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(Bloomberg Opinion) -- Masayoshi Son could be on track for the biggest triumph of his career. Or the biggest failure. His decision to jump in and save a drowning unicorn, WeWork, goes against the precepts of the SoftBank Vision Fund that he founded, and could cause reputational damage worth more than the billions of dollars in this one deal.SoftBank Group Corp. may get control of the troubled office-rental startup as part of a financing package that could relieve a looming cash crunch, Bloomberg News reported. Directors of The We Co. may soon choose one of two options: a SoftBank takeover, or a debt package led by JPMorgan Chase & Co.Actually running one of the fund’s portfolio companies would be a grave step for a man entrusted to manage $100 billion of investors’ capital. Such a move goes beyond doubling-down on a flailing investment in a single company and would saddle Son’s team with a task the fund wasn’t set up to tackle. That puts at risk not just shareholder money, but the status of the Vision Fund and its mastermind, Son himself.WeWork was one of the world’s hottest companies before its IPO prospectus revealed it was burning cash and had a complicated shareholding structure that overly favored its founder and chairman, Adam Neumann. Public investors balked, forcing the company to shelve a planned listing. That brought its valuation crashing down, to as little as $15 billion from $47 billion.In late September, there was talk that SoftBank would give WeWork more cash in return for a reduced price at which it acquires stock. That deal would have made sense, allowing Son and his investors to enjoy a wider upside from an eventual exit, or at the very least narrow any downside from a worsening valuation.Having sunk as much as $10 billion in WeWork, it’s understandable that Son and his team want to do all they can to save it.Engineering the exit of Neumann, as SoftBank successfully did, is not tantamount to re-engineering the company and its troubled business model. This is likely the beginning of an ugly cleanup, as my colleague Shira Ovide wrote. But that doesn’t mean SoftBank should be the one to do the dirty work.It’s normal for a startup's investors to offer advice, make introductions, or even force change. It’s highly unusual for a venture capital vehicle to then become the parent company, tasking itself with being the turnaround merchant. That’s the realm of private equity and takes a different skill set. It also takes a lot of time and management resources.Son’s desire to be a savior may be strong. His 2012 takeover of U.S. telecommunications company Sprint Corp. is one of the most notable examples. But Vision Fund investors may also take it as a warning: Sprint remains unprofitable. It has also taken up a lot of management time as SoftBank executives worked to find a buyer — Sprint now plans to merge with T-Mobile USA — and then regulators to allow the deal to go through.As big as WeWork is, that investment is just 10% of the Vision Fund. Yet VC investing returns aren’t measured in percentage points, but multiples. The Vision Fund should be able to write off WeWork in its entirety and still post solid profits. It also means that expending an inordinate amount of time, and reputation, on one investee is not in the best interests of the Vision Fund’s other 82 portfolio companies, nor its investors.Of course, there may be another strategy: Keep WeWork on life-support just long enough to raise the second Vision Fund. Plans for this sequel already look shaky. Would-be backers seem to be having second thoughts and SoftBank is reported to have leaned on its own employees to take out loans to fund personal investments. The WeWork debacle isn’t making the Vision Fund 2 an easy sell.The reputations of Son and the Vision Fund needn't be made or broken by one deal. Sure, a successful turnaround could do wonders. But it seems more likely that negative headlines will keep coming for years and gradually erode Son and SoftBank’s mystique. This hill isn't worth dying on.To contact the author of this story: Tim Culpan at email@example.comTo contact the editor responsible for this story: Patrick McDowell at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- An unprecedented blackout that plunged millions of Californians into the darkness for days is over.And nobody can say when the next will hit.Even as PG&E Corp. declared an end to last week’s shutoffs -- a deliberate move to keep power lines from sparking the kind of blazes that forced the utility into bankruptcy -- the company warned that more will come. “It’s a future we must be ready for given the conditions and risks that we face,” Chief Executive Officer Bill Johnson said in a press conference with reporters.California still has six weeks left in its traditional wildfire season -- a time punctuated by dry, hot weather and high winds that have for years been the fuel for deadly and devastating blazes. While both PG&E and California state officials alike acknowledged that the shutoffs that began on Wednesday could have been better orchestrated (and with more communication), neither questioned their need.Climate change has made for more extreme conditions. In November 2018, a PG&E power line sparked the deadliest blaze in California history. And the year before that, a series of wildfires devastated the state’s wine country. That, state and company officials said, necessitates more extreme measures.Mother Nature’s CallBy Friday, PG&E had restored power to 97% of those affected by the blackouts. On Sunday, 100% of customers had their lights back on. In all, roughly 738,000 homes and businesses went down in more than half of the state’s 58 counties. When they’ll go dark again is essentially Mother Nature’s call, Johnson said: “It really is weather-dependent -- where the wind is, where the conditions are.”Read More: Darkness, Frustration, Fire: Five Tumultuous Days in CaliforniaEven as the lights flickered back on, California firefighters were battling several infernos in Southern California. One that began in the hills north of the San Fernando Valley in the Los Angeles area -- now called the Saddleridge fire -- had burned about 8,000 acres as of Sunday and was less than 50% contained, destroying or damaging 32 structures. Another at the edge of the Sierra Nevada mountains had scorched more than 5,500 acres.