TheChek News Flow

BF Borgers ran ‘sham audit mill’ whose work affects more than 1,500 corporate filings, US financial regulator says

The US Securities and Exchange Commission has shut down the auditor of Donald Trump’s social media company, accusing it of “massive fraud”.

The US regulator charged the firm, BF Borgers, and its founder, Ben Borgers, on Friday with falsely representing to clients that its audit work would comply with US standards, and fabricating documentation.

It said Borgers, one of the most prolific auditors of US public companies, was responsible for “one of the largest wholesale failures by gatekeepers in our financial markets”.

Without admitting or denying the SEC’s findings, the firm has agreed to pay a $12mn penalty and Ben Borgers to pay $2mn. Ben Borgers did not immediately respond to a request for comment.

Borgers has expanded rapidly to become auditor to hundreds of small and microcap companies — including the former US president’s Trump Media & Technology Group — but the SEC said that three-quarters of its audits were faulty.

The agency said it was stepping in to permanently close what it called a “massive fraud” and “sham audit mill”, and it told Borgers’ clients they would need to check past financial statements in case they contained errors. The firm’s “deliberate and systemic failure” to meet professional standards affected more than 1,500 company filings, the SEC said.

Borgers built the eighth-largest client list of any US audit firm in just 15 years while still operating out of a single-storey building in a suburb of Denver, Colorado. Its latest regulatory filing showed it had just 50 staff, 10 of whom are certified public accountants. Ben Borgers himself signed off on more than 140 audit opinions in the past year, according to Ideagen Audit Analytics — far more than any other accountant in the US.

Regulators have been raising increasingly loud warnings about the quality of his work. His firm was found to have a 100 per cent deficiency rate in audits inspected by the Public Company Accounting Oversight Board, the Colorado state board of accountancy fined him $5,000 earlier this year for bad audits of retirement plans and Canada’s audit regulator barred BF Borgers from operating in that country last year.

The SEC’s order barring the firm from public auditing leaves more than 170 US public companies searching for new accountants, an issue that appeared to hit some share prices on Friday morning. TMTG was down 4 per cent in early trading.

“Trump Media looks forward to working with new auditing partners in accordance with today’s SEC order,” the company said.

The regulator said it would monitor the situation and advised companies they were entitled to limited extensions for filing their financial results if needed.

“Reports that were filed before the date of the order do not necessarily need to be amended solely because of the . . . order,” the SEC said, but it added: “Issuers should consider whether their filings may need to be amended to address any reporting deficiencies arising from the BF Borgers engagement.”

Shari Redstone, a media scion weighing the future of her ravaged empire

The Paramount executive must decide on whether to sell the family business and to whom

Shari Redstone endured decades of brutal, Succession-worthy corporate and interfamily combat before she was finally able to take over the entertainment company that her father, Sumner, had ruled with an iron fist.

But by early 2022, two years after his death, Redstone was putting her own stamp on the family business, laying out an ambitious strategy to take on Netflix and changing its name to Paramount. 

By Redstone’s side as she announced this new vision was her trusted chief executive, Bob Bakish. The two had an easy rapport, swapping lines from Paramount’s Top Gun. “I feel the need — the need for speed!” Bakish exclaimed. “You go, Maverick!” Redstone responded. 

It has been a rocky run ever since. The streaming service, Paramount+, has lost billions of dollars, the company’s shares have fallen by 50 per cent and its debt was recently downgraded to junk. This week, Redstone dismissed Bakish just as she faces the critical decision over whether to sell the family business — and to whom. 

Some executives and observers in Hollywood say Redstone’s tenure atop her family’s empire has been nothing short of tragic. Her critics argue it was delusional to thrust Paramount headfirst into a costly streaming battle with the much larger Netflix and Disney. 

“Any scion who is around the empire for a long time, you start to think, ‘Well, I guess I belong here’ . . . I think she finally got the keys and it was irresistible not to take a crack at it,” says a media executive who knows the Redstones. “Unfortunately, she walked into this thing in the middle of a tsunami.”

That tsunami is the disruption that has swept over Hollywood in the Netflix era. Cable television and cinema-going, the lifeblood of the Redstone empire, have been ravaged. 

Seeing the writing on the wall, Redstone has been negotiating a merger with Skydance, a Hollywood studio run by David Ellison — son of billionaire tech executive Larry — that has produced blockbusters such as Top Gun: Maverick. Skydance’s complicated offer would give Redstone a payday of about $2bn, but common stockholders complain that it will leave them out. 

As Redstone plotted with Ellison, fellow scion of a billionaire, Bakish was left in the dark, according to a person close to her. Frustrated, he began searching for other deals that could save his job, triggering his dismissal by the board this week, say people familiar with the matter. Though Bakish is gone, another suitor has appeared. Private equity group Apollo and Sony presented a joint $26bn offer to Paramount this week. Redstone is said to prefer the Ellison bid, but shareholders may disagree. 

Growing up in the suburbs of Boston, Shari watched her father transform her grandfather’s small cinema chain into a global media conglomerate. She studied law, like her father, and practised criminal law. But after having children, she prioritised staying home. “The one thing I was determined to do was never work in the family business,” she said. 

