TheChek News Flow

How small Chinese AI start-up DeepSeek shocked Silicon Valley

Hedge fund billionaire Liang Wenfeng builds model on tight budget despite US attempt to halt China’s high-tech ambitions

A small Chinese artificial intelligence lab stunned the world this week by revealing the technical recipe for its cutting-edge model, turning its reclusive leader into a national hero who has defied US attempts to stop China’s high-tech ambitions. 

DeepSeek, founded by hedge fund manager Liang Wenfeng, released its R1 model on Monday, explaining in a detailed paper how to build a large language model on a bootstrapped budget that can automatically learn and improve itself without human supervision.

US companies including OpenAI and Google DeepMind pioneered developments in reasoning models, a relatively new field of AI research that is attempting to make models match human cognitive capabilities. In December, the San Francisco-based OpenAI released the full version of its o1 model but kept its methods secret. 

DeepSeek’s R1 release sparked a frenzied debate in Silicon Valley about whether better resourced US AI companies, including Meta and Anthropic, can defend their technical edge.

Meanwhile, Liang has become a focal point of national pride at home. This week, he was the only AI leader selected to attend a publicised meeting of entrepreneurs with the country’s second-most powerful leader, Li Qiang. The entrepreneurs were told to “concentrate efforts to break through key core technologies.”

In 2021, Liang started buying thousands of Nvidia graphic processing units for his AI side project while running his quant trading fund High-Flyer. Industry insiders viewed it as the eccentric actions of a billionaire looking for a new hobby.

“When we first met him, he was this very nerdy guy with a terrible hairstyle talking about building a 10,000-chip cluster to train his own models. We didn’t take him seriously,” said one of Liang’s business partners. 

“He couldn’t articulate his vision other than saying: I want to build this, and it will be a game change. We thought this was only possible from giants like ByteDance and Alibaba,” the person added. 

Liang’s status as an outsider in the AI field was an unexpected source of strength. At High-Flyer, he built a fortune by using AI and algorithms to identify patterns that could affect stock prices. His team became adept at using Nvidia chips to make money trading stocks. In 2023, he launched DeepSeek, announcing his intention to develop human-level AI.

“Liang built an exceptional infrastructure team that really understands how the chips worked,” said one founder at a rival LLM company. “He took his best people with him from the hedge fund to DeepSeek.”

After Washington banned Nvidia from exporting its most powerful chips to China, local AI companies have been forced to find innovative ways to maximise the computing power of a limited number of onshore chips — a problem Liang’s team already knew how to solve.

“DeepSeek’s engineers know how to unlock the potential of these GPUs, even if they are not state of the art,” said one AI researcher close to the company. 

Industry insiders say DeepSeek’s singular focus on research makes it a dangerous competitor because it is willing to share its breakthroughs rather than protect them for commercial gains. DeepSeek has not raised money from outside funds or made significant moves to monetise its models.

“DeepSeek is run like the early days of DeepMind,” said one AI investor in Beijing. “It is purely focused on research and engineering.”

Liang, who is personally involved in DeepSeek’s research, uses proceeds from his hedge fund trading to pay top salaries for the best AI talent. Along with TikTok-owner ByteDance, DeepSeek is known for giving the highest remuneration available to AI engineers in China, with staff based in offices in Hangzhou and Beijing.

“DeepSeek’s offices feel like a university campus for serious researchers,” said the business partner. “The team believes in Liang’s vision: to show the world that the Chinese can be creative and build something from zero.”

DeepSeek and High-Flyer did not respond to a request for comment.

Liang has styled DeepSeek as a uniquely “local” company, staffed with PhDs from top Chinese schools, Peking, Tsinghua and Beihang universities rather than experts from US institutions.

In an interview with the domestic press last year, he said his core team “did not have people who returned from overseas. They are all local . . . We have to develop the top talent ourselves”. DeepSeek’s identity as a purely Chinese LLM company has won it plaudits at home. 

DeepSeek claimed it used just 2,048 Nvidia H800s and $5.6mn to train a model with 671bn parameters, a fraction of what OpenAI and Google spent to train comparably sized models.

Ritwik Gupta, AI policy researcher at the University of California, Berkeley, said DeepSeek’s recent model releases demonstrate that “there is no moat when it comes to AI capabilities”.

“The first person to train models has to expend lots of resources to get there,” he said. “But the second mover can get there cheaper and more quickly.”

