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One thing to start: Bill Ackman, a shareholder in United Technologies, has come out against the proposed merger with Raytheon in a letter to the company’s chief executive, Greg Hayes. He said he’d hoped the WSJ’s report on the merger was “fake news”. Read the full story from our DD team here.

A few weeks back DD asked whether T-Mobile had done enough to save its Sprint deal.

It turns out several US states don’t think so. A group of 10 state attorneys-general led by New York and California have sued to block the $26bn mobile telecommunications deal. They’ve said they will challenge the controversial tie-up even if it wins regulatory approval from the US Department of Justice, which is currently reviewing the transaction.

The biggest concern is consumer protection. There’s a longstanding perception that America needs a minimum of four wireless companies for healthy competition. The merger between Deutsche Telekom-owned T-Mobile and SoftBank-owned Sprint, known for their aggressive pricing, would consolidate the industry down to three players and that doesn’t seem to sit well with some of the country’s most prominent legal minds.

“This is exactly the sort of consumer-harming, job-killing megamerger our antitrust laws were designed to prevent,” according to Letitia James, the New York attorney-general, who said it would “cause irreparable harm”.

T-Mobile and Sprint have made concessions to smooth things over with regulators, including a promise not to raise prices for three years and building a 5G network that will also cover rural America, which many consider to be their trump card (ahem). The rollout of 5G technology is at the heart of Donald Trump’s restrictions on Huawei.

Those promises were enough to convince Ajit Pai, the Republican-leaning chairman of the Federal Communications Commission, that the deal was a go. But then there’s Makan Delrahim, the antitrust chief of the DoJ who is reportedly leaning towards not approving the deal.

With the new threat to sue from a coalition of US states, it’s going to be a tough call to make for the US regulator.

DD’s Indap v NYU’s Damodaran: Is stock compensation good or bad?

Are companies that heavily use stock-based compensation really getting a “free pass” from investors as the legendary New York University academic Aswath Damodaran, pictured below left,argued in the FT?

Damodaran (who was the corporate finance instructor for the investment banking analyst training class at Merrill Lynch taken by DD’s Sujeet Indap, pictured below right, nearly 20 years ago), bases his arguments on the fundamental economic costs of paying workers with paper. He laments how analysts and investors all too eagerly accept the “adjusted” profitability metrics that companies offer, which exclude stock compensation expense.

To be clear, it’s perfectly reasonable for stock-based compensation to run through the income statement as it reflects a real outflow of value from the firm.

However, since by definition it’s non-cash, companies often add its value back to reach an “adjusted Ebitda” figure which as Damodaran points out can be worth more than $1bn in a year for some large tech companies.

But consumers of financial data may not be as naive as Damodaran suggests, according to Sujeet.

First a technical point: stock-based comp has never *really* been free. Its underlying cost just appears in a different place.

Before accounting rules changed and forced companies to put equity compensation in the GAAP P&L, the underlying shares still appeared in the sections of securities filings that listed the details of stock options and restricted stock. As Damoradan himself suggests, most professional investors look at diluted share counts.

More generally, all the information for investors to make their own decisions on how to treat non-cash expenses is presented to investors in the clearly marked GAAP to non-GAAP reconciliations so they can each make up their own minds on what is legit shuffling of numbers and what isn’t.

Are Wall Street analysts perhaps too credulous in accepting company spin? Perhaps, but the debate over stock compensation expense is simply a reminder for all investors to use their own independent judgment.

French regulator gets short with short-sellers

Regular DD readers will be familiar with the plight of Jean-Charles Naouri, the French business elite’s biggest brain, whose penchant for financial complexity means he could lose control of his retail empire.

But the 70-year-old chief executive of supermarket group Casino isn’t the only one now battling to preserve their reputation.

The collapse of his heavily indebted structure has also proved a black-eye for France’s market regulator — the AMF — which previously launched several investigations into short-sellers that raised warnings about Naouri’s highly leveraged web of companies.

The most prominent of these was brash US short-seller Carson Block, who told the FT that the AMF’s market manipulation probe into his fund Muddy Waters, was “tainted by bias”.

It reminds us of another European regulator. German financial watchdog BaFin has filed a criminal complaint against several short-sellers and two FT journalists alleging market manipulation related to the paper's Wirecard coverage. BaFin even went a step further and banned “short” selling of the group’s shares following the FT’s coverage.

Investors based in Paris betting against Casino have kept their positions below the threshold for disclosure for fear of a backlash from the French regulator. But even hedge fund managers in London are finding that they’re not out of reach of France’s AMF simply because they sit in Mayfair.

Read the full take from DD’s Rob Smith here, especially if you want to learn how the UK’s Financial Conduct Authority has been helping its French counterpart dig into the activities of hedge funds in London.

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Job moves

  • Foxconn is reshuffling its management structure to deal with the exit of Terry Gou from day-to-day business as he runs for president of Taiwan. Gou, the group’s founder, will be replaced by one of four new members of the board to be elected at its annual general meeting. More details here.

  • Swiss drugmaker Roche has named Thomas Schinecker as head of its diagnostics business, replacing Roland Diggelmann, who left the role last August. Separately, board member Peter Voser is stepping down.

  • Houlihan Lokey has hired Michael Collinson as a managing director in the consumer, food and retail group, based in London. Collison was previously a managing director at William Blair.

  • Anil Jhingan has joined Discovery Communications as executive vice-president of corporate development, Emea and Asia-Pacific. Jhingan was previously group director of M&A and international development for Sky.

Smart reads

From Stonewall to Wall Street In honour of Pride Month, read this oral history of coming out on Wall Street, which shows how things have and haven’t changed. (II)

Dealing with deal whisperers Big banks want assurances from start-ups gearing up to IPO that they’ll be included as an adviser if the listing falls through in favour of an acquisition after many bulge bracket firms have been burnt by boutique rivals such as Qatalyst Partners, who often step in at the last minute to swipe big fees away from them. (BBG)

Powered by We How did WeWork, the lossmaking provider of office space with tentacles in education and housing, become a $47bn company? Not by sharing. “When you’re at WeWork, there’s a certain lack of culture, which is ironic for a company selling culture,” one former executive told New York Magazine. (NY Mag)

Europe’s dead deals There’s the failed merger of Siemens and Alstom, Asda and Sainsbury’s, Commerzbank and Deutsche Bank and, of course, Renault and Fiat Chrysler. What’s eating European deals? (BBG)

News round-up

Wells Fargo/Eastdil: private property (FT)

Renault investors rush to sign up for carmaker’s annual showdown (FT)

Wells Fargo CEO search drags on as two top candidates take a pass (WSJ)

Citi finance chief warns of double digit drop in Q2 investment bank revenues (FT)

Brussels blocks Thyssenkrupp and Tata Steel merger (FT)

Sports Direct launches legal challenge to Debenhams’ restructuring (FT)

Uber chief executive laments U.S. trade policy for lackluster IPO (Reuters)

UK’s Compass Group to buy Nordic caterer in €475m deal (FT)

Australia’s AGL takes second look at Vocus deal (FT)

Bondholders poised to seize control of telco Lebara (FT)

Due Diligence is written by Arash MassoudiJavier Espinoza and Robert Smith in London, James Fontanella-KhanOrtenca Aliaj, Sujeet IndapEric PlattLindsay Fortado and Mark Vandevelde in New York, and Don Weinland in Hong Kong.

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