TheChek News Flow

The Dec. 21 hearing is expected to center around the intent of the disclosure of four emails that surfaced after the initial trial's conclusion.

Adidas and Thom Browne will square off one more time right before Christmas in the ongoing saga over the designer’s use of stripes.

Judge Jed Rakoff of the Southern District of New York has scheduled a hearing between the two parties on Dec. 21 to hear arguments devoted to intent in the discovery of several emails that surfaced following the jury decision earlier this year.

Adidas sued Browne for using four stripes on some of the American designer’s active-inspired merchandise, saying it created confusion with the sports brand. The designer had been using stripes on his collections for many years to reference collegiate varsity sweaters, but, after being approached by Adidas in 2007, agreed to change the design to four parallel bars. Adidas has been using its three-stripe bar in the U.S. since the 1950s and spends $300 million a year in advertising the stripes and products sporting the mark account for $3.1 billion in annual sales.

Even so, in January, an eight-person jury in Manhattan’s Southern District came back with a verdict that found Browne was not liable for damages or profits that it made selling products with four stripes or its trademark grosgrain ribbon.

Adidas America and Adidas AG had been seeking damages of $867,225 — the amount the companies agree they would have received in licensing fees from Thom Browne Inc., if the two had worked together — as well as more than $7 million in profits they alleged the American designer made from selling apparel and footwear with stripes.

But the saga didn’t end there. As reported, Adidas in October discovered four emails that it characterized as “bad faith” from employees who cautioned the designer about using specific stripe designs in its collections because they could potentially create confusion with Adidas. The emails surfaced in August during a separate trademark dispute between the two companies in the U.K. but were not disclosed during the initial trial.

As a result, Adidas is seeking a new trial where the emails can be admitted into evidence, while Browne is arguing that the emails were not intentionally concealed and reference product that was not part of the U.S. case.

On Friday, Robert Maldonado, Browne’s attorney, reiterated those points and also said “Adidas’ hands are not clean” — alleging the sports brand breached a U.K. confidentiality agreement by sharing the emails with the company’s U.S. counsel much earlier than it had originally disclosed.

Charlie Henn Jr., attorney for Adidas, said he expected to file a response by the end of the day on Monday but the papers had not been uploaded by press time.

China faces the risk of a debt-deflation loop

The country should stimulate consumption with spending on education, healthcare and public housing

In 2002, Ben Bernanke, then a governor at the US Federal Reserve, gave a speech outlining the importance of keeping deflation at bay. He concluded: “Sustained deflation can be highly destructive to a modern economy and should be strongly resisted.”

Such a warning might not seem pertinent for much of the world where central banks are arguably still fighting the battle against inflation. But in China, it seems highly relevant.

Unlike other major economies, China is facing the challenge of deflation. Its gross domestic product deflator — the broadest measure of prices, taking in all goods and services of a country — is at minus 1.4 per cent and has contracted for two consecutive quarters. Consequently, China’s nominal GDP growth was just 3.5 per cent in the third quarter, much lower than the 6.4 per cent of the US.

A deflationary backdrop poses a few challenges. First, real rates after taking into account deflation will rise, increasing the burden on debtors. Second, even as debt growth slows, it will probably remain higher than nominal GDP growth. And so debt-to-GDP ratios will continue to climb. More crucially, a weaker GDP deflator negatively affects the trends in corporate revenues and profits. If deflation continues to eat into these, companies will cut wage growth, creating a vicious “loop” of even weaker aggregate demand and deflationary pressures.

These issues are particularly challenging in China’s context, considering that it is also facing elevated debt ratios and weakening demographic trends. Along with deflation, these factors combine to present a challenge to China we term the “3 Ds”.

The deflationary pressures in China stem from the deleveraging of the balance sheets of the property sector and local governments. When you consider that the combined debt on these balance sheets accounts for about 100 per cent of GDP, it is hardly a surprise that demand and price pressures are as weak as they have been.

To address the deflation challenge, policymakers need to use the full force of monetary and fiscal policies to lift aggregate demand. They are already easing both monetary and fiscal policies but we believe that the efforts deployed so far will only lead to a gradual improvement in the GDP deflator. The measures will not be adequate to lift the deflator to the 2-3 per cent range in the next two years that we think would be conducive for healthy growth in corporate revenues and profits.

