Money Stuff: The Killer Non-Acquisition

We talked last week about fake mergers and acquisitions. That is, we talked about situations in which a big company might pretend to want to buy another company — might sign a letter of intent, do due diligence, negotiate a deal, maybe even sign a merger agreement — without actually intending to close the deal. The big company might want to crush competition, and the efficient way to crush a competitor might not be to buy it, but to pretend to buy it. If you enter into exclusive merger negotiations with a smaller company, then:

1. Nobody else can buy it, so your big competitors won’t be able to get a leg up on you; 
2. You can learn a lot about the company in due diligence, and maybe steal some of its ideas and customers without actually buying it; and
3. You can make the due diligence annoying and intrusive, so the target company won’t be able to focus on its business, and you’ll be able to out-compete it.

This generally seems implausible to me, but there are at least alleged examples: Phillips 66 Co. was accused of doing something like this to Propel Fuels Inc. in 2024, Novo Nordisk A/S was accused of doing something like this to Metsera Inc. in 2025, and just this month Post Road Group was accused of doing something like this to Planet Networks Inc. Maybe this is a thing? Maybe companies regularly enter into fake merger deals to stifle competition? 

Or maybe not “fake,” maybe, like, “semi-bluff.” The accusation against Novo Nordisk was that it wanted to prevent Pfizer Inc. from buying Metsera (and getting its hands on a weight loss drug to compete with Novo’s). It would have been fine buying Metsera to prevent Pfizer from getting it, but there were serious potential antitrust problems that might prevent that from happening. Signing a merger agreement with Metsera, and committing to go through a lengthy (and possibly doomed) antitrust approval process, would at least prevent Pfizer from getting Metsera for a year or two. And then if the antitrust review worked out and the deal closed, fine, no problem; Novo didn’t object to owning Metsera. (As opposed to the Phillips 66/Propel and Post Road/Planet cases, where the targets really did accuse the buyers of not intending to close.) But its alleged goal — preventing Pfizer from buying Metsera — could be accomplished whether or not the deal closed.

This accusation is interesting because it suggests a possible problem with US antitrust regulation. Typically the way antitrust review works is that companies sign a merger agreement, then they submit the deal to antitrust regulators for review, the regulators review it and make a decision, and the deal closes (if the regulators sign off) or doesn’t (if they don’t). The normal theory is that the closing of the deal is the antitrust problem, so the regulators get to review it before it closes. But the theory here is that even the signing of the deal is the problem, and that by the time the regulators are reviewing it it’s too late, the damage is done.

Anyway here’s another alleged example:

The chairman of the Senate’s antitrust subcommittee is raising concerns over Netflix’s proposed acquisition of the Warner Bros. movie-and-television studios and HBO Max streaming service. 

In a letter to Netflix and Warner Discovery leaders, Sen. Mike Lee (R., Utah) said the deal “appears likely to raise serious antitrust issues, including the risk of substantially lessening competition in streaming markets.” Lee’s letter was sent to Netflix Co-Chief Executives Ted Sarandos and Greg Peters and Warner Discovery Chief Executive David Zaslav last week.

The senator said the deal “raises concerns about potential abuse of the merger review process,” particularly if an acquirer obtains “competitively sensitive information under the guise of due diligence.” ...

Lee’s letter said he was concerned that the Warner-Netflix deal “could operate as a so-called ‘killer non-acquisition,’ effectively weakening a major competitor through the pendency of the merger review process.” The letter didn’t mention Netflix’s rival Paramount, which is seeking to thwart the proposed merger and buy Warner Discovery itself.

I’m not sure what the evidence is that Netflix wants to weaken Warner (or Paramount), as opposed to buy it. In any case, the “killer non-acquisition” is not a concept I had ever thought of until recently, but maybe it’s a real thing.

One problem in financial journalism is that a lot of normal people are not that interested in financial journalism. Not you! You like financial journalism, you’re reading Money Stuff, it’s an email newsletter, we’re all cool here. But the typical financial journalist will do a deep investigation into some sort of complex financial malfeasance, and will write up a killer story, and will take it to her editor, and the editor will be like “yes but how do we get people to care about this?” And they will sit around scratching their heads because, stereotypically, people don’t care about complex financial malfeasance.

There are some tricks, though. For instance, my understanding is that if you want people to read your financial journalism, you should try to put the words “billionaire” or “Goldman Sachs” in the headline. That might be a little bit out of date — Goldman is not the plump target it was a decade ago — but you do still see a lot of headlines like “Goldman Sachs, Billionaires Not Involved in Local Scam.” Get those clicks.

