♪ >> welcome to "bloomberg businessweek." i am carol massar. we're inside the magazine's headquarters in new york city. in this week's issue, behind rising crime at walmart. also, the dealmakers many love to hate. and uber is kicking into high gear when it comes to driverless cars. it's all ahead on "bloomberg businessweek." ♪ carol: i am here with the editor of "bloomberg businessweek." ellen, in the opening remarks section, you guys write about hong kong and the growing independence movement, what is going on?

ellen: so there are people who think hong kong should separate from china and go off on its own. it is a small movement. but it has taken more root than most people expected. a couple of years ago, there was a lot of protests about hong kong's role and its relationship with china. and people don't like that china was insisting at one point that they come up with the nominees to be the chief executive. anyway, this is a continuation of that debate. hong kong is very dependent on china for water, food, lots of things. of course, it has a history as being a british colony. and sort of the future of hong kong is still being hammered out. carol: the economy was doing so well, but now not so while that is making it trickier. ellen: it is making it trickier for the chinese and the people who live there. the economy is really in bad shape for a variety of reasons. housing prices are very high. there are a lot of people who

live in hong kong who have dual passports because when the british were withdrawing, the question was where they were going to go. there is a lot of uncertainty. carol: you have a story about the aldi family. there is quite a dispute going on spilling into the aisles of the supermarket chain. why this battle? ellen: so, aldi is a private company. it is a supermarket that we're beginning to see some in the u.s. it is run by the descendents of theo albright. his fortune was worth something $50 billion. it is split into aldi north and south. now, one part of the family is fighting. most of it has to do with the spending of the sister-in-law. carol: it is always an in-law. >> one of the sons thinks she is spending too much.

that isn't good for the empire. that isn't good for the store. aldi is known for really stripped-down stores. really frugal. this family is sort of a frugal family. this dispute will bubble up to be who controls that company. carol: it was a push to do some modernization, correct? but the dispute is preventing that from happening. ellen: well, that is the question, because of her spending and the dispute will that mean they will have less money for the modernization? that is important, because food markets are changing rapidly. lots of competition. carol: let's talk on the cover story. it is all about walmart. what a great story, a lot of crime going on. who knew this was going on? ellen: i didn't, but police departments all over the country do know. it turns out, walmart is a magnet for crime. it isn't just what you would

expect, people trying to steal stuff. like a microwave or put some stuff in their bag. it is also violent crime, very serious violent crime. some of it is in the parking lots because a lot of walmarts are open 24 hours. you can camp out in the parking lots. some of it is, the experts, say because walmart has fewer people working in the stores, in the front of the stores. the theory goes that if you have more people out on the floor, there will be less crime. it is a deterrent to crime. but it is a huge problem. the people who are really mad about it, aside from the victims, is police departments. carol: they are footing the bill to govern the walmarts. ellen: and you have angry local officials and police departments because they are constantly running back and forth between walmart and back to headquarters.

we visit one walmart where there is a police officer stationed there all the time. again, it is having an impact on local budgets. carol: there was an "officer walmart." i spoke to shannon pettypiece about the story. >> gerald rossway, we spent two days running around with him in tulsa as a police officer. when we showed up at the tulsa police department, his division chief said i want to introduce you to "officer walmart." some days, he spends almost his entire 10-hour shift at walmart. he is employed by the police department. he gets called to walmart so often for so many shoplifters, or trespassers, that he ends up some days spending his entire shift there. sometimes the police department has to send a van to transport all the people who get

apprehended at this one walmart store in tulsa, either shoplifting or have warrants out for their arrest. all sorts of things. carol: you did the drive-along. you are a reporter and a good journalist. so tell me what the experience was like. shannon: it is interesting because there is this room in walmart, this asset protection room where all the shoplifters and people they suspect of fraud get taken. they get brought to this room. it is almost like this counseling center within this giant retailer. we had an 18-year-old boy who stole a microwave. he said he stole it because his mom's microwave broke. you hear these people's whole life stories. one woman was some kind of drug abuser trying to use phony gift cards. another woman we caught there was a victim of domestic violence. she came in with a big black eye and was stealing a bike tire and $15 sneakers. and the employees caught her.