“We are actively investigating the cause of the Saddleridge fire,” Nicholas Prange, a spokesman for the Los Angeles Fire Department, said by phone Sunday. “We haven’t determined anything yet. We take in any eyewitness reports and any evidence during the course of the investigation.”Edison Tower Sparks? Sparks were seen at a transmission tower owned by Edison International’s Southern California Edison utility, local media reports cited eyewitnesses as saying. Prange said in response to queries on the eyewitness accounts that it would take at least a week for anything substantial to be determined.“Determining the cause and origin of the fire is a lengthy process,” Southern California Edison also said in a statement Sunday, confirming that it owns the tower identified in the reports as being near the start of the fire. “SCE will fully cooperate with investigations.”The impact on Edison is expected to be minimal, according to a report by Citigroup Inc. analysts including Praful Mehta. The utility has $750 million of wildfire specific insurance for the year ending June 2020, and its valid safety certification allows for cost recovery through the wildfire fund, they said.Investor concerns over the Saddleridge fire drove the stock 5.6% lower in the past week, the biggest weekly decline in about six months. Undervalued Stock“Even with a relatively conservative approach on valuing wildfire risk, we believe EIX is undervalued,” the Citigroup analysts said, reiterating their buy rating on the stock. “Recent underperformance and worries related to the Saddleridge Fire are overblown.” For PG&E, in the course of inspecting lines following high winds, the utility found 50 instances of weather-related damage to its system. “There’s some vindication -- that’s not the right word,” Johnson said late Friday, but the fact that the utility discovered so many safety issues that could have ignited a wildfire made the blackout well worth it, he said.One thing PG&E is promising going forward is better communication. For days, both ahead of the blackout and during it, the company’s website was down, overwhelmed by people trying to find out whether they would be cut off and for how long. Call centers were similarly flooded. Text messages to homes and businesses affected were few and far between.Read More: Dark Shops, Spotty Phones, Rotting Fish: Life in a Mass BlackoutThe operational act of turning off and on power actually “went really well,” Johnson said. But he committed to better notifications, more phone alerts, shorter call wait times and a website “that works no matter how much traffic is on it.”California officials will have their own say on what more should be done. Governor Gavin Newsom has blasted PG&E over the shutoffs, saying the company should have been more surgical -- and never would’ve been in this situation if it had invested in its infrastructure more heavily. He also called on state utility regulators to review PG&E’s actions.A spokeswoman for the California Public Utilities Commission said the agency, as a policy, reviewed all intentional outages by California utilities. PG&E said it will file a report with the agency detailing the damages it discovered.(Updates with latest data in seventh paragraph, LA fire department comment in eight and ninth paragraphs.)To contact the reporters on this story: Lynn Doan in San Francisco at email@example.com;Mark Chediak in San Francisco at firstname.lastname@example.org;Hailey Waller in New York at email@example.comTo contact the editors responsible for this story: Lynn Doan at firstname.lastname@example.org, Kevin MillerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- Californians have always lived in the shadow of calamity -- from earthquakes, mudslides, flooding, fires and droughts.But the move this week from the state’s largest power company represented a new type of burden: a widespread, intentional hardship designed to prevent something much worse.Facing a powerful windstorm, PG&E Corp. cut off power to wide swaths of California rather than risk its lines sparking a deadly wildfire like the ones that ravaged the state over the past two years and sent the company into bankruptcy. The outage hit 34 of the state’s 58 counties -- including the heavily populated San Francisco Bay area -- and led to backlash, frustration and confusion.Two of California’s smaller utilities to the south, Edison International’s Southern California Edison and Sempra Energy’s San Diego Gas & Electric, made a similar -- albeit more measured -- calculation. Over the course of three days, roughly 2.3 million people would lose electricity in the world’s fifth-largest economy.Here’s how the largest deliberate power outage in California’s history unfolded. (All times local.)Monday, 10:15 a.m.PG&E issues its first news release warning of a “fire weather watch” that may lead to power shutdowns in 29 counties, without saying how many customers may be affected. Until this time, the utility has largely deployed shutoffs in slices of the Napa Valley and along the foothills of the Sierra Nevada mountains, where it had just cut electricity over the weekend to about 10,000 customers due to windy conditions.Monday, 9:02 p.m.The size and scope of PG&E’s plans start to come into focus. The company says it may need to turn off the lights to more than 600,000 homes and businesses starting early Wednesday. The announcement includes dozens of cities in the San Francisco Bay area, such as Oakland, San Jose and Berkeley.