Another trick is that people do care about sports. There is some overlap between finance and sports. Steve Cohen and David Tepper and Josh Harris and Todd Boehly are prominent finance guys and also sports team owners, so if Point72 does something you can write a headline like “Billionaire Mets Owner’s Hedge Fund Does Thing.”

Or we have talked a few times about Aspiration Partners, a fascinating alleged scam involving allegations of carbon-credit fraud and circular payments for fake tree-planting services. Fun! For you and me. But Aspiration got way way way more attention when sports journalist Pablo Torre reported allegations that it might have helped the Los Angeles Clippers funnel money to Kawhi Leonard in ways that got around the National Basketball Association’s salary cap. Did it? The evidence was pretty circumstantial — Clippers owner Steve Ballmer invested in Aspiration, but he had no control and seems to have been scammed himself; Aspiration did pay Leonard for what seems like a no-show endorsement deal, but it paid lots of people for no-show endorsement deals for strange reasons of its own — but the point is that “weird tree company helps NBA star evade salary cap” is just a much better story than “weird tree company does weird tree fraud.”

Anyway we have talked a bunch of times around here about Hunterbrook, the hedge fund that is also a newspaper. What distinguishes “Hunterbrook, a hedge fund that is also a newspaper,” from all of the other activist-short-focused investors [1]  who sometimes publish damning and widely read reports about companies that they are shorting? Part of the answer is that, compared to regular activist short sellers, Hunterbrook is better at media. It knows how to make a pretty website and how to write a good headline. It knows that, if your story involves the owner of a sports team, you start with the sports team. And then you go on Pablo Torre’s podcast. Several readers sent me this Hunterbrook story:

Ubiquiti, a $33 billion tech empire, is led by Robert Pera, owner of the Memphis Grizzlies. He pledged to tighten controls on his products years ago — so why are Russian military units sending Ubiquiti vendors thank-you notes?

Based on Hunterbrook Media’s reporting, Hunterbrook Capital is short $UI and long a basket of comparable securities at the time of publication.

As well as Hunterbrook founder Sam Koppelman’s appearance on Pablo Torre Finds Out. That’s how you move a stock! I mean, that’s how you publicize a story. Actually the stock was only down about 1.2% at noon today, so maybe it’s not how you move a stock, but as a financial journalist I have to respect it.

Last year, Optimum Communications Inc. (formerly Altice USA Inc.) sued its lenders. Optimum was running into some trouble with its debt, and it wanted to renegotiate with its lenders. Often a company will do that piecemeal: Buy back one lender’s loans at a discount, negotiate with another to swap its loans into longer-dated ones, give a third lender some extra collateral if it agrees to take less money, etc. Well, really, these days, what a company will typically do is play one set of lenders against another: Find 51% of the lenders and give them a bonus in exchange for agreeing to stiff the other 49%, etc. This is usually called a “liability management exercise,” or “LME,” or sometimes “creditor-on-creditor violence.”

Optimum, though, had no luck doing any of this stuff with its lenders, because they had all gotten together and agreed not to fall for it. A bunch of big credit managers, owning about 99% of Optimum’s debt, signed a cooperation agreement under which they would not do any deal with Optimum unless two-thirds of them approved it. No piecemeal deals, no favored and disfavored groups, just one collective negotiation.

Optimum sued, arguing that this was an illegal antitrust conspiracy. From its complaint:

The Cooperative is a classic illegal cartel. Through the Cooperation Agreement, competing debt investors have agreed to lock Optimum out of the credit market unless Optimum offers terms the entire Cooperative deems acceptable. This is a traditional group boycott – horizontal competitors refusing to deal in concert – that the Sherman Act has long condemned as per se illegal. It is also classic price fixing: the Cooperative is collectively dictating terms to Optimum by forcing it to transact only at loan and bond prices the whole group will accept. These restraints decimate competition and obstruct the capital markets from working as intended.

We talked about this at the time, and I sympathized with both sides. On the one hand, yes, it is weird when a bunch of competing firms all get together and agree not to undercut each other; undercutting each other sort of is the essence of competitive markets. On the other hand, it is quite normal and sensible, when a company runs into distress, for creditors to get together to try to divide up the pie fairly, rather than rushing to grab what they can and leaving others worse off. (This is, for instance, how bankruptcy law works, so it is intuitive for creditors to take a similar approach outside of bankruptcy.) My instinct was “cooperation agreements among creditors are common, so they can’t really be illegal,” which is not a rigorous analysis but does kind of feel right.

