Don’t Mess with Texas

Target announced this morning that it had misjudged consumer demand and over-ordered goods, which will hurt profits. U.S. stock markets headed lower on the news, which has renewed fears that the economy will slow as consumers shut their wallets despite the strong job market. More here.

Texas enters the Twitter deal

Texas’ Republican attorney general, Ken Paxton, is investigating whether Twitter has misled users by underreporting the number of bots on its platform. He announced the investigation yesterday, on the same day Elon Musk said in a regulatory filing that he had the right to pull out his $44 billion acquisition of Twitter due to concerns about the same issue. Musk, who moved Tesla’s headquarter to Texas last year, has increasingly been aligning himself with the Republican Party.

Spam accounts have become a contentious issue in Musk’s acquisition of Twitter. Around the same time that shares of Twitter and Tesla plummeted, Musk began publicly questioning Twitter’s disclosures that 5 percent of users are bots, indicating he may be fashioning a way to get out of or renegotiate the Twitter deal. Yesterday, Paxton similarly questioned that figure, arguing that Twitter might be in violation of Texas’ Deceptive Trade Practices Act.

Musk and Paxton are kicking it up a notch. Musk said in a letter, drafted by his lawyers at Skadden Arps,that if Twitter did not provide him with more information about how it accounted for its number of bots, it was in breach of its obligation to share information vital to the deal. Twitter, for its part, has concerns about sharing such confidential information with a man who has said he was considering launching a rival social media service, among other things.

It’s not clear that Musk’s demands are anything more than a fishing expedition, nor that the information is actually vital to closing the deal. The same goes for Paxton’s requests: “Consumer laws exist to protect consumers from real harm,” James Tierney, a lecturer at Harvard Law School and a former Maine state attorney general, told DealBook. “They do not exist to allow a government official to meddle in ongoing corporate transactions on behalf of a constituent.”

It’s the latest headache for Twitter in Texas. In September, Texas passed a law banning Twitter from removing users from its platform based on their viewpoints. Removing an account that appeared to be a bot spreading political misinformation, but was actually run by a real individual, would open Twitter up to litigation under that same law. Last week, the Supreme Court blocked the law from taking effect.

And it represents a new course for the Republican Party, which has traditionally espoused the value of free markets and deregulation. As with other hot-button issues, like vaccine mandates, gun control and energy, the party is increasingly embracing laws that target companies as part of the free marketplace, if those laws target policies embraced by liberals. “Cynical opportunistic state officials in Texas and Florida have abused their public duties,” Jeffrey Sonnenfeld, a top management professor at Yale University, told DealBook. He warns politicians that “weaponize private commerce” endanger foundations that “businesses require to thrive.”

HERE’S WHAT’S HAPPENING

Wells Fargo is pausing a hiring policy that led to fake job interviews. The bank instituted the policy to increase diversity, but it instead led some managers to conduct sham interviews of nonwhite and female candidates for positions that had already been filled, The Times reported last month.C.E.O. Charles W. Scharf said the bank will study what needed to change about its “diverse slate” requirement before restarting the process.

Peloton has another high-level departure. The at-home fitness company said its chief financial officer, Jill Woodworth, is leaving the company and will be replaced by Liz Coddington, who comes from Amazon Web Services. Peloton’s new C.E.O., Barry McCarthy, has cut the cost of its high-end connected exercise bikes and treadmills and increased monthly subscription fees, but that has yet to stabilize the company, which overexpanded during the pandemic.

Kohl’s is in advanced talks to be sold. The department store chain could be sold for about $8 billion to the retail holding company Franchise Group Inc., which owns the Vitamin Shoppe and other brands, The Wall Street Journal reported. Franchise Group reportedly offered about $60 a share for Kohl’s.

The S.E.C. is expected to outline ideas for improving markets. Chairman Gary Gensler plans to detail potential changes in a speech tomorrow that the S.E.C. believes will make markets more efficient for small investors and public companies, according to The Wall Street Journal. Meanwhile, pension funds have been pushing the agency to proceed with a proposed rule that would require private-equity funds to provide more disclosures to investors.

C.E.O.-worker wage gap widens during pandemic

Although a hot job market pushed up pay for low-wage workers, the average pay gap between those workers and their C.E.O.s widened even more last year.

The median pay for workers at companies that tend to pay low wages last year was up by 17 percent, to $24,000, a jump that more than doubled the rate of inflation, according to a study out this morning from the Institute for Policy Studies, a left-leaning think tank.

Still, those rising wages did not outpace C.E.O. pay gains, which rose by 31 percent at those same companies, to an average of $10.6 million. “We do have to acknowledge there was some good news last year,” Sarah Anderson, the lead author of the “Executive Excess” study, told DealBook. “But this could have been a time when companies used rising profits to level the pay playing field. Instead, we haven’t seen a very big shift in pay equity.”

C.E.O.s did even better at companies where salaries did not keep pace with inflation. Median workers’ wages at about a third of the firms in the I.P.S. study did not keep pace with inflation. At those companies, the average C.E.O. pay was up by 65 percent, or more than double the increase at all of the firms in the study. Among the companies highlighted in the report were Best Buy, where median pay fell 2 percent last year to $29,999, while the C.E.O., Corie Barry, received a 30 percent pay increase to $15.6 million.

