What's a sweetheart deal

Honey deal

What's a sweetheart deal?

A treasure deal is an arrangement of any kind, which generally consists of one party making another party a proposal that is so attractive and potentially lucrative that it is difficult to refuse.

Sweetheart deals are usually secret and controversial. In many cases, they can be unethical and disadvantage those who are not familiar with it.

The central theses

  • A sweetheart deal is an arrangement in which one party makes another party an offer that is so attractive that it's hard to refuse.
  • In many cases, a treasure deal can be unethical and disadvantage those who are not familiar with it.
  • It could be insider trading, an agency allowing a company to get away with something naughty, or something beneficial at the expense of others.
  • Public corporations engaged in questionable treasure deals may later be brought to justice by disgruntled shareholders.

Understand a sweetheart deal

Numerous types of business transactions can be termed treasure deals. They can arise for different reasons and are subject to different interpretations.

When one uses the term "treasure" to describe a deal, it often implies that something unethical or fishy is going on. For example, it could be any type of insider dealing: the buying or selling of shares in a publicly traded company by someone who has non-public, material information about it. Alternatively, it can describe an agency that responds to an entity that has done something dishonest with a slap on the hand or a look the other way, rather than issuing appropriate punishment.

In other cases, a treasure deal can denote an arrangement in which someone gets something for their benefit after agreeing to give up something else. The term can also convey an agreement between two organizations that offers advantages to both but is unfair to competitors or other third parties.

A merger and acquisition (M&A) deal, or trying to lure a new executive in with bonuses and perks, could be "cute" for the key players as they can get very healthy buyout packages. However, other interested parties, including many subordinate employees, could suffer if the deal resulted in a restructuring program and the layoffs of employees.

Important

Offers that are referred to as “treasure” are often synonymous with unethical behavior.

Criticism of a sweetheart deal

Often, but not always, a treasure deal can be bad for shareholders.

These agreements can be very costly to implement, with high legal costs and the like. In other words, if a company doesn't put the interests of its shareholders first and instead uses its money to fund the business, the investors it has to fiduciary and protect could suffer a financial blow.

Aside from finding that the company they invested in spent money on questionable ventures without reasonable explanation and full disclosure, shareholders could also suffer a loss if the market reacts poorly to business and the stock price falls.

Such developments can cause things to turn nasty. The Board of Directors (B of D) is obliged to act in the best interests of its shareholders. So if a treasure deal he contributed to, or at least voted for, orchestration is clearly unethical and not in the interests of the majority of investors, legal action can be taken.

Example from the practice of a sweetheart deal

In early 2017, the press learned that then-President Donald Trump's candidate for Secretary of the United States Department of Health and Human Services (HHS), the national drug regulator, was getting a discounted inventory from an Australian biotech company searching for US food has received and Drug Administration (FDA) approval for its new drug.

Congenital Immunotherapy Drugs (Innate Immuno) needed to raise money. But instead of issuing shares in the open market, it offered some "sophisticated" US investors a treasure deal and sold discounted shares valued at nearly $ 1 million to two American congressmen who had the potential to serve the interests of Advancing Innate Immuno.

One of those congressmen was the aforementioned HHS candidate; the second - who also happened to own about 20 percent of Innate Immuno - sat on a key health subcommittee. These congressional investors paid 18 cents per share for a stake in a company whose value at that point had quickly risen to over 90 cents and was rising. Ultimately, these buyers made more than 400 percent profit on paper!

The "treasure" part of this deal is obvious: It 1) bypassed normal procedures; 2) contained serious conflicts of interest; 3) solicited industry insiders who were also well-placed politicians; and 4) only benefited (heavily) a handful of people at the top.