We believe there are two interrelated reasons why. First, the policy response so far has been largely reactive and hesitant. In part, this reflects the fact that policymakers had been concerned about unproductive build-up of debt and had triggered the deleveraging process.

As a case in point, even though growth headwinds had started to mount from early in the second quarter this year, it was not until July that more concerted policy easing measures were introduced and even these are not sufficient to decisively arrest the growth headwinds. The challenge is that by not easing forcefully enough, it will keep the risk of a debt-deflation loop alive. Real rates will stay high and continue to weigh on aggregate demand.

Second, the growth mix remains unbalanced. China’s investment is still too high at 42 per cent of GDP. This propensity to invest or perhaps overinvest has come at the cost of diminishing returns, excess capacities and deflationary pressures. Hence, continuing to reflate the economy through investment, as China had done in the past, would probably only be a temporary fillip and could complicate inflation management over the medium term. Indeed, one could argue that the current situation is a result of past efforts, where infrastructure and real estate were boosted in a countercyclical fashion whenever exports turned weak.

The optimal policy approach now is to stimulate consumption. Specifically, policymakers could increase social welfare spending on education, healthcare and public housing, which could help unleash the country’s high household savings. For now, we see few signs that this transition is materialising. As it is, government expenditure-to-GDP ratios on social welfare have remained flat in recent years.

The risks to the inflation outlook are skewed to the downside, and the recent weakness in both the growth and inflation data suggests that the risk of a debt-deflation loop remains. A concerted shift to rebalance the economy towards consumption or a strong uplift in the global trade cycle appear to be the two key factors that could lead to a faster transition towards more healthy inflation environment.

Deutsche Börse’s aborted proposal to Euronext highlights Europe’s IPO woes

Discussions took place at a senior level and highlight obstacles in building a capital market to compete with the US

A shortlived proposal by Deutsche Börse to form a joint venture with rival Euronext to revive European stock listings has underscored the region’s challenges in building a capital market to rival the US.

Accounts of the precise nature of the discussions between the two largest stock exchange operators in the eurozone vary, but the proposals show discussions have taken place at senior levels in an effort to reverse the longstanding shift of capital away from Europe and to New York.

Stéphane Boujnah, chief executive of Euronext, told the Financial Times that Theodor Weimer, head of Deutsche Börse, had approached him about 18 months ago about creating “a new tech exchange somewhere in Europe” similar to the Nasdaq, the US market home to technology giants including Google, Apple and Tesla.

“He said there is a boom of tech companies in Germany, what about making together a new European Nasdaq,” Boujnah said.

Boujnah rejected the proposal as he believed a new venue would further fragment liquidity in an already disparate market. “It’s a nice idea but we have it already and that’s the Euronext market . . . every rational person would agree that fragmenting liquidity gets nowhere,” added the French former banker, who has led Euronext since 2015.

However, last month Weimer said that he had approached Boujnah about a joint venture for initial public offerings, but Deutsche Börse denied it was to create a new exchange.

“It seems that there are different recollections of this conversation, but we don’t feel it’s necessary to dwell on it,” a spokesperson said, adding that the exchange continues to “work on improving capital market conditions for technology companies in Europe”.

The aborted plan has highlighted the longstanding obstacle to Europe’s dream of building a capital market to compete with the US.

Europe’s weakness has been reinforced in recent months by the loss of many of its high-profile companies. German sandal maker Birkenstock listed on the New York Stock Exchange at a valuation of $8.6bn in October. Swiss shoe company On Running, Swedish vegan milk brand Oatly and British chipmaker Arm are among other companies that have listed on US venues in recent years.

EU officials have long sought to create a so-called capital markets union with the depth to attract high-growth companies and the biggest investors.

“We often wonder why these unicorns go abroad and don’t stay in Frankfurt or Europe,” said Christine Lagarde, president of the European Central Bank, last month. She added that a unified European market could lead to billions of euros more raised by the continent’s start-up companies.

Deutsche Börse’s proposal reflects a sense of unease about Europe’s scale and the exchange’s ability to grow and keep hold of listed tech companies, and that a new way forward is necessary.

“Doing this . . . with Euronext feels like it would be a way to maybe achieve the scale and liquidity benefits that ultimately Euronext has been building itself,” said Ian White, an analyst at Autonomous Research.

