Trump Plans 'Reciprocal Tax' on Some U.S. Trading Partners


WASHINGTON—President Donald Trump said Monday he planned to announce as soon as this week what he called a “reciprocal tax” on trade, aimed at countries that he said are taking advantage of the U.S.

Mr. Trump’s blueprint for the tax surprised some of his top aides, who warned that no formal plans have been prepared. Mr. Trump’s comments came during a meeting in the White House with mayors and governors to discuss overhauling the nation’s roads and bridges.

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Starboard Unveils List of Candidates for Newell Board


Starboard Value LP has revealed the 10 candidates it will nominate to Newell Brands Inc.’s board as part of a proxy fight launched in response to the conglomerate’s recent performance.

The activist investor, which said it has 4% stake in the company, will nominate three former Newell directors—Ian Ashken and Martin Franklin, both of whom co-founded Jarden Corp., and Domenico De Sole, former chief executive of Gucci Group NV. All three resigned from the board last month.

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Self-Driving Car Safety Legislation Stalls in the Senate


WASHINGTON—Legislation to remove regulatory obstacles to the development of self-driving vehicles is running into problems in the Senate, dimming prospects for the quick passage that many had expected.

The bill, known as AV Start, would set out a light-touch system of federal oversight of autonomous vehicles. Developers would be able to test and even market the vehicles long before detailed federal safety regulations are adopted—a process expected to take many years. The bill would also block states from adopting their own more stringent safety regulations.

The political problems are surprising, given the bill’s easy approval, on a voice vote, in the Senate Commerce Committee in October. The full House overwhelmingly passed a similar measure in September.

Autonomous vehicle developers and their allies in Congress say the legislation is necessary to head off a growing patchwork of state regulations that complicate the rollout of self-driving cars. Supporters of the federal bill also fear a lengthy delay in the federal bill could even give a boost to autonomous-vehicle development in other countries.

Already, the delay is providing a window of opportunity for critics of the legislation, who are stepping up efforts to block it. They contend new data from makers of self-driving cars in California underscores their concern that the bill jeopardizes consumer safety by giving autonomous-vehicle developers too much leeway.

At least three senators, all Democrats—Richard Blumenthal of Connecticut,

Dianne Feinstein

of California and

Edward Markey

of Massachusetts—have placed holds on the Senate legislation, citing safety and other concerns. That means sponsors likely won’t be able to get the unanimous consent they would need for a quick floor vote, absent major changes to the legislation.

Companies supporting the legislation include


unit Waymo,

General Motors

and Uber Technologies Inc. Industry officials say they remain confident they can overcome the short-term hurdles. They expect negotiations to begin soon on a plan to move the legislation to the floor, after weeks of member-to-member discussions.

“We strongly support the bill reported by the Senate [Commerce] Committee and are optimistic about its chances of passage by the full Senate,” said Paul Hemmersbaugh, GM’s chief counsel for autonomous vehicles. “It is not unexpected that a few senators would place a hold on a bill [and] the likelihood of any bill obtaining unanimous consent these days is remote. Our sense is that there is overwhelming bipartisan support for the bill in the Senate as a whole.”

The companies and their allies in Congress argue that concerns over safety could delay deployment of a technology that many actually expect to save lives in the long run.

The technology—and the legislation to move it forward—are “too important to fail,” Senate Commerce Committee Chairman

John Thune

(R., S.D.), said in a statement Friday. He said he remains convinced that the bill will become law “even if it takes a debate on the Senate floor.”

Critics of the bill say it could expose motorists and pedestrians to unreasonable risks by effectively shielding the still-nascent technology from either federal or state safety regulations.

Consumer advocates believe the bill’s pre-emption provisions would knock out existing safety laws in states like California, which has already required testing of autonomous vehicles to include backup drivers. The federal legislation also would prevent states from adopting new safety standards, such as requiring an autonomous vehicle to pass a driver-safety test.