Gupta added that China had a much larger talent pool of systems engineers than the US who understand how to get the best use of computing resources to train and run models more cheaply.

Industry insiders say that even though DeepSeek has shown impressive results with limited resources, it remains an open question whether it can continue to be competitive as the industry evolves.

Returns at High-Flyer, its big backer, lagged behind in 2024, which one person close to Liang blamed on the founder’s attention being mostly focused on DeepSeek.

Its US rivals are not standing still. They are building mega “clusters” of Nvidia’s next-generation Blackwell chips, creating the computing power that threatens to once again create a performance gap with Chinese rivals.

This week, OpenAI said it was creating a joint venture with Japan’s SoftBank, dubbed Stargate, with plans to spend at least $100bn on AI infrastructure in the US. Elon Musk’s xAI is massively expanding its Colossus supercomputer to contain more than 1mn GPUs to help train its Grok AI models.

“DeepSeek has one of the largest advanced computing clusters in China,” said Liang’s business partner. “They have enough capacity for now, but not much longer.” 

Supercomputers: the new superpower status symbol

US president’s endorsement shows data-centre dominion is now a national priority

Almost a hundred years ago, New York’s skyline became the scene of a bitter battle. The prize: displacing the Woolworth Building as the world’s tallest property. Such superlatives mattered to a growing, industrialised nation keen to flex its dominance. The winner was 40 Wall Street, swiftly pipped by the Chrysler Building, which in turn lost the title to the Empire State Building.

Today, there is a new superpower status symbol: data centres. The latest bid for digital supremacy is Stargate. This mammoth project led by artificial intelligence company OpenAI, and announced by US President Donald Trump, pledges to spend up to $500bn over four years to construct world-changing AI infrastructure — basically warehouses filled with clusters of microchips — on an unprecedented scale.

Trump’s endorsement, with a reassurance that no government money is involved, shows data-centre dominion is now a national priority. That is no surprise. New regimes love big gestures. Think of the “10 great buildings” with which Chairman Mao peppered Beijing in 1959, or The Line, a 106-mile sliver of a city under construction at the behest of Saudi Arabia’s Crown Prince Mohammed Bin-Salman.

Stargate is a trophy too. But it is also an arms race, because OpenAI is in effect building a weapon. Co-founder Sam Altman’s goal is to achieve “artificial general intelligence”, the kind that outflanks human beings. That this is now a White House-backed initiative reflects a superpower reality: whichever country reaches AGI first poses a significant threat, commercially and militarily, to the rest.

What does $500bn buy? First, assume the money can actually be raised; departed OpenAI co-founder and Tesla head Elon Musk is sceptical. The latest Blackwell chips from Nvidia could cost about $50,000 apiece, suggesting Altman’s budget could cover 10mn of them. The biggest AI supercomputer in the world today, Musk’s Colossus, has about 100,000. Size alone does not guarantee AGI success, but it is an important factor.

At its most mundane, OpenAI is following other big technology firms. So-called hyperscalers Amazon, Meta Platforms, Microsoft and Alphabet are collectively on course to invest $260bn in capital expenditure next year, according to Visible Alpha. Stargate’s plan of an average $125bn a year is big, but not substantially greater than theirs.

But Altman’s scheme is undeniably different. Alphabet, Microsoft, Meta and Amazon are building computing power customers can use, with a path to sizeable near-term revenue. OpenAI’s foray is more of a moonshot. Succeed, and vast profit awaits. Fail, and a surfeit of servers could push down prices and profit for the whole industry.

In the real world, meanwhile, traditional projections of power remain in fashion. China is planning 118 skyscrapers higher than London’s Shard, to add to the 100 or so it already has, according to the Council on Tall Buildings and Urban Habitat. Saudi Arabia, keen to be an AI hub, is also eyeing what will be the world’s tallest building, the Jeddah Tower. It’s just that in the AI age, there are more ways to reach for the heavens.

China’s deflating housing market offers an interesting parallel

Cryptocurrency proponents celebrated Donald Trump’s presidential victory, seeing in him a kindred spirit. The price of bitcoin, the original and most prominent cryptocurrency, has surged since his re-election in November. Under Trump, the crypto industry seems set to get what it wants — legitimacy provided by government oversight and light-touch regulation. It is a toxic mix for both the financial system and investors.

The switch in Trump’s views on cryptocurrencies — from sceptic to vocal advocate — does not mask the reality that nothing has changed in the fundamentals of this asset class, including its lack of intrinsic value. But the ethos of his administration lines up well with bitcoin’s libertarian aspects. 