It was not until her 40s, fresh from a divorce, that Shari relented, becoming executive vice-president of her father’s company, National Amusements. Her ascent has been unusual. While family succession is common in the media industry, it is typically limited to fathers and sons. Now 70, chatty and still with a heavy Boston accent, she is always keen to discuss baking recipes or her favourite TV shows. While she inherited her father’s strawberry blond hair, the relationship between Shari and Sumner was volatile. 

Some say she was her father’s favourite child. But he also insulted her in public and private. He delivered abuse via fax, sometimes calling her the C-word. He publicly dangled the idea that Shari would succeed him, then said the opposite. In 2015, Shari wrote to her son: “Your grandfather says I will be chair over his dead body.” Sumner Redstone was just as hard on her mother, Phyllis, who was “verbally and physically and financially abused by him every day of her life”, Shari wrote in 2014.

After agreeing to a divorce that ended more than 50 years of marriage, Sumner grew increasingly erratic, fixating on a belief that he was immortal. Well into his 80s, he started relationships with girlfriends less than half his age, to whom he gifted houses, show horses and bags of cash. He tinkered with his trust dozens of times.

It was only when his health began to fail that relations with his daughter thawed. Shari took hold of his care and his businesses; the girlfriends were shown the door. But even after he died, aged 97, she still had doubts. She asked one of his friends, Tad Jankowski, if her father had ever really loved her. 

There were plenty of times when Shari could have taken the cash and exited the scene, like her brother Brent, who sold his stake and decamped to Colorado with $240mn. But taking Sumner’s place and securing the Redstone legacy and the businesses they had built became a fixation. Many people who know her described it as a matter of “birthright”. 

Now she must figure out how to exit the business in a way that preserves what is left of the family fortune, which has fallen by two-thirds under her watch.

Those considerations — along with the potentially opposing interests of Paramount’s shareholders — will be weighed by the special committee of the company’s board charged with evaluating bids. Deliberations could begin as soon as this weekend. For Redstone, the fate of a business she views as her legacy will be on the line.

While pandemic risk is low, scientists say urgent investigations into the virus are necessary

The bird flu outbreak in US cattle has put governments on high alert as they grapple with its potential to contaminate meat and dairy supplies, infect other mammals and transmit to humans. 

The surge in cases is testing improvements in disease management since the Covid-19 pandemic, notably in dealing with the threat of zoonotic conditions that can pass from animals to humans.

While scientists say the current evidence does not suggest a high pandemic risk, they are calling for urgent investigations into the virus, its spread into cows and its possible mutations.

“Most likely and hopefully, the outbreak in the US dairy herd can be contained and controlled and this will be a limited one-off event without international consequence,” said Paul Digard, a virology professor at the UK’s Edinburgh university. “It’s too early to say, though.”

The virus has spread to 36 cattle herds across nine states in the US, according to the US Centers of Disease Control and Prevention. Fragments of bird flu have also been discovered in retail milk samples.

However, the CDC is struggling to gain access to dairy farms to monitor the spread. “Discussions are under way with farms in multiple jurisdictions to participate in CDC-led epidemiological studies,” the agency told the Financial Times.

Several strains of bird flu have caused concern in recent years, triggering culls of poultry stocks and infecting mammals including dogs and sea lions. Avian influenza has yet to spread widely in humans but it is often fatal when contracted, causing more than 1,000 reported deaths since 2003.

It is likely the H5N1 strain of the virus had been circulating in US cattle for more than four months before it was first confirmed in late March, according to a scientific paper published on Thursday.

But the CDC still classifies the public health risk from the bird flu cattle outbreak as low. Only one animal-to-human crossover case has been reported during this outbreak — in a Texas dairy worker whose only observable symptom was conjunctivitis, a mild eye infection.

Governments are nonetheless planning for the possible spread to people.

The US said the first batches of a pair of two-dose bird flu vaccines could be available within weeks if widescale human-to-human transmission were to occur, and tens of millions of doses could be available within months. Studies suggested these jabs offered “good cross-protection” against avian flu circulating in cattle, Demetre Daskalakis, director of the National Center for Immunization and Respiratory Diseases, said this week.

A vaccine against avian influenza had already been approved in Europe and others could be updated as needed, the EU’s European Centre for Disease Prevention and Control said. The World Health Organization regularly updates a list of known candidate vaccine viruses (CVVs) to respond to bird flu and other potential pandemic risks. 

Tests carried out by the US Department of Agriculture said there was no trace of bird flu virus particles in ground beef samples that were tested for the pathogen. 

Cattle futures traded on the Chicago Mercantile Exchange opened sharply higher on Friday, after dropping more than 6 per cent on Wednesday, when the department banned infected cattle from crossing state borders.

Early PCR test results from 297 retail milk samples across 38 states detected the H5N1 virus in one in every five samples. But pasteurisation kills the pathogen and therefore outbreak is unlikely to impede US dairy supplies, according to the National Milk Producers Federation.

“Cows are getting a little sick, which means they have to come out of production for a few weeks, but then after that they come back online,” said Alan Bjerga, NMPF executive vice-president of communications.

Experts pointed to possible obstacles to tracking the virus, with potential friction between public health investigators and the agricultural sector.

“There’s always a tension between the human health people and animal health people,” said Scott Gottlieb, a former US Food and Drug Administration commissioner. “The human health people would swab anything; animal health worry more about economic implications.”