He added that he could “see the logic” behind Deutsche Börse’s proposed venture, “given the challenges competing with US exchanges, and the liquidity and scale advantages you’re up against with those firms”.

But Lagarde also touched on another issue: trading in the single market is largely run on national lines. “A truly European capital market needs consolidated market infrastructures,” she added.

Trading activity in Europe is shared between more than 30 stock exchanges and a patchwork of clearing and settlement houses, and is overseen by differing national regulations. By contrast, the US has one clearing and settlement house and the shares listed on the New York Stock Exchange and Nasdaq can easily be bought and sold on their rival exchanges.

Europe suffers from a “Kafkaesque structure of stock exchanges and post trade” services, said William Wright, founder of think-tank New Financial. “It’s hugely challenging.”

Some progress has been made. Euronext owns the French, Dutch, Italian, Irish and Belgian exchanges and all run on the same technology. Deutsche Börse supplies the systems to markets including the Vienna, Malta and Budapest exchanges.

Analysts also said that bringing together Deutsche Börse and Euronext in a joint venture could attract the interest of antitrust authorities in Brussels. Regulators have blocked Deutsche Börse’s attempts to merge with the London Stock Exchange Group and the New York Stock Exchange, albeit over clashes in bond and derivatives markets.

“It would be quite difficult from a regulatory perspective,” said White. “Your ideal situation if you’re a European policymaker is to have two integrated large listing venues. You want almost another Euronext, another €3tn-€4tn listed market cap venue.”

In the meantime, Europe continues to be overshadowed by its peers across the Atlantic. So far this year 83 companies have gone public on European stock exchanges, raising $9.2bn, a 35 per cent fall compared with last year, according to LSEG figures.

Rising global interest rates and a weak macroeconomic environment has forced many European companies to shelve their IPO plans. By contrast, companies listing in the US raised $20.3bn, up 157 per cent compared with the year before.

“You can consolidate ownership of the exchange but unless you consolidate at the market level to genuinely create one big pool of liquidity and a single market across seven countries you’re left with the same fragmentation and vertical silo problem,” said Wright.

KKR hires bankers after approaches for its song rights catalogue

An auction would test Wall Street’s appetite for music royalties as higher rates hit valuations

KKR has hired Raine Group to evaluate options for its music assets after potential buyers expressed interest, four people familiar with the matter said, setting up a test of Wall Street’s appetite for song catalogues as higher interest rates weigh on valuations.

At the centre of the potential sale is a catalogue of 62,000 songs, including hits by Lorde and The Weeknd, which the private equity group acquired for $1.1bn in October 2021. At the time music valuations sat at historic highs, bolstered by low interest rates. 

KKR, which was an early investor in music royalties, has not bought further music assets for at least a year, according to a person familiar with the matter. In 2021 the firm also struck a partnership with BMG, which had been set to buy $1bn of songs, but that arrangement had only resulted in “a handful” of deals — including ZZ Top and John Legend — this person said. 

With interest rates close to zero during the pandemic, large investors including KKR, Blackstone, and Apollo poured billions of dollars into music. These Wall Street players began competing with traditional music companies for song copyrights, helping inflate prices. The gold-rush allowed stars like Stevie Nicks, Neil Young and Bruce Springsteen to cash out at frothy prices. 

However, over the past year, music royalties have become less attractive to investors, who can now find higher returns from traditional fixed income investments such as bonds.  

Music publishing valuations have declined 14 per cent from their peak in 2019, according to Shot Tower Capital, an investment bank that advises on music transactions. 

Debt tied to music royalties — which has been hoovered up by the same investment groups — has also become less attractive as the Federal Reserve has lifted rates above 5 per cent. 

KKR last year secured bonds backed by the catalogue that its “dislocation opportunities fund” and private credit business had purchased in 2021, pricing some of the debt with a yield below 4 per cent. The value of those bonds has slid as interest rates have climbed, with the debt trading this month at 92 cents on the dollar, according to market data collected by Finra. 

KKR was an original majority shareholder in BMG when the music company was relaunched in 2008, but sold out to its partner Bertelsmann, the German media company, five years later. KKR re-entered the sector in 2021, initially buying a majority stake in the smaller catalogue of songwriter Ryan Tedder. 