Sen. Blumenthal said that the AV Start bill as currently written doesn’t provide enough safety protections for drivers, passengers and pedestrians.

“Autonomous vehicles are still an emerging and unproven technology,” Mr. Blumenthal said in a statement. “Congress’s job is not to give auto makers a carte blanche but to foster innovation while making sure there are safeguards that ensure safety can’t take a back seat.”

Mr. Markey’s concerns focus more on standard-setting for preventing cyberattacks and protecting consumer privacy.

Ms. Feinstein’s office declined to comment. But people familiar with her concerns say they are more far-reaching than her colleagues’.

The delays appeared to be encouraging a renewed push by some consumer groups to hold up the bill. California-based Consumer Watchdog sent a letter to senators on Friday calling on them to block the AV Start bill “unless it is amended to require enforceable safety standards.” It added that “any AV legislation should require a human driver behind a steering wheel capable of taking control.”

The letter cited recently released data from California that the group said shows that in most cases, “the vehicles cannot travel more than a few hundred miles without needing human intervention.” The data show how often the self-driving functions are disengaged because of an unexpected complication, such as sudden lane blockages or cars that are parked incorrectly.

Industry supporters of the legislation contend that the disengagement data are being misinterpreted, and show that the vehicles are being tested carefully. The disengagements don’t necessarily reflect safety issues, they say.

Write to John D. McKinnon at

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Oracle Leaps Into the Costly Cloud Arms Race


Oracle Leaps Into the Costly Cloud Arms Race – WSJ

Computer giant plans to quadruple number of giant data-center complexes over next two years


ORCL 1.38%

plans to quadruple the number of its giant data-center complexes over the next two years, a move that could significantly boost capital spending as it tries to chip away at

massive lead in the cloud-infrastructure market.

The expansion thrusts Oracle into an expensive arms race against the market’s biggest spenders, Amazon,




Google. Those giants are working to wrest away traditional Oracle database customers shifting from their own data centers to web-based computing services.

Oracle is building 12 new data-center “regions” to deliver cloud-infrastructure services, in which businesses rent online computing and storage. Two are slated for the U.S., two in Canada and one each in India, Japan, the Netherlands, Singapore, South Korea and Switzerland.

One is planned for China, where Oracle will work with

Tencent Holdings

, in accordance with government rules requiring outsiders partner with local companies. Another is slated for Saudi Arabia, which has been looking to bring more tech expertise to the kingdom. The Wall Street Journal earlier reported Saudi Arabia’s state-owned oil giant was in talks with Google to build a large tech hub there.

Oracle has other locations in mind for expansion beyond the 12 new sites, said

Don Johnson,

senior vice president of product development.







The plan is a costly gambit. A region running at full capacity can cost several hundred-million dollars, analysts say. Combined, Amazon, Microsoft and Google last year had $41.6 billion in capital expenditures and capital-lease deals, up 33%. While not all spending covered data-center construction, the three have identified it as a major focus.

Oracle’s capital spending totaled $2.04 billion in the 12 months ended Nov. 30. It declined to say whether its plan was influenced by the new U.S. tax law, or how much the expansion will cost. Upfront expenses, though large, will match demand, Mr. Johnson said.

“The way you actually end up spending billions is you have a large business and you are continually adding capacity,” he said. Oracle announced the expansion Monday at its CloudWorld conference in New York.

Companies are willing to spend lavishly because the payoff could be immense. The world-wide market for cloud services—business-process services, management and security apps and more—grew 19% to $260.2 billion in 2017, according to


estimates. By 2020, it should total $411.4 billion.

While Oracle is a leader in cloud-based applications, as well as management and analytics tools—known as software-as-a-service and platform-as-a-service—the business-software company is far behind in cloud infrastructure.

Amazon Web Services dominated the market with 44.2% share in 2016, according to Gartner, while Microsoft Corp. was No. 2 at 7.1%. Oracle barely registered, with just 0.3% share.

