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Trump's listed-company links

As controversy swirls around the appointments to President Trump's inner circle, we look at their links to listed companies
February 24, 2017

Somehow it seems spot on that a key member of Donald Trump's inner government should be a mover and shaker in the sleazy'n'glitzy, fake'n'phoney world of professional wrestling. After all, pro wrestling and the Trump style have much in common. Both draw their inspiration from the tradition of America's travelling show, where the punters are lured in by a big smile and a bigger promise. The atmosphere is electric, Dr Bigmouth is enticing and his claims are outrageous. Everywhere appearance trumps reality. But the people don't mind - they're having a good time.

If Donald Trump is the Phineas T Barnum of this troupe, then his showgirl-in-chief must be Linda McMahon, the brains behind World Wrestling Entertainment (US:WWE), a New York-listed company that is the world's biggest promoter of professional wresting and which generated $700m (£570m) of revenue and $48m of operating profit in its latest 12 months.

When, in 1966 - as 17-year-old Linda Edwards - she married Vince McMahon, who was the boy next door in small town, North Carolina, she also married into the wrestling business. Vince's father - Vince snr - was the second generation McMahon to run a regional wrestling franchise. But it was Linda's nous - plus the knowledge of intellectual property rights she had gleaned from her time working for a Washington DC law firm - that allowed the McMahons to consolidate the fragmented US wrestling industry into World Wrestling Federation. And when it was astute to acknowledge that wrestling fights were fixed and smart to attract family audiences, the company's name changed to its current one, emphasising the 'entertainment' side.

Now, with wealth guesstimated at $500m (£400m), Linda McMahon is far from being the wealthiest business person that Mr Trump has brought into his team (see Table 1), but her unlikely background in the machismo world of pro wrestling may make her the most interesting.

True, Mrs McMahon left WWE full time eight years ago; although husband Vince still heads the show and daughter Stephanie is the public face of WWE. Since then, she has focused on a career in Republican politics. Could be that was a poor choice because now she is a resident of thoroughly Democratic Connecticut and - despite using $50m of her own wealth - has failed in two attempts to win a senate seat for the state. No matter, The Donald came a'calling and whizzed her off to his circus.

Now Mrs McMahon has a cabinet-level post as leader of the Small Business Administration, a government-funded bank and adviser to small firms. And the response to her nomination, which was approved across party lines in the US Senate, was in the starkest contrast to that of fast-food king Andrew Puzder as labour secretary.

True, some of Mr Puzder's views were never likely to endear him to segments of Mr Trump's voter base. In particular, he was off-message in his views about immigration - "Immigrants appreciate what America offers," he told The Washington Post in 2013. "They're not taking jobs from Americans because there are not sufficient Americans applying for jobs."

What else would you expect from someone running a fast-food chain? Mr Puzder, a 66-year old lawyer, made his dough as chief executive of CKE Restaurants, based in California. He got the top job at CKE in 2000 as the company, which was then listed, struggled with operational issues. Restored to health, CKE was bought by Apollo Global Management, a private equity firm, for $694m in 2010. In December 2013, it changed hands to another private-equity owner, Roark Capital.

Throughout, Mr Puzder remained the boss while enhancing his reputation as a go-to talking head on the subject of employment. In 2010, he co-wrote Job Creation: How it really Works and Why Government doesn't Understand It and two years later he was an economics adviser to Mitt Romney's presidential campaign.

But when it became clear he had employed an illegal immigrant as a housekeeper and paid her in cash to avoid taxes, then his appreciation of what immigrants offer had gone too far for his own party. It became clear he stood no chance of getting senate approval and withdrew his nomination.

Mr Trump's pick as education secretary, Betsy DeVos, one of the super rich in the president's inner government, fared better - just. Mrs DeVos's appointment was approved 51-50 when vice-president Mike Pence stepped in with a casting vote.

She may not be used to such struggle. Mrs DeVos was born to wealth, then married even more of it. Daddy's firm was Prince Corporation, a major supplier of parts to the US auto industry. The father-in-law is Richard DeVos, co-owner of Amway - that's short for 'American Way' - a pyramid-selling operation that generated $5.6bn of revenue in 2016 and whose products focus on healthcare and toiletries. For instance, there's Truvivity, "the beauty system that empowers women with skin that radiates", or Satinique "because hair never stops growing, and neither do we" - you get the idea. Anyway, Forbes magazine has estimated Mr DeVos's wealth at clear of $5bn.