KKR co-financed its $1.1bn music catalogue deal later that year with Dundee Partners, the family office of Stephen Hendel, a former Goldman Sachs partner. At the time, the companies in a statement described the deal as bringing the songs to “long-term owners who are deeply committed to respecting artists”.

Nat Zilkha, the executive who helped lead KKR’s recent music push, left the company at the end of 2021. He has stayed on as an adviser. 

KKR declined to comment.

High-yield bond ETFs attract highest flows on record in November

‘Risk-on’ wave of cash brings overall ETF monthly flows to the second-highest ever recorded

Investors poured record sums into high-yield bond exchange traded funds in November as investors rediscovered their appetite for risk.

High-yield bond ETFs gathered $11.6bn globally, including $10.8bn in US-listed ETFs, according to BlackRock.

The global tally for high-yield ETFs totally eclipsed the previous record of $8.6bn set in April 2020, set as markets recovered from pandemic lockdown shocks. November’s outsized inflows more than reversed the cumulative $8.7bn of outflows from high-yield fixed income ETFs that occurred between August and October.

Investment grade corporate bond ETFs also enjoyed a stellar month with $10bn of net buying marking the highest inflows since January and more than making up for the $7.9bn of outflows that hit the category in September and October.

The flood of new money into both high-yield and investment grade corporate bond ETFs stands in contrast to government bond ETFs, which saw flows fall to their lowest level since January 2022. The $4.3bn of buying was just a fraction of the $30.4bn in inflows recorded in October.

The risk-on sentiment was felt across the industry. November marked 2023’s best month of inflows for exchange traded funds globally, with a net $127.5bn invested — almost double October’s tally of $66bn and the highest since December 2021’s record $155.7bn, according to BlackRock. US-listed equity ETFs alone brought in nearly $73bn last month.

“Investors have cash to put to work, and if the assessment of the investment environment is better than expected, that dry powder can be put to work,” said Karim Chedid, head of investment strategy for BlackRock’s iShares arm in the Emea region.

While high-yield strategies were far from the only beneficiaries of November’s surge in risk-taking, the evolution of the ETF market has generated additional lower-cost options for retail investors in that space, said Todd Rosenbluth, head of research at VettaFi, a consultancy.

Coupled with the possibility that the US Federal Reserve may start cutting rates next year, “high-yield funds were particular beneficiaries of this sentiment shift”, Rosenbluth said.

US-listed ETFs have brought in about $491bn of the $826bn in global flows in the 11 months to the end of November, according to data from BlackRock.

“I think the prospect of a soft landing actually coming true really resonated with investors for the first time last month,” said Morningstar analyst Ryan Jackson. “We’ll see if it continues through the end of the year.”

Exchange traded funds backed by covered calls draw investors in search of steady income

Investors on the hunt for regular income have this year poured almost $26bn into exchange traded funds that sell options tied to stocks, inspiring a wave of copycats and raising questions about their effects on market volatility.

The funds, known as covered call ETFs, have surged in popularity to contain roughly $59bn in combined assets, up from only $3bn three years ago, according to Morningstar Direct. The number of ETFs in the category has nearly tripled in that time to about 60 in the US.

“The zeitgeist of the retail ETF investor has moved on to income-based products and options-based products,” said Dave Mazza, chief strategy officer at Roundhill Investments, which plans to launch three covered call ETFs in the near future after dropping a strategy focused on meme stocks.

ETFs are baskets of securities like mutual funds, but which trade on exchanges and enjoy preferential tax treatment in the US. Covered call ETFs sell options on underlying equity holdings to generate income in the form of premiums while also limiting the magnitude of gains and losses. Typically seen as a defensive strategy, they’ve enjoyed continued success in a year when US markets have boomed.

About half of this year’s new money into covered call ETFs has gone to the $30bn JPMorgan Equity Premium Income ETF (JEPI), an S&P 500 index-focused product that has grown to become the largest actively managed ETF. Another $13.7bn combined has gone into a second JPMorgan covered call product and a third from Global X, both focused on the Nasdaq Composite index.

The ETFs have grown so large that some analysts believe they are beginning to influence wider financial markets by dampening the widely followed Cboe Volatility Index, or Vix.

The Vix, popularly referred to as Wall Street’s “fear gauge,” is often used as a proxy for investor expectations of stock market swings. The index is calculated based on a complex formula tied to prices in options markets. It has crept lower throughout 2023 and is hovering near levels seen before the Covid-19 pandemic.