into the police officer, he kind of in a way jokes about this. he says, i like having all my bad guys in one place. he can just show up at walmart and counsels a teenager and a domestic violence victim in a three-hour span. in the bigger scheme, he is employed by the tulsa police department. the division chief is furious about this because the chief has the busiest commercial district in tulsa to police and can't have one of their officers, and in some cases two or three officers, spending their whole day at walmart. carol: one number you said in the story was over 5000 trips over five years to this one location because of crimes of some sort. shannon: they get calls -- the vast majority are shoplifting. there is no shortage of violent crimes, shootings, fights. about 2/3 of shoplifters have drugs or drug paraphernalia on them. i am talking about this one specific store. across the country, there is

no great national crime database out there so we had to go city by city. requesting public records on police calls to different walmarts across the country. so, based on the information we found it is fair to say there will be hundreds of thousands of crimes committed at walmart this year. carol: unbelievable. shannon: this year, there have been more than 200 violent crimes across the country. that is just the ones we know about from public media reports. each day, there is some violent crime happening somewhere at a walmart across the country. carol: what is the thinking? there are other retailers, other big box stores across the country. what is going on at walmart specifically? shannon: that is what i tried to figure out. why walmart, because this tulsa store we talking about, the target store had 44 calls last year, hundreds at the walmart. i think part of it is the nature of the walmart. there are more of them, they're in low income neighborhoods. they have lots of merchandise. you can steal anything in the world from a walmart. that is part of the nature.

but there is also a corporate policy that has led this crime to flourish. the past managers neglected the stores. there is aggressive cost-cutting. the stores went downhill. there are fewer employees per square foot. the stores became disorganized, they moved the famous greeters away from the entrance, and haven't taken a proactive approach to crime. it has been apprehend, not deter. not prevent. the company is very focused on cost, very focused on cost cutting. they have neglected this. they say they are trying to clean it up now, but they have a big problem on their hands. it is going to be an expensive task to get under control. carol: there is a lot of crime at walmart stores around the country. what goes into making that cover? we asked the creative director, robert. >> we sent the photographer out to two of the cities where most of the reporting happened. one of them was tulsa.

news to me, open 24 hours a day. he got a very moody shot of walmart at night. you can see this nighttime shot. there was a bunch of cars in the parking lot. it had the creepy mood appropriate for the story. from there, reading the story, there are all these statistics which are surprising. >> very ominous looking, very dark. >> yes. from there, reading the story, there are all these statistics which are surprising. one of them was on a national scale, a violent crime happens in a walmart every day. we thought that in itself didn't need much embellishment. we simply put it on the cover and have an arrow pointing to the sign. carol: it sounds like you knew that this was what you were going to do. you weren't stewing or debating over what to do. >> in the past when we have done walmart stories, we have gone conceptual and playful for walmart stories. this one is serious. you can't have too much of a lighthearted approach about violent crime.

we knew that we wanted a documentary image. once we found a statistic that was compelling enough, it did itself. carol: did you automatically hone in on that statistic? >> there was one other that referred to tulsa. that was that every 8 hours, a crime happens in the walmart. we were debating between those two. we want to speak to a broader trend. we decided to go with the national one. carol: up next, insurance companies are hurting when it comes to obamacare. we will take a look at the future of the affordable care act. that is all ahead of on "bloomberg businessweek." ♪

♪ carol: welcome back to "bloomberg businessweek." i am carol massar. you can also find us on radio and on am1130 in new york and am1200 boston, washington, d.c., and the bay area. in the politics and policy section, a checkup on the affordable care act. we talked to zach tracer about why so many insurance companies are backing away from obamacare. you've seen all of the big u.s. health insurers say they cannot make money on the affordable care act. they're reporting hundreds of millions of dollars of losses. what is the problem? >> i don't think anyone knows exactly what it is. there have been a few things. at an elementary level, they are saying we are getting people who are too sick and we are not charging enough money to cover the cost. they pointed out people may be gaming the system, signing up for a little while, getting a