That hasn’t stopped

Larry Ellison,

Oracle’s executive chairman, from firing barbs at Amazon. When Oracle introduced a new version of its cloud-infrastructure service in September 2016, he brashly predicted “Amazon’s lead is over.”

“Larry making bravado statements doesn’t help,” said

Roy Illsley,

lead cloud analyst at Ovum in London. “Oracle is now spending the money it needs to spend and showing intent, rather than making noise.”

Mr. Illsley thinks Oracle can make up ground since many critical computing operations running on the company’s technology are only just beginning to move away from corporate data centers. Oracle can also benefit by selling its cloud applications and analytics tools, which will run in the new regions, to customers in markets where they weren’t previously available.

In addition to the 12 new regions, Oracle currently has three that deliver the latest version of its cloud-infrastructure services, in Phoenix; Ashburn, Va.; and Frankfurt. A fourth opens next month in London.

Regions are generally comprised of two or three compounds, loaded with racks of custom-designed servers. Cloud vendors spread those compounds across each metropolitan area to ensure continuous operation in case one is compromised.

Oracle also runs several smaller data-center complexes serving other parts of the cloud market, such as analytics tools.

Write to Jay Greene at

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General Dynamics Buying CSRA for $6.8 Billion


General Dynamics

GD -0.75%

said it had agreed to buy


CSRA 31.31%

for $6.8 billion as part of the defense contractor’s push into government information-technology services.

The maker of Abrams tanks and Gulfstream business jets will double its annual IT services sales to become one of the largest providers to the Pentagon and other agencies such as the Central Intelligence Agency and the Department of Health and Human Services.

Government departments are going through a major refresh of antiquated IT systems, including switching more services to the cloud and boosting cybersecurity. That has triggered a round of deal-making over the past three years among providers seeking greater scale to handle ever-larger projects as the government bundles contracts to secure savings.

Other big providers include Leidos Inc., which bought the IT arm of

Lockheed Martin

to create an industry leader with annual sales of $10.1 billion, and Booz Allen Hamilton Corp.

CSRA has annual sales of almost $5 billion and among the highest margins in the sector. The company, formed two years ago when Computer Sciences Corp. merged its federal arm with SRA International Inc., has partnered with the web services arm of

to provide government departments with cloud services.

General Dynamics said that CSRA would expand its access to intelligence agencies and that rising federal spending—with the White House due to issue 2019 budget requests on Monday—would reduce the pricing pressure on providers that forced many smaller players to combine.

Falls Church, Va.-based General Dynamics has lagged behind the broader increase in defense stock prices, in part because sales of business jets have remained flat in recent years.

General Dynamics is offering $40.75 a share for CSRA, whose shares closed at $30.82 Friday and surged 32% premarket Monday to trade around the offer price. Including the assumption of $2.8 billion of CSRA’s debt, the deal has a value of $9.6 billion.

General Dynamics said it expects the deal to close in the first half of 2018, increase earnings and generate annual pretax cost savings of about 2% of the combined company’s revenue by 2020.

Write to Doug Cameron at and Cara Lombardo at

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The Tax Law Is About to Make Analyzing Earnings Trickier


The new U.S. tax law could throw a monkey wrench into a method many analysts and investors use to gauge the strength of companies’ earnings.

A provision of the tax overhaul enacted in December assesses a one-time tax on companies’ accumulated earnings from outside the U.S. But while the tax is typically charged to companies’ 2017 earnings, firms have the option of stretching the actual tax payment over the next eight years, interest free.

That decision, which companies need to make this year, could throw off the comparison of a company’s earnings to its cash flow, a traditional way of assessing earnings quality.

Investors like to see a company’s earnings fully backed by the cash its operations are generating. It demonstrates the company has the money to pay shareholder dividends and invest in its own future. But stretching out payments of the “transition tax” on foreign earnings will muddy that comparison, accounting experts say.

