Enabling a Successful Multibillion-Dollar Telecommunications Merger

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Enabling a Successful Multibillion-Dollar Telecommunications Merger

Challenge

A major telecommunications company was seeking federal and state regulatory approvals for a highly publicized, multibillion-dollar merger while defending the deal against a well-organized opposition. Another company had made a similar merger attempt that ended in spectacular and costly failure, and public sentiment seemed broadly against this large-scale consolidation. This problem was compounded by a preexisting network of opponents looking to hobble the approval process at every opportunity.

Solution

Our foundational research identified the key stakeholders and coalitions most likely to oppose to the merger, as well as what their motivations for and specific objections were. We then analyzed these opponents’ methods of operation, the communications channels they utilized, as well as their sources of funding, key personnel, and past activities. Based on this analysis, we outlined the strategies and tactics they would likely employ and the criticisms they would likely level at the deal.

Working seamlessly with the internal and external public affairs teams of the client, we utilized this foundational research to provide valuable insights throughout the regulatory approval process, ensuring the company, their government relations advisers, and other internal and external consultants were able to anticipate and overcome any and all public criticism with fact-driven messaging and rapid response. Digging deep into the network of opponents from the outset ensured that we knew what attacks to expect and allowed us to prepare pushback materials that guaranteed this criticism could not gain traction with regulators or the public.

Results

By assessing the merger’s various opponents, we were able to determine the split between those stakeholders who objected over specific concerns or were seeking certain concessions, and ideologically-motivated opponents of corporate-owned media consolidation more generally. Utilizing this understanding allowed those working on regulatory approval to fracture the coalition of opposition as soon as it launched, cratering any potential momentum against the deal.

Monitoring the remaining opponents’ efforts in real time then allowed the client to expose and undermine their astroturf efforts. For example, we assessed public comments filed with the FCC and determined a large percentage were not only repeat messages driven by several opposition websites, but that a significant portion of those comments came from outside the areas affected by the merger. These efforts were effective in ensuring federal and state regulators did not succumb to opposition pressure and approved the merger.

Activist Shareholders Seeking To Expose Financial and Management Improprieties

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Activist Shareholders Seeking To Expose Financial and Management Improprieties

Challenge

An activist shareholder had reason to suspect financial and management improprieties at an energy sector company that had quickly risen from an over-the-counter penny stock to a seemingly overvalued NYSE-traded company. The shareholder needed someone to dig deeper than their initial analysis and help them compile the research into a compelling narrative and easily understood materials for reporters to use.

Solution

After reviewing the client’s existing research, we dug further. Assets valued at $350 million on the company books were actually worth much less. The CEO lived in an extravagant mansion and had an overly generous compensation plan. The company plane was flying to places where there were no company operations, but where the CEO could entertain his girlfriend.

Working with an investigative reporter, we helped expose this questionable activity and put pressure on the company to release its long overdue annual financial report to the SEC. The company scrambled and produced the annual report, only to pull it back after it was determined that the auditing firm had never signed off on it and their signature had been used without their authorization on the report.

Results

After the investigative journalism website TheStreetSweeper.org published a lengthy piece detailing the information the shareholder and we had unearthed, we secured national press attention on the company including an article in Politico highlighting the political connections of one of their board members and multiple segments on CNBC. TheStreetSweeper.org also published a follow up piece to their initial investigation.

Through this exposure, the company stock cratered more than 40% and several law firms filed class action lawsuits against the company, its executives, and the board of directors. As of August 6, 2015, the SEC has also filed charges against the company, “seeking to obtain cease-and-desist orders, civil monetary penalties, and return of allegedly ill-gotten gains.”

As we proved to our client, anybody can come up with 500 pages of research, but it is most important to hone in on the key pieces of information that can actually be used to make a difference.

The Coming Worldwide Crypto Crackdown

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Here’s What You Need To Know

With companies as varied as Eastman Kodak, Long Island Iced Tea, and KFC trying to capitalize on bitcoin, the internet’s best-known cryptocurrency, it appears that bitcoin-mania is reaching new heights. Bitcoin’s journey has been nothing if not volatile, introducing new words into the lexicon like blockchain and raising new policy questions for regulators.

