Pfizer goes from hunter to hunted as Starboard circles

One thing to start: Howard Lutnick, the chief executive of Cantor Fitzgerald and co-chair of Donald Trump’s transition team, told the FT that the former president’s next administration will move at a “speed no one’s ever done before” if he was elected again in November, but warned that appointees must prove their “loyalty”.

In today’s newsletter:

• Pfizer blindsided by Starboard attack

• Jane Street rides an ETF boom

• Byju’s and the missing millions

Starboard teams up with Pfizer alumni

A long-planned trip for Pfizer’s board of directors, including its chief executive Albert Bourla, to tour the drugmaker’s Irish production facilities was thrown into chaos on Sunday when it emerged that activist investor Starboard Value had taken a $1bn stake in the pharmaceutical giant behind the Covid-19 vaccine.

With one headline, Pfizer had gone from being a well-known hunter — spending heavily to buy rivals — to the hunted.

Adding to the instability for Pfizer’s team is the fact that Starboard has teamed up with several of its high-profile alumni. That includes former Pfizer chair and chief executive Ian Read and erstwhile finance chief Frank D’Amelio, who called at least four Pfizer board members on Sunday to pitch them on Starboard’s vision for how to turn around the company, people familiar with the matter told the FT’s Oliver Barnes and DD’s Maria Heeter.  

For Read, who served as Pfizer’s chief executive for eight years before becoming its chair, it is personal: he appointed Bourla to the top job. Now, he is collaborating with an activist investor, questioning Bourla’s decision- making that led to a costly $70bn deal spree fuelled by Covid-19 revenues. 

Those deals have been received poorly by Wall Street; Pfizer’s shares are down more than 50 per cent from their pandemic peak.

One of the calls Read and D’Amelio made on Sunday was to Bourla himself, the people said. The pair also reached out to Pfizer’s lead independent director Shantanu Narayen and the company’s longest-serving director Suzanne Nora Johnson. Pfizer’s shares rose 2.2 per cent on Monday after Starboard’s stake was revealed. 

Starboard’s exact plan for Pfizer is not known but Wall Street’s frustration with the Viagra maker is. Under Bourla’s leadership, Pfizer bet all its chips on the Covid-19 pandemic and then overestimated how long vaccine sales would endure.

He then spent the windfall on overvalued targets — chief among them the $43bn acquisition of cancer drugmaker Seagen and the $5.5bn buyout of Global Blood Therapeutics, which pulled its main sickle cell disease drug from the market last week.

Starboard’s stake was on the agenda at a Pfizer board meeting on Monday. And it is sure to come up again as the board reconvenes over the rest of the week. 

The question now is what Starboard will do next. Its last campaign against a drugmaker was the opposition to Bristol Myers Squibb’s $74bn acquisition of Celgene, which failed to deliver. It has prepared a slide deck on how to turn around Pfizer, although it has not yet circulated it among investors and board directors, two people said. 

Starboard may yet, however, deploy one classic activist tactic: calling for management changes. There certainly seems to be an appetite among other shareholders for something different. A top-25 shareholder told the FT that “maybe Albert’s seat gets . . . reconsidered”. Another hedge fund investor with a small stake said “step one: Albert’s got to go”.

Jane Street is making an ‘obscene’ amount of money 

Goldman Sachs has long been one of Wall Street’s dominant trading firms. But across the street from its headquarters at 200 West Street, a relatively covert operation is on the path to becoming the new Goliath.

Jane Street sits in the storied offices that once housed Merrill Lynch at 250 Vesey Street. And from that seat it has become one of the pre-eminent players in financial markets.

If its trading revenues in the final months of this year hold up and match the start to 2024, it will eclipse Goldman’s 2023 trading haul. It is a result driven by Jane Street’s willingness to embrace finicky financial securities that its more traditional rivals have shunned. And it has used that as a springboard to become the most profitable of all the trading firms, the FT’s Will Schmitt and Robin Wigglesworth report.

The firm is at the forefront of the rapidly growing fixed-income, exchange traded fund market, and its results have enjoyed a dramatic surge over the past four years. It has generated more than $10bn in trading revenues each year since 2020.