Alex Kosoglyadov, managing director for equity derivatives at Nomura, said funds systematically selling derivatives had helped reduce volatility by increasing the supply of call options and driving down their prices.

“We’ve seen a real influx of selling from a lot of these income funds,” Kosoglyadov said, adding that “a combination of a dovish macroeconomic backdrop and this systematic selling has really compressed volatility.”

Big asset managers including Morgan Stanley and Goldman Sachs and smaller firms such as REX Shares and Roundhill have laid the groundwork in recent months for covered call ETFs of their own.

But not everyone is so keen to join the trend.

Federated Hermes, a large active fund manager that started building ETF offerings within the past few years, is unlikely to compete in the covered call arena, chief investment officer Stephen Auth said. The firm’s experience with “doing stuff that’s hot at the moment” has not been good, he added.

“The money comes rolling in and then the whole thing collapses and the clients all want to shoot us,” he said. “It’s not worth it, so we try to stay with products that we think can add value to clients over a long period of time and not try to be too cute.”

Hamilton Reiner, JPMorgan Asset Management’s head of US equity derivatives and lead manager of its JEPI ETF, contends that income generation has “always been an important part of people’s portfolios.”

“Anything that’s not feasible as an investment and sounds too good to be true, maybe it’s more faddish,” Reiner said. “But traditional call overwriting is something that’s been going on for 50 years.”

Reiner encouraged newer covered call ETF issuers to be “slightly creative” when designing products and said he was “not really against them, but I’m also not rooting for them”.

“I think there’s enough money for many winners,” he said. “I think the space will continue to grow.”

René Benko’s indebted group relied heavily on funding from German insurance groups

German insurers including Munich Re and Allianz have amassed more than €3bn of exposure to the struggling property empire owned by real estate billionaire René Benko.

The network of firms in Benko’s Signa group not only borrowed from banks including Julius Baer and UniCredit, but also relied heavily on funding from more than half a dozen insurers, according to documents reviewed by the Financial Times and people with first-hand knowledge of the details.

The people added that about a third of this exposure was not backed by any collateral. “For some insurers, this will be extremely painful,” one of the people said.

Signa Holding, the central company in the group that owns Selfridges in London, the Chrysler building in New York and KaDeWe in Berlin, filed for administration last month. The company had built up €5bn in debt by the end of September, the majority of it during the first nine months of this year.

Benko has not disclosed the total debt accumulated by firms across the Signa group, but people familiar with the structure say his other entities have borrowed more than twice that amount. Many companies within the group are still trading, but people close to the business said further insolvencies were expected within days.

Insurance companies lent money to Signa partly because of the regulatory and interest rate environment, according to one person familiar with the situation. “Highly regulated banks were unable or unwilling to do certain types of transactions due to their capital requirements while insurance groups were drowning in cash during the era of ultra-low interest rates,” the person said.

A significant part of the Signa group debt was provided by non-bank financial companies such as Dortmund-based insurer Signal Iduna, a midsized company with 12mn customers, mainly in health and life insurance. Signal Iduna lent close to €1bn to Signa, people with direct knowledge of the matter said.

Signal Iduna declined to comment on the size of its exposure but said it did not expect “material loan losses” because its loans were “in large part” backed by collateral in the form of property in prime German city locations.

Munich Re’s main insurance business Ergo provided about €700mn in loans, while Germany’s fourth largest insurance group R+V lent €500mn, more than half of which is not collateralised, according to the documents and people familiar with the matter.

Allianz made €300mn in loans for Signa’s 2018 purchase of a high rise building in downtown Berlin, while Volkswohl-Bund, a medium-sized Dortmund-based insurer, racked up a €250mn exposure.

Ergo, R+V, Allianz and Volkswohl-Bund declined to comment. Signa did not respond to a request for comment.

German financial regulator BaFin told the FT it was monitoring the situation but added that the exposure “in most of the cases” was negligible compared to the individual insurer’s total assets and that it did not expect a “material threat” to any of the affected groups.

As well as providing lending for specific Signa real estate assets, some insurers made equity investments, according to documents seen by the FT.

Medium-sized German insurer LVM holds a 2.9 per cent stake in Signa Prime Selection, one of the two companies that owns most of the Signa group’s assets. A significant share of LVM’s €300mn Signa exposure is not collateralised, according to people familiar with the firm’s exposure and documents seen by the FT. LVM declined to comment.