Needless to say, it is worth considering this craze through a regulatory lens, because with every craze comes a crash, followed by the inevitable regulatory crackdown. Here’s our primer on making sense of today’s bitcoin frenzy:

  • Blockchain And Bitcoin 101: Blockchain is a technology that allows for the existence of digital mediums of exchange. Like a ledger, blockchain keeps a record of digital, peer-to-peer transactions. It was invented in 2008 to make the launch of bitcoin possible the following year, and has since been used for transactions as varied as legal contracts, “rave” party bookings, and even sexual consent. Although there are over 1,400 different “coins,” bitcoin remains the most popular cryptocurrency, which is a decentralized, virtual form of money that can be used to make purchases without a middleman like a bank or government. Some vendors accepting payments include Overstock.com, Dish Network, Microsoft, and Mark Cuban’s Dallas Mavericks, who will be accepting cryptocurrency next basketball season.
  • Where Do Traditional Financial Institutions Stand? Last year, the Commodity Futures Trading Commission approved bitcoin futures and exchanges quickly went live. JP Morgan Chase CEO Jamie Dimon regrets calling bitcoin and other cryptocurrencies a fraud, and has continued to express his belief in the power of blockchain technology, which can be used to transfer non-crypto currencies and disrupt how banking is done. In addition, Goldman Sachs is setting up a cryptocurrency trading desk and making a bet that it can be a portfolio asset comparable to gold. But with a former Wells Fargo CEO calling bitcoin a “pyramid scheme” and Capital One Bank announcing it will block its credit card holders from cryptocurrency purchases, there is no clear message coming from the industry most impacted by this technology.
  • Is A Worldwide Crypto Crackdown Coming? It appears the crackdown has already started. The price of bitcoin has plummeted in part due to greater scrutiny of cryptocurrencies like China’s escalated crackdown on online platforms and mobile apps that offer exchange services, and South Korea’s suggestion it may ban cryptocurrency trading. A director at Germany’s central bank called for regulating cryptocurrencies on a global scale, due to the inherent difficulties of enforcing a virtual, borderless community. While this may be plausible in Europe, where continental-scale approaches to regulation have been implemented, a more global agreement may take years to coalesce, if ever. Still, with the Russian government developing a cryptocurrency in the hope of evading international sanctions and scrutiny, and fears that they could assist the North Koreans in doing the same, further national and multinational regulatory barriers are sure to follow.
  • What Could Regulation Look Like In The U.S.? The U.S. government has examinedand implemented rules to stem the use of cryptocurrencies for money laundering and other nefarious purposes. And, the Security and Exchange Commission warned investors to “exercise caution” when it comes to cryptocurrencies because state and federal regulators are still working to get ahead of the issue, meaning that any money lost due to illegal actors in the meantime may not be recovered. Comprehensive regulation would be led by the Federal Reserve, which is responsible for monetary policy, and whose chair said bitcoin plays a “very small role in the payment system,” requiring no regulation at this time. Should cryptocurrencies threaten the Fed’s control of monetary policy in the future, that could quickly change.

Bitcoin’s early success was in part due to its potential for circumvention and lack of oversight, which made it also an ideal tool for criminals. While the above demonstrates the growth beyond that early success, the evidence suggests that further regulatory scrutiny may bring increased volatility. Should this come to pass, it may garner public attention in a way which focuses on the significance of the blockchain revolution more broadly, rather than simply a component of making cryptocurrencies work.

News You Can Use

WASHINGTON STATE OUTSOURCES TO ENVIROS

In a recent TL;DR we covered the environmental movement’s efforts in Washington state to push its climate agenda irrespective of law, institutions, and the voters’ will. Since then, it’s been uncovered that Governor Jay Inslee’s administration is acting as a contractor for energy policy work for two nonprofit foundations that push an aggressive climate agenda that ignores market forces.

The state is actually performing a “scope of work” for the two groups in a novel accommodation that raises questions about the influence special interest groups may have on government employees whose policy work they fund, and illustrates further the efforts by activist groups to circumvent the regular legislative process and the institutional accountability it provides.

FILTER BUBBLE FOILS

Is social media making us dumber? Writer Jesse Signal thinks so, citing a recent video clip that went viral in which Harvard professor Steven Pinker referred to people who gravitate to the alt-right movement as “literate, highly intelligent,” and “internet savvy.” His comments predictably drew praise from a neo-Nazi website at the same time he was denounced by a journalist on the left as a “darling” of that movement, even though it was a short clip taken out of context from an eight-minute video in which the liberal, Jewish, Ivy League psychology professor argued against the alt-right’s worldview.

Rather than encourage users to analyze the video clip through the lens of who said it, his background, and whether it represented his complete thoughts, today’s social media “filter bubbles” reinforced instead of informing people’s beliefs, resulting in the disregard of empirical reality.

