Private Equity Will See You Now

Plus: Short-seller Hindenburg comes for the king ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

May 3, 2023

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TOGETHER WITH

Good morning.

Not even a Tesla Model X Plaid can make a U-turn this fast. After just a couple weeks roaming an unverified wild wild west, government organizations and publicly-owned services are gaining back their special checkmarks on Twitter. As part of his overhaul to further monetize the previously-entirely-free-to-use site, Elon Musk placed verification checks behind a $1,000 per month paywall for businesses and organizations. But it seems the site has other plans after many major players, including the White House, announced they would rather leave the site entirely than pay to prove they’re not a troll.

“Coincidentally,” Tesla is raising the price of its Model 3 and Model Y vehicles after instituting a price reduction just last month. At least someone is putting Twitter’s new edit feature to good work.

Morning Brief

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The battle for America’s healthcare system rages on.

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It’s an activist battle royale.

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Tinder just noticed there’s a war on.

Healthcare

UnitedHealthcare to Pony Up $100 Million in Unpaid Medical Bills

We gotta admit, it’s nice seeing a health insurer get hit with a huge bill for a change.

UnitedHealthcare — one the largest medical insurers in the world — must pay $91 million to Envision Healthcare, a company that staffs doctors in emergency rooms and anesthesiology departments across the country and is owned by the private equity group KKR. It’s the latest battle in the intensifying war between the private equity and health insurance sectors.

This Isn’t Healthy

In one corner, you have health insurers who say medical providers employed by private equity groups are performing unnecessary procedures on patients and overcharging for routine encounters. On the other side are private equity groups claiming health insurers are refusing to pay for potentially life-saving treatments. Caught in the middle is you, the patient.

In the case of United and Envision, three arbitrators found that United breached the contract between the two parties by unilaterally reducing reimbursement rates for physicians’ services, the Financial Times reported, marking a setback not only for United but the health insurance industry as a whole.

Private equity has been quite bullish on medical care in the past few years. In 2021, groups like Nordic Capital, Silver Lake, and Harvest Partners dumped more than $150 billion into healthcare acquisitions, a 130% one-year increase, according to consulting group Bain & Company. Despite those large investments – or perhaps because of them – private equity does not have the cleanest track record in the medical field and is often called out for maximizing profits instead of providing quality service:

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In 2017, two-year-old Zion Gastelum visited Kool Smiles, a dental clinic in Arizona owned by the private equity group FFL Partners. There, he was given anesthesia and received root canals and crowns. After the procedure, he became unresponsive and died a few days later due to a lack of oxygen. The Gastelum family sued the clinic, claiming Kool Smiles “overtreats, underperforms and overbills.” The case was settled out of court.

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A study published last year in the JAMA Health Forum found that practices owned by private equity groups charged 20% more per insurance claim compared to independent practices. In private equity’s version of the Hippocratic Oath, do no harm to the bottom line.

“Higher spending, ultimately, will be borne by the patients, potentially in the form of higher insurance premiums and higher out-of-pocket costs and copays,” study author and Oregon Health & Science University Professor Jane Zhu said in an interview with Oregon Public Broadcasting. “When there’s no need for higher spending, it’s a concern for the health system at large.”

The House Solution: To rein in private equity’s grip on healthcare, Rep. Pramila Jayapal recently introduced the Health Ownership Transparency Act. If passed, private equity firms would have to list investors, debts, fees collected, and performance details. It would also create a task force to monitor and make recommendations on medical operations owned by private equity groups. We can’t say the prognosis is good, however: Jayapal introduced the bill last year too, and it never moved out of committee.

– Griffin Kelly

Investing

Hindenburg Research Picks Carl Icahn as Next Target

You either die an activist investor hero or live long enough to see yourself become the target of younger activist investors.

Nathan Anderson and his crack team of muckraking short-sellers at Hindenburg Research have selected their latest quarry: Carl Icahn, the legendary financier who knows a thing or two about torturing executives with allegations of corporate malfeasance.