“This is shaping up to be one of the most severe dry wind events we’ve seen in our territory in recent years,” Michael Lewis, senior vice president of electric operations, says in a statement.Tuesday, 10 a.m.As the news of potential outages spreads, Californians mobilize for what could be the largest planned blackout of its kind in history. State and local authorities ready their emergency operations centers. Residents rush out to snap up generators, flashlights, batteries, ice and bottled water, leaving hardware and grocery store shelves empty. Stanford professor Michael Wara calculates that a two-day outage could have an economic impact of about $2.6 billion.Tuesday, 1:36 p.m.PG&E confirms that it will shut off power for almost 800,000 customers in stages, starting just after midnight. Four new counties are added to its list, bringing the total to 34. It tells customers to prepare for an “extended outage.”The utility’s website is flooded with traffic and crashes, leaving residents frustrated and confused. Customers report having trouble reaching the utility’s call center.Tuesday, 3 p.m.Governor Gavin Newsom calls PG&E’s actions warranted while acknowledging the massive disruption the blackout represented.“No one is happy about it, no one is satisfied, but no one should be surprised, because we have been anticipating this moment for a year,” Newsom says at a bill-signing event in Oakland. The blackout “shows that PG&E finally woke up to their responsibility to keep people safe,” he says.State Senator Jerry Hill, a frequent PG&E critic, says the company went too far. “They need to spend the billions they’ve already received to harden the system,” he says at the event. “I think they’re in crisis and will do anything to prevent another wildfire.”Anger spreads among other politicians. State Senator Scott Wiener calls it a “completely unacceptable state of affairs.”Tuesday, 7 p.m.At the utility’s first press conference since the shutoff warning, PG&E representatives apologize for the problems with the company’s website and say they are working to address the issue. The company also says it is rushing to get generators to the California Department of Transportation so it can keep open a critical freeway tunnel that connects parts of the East Bay.Wednesday, 12:01 a.m.The first phase of the shutoff starts, affecting about 500,000 customers in more than 20 counties.Wednesday, 7 a.m.More than a million Californians wake up without power, including many in wine country. The website with outage information remains down. PG&E says the shutoffs will spread by noon to cities surrounding San Francisco, then later delays the second phase after wind patterns change.Wednesday, 2 p.m.Stores are shut in the counties hit by early outages. Safeway supermarkets bring in back-up generators and refrigerated trailers upon availability.At Sonoma County’s Russian River Brewing Company -- famed for its Pliny the Younger cult beer -- a 2-megawatt generator keeps the business running. The generator is too big, burning $8,000 to $10,000 of diesel per day. But nearby wineries had already snapped up all the smaller ones, says Russian River co-owner Natalie Cilurzo.In many areas without power, wind speeds have yet to pick up, leading to criticism the outage was unnecessary.“It’s a beautiful day here,” Cilurzo says. “We’re all kind of scratching our heads.”Napa Democrat Bill Dodd expresses a similar concern, saying “many of my constituents are disturbed that the power was shut down before the winds started to pick up.”Wednesday, 2:35 p.m.In the midst of the power tumult, PG&E is dealt a blow in its bankruptcy case. The judge overseeing the process issues a ruling that strips PG&E of its exclusive control over its reorganization, allowing bondholders and wildfire victims to offer a competing plan that all but wipes out current shareholders.Wednesday, 10:45 p.m.The blackout spreads to more densely populated parts of the Bay Area, including Oakland. With WiFi down, people flood LTE networks on their cell phones, crippling the systems and virtually killing access to cellular data for all within shutoff zones.Thursday, 2:30 a.m.Just hours after PG&E shuts off power to Moraga, an affluent rural town about 20 miles east of San Francisco, residents awake to police warning them to seek shelter at a local church. Despite the dead electrical lines, a wildfire has broken out.Roughly 140 homes are evacuated, and inoperable traffic lights create delays of an hour or more as cars clog the single-lane road leading out of town. The fire eventually is contained with no damage to houses.Thursday, 6 a.m.PG&E says it has restored power to 126,000 customers, easing fears that the blackout could drag on for days.As Wall Street trading opens, PG&E shares plunge more than 30% on concern that the bankruptcy judge’s ruling could lead to a total wipeout for shareholders. Analysts warn the stock could fall to zero.Meanwhile, Bay Area residents awaken to darkness and adjust to disrupted routines. In Oakland, a doughnut shop serves doughnuts but no coffee. Credit card machines are down, so patrons pay with cash only.At a clearly powerless sushi restaurant, a man begins unloading a box of fresh tuna to deliver. “They ordered it,” he shrugs.Thursday, 10 a.m.The normally bustling University of California, Berkeley, is nearly devoid of students, with classes canceled due to the blackout. Just north of campus, a strip of shops and restaurants still has power, but closes anyway.“There is no business,” says Ray Woo, owner of the TC Garden restaurant next to the university. “Nobody is coming. There aren’t any students.”Thursday, 11:55 a.m.A small wildfire is spotted beneath a PG&E transmission line on a steep ridge just south of San Francisco. It is quickly contained, and firefighters don’t announce a cause.Thursday, 5 p.m.Newsom blasts PG&E’s handling of the shutoff. He blames the outage on the utility’s “greed and mismanagement” and calls for a “major reorganization” of the company. But while the governor says future planned blackouts must be more surgical, he defends the practice itself, saying it could have saved lives during last year’s deadly Camp Fire if PG&E had chosen to do it then.Thursday, 6 p.m.In his first public statements since the outage began, PG&E Chief Executive Officer Bill Johnson apologizes for the way the company handled its communication of the shutoffs.