Investigations needed to happen quickly because the danger could increase as the pathogen evolved, said Michael Osterholm, professor of environmental health sciences at Minnesota university. One route would be via a reassortment: an exchange of genetic material between viruses, particularly if the virus spreads in swine populations.

“One of the problems with influenza is that the risk can be very, very low for days and all it takes is a few mutations to occur — and you suddenly have a pandemic virus,” Osterholm said. 

The virus appeared already to be the product of a reassortment between types of H5N1 pathogen previously observed in Europe and the Americas, said Prof James Wood, an infectious diseases expert at the UK’s University of Cambridge.

“Because this effectively is a new virus, there is a lot of uncertainty around what its characteristics are.” 

Request signals the agency is reviewing whether the deal could be anticompetitive under U.S. law

A $16.5 billion deal aimed at boosting Novo Nordisk’s NVO -0.96%decrease; red down pointing triangle production of the weight-loss drug Wegovy is drawing extra scrutiny from U.S. antitrust regulators.

Novo Holdings, which owns a controlling stake in Novo Nordisk, in February agreed to buy contract drugmaker Catalent CTLT 0.24%increase; green up pointing triangle with plans to flip three of Catalent’s most critical plants to Novo Nordisk for $11 billion to help meet demand for Wegovy and its cousin diabetes drug Ozempic.

In a filing with the Securities and Exchange Commission on Friday, Catalent said the Federal Trade Commission has asked the company and Novo for additional information and documentary materials as the antitrust enforcer reviews the deal.

The so-called second request by the FTC signals the agency is reviewing whether the deal could be anticompetitive under U.S. law.

The FTC has become more active under the Biden administration in taking action against large mergers, and the agency last month sued to block Tapestry’s $8.5 billion acquisition of rival Capri Holdings, saying the deal would give the combined firm too much power in the market for accessible luxury handbags.

Catalent said the company and Novo will cooperate with the FTC in an effort to obtain an antitrust green light “as expeditiously as possible,” adding that they expect to complete the transaction toward the end of 2024.

The innovative structure of Berkshire Hathaway stands out—and benefits shareholders

In the never-ending search for the next Warren Buffett, most people are lost.

Hunting for a great stock picker is necessary, but not sufficient. You also need to find a great stock picker who isn’t a pickpocket.

To do that, you need to think less about investing and more about investment management. For Buffett, his business strategy bred a structure that set him apart from other money managers—and made shareholders a bundle.

To see why, let’s ask: How would Berkshire Hathaway BRK.B -0.16%decrease; red down pointing triangle have performed if Buffett had run it like a hedge fund?

Yes, I know you know the answer is “worse.” Do you realize how much worse?

If you’d invested $1,000 in the S&P 500 in early 1965 when Buffett took over at Berkshire, you’d have a bit over $300,000 today. If you’d bought Berkshire instead, you’d have more than $42.5 million—a big reason why tens of thousands of adoring shareholders will gather in Omaha this weekend to hear Buffett hold court.

If, on the other hand, Buffett had charged hedge-fund fees, you’d have under $5 million—still far more than the market, but about 90% less than Berkshire’s actual results.

Put another way, if Buffett had charged conventional hedge-fund fees, his investors would have earned only about 10% of the wealth they have enjoyed—and he could have been even wealthier than he is today.

I asked several researchers to calculate these returns independently: Andrea Frazzini, head of global stock selection at AQR Capital Management; James Carson, professor of insurance at the University of Georgia, and his former student Anthony Le; and Mila Getmansky Sherman, a finance professor at UMass Amherst, and her student Maya Peterson.

We assumed the hypothetical Berkshire hedge fund—let’s call it Berkaway LP—charged a management fee of 2% of assets, plus a performance fee that took 20% of any gains above 6% (or, in one iteration, 8%).

Over a period when the S&P 500 compounded at 10.2% annually and Berkshire at 19.8% annually, Berkaway would have returned somewhere between 13.6% and 15.9% annually.

The real Buffett nearly doubled the market’s rate of return over a 59-year period; hedge-fund Buffett would also have beaten the market, but by far less.

A Berkshire representative said Buffett was too busy this week to comment.

If Buffett had gone the hedge-fund route, though, I think investors would have earned less than that 13.6% to 15.9% annually. This brings us back to Berkshire Hathaway’s structure.

In the 1950s and early 1960s, Buffett ran investment partnerships that did charge hedge-fund-like fees (including a 25% cut of any annual return in excess of 6%, but no management fee).

But Buffett understood that structure should follow strategy, not the other way around. So in 1969 he announced he would close down his partnerships, and he ended up transforming Berkshire into an investment vehicle unlike any other.

Because Berkshire is a publicly traded holding company, rather than a mutual fund or hedge fund, it doesn’t charge fees. And Buffett never had to worry that investors would flood him with too much money at a market top or yank it out at the bottom. Most funds have fickle capital; Berkshire has permanent capital.

Almost everywhere else in the asset-management business, investment vehicles charge fees at least partly based on a percentage of assets under management.

The bigger a fund gets, the more money the manager earns.

For clients, that’s a problem for several reasons.

Asset-based fees focus the managers’ attention not only on increasing the fund’s returns but also—and often primarily—on increasing the fund’s size.

Larger funds are cheaper to run—but when fees are a flat percentage of assets it’s the managers, not the clients, who reap those economies of scale.

Instead of seeking to maximize the internal cash flows from their investments, the managers are driven to maximize the external cash flows from their investors.

