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Bill and Melinda Gates' Divorce Has a Lot at Stake

New York Times - Tue May 4 11:33

DealBook Newsletter

The split of Bill and Melinda Gates raises questions about the fate of their vast fortune.

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Bill and Melinda Gates’s split could yield the biggest divorce settlement ever.
Credit...Pool photo by Kamil Zihnioglu

Bill and Melinda Gates are divorcing after 27 years of marriage, raising questions about the fate of their vast fortune. Their split could yield the biggest divorce settlement on record, according to Forbes’s calculations, surpassing the $35 billion breakup of Amazon’s Jeff Bezos and MacKenzie Scott. Given the likely sums involved, what happens with the Gateses’ extensive investments and charity work will be monitored at the highest levels of government, business and the nonprofit sector.

What’s at stake: Mr. Gates is the fourth-richest person in the world, according to Forbes, with wealth estimated at $124 billion. The family is the largest owner of farmland in the U.S. His personal investment firm, Cascade Investment, owns big stakes in assets like the Four Seasons, the Canadian National Railway and the AutoNation chain of car dealerships.

  • The Gateses are believed to have a prenuptial agreement, but its details aren’t publicly known. The divorce petition notes that there is a separation contract in place.

The two have faced relationship struggles in recent years, Andrew, David Gelles and Nick Kulish report in The Times. Mr. Gates stepped down from the boards of Microsoft and Berkshire Hathaway in part to spend more time with his family.

What will happen to the Gates Foundation? The $50 billion nonprofit is one of the biggest philanthropies in the world, giving away about $5 billion each year to causes like global public health and childhood education. Most recently, it was instrumental in forming Covax, the global coronavirus vaccination program. For now, the foundation says little will change in how it is run day to day, but people in its orbit worry that an acrimonious split by its founders could cloud the nonprofit’s plans. “Together they have assured me of their continued commitment to the foundation that they have worked so hard to build together,” the foundation’s chief executive, Mark Suzman, told employees in an email.

  • When the Gateses created the Giving Pledge, an effort to get wealthy people to donate a majority of their money to charitable causes, they said they would commit to donate “the vast majority of our assets” to the foundation. Much of that money has not yet been donated.

Ms. Gates could separately become a big philanthropic force. She has already used her own investment office, Pivotal Ventures, to donate money to causes like women’s economic empowerment, and could use any settlement to amplify her giving to preferred groups. “You could imagine Melinda Gates being a much more progressive giver on her own,” said David Callahan, the founder of Inside Philanthropy. “She’s going to be a major force in philanthropy for decades to come.”

The Tristate area will reopen sooner than expected. The governors of New York, New Jersey and Connecticut said they would ease most Covid-19 capacity limits on businesses starting on May 19, thanks to declining coronavirus case numbers.

“Herd immunity” in the U.S. now appears unlikely. Vaccine hesitancy and the emergence of new coronavirus variants have led federal health officials to refocus on managing Covid-19 through inoculations. Meanwhile, the F.D.A. is set to authorize the Pfizer-BioNTech vaccine for 12- to 15-year-olds by early next week.

Donald Trump’s future on Facebook will be announced tomorrow. Facebook’s Oversight Board, an independent and international body, will announce at 9 a.m. Eastern whether it will uphold the social network’s decision to suspend his account after the Jan. 6 Capitol riot.

Michael Jackson’s estate scores a big win over the I.R.S. A federal judge ruled that the singer’s name and likeness were worth $4.2 million, far less than the $161 million that the federal government had argued. That will drastically lower the Jackson estate’s tax bill, after the I.R.S. asserted that it might be owed nearly $700 million.

English backers of the Super League face potential penalties. The governing body of English soccer will conduct an inquiry into the six teams’ move to join the closed competition, which collapsed amid a public outcry. The English Premier League also said it would create rules to impose “significant sanctions” on clubs seeking to create breakaway tournaments in the future.

With Apollo Global Management’s $5 billion deal to buy AOL and Yahoo, the private equity firm has already announced nearly $20 billion in deals this year. David Sambur, Apollo’s co-head of private equity, spoke with DealBook about the rationale for this series of sometimes surprising deals.

Apollo doesn’t want to be known as a distressed investor. That perception, said Sambur, is “20 to 30 years stale at this point.” The firm’s $80 billion private equity fund has in recent years sought deals less focused on squeezing out costs and more focused on turnarounds. More broadly, the firm has been expanding its $320 billion credit arm, most notably by merging with Athene, the insurance provider in which it had long held a significant minority stake, this year.

  • Perhaps the biggest change to Apollo’s public perception comes from its recent change in leadership: Mark Rowan, who previously led Apollo’s insurance business, took over as C.E.O. in March when Leon Black stepped down from the role after a review of his ties to the disgraced financier Jeffrey Epstein.

Apollo is making some bold bets. Take, for example, its $5 billion acquisition of the crafts retailer Michaels: “I’m sure half of the people were saying, ‘Why are they buying a retailer?’ and half the people are probably saying, ‘That’s really brilliant,’” Sambur said. Apollo also spent more than $6 billion to buy the Venetian hotel, a bet on the recovery in tourism and conferences in Las Vegas. As for the Yahoo deal, Sambur said the firm had looked hard at the company when it was on the block in 2017 and reached out to Verizon about a potential deal this fall.