Many companies, including


MSFT 0.22%


Johnson & Johnson

have already made the choice to stretch out the tax bill. That meant their 2017 earnings were reduced, but the year’s cash flow wasn’t, making it appear earnings were more fully backed by cash flow. Then, for the next several years, the companies’ cash flow will take a hit, while earnings aren’t affected, making it appear earnings are less backed by cash flow than they really are.

Microsoft, for example, says it will pay a transition tax of $17.8 billion. That amount was assessed against last year’s earnings, but cash flow wasn’t affected. But starting this year, it will be. Under the law, companies can make payments over eight years on a back-loaded schedule that puts the maximum burden, 25% of the total, in year eight.

For Microsoft, that will cut as much as $4.45 billion off the company’s yearly operating cash flow, which would be a significant portion of the $39.5 billion in operating cash flow Microsoft posted in its most recent fiscal year that ended last June. A Microsoft spokesman declined to comment.

The disconnect between earnings and cash flow will force analysts and investors to do some reverse-engineering of company numbers to make sure they’re comparing apples to apples. If they don’t do so—or are unaware of the need to—they could be misled.

“This is something investors need to pay attention to,” said

Sandra Peters,

head of the financial-reporting policy group at the CFA Institute, which represents chartered financial analysts who work with individual investors.

The mismatch could be particularly important when analyzing companies whose operating cash flow is below their earnings.

Mondelez International

for instance, said when it announced fourth-quarter 2017 earnings in January that it had a $1.3 billion tax on its accumulated foreign earnings, payable over eight years. That suggests its highest annual payment would be about $325 million, or 13% of the $2.6 billion in operating cash flow Mondelez posted in 2017, an amount already short of its $2.9 billion in net income.



had a $1.2 billion charge for the transition tax, suggesting it will pay a yearly maximum of $300 million if it pays over eight years. The company had $5.3 billion in operating cash flow for the 12 months ended in September, compared with $5.7 billion in net income.

A Mondelez spokesman said the company is “continuing to evaluate the accounting impact of the legislation.” A McDonald’s spokeswoman declined to comment.

The transition tax is being assessed on profits that U.S. companies have generated overseas for years and held there, rather than having them taxed at the old U.S. corporate tax rate of up to 35%. As part of the tax overhaul, the U.S. is relinquishing its right to tax those profits and shifting to a “territorial” tax system, which will levy taxes only on profits generated in the U.S.—but not before assessing a one-time tax on past earnings from the old system.

There are yet other complicating factors. Apple Inc., for instance, had previously accrued a big obligation for U.S. taxes on foreign earnings, anticipating it would repatriate some of those profits someday, so in effect it had already accounted for much of the $38 billion in taxes it owes.

And some companies are also realizing gains from deferred tax liabilities, which take less of a bite for a company now that the U.S. has lowered its corporate tax rate.

It’s also likely that companies’ earnings and cash flow will both rise by the time the bulk of the transition-tax payments become payable. J&J is scheduled to pay about $10 billion over the next eight years, implying a maximum yearly payment of $2.5 billion that would take a slice from the $21.6 billion it reported in operating cash flow for the 12 months ended Oct. 1. A spokesman said the company thinks an increase in its cash flow because of the lower tax rate will help “offset” the tax payment by the time it’s due.

Write to Michael Rapoport at

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Big Batteries Are Taking a Bite Out of the Power Market


Big Batteries Are Taking a Bite Out of the Power Market – WSJ

Batteries charged by renewable energy are nibbling at power plants that generate extra surges of electricity during peak hours

Giant batteries charged by renewable energy are beginning to nibble away at a large market: The power plants that generate extra surges of electricity during peak hours.

Known as peakers, the natural-gas-fired plants are expensive to run, and typically called into service only when demand rises and regular supplies are insufficient. That makes them vulnerable to disruption from lithium-ion batteries, which have fallen in price in recent years, and are emerging as a competitive alternative for providing extra jolts of electricity.