“This isn’t how we want to serve you,” he says. “We are in the business of providing power. Not taking it away.”Johnson says the company made a determination that the blackouts were necessary for safety reasons, to ensure “zero risk” of sparks.Thursday, 9:40 p.m.A brush fire pops up on the northern edge of Los Angeles, and fanned by strong winds, starts marching westward. The Saddleridge fire soon closes a portion of the Interstate 5 freeway into the city and nears the Aliso Canyon natural gas storage facility, site in 2015 of the largest gas leak in U.S. history.Lights are starting to come back on in the Bay Area. Around 11 p.m., PG&E says it has restored power to more than half of the 738,000 customers who lost it, including all in the northernmost counties the company serves.Friday 1 p.m.The Saddleridge swells to 7,542 acres, forcing the evacuation of 23,000 homes. At least 25 structures have burned, and one civilian suffered a heart attack, dying at the hospital. Fire officials say they’re investigating reports of sparks flying from a transformer at the start of the blaze.Friday 6 p.m.PG&E says only 84,000 customers remain without power. It aims to have service restored to almost all homes and businesses by early Saturday.The outages may not have been in vain: The utility said it found 30 instances where tree branches had fallen on its power lines or knocked them down.“There’s some vindication -- that’s not the right word -- the fact that there were 30 plus things that could’ve caused a fire and didn’t,” made the blackout worth it, Johnson says.Saturday, 2 p.m.PG&E says it’s restored power to 99.5% its customers affected as of 1 p.m.About 735,000 customers in California had power restored within 48 hours after getting the all clear earlier in the week, Sumeet Singh, vice president of the community wildfire safety program at the utility, said in a press conference on its social media platforms. About 2,500 are still without power in the state, he added.The utility also said it found 50 cases of damage or hazard, up from 30 the day before.\--With assistance from Lizette Chapman, Lynn Doan, Jeffrey Taylor and Hailey Waller.To contact the reporters on this story: David R. Baker in San Francisco at email@example.com;Mark Chediak in San Francisco at firstname.lastname@example.orgTo contact the editors responsible for this story: Lynn Doan at email@example.com, Kara WetzelFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- PG&E Corp. rejected a $2.5 billion offer from San Francisco to buy the bankrupt utility giant’s wires within the city’s limits.San Francisco’s offer significantly undervalues the company’s assets and a deal wouldn’t be in the best interests of its customers, PG&E Chief Executive Officer Bill Johnson said in an Oct. 7 letter to Mayor London Breed. He went on to say the company doesn’t need to sell its businesses to finance a restructuring and emerge from bankruptcy.“We cannot accept your offer,” Johnson said in the letter. “If we ever do consider such sales, we have a duty to obtain the highest and best value for these assets.”San Francisco has framed its takeover bid as a way for PG&E to raise money and help cover an estimated $30 billion in liabilities tied to devastating wildfires that its equipment ignited in 2017 and 2018. The damages from those blazes are what forced the company in January to enter the biggest utility bankruptcy in U.S. history. Now, the company has found itself competing with the likes of Pacific Investment Management Co. and activist investor Elliott Management Corp. over a restructuring plan.PG&E has proposed a reorganization that would allow existing shareholders to preserve some of their stake in the company. The plan creditors led by Pimco and Elliott are pushing would all but wipe out current investors. The company’s shares were virtually unchanged in after-markets trading.Not SurprisedSan Francisco officials said they weren’t deterred by the brush-off from PG&E.“We aren’t surprised by PG&E’s response so far,” the mayor and City Attorney Dennis Herrera said in a statement. “We’re also not giving up. Now more than ever, it is clear that we must take back control of San Francisco’s electric service and achieve energy independence.”State Senator Scott Wiener, a San Francisco Democrat who has backed a deal, said the rejection wasn’t surprising but that supporters will continue to press for one in bankruptcy court. “We’re not going to give up,” he said by telephone. “Bankruptcy is an unpredictable process and we’ll see what happens.”Wiener said he was also looking at what could be done to move a deal forward on the state level. He declined to provide details.‘Not So Welcome’While California’s investor-owned utilities have traditionally held a lot of sway in Sacramento, PG&E is “not so welcome and powerful anymore,” Wiener said.This week, the utility orchestrated the biggest preemptive blackout in state history to keep its power lines from starting wildfires amid high winds. The shutoffs drew outrage from homeowners and businesses, leading Governor Gavin Newsom to publicly blast PG&E for years of “greed and mismanagement.”“PG&E’s performance in general, and in particular with this massive blackout, has shifted the politics,” Wiener said. “More and more people understand that it’s not up to the task.”(Updates with city’s comment in seventh paragraph.)To contact the reporters on this story: Mark Chediak in San Francisco at firstname.lastname@example.org;Romy Varghese in San Francisco at email@example.comTo contact the editors responsible for this story: Lynn Doan at firstname.lastname@example.org, ;Elizabeth Campbell at email@example.com, Michael HythaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The mayor of Cloverdale California says plenty of people blame troubled utility PG&E for recent blackouts but they should blame the California Public Utilities Commission.
