform have surged more than 25% since last week thanks to a double upgrade from JPMorgan, which told clients the “tides have turned positive” after the company cut 10% of staff on Friday.

➘ SELL: Mayfair. U.K. Prime Minister Rishi Sunak was fined for not wearing a seatbelt, Boris Johnson is under pressure for an £800,000 loan organized by the man he subsequently put in charge of the BBC, and the British Chamber of Commerce found that more than half of exporters are still struggling to adapt to Brexit three years on.

Rishi Sunak
Reuters/Pool/Andrew Milligan

Semafor Stat

New public companies to hit the U.S. markets so far this year, versus 31 at this point last year and 83 in 2021. Freightos, which is basically Uber but for shipping things across the ocean, is set to join them later this week via a SPAC merger (yes, a few of those are still happening).

Liz Hoffman

Silicon Valley has lost its Wall Street magic

THE NEWS

Silicon Valley spent the past half-decade out of reach of activist investors. No longer.

Elliott Management has a multibillion-dollar stake in $156 billion Salesforce, joining fellow activist hedge fund Starboard, which has been there since the fall. Chris Hohn’s TCI has been rattling the cage at Google parent Alphabet, pushing for 37,000 job cuts on top of the 12,000 the company has already announced. Altimeter Capital wants Meta to stop pouring money into its virtual-reality headsets.

And Nelson Peltz, whose firm, Trian, owns about $1 billion of Disney stock, wants a seat on its board. (Though not a Silicon Valley company, Disney has traded like one since its big bet on streaming charmed Wall Street, then fizzled.)

The particulars of each campaign vary, but they’ve put four titans of California’s corporate class — Marc Benioff, Sundar Pichai, Mark Zuckerberg, and Bob Iger — under pressure. The unifying message is that these companies should trim workers and the lavish perks they enjoyed for a decade, and get back to doing whatever it is they do well. “Time to get fit,” begins Altimeter’s open letter to Zuckerberg.

Mike Blake/Reuters

LIZ'S VIEW

Tech giants are no longer untouchable. It’s not just that their stocks are cheap enough to tempt activists, but rather that they’ve lost the armor that once protected them: investors’ unbridled FOMO.

Activists are mostly what Wall Street calls “value” investors. They sift through thousands of listed stocks to find the ones that should trade higher, then push them to do things — spin off underperforming divisions, replace their CEOs, sell their real estate — that might close the gap.

But for the past half-decade or so, tech stocks have been the opposite of a value play. They’ve traded well above the sum of their parts, or any historically rational multiple of their earnings, and flourished despite obvious flaws in their governance and strategies.

No matter that Salesforce lost two co-CEOs in three years, or that Zuckerberg alienated needed allies in Washington. The louder old-school investors shouted that a bubble was forming, and that short-sighted investors were cheering on unsustainable growth, the higher their stocks went.

Low interest rates pushed investors into riskier bets. The higher tech shares went, the more emboldened their leaders became to keep spending — on streaming, on the metaverse, on hacking the human lifespan. “Like many other companies in a zero rate world,” Altimeter wrote, “Meta has drifted into the land of excess — too many people, too many ideas, too little urgency.”

Companies might howl (Disney has thrown up a particularly robust stiff-arm) but I suspect some CEOs might privately welcome the outside pressure. It makes it easier for them to take on workforces that, already pampered by free massages and a steady stream of headhunter calls, were only further emboldened by the pandemic.

Tech companies had a hard time getting their workers back to the office, and the tug-of-war showed just how much power sat with employees who are now facing management — and shareholders — who think they’re overpaid at best and superfluous at worst.

It all has a very early-2010s vibe to it. In 2013, ValueAct got a board seat at Microsoft. A year later, Apple boosted its stock buyback program after a pair of activists, Carl Icahn and David Einhorn, urged it to do so.

The first half of that decade was perhaps the heyday of large-cap activism, with Mondelez (market value at the time of $76 billion), Procter & Gamble ($177 billion), and Apache ($38 billion) all facing down restless shareholders. Since then, bets have been smaller and campaigns less headline-grabbing.