EXPOSING THE TAX CUT “HYPOCRITE” CHARGE

A common criticism against the recent tax legislation signed into law was that Republicans were hypocritical in supporting tax cuts that increased the deficit, but as with most policy debates, there is more to the issue than a simplistic talking point detached from fact. Mercatus Center Senior Research Strategist Charles Blahous writes that this criticism is premised on a faulty foundational assumption that the current budget projections – increased levels of taxing and spending – are a sustainable baseline.

The tax law both reduces the government’s tax revenue and its spending trajectory, slowing the unsustainable fiscal forecast that Republicans have proposed policies to address and been demonized for in the past. Therefore, while opponents can disagree with the tax law on its merits, calling its proponents “hypocrites” does not stand up to scrutiny.

BERNIE’S BLAST TO THE PAST

You can’t bring a knife to a gunfight, and you also can’t bring old facts to a public policy fight. As it were, Senator Bernie Sanders did the latter when he penned an op-ed in The Guardian about standing together “against powerful special interests” to “eliminate poverty, increase life expectancy and tackle climate change.”

When using facts to make his case, Sanders cited statistics about the number of people living in poverty that are ten and 40 years out of date when compared to the World Bank’s data, undermining his argument and giving credence to the suggestion that his time has passed. So, here’s a rule of thumb for the next generation of political leaders: an information advantage means not only having your facts, but making sure they’re timely and actionable.

CFPB TO FED: NAH, WE GOOD  

It is rare if not unprecedented for a federal agency to request zero dollars for its budget, but that is what acting director of the Consumer Financial Protection Bureau (CFPB) Mick Mulvaney did in a recent letter to Federal Reserve Chair Janet Yellen, who funds the special consumer board each fiscal quarter. The CFPB requires about $145 million each quarter to operate.

In a deep dive review of the agency, Mulvaney discovered it had $177.1 million on hand and would not need any additional funds to operate in the second quarter of 2018. While some on the Left may charge that he is trying to shut down the CFPB, Mulvaney’s zero dollar request and the elimination of the Bureau’s “slush fund” go a long way toward making sure the agency is a good steward of taxpayer dollars.

What’s on TAP for Energy and Financial Services?

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Here’s What You Need to Know

As we approach Inauguration Day, eyes turn to what key industries can expect as Donald Trump takes office. As part of Delve’s The Administration Project (TAP), we have been analyzing and assessing the incoming administration’s personnel choices and policy cues to determine just that.

This week, we released two of four summaries of our insights:

  • Energy Surprises: During the campaign, the President-elect was bullish in his advocacy for expansion of domestic energy production through deregulation and a focus on oil, natural gas, and coal. Thus far, his Cabinet picks have tracked well with that goal. But, outside political and market forces, like state regulators crucial to oil and natural gas pipeline expansion, along with the energy market’s preference for natural gas over coal, may create roadblocks to achieving everything the new Administration has in mind. Likewise, renewable energy sources may not be as DOA in the new administration as some observers think, given incoming Energy Secretary Rick Perry’s record in Texas.
  • Financial Services Fights: Between the President-elect’s campaign rhetoric and the number of Wall Street veterans in his Cabinet, it’s difficult to pin down where the new Administration is likely to fall on issues important to the financial services industry. It also remains unclear how much of a priority items like regulating the growing fintech industry, addressing the regulations in Dodd-Frank, and the Labor Department’s “fiduciary rule,” are to the new Administration. The only thing that is clear on these issues? The battle lines are being drawn with conflicts likely to play out over the next four years, both within the industry, and the administration.

 For a more comprehensive look at how the new Administration will impact these industries, check out our blog posts “What’s On TAP for Energy” and “What’s On TAP for Financial Services.” Also, don’t forget to subscribe to TAP for weekly updates on the new Administration and access to custom research on-demand.

News You Can Use

MISSING FROM OBAMA’S FAREWELL
President Obama’s farewell address was half victory lap for his claimed accomplishments and half call to action for his supporters. Business columnist Caroline Baum recently predicted which key elements of the Obama legacy wouldn’t make the cut for Tuesdaynight’s speech. For the most part she was spot on, correctly predicting the President would fail to omit the fact that the economic expansion beginning in 2009 has been the weakest since World War II, the President’s failure to transfer his personal popularity to the rest of his party, the disengaged strategy the U.S. has taken in foreign policy over the past eight years, and his administration’s active avoidance of addressing radical Islamic terrorism. While President Obama did bring up the topic of race relations, claiming they have improved during his tenure in office, most Americans disagree with that assessment. These facts show the difficulty facing Obama in framing his legacy when many Americans rejected his policies and chosen successor at the polls just a few months ago.