(Bloomberg) -- Faced with mounting public anger over massive blackouts, California Governor Gavin Newsom blasted PG&E Corp. for years of “greed and mismanagement” as the bankrupt utility restored power to more than half those left in the dark.Newsom’s comments came as many PG&E customers questioned whether it overreacted to a windstorm that didn’t prove as powerful in Northern California as forecast. The company cut electricity to more than 2 million people -- the largest preemptive blackout in the state’s history -- to prevent its power lines from sparking wildfires.The Democratic governor, who on Wednesday called the blackouts “appropriate under the circumstances,” took a dramatically harsher tone Thursday, blaming PG&E for not hardening its grid and saying the outage was the result of years of bad choices. His comments came just before PG&E’s chief executive officer made his first public appearance since the blackout began, apologizing to customers for the “hardship” the power failures have caused while defending the decision.“It’s decisions that were not made that have led to this moment in PG&E’s history,” Newsom said at a Thursday evening press conference. “This is not, from my perspective, a climate change story as much as a story about greed and mismanagement, over the course of decades.”By Friday morning, the company had restored service to nearly 60% of the 738,000 homes and businesses affected, according to a statement. Workers are now inspecting thousands of miles of transmission lines to make sure they are safe to transmit power.READ MORE: Dark Shops, Spotty Phones, Rotting Fish: Life in a Mass BlackoutThe violent winds, meanwhile, are ebbing in Northern California. Still, fire risk remains high in much of the southern half of the state, with strong winds and humidity “about as low as it can go,” said Marc Chenard, a senior branch forecaster with the U.S. Weather Prediction Center.About 6,000 square miles of Southern California face extreme fire conditions Friday, including San Bernardino, Fontana and Thousand Oaks, the U.S. Storm Prediction Center said. Edison International’s Southern California Edison utility has cut power to more than 21,000 homes and businesses but warns outages could eventually impact another 223,000. Sempra Energy’s San Diego Gas & Electric Co. cut power to about 400 customers.Illustrating the danger, a fire erupted late Thursday on the northern edge of Los Angeles. By morning, the wind-driven flames forced the evacuation of 25,000 homes and threatened California’s largest natural gas storage facility, Aliso Canyon, site of the biggest gas leak in U.S. history in 2015. The blaze’s cause hasn’t been determined.For more, listen to this mini-podcast on California’s wildfire blackouts.As PG&E worked to restore power, its shares took a beating on Wall Street Thursday, falling 29% after the utility was stripped of exclusive control over its bankruptcy process and a judge allowed competing plans from wildfire victims and bondholders to advance. The stock bounced back a bit Friday, gaining 1.1% at 2:11 p.m. in New York.Newsom said he wanted to see a “major reorganization of this entity” and said PG&E was too large to move quickly. But the governor stopped short of saying what kind of structural changes he preferred. He suggested the company needed to be far more surgical about future outages, saying some counties didn’t need to be included in this week’s blackouts. He acknowledged, however that such preemptive power cuts should remain an option for the state’s utilities when faced with dangerous winds.PG&E, he noted, made a decision last November not to cut power near the town of Paradise during a windstorm. A transmission line then sparked the Camp Fire, the state’s deadliest blaze, which killed 86 people.“Zero risk”Newsom called on California utility regulators to review PG&E’s actions. A spokeswoman for the California Public Utilities Commission said the agency, as a policy, reviewed all intentional outages by California utilities.PG&E filed for bankruptcy in January, facing an estimated $30 billion in liabilities from two consecutive years of deadly wildfires blamed on its equipment.CEO Bill Johnson, who took over in May, said the company made a determination that the blackouts were necessary for safety reasons, to ensure “zero risk” of sparks. He told reporters at a San Francisco press conference that started an hour after the governor’s that it’s “very likely” the company will need to cut power again in the future. Johnson said the utility will try to be more “surgical” about shutoffs.‘We Failed’The main failure was in communicating with customers about the outages, company officials said. Johnson said the utility posted outage maps with inconsistent or inaccurate information, its website crashed and its call center was overwhelmed. “We failed our customers,” said Laurie Giammona, senior vice president and chief customer officer for PG&E.Johnson asked local residents not to take their frustrations out on PG&E workers, saying some employees had been shot at, punched and sworn at.“The buck stops with me,” he said.(Adds outage detail in seventh paragraph. An earlier version corrected a quote in the headline, first and fourth paragraphs.)\--With assistance from Brian K. Sullivan, Samuel Dodge and Christopher Palmeri.To contact the reporters on this story: David R. Baker in San Francisco at firstname.lastname@example.org;Mark Chediak in San Francisco at email@example.comTo contact the editors responsible for this story: Lynn Doan at firstname.lastname@example.org, Joe Ryan, Joe RichterFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- PG&E Corp. is teaching an unpleasant lesson to Wall Street equity traders who counted on utilities as a safe haven.Investors rattled by trade wars and hints of a recession drove PG&E shares as much as 2.8% higher on Wednesday even as the utility was cutting power to millions of customers across California. That faith proved misplaced a day later as the stock crashed almost 32% after an unfavorable ruling in the company’s bankruptcy proceedings.The whipsaw illustrates both the allure of utility stocks and the danger of blindly investing in them as a class. With big, stable revenues and limited exposure to international trade, the companies represent an investment tailor-made for the current moment. And yet while customers are unlikely to stop buying their products no matter the state of the economy, individual firms still face their own, specific risks.