That leads many managers to hype their results at the peak—drawing in performance-chasers who fling cash at the fund just as markets are overheating and stocks are overpriced.

The managers pour the new cash into overpriced stocks that then collapse in the inevitable downturn—at which point the hot-money customers bail out of the fund, forcing the managers to dump stocks at the bottom.

Thus the fund is compelled to trade in response to its investors’ behavior rather than to investment opportunity: buying more when stocks are less desirable and selling when they are more desirable.

The managers, though, prosper by collecting swollen fees at peak asset levels.

Buffett, meanwhile, has taken a $100,000 annual salary for more than 35 years and retains more than 216,000 shares of Berkshire’s Class A stock, worth about $131 billion this week.

In theory, had Buffett run Berkshire as a hedge fund with typical fees and reinvested them all, Frazzini estimates that they would have added approximately $300 billion to Buffett’s net worth by now.

Yet most people keep ignoring Buffett’s example. Institutional investors, and increasingly individual investors, have poured trillions of dollars into hedge funds, private-equity funds and other vehicles whose expenses can run as high as 6% annually.

These private funds are often structured, from the get-go, to maximize their size, rather than their rate of return.

A few mutual-fund companies, including Artisan, Bridgeway, Fidelity, T. Rowe Price and Vanguard, have shown the courage to close funds to new investors when markets get overheated. Some hedge funds also restrict new money when they run out of opportunities.

A few managers, including Orbis Investments, whose main office is in London, and Westwood Management of Dallas, offer portfolios that earn no fees at all unless they outperform their benchmark.

“It’s a way of truing up the fees paid with the cumulative performance of the clients,” says Dan Brocklebank, a senior executive at Orbis.

Such funds aren’t always available to most individual investors, though—and these fair fee arrangements remain discouragingly rare.

Part of the problem is that investors should be willing to share some of the upside with fund managers, but they dislike paying higher fees for better performance. AllianceBernstein, which offered a set of funds that charged higher fees for outperformance and lower fees when returns lagged behind, had to abandon them for lack of demand.

Until investors insist that funds change their structure and fees, and more fund managers cooperate, the quest for the next Warren Buffett will remain futile.

Another big month of big rounds. A startup needed to raise $200 million or more to break into this list for the April edition. April also saw a half-dozen rounds of a quarter-billion dollars or more, including a $1 billion round for an AI-enhanced biotech. Let’s take a look.

1. Xaira Therapeutics, $1B, biotech: The biggest round in April was really big. Xaira Therapeutics came out of stealth and announced it had secured more than $1 billion of committed capital from lead investors Arch Venture Partners and Foresite Capital — both of which jointly incubated the company — as well as several other big-name investors including Sequoia Capital and Lightspeed Venture Partners. The San Francisco-based biotech firm is led by founding CEO Marc Tessier-Lavigne, who previously served as president of Stanford University but resigned last year after questions arose concerning his scientific research. Xaira is the latest — although likely best-funded — startup to try to use AI models to find new drugs.

2. Pine Gate Renewables, $650M, energy: Pine Gate Renewables locked up a $650 million investment from Generate Capital, the Healthcare of Ontario Pension Plan and HESTA. The Asheville, North Carolina-based solar and energy storage product developer plans to use the new cash to help finance the creation of three gigawatts of clean energy infrastructure in communities across the United States by next year. Founded in 2014, the company has raised $1.7 billion, per Crunchbase.

3. PsiQuantum, $620M, quantum computing: PsiQuantum landed the biggest founding round thus far this year for any quantum startup, beating out Quantinuum’s $300 million equity fundraise at a pre-money valuation of $5 billion in January. The Palo Alto, California-based company landed a financial package of $620 million from the Australian Commonwealth and Queensland governments to build a quantum computer at a strategically located site near Brisbane Airport in Brisbane, Australia. Founded in 2016, the company has raised more than $1.3 billion, per Crunchbase.

4. Cyera, $300M, cybersecurity: While it is true cybersecurity funding has significantly slowed, it certainly has not dried up. Data security startup Cyera raised a $300 million Series C led by Coatue at a $1.4 billion valuation. The round nearly triples the New York-based startup’s valuation from its $100 million Series B last June that valued it at $500 million. Founded in 2021, Cyera has raised $460 million to date, per the company. Cyera offers a platform that helps security teams at companies understand what data they have and how it’s used, as well as how to secure it — all of which has become more important with companies relying on data to drive AI initiatives. The startup also uses AI in its platform to assess risks a company’s data represents regarding security, privacy and regulatory compliance.

5. Metsera, $290M, biotech: New York-based Metsera, a clinical-stage biopharmaceutical startup emerged from stealth last month with $290 million in funding led by Arch Venture Partners. The company is exploring medicines for obesity and metabolic diseases with a collection of oral and injectable incretin, nonincretin and combination therapies.

6. Rivos, $250M, semiconductor: Semiconductor startups are seeing big money, in part thanks to the explosion in generative AI. Santa Clara, California-based chip startup Rivos raised more than $250 million in April in a Series A-3 funding led by Matrix Capital Management. The company develops power-optimized chips targeting the data analytics and generative AI markets. Of course, chip startups have seen increasing interest recently. Late last month, Santa Clara-based optical interconnectivity startup Celestial AI raised a massive $175 million Series C led by Thomas Tull’s US Innovative Technology Fund. Also last month, Astera Labs — a Santa Clara-based developer of data center connectivity technology with use cases in generative AI — soared after its initial public offering on the Nasdaq.