bunch of care, then dropping coverage. there may be some things going on like that driving up costs. carol: walk me through those big u.s. health insurers and who is dropping out. >> unitedhealth, which is the biggest in the u.s., has said they're pulling out of 31 of the 34 states. carol: that is a lot. >> a huge retreat. they have said they think they will lose $850 million this year. by far, the biggest retreat and one of the biggest losses. anthem sells under the blue cross blue shield brand. they have said they will have at least $300 million in losses. aetna expecting something like $300 million in losses as well. they are broadly pulling out 11 of the 15 states. carol: what does this mean for the public looking for

insurance? less choice? >> there will be less choice for people, really in a big part of the country this year. between the exits by humana and aetna and united health, you will see many places where there's only one or two options. some whole states may have only one or two options. for people going to shop for insurance, that could be a real problem. carol: you want more choices, hopefully to get better costs. what does the obama administration, this is the legacy of domestic policy for the obama administration. what do they say about all of these health plans backing out? >> they think obamacare is still a healthy market. they think there will be choices for people. but you have seen the president call for a public option, some sort of public, government-run

health plan to compete with private plans, particularly in these rural areas where there is not a whole lot of choice. the president has also said there may be a need to think about giving even more subsidies to people to help them afford insurance. carol: up next, two silicon valley dealmakers making a lot of waves in the m&a world. he made his fortune betting on the collapse of the subprime mortgage market. we will tell you about his next big call. ♪

♪ carol: welcome back to "bloomberg businessweek." i am carol massar. reporter alex sherman profiles the m&a bankers many love to hate. >> catalyst is a tech advisory m&a firm. they are very prominent in silicon valley. they do almost all sell sides. if a technology company wants to sell, they will hire catalyst to

sell. they have earned a reputation for getting high premiums. so, most recently just a few months ago, linkedin hired catalyst to run its sales process. they sold to microsoft at a 9% premium. if you turn back the clock a few years, they did a number of high-profile deals. they sold autonomy to hp, which turned out to be a disaster. from the sell side, what a great job. of course, there may have been fraud there with the autonomy case so that comes with controversy. they have sold a number of companies for enormous premiums over the years. carol: as i read your story, this is a company that is well-respected in terms of how they are able to get great premiums for the sale of companies. but they also seem to tick off other people.

>> the initial lead for this story drew comparisons to sports teams like the new england patriots, duke, manchester united. you love to hate them or hate to love them, or something like that. they irritate a lot of people and have for many years. george butros, the ceo, who i spoke to, has irritated many people on the buy side or other advisors that have worked with him. you could argue one of two things. some people say he is abrasive. some people say he is aggressive and just doing his job to get the best price available. but catalyst has a few tricks up their sleeve they tend to use, pitting different buyers off each other. that can cause tension. carol: also, lightning round auctions to make a decision quickly? >> several people told me one of the tricks they use is basically say you must make your final bid

today. today is the deadline. some buyers say we would like to do more due diligence on this. catalyst says time is up. you have to hit this price or walk away. that has irritated buyers over the years. they have said we would have liked to have done more or not even bought this. one of the examples is silverlake, which almost bought shutterfly. someone familiar with the matter told me catalyst basically put a gun to their head. they said they were out. that company never sold. carol: a short seller who called the collapse of the market. >> steve used to be a hedge fund manager who made a big and early bet on the housing market. he looked at all the mortgages and saw that the subprime market was going to completely

collapse. he made a big bet on it. carol: he is not a flashy guy. >> not at all. he drives a smartcar. he likes to watch television. he makes all of these movie references. he is very funny, and has this little borscht belt thing kind of going. carol: i love it. tell me what he is doing right now. >> now, he works at newberger and berman, a traditional money management firm. he has just started doing these separately managed accounts. he will go long stocks and short stocks the way he would if he were a hedge fund manager. he's only charging about 1.25%. carol: that is a lot less if you look at your traditional hedge funds.

