Happy Sunday, and welcome back to Dry Powder.

In today’s issue, I discuss how the recent downgrade of Paramount Global’s $14 billion of net debt into junk territory might have ironically boosted David Ellison’s bid for Shari’s holding company. Plus, at the behest of Mark Cuban, I take a close look at Wall Street’s fascination du jour: whether Donald Trump can use his SPAC windfall to pay his legal bills.

But first…

• Jack Welsh revisionism: The news that GE alumnus Dave Calhoun is in the process of being defenestrated as the C.E.O. of Boeing has prompted a few “end of an era” essays from financial journalists, including yours truly. But it was Allan Sloan’s Yahoo Finance diatribe against Jack Welch and his “disciples” that really got the GE alumni pissed.

  Calhoun’s departure from Boeing was the catalyst for Sloan to go off on Jack and his legacy. Sloan’s article contained a colorful graphic of the 17 Jack “acolytes” who became C.E.O.s of other companies and their “mixed success,” including 13 who were “unlucky” and four who were “fruitful”—among them Dave Cote, at Honeywell; Stanley Gault at Goodyear; Omar Ishrak at Medtronic; and Tom Tiller at Polaris. “As the Welch hagiography died down, the mess left behind showed that his genius was as much in playing accounting games as anything else,” Sloan wrote. This line of thinking has become dogma of sorts among the growing cast of Welch haters, which includes Sloan and The New York Times’ David Gelles, whose 2022 book about Jack, The Man Who Broke Capitalism, Sloan cites as having influenced his thinking.

  This is all total nonsense, of course. I don’t know if Allan Sloan took the time to read my 2022 book about GE, Power Failure—I’d be happy to send you a copy, Allan—but the truth about what happened at GE, and to GE, now that it is breaking itself up into three pieces, is far more nuanced than taking liberties with accounting rules, which by definition are highly subjective anyway. Lots of companies play fast and loose with accounting rules, by the way, as I’ve criticized ad nauseam. But Jack was also a powerful leader. He inspired the men and women around him to perform as a dynamic team. He got more out of them when it counted than anyone thought possible, not unlike how Kevin Keatts, at N.C. State, has inspired his basketball team—which finished 10th in the ACC during the regular season—to claw its way into the Elite Eight (against my alma mater later today).

  Jack took over a highly regarded company in 1981 and made it the most respected and most valuable company in the world over the ensuing two decades. When he became C.E.O., GE’s market value was $12 billion; he grew it to $650 billion. Yes, he had the business press and Wall Street analysts eating out of the palm of his hand year after year. But he didn’t do that through “earnings and accounting games,” as Sloan claims.

  He did that by making smart acquisitions, such as RCA; all sorts of clever divestitures, including of Kidder Peabody (one of Jack’s dumber deals but one that still made money for GE when he sold it to PaineWebber) and of GE’s defense businesses; and swaps, such as that of RCA’s television manufacturing business for Thomson’s healthcare device manufacturing division. He also grew GE Capital into a worldwide behemoth. He had the media and Wall Street in his thrall because he delivered increasing earnings year after year.

  Sloan’s pictorial rendering of the 17 C.E.O.s that Jack spawned left out at least one: David Zaslav. I’m not sure what category Sloan would put Zaz into (but I can guess). In my piece about Jack a week ago, I didn’t mention Zaz either, although I only referred to a few of Jack’s many acolytes, without trying to be comprehensive. Anyway, Zaz wrote to me after Wednesday’s piece that he was one of Jack’s “best friends” and that he was a pallbearer at Jack’s March 2020 funeral at St. Patrick’s Cathedral, in New York City. “He often told me to fight for his legacy as well!” Zaz wrote. “It’s not the end of the Welch era yet!”

  Zaz is right. The Jack Welch era is not quite over. The final chapters are still being written, with Zaz himself in position to be one of Jack’s more successful mentees. And when all is said and done, I feel certain that the Allan Sloan and David Gelles version of the Jack Welch legacy will be proven to have missed the mark by a wide margin.