Shortly before this week’s inauguration, both Trump and his wife Melania launched meme coins. It is remarkable for a government official, let alone the leader of the free world, to create and promote a purely speculative financial product from which they can profit. The financial grab left some crypto investors worrying that Trump might even undercut the mainstream acceptability of cryptocurrencies by reinforcing perceptions that they are all essentially scams.  

Trump has since righted the ship somewhat. He issued an executive order supportive of the crypto industry and directed the government apparatus to set up a regulatory framework to promote its activities.

The new president wants America to become the crypto capital of the planet, floating a proposal to create an official US bitcoin reserve. Establishment of such a reserve would give bitcoin an official imprimatur. But it makes little sense. Instead it would result in the government taking on the risks associated with bitcoin’s price volatility. Even if it generated paper profits, selling a significant share would cause bitcoin’s price to plunge, lowering the value of the rest of the government’s holdings.

Still, it is clear which way the winds are blowing. See the nominations of crypto enthusiasts Scott Bessent as Treasury secretary and Paul Atkins as head of the Securities and Exchange Commission. David Sacks, now the White House crypto tsar, will also be a forceful advocate for the industry.

True believers in decentralised finance built on bitcoin’s blockchain technology must be distraught. The notion that a government should be involved in the creation, dissemination, and usage of bitcoin contravenes the very principles under which it was created.

At least their digital wallets are getting fatter, which may soften the blow. 

Financial regulators will now undoubtedly ease restrictions on the issuance, use and trading of cryptocurrencies and crypto-related financial products. Crypto creators, promoters and exchanges will be able to operate more freely, while banks and investment managers will face fewer constraints in dealing with the assets. These changes will boost the broad adoption of crypto by both retail and institutional investors. 

The mainstreaming of crypto and the benign attitude of regulators will also spur closer connections between the industry and traditional financial institutions such as commercial banks and investment management firms. These connections will expose the conventional financial system to risk spillovers.

Meanwhile regulatory agencies and top administration officials are legitimising crypto assets, despite their highly speculative nature and the perils of exposing unsophisticated retail investors to their volatility.

Investors should be free to invest as they please, no matter how risky the asset class. But when a US president and his top officials speak favourably about an industry, investors could well let down their guard. History shows that such government boosterism often ends badly, with retail investors and taxpayers bearing the financial burden. 

China’s housing market bubble, which is deflating with painful consequences, provides an interesting parallel.

For many years the Chinese government relied on the property sector to drive its economy while touting it as a way for households to build their own wealth. State-owned banks provided loans to property developers and mortgages to households. Local governments, which rely on land sales as a key source of revenue, further stoked the property boom. Now that the property bubble is bursting, the burden is falling heavily on the lower-income households who locked up a large share of their savings in property or scraped together down payments that are now stuck with failed developers. 

The Chinese housing boom was at least related to real, physical assets. Bitcoin, by contrast, has no intrinsic value. Price volatility renders it an unviable medium of exchange and its value is based purely on scarcity, a characteristic that is arguably shared by gold.

There is nothing wrong with digital gold or with investors willing to roll the dice, unless the president and government officials are the ones who are hawking it. 

Trump and his government’s implicit endorsement of bitcoin and other cryptocurrencies means that the ultimate losers — if and when the bubble pops — will be the US taxpayers.

The ‘secret’ back door to the world’s biggest ski area

Orelle is so small it has only just got its first hotel — yet it offers high-speed access to the endless pistes of the Trois Vallées. Has its moment finally come?

Secret is one of travel writing’s most abused words — but humour me for a moment. Even if you’ve never skied, you’ve probably heard of Courchevel: the world’s most lavish ski resort, with five Palace hotels (only Paris has more). Perhaps you’ve heard of its neighbour in the next valley, Méribel, founded by a Scottish colonel and long a rowdy favourite of British skiers. Up and over the ridge to the west and you’re in Val Thorens, thriving in these less snow-sure times given its distinction as the highest ski resort in Europe.

Their three valleys, linked by ski lifts and pistes, make up another superlative: the world’s biggest ski area. Les Trois Vallées has 162 lifts, and 600km of pistes, all fully connected. It is so well known that it’s easy to be blasé about those remarkable statistics. Consider that the biggest ski area in the US, Park City, has just 40 lifts; a big hitter like the Espace Killy, comprising Val d’Isère and Tignes, can only offer 78, half the tally of the Trois Vallées.