>> normally, it is two and 20. it is a lot lower. it is a little more expensive than, say, a regular mutual fund. but not that much more expensive. carol: talk to me about the two and 20. they go back to the hedge fund guys. that has come under a lot of scrutiny in the last year or so. we haven't seen the performance of many hedge fund managers. >> that is correct. investors have always complained about hedge fund fees. but they paid them because they often have posted very good performances. since the financial crisis, a lot of funds have struggled. a lot of it has to do with low interest rates. the stock market has gone up. if you hedge, you will lose out. a very difficult environment for making money. taking 1/5 of the money you make, that is a huge headwind. carol: up next, what it takes to build a mosque in america. how one financial disruptor disrupted itself.

it is all ahead on "bloomberg businessweek." ♪

♪ carol: welcome to bloomberg businessweek. we're inside the magazine's headquarters, more transparency at what went down on lending club. plus the pill that made northwestern university rich. and driverless cars are just around the corner. it is all ahead on bloomberg businessweek. ♪ carol: we are here with the editor bloomberg businessweek, ellen. so many must-reads. we talk about turkey, what is going on there?

ellen: there was an attempted coup and the president continues to be strongly popular. he was able to put down the coup without a lot of problems but it was relatively short-lived. and we talk about why he is popular. so some of it is what is sort of retail politics. he was mayor of istanbul years ago and he took care of people who were in dire circumstances. he replaced a dump that was legendary with real development. and he made sure the city became sort of a modern city. and so there is a huge segment of the population that feel like he actually improved their lives. and for that reason, he is unlikely -- we raise the question is he "coup proof?"

he may be. and so there is a lot of controversy about him. carol: this goes back to the basics of the economy. right? he improved people's lives. ellen: they become popular because they actually say they are better off than they were and it was the president that did it for me. carol: talk about the features section, you go to new hampshire and there is a group trying to build a mosque. it is not so easy, though. ellen: it has been going on for years and they already have a place of worship, it is in a strip mall. and it was their dream to build a real mosque. and they finally found a piece and they finally found a piece of land and bought it. and there have been problems ever since.

and a lot of it is pure prejudice, but it is all cloaked in other things. they have had problems with permits, problems with -- do they have to fix a road? they have had problems with neighbors who are worried about parking. there was a dispute over what is described as a ghost road come a road that doesn't exist. but it was sort of planned. carol: one thing after another. ellen: it is one thing after another and it goes on and on. and these people are not professional fundraisers. there is something poignant about the story, because these are people that just want a house of worship. and they have jobs to do. they are engineers, physicians, they have other things to do besides raising money. and it is all being complicated by the community not really being supportive of their dream. carol: yes. and they continue to raise money, but they are still working towards it. ellen: they are still working towards it. carol: also in the features section, there is more on the lending club. this story continues to unravel.

it provides more transparency about what really went on. ellen: so the ceo left and there were questions about whether a bunch of loans that they had sold were dated correctly. and max was talking to a guy who wanted to set up a credit rating system for lending club's loans. and remember, they are one of those firms where you can go on and borrow money and other people go on the site. this guy discovered it wasn't what it seemed. and there were people taking multiple loans some of them that would be rated risky.

and not risky. but for both. they found to some degree that there was an effort to juice it by the end. people were getting more loans at the end of the year. so it raises questions about what is really in the loans. and if they are being as transparent as they say they are. carol: there are great details in the story. we caught up with max who has more. >> a few months back i got an email, kind of an email, from somebody i had known for a long time, who said there is more to this story than you know. he basically is somebody that is interested in data science. he started it digging into the data and he found a bunch of loans that looked questionable. he says it looks like maybe the ceo or somebody close was taking these out. it is just a guess. a conspiracy theory. and two weeks later, lending club disclosed that. so we have more details about the disclosures in a basically a

bunch of information that kind of cast doubt on the company's business practices over the past half decade. or more. carol: this is a company with peer-to-peer lending. like everybody kind of felt they were doing it right. kind of the darling of wall street. pick your accolade. in terms of the other data coming out, does it have to do with the loans or transparency issues? >> yes, bloomberg had a report about a mayonaisse company that was buying its own mayonaisse. they were taken out of the engine of loans, then using the data and returns from those early loans that were taken out in 2000 evan-2000 -- 2007, 2008, 2009, and saying they were good investments. when you look at the press from a few years back, they were saying how well they were doing during the recession.