Yet Mrs DeVos isn't the wealthiest person in Mr Trump's inner circle. That accolade - as well as the oldest and best known - goes to Carl Icahn, the definitive activist investor; the man who said clearly, categorically and unequivocally: "All I care about is the money and I want it quick." To UK readers, Mr Icahn is best known for harrying Apple (US:AAPL) in 2013-14 to pay higher dividends, which it eventually did. In the Trump government he will serve as a special adviser on regulatory reform. Given his record, that might be much like hiring Lucifer to advise on religious reform.

Almost as old and as well-known as Mr Icahn - though hardly so wealthy - is Wilbur Ross. Unlike Mr Icahn, Mr Ross is in the cabinet - as Secretary of Commerce. In the early 1980s, Mr Ross helped a youngish Donald Trump whose casinos in Atlantic City were on the verge of bankruptcy - "thanks, Wilbur". But he made his fortune restructuring and dismantling US companies in fading industries, especially steel, coal and textiles. As a background for coping with America's rust belt that should be great experience, although Mr Ross's solutions may not please Mr Trump's blue-collar voter base.

If private industry provides the super-rich appointees, then listed companies provide the ones with the most influential jobs. And it goes almost without saying that Goldman Sachs (US:GS) has the greatest presence. The Wall Street firm - a private partnership until it listed in 1999 - seems to be as much a Masonic order as an investment bank, with a mission to embed itself deep into the fabric of American government. Every presidential administration has its cohort of ex-Goldman Sachs employees; Mr Trump's just brings it on a little stronger.

There are four ex-Goldman people in Mr Trump's inner circle, two of whom - Steve Bannon and Steven Mnuchin - really pull strings. Mr Bannon is the enfant terrible of the Trump team. Maybe, at 63, he's not so much the 'enfant', but he's 'terrible' to those who don't share his alt-right views. He does not swing the wrecking ball, but, as Mr Trump's chief strategist, he provides the intellectual justification for those who do. However, at Goldman he didn't do that much. The Harvard MBA was there for five years (1985-90) and he left to start up an investment boutique specialising in the media industry. It was there he made biggish money, taking as payment for a deal with Ted Turner stakes in TV shows that included the hugely successful sitcom, Seinfeld.

Mr Mnuchin adds to a Goldman tradition of grabbing the role of treasury secretary. Before him, a former Goldman chief executive, Henry Paulson, was treasury secretary for George W Bush during the 2008 financial crisis and Robert Rubin (a senior partner at Goldman) did the job for Bill Clinton from 1995 to 1999. Mr Mnuchin did not reach such dizzy heights at Goldman, but he worked there for 17 years (1985-2002), rising to chief information officer.

It was in that position that he worked closely with Gary Cohn, who spent 26 years at Goldman and was the firm's chief operating officer for 10 years until a couple of months ago. Mr Cohn is Mr Trump's director of the National Economic Council, basically the president's think-tank on economics. It is a role that, predictably enough, has been filled by other Goldman alumni: Robert Rubin (just mentioned) and Steve Friedman.

Arguably more interesting is the story of Mr Cohn's trip to the top. He is dyslexic and, growing up in Cleveland, Ohio, his parents were told that young Gary would do well to hold down a truck-driver's job. That reckoned without his chutzpah. He had the savvy to blag his way into a trading job on the New York Mercantile Exchange. Next stop was in Goldman's commodities department and, within four years of joining the firm, he was a partner.

Mr Cohn is not shy about his dyslexia. He says that the blows the condition brings mean he is highly developed to deal with failure. From there, it is a short step to being able to see the upward side of any situation - just the sort of mindset on which a trader, such as Mr Cohn, thrives. Dyslexia, Mr Cohn told the author, Malcolm Gladwell, "defined who I am. I wouldn't be where I am today without dyslexia".

There is little doubt that Rex Tillerson, Mr Trump's secretary of state (basically, foreign secretary) would say much the same about the boy scouts. Really, we're not being flippant. Mr Tillerson, who was chief executive of ExxonMobil (US:XOM), America's biggest oil company, has a life-long link with Boy Scouts of America. His dad worked for the organisation and Rex worked his way up to Eagle Scout. That's not to be taken lightly. As rites of passage go in middle America, becoming an Eagle Scout is the Hajj, bar mitzvah and the first Eucharist rolled into one. As the Boy Scouts of America website says: "Eagle Scout is not just an award; it is a state of being. Those who earn it as boys continue to earn it everyday as men. That is why an Eagle Scout IS, not was."

