Business

Biden’s Antitrust Team Isn’t Backing Down From a Fight on Deals

Published

1 year ago

July 19, 2023

Biden’s Antitrust Team Isn’t Backing Down From a Fight on Deals

A new road map for scrutinizing deals

The Justice Department and the Federal Trade Commission announced their long-awaited merger guidelines on Wednesday morning, and the proposed regulatory framework reveals that the regulators aren’t changing their aggressive approach despite losing a series of court cases when they tried to block transactions.

Regulators under administrations dating to President Lyndon Johnson have set out new guidelines, which serve largely as a matter of policy intent because they are not enforced by law. But the sweeping proposals introduced by Lina Khan, the F.T.C. chair, and Jonathan Kanter, the Justice Department’s top antitrust official, have one key distinguishing feature: a road map for judges to understand the regulators’ more progressive views on trustbusting via footnotes about case law — an apparent rebuttal to those who say that the tougher approach is not grounded in U.S. rules.

The guidelines broaden the scope for evaluating deals. The regulators say that current laws are not fit for the contemporary age. “We are updating our enforcement manual to reflect the realities of how firms do business in the modern economy,” Ms. Khan said in a statement, adding that the proposals would enable the F.T.C. to enforce “the mandate Congress has given us and the legal precedent on the books.”

The guidelines take into account how big dominant platforms can use their scale to entrench market power and stamp out nascent competition. (Critics of this approach argue that it is nearly impossible to know what threat young technologies may pose in the future.)

The proposals also suggest that regulators assess the cumulative effect of multiple deals, which could have implications for the private equity industry. And the guidelines aim to examine how deals affect employees, not just consumers.

The new rules continue the Biden administration’s wider fight against consolidation. “Competition is central to capitalism,” Lael Brainard, the director of the National Economic Council said in a speech this month. Alongside the new merger rules, the White House on Wednesday announced a new enforcement group to crack down on price gouging in food and agricultural markets.

Can the regulators get the courts on their side? Regulators have had some success pushing back against deals, but the courts have often disagreed with their views on deal making. The F.T.C. and the Justice Department have lost several lawsuits, most notably a move to block Microsoft’s $70 billion acquisition of Activision Blizzard.

What’s next? The guidelines will be subject to a 60-day comment period. Beyond that, the agencies will have to persuade the courts to agree with their interpretation of precedent. And deal makers will need to decide what battles they’re prepared to fight.

HERE’S WHAT’S HAPPENING

Meta and Microsoft team up on A.I. The social media giant will distribute a version of its technology available for free to commercial users for the first time via Microsoft’s Azure cloud computing platform. Microsoft also introduced a $30-per-month A.I. subscription for its Word, Excel and Teams users, sending shares soaring to a record high on Tuesday.

Senators plan to propose stock-ownership limits on lawmakers and federal officials. A forthcoming bill by Kirsten Gillibrand, Democrat of New York, and Josh Hawley, Republican of Missouri, would restrict legislators, their aides, the president, vice president and executive branch employees from owning individual stocks, even in blind trusts, according to The Wall Street Journal. The move comes amid a growing public outcry over policymakers owning shares in companies they regulate.

Donald Trump says he is likely to face another federal indictment. The former president disclosed that he has received a so-called target letter by Jack Smith, the special counsel investigating him over efforts to overturn the 2020 election results. It’s unclear how new criminal charges would affect Trump’s standing in campaign polls or fund-raising.

Britain’s antitrust regulator provisionally clears Broadcom’s takeover of VMware. The Competition and Markets Authority found that the $69 billion takeover of VMware, a corporate software maker, wouldn’t reduce competition. The agency is still negotiating with Microsoft and Activision Blizzard over potential changes to their $70 billion deal, after having moved to block it.

Michael Moritz leaves Sequoia

Michael Moritz, who has built a legacy as one of Silicon Valley’s leading venture capital investors, is leaving Sequoia Capital after nearly 38 years. Roelof Botha, the firm’s managing partner, announced the news to its limited partners in a memo this morning that has been seen by DealBook.

Mr. Moritz chronicled the early days of the internet. He was a reporter at Time magazine and became San Francisco bureau chief just as some of today’s tech behemoths were starting out. His work included books about Steve Jobs and Apple.

The venture capitalist had some big wins. He joined Sequoia in 1986 and led its investments in companies including Google, Yahoo, PayPal and Stripe. He has served as a partner — he gave up day-to-day management in 2012 after disclosing he was diagnosed with an unspecified medical condition — and chair.

Mr. Moritz is shifting his focus to Sequoia Heritage, the wealth management unit seeded in part by Mr. Moritz and Doug Leone, Sequoia’s former global managing partner. Mr. Botha said that Mr. Moritz would continue to represent the firm at a handful of companies but would be replaced on the boards over time.

His departure is the latest shift at Sequoia. The firm announced last month that it would split into three separate partnerships, hiving off the China business and spinning out its India and Southeast Asia operations. The U.S. and European business will retain the Sequoia brand.

Is Kim Kardashian’s clothing brand preparing to go public?