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S.E.C. urged to require more transparency on labor spending

A group of former regulators will ask the S.E.C. to issue new rules, illuminating the cost and payoffs of work force investments. The petition, which DealBook is first to report, contends that investors need more information about what companies pay workers and urges the S.E.C. to propose several new rules, including requiring companies to disclose how much they are investing in their workforces.

The group includes Joseph Grundfest of Stanford and Robert Jackson of N.Y.U., two former S.E.C. commissioners who have often had opposing views. “We differ in our views about the regulation of firms’ relationships with their employees generally,” they wrote. “But we all share the view that investors need additional information.”

The current accounting and tax rules make investing in machines more attractive than spending on humans, the group says. A million dollars’ worth of robots are an asset on balance sheets, whereas the same amount spent on job skills is an cost that needs to be expensed immediately, according to one of the petitioners, Colleen Honigsberg of Stanford Law School. Currently, only about 15 percent of public companies disclose labor costs.

The proposed rules would require companies to disclose labor costs, rather than aggregating them with other expenses. They would also require companies to provide detailed work force compensation data, including information on the breakdown of contract, part-time and full-time employees.

How Elon Musk’s Twitter Deal Unfolded

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A blockbuster deal. Elon Musk, the world’s wealthiest man, capped what seemed an improbable attempt by the famously mercurial billionaire to buy Twitter for roughly $44 billion. Here’s how the deal unfolded:

The initial offer. Mr. Musk made an unsolicited bid worth more than $40 billion for the influential social network, saying that he wanted to make Twitter a private company and that he wanted people to be able to speak more freely on the service.

The response. Twitter’s board countered Mr. Musk’s offer with a defense mechanism known as a “poison pill.” This well-worn corporate tactic makes a company less palatable to a potential acquirer by making it more expensive for them to buy shares above a certain threshold.

Securing financing. Though his original offer had scant details and was received skeptically by Wall Street, Mr. Musk has been moving swiftly to secure commitments worth $46.5 billion to finance his bid, putting pressure on Twitter’s board to take his advances seriously.

Striking a deal. With the financing in place, Twitter’s board met with Mr. Musk to discuss his offer. The two sides soon reached a deal, with the social media company agreeing to sell itself for $54.20 a share.

Will the deal go through? For the purchase to be completed, shareholders have to vote and regulators have to review the offer first. Scrutiny is likely to be intense and questions remain about Mr. Musk’s plans for the company, especially after he threatened to pull out of the deal if Twitter does not provide more information on how it calculates the number of fake accounts.

“No one can credibly argue that this type of disclosure wouldn’t be valuable or material to investors in a highly competitive 21st century, global economy,” Senator Mark Warner, Democrat of Virginia, who supports the petition, said in a statement to DealBook.

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“Equal voting rights is not enough if you have very unequal funding of political campaigns.”

— Thomas Picketty, the economist and chronicler of inequality, makes his case for universal inheritance, worker ownership and “participatory socialism” on “The Ezra Klein Show.” His new book is titled, “A Brief History of Equality.”

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The talent pool that the U.S. needs to maintain its ‘world leader status’

A group of business leaders is pushing Congress to change an immigration policy that they say is harming the U.S. economy. In a letter sent today to Alejandro Mayorkas, secretary of the Department of Homeland Security, the group, which is made up of about 15 associations and companies including Google, Amazon, IBM, Salesforce and the Chamber of Commerce, said the policy leaves highly skilled immigrants and American companies in a lose-lose situation.

About 200,000 children of highly skilled foreign-born workers, often H-1B visa holders, are affected by the policy. Those young people, known as documented Dreamers, are unlike Dreamers who grow up in the U.S. without legal status. Dreamers have some legal relief from policymakers, but young people raised in the U.S. under a parent’s visa must leave by age 21 if their family’s application for permanent residence is pending.

Fixing the age-out policy is needed if the U.S. wants to “maintain its world leader status,” the letter says.American companies need to fill millions of job openings, but there just aren’t enough workers in the U.S., the letter says, and the job vacancies that need to be filled are “especially critical” to the country’s progress in “innovation and ingenuity.” Karam Bhatia, the global head of policy at Google, told DealBook that documented Dreamers represent a critical new talent pool, like their parents.

The policy also creates obstacles to recruiting. Because of current backlogs, those seeking green cards could end up waiting years, or even decades. Potential recruits, including skilled workers most in demand, don’t want jobs that could lead to their families being separated later on, he said. “Policy needs to be competitive in the immigration space to attract the kind of talent that is going to allow the U.S. to remain at the cutting edge of technological innovation around the world,” he said.

THE SPEED READ

Deals

• African payments company MFS Africa acquires a U.S. fintech company, Global Technology Partners. (FT)

• With the value of tech companies plunging, Tiger Global is down 52 percent this year. (WSJ)

Policy

• China is offering free Covid vaccine insurance packages to encourage skeptics to get vaccinated. (FT)

• “In Britain, a New Test of an Old Dream: The 4-Day Workweek” (NYT)

• Ukrainians look to ‘decolonize’ their streets, removing names that evoke the history of the Russian Empire or the Soviet Union. (NYT)

Best of the rest

• Tweeting complaints at airlines may be less effective than it was last summer. (WSJ)

• A new book discovery app, Tertulia, is distilling online chatter about books to point readers to those that are driving discussions. (NYT)

• “Don’t Believe Everything You Read About the Man in This Photo” (NYT)

• After two years of remote work, being “fashionably late” is falling out of fashion. (NYT)

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