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What It Takes to Be a Whistle-Blower: DealBook Briefing

Credit...Pete Marovich for The New York Times

Good Wednesday. Here’s what we’re watching:

• What it takes to be a whistle-blower.

• Broadcom whacks Qualcomm for raising its NXP bid.

• Untangling the productivity mystery.

• How Skadden got involved in the special counsel’s Russia inquiry.

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Sigmund Freud is reputed to have said that “sometimes a cigar is just a cigar.” The Supreme Court took that approach in deciding what is required to qualify for protection from retaliation as a whistle-blower.

A provision in the Dodd-Frank Act defines a “whistle-blower” as someone who provides “information relating to a violation of the securities laws to the Commission.” That seems simple enough, but the Securities and Exchange Commission made something of a hash out of the requirement by taking an expansive view in a rule aimed at protecting an employee from retaliation even if the person only reports information internally.

In Digital Realty Trust v. Somers, a former employee of Digital Realty, Paul Somers, claimed he was terminated after he reported possible securities law violations to senior management. Although he never alerted anyone outside the company, Mr. Somers filed a lawsuit claiming his termination violated the anti-retaliation provision by relying on the S.E.C.’s rule.

The Supreme Court, in an opinion by Justice Ruth Bader Ginsburg, rejected that reading of the statute. It applied a simple analysis: “Courts are not at liberty to dispense with the condition—tell the S.E.C.—Congress imposed.” By not reporting his suspicions to the S.E.C., he lost the protection afforded whistleblowers.

One of the complaints expressed by companies when the S.E.C. considered the whistle-blower rules was that they did not require employees to report information to management first. The incentive created by the Digital Realty ruling is straightforward: Don’t just tell your boss about possible violations; make a beeline to the S.E.C.’s front door, at least if you want protection from retaliation.

— Peter J. Henning

The Dow Jones industrial average rose 139 points in the half-hour after the Federal Reserve released the minutes of its most recent policy meeting at 2 p.m. and was up more than 300 points on the day. Then the index sank 455 points in the final 90 minutes to close down 0.67 percent for the day.

Why?

There didn’t appear to be anything in the minutes to make investors particularly bearish or bullish.

Perhaps the bond market was to blame for the plunge. The yield on the 10-year Treasury note, which rises as its price falls, kept climbing after the minutes came out, closing at 2.95 percent. Higher bond yields can make stocks look more expensive, prompting investors to sell. As a result, Wednesday’s mini move indicates that the tug of war between the stock and bond markets is still very much on.

While we’re on the Fed minutes, it appears that the central bank’s policymakers did not spend much time discussing an indicator that is flashing a warning sign. The data point in question is the saving rate, which recently sank to a 12-year low. With the rate at 2.4 percent of disposable income, a big drop in the stock market, like the one that occurred earlier this month, could prompt consumers to cut their spending. The Fed’s policymakers did not appear overly worried about the saving rate at their last meeting, which was held before the market’s plunge. The minutes state:

In connection with solid growth in consumer spending, a couple of participants noted that the household saving rate had declined to its lowest level since 2005, likely driven by buoyant consumer sentiment or expectations that the rise in household wealth would be sustained.

— Peter Eavis

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Credit...Mike Blake/Reuters

Qualcomm defied Broadcom’s demand not to raise its takeover bid for NXP on Tuesday by increasing that offer by about 16 percent, to $127.50 a share from $110. Now Broadcom has retaliated.

Broadcom shaved $3 per share off its hostile takeover bid for Qualcomm, to $79.

Broadcom’s rationale is that the new NXP offer transfers value away from Qualcomm’s shareholders. From the news release:

Broadcom believes that a responsible Qualcomm board could have preserved value by following ISS’s clear recommendation to work with Broadcom on the NXP transaction and negotiate the sale of Qualcomm to Broadcom. Instead Qualcomm’s board acted against the best interests of its stockholders by unilaterally transferring excessive value to NXP’s activist stockholders.

Let’s take a look at the math

• Broadcom argues that Qualcomm gave up $4.10 a share, or $6.2 billion, in value to NXP shareholders. In response, it cut its price. At $79 a share, Broadcom’s current offer is just under 13 percent higher than its original offer. (Of course, other elements of Broadcom’s last bid — the $8 billion breakup fee for antitrust reasons, the ticking fee if a deal takes more than 12 months to close — still stand.)

• Broadcom also contends privately that had Qualcomm agreed to start deal talks, the two of them could have held firm against NXP shareholders like Elliott Management and Soroban Capital Partners. By giving up less negotiating power to the holdout shareholders, the argument goes, Qualcomm could have recut the NXP deal at a far lower price.