As I first reported back in December, any attempt to seize Paramount Global through NAI risks triggering the so-called “change-of-control” provision in Paramount’s $11.2 billion of senior debt, which would immediately come due if the three big Wall Street ratings agencies downgrade Paramount into junk territory, the lowest rung of investment-grade debt. More specifically, the trigger generally applies to financial buyers, such as KKR and Blackstone, rather than to strategic buyers, such as Apple or Amazon, for which an acquisition of Paramount would come out of petty cash.

Many on Wall Street have identified that provision as a huge hurdle in Ellison’s efforts to acquire NAI because the chances are very high that the ratings agencies would view Ellison—whose Skydance Media is backed by KKR and RedBird Capital—as a financial buyer. And more often than not, when a financial buyer acquires a company, a credit downgrade is inevitable, since these suitors tend to traffic in large amounts of debt and minimal amounts of equity. (It’s how they make their money, by and large.) Any such downgrade would require Ellison to refinance the Paramount senior notes, and in this shaky credit market, a refinancing of that scale would be a long putt indeed, or so my Wall Street sources tell me.

Following the S&P downgrade, however, that risk may be mooted, or greatly reduced. Since the change-of-control provision kicks in when all three credit ratings agencies downgrade the debt after a change of control, the fact that one of them has already done so, means, I guess, that a post-acquisition trifecta downgrade is no longer possible. It’s a technicality, of course, and it’s still a risk for Ellison—unless Larry, who is worth some $150 billion, were to guarantee the Paramount senior notes, himself—because the senior noteholders could sue to enforce the change-of-control provisions. And indeed, a lawsuit is what my sources on Wall Street expect if Ellison tries to buy NAI without refinancing the senior notes. Regardless, it’s precisely the sort of technicality that an adventuresome buyer might try to exploit.

But there are still other issues with an NAI purchase, as I have noted in the past. First, there is the question of what price Shari will demand. Her nearly 10 percent economic stake in Paramount, held at NAI, is only worth around $800 million these days. But her 80 percent control of the voting stock in Paramount—which has an enterprise value of around $22 billion these days—is worth considerably more. (I bet she wants at least $2 billion for it.) Will Ellison, KKR, and RedBird pay that huge a premium, especially when NAI also comes with some $200 million of debt, another $175 million (and growing by 7.75 percent a year) preferred stock owed to BDT & MSD Partners, and some 875 poorly performing movie theaters across the globe?

And there are yet more problems that buying NAI would bestow upon Ellison. He has said that, like Apollo Global Management, what he really wants is the Paramount movie studio, for which Apollo has already offered $11 billion cash. Ellison hasn’t put up anything yet for the studio, or for NAI for that matter. And buying NAI, which would get Ellison voting control of Paramount, is not the same as getting his hands on the movie studio, and would only mark the beginning of what surely would be a long and complicated process—involving special board committees, lawsuits, and recusals—to somehow combine Paramount with his own studio, Skydance. It would be no different than if Shari decided she wanted to buy the Paramount studio, herself. That would, of course, be a non-starter, unless the price she was willing to pay for it were huge, she recused herself from the sale decision, and a special committee of the board approved of it.

In fact, as I’ve said all along, buying NAI is not the answer here. It just creates more problems than it solves for a buyer. If Ellison wants the Paramount studio, that’s what he should make a bid for, just as Apollo has done. It seems that if there were two legitimate bidders for the studio, likely leading to a bidding war, then selling the studio might be Shari’s best option. She could use the proceeds to pay down debt—earning Paramount a debt upgrade—and buy time to sort out what to do with what’s left of the company. It would also be a relatively tax-efficient asset sale since Shari’s father, Sumner, paid around $10 billion for the studio back in the day.

But Shari has already, reportedly, rejected the Apollo offer for the studio. Is that just a negotiating ploy? Would she reconsider if Apollo and Ellison got into a bidding war? She might, I suppose, but the longer this attenuated sales process drags on, the more likely it is that Shari just packs it in, pulls the company off the market, and waits for macroeconomic conditions in the industry to improve, maybe in a few years.

