The week in GRC: SEC warns of cyber-threats around accounting controls, and Campbell Soup heirs back company in activist battle
– The Wall Street Journal reported that Harris Corp and L3 Technologies are to combine in the largest defense industry merger. The deal would join two companies with a combined market value of roughly $33.5 billion. The prospect of increased US government defense budgets and a boom in commercial jetliner sales have prompted a surge in deal-making in the aerospace and defense industries over the past few years.
Assuming the all-stock deal is approved by regulators and shareholders, L3 CEO Chris Kubasik would assume the CEO role for the new company after two years and become executive chair a year later. Each company would contribute six directors to the new board.
– Sears Holdings filed for Chapter 11 bankruptcy on Monday with a plan to close roughly 142 of its 700 stores by the end of the year, according to Reuters. The bankruptcy filing to reorganize debts of the parent of Sears, Roebuck and Kmart follows a decade of revenue declines, hundreds of store closures and years of deals by Eddie Lampert in an effort to turn around the company he acquired in 2005 for $11 billion. Lampert stepped down as Sears CEO on Monday but will remain chair.
Sears said it will sell assets and begin closing 142 unprofitable stores by year-end with the aim of reorganizing around a smaller base of its best stores. Under the bankruptcy plan, Lampert’s executive role will be replaced by a three-person committee. ‘The company believes a successful reorganization will save [it] and the jobs of tens of thousands of store associates,’ Sears said in a statement.
– The New York Times reported that, according to people familiar with the matter, the CEOs of Blackstone and BlackRock canceled plans to attend an investment conference in Saudi Arabia. They join JPMorgan Chase CEO and chair Jamie Dimon in pulling out following the disappearance and potential murder of a prominent Saudi journalist. The decisions by Stephen Schwarzman of Blackstone and Laurence Fink of BlackRock add to a string of ruptures between the business community and Saudi Arabia as questions surround the fate of Jamal Khashoggi.
Behind the cancellations are allegations, made by Turkish authorities, that Khashoggi was killed by Saudi operatives. The Saudi government has denied any wrongdoing.
– The SEC released an investigative report cautioning that public companies should consider cyber-threats when implementing internal accounting controls. The report is based on investigations by the agency’s enforcement division into nine public companies hit by cyber-fraud. The SEC’s probes focused on business email compromises, in which perpetrators posed as company executives or vendors and used emails to dupe company personnel into sending large sums to bank accounts controlled by the perpetrators.
– CNBC reported that activist investor Carl Icahn said Michael Dell and private equity firm Silver Lake are ‘manipulating’ and ‘coercing’ shareholders of the tracking stock of VMware into accepting their buyout offer. Icahn contends Dell and Silver Lake are significantly undervaluing VMware, a software company, in order to make money.
Earlier, Icahn disclosed that he had boosted his stake in shares that track Dell Technologies’ (DVMT) interest in VMware to 8.3 percent. He is trying to block Dell’s plan to return to the public market by acquiring the Dell tracking stock. Dell was also considering an initial public offering if its plan to buy the VMware shares fell through.
Dell said in a statement that the company ‘continues to believe that the proposed offer for DVMT shares, which represents a 29 percent premium to the DVMT share price immediately prior to the announcement of the transaction, is fair and in the best interests of DVMT shareholders.’
– Nomura Holdings agreed to pay $480 million to resolve civil claims by the US government that it misled investors in marketing residential mortgage-backed securities, according to Reuters. Nomura knowingly bundled defective mortgage loans into marketable securities from 2006 to 2007 and misled investors about their quality, authorities alleged. The settlement stems from an investigation by federal prosecutors in New York. Nomura said in a statement it did not admit any wrongdoing in connection with the settlement, and disputed the allegations.
– The Financial Stability Oversight Council unanimously rescinded Prudential Financial’s designation as a systemically important financial institution, a label that comes with tougher scrutiny from the Federal Reserve, the WSJ reported. It means the insurer and asset manager will potentially save tens of millions of dollars in regulatory costs.
Fed examiners, present in Prudential’s offices since it was initially designated in 2013, will likely vacate the premises immediately, leaving New Jersey state supervisors with primary responsibility for overseeing the firm’s global operations. Prudential said it is ‘pleased with this decision, which affirms our long-standing belief that Prudential never met the standard for designation.’
– Reuters reported that Christopher Giancarlo, chair of the Commodity Futures Trading Commission, warned that US banks and securities firms may be barred from trading on exchanges in the EU if the bloc refuses to water down proposals for regulating foreign clearing houses. It was Giancarlo’s strongest warning yet on possible retaliatory measures if EU regulators insist on close supervision of US-based clearing houses under new rules.
‘In my talks with European authorities, I have asked them to reconsider such an expansive approach,’ Giancarlo said in a rare direct attack on another regulator. The new rules would mean that ‘systemic’ foreign clearing houses could serve customers in the EU only if European regulators could jointly supervise them.
– According to CNBC, Campbell Soup heirs who hold roughly 41 percent of the company’s shares gave their support to the company in its battle with activist investor Dan Loeb. The descendants include Charlotte Weber and current board members Bennett Dorrance, Mary Alice Dorrance Malone and Archbold van Beuren.
Their support represents a significant blow to Loeb’s Third Point hedge fund firm, which has been pushing to remove all 12 of Campbell’s directors at its November 29 shareholder meeting. Loeb has also called for a sale of the company.
– The WSJ reported that, after years on the stock market’s sidelines, a number of highly valued Silicon Valley technology companies are preparing to go public as soon as next year. Among the potential IPO candidates are ride-sharing companies Uber Technologies and Lyft, and data-mining specialist Palantir Technologies. Should they go through with their flotations, 2019 could be a record-breaking year for IPOs in terms of dollars raised.
This is a big change for companies that for years relied on cash from private sources and chose to build their businesses away from public investors and analysts. That capital hasn’t dried up, but companies are rethinking their aversion to the public markets, drawn by high stock prices and the opportunity to establish a liquid market for their shares.