Numerous big batteries are under construction or consideration in the U.S., especially in the Southwest, where some companies see a shiny future for “solar plus storage” projects.

In Arizona, Tucson Electric Power is building a 100-megawatt solar facility and a 30-megawatt battery array. The project, being developed by

NextEra Energy

would allow Tucson Electric to store inexpensive solar generation in the morning, when power demand is low, and deploy it in the heat of the afternoon. The company hasn’t disclosed its costs.

Jim Robo,

NextEra’s chief executive, told investors late last year that the batteries can provide power “for a lower cost than the operating cost of traditional inefficient generation resources.”

A battery array three times the size of the Tucson project is being developed in Long Beach, Calif. Fluence Energy LLC, a joint venture of




, is building a battery that could power 60,000 southern California homes for up to four hours. It will be the largest lithium-ion battery in the world—three times larger than a battery built last year by


in Australia.

“It really is a substitution for building a new peaking power plant,” says

John Zahurancik,

chief operating officer of Fluence. “Instead of living next to a smoke stack, you will live near what looks like a big-box store and is filled with racks and rows of batteries.”















12 p.m.

12 a.m.


The new way of providing peak-time power poses a threat to manufacturers of power turbines, such as Siemens and

General Electric

, both of which announced large-scale layoffs in those businesses last year. 

Because large battery arrays remain costly, their use on power grids currently remains limited to niche areas. But if batteries prove their value and reliability, they could play a larger role on the power grid in the future by storing more of the electricity wind and solar farms intermittently generate for use when needed.

Peaking plants usually run only a few hours a day to provide extra power when demand is at its highest level. They typically run on natural gas and burned about $1.1 billion of the fuel in 2016, according to federal data.

The federal government estimates that a new gas-fired peaking plant could generate electricity for about $87 for a megawatt hour, including the cost of building the plant and buying fuel. By comparison,

Xcel Energy

Colorado subsidiary recently ran an open solicitation and received 87 bids for solar-plus-storage projects at a median price of $36 per megawatt hour, one of the lowest such bids to date.

“I could see in 10 to 15 years where you have 30% of what is traditionally a peaker market served by storage,” said

Ben Fowke,

chief executive of Xcel Energy, a Minnesota-based utility.

Batteries have been used on power grids for several years, but mainly to provide brief pulses of electricity to stabilize the voltage and frequency, sometimes as short as a few seconds. On the giant PJM Interconnection, which serves parts of 13 states from Pennsylvania to Illinois, batteries provide about a quarter of such regulation services.

The batteries now being proposed and built are much larger, and meant to provide more sizable loads of electricity for four hours or more, said

Anissa Dehamna,

an associate director at Navigant, a power-consulting company.

“Peaker replacement is the biggest market they have in sight,” said

David Hart,

a public-policy professor at George Mason University in Virginia who recently wrote a report for the Energy Department about grid batteries.

Overall, it still generally costs 35% more today to provide extra power via a battery compared with a conventional peaker plant, according to energy analysts at SSR LLC. But they estimate that batteries will be less expensive by 2024. Batteries, they add, are better suited to replace peaker plants in warmer areas than in colder climates, where winter peaks can last for longer than four hours.

Government directives are driving battery adoption in some states. California has a mandate to add 1.3 gigawatts of storage by 2020, and both New York and Massachusetts are developing similar programs. Last month, California ordered


to seek out bids for energy-storage systems instead of relying on three existing gas plants, and concluded the move “could result in lower overall ratepayer costs.”

The American Petroleum Institute, a lobbying group that represents natural-gas producers, applauds batteries but believes they should compete on a level playing field. Storage projects currently qualify for a 30% federal investment tax credit.

“It appears that battery technology is now ready to compete in the market. This means the financial support provided by governments intended to encourage the development and deployment of the technology can be eliminated,” an Institute spokesman said.