“You may cut back on your electricity use during a recession, but you’re still going to use electricity,” said Paul Patterson, an analyst at Glenrock Associates. “It’s not a discretionary item.” But “utilities can fall dramatically in value, individually,” he said.The Standard & Poor’s utilities index has risen 21% this year and hit an all-time high last month. Individual utility owners such as Southern Co. and Dominion Energy Inc. are also trading at record highs. The gauge was little changed at 12:37 p.m. in New York.Timothy Winter, who helps manage over $30 billion at Gabelli Funds LLC as an associate portfolio manager, says the rise in utility stocks has been driven by the industry’s ability to increase earnings on a sustainable basis amid massive infrastructure investments. About 10% of funds managed by Gabelli are invested in utilities, and Winter says a new fund is being planned for investments in green energy alternatives.Strong Fundamentals“Fundamentals are stronger than they have ever been -- that is because earnings and dividends are growing stronger than they have ever grown before on a sustainable basis,” Winter said. “Many of us in the industry are calling it the golden era of the utilities.”The broader stock market has substantially outperformed the sector since the 1980s, but utilities have consistently offered slow and steady returns over the years. The industry has “solid growth prospects,” and global utilities remain undervalued, Jean-Hugues De Lamaze, senior portfolio manager at Tortoise Advisors UK in London, said.Still, risks abound, as illustrated by PG&E. The company’s latest stock collapse was sparked by a bankruptcy court judge ruling that its bondholders could submit their own reorganization plans for the company, potentially wiping out shareholders. The company had already slumped over 75% over the past year after wildfires its equipment caused saddled the utility with $30 billion in liabilities. The shares were up 5.8% on Friday.The company is carrying out the largest blackout ever orchestrated in California to prevent electrical lines igniting wildfires during a period of high winds. The unprecedented power shutdown has ensnared millions of people, many in the San Francisco Bay area, and raised the prospect that much of a major metropolitan area could go days without electricity.For more, listen to this mini-podcast on California’s wildfire blackouts.Utility HeadwindsIt’s not just PG&E that faces headwinds. Dominion and Duke Energy Corp., for example, back a $7.5 billion gas pipeline project that has been tied up in court. Southern is still working on a $28 billion nuclear plant expansion -- the only such project in the U.S.If interest rates start rising again, some of the money now flowing into utility stocks could shift to bonds instead, according to Andy Smith, utilities analyst for Edward Jones. However, it’s possible the market has entered an extended period of higher valuations for utility stocks, rather than a short-term spike, he said.“I don’t see anything bringing them back down, other than interest rates,” Smith said.(Updates with utility index move in fifth paragraph.)To contact the reporters on this story: David R. Baker in San Francisco at email@example.com;Gerson Freitas Jr. in São Paulo at firstname.lastname@example.orgTo contact the editors responsible for this story: Lynn Doan at email@example.com, Pratish Narayanan, Reg GaleFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- The young woman in Monica Mazzei’s San Francisco law office was adamant: She wanted a prenuptial agreement.Never mind that the client had barely anything to her name. What she had was a bunch of startup ideas. She and her fiancé, who already had his own small tech company, signed a prenup with clear terms, Mazzei said: “The spouse who has an idea [and] starts a business ‘owns’ that business. It’s their baby.”A few years later, Mazzei, a partner at Sideman Bancroft, was traveling through the San Francisco airport when she saw her former client on a magazine cover. Her startup had struck gold. Her husband’s business had fizzled.In Silicon Valley, where penniless programmers fervently believe their ideas are worth billions, getting rich can take priority over getting married. California law assumes that any wealth created during a marriage is community property, which should be split equally in a divorce. That’s alarming not just for young entrepreneurs but also their investors.Divorce HavocFortunately, a well-written prenup is a safeguard against post-divorce havoc, which is why more and more young couples are insisting on the agreements, according to more than half-a-dozen lawyers in the Bay Area and elsewhere. Long popular with older wealthy couples who re-marry, prenups are also being demanded by entrepreneurs who want to keep future windfalls to themselves.“I am seeing more and more young people want to enter into prenuptial agreements who do not currently have a lot of money now but plan to have a lot of money someday,” said Manhattan-based divorce attorney Jacqueline Newman.In a 2016 survey by the American Academy of Matrimonial Lawyers, 3 in 5 divorce attorneys said more clients were seeking prenups in the past three years. About half said they’d seen a spike in the number of millennials requesting the agreements.“People’s concepts and notions of fairness when it comes to privately held businesses are changing,” said Mazzei, adding she’s seen “a tremendous increase” in prenups in the past eight years. “They feel that even if they’re married, this is their passion. The agreement should be reflective of that.”‘It’s Complicated’Today’s startup founders have plenty of prenup-writing forebears to emulate. Google co-founder Sergey Brin and Anne Wojcicki, who helped found personal genomics company 23andMe, had a prenup when they married in 2007. After they divorced with little fanfare in 2015, his stake in Google remained unchanged.