The secret, then, or at least the place you’re much less likely to know, is Orelle, a community of 330 people over the next ridge — the famous ski area’s unadvertised fourth valley. Orelle, actually not one village but a collection of 10 hamlets scattered at the bottom of the steep-sided valley, hides in the shadow of its neighbours’ reputations, and is as modest as Courchevel is ostentatious. Where Courchevel boasts a dozen Michelin stars, the only restaurant in Francoz, Orelle’s main hamlet, is an ageing pizza van, parked beside the only bar (pointedly called “Les 4 Vallées”).

I arrived with my family just after Christmas, as Orelle marked a key milestone — the opening of its first hotel. We travelled by train, leaving London at 8am, connecting in Paris and Lyon, reaching the little town of Saint-Michel-de-Maurienne at 5.30pm, from where it was a 10-minute taxi to the hotel, the Hob Orelle. Though Francoz is at an altitude of just 890 metres above sea level, the streets were deep in snow, the dark forests rising up the valley sides smothered in white. The kids ran out to find a slope to slide down, resisting calls to put on jackets and gloves as they gleefully froze their hands making snowballs.

In the morning, we set out to try Orelle’s key asset, installed in 2021 — what must rank as one of the world’s great ski lifts. For skiing with kids, convenience is everything and from the door of the Hob’s boot room, we walked less than 100 metres on a snowy garden path to reach a little square, around which cluster the village’s one ski hire shop, the bar, pizza van, a tiny souvenir shop, the ticket office and the lift station.

The 10-person gondola climbs above the tree line, in about 12 minutes, to the Plan Bouchet, a mountain mid-station at 2,350 metres. There you can either get out, hop on a chairlift and start skiing, or continue, changing to the second stage of the new gondola which rises all the way to the Cime de Caron at 3,193 metres. It is a discombobulating change of perspective — to go in 20 minutes from sleepy village streets to a high alpine peak, looking across to the bulk of Mont Blanc, the rock towers of the Aiguilles d’Arves and the white expanse of the Vanoise glaciers.

That 2,300-metre vertical ascent dwarfs many of the most celebrated lifts on the planet — Jackson Hole’s “tram”, for example, graces T-shirts, caps, fridge magnets and even has a band named after it, but only manages 1,261 metres — and yet like everything about Orelle, this lift comes with little fanfare.

We headed over the far side of the ridge, skiing down to Val Thorens where, it being New Year’s week, the runs were busy but the snow, this high up, the best the kids had ever experienced. You could, if fast and determined, ski all the way to Courchevel. We contented ourselves with a few runs before a long lunch at a piste-side restaurant, the Chalet de la Marine, then a slightly anxious rush to catch the last lift up to the ridge in order to make it back to Orelle.

Miss it, and get stuck in the wrong valley, and you are looking at a two-hour, €450 taxi to get home. Catch it by the skin of your teeth, like we did, and you’re rewarded with being the last ones on the mountain, skiing alone down a long, blue run as the setting sun turns the snow pink — I removed my glove and gleefully froze my hand filming the kids as we went.

The reputation of the Orelle gondola and the Cime de Caron might soon start to grow. On Tuesday this coming week, a new summit station opens, with a restaurant and the highest wine bar in the Alps. Next week it hosts the Freeride World Tour, the first time the extreme skiing competition has come to the Trois Valleés.

There’s also a new covered walkway joining the Orelle gondola with the older, existing cable car up from the Val Thorens side. Just as with the new Matterhorn Alpine Crossing that connects Zermatt and Cervinia by cable car, part of the idea is to diversify away from the snow-dependent ski market and allow non-skiers and summer visitors to also make the journey over the mountains from Orelle to Val Thorens, stopping at the top for lunch and to take in the view. Unfortunately, the launch has been marred by an accident involving the Val Thorens–Cime de Caron cable car during pre-season maintenance in November; eight workers were injured and the lift will be out of action all winter.

Nevertheless, combined with the new hotel, plus a new beginner’s area and “magic carpet” lift at Plan Bouchet, the message, at least according to the tourist board’s bumpf, is clear: “Orelle is ready to play in the big leagues.”