• Qualcomm argues privately that the $4.10 a share is nonsense, since the NXP deal a) wasn’t going to get done at $110 a share and b) will still add to its earnings per share price starting in the 2019 fiscal year.

The bet on the shareholder meeting

Broadcom had previously said that it would walk away if the NXP offer went above $110 a share, but now seems content to take its chances at Qualcomm’s annual shareholder meeting.

Broadcom wants six seats on Qualcomm’s board. That campaign gained momentum when the proxy advisers I.S.S. and Glass Lewis recommended that Qualcomm shareholders vote for at least four of its director nominees.

A Qualcomm representative didn’t have an immediate comment.

How the shares moved today: Qualcomm’s were down 1.5 percent, while Broadcom’s were up slightly. Shares in NXP — the real winner in this deal saga so far — were essentially unchanged.

— Michael de la Merced

The deals flyaround

• Carl Icahn and Darwin Deason pressed Xerox to pursue alternatives to its complicated deal with Fujifilm. (Reuters)

• HNA has borrowed from the private equity firm Pacific Alliance Group, a sign that it may be struggling to raise capital from more traditional sources. (FT)

An economy is doing well when companies each year manage to become more productive, or in other words, get more output from their employees and equipment. But productivity for years has grown far more slowly than it did in the past, effectively restraining economic growth. This decline has prompted economists to hunt for causes – and the latest big work on the issue comes from the McKinsey Global Institute. The Upshot’s Neil Irwin does a great job of explaining McKinsey’s main finding:

The latest wrinkle is that the researchers now believe that productivity growth depends not just on the supply side of the economy — what companies produce and what technologies they use to do it — but also significantly on the demand side. That is to say, productivity advancements don’t happen in a vacuum just because technology is available. They also happen because companies need to increase production to match demand for their goods, and a shortage, either of workers or of materials, forces them to think creatively about how to do so.

Little in economics is straightforward, however, and McKinsey’s deep dive prompted a couple of questions. Jaana Remes, one of the authors of the work, was kind enough to respond.

1) In its report, McKinsey notes that the slow down in productivity growth was noticeable before the financial crisis. What caused that? And to what degree did those causes contribute to the decline in productivity growth after the financial crisis? This is important because these forces could continue to weigh on productivity.

In the years leading up to 2008, the productivity improvements that started in the 1990s with the introduction of information technology were largely complete, Ms. Remes explains. Important new technologies can often take well over 10 years to have a big impact on productivity, she adds. The optimistic take, though, is that we can in the coming years expect to see big benefits as companies further automate, and introduce artificial intelligence.

2) If a sluggish economy can create the conditions for weak productivity, why did France, Spain and Italy, whose economies were anemic in the period under study, have significantly better productivity performances than faster-growing countries?

First, the numbers: From 2010 to 2014, labor productivity grew by 1.4 percent a year in Spain and 1 percent in France, well in excess of the negative 0.2 percent rate for Britain and the United States. Why was that? Because Britain and the United States had made superior productivity gains before 2010. That made it harder for the two countries to notch similarly strong productivity growth in the years after the financial crisis. By contrast, France and Spain, which had made far fewer productivity gains before 2010, were able to eke out at least some afterward. Ms. Remes also points out that a big cause of Spain’s post-2010 gain came from a reduction in hours worked. That might be described as the least desirable way to bolster productivity because it implies a reduction in incomes for workers. The most economically beneficial type of productivity gain occurs when output per employee increases as hours worked grow.

— Peter Eavis

New research posted by France’s central bank, the Banque de France, shows that the largest companies in the United States now account for a significantly larger share of production. This dominance, the paper asserts, could allow the companies to enjoy “monopoly rents,” the term economists use to describe the subsidies companies enjoy if their business is protected in ways that are not available to other firms.

“If these firms hold a dominant position in their market, they enjoy monopoly rents and have little incentive to invest in order to increase their productive capacities. This behavior could explain the weakness of investment in recent years, despite the high rates of return on capital.”

David Wessel, writing for Harvard Business Review, also recently took a look at whether dominant companies are holding the economy back.

— Peter Eavis

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JPMorgan’s headquartersCredit...Mike Segar/Reuters

The largest United States bank by assets announced that it plans to tear down its current headquarters at 270 Park Ave. and build 2.5 million square-foot modern tower in its place.

The new headquarters has yet to be designed, but it is expected, according to Bloomberg, to be between 70 and 75 stories and house 15,000 employees. The current headquarters was designed in the late 1950s for about 3,500 employees, JPMorgan said.

During construction, employees will be temporarily moved 237, 245 and 277 Park Ave. and 383 and 390 Madison Ave., Bloomberg reported citing a person familiar with the matter.