“It’s complicated -- that’s all I can say,” Wojcicki told Bloomberg TV about the split.Oracle Corp.’s Larry Ellison has been married and divorced multiple times, but none affected his stake in the software company. Ellison is the seventh-richest person in the world with a net worth of $59.8 billion, according to the Bloomberg Billionaires Index.Still, a prenup hardly guarantees a smooth divorce. Judges can and do throw out the agreements, especially if they’re drafted poorly. “If you don’t put in the right language, a lot of prenups don’t do the job,” said Lowell Sucherman, a divorce attorney at Sucherman Insalaco in San Francisco.In 2017, One Kings Lane co-founder Alison Gelb Pincus, wife of Zynga Inc. founder Mark Pincus, challenged their premarital agreement in court while the couple was getting a divorce, according to a court filing. It’s unclear whether she prevailed as final terms of the divorce aren’t public.While venture capital firms don’t explicitly require prenups, they do demand legal language protecting their investments in the event a divorce court hands a chunk of a founder’s shares to an ex-spouse. So do other co-founders.Founders’ Control“Founders have wanted to ensure that someone else can’t suddenly come in and obtain some sort of founders’ control,” said Par-Jorgen Parson, a partner at venture capital firm Northzone, who has served on the board of Spotify Technology SA. “It’s just as often driven by the founders as by external investors. You don’t want to rock the balance of power.”Venture capital firms often demand that founders’ husbands and wives sign “spousal consent” forms. Such agreements determine who gets to vote for board members, and how and when shares can be sold. In the event of a divorce settlement (or death or disability), a founders’ spouse might end up with company shares. But, the agreements ensure that an ex can’t exercise much, if any, control over the company post-divorce.“We’re trying to make sure that people don’t become involuntary business partners with someone they don’t know, don’t like or who aren’t qualified,” said James Ficenec, a partner at Newmeyer & Dillion in Walnut Creek, California.Divorcing founders will often do anything to avoid handing over half of their shares in their startup.‘Keeping More’“Founders will try to negotiate keeping more of their shares,” said Michael Gorback, a partner at Hanson Bridgett. “You might balance it out some other way,” by paying exes in cash, a home or other investments.MacKenzie Bezos and Amazon.com Inc. founder Jeff Bezos divorced earlier this year, leaving her with a 4% stake and a net worth of $34.6 billion, according to the Bloomberg index. He kept 75% of the couple’s Amazon shares, and retains voting control of those she does hold.Amazon’s stock, of course, is publicly traded, which can make divorce negotiations easier.“One issue we come across very often is, ‘How do you value a startup?’” Mazzei said. Years before an initial public offering, a startup might have no profits or even revenue to speak of. A promising company could later go under -- or eventually be worth billions.Trust, CredibilityIn a divorce, “it can be quite difficult when you have a large asset that is illiquid,” said Lyssa Grimaldo, a wealth manager at San Francisco-based Wetherby Asset Management and a certified divorce financial analyst. Adding to the problem, she said: “One partner knows more about that asset than the other.”With enough billable hours, lawyers can usually sort out the legal ramifications of divorce. They’re less helpful in containing the chaos that a founder’s marital problems might create in the workplace or business relationships.“We have companies where the founder is the brand, and trust and credibility are core to the business,” said Ed Zimmerman, partner and chair of the tech group at Lowenstein Sandler in New York. “If you are investing in a company because you think the founder is amazing,” it can be alarming to learn that he or she is facing the distraction of an acrimonious divorce or custody battle, he said.If a divorce isn’t disclosed to key investors, they can lose trust in a founder who they thought they knew well. Then there’s sometimes other nasty fallout, of the sort that companies are increasingly sensitive to in the metoo era.“It would be great if we lived in a world where people who had marital problems didn’t manifest those problems by hitting on or dating people who worked at their company,” Zimmerman said. “Those kinds of things tend to be more problematic than who gets the shares.”(Updates with adviser’s comment in 23rd paragraph.)To contact the reporters on this story: Ben Steverman in New York at firstname.lastname@example.org;Anders Melin in New York at email@example.comTo contact the editors responsible for this story: Pierre Paulden at firstname.lastname@example.org, Steven Crabill, Peter EichenbaumFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
It is not uncommon to see companies perform well in the years after insiders buy shares. Unfortunately, there are also...
Burning trash dumped by a garbage truck caused a fire that by early Friday had destroyed dozens of homes in California's Riverside County, fire officials said, as wildfires across the state led to power cuts for hundreds of thousands of people. The Sandalwood Fire was one of about 275 wildfires that have broken out across California as hot, gusty winds signaled the start of its peak fire season, state officials said. It erupted when a "trash truck dumped a load of burning trash that spread onto vegetation," shortly before 2 p.m. Thursday, in the community of Calimesa, about 70 miles (110 km) east of Los Angeles, the fire department said in a release.
A fierce wildfire that erupted in southern California on Thursday destroyed homes and structures and caused "numerous medical emergencies" at a Riverside County mobile home park, fire officials said. No further details were immediately available on how many mobile homes had been burned or the nature of the medical emergencies. The Sandalwood Fire was one of about 275 wildfires that have broken out across California in the past 24 hours as hot, gusty winds signaled the start of its peak fire season, state officials said at a news conference.