7. Augment, $227M, artificial intelligence: AI coding startups are making a big splash. AI coding assistance startup Augment emerged from stealth last month and locked up a $227 million Series B round at a $977 million post-money valuation. The round included cash from the likes of Sutter Hill Ventures, Index Ventures and Lightspeed Venture Partners. The Palo Alto, California-based company helps developers and software teams by giving them AI coding assistance. Founded in 2022, Augment’s total funding now stands at $252 million, per the company, following its $25 million Series A led by Sutter Hill Ventures in January.

8. Monad Labs, $225M, blockchain: New York-based Monad Labs locked up the biggest Web3 funding round of the year thus far, collecting a $225 million funding round led by Paradigm. Monad is a layer-1 blockchain that is compatible with the Ethereum Virtual Machine but can process transactions using the same set of rules faster. The round is reminiscent of the 2021-22 era when layer-1 protocols like Aptos Labs raised big. Founded in 2022, the company has raised $244 million, per Crunchbase.

9. (tied) Blackrock Neurotech, $200M, neuroscience: Stablecoin issuer Tether invested $200 million in Blackrock Neurotech to take a majority stake in the brain-to-computer interface startup. The Salt Lake City-based company creates brain-to-computer interfaces and implants that allow people to control computers and neuroprosthetics. The company had only raised $10 million before the new round from Tether, according to Crunchbase. The round values Blackrock Neurotech at about $350 million, per Reuters. The deal is also the latest headline concerning brain-computer interface technology, which has been pushed by Elon Musk’s Neuralink. That company recently live-streamed a quadriplegic man playing video games using its implant and has raised nearly $700 million, per Crunchbase.

9. (tied) Rippling, $200M, human resources: HR startup Rippling wrapped up a huge $200 million round that valued the San Francisco-based startup at $13.5 billion. The deal also included a $590 million secondary offering for employees to sell their private shares to investors. The new equity round was led by Coatue. The company offers a workforce management platform that combines HR, information technology and finance to help customers streamline operations. The new round represents about a 20% uptick in valuation for Rippling, which was last valued at $11.3 billion in March 2023.

How Apple Boosts Chinese Suppliers With Know-How From Foreign Companies

When Apple signs a contract with a supplier, it typically owns all of the manufacturing processes related to its products, from polishing methods to recipes for materials. That has given it a key advantage for getting new—and cheaper—suppliers up to speed.

In March at an event in China, Apple CEO Tim Cook mingled with the founders of several major Apple suppliers in the country, including Lens Technology, which makes the protective glass screens for iPhones. “It’s the partnership between Apple and Chinese companies that really makes things happen,” Cook told Chinese state media in an interview. “We make it where one plus one equals three instead of two.”

What Cook didn’t say is how Apple is able to make such miraculous math happen: To cut manufacturing costs, Apple often builds up Chinese suppliers using the manufacturing know-how it has obtained through other companies from more developed countries that charge more for the technology.

Lens is a striking illustration of that. A decade ago, an American company called GT Advanced Technologies, which Apple was working with to develop a new scratch-resistant screen material, filed for bankruptcy protection. Apple subsequently shared the recipe for that material—which it co-developed with GTAT and owned under their contract—with Lens and a Hong Kong–based glass maker, Biel Crystal, according to three former Apple employees familiar with the project. In the years since, Apple has similarly shared information about Biel’s manufacturing processes for other materials with Lens and generally played the two companies off each other to get better prices on components, say multiple former employees at Apple, Lens and Biel.

The Takeaway

• Apple frequently shares manufacturing knowledge it develops with one supplier to others

• Lens and Biel benefited from processes that originated with another Apple supplier, GTAT

• Apple’s contracts with suppliers give it ownership over all manufacturing processes related to its products

Apple’s work with Lens serves as a cautionary tale for Apple suppliers in countries such as the U.S., South Korea and Japan, who have watched their competitive edge erode as Apple has transferred the manufacturing knowledge they’ve developed together to Chinese competitors. The extent of Apple’s information sharing with Lens, details of which haven’t been previously reported, could become a politically sensitive topic for Apple.

The U.S. is becoming increasingly restrictive about the types of advanced technologies Chinese companies can obtain from American providers, and the Biden administration is also pushing to make more high-tech components, such as chips, in the U.S. to boost American manufacturing and national security.

Apple has one of the most complicated relationships with China of any big tech company. Its business in China is significantly bigger than that of its peers, accounting for 18% of its revenue from the country. Its efforts to boost Chinese suppliers could help it stay in the good graces of China’s government. In 2016, Apple signed an agreement with Chinese government officials to use more Chinese suppliers as part of an overall pledge to spend more than an estimated $55 billion a year in the country through at least 2020, The Information previously reported. The agreement called for Apple to “explore the use of high-end, specialized electronics and materials designed and manufactured by Chinese enterprises as components for its products.”

Apple’s ability to transfer knowledge from one supplier to another derives in part from how closely it sticks to its supply chain, say multiple former Apple employees involved in its supply chain. It gets so involved in the manufacturing of its products that often suppliers simply can’t hide their methods from the tech giant. Its agreements with them stipulate that Apple owns all the manufacturing processes developed for its products—which can include everything from the tools to the polishing methods.