“The amount of money they make is almost obscene. And that comes from handling instruments that many other people don’t want to touch,” said Larry Tabb, a longtime analyst of the industry who now works at Bloomberg Intelligence.

The business is particularly strong in less mainstream ETFs. Former and current executives say the company’s love of puzzles — an integral part of its convoluted interview process — reflects and feeds a willingness to tackle knottier trading challenges, such as how to handle ETFs in less liquid markets, such as corporate bonds, Chinese equities or exotic derivatives.

The company has slowly been coming out of the shadows, although not because of its own volition. Jane Street was locked in a lawsuit with Millennium Management and two ex-traders surrounding a lucrative trading strategy based on Indian options earlier this year. And before that, it was the formative employer of Sam Bankman-Fried, the now-incarcerated former head of FTX.

Jane Street’s success has been the envy of rivals, including many of the banks that have lost market share to it. One insider told the FT that the firm, founded in 2000 by former traders from Susquehanna and a former IBM developer, would continue to innovate to stay at the forefront of market making.

“You can think of the history of Jane Street as automating so that we can move on to the next task that’s somewhat more complex, and then trying to automate that somewhat more complex task, and then moving on to the next one,” Matt Berger, the head of fixed income at Jane Street, told the FT. “That’s been the constant evolution throughout our business.”

The legal drama engulfing India’s (once) hottest start-up 

“I really don’t know where the money is.”

It was a startling comment from Riju Raveendran earlier this year. Raveendran was under pressure to explain to a US bankruptcy judge how Byju’s, once India’s most valuable start-up that had been founded by his older brother, could not locate about half of the capital from a $1.2bn loan its creditors had accused it of defaulting on.

Legal dramas playing out across courtrooms from Delaware to New Delhi have engulfed Byju Raveendran’s eponymous edtech empire and threatens its total collapse. Just two years ago, Byju’s online tutoring business was worth $22bn and had sponsored India’s cricket team, as well as the Fifa World Cup in Qatar.

But the cheap credit it drew on before global interest rates shot higher spurred an acquisition spree that overextended the company and amplified its losses. Byju’s is now valued at $120mn after multiple investors, including BlackRock, wrote off their stakes and its lenders pursue it in court.

The hunt for the missing funds, detailed in hundreds of pages of US legal documents, has unearthed a paper trail passing through an obscure hedge fund once registered to a pancake house in Florida as well as a UK “commercial process outsourcing” company.

Byju’s has denied any wrongdoing or illegal transfers. Byju Raveendran told the FT “there has never been any fraud”, accusing the company’s lenders of unfairly accelerating a default. But he said he was still willing to work with them to turn around the company’s fortunes.

However, the creditors aren’t encouraged. Earlier this year they said the cost of recovering the funds could make “finding the money nothing more than a Pyrrhic victory”.

Job moves

• Former Goldman Sachs chief financial officer Stephen Scherr will become co-president of US housing investor Pretium alongside Jonathan Pruzan.

• The chief executive of UK grocer and department store owner John Lewis, Nish Kankiwala, is stepping down after two years in the job, leaving new chair Jason Tarry as the sole leader of the group. 

• John Kerry, the former US secretary of state and climate envoy, has joined the green investment group run by billionaire fund manager and top Democratic donor Tom Steyer.

• Ebury has named Bruce Carnegie-Brown chair of the fintech group’s board of directors. He is currently chair of Lloyd’s, and previously worked at Banco Santander, 3i Group and JPMorgan Chase.

• Barclays has appointed Mohammad Syed as head of private bank and wealth management in the UK. He was previously CEO of asset management at Coutts.

• Private equity firm Cinven has appointed Michael Weber as a partner. He joins from the mid-market group Riverside.

Smart reads 

5 stars only The Albanian government changed a law to allow luxury hotels in environmentally protected areas after Jared Kushner submitted plans for one, The Wall Street Journal reports. The proposed deal is one of many that relies on Kushner’s secret sauce: government connections.

Tech super Pacs The sobering tale of how one political consultant taught Silicon Valley to politick, by The New Yorker. 

Family split One of the heirs to a secretive centuries-old Belgian automotive empire plans to buy out his cousin, Bloomberg reports. How will his plans impact their star investment, the world’s biggest windscreen repair company?

News round-up

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