The surprising thing is that, given its privileged access to some of the Alps’ highest slopes, the village has remained “the best kept secret in the Trois Vallées” for so long. The first lift opened in 1996 (skiers could get over to Val Thorens using a chairlift from Plan Bouchet to a lower point on the ridge). Yet accommodation options remained limited to some privately rented houses until, in 2007, a self-contained complex of cheap and cheerful holiday apartments with its own restaurant and small shop, Le Hameau des Eaux d’Orelle, opened just up the hill above Francoz. Even today, counting every apartment, private let and the new hotel, Orelle can muster only 1,300 tourist beds, not one per cent of the Trois Vallées’ total.

At the end of the day, almost everyone catches the gondola down from Plan Bouchet to the village but, though there’s no piste, it is possible to ski. I tried it on our first afternoon, following a snow-covered road that winds through the forest and ends up at Bonvillard, highest of Orelle’s 10 settlements. From there, basically lost, I alternated bits of skiing, skirting gardens and dodging brambles, with walking, skis on shoulder, though a succession of the rustic hamlets, past pretty stone chapels, a still-in-use communal bread oven, and along streets silent except for the drip of melting snow from the roofs.

If not a ghost town, Orelle is much quieter than it once was. In the 1920s there were more than 1,200 residents, the economy driven by an electrochemical factory down by the river. Its decline, before final closure in 1991, caused depopulation but the commune has been cautious about embracing tourism as an alternative, the mayor, in office since 1993, keen to preserve its traditional character.

So the opening of the Hob, built and owned by the Mairie (so in effect the village itself) and leased to an operating company, is a huge deal. The concept seems a good one: low cost, inclusive, fitting the village and much needed in a sport that risks becoming the preserve of the very wealthy. The name Hob is a contraction of hôtel and auberge (inn or hostel) — there are six double rooms, six family rooms and eight dormitories for up to six people. The dormitories — or dodos — have curtained bunks with their own light and storage, and the whole room can be “privatised” by a group of friends or a family. The prices are, for the Trois Vallées, startlingly low: doubles from €94, family rooms from €114, dorm beds from €32.

Initial impressions were good. The building is bright and colourful, the open-plan restaurant and bar has floor to ceiling windows looking out on a snowy terrace. The mattresses were comfortable, our family room spacious, with a balcony and big bathroom.

Sadly, there were, it has to be said, issues. Our visit was only a fortnight after opening and the staff had yet to find their feet. We asked for towels, finding we had only two for the four of us, and were promised more would be sent up. They were, eventually, but only after four more days of requests and empty assurances. Service was slow and random — order a glass of Mondeuse, receive a pint of lager — and I fell asleep and woke every day to the sound of the slamming door between kitchen and restaurant, exactly positioned one floor below my bed.

The main problem for us was at dinner: though Orelle and the Hob are in many ways ideally suited to families, there was no children’s menu, little or sometimes no choice of dishes on our half-board menu, and no chance of eating early. We sat down when the restaurant opened at 7pm but it could be 9.30pm before pudding arrived.

These are quibbles — and of course you can’t expect five-star service on a hostel budget. By now, I’d hope the staff have upped their game, and surely they’ve fixed the soft-close on the kitchen door?

On the last day there was fresh snow. The village was dark and under a thick layer of clouds but the lift took us up above them, so in sunshine we looked down over a cotton-wool sea. Previous days had taken us on forays to Val Thorens and beyond to Méribel, but today we stayed in Orelle, gradually working up to taking the kids to the highest point of the whole Trois Vallées at 3,230 metres. From there, we set out on their first proper off-piste run, a glorious long powderfield just beyond one of the pistes.

Then it was back down for a drink in the village square and one of the tourist office’s regular animations, tonight a performance by an elderly man with a flat cap and a barrel organ. For those seeking nightclubs, shops, glamour and society, Orelle is probably the worst resort in the Alps. For anyone looking to combine big skiing and little village life, it could be rather special.

Share price moves at both companies would make a deal more expensive in the near term

BHP has cooled on returning with another bid for rival miner Anglo American, according to people close to the company, with the rise in Anglo’s share price making a deal too expensive for the Australian group.

London-listed Anglo launched a radical restructuring plan last year, in the midst of BHP’s ultimately unsuccessful £39bn takeover attempt, with plans to dispose of its coal, platinum and diamond businesses that were well received by investors.

Australia-based BHP has been closely monitoring Anglo’s progress but believes that the miner’s shares have become too expensive to justify a fresh bid in the near term, according to three people close to the situation. 

Anglo’s share price has risen 40 per cent over the past 12 months, while BHP’s has fallen 17 per cent in the same period on the back of lower iron ore prices and a weak Chinese real estate market.