In some cases, companies in other countries have started to fight back against Chinese competitors Apple has cultivated. Last year, Korea’s Samsung, which makes the majority of the displays on iPhones, filed a lawsuit and trade complaint in the U.S. against China’s BOE Technology Group, calling for a ban on imports of products, including iPhones, that allegedly contain proprietary Samsung display technologies. Although Apple’s role in the matter isn’t clear, multiple former Apple employees said it has spent years helping BOE produce displays for the iPhone that can match the quality of Samsung’s. In doing so, Apple hopes to pressure the Korean company to reduce its prices, the engineers said.

Similarly, Apple has sent engineers to Seeya Technology, a display maker in China, to help it compete better with Japan’s Sony—at the moment the sole supplier of the high-resolution displays in Apple’s Vision Pro headset, according to people with direct knowledge of the matter. Apple hopes that building up Seeya’s capabilities will boost production of the displays while also pressuring Sony to reduce prices and increase research and development, those people said.

Apple, Lens and Biel didn’t respond to requests for comment.

Companies Made of Glass

In addition to having an Apple relationship, Lens and Biel share another more unusual connection, according to people who have spoken to the founders of both companies: a failed marriage.

Biel’s founder is Yeung Kin-man, a Hong Kong engineer who started out with factories in China that made the glass covers for watch faces. The founder of Lens is Zhou Qunfei, a Chinese citizen who at age 16 went to work at a competing watch glass factory, owned by Yeung’s older brother. In the early 1990s, Zhou married that brother. The couple eventually divorced, the people said, and in 2003 Zhou founded Lens to make watch glass, competing with Biel and her ex-husband.

Eventually, both Lens and Biel began catering to a new market: cellphones. In 2004, Motorola signed a deal with both companies to make cover glass for screens on the Razr, a flip phone that was popular at the time, according to people who worked with the companies. That got the attention of Apple, which signed a deal in 2006 with both companies to make cover glass for the first iPhone.

In the early years of the iPhone’s development, Apple executives—including Jeff Williams, now Apple’s chief operating officer—spent weeks at Lens helping the Chinese company develop new manufacturing techniques that would meet Apple’s high standards for quality, according to one former Apple executive. Apple, for example, taught Lens how to use computer-controlled lasers to cut the glass more precisely and how to strengthen it by submerging it in an ion bath, the executive said.

As the iPhone’s popularity grew, so did Lens and Biel. The founders of both companies became billionaires. Lens held an initial public offering in 2015, at one point making Zhou China’s richest woman. Biel’s Yeung became one of Hong Kong’s richest men, according to estimates by Forbes. The two companies are now the world’s two largest producers of glass screens for consumer electronics, counting companies such as Samsung, Huawei, Meta, Google and Tesla among their customers.

Lens has since expanded into new business areas and now makes metal iPhone casings and touch-sensor modules, while Biel has remained mostly focused on glass for electronics. Apple accounts for more than half the sales of each company and is by far the largest customer for both, according to analysts, regulatory filings and former employees at the two companies.

Sharing Knowledge

At times, Biel and Lens have benefited from knowledge Apple developed while working with another supplier.

In 2014, Apple began working with GTAT to establish a factory in Arizona to mass-produce sapphire glass, a scratch-resistant material with a hardness akin to that of a diamond. Apple hoped sapphire glass would eventually replace the traditional glass screens on the iPhone, which Lens and Biel were making. Soon, though, GTAT began struggling to meet Apple’s production targets. As a result, Apple began withholding payments to the company, which declared bankruptcy, legal and regulatory filings show.

Apple quickly began looking for alternatives. As part of its supplier agreement with GTAT, it owned all the processes the two companies had developed together. That included the recipe they came up with for sapphire glass, along with the manufacturing process behind it, including details about the atmosphere, temperature, purity and timetable required for growing sapphire crystals, according to three former Apple employees.

Between 2014 and 2015, Apple shared that knowledge with both Lens and Biel, which built their own factories in China to make sapphire glass. Ultimately, Apple decided not to use the material for iPhone cover glass, in part because of its high cost. But it does use sapphire glass for the iPhone’s camera lens covers and to protect the displays of high-end Apple Watches.

At other times, Apple has even used Biel’s expertise in another area to help Lens. In 2016, both companies began working with ceramic, a material Apple wanted to use as a casing for a luxury version of the Apple Watch, according to former Apple employees. Biel developed its own method of making the component using a casting process, in which it poured ceramic slurry into a mold and baked it.

Lens, in contrast, used a process known as high-pressure injection molding, according to two people with direct knowledge of the matter. But its method was inferior and led to a higher rate of defective parts, said a former Apple engineer who worked on the project. As a result, Apple told its engineers to share Biel’s methods with Lens. The move frustrated some Biel employees, who had spent a year developing their process through trial and error, the people said.

In most cases, Apple engineers will simply pass information between suppliers verbally, former Apple employees say. In some instances it has shown documents or even components made by one supplier to another, they said.

Former Apple engineers say Biel is more technically capable than Lens is but is also more conservative when it comes to spending its own money to win Apple’s business. Lens has been more willing than its rival to invest in manufacturing equipment and factory capacity to meet Apple’s needs, former Apple engineers say.