ROOM FOR DISAGREEMENT

The companies now in activists’ sights still have plenty of defenses. For starters, they’re still expensive. Even after 2022’s slide, the Nasdaq 100 index still trades at 24 times the expected next-year earnings of the big tech stocks that make it up, well above its average over the past decade.

And some, like Meta, remain controlled by their founders. Other CEOs like Benioff and Iger don’t hold sway over their companies and investors through big stakes, but rather force of personality. It’s not time to call the top on the cult of the founder just yet.

NOTABLE

  • A few years ago, Alphabet reorganized itself, shining a light on the stuff that makes money (search and YouTube) and putting its moonshots into an “Other Bets” category. The Information dives into that bucket, which includes self-driving cars and robotics, and the pressure the company is under to rein in spending there.
Evidence

What commentator Scott Galloway has called the “Patagonia vest recession” is upon us, with a wave of tech layoffs dominating the headlines. We dove into the numbers. TLDR: It’s a lot, but won’t make a dent in the broader economy.

But Silicon Valley has one of the lowest unemployment rates in California – and the country – at 2% or lower in San Francisco, San Mateo, and Santa Clara counties at the end of last year. Statewide unemployment was 4%. Caveat: The latest layoffs likely haven’t shown up in the data yet. White-collar workers are often sent packing with generous severance, and might be slower to file for unemployment.

Bradley Saacks

A ‘staunch capitalist’ will run the White House

THE NEWS

Corporate America hasn’t had many friends in the Biden administration. But the new White House chief of staff has a stamp of approval from big business for good reason — he’s one of them.

Jeff Zients has been described as a “staunch capitalist” by Josh Bolten, George W. Bush’s chief of staff and now head of lobbying group Business Roundtable. Zients will bring to an administration widely viewed as anti-business a resume that includes stints as a Bain Capital consultant and Meta board member, as well as the Biden administration’s technocratic COVID-19 czar.

“Zients is a known quantity in the business community,” said one business lobbyist.

A Wall Street lobbyist said he’s optimistic Zients can help convince Republicans in Congress to raise or suspend the debt ceiling, after the federal government hit its $31.4 trillion borrowing limit last week.

Jeff Zients
Reuters/Tom Brenner
Intel

A 15-year battle over bonuses between hedge-fund founder Paul Touradji and two former traders restarts later this week in New York. At stake is more than $90 million Robert Vollero and Gentry Beach say Touradji owes them over pay from *checks notes* 2008, when Touradji Capital was the largest commodities hedge fund in the U.S.

The case is about more than millions of dollars — there have been death threats, sketchy Trump ties, and New York’s 9% interest rate on civil judgments. If Touradji had paid the traders back in 2008, it would have been less than $50 million out of his pocket. And had they taken that money and put it in the S&P 500, it would now be worth $157 million.

Bradley

Ahem (& M's)

Mars

Mars is abandoning its signature spokescandies after critics found a refresh too progressive. Swapping the green M&M’s go-go boots for lace-up sneakers enraged conservatives including Tucker Carlson, who called the new cast “woke” and “less sexy.” Takeaway: Not even the third-largest private company in America is immune from the culture wars.

Obsessions

“A monetary union where everyone is Greece.” That’s Federal Reserve Bank of Richmond senior economist (and native Brazilian) Felipe Schwartzman’s take on a proposed currency union between Argentina and Brazil. The two countries’ central banks, set on reducing their reliance on the U.S. dollar, on Monday tasked their finance ministers with creating a common currency that can be used for trade among the regional Mercosur trading bloc, which also includes Paraguay and Uruguay.

The eurozone wasn’t a sure thing when it launched in 1999, and it had three G7 countries in it. Meanwhile, Argentina is once again battling rampant inflation and Brazil’s government was nearly overthrown in a populist uprising this month. Former U.S. Treasury Secretary Larry Summers’ summation of the idea: “highly problematic.”

Reuters/Agustin Marcarian

Bradley

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See you Thursday.

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— Liz and Bradley