You know who had a similar reaction? Every creditor. I mean, every one of Optimum’s creditors, certainly — the defendants are Apollo, Ares, BlackRock, GoldenTree, JPMorgan, Loomis Sayles, Oaktree and PGIM — but also a lot of other credit managers who sometimes enter into cooperation agreements and don’t want to hear that they are illegal. Optimum’s lawsuit did not go over well among big lending firms.

So they, uh … I don’t want to say “they all got together and agreed to boycott everyone involved in the lawsuit,” but here’s a funny Financial Times story about the fallout:

Kirkland & Ellis has quit as legal counsel to telecoms group Altice USA after pressure from top US private capital firms, according to two people directly familiar with the situation.

The investors were angered by a novel antitrust lawsuit filed last November by Altice USA, which alleged that they had formed an illegal cartel in a debt refinancing negotiation. ...

The lawsuit from Altice USA, now known as Optimum Communications, was filed by Kellogg Hansen, a Washington DC boutique law firm.

However, the creditors believed Kirkland had been behind the lawsuit after lawyers from the Chicago-based firm, which dominates assignments for distressed debt and bankruptcy situations, had publicly mused for years about challenging co-operation agreements. ...

Kirkland’s top executives had held meetings in recent weeks with private capital firms to soothe feelings over the lawsuit, according to people familiar with the matter.

Among the demands made by those money managers was that Kirkland exit the Optimum assignment, according to people familiar with the matter.

I feel like Optimum’s (remaining) lawyers might want to add this to the lawsuit.

One overbroad but interesting model of crypto is that it was all just practice. “Sure sure sure,” this model says, “everything in crypto is pointless and silly, but it prepared the ground for other things that have real value.” The most obvious example is the modern boom in artificial intelligence: The crypto boom created huge demand for graphics processing units and data centers, chip companies made chips and developers built out data centers, the crypto crash left all those chips in all those data centers at loose ends and available for cheap, and they were used to train large language models and kickstart the modern AI boom. A lot of people in 2021 thought that crypto was the future of the financial system, and they were wrong, but because of their mistake now your computer can write your college essays for you. I don’t want to endorse this model entirely, but it is something to think about.

Similarly, perhaps, the future of … maybe “the financial system,” or maybe just “individuals trading stuff for fun on their phones,” is prediction markets. I am personally skeptical of grandiose claims for prediction markets — when you read “prediction markets” you should generally just think “online sports gambling” — but people do keep making those grandiose claims. And certainly crypto prepared they way for prediction markets, in quite literal and straightforward ways. Bloomberg’s Olga Kharif reports:

Not long ago, Nikshep Saravanan was deep in the crypto trenches — trading memecoins, reaching out to venture capitalists, and trying to launch a startup for digital creators. By January, he’d dropped it all. These days, he spends hours on prediction markets, tracking odds on everything from sports to politics.

“As I was trying to get traction without funding, the prediction-markets space started blowing up,” recalled the 27-year-old Canadian.

Saravanan is part of a fast-growing wave of crypto-native traders cooling on the token economy and gravitating toward event betting. Where the action once revolved around meme coins and protocol launches, it’s now about interest-rate decisions, NBA games, and weather forecasts. ...

The shift reflects both opportunity and fatigue. Bitcoin is down nearly 30% since its October peak, and many altcoins have fared far worse. The crash sapped energy and attention from the crypto scene. Prediction markets, by contrast, are pulling in the same speculative crowd, offering a sharper hit: binary odds, real-world stakes, fast resolution. No multi-year roadmaps, just a dopamine loop with a yes or no verdict.

Yeah I guess another way to put it is that young men naturally gravitate to sports gambling, and for a few years crypto was able to redirect that sports-gambling energy into another, more arcane form of gambling, but now everyone’s back to sports gambling.

We have talked a few times about what I think is the essence of the “digital asset treasury company” trade, which worked for a while last year until it didn’t. The essence of it is:

1. A company’s stock trades at a large premium to the value of its underlying assets (classically Bitcoin or some other crypto token, but maybe gold or something weirder).
2. The company therefore issues more stock (at a premium) to buy assets (at no premium).
3. The asset value per share therefore goes up.
4. The stock value therefore goes up.

Step 1 is a mystery: Why does the stock trade at a premium? “Because investors know it will do this strategy”? “Memes”? I dunno, you just have to take it as a given. It was true, for instance, that Strategy Inc. (formerly MicroStrategy) traded at a large premium to its net asset value, so it could sell stock at a premium to buy Bitcoin, so it could increase its Bitcoin per share, so this all worked. “Accretive dilution,” people called it.