In 2021, for example, Apple asked both companies to set up fully automated production lines for cover glass to reduce the number of workers needed to make it. Lens sprung into action, splurging on state-of-the-art equipment to create a demonstration production line. Biel, meanwhile, repeatedly delayed the effort over cost concerns, according to a former Apple engineer with direct knowledge of the matter.

Searching for a Third Supplier

Within Apple, there’s a view that the best way to keep its suppliers from getting complacent is to regularly introduce fresh competition to keep them on their toes. Apple’s recent efforts to break up the duopoly Lens and Biel currently hold for iPhone cover glass haven’t been successful yet.

Foxconn Technology, the largest assembler of iPhones, began making cover glass for the iPhone 12 in 2020, providing Apple with a third supplier for the material. But Foxconn didn’t continue making the glass beyond that model after it lost money on the project, according to a former Apple engineer.

Apple has had more luck finding a third supplier—a subsidiary of Chinese electric vehicle maker Byd—for the glass that protects the back of the iPhone. Last month, Byd’s founder was one of three Chinese suppliers, including Lens, who met with Cook during his visit to China.

For now, though, Apple seems to be standing by Biel and Lens. For example, both companies are expanding their cover glass manufacturing operations in Vietnam, which will help Apple’s initiative to move more of its supply chain out of China, according to former Apple engineers.

And Biel recently signed a deal with the subsidiary of an Indian conglomerate, Samvardhana Motherson, that wants to work with Apple to make iPhone cover glass in India, according to its corporate filings and a former Apple engineer who is based in the country. Biel has a financial motive to help the Indian company. As part of their arrangement, Biel will provide “technical support” to Samvardhana Motherson in exchange for the right to purchase up to 49% of the Indian unit’s shares, regulatory filings show.

The iPhone maker authorized $110 billion in share buybacks and forecast a return to revenue growth in the current quarter

Apple’s AAPL 2.20%increase; green up pointing triangle revenue declined for the fifth time in the past six quarters, dragged down by ailing iPhone sales and new competition from smartphone rivals in China.

Still, shares of Apple rose more than 6% in premarket trading, after the company authorized $110 billion in stock buybacks and signaled that the current quarter is likely to see revenue growth. Also, while sales and profits fell in the March quarter, the numbers were slightly better than analyst expectations.

Apple is struggling on a number of fronts. The company’s single most important business—the iPhone—has faced sluggish growth. In recent years, Apple has seen success by steering consumers toward its more expensive “Pro”-designated phones. Its latest iPhone 15 Pro Max was its most expensive ever with a starting price of $1,200. But this premium strategy isn’t propping up overall revenue as much as it did in the past.

For the first three months of the year, Samsung reclaimed the number one spot for worldwide smartphone market share, according to research firm IDC. Apple’s iPhone unit shipments slipped nearly 10% for the quarter over the previous year, while the total smartphone market expanded about 8% annually. Apple had briefly become the number one smartphone vendor near the end of 2023.

In the most recent quarter, iPhones sales declined 10.5% from the prior year to $46 billion, in line with analyst projections.

Some investors said they had expected declines in revenue in the quarter, but these results weren’t as bad as anticipated. “The main thing we’re looking for is some form of stability in the hardware and iPhone,” said Charles Rinehart, chief investment officer at Johnson Investment Counsel, an Apple shareholder. “The iPhone is down a bit, but it held on to their profitability.”

Challenging conditions in China, Apple’s third-largest market, have been an area of concern for many shareholders. Huawei, China’s homegrown champion, has been rapidly gaining ground since getting back into high-end phones. In China, Huawei’s smartphone sales rocketed up nearly 70% from the previous year, while Apple’s sales fell 19%, according to Counterpoint Research.

The Chinese government has been encouraging this trend. Late last year, the Chinese government imposed bans on the iPhone for government officials in the workplace.

“China is the most competitive market in the world and we feel confident about our position,” said Luca Maestri, Apple’s chief financial officer, in an interview.

Chief Executive Tim Cook appeared to push back against external estimates showing declines in iPhone sales in China. Apple’s overall revenue in what it calls “Greater China” fell by 8% to $16.4 billion. Cook said that “iPhone grew in mainland China” for the quarter. He didn’t provide detailed financial or sales figures. The Greater China region includes mainland China, Taiwan, Hong Kong and Macau.

Slowing Chinese demand has played a role in previous slumps for Apple. In the company’s fiscal 2016 and 2019, sales in its Greater China unit declined 17.41% and 15.91%, respectively.

“We did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Cook wrote to investors in early 2019.

For the quarter, Apple sales were $90.75 billion, down 4.3% from the prior year, and profit fell 2.2% to $23.6 billion. Revenue from Apple’s services business, which includes App Store sales and subscription revenue from music, TV and other offerings, grew 14.2% to $23.87 billion.

Apple said it expects overall sales growth in the April-to-June quarter be in the “low single digits” percentage-wise.

The company didn’t disclose over what period it would buy back the $110 billion in shares. Apple has repurchased around $20 billion in shares per quarter since 2018.

Antitrust enforcers in the U.S. and Europe have also ramped up scrutiny of Apple’s competitive position in the market. In March, the Justice Department sued Apple in March, alleging the company maintains an illegal monopoly over the U.S. smartphone market. In Europe, new laws threaten to tear down Apple’s closed-app ecosystem, and the regional antitrust regulator has opened investigations into Apple’s compliance with the new law. Apple plans to defend itself against these regulatory efforts.