The launch of TMTG as a publicly traded company has created an unprecedented windfall for Trump. According to a filing Trump made with the S.E.C. on Thursday, in addition to his 78.75 million shares, he also is entitled to receive another 36 million shares, pursuant to the October 2021 merger agreement, if the “volume-weighted average price” of the company’s stock trades above first $12.50 per share, then $15 per share, and then $17.50 per share for 20 of any 30-day trading period within 18 months after the closing. This isn’t investment advice, but I think it’s safe to say that, given that the stock is trading at just below $62 per share now, it will likely close above even the top threshold of $17.50 for another 20 days or so. If it does, Trump may become $2.2 billion richer.

Of course, there is the question of whether Trump will be able to turn that $7.2 billion stake into an equivalent amount of cash. For starters, since Trump owns 58.1 percent of the company’s stock, any significant sale would almost certainly tank its share price. Moreover, there are serious legal and regulatory obstacles—including a six-month lockup period—complicating Trump’s ability to cash out right now, when he is badly in need of money to pay the hundreds of millions of dollars he owes to E. Jean Carroll and to the State of New York.

To get some answers, I rang up John Coffee, the famed Columbia Law School professor and expert on securities law, partly at the urging of Mark Cuban. “After some ChatGPT time,” Cuban wrote to me, “I think insider rules apply to him.” But he wasn’t sure, and encouraged me to contact a securities expert. Hence, the call to Professor Coffee.

In short, it’s complicated. Even if Trump’s crony board, or the underwriters of the SPAC that Truth Social merged with, agreed to exempt Trump from the six-month lockup provision, Coffee told me that Trump would still be considered an affiliate of the company or a controller of the company or an insider—all of which would limit how much stock he could sell, and when. Generally speaking, “insiders” are subject to stringent reporting requirements to trade a company’s securities, and can be restricted as to when, or if, they can trade around the time of major, undisclosed corporate events.

Trump Media & Technology Group could do a registered secondary sale of Trump’s stock, but a secondary sale—meaning that a big owner of the company’s stock wants to sell—tends to drive down a stock’s price in the market. Or he could sell his stock in a special private placement to a “sophisticated” investor, generally anyone with a net worth of more than $1 million, although this too would likely drive down the price. (Of course, this is a meme stock—and a Trump meme stock—so all bets are off as to typical shareholder reactions to such things.)

Trump could also do a private 144A sale of his stock six months after the merger, which wouldn’t require a lock-up waiver. But since he is deemed to be an “affiliate” of the “controlled company,” according to the merger prospectus, Trump would be restricted to selling only a small amount of his stock, limited to the greater of 1 percent of the total number of TMTG’s Class A shares outstanding of 135.8 million, or around 1.4 million shares, or the average weekly trading volume of the stock during the four-week period prior to the sale.

Assuming that 1 percent of the shares outstanding is the higher number, Trump could sell around $87 million worth of stock in a 144A offering—about enough to cover his legal judgment to E. Jean Carroll, if he ends up losing his appeals. (The average weekly trading volume could be higher for TMTG, but that remains to be seen, obviously.)

The Truth Social merger prospectus is replete with page after page of “risk factors” that try to give prospective investors a heads-up about the dangers of investing in the stock. Several of the risk factors note that “President Trump,” as he is referred to, will control 58.1 percent of the company’s stock post-merger. “As a result,” according to the prospectus, “President Trump will have the ability to significantly influence the outcome of matters submitted to [Trump Media’s] stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of [Trump Media’s] assets. In addition, President Trump will have the ability to significantly influence the management and affairs of [Trump Media] as a result of his position as its Chairman and the ability to control the election of [Trump Media’s] directors.”

For unsophisticated investors, the writing is on the wall… or on the prospectus, anyway. For his part, Mark Cuban figures Trump is up to something. “Notice Trump hasn’t really said much about the stock,” he wrote to me. “So he has had a convo with [some]one. Otherwise he would be bragging left and right. He must have a plan.” Couldn’t agree with you more, Mark.