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DealBook Briefing: Pass-Throughs vs. Corporations — Who’s the Bigger Winner?

Senator Ron Johnson of WisconsinCredit...Carolyn Kaster/Associated Press

Good Wednesday. Here are some of the stories we are watching.

The former C.E.O. of Massey Energy plans to run for U.S. Senate.

Where have all the media deals gone?

Mars invests in Kind, a step toward a more healthful empire.

• One of the biggest German IPOs in years could arrive next year.

Cineworld holds talks to buy Regal.

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Two senators — Ron Johnson of Wisconsin and Steve Daines of Montana — have argued the Republican tax plans give big corporations preferential treatment compared with pass-throughs.

The problem with their argument is it’s wrong. The New York Times’s Patricia Cohen reports:

Pass-throughs have a lower total tax burden than corporations do. That advantage exists now and remains in both the House and Senate versions of the tax bill.

The key point here is that corporations and their investors are taxed twice:

First, a corporate rate on profits is paid directly by the company. Under current law, the top rate is 35 percent. Then, when the business pays returns to its investors, they pay tax on the money they’ve earned when they file in April. That income — dividends and capital gains — is taxed at a top rate of 23.8 percent.

Pass-through businesses, meanwhile, are taxed just once:

These are small and mammoth partnerships, proprietorships and companies with fewer than 100 shareholders known as S corporations... They aren’t subjected to any separate business tax, but pay on their individual income tax when the money thrown off by the business is passed through to its owners. The rate depends on what bracket someone is in, but the highest is 39.6 percent.

So while the corporate rate by itself may be lower than the top pass-through rate, the total tax burden on corporations is higher.

But even in Republican rewrite of the tax code — in which the corporate rate is lowered to 20 percent — pass-throughs still come out on top. That again is because corporation are taxed twice.

Six months ago, Don Blankenship — the former C.E.O. of Massey Energy and once one of the most-feared men in the coal industry — shed his label as federal inmate 12393-088.

Now Mr. Blankenship, who was convicted of crimes related to the explosion at the Massey-run Upper Big Branch mine in 2010 that killed 29 men, is pursuing a new career: senator.

West Virginia’s WCHS reported today that Mr. Blankenship had filed federal election papers to run in the Republican primary for United States Senator in West Virginia next year. The winner of Republican primary would face Democratic incumbent Senator Joe Manchin III in the 2018 election.

One thing Mr. Blankenship won’t have a problem with is name recognition: He’s one of the best-known figures in West Virginia, both for his decade-long tenure as the C.E.O. of Massey and then for his downfall after the mine explosion.

Our colleague David Segal noted the onetime mogul’s corporate achievements in a 2015 profile:

Mr. Blankenship’s quasi-dictatorial management style as chief executive produced spectacular results for Massey, transforming it from a relatively modest business dominated by a single family into a corporation that operated more than 150 mines and brought in more than $2.6 billion in revenue.

Mr. Blankenship was eventually convicted of having deliberately skirted federal mining safety requirements. It’s a charge he has consistently denied, and he has called himself an “American political prisoner.”

But Massey was left low after the Upper Big Branch explosion, the worst American mining disaster in four decades. The company sold itself to a rival, Alpha Natural Resources, in 2011 for $7.1 billion. Alpha in turn filed for bankruptcy in 2015, battered by a plunge in coal prices. The company’s future remains questionable despite having emerged from Chapter 11 protection last year.

There’s no guarantee that Mr. Blankenship will square off against Mr. Manchin, who criticized Mr. Blankenship for his role in the explosion. Bloomberg notes that at least two other candidates plan to run for the Republican nomination.

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The chief executive of AT&T, Randall Stephenson, speaks at the Economic Club of New York.Credit...Brendan Mcdermid/Reuters

There has certainly been a lot of talk about media mergers in recent weeks.

Disney, Verizon and Comcast have all expressed interest in portions of 21st Century Fox. The Meredith Corporation agreed to purchase Time Inc. in an all-cash transaction valued at nearly $3 billion. And hanging over all that is the antitrust fight over AT&T’s proposed $85.4 billion purchase of Time Warner.