Step 4, meanwhile, is not strictly a requirement. If you have a pot of $100 of Bitcoin and 100 shares of stock (net asset value $1 per share), and your stock trades at $2 per share, and you sell 100 more shares for $200 and buy $200 worth of Bitcoin, then you will have $300 of Bitcoin, 200 shares outstanding, and a net asset value of $1.50 per share. If your stock continues to trade at 200% of net asset value, your stock will trade at $3 per share ($600 of market capitalization). But there is no law of nature saying that the premium has to remain constant. If everyone wakes up and says “wait this is dumb” and your stock trades at no premium to net asset value, it will only trade at $1.50 per share. Still, $1.50 per share is more than $1, which is the net asset value (not stock price) you started with. By selling more shares at a premium, you genuinely have increased the value of the company.

That is: You have created shareholder value purely through your financing strategy, or almost purely. You created shareholder value by (1) selling stock to people who wanted to buy it at a premium, (2) getting money and (3) not lighting the money on fire. If you invested the money in something that went up, great. If you invested the money in Treasury bills, that’s fine too. (I wrote half-jokingly once about the idea of a stablecoin treasury company.) If you invested the money in magic beans that went to zero, oops, bad. Obviously these are mostly crypto treasury companies, so that was a real risk. But if you were able to sell stock at a premium for a while, and you invested the money in something that more or less held its value, this was actually a good trade.

And therefore many people who bought the stock at a premium were right to do so [2] : The premium reflected the future growth in net asset value that the company would be able to achieve by selling stock at a premium to buy more assets. The premium reflected the company’s ability to monetize the premium. This is obviously circular but that doesn’t make it wrong.

Strategy popularized this trade for Bitcoin, that is, the trade of “sell stock at a premium to buy Bitcoin.” But Strategy certainly didn’t invent the trade in general. “Sell stock at a premium to buy assets to retroactively justify the premium” is a strategy as old as the stock market. In recent years it has often taken the form of meme stocks, because a “meme stock” pretty much just means “a stock that trades at a premium to its intrinsic value for no real reason.” I once wrote about GameStop Corp.:

By paying a ton of money for GameStop stock, its shareholders have inspired its executives to work harder (and hire better executives). They have inspired those executives to think bigger; if you run a $20 billion company you will naturally make bigger plans than if you run a $300 million company. They have certainly ushered in a whole new era at GameStop: the era in which it is a meme stock with an enormous valuation. Perhaps also an era in which it justifies that valuation.

Anyway this week Michael Burry and Byrne Hobart wrote the bull case for GameStop. Hobart:

Gamestop is a differently fun kind of situation, where its accretion comes from being willing to issue new stock above book value.

Burry correctly points out that given Gamestop's low cost of capital and their big tax-loss carryforward, they're able to be the high bidder for many acquisitions. What he's apparently hoping for is that they'll turn into a holding company that allocates capital into other promising opportunities. ...

You can pay a lot to invest in a company that has a dying operating business and constantly dilutes shareholders because that's what maximizes the value of the stock. The clearest analogy is to Microstrategy circa a year or two ago: if investors randomly decide that some company deserves to trade at a premium to the value of the assets it owns, it can keep trading its stock for other assets until those shareholders change their mind. 

The trick, of course, is that if you can raise capital accretively, you have to allocate it to uses that aren’t too bad.

Elsewhere! 

Regencell Bioscience Holdings, a small Hong Kong company, is grappling with a struggling business and a Justice Department investigation. Yet for reasons that remain a mystery, its Nasdaq-listed shares have been surging again.

Despite recurring losses, no revenue and no salable products, Regencell finished last week with a $15.5 billion stock-market value, up 50% since year-end and 126-fold since its initial public offering in 2021. ...

Regencell’s wild ride illustrates how disconnected from reality some of the market’s fringes have become. The company says it is developing traditional Chinese medicine, primarily herbal formulas, to treat autism spectrum disorder and attention-deficit hyperactivity disorder.

In a written response to questions, Regencell’s chief operating officer, James Chung, said, “Our CEO was patient #1 and he had remarkable results with the ADHD/ASD treatment and his aim is to make it accessible to everyone.” He said Regencell’s chief executive, Yat-Gai Au, “firmly believes that the company’s shares have consistently been a target of short selling from our IPO to present.” 

Right, I mean, I don’t know anything about this company, but in general there is a certain overlap between “companies whose stocks trade at huge premiums disconnected from reality” and “CEOs who seem like they could easily be tempted by a mysterious stranger with a handful of magic beans.”

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