  • Under Apollo’s ownership, Yahoo could launch more subscription services and take a bigger piece of the online betting industry via the site’s sports pages. And with greater regulatory scrutiny of Google and Facebook, the dominant players in digital advertising, Apollo sees an opportunity for Yahoo to take advantage.

Apollo also reported bumper earnings today. Some of the key numbers for the first quarter, which just hit the wires:

  • $670 million: Apollo’s quarterly net income, a record, driven by a 26 percent rise in fee-related earnings

  • 22 percent: the increase in the value of Apollo’s private equity portfolio

  • $49.7 billion: the unspent capital Apollo has on hand for deals


Warren Buffett confirmed yesterday what many Berkshire Hathaway watchers had suspected: Greg Abel, who oversees the conglomerate’s non-insurance operations, is his likely heir apparent. What would Berkshire do differently with Abel as C.E.O.? Here are two possibilities:

Make Berkshire a little less decentralized. Buffett is known for giving divisional C.E.O.s wide latitude to run their businesses. (It’s a major reason he opposed shareholder proposals for greater E.S.G. disclosures by Berkshire’s parent company.) But Abel could help them set clearer performance targets: “A focus on operational improvement is not something the C.E.O. of Berkshire has traditionally done,” Jim Shanahan, an analyst at Edward Jones, told DealBook. “I think he could have a more formalized process.”

Court newer types of shareholders. Berkshire’s most ardent retail investors tend to be older, and younger shareholders don’t necessarily share the reverence for Buffett. Meanwhile, money managers are increasingly focused on issues like E.S.G. that Buffett has mostly eschewed. It will fall to Abel to reach out to those investors: “I think it’s worth paying a little attention to that,” said Larry Cunningham, a law professor at George Washington University who is a Berkshire shareholder.

  • Abel showed a move on that front by describing Berkshire’s efforts to address climate change at Saturday’s annual meeting. “His comments stood out as well-prepared to answer the question,” Shanahan said.


Epic and Apple met in court on Monday for the first day of what is expected to be a three-week trial. The case could have implications for the future of the App Store in particular, and the push to restrict the market power of Big Tech in general. Here’s a snapshot of the companies’ opening day arguments. For more, see this tweet thread from The Times’s Erin Griffith, who was in the federal courtroom in Oakland.

What Epic said: Apple has purposely created a “walled garden” that locks customers and developers inside, forcing them to use Apple’s payment system. In another metaphor, Epic’s lawyer, Katherine Forrest of Cravath, compared Apple’s fees on in-app subscription payments to a car dealership that takes a commission on gas sales.

What Apple said: Its 30 percent commission is in line with industry standards and Epic’s requests, if granted, would make iPhones less secure and unlawfully force Apple to do business with a competitor. Apple’s lawyer, Karen Dunn of Paul Weiss, called Epic’s case a self-serving way to avoid paying fees.

What Epic’s C.E.O., Tim Sweeney, said: Taking the stand, the video game maker’s chief said that he “wanted to show the world through actions exactly what the ramifications of Apple’s policy were.” He was pushing back against the suggestion that the suit was a publicity ploy for his company.

What the judge said: “So Apple did have to do something to the iPhone itself in order for it to be sophisticated enough to play your software?” asked Judge Yvonne Gonzalez Rogers, emphasizing the words “did have.” The exchange came as the judge, who will decide the case, interrupted Sweeney’s testimony about the difference in business models for consoles and smartphones. It stood out to us, because it could lay grounds to argue that if Apple did anything special to accommodate Epic’s games, then Epic might owe it money.

Deals

  • Elliott Management has reportedly bought $200 million in additional Twitter shares, after a post-earnings dip. (Bloomberg)

  • Gray Television agreed to buy Meredith’s local TV stations for $2.7 billion, making it the second-biggest broadcaster in the U.S. (The Hill)

Politics and policy

  • The Biden administration appointed Richard Cordray, the first chief of the Consumer Financial Protection Bureau, as its head of federal student aid, and reportedly plans to name Michael Hsu, a top bank supervisor at the Fed, as the acting comptroller of the currency. (NYT, WSJ)

  • Under Armour agreed to settle an S.E.C. accounting investigation for $9 million; its C.E.O., Kevin Plank, won’t face enforcement actions. (WSJ)

Tech

  • Inside the pivotal meeting at Basecamp that led a third of the software company’s employees to resign. (Platformer)

  • Elon Musk’s compensation package at Tesla is now worth more than $30 billion after the carmaker hit more milestones for huge payouts. (Insider)

Best of the rest

  • The Los Angeles Times hired Kevin Merida, a senior ESPN editor, as its new top editor. (NYT)

  • “The Fed,” a fictional drama series about interns at the Federal Reserve that promises “secrets, lies, sex and politics,” is under development for Amazon’s IMDb TV service. (Variety)

  • Eleven Madison Park, the New York fine-dining restaurant, will reopen with a fully plant-based menu, amid growing scrutiny of meat- and seafood-based diets. (NYT)

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