this information cast doubt on that story and it makes the larger story seem problematic, especially in light of the fact that there were additional issues with the company that happened more recently, which ultimately led to the departure of the ceo. carol: the ceo. what does this mean for peer-to-peer lending? is it a one company thing? >> it is hard to know. i think the industry has done a lot of smart things. i think the idea of sort of getting a loan on the internet

makes a lot of sense. on the other hand, i do think that we do not really know how good this business is because we haven't gone through a recession with these companies. and i think that would be the ultimate test. carol: what is next? where are we? >> they are trying to get past this. they have done some audits. there is a new ceo. and they are frantically, maybe trying to raise additional capital. part of the problem they have is they were trying to disrupt the banking system. carol: and they were. >> they were. but the problem is, much of the capital is not super reliable. we are talking about hedge funds, and most of the investors were kind of flighty. in the wake of the scandals, the investors flew away. compared to banks which have deposits that are not flighty. so they are trying to make the case that this is sustainable. that is real. they are making loans. the business is not going away anytime soon, but it may have to grown too fast. carol: coming up next, a drug that made the grade at northwestern university. ♪

♪ carol: welcome back. you can also find us on the radio. also on a.m. 1130 in new york. also in boston, washington, d.c. and the bay area. in our markets and finance section, how the royalty from one drug was just what the doctor ordered at northwestern university. >> we are talking about the drug lyrica, which is pfizer's bestseller today. you may have seen the commercials during the olympics. it was developed in the chemistry department at northwestern more than 30 years ago. these drugs take a long time to develop. it was patented and approved by the fda in 2004. and eventually, the sales became over $5 billion.

carol: that is a lot. that is a blockbuster. >> that is right. and it is pretty rare to be developed at universities. especially at research universities, there are not many that have had blockbusters like this. carol: what is the set up? if you hae a professor kind of develop something, how is it split up? if a professor develops something at a university, who gets to keep all the royalties? is it split between the university and the professor and the drug company? >> after 1980, the federal law changed, allowing the school to keep royalties. most schools have an agreement that they share their profits with the inventors. at northwestern, they decided it would take some risk of the table and sold that stake in the -- in 2007 for $700 million. the other usual thing about the the story, not only did they have this blockbuster but they put virtually every penny of the royalties they received into their endowment. so the endowment today is the eighth largest in the country,

about $10 billion. and you have money coming into the endowment annually. and usually, endowments grow when you have investments returns. they can keep some of that as well as fundraising. they had this additional amount of money that kept growing. carol: what is unusual is it they could have taken the proceeds from selling the patent rights, and they could have built a new building or done something, but because they put it to the endowment, that is unusual. >> yes. usually when schools decide to sell and get a big chunk of money, they decide to use it to build a building or hire maybe additional professors. northwestern made a different choice. they wanted to sustain whatever they did. then you wouldn't have money to operate a building if they spent all of it. or if you hire terrific faculty you need money to sustain them. carol: some spaces are not just a place to plop down and

plug-in. she spent a week checking them out in new york city. >> i spent a week in co-working spaces. there are over 100 brands throughout brooklyn and manhattan. i decided to spend a week working out of them. carol: you mentioned the pioneer that started a few years ago. >> wework started in 2010. they are more than a pioneer, they are a behemoth. they are worth $16 billion. those numbers have been slashed a bit recently. but they have really succeeded and paved the way for these companies. carol: when you talk about co-workspaces, those of us that work for large companies don't do that. but this is where people go to do -- >> it is an office. we are used to going to an office where it is one company and all of our coworkers and we're sitting in desks next to people that we know. but co-working spaces are shared office spaces. it is a lot more flexible and

cheaper. so for a startup, or an entrepreneur it is a much easier way to get into a space where -- without the start of cost of renting out an office. carol: one that you would too was primary, that one focuses on wellness. >> yes, it is a brand-new space. there is green juice and healthy snacks and free yoga. it just feels very calm. they hope that will attract people to their space. carol: wi-fi, was is still great? >> their password was "feel great." carol: another place you went to encapsulates brooklyn. >> there are these neighborhoods

spaces where they figure if you live in a certain neighborhood you like everything about your neighborhood and he would like to work in a place like that. so i went to coworkers, which is innate gentrifying neighborhood in brooklyn. it is exactly what you would think of. it had exposed beams and a lot of it was fashioned to be that way. artisanal coffee, and lena dunham's newsletter runs out of there. carol: up next, taken a ride on the driverless side. and talking about chickens and sheep, oh my. ♪