Swatch brings collaborations with Omega and Blancpain, new MoonSwatch strap and more to Harvey Nichols Knightsbridge.

Swatch welcomed a new retail location in London just in time for the holidays, the company revealed Monday, with a new store situated on the ground floor of luxury department store Harvey Nichols Knightsbridge.

As a store within a store, the space is designed to set itself apart with a modern light, bright look. In terms of merchandise, the boutique is the designated stockist of collaborations Omega x Swatch and Blancpain x Swatch, and it will also carry a range of branded watch products, including Swatch Neon, Big Bold Irony and the bioceramic What If collections, in addition to a series of exclusive merchandise.

To mark the occasion, Swatch also released a new MoonSwatch ostrich-strap variation. The watchband, which is available in all original MoonSwatch colorways, is available exclusively at the Harvey Nichols Knightsbridge outpost.

The Japanese retailer operates 72 units in the region that had sales of 164 billion yen in fiscal 2023.

Uniqlo is doubling down on the North American market.

The Japanese retailer on Monday said it will add more than 20 stores in the U.S. and Canada next year, with a focus on the eastern and western regions of the countries.

Uniqlo opened its first North American store in 2005 and operates 53 units in the U.S. and 19 in Canada. Its goal is to reach 200 stores in North America by 2027.

“We couldn’t be more excited to enter the next phase of our North American expansion plan and serve more customers in the U.S. and Canada,” said Daisuke Tsukagoshi, chief executive officer of Uniqlo North America. “Stores are the heartbeat of our business, where we can engage with our local communities, hear directly from our customers, and best understand their needs to continue to improve and perfect our products. We’re looking forward to a big year ahead.”

The company said the North American division reported “significant growth” in the fiscal year ended Aug. 31 and expects similar strong results in 2024, with double-digit sales growth in its existing stores. In its year-end report, the retailer reported that sales in North America rose 43.7 percent to 163.9 billion yen, or $1.12. billion, and operating profits jumped 91.9 percent to 21.1 billion yen over the prior year.

The Uniqlo stores opening in spring 2024 are located at the Tacoma Mall in Tacoma, Wash.; Alderwood Mall in Lynnwood, Wash.; South Shore Plaza in Braintree, Mass.; Providence Place in Providence, R.I., a new market for the company, and the Staten Island Mall in Staten Island, N.Y. In Canada, stores will be added in the CF Fairview Mall in Toronto, the CF Market Mall in Calgary, the Scarborough Town Centre in Toronto and the Bayshore Shopping Centre in Ottawa.

Uniqlo, a division of Fast Retailing, operates more than 2,400 stores globally. It opened its first store in Hiroshima in 1984.

Last week, Elon Musk’s X began giving subscribers to its premium, advertising-free version access to a new feature: Grok, a sassy artificial intelligence chatbot created by xAI, a separate AI startup that Musk founded. To some, it wasn’t clear why mashing together the chatbot with the service formerly known as Twitter—or for that matter with Tesla products, as xAI has hinted—made sense.

“I don’t see what Grok is solving,” said Ross Gerber, whose firm, Gerber Kawasaki Wealth and Investment Management, holds stakes in X and Tesla, the electric vehicle maker Musk leads.

At the same time, the arrangement was a classic Musk move: He’s using one of his companies to scratch the back of another of his companies. The integration into X could give the chatbot access to the kind of audience most nine-month-old startups can only dream of. It was another example of the porous boundaries between the many companies Musk leads or controls—a half-dozen by last count. Personnel and board members freely float between them. Musk companies are often customers of other Musk companies.

Such an unconventional approach can raise red flags for shareholders and regulators about self-dealing. For Musk, this hasn’t been a big issue, in large part because most of his companies are private, with passionate investors who seem unperturbed by his idiosyncrasies. But Tesla, the only publicly traded Musk company, landed in a multiyear shareholder lawsuit after it acquired another startup he controlled, SolarCity. Tesla ultimately prevailed in that case. The entanglements in the Musk ecosystem could become a bigger issue as more of the companies go public over time.

“There seems to be this opinion within Elon’s community that essentially all the companies are one,” said Gerber. “But that’s just not how public companies are run.”