But all this news may have obscured the fact that media deal making has slowed markedly this year. So far in 2017, the value of announced media deals in 2017 is down 69 percent in the United States from a year ago and 57 percent globally, according to Thomson Reuters.

The total volume of these deals is at its lowest level since 2013 in the United States and 2012 worldwide.

This slowdown is unlikely to reverse soon. The Trump administration’s lawsuit to block AT&T’s takeover of Time Warner has ignited a guessing game about what type of media deals could get done.

As Andrew and Michael wrote last week:

Few, for example, believe that Comcast — which is in discussions to buy significant portions of 21st Century Fox — would be allowed to complete that potential deal unless the Justice Department was defeated in its AT&T lawsuit.

So until there is a conclusion to the AT&T-Time Warner deal, big media acquisitions are likely on hold.

As some consumers move away from sugary sweets like M & Ms and Snickers, Mars is buying a minority stake in a maker of snack bars that uses ingredients like quinoa and amaranth. Mars’s investment in Kind gives the smaller company a valuation of more than $4 billion — five times its value three years ago.

Their shared goals: Expand Kind from being a snack maker into a health-food empire, and expand its international sales.

“Job No. 1 is taking it global. Job No. 2 is, what other categories either are we already in, or we can easily get into, that meet the Kind promise?” Grant F. Reid, the Mars chief executive, told Andrew in an interview.

The numbers: Kind’s 2017 sales thus far are close to $720 million, according to Euromonitor. It’s the third-biggest snack-bar brand worldwide, behind Nature Valley and Clif Bar.

The back story: Kind’s founder, Daniel Lubetzky, had been considering selling a minority stake — but was interested primarily in staying private. Mars, one of the biggest privately held American corporations, had long been interested in striking up a partnership. And, given its deal-making history, Mars could end up owning Kind outright down the road.

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Today’s DealBook briefing was written by Andrew Ross Sorkin in New York, and Michael J. de la Merced and Amie Tsang in London.

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Siemens said on Wednesday that it plans to list its medical technology solutions business in Frankfurt in the first half of 2018 in what is expected to be one of the biggest German initial public offerings in years.

The Healthineers unit is among Siemens’ most profitable businesses, generating 13.8 billion euros, or about $16 billion, in revenue in the company’s 2017 fiscal year, which ended in September. The Healthineers business supplies technology to the health care industry, including diagnostic imaging and laboratory diagnostics.

Siemans did not disclose the size of the listing or the potential price range but is expected to sell a minority stake of up to 25 percent in the business. Some analysts have estimated that the listing could value the unit at up to €40 billion.

Siemens first announced plans to list a minority stake in the business last year.

Deutsche Bank, Goldman Sachs and J.P. Morgan are acting as global coordinators on the listing.

The British cinema owner Cineworld confirmed on Wednesday that it was in advanced discussions to potentially acquire Regal Entertainment Group for about $3.1 billion.

If the deal were to be completed, the two largest movie theater chains in the United States would be owned by overseas companies. AMC Entertainment is owned by the Chinese conglomerate Dalian Wanda.

The confirmation came after Regal said on Tuesday night that it was in discussions with Cineworld about an all-cash transaction to acquire Regal for $23 a share. Shares of Regal are up nearly 5 percent to $20.59 in recent trading.

Regal’s stock has come under pressure this year because of a poor run for box-office movies but also the threat from Netflix, Amazon and other digital streaming companies. That threat is only going to get bigger. Breakingviews columnist Liam Proud writes:

“So-called premium video-on-demand could see movies appear on streaming services just weeks after their theatre debuts. That would cut Ebitda by 8 percent, according to Credit Suisse, and make a Hollywood-style happy finale even less likely.”

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Credit...Christian Hansen for The New York Times

The Justice Department has argued in its lawsuit to block the $85.4 billion Time Warner deal that putting together AT&T, which owns DirecTV and provides broadband internet service, and Time Warner, which owns HBO and Turner channels like TNT and CNN, puts too much power in one corporation.