The tower would be the first major project under New York City’s Midtown East rezoning plan, designed to encourage office construction in the area.

The job recruiting site said Wednesday that it has hired Jim Cox as its C.F.O., as part of a series of high-level executive appointments.

Mr. Cox was most recently at Lithium Technologies, a maker of customer relationship management software.

Here’s what Robert Hohman, Glassdoor’s C.E.O. and co-founder, said: “We are pleased to welcome Jim to Glassdoor as our new CFO as he brings a proven track record of building and managing financial operations and teams at high-growth technology companies.”

Glassdoor also appointed Christian Sutherland-Wong, most recently its general manager of monetization, as its first chief operating officer, and Samantha Zupan, a longtime executive, as its vice president of global corporate communications.

— Michael de la Merced

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Alex van der Zwaan leaving the Federal District Court in Washington on Tuesday.Credit...Susan Walsh/Associated Press

The giant law firm’s work for the former Trump campaign manager — who has been charged with several criminal acts by Robert Mueller’s inquiry into Russian election interference — has come into question after a former Skadden associate entered a guilty plea in the investigation.

More from Kenneth Vogel and Andrew Kramer of the NYT:

The interest from prosecutors in what Skadden did for the Ukrainian government is one indication of the wide-ranging nature of the inquiries related to Mr. Manafort. It also highlights the risks associated with advising authoritarian governments overseas, a lucrative sideline among Washington lawyers, lobbyists and public relations consultants.

Skadden’s response: It fired the associate in question, Alex van der Zwaan, last year, and is cooperating with Mr. Mueller’s team.

Elsewhere in Russian election meddling: Here’s what we still don’t know about Facebook’s role. Chris Hughes, a co-founder, said Facebook must do more to prevent foreign interference. President Trump blamed Barack Obama for not being tougher on Russia. And meet the oligarch who helped fund Russia’s troll agency.

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Credit...Brandon Thibodeaux for The New York Times

The judge overseeing the Justice Department’s lawsuit to block the $85.4 billion takeover of Time Warner denied AT&T’s request to see government communications about the case. He ruled that AT&T had not “made a credible showing” that the White House had singled it out for retribution.

More from Cecilia Kang of the NYT:

The decision puts a crimp in AT&T’s defense for its $85 billion proposed merger with Time Warner. And it is a big win for the Justice Department, which would like to avoid attention on the role of politics in its decision to stop the deal.

AT&T had already agreed to take the Justice Department’s antitrust chief, Makan Delrahim, off the witness list — but could call him during the trial if needed.

The trial begins March 19.

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Credit...Kyle Johnson for The New York Times

Symptom A: Albertsons buying Rite Aid to gain scale and enter the pharmacy business

Symptom B: Walmart’s online sales growing just 23 percent in the fourth quarter, after it splashed out on Jet.com, Bonobos and more

More from Michael Corkery and Chad Bray of the NYT:

“It’s the battle of the old generation versus the new generation,” said Craig Johnson, president of Customer Growth Partners, a retail consulting firm. “And right now the companies that are gaining share is the new generation.”

Critics’ corner

• Of Walmart, Jennifer Saba of Breakingviews writes, “Longer term, failure online is an existential risk.” But Elizabeth Winkler of Heard on the Street says, “Given its huge size, investors need to temper their growth expectations.”

• Of the Rite Aid deal, Max Nisen and Tara Lachapelle of Gadfly write, “There aren’t a lot of appealing options out there, and Albertsons had largely exhausted them.”

Elsewhere in Amazon news

• Why would Amazon employees working on the HQ2 search be interested in an article about Arlington, Va.? Hmm. (ARL Now)

• Amazon now sells its own line of over-the-counter drugs. (CNBC)

• A closer look at Jeff Bezos’s 10,000-year clock. (CNBC)

• Start-ups that take money from the Alexa Fund should still fear Amazon’s competition. (The Information)

• Mr. Trump ordered the Justice Department to regulate bump stocks. But the Florida legislature rejected a bill that would have banned many semiautomatic weapons and large-capacity magazines. And a Florida teachers’ pension plan had held a stake in the maker of the rifle used in the Parkland school shooting.

• A clampdown by John Kelly on interim security clearances has upset Jared Kushner, who has one. (NYT)

• The advocacy group Common Cause filed complaints with the Justice Department and the Federal Election Commission over reports of $150,000 being paid to a former Playboy Playmate who said she had an affair with Mr. Trump. (WSJ)

• The Trump administration wants to sell nuclear reactors to Saudi Arabia, even though the kingdom won’t accept nonproliferation restrictions. (WSJ)

• The U.S. sold $179 billion worth of debt yesterday, now that the debt ceiling is no longer an immediate issue. (Bloomberg)

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Credit...Charly Triballeau/Agence France-Presse — Getty Images

From Peter Eavis:

For the first time — and after much protest — public companies must report their employees’ median pay and compare it with that of their C.E.O.s. (It’s thanks to Dodd-Frank.)