INTERNATIONAL RACES TO WATCH IN ‘17
Foreign policy expert Kevin Lees recently outlined several key elections around the world to watch for indications of any continuing patterns of changing global political dynamics. Referendums on current regimes will (or are likely to occur) in India with provincial legislative assembly elections, Mexico’s state gubernatorial election, and Venezuela’s regional and municipal elections along with a possible presidential recall vote. Several parliamentary and presidential elections throughout Western Europe –  including those in France, The Netherlands, Germany, and Italy – will be major tests of whether the EU continues to see populist nationalism grow as it did in 2016. The makeup of the new Politburo in China, while not technically an election, will offer insights into how the country plans to navigate a Trump-led Unites States. How these elections unfold could have a significant impact on how the incoming Trump administration approaches bilateral and multilateral issues around the globe.

EURO-REGULATORS’ NEXT TARGET: DATA
Regulators, especially those in Europe, are looking at the data capabilities of big tech firms like Google and Facebook as a possible target for future regulations. Policymakers and academics have suggested the advantages these companies’ data resources give them could represent a barrier to entry for other companies and stifle possible innovation and competition. Opponents of the growing EU regulatory regime have pointed out how potential new rules could punish companies as they seek to use data to improve service for users, serving as a major hindrance to the burgeoning field of artificial intelligence technology that requires large sets of data to be effective. This policy area may well be the next major antitrust policy fight between global tech firms and the EU, which has already targeted companies like Apple, Amazon, and Google for various allegedly anti-competitive practices. 

AMBULANCE EMERGENCY
Dr. Geoffrey Hosta, a 30-year veteran emergency room doctor, recently published a piece sounding the alarm on the serious, growing issue of “ambulance waste.” Patients are using ambulances who do not medically need them, resulting in regular instances of such vehicles not being available for serious, life-threatening injuries they are meant to respond to. Hosta enumerated instances of ambulance waste ranging from stubbed toes, to minor ankle sprains, to an alcoholic who requested an ambulance every day because the hospital was near his favorite liquor store. Cities are considering a range of policies to solve this problem, including projects to allow doctors to use tablets to video chat with patients, processes where 911 dispatchers can determine the necessity of an ambulance, and apps that could allow paramedics to video chat with patients who request their services. As the devil would be in the details to any such policies, look for tech innovators to introduce solutions to ambulance waste that may have larger value throughout the healthcare market.

HOW TRUMP’S TRADE BATTLE IS, AND ISN’T, LIKE REAGAN’S
In a recent Wall Street Journal op-ed, Holman Jenkins Jr. traces President-elect Trump’s current war against Detroit automakers who seek to move auto manufacturing overseas back to the Reagan trade policies of the 1980’s (spearheaded by people like Robert Lighthizer, who was recently nominated to be U.S. Trade Representative). Trump, much like Reagan, secured the election thanks largely to the support of blue-collar American workers, like those in the auto industry. Both men made promises to protect these workers’ jobs. But whereas Reagan waged his trade war against Japanese automakers, Trump must wage his against many U.S. auto manufacturers themselves. Jenkins points out that Trump’s criticism has focused exclusively on the exportation of jobs related to the manufacturing of less profitable small-car assembly, and stayed away from the more profitable business of exporting American-built SUVs to foreigners. Between that and reportedly strong signals that compliance by automakers will be rewarded with a relaxation of the Obama administration’s fuel mileage standards, Detroit could see brighter days ahead even as it is buffeted by the tumultuous winds of Trump tweets.

Mark Your Calendar

Friday, January 20 – Inauguration Day
Tuesday, January 31 – Year-End Federal Campaign Finance Reports Due

What’s on TAP for Financial Services in a Trump Administration?

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The first step to understanding what may happen to the financial services industry under a Trump administration is to know what we don’t know. Because of his rhetoric on the campaign trail, we can’t assume President-elect Trump’s nominees who are Wall Street veterans – including Steve Mnuchin for Treasury Secretary and Gary Cohn to be director of the National Economic Council – will actually be friendly to Wall Street. We can’t assume Trump’s overall sentiment against regulatory growth will extend to banks and non-bank financial institutions. Even if rules and agencies are repealed or changed, we can’t assume anything about how fast or how far Trump will go.