In a curious way this may tell us why Mr Tillerson got the secretary-of-state job because it might also tell us why, reputedly, he gets on so well with Igor Sechin, the chief executive of Russia's second-biggest oil company, Rosneft (ROSN). More important, Mr Sechin is also the de facto chief of the siloviki, Russia's network of spooks who occupy positions of power, and, as such, Russia's second most powerful person. Just as with Eagle Scouts, so it is with Russia's FSB (the successor to the KGB) - once a silovik, always a silovik. So the two men - Mr Tillerson and Mr Sechin - understand each other because they understand a commitment to a way of life. And that enables the American to have closer links with Russia's power base than and of his countrymen thus serving Mr Trump's curious - and increasingly controversial - courting of Vladimir Putin.

Besides, if Mr Tillerson does his new job half as well as he performed his previous one his new boss should be well pleased. In the 11 years that the 64-year-old Texan ran ExxonMobil, its share price skinned the opposition. In that period, Exxon's price rose 55 per cent to $90.89; not a stunning rise, but this was hardly a great time for big oil. Simultaneously, the index for the S&P oil and gas sector rose 20 per cent and the price of Royal Dutch Shell (RDSA), adjusted for US dollars, dropped 28 per cent.

The final listed company link to Mr Trump's administration turned out to be no link at all. That was a big surprise in itself, but the company has standout merits and its former boss may yet work his way into government. Dan DiMicco, who ran steelmaker Nucor (US:NUE) from 2000 to 2013 was Mr Trump's trade adviser during his campaign and was supposed to be a shoe-in as trade secretary.

Most likely, it helped the Trump rhetoric that Mr DiMicco criticised so-called dumping of Chinese-made steel in the US. What was - and is - more impressive is that Nucor is that rare corporate animal - a profitable steelmaker. Nothing too crazy, of course - in the five years 2012-16 its profit margins have averaged 6.6 per cent and return on equity 7.2 per cent; yet in steelmaking, that's brilliant. Nucor's trick seems to be running itself on highly decentralised lines where real decision-making - and not just the blame - is pushed down to the employee closest to the problem. It also has the leanest possible head office.

As such, it shares many of the values of Berkshire Hathaway (US:BRK.B). What would Mr Trump have given to add Berkshire's boss and the world's second-richest person, the great Warren Buffett, to his government? That was never going to happen. The 86-year-old is a life-long Democrat and has said some fairly blunt things about Mr Trump. No problem. The president is making do with the wrestling magnate, the boy scout, the Goldman mafia and the rest. An interesting bunch.

 

Table 1: In credit and in power
NameAgeNet worth ($m)*PositionCompany linkListed/private
In the Cabinet     
Rex Tillerson64150Secretary of StateExxonMobilListed
Wilbur Ross792,500CommerceSee textPrivate
Betsy Devos595,200EducationAmwayPrivate
Steven Mnuchin54500TreasuryGoldman SachsListed
Cabinet level
Linda McMahon68500Small businessWWEListed
In the 'kitchen'cabinet
Carl Icahn8116,800Regulatory affairsSee textPrivate
Steve Bannon6310Chief strategistGoldman SachsListed
Gary Cohn56400Economics adviserGoldman SachsListed
Anthony Scaramucci53110Public LiasonGoldman SachsListed
Near miss
Dan DiMicco6610TradeNucorListed
Tried but failed
Andrew Puzder6650LabourCKE RestaurantsPrivate
*Estimates from various sources

Table 2: Listed company links
CompanyExxonMobilGoldman SachsNucorWWE
ActivitiesOil & gasInvestment bankSteelmakerWrestling promo's
TickerUS:XOMUS:GSUS:NUEUS:WWE
Mkt Cap ($bn)343.399.418.41.50
Share price ($)82.77239.6257.6519.57
Price relative (% ch)*: 1 yr-183018-4
5 yrs-4321-2518
PE ratio (1 yr forward)20131733
Revenue ($bn)†20530.616.2700
Pre-tax profit ($bn)†7.9710.301.3037.9
Profit margin (%)3.935.08.05.4
Return on assets (%)2.43.69.711.4
*Relative to S&P 500 † WWE revenue & profit in Sm