“On the face of it, if BHP were bidding what they thought was fair value, it is difficult to see why they would bid more now,” said George Cheveley, fund manager at Ninety One, an investment manager.

Anglo’s ambitious restructuring plan would create a smaller company in terms of revenues but one that is more focused, making 54 per cent of its revenues from copper and the rest from iron ore.

Anglo secured $4.9bn for its coal assets in Australia last year and is nearing a deal for its nickel mines in Brazil, with an announcement expected in the coming weeks. A spinout of its South African platinum business is expected this year, while the initial public offering of the De Beers diamond business could stretch into next year, according to the company.

Anglo’s shares are trading about 3 per cent higher than the value of BHP’s final all-share offer in May last year, according to calculations by Ben Davis, analyst at RBC.

A renewed bid would be more likely after Anglo spins out its platinum business, he said. “It will be a different company after those restructuring changes,” he said. “I feel there is already a bid premium in the shares today.” 

Getting hold of Anglo’s copper assets — particularly its stake in the Collahuasi mine in Chile and the Quellaveco copper mine in Peru — was a key part of the rationale for BHP’s original bid for Anglo.

BHP has said it is focused on investing in its existing copper assets. But that is costly: the company revealed last year that it needed to spend up to $10bn to boost production at the Escondida copper mine in Chile.

The company recently completed the $3bn purchase, together with Lundin Mining, of an undeveloped Argentine copper asset, Filo del Sol.

“There is no transaction that is a ‘must do’ transaction for BHP,” chief executive Mike Henry told the Financial Times in December.

He added that the company only pursues deals when it is for the right commodity, the right long-life assets, and when extra value can be unlocked by BHP’s ownership. “That’s a pretty strict set of tests. There are not that many opportunities that meet all of those criteria,” he said. 

Under chief development officer Catherine Raw, who joined the company last April, BHP recently restructured its mergers and acquisitions team to consolidate certain functions globally, which had previously been split along regional lines.  

Under London takeover rules, BHP is allowed to renew its bid for Anglo, should it wish to do so, following the expiration of a six-month standstill period in late November.

Here comes a plot twist: As Skydance Media and RedBird Capital Partners work to close the Larry Ellison-backed takeover of Paramount Global this spring, a consortium of investors who previously bid on the storied media conglomerate is mounting an eleventh-hour $13.5 billion offer.

Variety has obtained a legal letter that is being sent to Paramount’s board Friday, Jan. 24, from Project Rise Partners that outlines a new bid that is higher than an all-cash offer the consortium made during the go-shop window. The group says its terms are vastly superior to the $8 billion deal from Skydance and RedBird.

The letter, prepared by the law firm Baker & Hostetler, notes that in light of “the market’s negative reaction to the Skydance transaction, PRP is now increasing its offer as follows: The offer for the B shares is $19 per share compared to $15 per share in the Skydance offer — a 75% premium and 27% more than Skydance. The PRP offer for the A shares remains the same as the Skydance offer. PRP will add $2B to the balance sheet. This is an all-cash offer with committed financing from credible investors.”

Those investors have largely remained mysterious outside of Daphna Edwards Ziman, president and co-chairman of film and lifestyle TV network Cinémoi, and Moses Gross, founder and CEO of real estate company ANM Group. (Gross is the CEO of Malka Equities, the umbrella company that signed a $10 billion commitment on behalf of the investors.) But sources say Project Rise Partners is also backed by titans of industry comparable to Larry Ellison and includes at least one of the richest men in the world and as well as a company partner that is a pioneer in the satellite industry. Ziman and Gross fronted the previous offer, which they say was never presented to the board.

Reps for Skydance and Paramount Global declined to comment. A spokesperson for the Paramount board’s special committee established to vet offers did not immediately respond to a request for comment.

A publicly traded corporation is typically legally bound to consider any legitimate offer of value that could benefit shareholders. The Project Rise investors fired off a legal letter in October 2024 claiming that Paramount’s special committee violated its fiduciary duty to shareholders by neglecting to consider the group’s previous $8.5 billion bid for the company. Project Rise Partners’ $13.5 billion offer includes $5 billion for restructuring of the debt.

According to an SEC filing, a member of Paramount’s Special Committee held a call with a Project Rise Partners representative on Aug. 15, which was inside the go-shop window. (That window closed on Aug. 21.) But the SEC filing says the two sides did not discuss terms during the call and that the group’s acquisition proposal was only submitted on Aug. 26, after the window closed.