What we do know are the battle lines between different sectors of the financial services industry when it comes to policy and how Trump’s personnel decisions could impact those debates. How the different parts of the financial services sector use their influence to make their case could determine which sides the incoming administration takes; in fact, the many factions within Trump’s orbit could be so divided on some issues that the status quo holds. After all, because Trump was elected without the traditional sources of campaign support in the Beltway, he may not be willing to lend his political capital to regulatory items on the industry’s wish list.

So, here are the three battle lines to watch within financial services policy as we transition into the Trump administration:

Traditional Banks Vs. Fintech On New Regulations: Despite the Trump administration’s general urge to deregulate several sectors of our economy, new regulations on fintech may take shape during the next four years. A coalition of tech firms has called for a new Treasury undersecretary for technology to be created, specifically to oversee the creation of smart, practical regulations of the newly created industry. In December, Obama’s Currency Comptroller Thomas Curry announced his office would begin working on regulation for the fintech industry, signaling plans for companies to apply for membership to and operate under a national charter. Traditional banks want to see fintech companies held to the same standards they must comply with as opposed to a specific fintech charter, which could have special carve-outs. Any rule on this proposal is unlikely to be finalized before Curry’s term ends in April and Trump’s team has yet to announce who they will tap to replace him. But, former Currency Comptroller John Dugan, who served from 2005 to 2010 and was criticized for siding with banks too often, has been mentioned as a potential pick. How the Trump administration chooses to address this growing industry will pit traditional banking against fintech companies, and may even pit specific financial firms against each other within industry sectors.

Investment Banks Vs. Community Banks On CFPB And Dodd-Frank: President-elect Trump has made no secret of his intention to take apart the Dodd-Frank Act. And, Treasury Secretary Nominee Steve Mnuchin called ending the Consumer Financial Protection Bureau – a key part of Dodd-Frank – a top priority. But, experts do not believe the agency will be dissolved. A recent court ruling found the agency’s structure unconstitutional, which could force the agency to operate as part of the executive branch instead of as an independent agency. This change would pave the way for the incoming administration to oust and replace CFPB head Richard Cordray before his term expires in 2018, although Trump has yet not commented on this as a possibility. Removing Cordray would give the new administration an opportunity to limit the agency’s activity by appointing an ally or not appointing a new head at all. As part of The Administration Project at Delve, we’ve been following potential replacements for Cordray, including former Republican SEC commissioner Paul Atkins, who has previously referred to Dodd-Frank as a “calamity” and will likely bring his strong views on limited government to the job. The wrinkle here is that Wall Street has accepted the new Dodd-Frank environment they work in while community financial institutions have been chomping at the bit for full repeal of this law and the complete disappearance of CFPB. The devil will be in the details of how Trump ultimately chooses to approach Dodd-Frank; he could side with community banks and other industries that have financing arms (i.e. car dealers and medical offices) through a full-throated reversal of the law, or with investment banks who may reap benefits from working within the law’s regulatory and bureaucratic structure.

Independent Financial Advisers Vs. Brand Name Management Companies On The Fiduciary Rule: Obama’s Department of Labor pushed through the “fiduciary rule,” a measure outlawing commission-based compensation for financial management and insurance advisors. The policy compelled advisors to sign a “best interest contract,” forcing investors into an up-front fee system. Key members of the Trump transition’s Labor Department landing team, including Manhattan Institute senior fellow Diana Furchtgott-Roth and Americans for Limited Government’s general counsel Nathan Mehrens, have vocally criticized the rule as a complex, 395-page “power grab.” Brand name financial management companies with offices across the country are most likely settling into this ‘new normal,’ while independent financial advisors and small family-owned firms are looking to kill this rule immediately. New leadership at Labor – including Trump’s nominees for Secretary of Labor Andy Puzder – will most likely do the heavy lifting on any change. Delaying the rule indefinitely or dropping the government’s legal defense of the regulation in current lawsuits would be the most likely move in the next administration. But, brand name management companies may look to amending the rule instead in order to keep a competitive advantage over independent financial advisers.

The large question here is whether or not there will be the political will from the Oval Office to take on reforms the press will report as taking away important protections for consumers. Given the personnel decisions the transition team has made, that question, like the ones above, remain unanswered. This type of uncertainty is why Delve launched the The Administration Project, to help companies and causes navigate the uncharted territory of the new administration. To learn more, click here.