Tesla’s tax nightmare | USAEMALL.com

One thing to start: Japan’s SoftBank on Monday unveiled plans to invest $100bn and create 100,000 jobs in the US, in the latest sign of how companies are rushing to ingratiate themselves with Donald Trump.

In today’s newsletter:

• Tesla’s difficult choice on CEO pay

• Bluebell closes its hedge fund

• London’s year of public listing departures

Elon Musk’s taxing pay options

Elon Musk has fought hard for a historic pay package at Tesla that would hand him $129bn at its current share price. If he doesn’t win, there could be an unexpected victim left holding the bag: Tesla.

Earlier this month, Delaware judge Kathaleen McCormick denied the company’s second attempt to give Musk the pay deal, putting the enormous windfall in further limbo.

It’s the biggest package of stock options in history — worth $56bn at the time of the original ruling, and $129bn today.

Shareholders’ overwhelming vote to reapprove the grant didn’t convince McCormick to override her previous rejection of the deal as unfair.

Now the board’s faced with a tough choice. It can either pursue a lengthy and uncertain appeal with a higher court, or award Musk with a new options package, DD’s Stephen Morris reports. 

Critically, either option could have accounting and tax caveats with multibillion-dollar implications.

A new pay deal could trigger a $50bn-plus corporate accounting charge and separately impose a punitive tax rate of up to 57 per cent on Musk’s shares.

Tesla warned shareholders of this before. In April, it said that reissuing a new set of stock options to allow Musk to buy the same 304mn shares would result in a compensation-related accounting charge of more than $25bn. 

And that was when Tesla’s stock was at $175 — it has since more than doubled.

Then there are the potential tax implications for the world’s richest man himself, which aren’t as clear. 

If the company loses an appeal, the options would be awarded already “in the money”, since the ambitious financial targets the deal was pegged to have been achieved. 

“It is very simple. If you grant options that are ‘in the money’, which they clearly are now, all kinds of bad things happen,” Schuyler Moore, a tax partner at law firm Greenberg Glusker, told the FT. 

If the company tries to award a new deal with the same terms, it could trigger a nearly $70bn tax bill. “That is why they are trying so hard to ratify the original deal,” Moore added. “If they re-award it now, there will be hell to pay on taxes.”

Europe’s small activist fund shutters

The tiny activist hedge fund that went after some of Europe’s biggest companies is calling it quits.

Bluebell Capital Partners, which launched campaigns against corporate giants such as BP and Richemont, is shutting down its hedge fund after a five-year run.

While the fund managed to often play its small size to its advantage by sneaking up on unsuspecting companies, it ultimately also led to its end.

The fund reached up to €200mn of assets under management, but its founders decided to close it after it failed to expand further. It will hand back capital to external investors and restructure itself, co-founder Marco Taricco told the FT. 

He was blunt: “Fundraising is bloody difficult. Ours is a niche strategy,” he said. “Once you pay the team and pay for the cost of the infrastructure you’ve put in place, you’re left with very little.”

Even during its short time chasing higher share prices across the continent, London-based Bluebell’s hedge fund caused a lot of heartache. It famously launched high-profile campaigns against Italian bank Monte dei Paschi di Siena and UK drugmaker GSK. 

Perhaps its most notorious campaign was the ousting of yoghurt-maker Danone’s chief executive Emmanuel Faber — somehow pulling off the feat with less than €20mn of shares in the company. (For context, Danone had a market cap of €41bn.)  

Bluebell got its start by giving advice. It was founded in 2014 by Taricco and Giuseppe Bivona, with the strategy of selling ideas to the likes of Paul Singer’s Elliott Management and Jana Partners.

But Bluebell had ambitions of running its own book, and in 2019 it set up a hedge fund. It went after medium and big companies, often with the backing of far bigger players.

Many of its campaigns didn’t work out. BlackRock fended off a proxy challenge, and Swiss luxury group Richemont won a fight to shake up its board. 

Yet Bluebell’s hand in activism isn’t over quite yet. It will still go after activist bets through co-investments and advisory mandates, just not with its balance sheet alone.

Trouble for London listings

It has been another bad year for new stock listings in London and trouble looms on the horizon.

The FT reported over the weekend that the London Stock Exchange is on course for its worst year for departures since the financial crisis.

London markets are being hit by companies seeking higher valuations abroad and buyout firms hunting for bargain-priced takeovers in the UK.

Eighty-eight companies have delisted or transferred their primary listing from London’s main market this year with only 18 taking their place, according to the London Stock Exchange Group.

Ashtead, the equipment rental company with a £23bn market valuation, this month became the latest big business to propose moving its primary listing from London to New York.

The number of new listings is also on course to be the lowest in 15 years as IPOs remain scarce and bidders target London-listed groups.

A bit of good news appeared to arrive on Monday thanks to Canal+, the French broadcaster spun out of France’s Vivendi, which began trading in London in the largest new listing of the year.

Yet not even that went to plan. Shares of Canal+ slumped more than 20 per cent on their first day, which one investor deemed “an inglorious start”.

The upshot is that the shift doesn’t really matter to the UK’s economy or even the owner of the London exchange, according to our colleagues at Alphaville.

The LSE’s equities business accounted for less than 4 per cent of its gross profits through the first three quarters of this year. Still, DD doesn’t expect the sense of panic to abate.

Job moves

• Canada’s finance minister Chrystia Freeland resigned on Monday, creating fresh turmoil for Prime Minister Justin Trudeau and his minority government. 

• Hitachi has promoted executive vice-president Toshiaki Tokunaga to president and chief executive. He will replace Keiji Kojima, who will stay on as vice-chair.

Smart reads

Sanctioned tale Niels Troost, one of only two Europeans sanctioned for trading Russian oil, says he was duped by an alleged “conman”, the FT reports. He sits down to tell his staggering story.

Machiavellian fight Two of Italy’s most powerful business figures are clashing over Banca Popolare di Milano, writes the FT’s Patrick Jenkins. And with the bank’s fate, the future of Italian finance.

Drug-enhanced Many on Wall Street view drugs such as Adderall and Vyvanse as tools to get through long stretches of tedious work and high-pressure competition, The Wall Street Journal reports.

News round-up

Daniel Křetínský’s £5.3bn bid for Royal Mail owner approved by UK government (FT)

Revolut backers offload almost $1bn of stock (FT)

US industrial group Honeywell explores splitting off aerospace unit (FT)

Goldman Sachs’ investment arm agrees €2bn deal for drugmaker Synthon (FT)

Chip groups Arm and Qualcomm square off in high-stakes US trial (FT)

VistaJet’s Thomas Flohr accused of fraud in high court hearing (FT)

Ladbrokes owner sued over anti-money laundering breaches by Australian watchdog (FT)

Forbes to open first private members’ club in Madrid (FT)