The Baker & Hostetler letter — addressed to Paramount board members Shari Redstone, Barbara Byrne, Linda Griego, Judith McHale and Susan Schuman — states that the company’s Class B shareholders “would own 50% of the equity versus 30% in the Skydance offer. The PRP offer includes an independent board and normal corporate governance. The board committees Skydance plans to eliminate would be retained. B shareholders would receive a vote for the first time in the company’s history.”

Project Rise Partners additionally claims that it plans to grow Paramount Global’s headcount, whereas the Skydance and RedBird partners have indicated more cuts would come under a Skydance-Paramount merger.

Larry Ellison, also one of the world’s richest men, is facing regulatory hurdles with the Paramount-Skydance merger that would see his son, Skydance CEO David Ellison, running the combined media assets. President Donald Trump’s new FCC chair Brendan Carr has publicly raised concerns about the merger. The elder Ellison, founder of Oracle who has a net worth of more than $200 billion, has been a longtime supporter of Trump’s and has been shoring up his relationship with the president. He traveled to the White House on Tuesday to announce a separate AI Stargate deal that industry observers saw as part of an effort to keep the Paramount-Skydance merger on track. That prompted Elon Musk to mock Ellison on X, writing: “they don’t actually have the money” and have “well under $10B secured.” Separately, Trump has indicated that he would be open to Larry Ellison or Musk buying TikTok.

The Skydance-RedBird $8 billion deal to merge with Paramount has been controversial among shareholders, primarily because it values Skydance at roughly $4 billion. The new Project Rise Partners bid questions that valuation. “Skydance reported $25M in EBITDA in 2023, and Paramount purchased Skydance for $4.75B, or approximately 200x trailing earnings,” the Jan. 24 letter says. “There are no market benchmarks that justify the Skydance valuation, and no independent bidder would pay that price.”

Meanwhile, politicians like Rep. John Moolenaar (R-Mich.), chair of the House China Select Committee, have raised concerns about China’s role in the Skydance deal because Tencent, a company with ties to the Chinese military, will have a small stake in the media giant, whose assets include everything from CBS News to the Paramount film and TV studio.

“The Board and its advisors appeared so eager to conclude a transaction with Skydance, no one appears to have fully accounted for Skydance’s foreign ownership,” the Project Rise Partners letter says. “The Pentagon recently placed Tencent on a list of firms alleged to be helping the Chinese military. Regulators will scrutinize the proposed transaction given the heightened concern over Chinese control of consumer platforms and access to personal data. If the Board and its advisors missed or ignored such a serious red flag, shareholders will naturally question the thoroughness of the Board’s due diligence. By extension, ineffective diligence might explain the unreasonable valuation paid for Skydance, the company acquiring Paramount.”

Paramount and Redstone, whose National Amusements Inc. is the controlling shareholder of Paramount, have a binding deal with Skydance Media and may only be able to back out if regulators stop the merger. A source familiar with the process says that is highly unlikely. But the Baker & Hostetler letter claims that the Paramount board eliminated an option to consider superior bids from its sale process.

“In the public company context, most merger agreements include a standard fiduciary out that allows a new bidder with a superior offer to pay the breakup fee to compensate the original bidder for opportunity and other costs,” the letter says. “For unknown reasons, the Board or its legal counsel specifically excluded a fiduciary out which harms B shareholders and benefits Skydance. … Fiduciary outs enable boards to terminate a transaction agreement if a superior offer arrives before the deal is approved by the shareholders and closed. If the agreement omits such an exit clause, the Board’s decision may be deemed ‘preclusive and coercive.’ There is no discernable rationale for that unnecessary, one-way value transfer to Skydance. These ‘deal protection devices’ do not protect shareholders.”

The letter also stresses that Paramount directors have a duty of loyalty to shareholders, not to advisers or Skydance.

“Because of the Board’s decision to eliminate the fiduciary out, the outsized $400M breakup fee benefits Skydance in the case of a regulatory block but does not benefit B shareholders if there is a superior offer. After canvassing the market for over nine months, the Board concluded that Skydance was the only actionable, fully financed offer available,” the letter continues. “Paramount Directors breached their duty of loyalty by crafting a merger agreement favorable to the buyer and not the seller in this transaction.

New rules could tax unrealized gains on bitcoin holdings at large companies

If you think MicroStrategy’s MSTR -1.11%decrease; red down pointing triangle business model is wild, wait until you see its tax issues.