But AT&T said in a court filing that it is battling tech giants with plenty of negotiating leverage. Google’s YouTube, for instance, began life without any Time Warner networks, suggesting — to AT&T, at least — that channels like TNT, CNN and TBS were inessential.

Another key part of AT&T’s filing

To show that it would not abuse any increase in power that buying Time Warner would afford, AT&T said that it had offered rival distributors the same sort of deal that the government allowed in the last big vertical media merger, Comcast’s purchase of NBCUniversal.

That includes:

• Letting rival video providers make use of arbitration in any dispute involving Turner’s channels.

• Preventing Turner from shutting down its service, or “going dark,” in the case of any dispute. Recode points out that the concession is a big deal.

The AT&T flyaround

• Days before the government’s lawsuit, AT&T’s chief executive, Randall Stephenson, met with the Justice Department’s antitrust chief, Makan Delrahim, to offer one last peace proposal. (Bloomberg)

• Mr. Stephenson will speak at the Economic Club of New York today at noon, and his talk will be livestreamed. (Economic Club of N.Y.)

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Credit...Al Drago for The New York Times

A tax overhaul proposal emerged from the Senate Budget Committee after two notable Republican dissidents, Ron Johnson of Wisconsin and Bob Corker of Tennessee, said their concerns were resolved.

Mr. Corker, who objected to how much the plan would add to the national deficit, said that details of a provision, that would reverse tax cuts if economic growth fell short of expectations, would be released tomorrow, according to Politico.

But such a provision worries Republican colleagues like John Kennedy of Louisiana, who told the NYT, “I’m just not too excited about this idea of automatically tying our hands.”

The Washington flyaround

• President Trump is fighting with Democratic leaders as the government prepares for a potential shutdown when its funding expires on Dec. 8. (NYT)

• The White House is finding rare common ground with Democratic lawmakers like Senator Sherrod Brown of Ohio on issues like free trade. (WSJ)

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Credit...Jack Taylor/Getty Images Europe

The gross settlement is about 100 billion euros, or $119 billion, though Britain plans to say that it will ultimately pay about half of that when all is said and done. The Telegraph says that the exact amount will be calculated when Brexit is finalized.

From reporting by Alex Barker and George Parker of the FT:

“They have promised to cover it all, we don’t care what they say their estimate is,” said one senior E.U. diplomat. “We’re happy to help them present it.”

What still needs to be resolved: Two other big issues need to be worked out before Prime Minister Theresa May presents the offer next week. What authority will the European Court of Justice have over the 3.2 million European citizens now living in Britain? And what kind of border will Northern Ireland have with Ireland, its southern neighbor?

Reports of progress pushed up the value of the British pound this morning to about $1.34.

The opposition to the F.C.C.’s plans to repeal the Obama-era regulations has included more than 200,000 phone calls placed to Congress and about 500,000 comments on the F.C.C.’s website.

“There doesn’t seem to be middle ground on this issue,” John Beahn, a lawyer at Skadden Arps who specializes in regulation, told the NYT.

Ajit Pai criticizes Twitter: The F.C.C. chairman attacked the social network for harshly regulating conservatives’s accounts, apparently referring to its new policy of suspending and de-verifying some white nationalists and far-right users, according to the WaPo.

Critics’ corner, F.C.C. edition

• Farhad Manjoo writes, “The internet doesn’t have to be a corporate playground. That’s just the path we’ve chosen.” (NYT)

• Ben Thompson writes, “To believe that Chairman Pai is right is not to be against net neutrality; rather, it is to believe that the FCC’s 2015 approach was mistaken.” (Stratechery)

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Credit...Leon Neal/Agence France-Presse — Getty Images

Xavier Rolet is leaving, weeks after TCI Fund Management, a big investor in the stock exchange, warned that he was being forced out. His departure comes months after regulators had blocked the market operator’s plans to merge with Deutsche Börse.

But TCI is also getting something that it had wanted, sort of: Donald Brydon, the L.S.E. chairman whom the fund wanted replaced, said that he would step down in 2019.