Honeywell disclosed last week that its C.E.O., Darius Adamczyk, took home $16.8 million last year, 333 times median employee pay.

Ratios at other companies:

• Teva Pharmaceuticals’ was 302:1

• Apollo Global Management’s was 1:1 (if you exclude, as Apollo did, Leon Black’s $91 million in dividends from his stock holdings)

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Credit...Steve Marcus/Reuters

From Matthew Goldstein:

A Manhattan federal judge rejected a motion by his Point72 Asset Management to temporarily seal the complaint in a sexual discrimination lawsuit against the firm by Lauren Bonner, an employee who described the firm as a testosterone-fueled “boys’ club.”

The judge said the request was “not narrowly tailored” and ran counter to the “presumption of public access” to court records.

Point72 is trying to push the case into arbitration, and said the complaint revealed details of other employees’ compensation.

Elsewhere in sexual misconduct: Sports Illustrated published an investigation into a corrosive culture inside the Dallas Mavericks N.B.A. franchise.

• How the founders of a price comparison site ended up as antitrust crusaders taking on Google. (NYT)

• The dominance of tech giants like Facebook and Amazon could harm productivity and economic growth, according to Banque de France. And George Soros’s Open Society organization is examining ways to push back against those companies.

• Apple is in talks to buy directly from miners to secure long-term supplies of cobalt, according to unnamed sources. (It’s vital for batteries.) But don’t expect the Democratic Republic of Congo to become a real-life Wakanda.

• Facebook and Twitter fall short in enforcing rules against impersonation. (NYT)

• A.I. is getting cheaper to make — and to manipulate. (NYT)

• Spotify’s co-founders plan to keep control through super-voting shares, unnamed sources say. (Bloomberg)

• Google has revamped its payments service to better compete against Apple Pay Cash. (CNBC)

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Credit...Federico Parra/Agence France-Presse — Getty Images

The embattled country is pushing ahead with the presale of the “petro,” backed by its oil reserves, hoping to pay down debt and increase imports. President Nicolás Maduro called it a “cryptocurrency to take on Superman.” But few people give it much hope.

Some questions: Would buying the currency run afoul of U.S. sanctions? Can you trust the Venezuelan government to maintain the link between the petro and oil reserves? And how will pricing work?

Elsewhere in digital money

• Long Blockchain — yes, that company — replaced its C.E.O. and announced plans to spin off its iced beverages business, while trying to avoid being delisted by Nasdaq.

• Airbus and Mercedes-Benz have hired a blockchain consultancy run by U.C. Berkeley students. (The Information)

• Hackers broke into a Tesla-owned Amazon cloud account to use it for mining virtual currencies. (Fortune)

• You missed your chance of free Bitcoins. (Reuters)

And Bitcoin’s at $11,308.70 today, according to CoinMarketCap.

Jeff Hildebrand, the billionaire oil mogul, has stepped down as the C.E.O. of Hilcorp, though he’ll remain executive chairman. (Bloomberg)

• The C.E.O. of Gap’s namesake brand, Jeff Kirwan, has stepped down as the label continues to struggle. (WSJ)

• The C.E.O. of the Mayo Clinic, John Noseworthy, plans to step down by year end. (Axios)

• A Republican plan to let people pay for time off with a new baby by collecting social security benefits early has raised concerns about putting women into more precarious positions in retirement. (NYT)

• If the U.S. had to face a recession, it would have few stabilizing tools at its disposal. (NYT)

• The Weinstein Company has formally responded to one of the class-action lawsuits it faces, saying Harvey Weinstein acted alone and that the statute of limitations had run out on some of the claims. (Deadline)

• The slide in the dollar has less to do with U.S. policies and fundamentals and more to do with investors preferring turnaround stories in Europe and Japan, says Goldman Sachs. (Bloomberg)

• Outstanding Hospitality Management, which operates airport restaurant spaces, sued the Kushner Companies over a planned food hall at the former NYT Building in Manhattan. (Bloomberg)

• Li Yonghong, owner of the soccer club A.C. Milan, denied reports in the Italian newspaper Corriere della Sera that he was selling assets to settle debts. (BBC)

• Ray Dalio’s $22 billion bet is against large European companies, but ones with far more economic exposure to the rest of the world than to Europe. (FT)

• Glencore is grappling with how to pay Dan Gertler, a former partner who has been placed under sanctions by the U.S. government. It will owe him as much as $200 million in royalties over two years. (WSJ)

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