After years of raising money through stock and debt offerings to buy bitcoin, MicroStrategy owns a stash worth about $47 billion, which includes $18 billion of unrealized gains. In an unusual twist, it could have to pay federal income taxes on those paper gains—even if it never sold a single bitcoin. The tax bill could total billions of dollars starting next year, according to a new disclosure this month by MicroStrategy that has received little attention.

Usually investment gains aren’t taxed until the assets are sold. But under the Inflation Reduction Act passed in 2022, Congress created a “corporate alternative minimum tax” in which MicroStrategy now finds itself ensnared. The tax rate would be 15%, based on an adjusted version of the earnings that MicroStrategy reports on its financial statements under generally accepted accounting principles. Its best hope is that the Internal Revenue Service adopts new rules that let MicroStrategy off the hook.

The IRS already has written exemptions into the currently proposed rules so that companies such as Berkshire Hathaway don’t have to pay taxes on unrealized gains from securities such as common stocks. However, the IRS so far hasn’t included any exemptions for companies’ unrealized gains on crypto assets such as bitcoin.

MicroStrategy has been pressing its case with the IRS, and it could be reasonable to expect the government will bend its way, given the Trump administration’s outward affection for the crypto industry. The IRS is still in the process of drafting rules to implement the new corporate alternative minimum tax.

Robert Willens, a longtime tax analyst who has been tracking MicroStrategy’s IRS issues, said he expects the IRS would decide in MicroStrategy’s favor and exclude unrealized gains on cryptocurrencies under its proposed rules, but he noted there is no guarantee it would do so. “If the Biden group was still in place, they probably wouldn’t get the exemption,” he said. He added that “it would be easy to slot crypto assets into the same exemption that stocks are going to enjoy, because there’s no real difference in the accounting.”

Meanwhile, the company is in a bind. With a $92 billion stock-market value, MicroStrategy still trades at a substantial premium to the value of the bitcoins it owns. The mere possibility it could have to pay taxes on the unrealized gains is a further reason the premium makes no sense.

If it did have to pay taxes on unrealized bitcoin gains, the company might have to sell some of its bitcoins to come up with the cash, because the rest of MicroStrategy’s businesses aren’t profitable. Doing that would defeat the purpose of its bitcoin roll-up strategy. It also would make MicroStrategy one of the least tax-efficient ways imaginable for investors to get exposure to bitcoin.

One of the reasons the U.S. enacted the corporate alternative minimum tax was to rein in companies that aggressively recognize earnings for GAAP purposes while at the same time showing little or no taxable income on their IRS returns. Enron, for example, was infamous for posting outsize GAAP earnings during the 1990s while paying no federal income taxes.

In MicroStrategy’s case, the company could end up getting hit with the equivalent of a wealth tax—paying taxes on paper gains that could prove transitory if bitcoin’s value falls.

Before this year, companies that owned crypto assets didn’t report them at fair market values on their GAAP financial statements. The accounting rules instead treated cryptocurrencies as intangible assets that could be written down in value, but not up. Thus, MicroStrategy didn’t include the unrealized gains from its bitcoin holdings in its GAAP earnings.

All of that is changing this year under new rules passed by the Financial Accounting Standards Board, which sets U.S. GAAP. Starting this year, MicroStrategy will show the fair value of its bitcoins on its balance sheet, and the fluctuations in value will be included in earnings.

MicroStrategy in a Jan. 6 filing disclosed numbers for the first time quantifying the impact of the tax and accounting changes. The company said it would add as much as $12.8 billion to its GAAP retained earnings, effective Jan. 1. That figure, which is a component of shareholder equity, would be part of the calculation when determining its financial-statement income for purposes of the corporate alternative minimum tax.

The company also said it would increase its GAAP deferred tax liabilities by as much as $4.0 billion. That figure could be seen as a rough guide for the total tax bill MicroStrategy might face if one assumed that bitcoin’s price stayed where it was at the end of 2024.

The company said it could become subject to the corporate alternative minimum tax starting in 2026. The 15% minimum tax would apply if its average annual financial statement income exceeds $1 billion over a three-year period before the initial tax year.

Here is where individuals who buy bitcoin for their own accounts have an advantage over MicroStrategy: If the bitcoin they buy goes up in value, they won’t have to pay taxes on the gains until they sell it. MicroStrategy would like to be able to say the same for itself. It will need the IRS to agree first.