When You Come at the King…

Hindenburg is riding high after its bombshell report alleging widespread corporate fraud wiped out nearly $110 billion from the Adani Group, one of India’s largest conglomerates. Now it’s going after Icahn Enterprises (IEP), the publicly traded investment firm controlled by Icahn that takes equity stakes or outright buys other companies like Xerox and Pep Boys. Icahn owns 85% of IEP.

As with its prior victims, the aptly named Hindenburg released an extensive report Tuesday detailing why IEP is overvalued — perhaps suspiciously so — in hopes of spurring a share price meltdown, creating some profit for Hindenburg’s now public short position on IEP shares. The abstract summary of this particular term paper argues that Icahn’s company is overvalued by a premium of some 200% compared to the reported value of its assets. And, in typical Hindenburg fashion, there’s practically a line-item analysis of how the financial sleuths arrived at this conclusion:

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Hindenburg states that IEP reported the value of its “Automotive Parts” unit at $381 million in December — even though a key subsidiary, Auto Plus, filed for bankruptcy a month later. Hindenburg also says IEP valued the 90% ownership stake it has in meat packager Viskase Companies at $243 million, despite its market cap being only around $89 million at the time.

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In total, Hindenburg estimated IEP’s net asset value to be around $4.4 billion, or 22% lower than the $5.6 billion that IEP reported at the end of last year.

IOU: Perhaps most damning, Hindenburg also flagged the 181 million units, or roughly 60% of Icahn’s holdings in the company, that the activist investor has pledged as collateral in personal loans. “Overall, we think Icahn, a legend of Wall Street, has made a classic mistake of taking on too much leverage in the face of sustained losses: a combination that rarely ends well,” Hindenburg wrote in its research note. Icahn responded in kind, releasing a statement saying “We believe the self-serving short seller report published by Hindenburg Research today was intended solely to generate profits on Hindenburg’s short position at the expense of IEP’s long-term unit holders.” Not that Carl Icahn would know anything about that kind of thing.

– Brian Boyle

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Tech

Match Group Dumps Russia

(Photo Credit: Good Faces Agency/Unsplash)

Now where will Putin upload his shirtless pics?

Match Group, the conglomerate behind big-name dating apps like Tinder and Hinge, says it’s pulling its services out of Russia by June 30th, citing human rights as its reason for leaving. It didn’t explain precisely what or whose human rights were violated to prompt this decision a full 15 months after the invasion of Ukraine. But at least it was polite in declining its Russian date.

The Russians Love Their Dating Apps Too

Most Western companies left Russia, or at least publicly began the process of leaving, shortly after the invasion began in February 2022. Match Group’s services lingered, however, and were even deployed by some Ukrainians as a counter weapon to the Kremlin’s propaganda. Ukrainians would set their location to Russia as a way to circumvent the online Iron Curtain and talk directly to Russian singles about the realities of the war.

But now Match says it’s leaving, and it clearly didn’t want to make its tardy departure too conspicuous. The announcement that it would withdraw its services from Russia is tucked away on the 37th page of the company’s annual impact report, published Monday:

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In a 33-word paragraph stating its decision, Match says it is “committed to protecting human rights.” Russia is mentioned nowhere else in the report, and a Match Group spokesperson declined to comment further when contacted by The Daily Upside.

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Friends Fiduciary, a shareholder in Match Group which describes itself as investing in “Quaker values”, hinted in a statement to Reuters that the timing has something to do with President Putin’s indictment by the International Criminal Court in March for the alleged illegal deportation of children from Ukraine to Russia.

Optics, Kinda: “It’s not a good look for a trusted brand to be continuing operations in a nation where the head of state has been indicted by the International Criminal Court,” Friends Fiduciary’s executive director Jeff Perkins told Reuters. It wasn’t a great look to begin with, but ok.

– Isobel Asher Hamilton

Extra Upside

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They took my job: IBM CEO says artificial intelligence will likely thousands of positions from the company’s workforce.

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Falling debris: Green groups sue the FAA over SpaceX Starship explosion.

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Disclaimer

*Source: How much does the average American have in savings? – YouGov, 1.4.23

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