Apple’s only new device in years, the Vision Pro, is many years from contributing meaningfully to company sales. The company in February canceled its electric-vehicle project, laying off 614 workers. Some employees were shifted toward work on generative artificial intelligence, technology popularized by OpenAI’s ChatGPT.

With investors, Cook has promised to unveil new AI innovations within the company’s ecosystem, which analysts believe will happen at its annual June developers conference. “We also see incredible breakthrough potential for generative AI, which is why we’re currently investing significantly in this area,” Cook said at the company’s recent annual shareholder meeting.

In addition to Apple’s own AI developments, the company is also potentially looking at external partnerships with Google and OpenAI.

Artificial intelligence has been fueling tech earnings of late. Last week, shares of Microsoft and Google-parent Alphabet jumped as the companies reported that they were spending billions to meet the growing demand for artificial intelligence in their products.

Meta Platforms, on the other hand, underwent its worst day for its stock in 18 months last week after the company announced a $10 billion in capital-expenditure projections for 2024 as it builds out its AI capabilities.

Earlier this year, Microsoft took the crown from Apple as the world’s largest company by market capitalization, and its lead has grown in the months since. Microsoft’s stock is trading up 5% from the beginning of the year, while Apple’s stock is down 10% in the same period.

Investors are hopeful that these AI announcements will lead to renewed iPhones sales after a disappointing sales cycle with the latest iPhone 15.

“The last three iPhones have not been exciting,” said Hal Eddins, vice president at Apple-investor Capital Investment Companies. “But hopefully with the iPhone 16 they roll out new AI features and it will be off to the races.”

Arnaud Lagardère’s exit comes as Bernard Arnault and Vincent Bolloré prepare their own successions

The conclusion of the failed succession at Lagardère was always going to be a sad affair.

The French group’s decline under Arnaud Lagardère, son of founder Jean-Luc, has been chronicled in the press for two decades. This week “the heir”, as he is called in Paris business circles, was placed under formal investigation by financial prosecutors, forcing him to resign from his role as chair and chief executive.

The 63-year-old is accused of dissemination of false information, vote buying, misuse of corporate assets and abuse of power — among a long list of preliminary charges that he denies and intends to fight. It is the finale of a slow descent into corporate oblivion.

The Lagardère succession is a cautionary tale for any entrepreneur seeking to keep their company under family control. KPMG estimates that more than $15tn will be handed on by 2030 in “one of the largest ever intergenerational transfers of wealth” — $3.2tn of which is in Europe.

The Lagardère son’s downfall resonates particularly in France, where the mighty wealth creators of the 1990s are all in their seventies or eighties.

Bernard Arnault, 75, is preparing for his own succession at LVMH, with four of his five children now on the board of the luxury behemoth. Vincent Bolloré, 72, has shaped Vivendi to lure two of his children, Yannick and Cyrille, into picking up the baton. François Pinault, 87, who handed the reins of what is now Kering to his son François-Henri in 2005, is placing his grandson François on the board of auction house Christie’s.

They all had front-row seats to the rise and fall of the Lagardère empire. Jean-Luc, an engineer with no family money but flair and charm, showed them the way, becoming one of France’s most influential entrepreneurs in the 1990s until his sudden death in 2003 at the age of 75.

He left behind a media-to-aerospace empire that included a stake in Airbus — which his son then set out to shrink and rip apart. Arnaud showed little business acumen and seemed more inclined to spend his time with his supermodel wife or at tennis tournaments than at group seminars or board meetings.

Unlike Arnault or Bolloré, the elder Lagardère only had a single heir in Arnaud. After his wife left the family home, he fought for and secured sole custody of his then teenage son — a rare outcome at the time. Not a present father, he spoiled his son with riches. When the entrepreneur died, “Junior”, as Arnaud was often called in the company, was little prepared.

For years Lagardère’s quirky French governance — the commandite — allowed the heir to control and run the company with a 7 per cent stake. Over time, however, after poor choices of disposals (including the stake in Airbus) and investments (Arnaud lost hundreds of millions of euros in sports ventures), it became a drag on the company’s valuation and the only protection against predators.

“Over my dead body” was once Arnaud Lagardère’s response, in a moment of lucidity, to a question over whether he would ever envisage ditching the commandite for a normal structure reflecting his economic stake in the company.

All the bets were on Bolloré, a corporate raider who loves a good lawsuit to crush enemies, to throw in a legal challenge. But it was hedge fund Amber Capital that initiated the battle in 2016 by buying a stake and launching a lengthy campaign to place its men on the board.

Sensing blood, Bolloré did eventually join the party, using his media group Vivendi to build up a stake in Lagardère. Bernard Arnault, a close friend of Jean-Luc Lagardère, came to Arnaud’s rescue by injecting funds into the Lagardère parent company in 2020. But Vivendi, teaming up with Amber, convinced Arnaud Lagardère to get rid of the commandite in 2021. This paved the way for Vivendi to take over control two years later — a prelude to Arnaud’s final exit this week.

There will be many lessons drawn from the debacle. But one stands out that will hang over the wave of family-owned groups that are about to undergo their delicate successions in France: the laws of capitalism are always more powerful than legal tricks and long-time loyalties.