Musk didn’t respond to a request for comment for this story.

The quantity and breadth of Musk’s enterprises has few parallels in modern-day business. He is CEO of Tesla and SpaceX, the 21-year-old rocket company he founded. He is the majority owner of X, which he purchased and took private late last year, and he founded xAI, brain implant startup Neuralink and tunneling startup The Boring Company. And the number of Musk companies is likely to continue to multiply—for example, if SpaceX eventually spins off Starlink, its satellite internet provider, through an initial public offering, as is widely expected.

Just as Musk himself hops between his companies depending on the needs of the day, so do his employees. One of the most striking illustrations of that occurred in the weeks after Musk’s Oct. 2022 acquisition of X, when it was still called Twitter. At least two dozen employees from Tesla, SpaceX and other Musk startups moonlighted at X during that period, according to an org chart obtained by The Information at the time.

Among them were Steve Davis, CEO of The Boring Company and a former SpaceX employee, who took charge of cost cutting at X for a few months following the acquisition. Some of those moonlighting employees still list X and another Musk company as their current employers on their LinkedIn profiles.

Omead Afshar, who worked in the office of the CEO at Tesla, has also done stints at SpaceX’s Starbase factory in Texas and at X, The Information previously reported. Afshar moved roles after he became the subject of an investigation at Tesla over the use of company resources to purchase materials for Musk’s personal use, according to Bloomberg. In September, The Wall Street Journal reported that the Department of Justice is investigating the incident, as well as other perks Musk has received while running the company.

Shivon Zilis, who once worked on Autopilot at Tesla, is now a director at Neuralink and until March served on the board of OpenAI, the AI startup Musk helped co-found in 2015 before severing ties with it in 2018. (Zilis is also the mother of two of Musk’s children.)

One Musk executive, Charles Kuehmann, holds the title of vice president of materials engineering at both SpaceX and Tesla. The two teams share employees and collaborate, Kuehmann has said. Tesla even designed its new Cybertruck to use the same custom stainless steel alloy used in SpaceX’s Starship rocket, according to Musk.

While there’s no outright prohibition against the sharing of personnel and resources between companies, corporate governance experts said instances in which current employees of one Musk company moonlight for another can be problematic.

“The main issue is that it could lead to or it almost always implicates a potential conflict of interest between the owners of the two companies,” said Robert Bartlett, co-director of the Arthur and Toni Rembe Rock Center for Corporate Governance at Stanford Law School. “So in the context of Tesla and Twitter, for instance, it is a concern to Tesla stockholders that they may be inadvertently subsidizing a different company.”

In the case of Tesla, which faces stricter disclosure requirements as it is public, the company seems to reveal in a securities filing that X has reimbursed it for labor costs of Tesla employees. In 2022, X paid $1 million to Tesla for “certain commercial and support agreements,” and in the first two months of 2023, X paid an additional $400,000 for those services, according to a filing

Tesla’s filings also hint at other ways it shares resources with another Musk company. In 2022, the carmaker paid $800,000 to SpaceX for Musk’s use of a private SpaceX plane for Tesla business, according to the filing.

In some cases, Musk’s companies scratch each other’s backs by buying each other’s products. For example, The Boring Company uses Teslas to transport people in its Las Vegas Convention Center Loop. X, which has hemorrhaged revenue as advertisers have fled for less controversial platforms, counts SpaceX’s Starlink internet service among advertisers that have stuck with it.

Musk’s most serious brush with legal disaster from his entanglements was Tesla’s 2016 acquisition of SolarCity for $2.6 billion. At the time, Musk was the biggest shareholder of SolarCity, an installer of rooftop solar panels that his cousins founded. Some Tesla shareholders filed a $13 billion lawsuit against the carmaker over the deal, arguing that it was tantamount to a bailout for the struggling SolarCity. In June, Delaware’s Supreme Court affirmed a lower court’s ruling on the case in favor of Musk and Tesla.

For Gerber, the most frustrating example of resource sharing is Musk himself. If Gerber had his way, Musk would limit his operational responsibilities to his CEO job at Tesla, rather than running six different companies at the same time.

“It’s really hard to be successful, be a good parent, have friends and family and stay healthy and be a CEO in general, or even just be a successful person,” Gerber said. “He’s in way over his head at this point. And he’s using every resource he can to try to keep everything going.”