♪ carol: welcome back to bloomberg

businessweek, uber is revving up on driverless cars. >> uber is not first to this game. basically, a year and half ago they went on a big hiring binge around carnegie mellon university. which is kind of the center for driverless cars. everybody wondered what they were up to. carol: they wiped out their department. >> they put a hit on the department. i think it is a complicated relationship. i think carnegie mellon overall is happy with the arrangement, but everyone was wondering, what is going on with this company? they are not profitable, they're fighting battles with regulators. there is a lingering labor issue. carol: they just gave up their business in china. >> why would you take this additional challenge on? what i found out, having traveled to pittsburgh to see their operation and meeting with the ceo, is basically they see driverless cars as the critical issue for the company. they feel like it is inevitable

that google and tesla will introduce their competing ridesharing services using driverless cars. and if uber does not have their own technology they will go away. so he has been throwing huge amounts of money at this. carol: and as you pointed out, 80% of uber's cost is the drivers. >> it is a huge sum of money. that is not quite true in the developing world. but in the developed world, for sure. the idea is that even for a long trip, even in a rural area, taking an uber could be cheaper than a car. they are doing big investment. so we are reporting that volvo has a deal with uber to develop a self driving car. they will spend about $1.5 billion, jointly. and this is a pretty big coup for them, a driverless car truck

company called auto. we think this is a big deal, maybe the biggest deal in the autonomous vehicle industry to nail down the numbers still. but it basically brings in all of these former googleers into the uber program. and it just makes them more formidable. carol: auto is who? i have not heard about them. >> they have only been around for a few months. this guy, one of the key engineers of the original driverless car programs. carol: back at google? >> yeah, he was involved with those challenges in the mid-2000's. he took a big team of people from google and some other companies including apple and tesla and started up this trucking thing. the idea is that we will have driverless trucks on highways. so if you are a truck driver,

you drive a truck onto the highway then switch it on to robot mode and take a nap. this is a little bit different from what tesla is doing. what tesla has today is sort of an advanced cruise control, where the car steers and accelerate and brakes. but you still need your hands on the wheel. where their technology is, the hope is even can take a nap or do something else while driving. carol: and it is not just about cars or places to stay. but no. animals are also getting in on the game. >> we know the sharing economy can help us when it comes to getting a taxi or going on vacation. but it can also help you if you own a farm, or if you are interested in having a couple of chickens at your house. carol: who is not? >> to get farm fresh eggs. what we are seeing is a lot of companies popping up supplying everything from sheep and goats to falcons and bees. carol: i love the falcon one. what is it called -- a falcon of

-- a falcon forest. so why do you want a falcon? >> you want a falcon if you have a fruit crop. or let's say you have a fruit tree. the falcons are trained to scare them away. it is fascinating, they are kept at a flying weight to make sure that they do not eat the birds, but just scare them off. carol: if i want to rent a falcon, what does it cost? >> it is $65 to get started. chances are you are not going to rent one by yourself at home. but if you own a blueberry farm, which is what we talk about, you will probably get me before them. and it ends up being cheaper than the insurance against crop loss. carol: i like the chicken idea. you rent it and then give it back for the winter season? >> six months later, they will come and fetch everything. as much as i love getting the

farm fresh eggs, they develop an affinity for these chickens. and they wanted taking on personalities and become like pets. carol: there are different kinds. you can also rent a goat. >> goats are great lawnmowers. they will sit there and graze and just eat grass and talking about sheep, they will actually fertilize. if you want to go all natural there is an easy way to do it. carol: what does it cost? >> the goats are pretty cheap. we interviewed one owner who did not spend very much and he got about 4000 square acres of land farmed in the seattle area. they are not expensive. i mean, basically hiring people tends to be more pricey. carol: "bloomberg businessweek" is available on newsstands and

online. see you again next week. ♪

emily: i'm emily chang and this is the best of bloomberg west. we will bring you the biggest details on the company's biggest acquisition to date. and it's driverless car pilot in pittsburgh. ford ceo mark fields tells us why he is focusing on a driverless car and doubling down at silicon valley. putting valuations to the test. dropbox meet advisors to discuss