Skims, the clothing brand co-founded by Kim Kardashian, has raised $270 million in its latest fund-raising round, DealBook’s Michael de la Merced is first to report, valuing the company at $4 billion.

It’s yet another haul by the four-year-old company to help maintain its rapid growth. But it may also spur questions about whether Skims is setting itself up for another milestone: an I.P.O.

Skims has grown rapidly. The company, which is now profitable, is on track for $750 million in sales this year, up from $500 million in 2022. That was driven in large part by its expansion beyond shapewear into loungewear, swim and more.

The company, which got its start in e-commerce, is also pushing into physical retail: It plans to open flagship locations next year, in Los Angeles and New York, after opening up outposts inside stores including Nordstrom and Saks.

The round was led by Wellington Management, an asset manager known for investing in start-ups close to going public. The latest round brings Skims’s fund-raising total to $670 million.

Ms. Kardashian — who was certified a billionaire after a 2021 investment round — is still the company’s biggest shareholder; she and the company’s C.E.O., Jens Grede, together own a majority stake.

An I.P.O. is likely in the company’s future. In addition to bringing on Wellington — whose entrance into a company’s cap table almost always precedes a public offering — the brand has taken other steps consistent with those of many start-ups that eventually pursued a stock sale, including hiring a C.F.O.

Mr. Grede declined to say when Skims would go public — “we certainly have no rush,” he told DealBook — but said that stock market investors had recently shown interest in consumer-facing businesses. And he added that an I.P.O. remained a goal: “At some point in the future, Skims deserves to be a public company.”

A big check on, and from, Tesla’s board

As Tesla faces questions about its corporate governance from Senator Elizabeth Warren, Elon Musk’s car company has agreed to pay $735 million to settle an oversight-related fight.

The proposed payout, one of the largest in a shareholder derivative lawsuit, is meant to settle accusations by the Detroit police and fire retirement fund that the electric carmaker was too bound to its C.E.O. — and, according to the plaintiff, “grossly” overpaid its board as a result.

The lawsuit accused Tesla’s directors of failing to provide proper oversight. By paying its members “unfair and excessive compensation” (in both cash and options grants) from 2017 through 2020, when the suit was filed, the board deprived shareholders of significant sums of money that belonged to the company. It noted that a majority of independent Tesla shareholders rejected changes to director pay in 2014 and 2019.

The lawsuit also accused Mr. Musk of stacking the board with friends and family, ensuring outcomes he wanted and avoiding independent oversight. Among the defendants in the suit are Musk himself; his brother, Kimbal Musk; Robyn Denholm, Tesla’s chair since 2018; James Murdoch, a current director; and the former board members Antonio Gracias, Stephen Jurvetson and Larry Ellison.

In a court filing, Tesla denied wrongdoing, saying that its directors had acted in good faith but agreed to settle to end costly litigation. As part of the proposed settlement, the defendants agreed not to take any compensation for 2021, 2022 and 2023, and the company will provide investors with more detail about how it comes up with board compensation proposals.

There’s one matter the settlement won’t address: Mr. Musk’s $56 billion pay package, which is the subject of a separate lawsuit that could be decided soon.

Carvana secures a debt lifeline

Carvana announced a debt-restructuring agreement that’s intended to ease its ballooning interest payments and help it avoid bankruptcy, as the once high-flying online auto dealer contends with slowing sales and a slumping stock price.

Carvana bet big on a used-car boom. It acquired a car auction business for $2.2 billion in May 2022, just as the Fed was raising interest rates. Carvana sales have dropped drastically since, leaving the company with a glut of inventory, and big losses.

The Times’s Neal Boudette and Joe Rennison report on Carvana’s debt deal, noting the company will also issue about $350 million in new stock.

Its shares leaped nearly 25 percent in premarket trading.

THE SPEED READ

Deals

The investment giant Blackstone is poised to reach $1 trillion in assets under management, despite scrutiny in recent months over troubles at one of its property funds. (FT)
Middle Eastern sovereign wealth funds have invested billions to help private equity funds, including KKR, EQT and Brookfield, close deals as other funding dries up. (Bloomberg)
VanMoof, a Dutch maker of a popular line of electric bikes that raised $128 million two years ago, has filed for bankruptcy. (The Verge)

Artificial intelligence

Over 8,000 authors signed a letter to tech C.E.O.s asking them not to use their work to train their A.I. tools without compensation. (WSJ)
Gary Gensler, the S.E.C.’s chair, is worried that A.I. tools could create a herd mentality among investors that could lead to a financial crisis. (Insider)

Best of the rest

“How Dubai Became ‘the New Geneva’ for Russian Oil Trade.” (FT)
Gucci’s C.E.O., Marco Bizzarri, is stepping down amid a shake-up at the brand’s parent company, the luxury conglomerate Kering. (NYT)
Angelo Mozilo, who turned Countrywide Financial into a mortgage giant before becoming vilified for its role in the 2008 financial crisis, died on Sunday. He was 84. (NYT)

We’d like your feedback! Please email thoughts and suggestions to dealbook@nytimes.com.