But it’s bound to get messier. While a federal judge has denied an emergency request by the agency’s deputy director, Leandra English, to stop Mick Mulvaney from taking over as acting director, her lawsuit is likely to proceed.

While Mr. Mulvaney sits in the director’s seat, however, he can do a lot to hobble an agency that he has derided as a “sad, sick joke.” He has issued a 30-day freeze on issuing any new rules or regulations. And experts say that he can abandon investigations or shrink the bureau’s budget, according to the WaPo

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Credit...Gene J. Puskar/Associated Press

How else to describe the decision by the judge overseeing the company’s court battle with Alphabet’s self-driving car unit to delay the trial? He did so after discovering that Uber had not produced a letter that he said was potentially relevant evidence.

Here’s what Judge William Alsup said, according to Cade Metz of the NYT:

“I can no longer trust the words of the lawyers for Uber in this case,” Judge Alsup said. “If even half of what is in that letter is true, it would be an injustice for Waymo to go to trial.”

What was in said letter: Assertions by a former Uber employee to the ride-hailing giant’s deputy general counsel that the company had an internal team that was responsible for efforts “to evade, impede, obstruct, influence several ongoing lawsuits against Uber.” And it used anonymous servers and apps with self-destructing messages to avoid creating paper trails.

An Uber spokeswoman said that nothing in the letter affected the merits of the lawsuit.

The Uber flyaround

• Uber lost $1.46 billion in its third quarter this year, according to unidentified people. (Bloomberg)

• Benchmark and Menlo Ventures have said that they plan to sell some of their holdings as part of SoftBank’s tender offer for Uber shares. (Reuters)

• JPMorgan Chase has hired Sunghman Seo, formerly a senior executive at Deutsche Bank, as the head of its payments and business transformation unit for Europe, the Middle East and Asia. (FT)

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• Anthony Scaramucci decided to step down from the advisory board of the Fletcher School of Law and Diplomacy after several weeks of conflict with students: “It’s a school of law and diplomacy. I thought it was a diplomatic thing to do to bow out.” (NYT)

• Cineworld, a British operator of movie theaters, is in talks to buy Regal Entertainment Group for about $3.6 billion in cash. (Reuters)

• Siemens is preparing a listing for its health care business, estimated to be worth as much as $47 billion, and it is leaning toward New York as the location, according to people familiar with the matter. (WSJ)

• Andy Rubin, who created Android and was an executive at Google for nine years, left the company in 2014 after an internal investigation determined that he had an inappropriate relationship with a subordinate, according to three people familiar with the matter. (The Information)

• Stripe and Instacart scored the lowest marks on The Information’s ranking of private tech companies that rated them based on their corporate governance. (The Information)

• Wilbur Ross wrote to the Office of Government Ethics to say that estimates of his wealth reported in the news media were not accurate and that the correct figures were in his public financial disclosure report. (Business Insider)

• The Supreme Court seemed ready to narrowly interpret a federal law protecting whistle-blowers, barring many retaliation suits from people who assert they were fired for reporting wrongdoing. (NYT)

• Jerome Powell’s confirmation hearing was a placid affair, in which he avoided commenting on tax legislation and what the Fed would do if inflation didn’t rise. (NYT, Bloomberg View)

• Microsoft is investing billions of dollars in redeveloping its Seattle campus, even has Amazon hunts for a second headquarters away from the region. (NYT)

• Michael Arrington, the founder of TechCrunch, is raising up to $100 million for a hedge fund that will primarily invest in cryptocurrencies. (Axios)

Each weekday, DealBook reporters in New York and London offer commentary and analysis on the day’s most important business news. Want this in your own email inbox? Here’s the sign-up.

You can find live updates of DealBook coverage throughout the day at nytimes.com/dealbook.

Follow Andrew Ross Sorkin @andrewrsorkin, Michael J. de la Merced @m_delamerced and Amie Tsang @amietsang on Twitter.

We’d love your feedback as we experiment with the writing, format and design of this briefing. Please email thoughts and suggestions to bizday@nytimes.com.

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