In Arizona, Corporation Commissioner

Andy Tobin,

a Republican, recently proposed a three-gigawatt mandate by 2030. He argues that investing in battery storage, instead of new gas plants, makes business sense for the sun-rich state. “The writing is on the wall,” he said.

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The Wayfair Riddle



even nods in the direction of an industry, businesses tremble and investors flee. At


W 1.91%

the biggest online furniture merchant, investors did the opposite.

The company’s shares are up 115% in the last year, valuing it at $8 billion. Since its founding in 2002, Wayfair has mastered the art of selling and delivering furniture online, a logistical challenge, but it hasn’t figured out how to do it profitably. Now new competition, high marketing costs, low customer retention and its need to keep raising cash loom as risks to Wayfair’s future.

Much of its success in undercutting traditional players with faster and cheaper shipping options is due to its investment in its own in-house logistics network. “We were less enamored of its furniture business than its logistics strategy,” says

Brendon Osten

of Venator Capital Management, which has 5% of its portfolio in Wayfair. “It’s an interesting strategic advantage.”

That advantage may not survive new competition. Amazon has built warehouses to handle furniture, which it says is one of its fastest-growing categories. It also has partnered with local furniture stores and launched two furniture brands.


and Target also have made investments that could help them launch furniture efforts. Meanwhile, traditional furniture retailers are stepping up online sales. Around half of sales for retailers

Restoration Hardware



are now online.

More important, even though it sold $4.3 billion worth of furniture in the past four quarters, Wayfair needs to spend aggressively on advertising to bring in customers. Its total advertising spending for that period was $500 million. Only around 9% of Wayfair’s traffic comes from consumers searching for the brand, according to L2 Inc. By contrast, Restoration Hardware and Williams-Sonoma get 60% to 70% of their traffic from brand-modified searches, L2 says.

A recent study by marketing professors

Daniel McCarthy

of Emory University and Peter Fader of the University of Pennsylvania’s Wharton School found that Wayfair spends about $69 to acquire each new customer, but only earns $59 back from each acquisition. Using a method of valuing publicly traded retailers that focuses on customer retention, Professors McCarthy and Fader conclude that Wayfair is overvalued by 84%.

Wayfair’s weak brand loyalty may be tied to its lack of stores—there is still value in sitting on a sofa before buying. That would help it fight off Amazon but may leave it vulnerable as traditional furniture retailers gear up for e-commerce.

Wayfair’s biggest risk is its need to raise cash to offset its losses. It has sold stock twice in the last two years, followed by a convertible-bond offering in September. (The company reports full-year earnings later this month). For the first three quarters of 2017, free cash flow was negative $114.7 million—about the same as the first three quarters of 2016. At the end of the third quarter, Wayfair had $610 million in cash and short-term investments.

The stock market selloff makes Wayfair more vulnerable. “The problem is when the market goes down and there are businesses with good economics as alternatives,” says

Dan McMurtrie,

managing partner of investment firm Tyco Partners, who has shorted the stock in the past.

The company’s poor economics have made it one of the most shorted stocks in the internet retail sector, with 18% of available shares sold short. Those betting against Wayfair thought they had a winner last November, when shares fell 20% following a widening in net loss to $76.4 million from a year-earlier $61 million. Investors sent the shares down 20%, but they soared soon after, more than wiping away the losses.

Wayfair’s best bet, and the biggest risk to short sellers, is that it will be acquired. As the company’s valuation climbs higher, though, it will become more expensive to buy Wayfair than to clone it. The company’s investors should pray that someone makes that economic mistake.

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What the New Tax Law Means for Married Couples


Tax laws are full of confusing oddities for millions of married couples. But the new law includes important changes that should bring relief for many.

On the whole, the new tax law is likely to have reduced or even eliminated the “marriage penalty” for “many taxpayers” and to have increased the size of the “marriage bonus” for many others, starting with the 2018 tax year, says Mark Luscombe, principal federal-tax analyst at Wolters Kluwer Tax & Accounting in Riverwoods, Ill.

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