(Bloomberg) -- Californians are emerging from an unprecedented blackout that plunged millions into darkness this week as utility giant PG&E Corp. tried to keep its power lines from igniting catastrophic wildfires.PG&E has restored power to 228,000, or 31%, of customers in parts of the San Francisco Bay Area after high winds died down and inspections and repairs were complete, Vice President Sumeet Singh said during a press briefing. More than 100,000 had already regained service earlier Thursday. About 510,000 were still without power.The restoration marks the beginning of the end to the biggest blackout a utility has ever orchestrated to keep high winds from knocking down electrical lines and igniting devastating blazes. In all, as many as 800,000 homes and businesses in dozens of cities surrounding San Francisco lost power, amounting to more than 2 million people and potentially costing the California economy as much as $2.6 billion.PG&E CEO Bill Johnson, in his first public statement since the outages began, apologized for the hardship and said it was needed for safety. His comments came after California’s governor on Thursday evening expressed frustration with the blackouts.Johnson added the utility determined it must have “zero risk” of spark and that it’s “very likely” PG&E will need to cut power in future.After being forced into bankruptcy from wildfires its equipment caused over the past two years, PG&E used the massive power cuts in an attempt to prevent another deadly disaster. While San Francisco and most of Silicon Valley were spared, the extensive reach of the outages in Oakland, San Jose and elsewhere roiled the area’s economy by disrupting workers, shutting stores and forcing companies and agencies to shell out for costly back-up generators to keep operations limping along.In Oakland, long strips of banks, pharmacies, delis, coffee shops and other businesses closed Thursday. Trucks arrived on Thursday morning to deliver boxes of fresh seafood to restaurants that had nowhere to store them. Wells Fargo had shuttered some branches as of Wednesday, and a few dozen Safeway supermarkets were affected, with the company supplying backup generators and refrigerated trailers upon availability.In Southern California, Edison International had also cut power to tens of thousands of customers in counties including Los Angeles and Kern. San Diego’s main utility is also considering cutoffs. Altogether, more than 3 million people were at risk of being affected, or almost 8% of the state’s population, based on city estimates and the average household size.Restoring PowerPG&E first issued an “all clear” in parts of Northern California on Thursday afternoon. That meant the utility could start inspections and repairs before restoring service.The company defended its decision to shut off power, saying high winds struck most of the counties affected and that they found fallen branches on some of the power lines that were de-energized. Johnson and others repeatedly said the utility failed in communicating to customers about the blackouts.The massive blackout went down in stages. Half a million customers were cut off just after midnight on Wednesday. Parts of Northern California’s East and South Bays lost power late Wednesday. And early Thursday, PG&E turned off service to another 4,000 in parts of Kern County.For wineries, the blackout hit at a crucial time: harvest. Michael Haney, executive director of Sonoma County Vintners, said many wineries either bought or rented backup generators. Some smaller growers struck agreements to have their grapes stored at other facilities where there was power.“Wineries have had to pay out money for backup power,” he said. “The sad thing is some of our smaller wineries can’t afford it.”The widespread impact angered Californians -- and some elected officials. State Senator Scott Wiener, a San Francisco Democrat, called the outage “a completely unacceptable state of affairs.”To contact the reporter on this story: Mark Chediak in San Francisco at email@example.comTo contact the editors responsible for this story: Lynn Doan at firstname.lastname@example.org, Jasmine NgFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
California firefighters on Friday are furiously trying to contain massive wildfires that have been tearing through the Los Angeles area since Thursday night. (SOUND BITE) (ENGLISH) LOS ANGELES FIRE CHIEF RALPH TERRAZAS: “In terms of fire activity, we’re at zero percent containment. The size right now is 4,700 acres-plus. We’ve calculated that the fire’s moving at a rate of 800 acres per hour.” The so-called Saddleridge fire has engulfed homes in the San Fernando Valley and forced massive evacuations, snarling traffic for miles. Some shelters are already at full capacity. No cause has been cited. Dry conditions and high winds a lethal combination in the days to come. (SOUND BITE) (ENGLISH) LOS ANGELES FIRE CHIEF RALPH TERRAZAS: “These weather conditions are significant in terms of brush threat. The relative humidity has dropped to as low as three percent. Right now it’s seven percent. The winds were sustained at about 20 to 25 miles per hour with gusts over 50 miles per hour. So as you can imagine the embers from the wind have been travelling a significant distance, which causes another fire to start.” Much of the state is on high alert, with utility company Pacific Gas & Electric cutting power in several areas to prevent their lines from sparking. That irked California Governor Gavin Newsom, who, while respecting the safety measure, described the outage as too broad and said it resulted from years of mismanagement. PG&E is on the hook for potentially $30 billion for previous wildfires linked to its transmission wires and other equipment. It filed for bankruptcy in January. Separately, another blaze called the Sandalwood fire is sweeping through an area east of L.A., triggered by burning trash in a dumpster. That fire was only 10 percent contained as of Friday morning.