Business

U.S. Sues Southwest Airlines Over Chronic Delays

Published

2 hours ago

January 15, 2025

Press Room

U.S. Sues Southwest Airlines Over Chronic Delays

The federal government sued Southwest Airlines on Wednesday, accusing the airline of harming passengers who flew on two routes that were plagued by consistent delays in 2022.

In a lawsuit, the Transportation Department said it was seeking more than $2.1 million in civil penalties over the flights between airports in Chicago and Oakland, Calif., as well as Baltimore and Cleveland, that were chronically delayed over five months that year.

“Airlines have a legal obligation to ensure that their flight schedules provide travelers with realistic departure and arrival times,” the transportation secretary, Pete Buttigieg, said in a statement. “Today’s action sends a message to all airlines that the department is prepared to go to court in order to enforce passenger protections.”

Carriers are barred from operating unrealistic flight schedules, which the Transportation Department considers an unfair, deceptive and anticompetitive practice. A “chronically delayed” flight is defined as one that operates at least 10 times a month and is late by at least 30 minutes more than half the time.

In a statement, Southwest said it was “disappointed” that the department chose to sue over the flights that took place more than two years ago. The airline said it had operated 20 million flights since the Transportation Department enacted its policy against chronically delayed flights more than a decade ago, with no other violations.

“Any claim that these two flights represent an unrealistic schedule is simply not credible when compared with our performance over the past 15 years,” Southwest said.

Last year, Southwest canceled fewer than 1 percent of its flights, but more than 22 percent arrived at least 15 minutes later than scheduled, according to Cirium, an aviation data provider. Delta Air Lines, United Airlines, Alaska Airlines and American Airlines all had fewer such delays.

The lawsuit was filed in the United States District Court for the Northern District of California. In it, the government said that a Southwest flight from Chicago to Oakland arrived late 19 out of 25 trips in April 2022, with delays averaging more than an hour. The consistent delays continued through August of that year, averaging an hour or more. On another flight, between Baltimore and Cleveland, average delay times reached as high as 96 minutes per month during the same period. In a statement, the department said that Southwest, rather than poor weather or air traffic control, was responsible for more than 90 percent of the delays.

“Holding out these chronically delayed flights disregarded consumers’ need to have reliable information about the real arrival time of a flight and harmed thousands of passengers traveling on these Southwest flights by causing disruptions to travel plans or other plans,” the department said in the lawsuit.

The government said Southwest had violated federal rules 58 times in August 2022 after four months of consistent delays. Each violation faces a civil penalty of up to $37,377, or more than $2.1 million in total, according to the lawsuit.

The Transportation Department on Wednesday also said that it had penalized Frontier Airlines for chronically delayed flights, fining the airline $650,000. Half that amount was paid to the Treasury and the rest is slated to be forgiven if the airline has no more chronically delayed flights over the next three years.

This month, the department ordered JetBlue Airways to pay a $2 million fine for failing to address similarly delayed flights over a span of more than a year ending in November 2023, with half the money going to passengers affected by the delays.

Business

California drops zero-emission truck rules after inaction by Biden's EPA

Published

2 hours ago

January 15, 2025

Press Room

California drops zero-emission truck rules after inaction by Biden's EPA

California government’s plan to phase out heavy-duty diesel trucks and diesel locomotives has been derailed.

The ambitious plan aimed at reducing local pollution and global greenhouse gases required special waivers from the federal government. The Biden administration hadn’t granted the waivers as of this week, and rather than face almost certain denial by the incoming Trump administration, the state withdrew its waiver request.

That means the far-reaching regulations issued by the California Air Resources Board in 2022 to ban new diesel truck sales by 2036 and force fleet owners to take them off the road by 2042 won’t be enforced. Known as the Advanced Clean Fleets rule, the idea was to replace those trucks with electric and hydrogen-powered versions, which dramatically reduce emissions but are currently two to three times more expensive.

“While we are disappointed that U.S. EPA was unable to act on all the requests in time, the withdrawal is an important step given the uncertainty presented by the incoming administration that previously attacked California’s programs to protect public health and the climate and has said will continue to oppose those programs,” CARB Chair Liane Randolph said in a prepared statement.

Environmentalists reacted with deep disappointment.

“To meet basic standards for healthy air, California has to shift to zero-emissions trucks and trains in the coming years. Diesel is one of the most dangerous kinds of air pollution for human health,” Paul Cort, director of Earthjustice’s Right to Zero campaign, said in a prepared statement. “We’ll be working tirelessly in the coming years — and calling on Gov. [Gavin] Newsom, state legislators, and our air quality regulators to join us — to clean up our freight system and fix the mess [U.S.] EPA’s inaction has created.”

The trucking industry is pleased at the result, but hopes to continue working with California on environmental issues.

“This rule was flawed, and was not reflective of reality,” said Matt Schrap, chief executive at the Harbor Trucking Assn. “Ideally this is an opportunity to take a step back and look at a program that would be more sustainable.”

Trucking representatives had filed a lawsuit to block the rules, arguing they would cause irreparable harm to the industry and the wider economy. Train operators said no zero-emission locomotives exist on the commercial market.

Schrap said “the most important thing is the EPA could have issued the waiver and they didn’t.”

The EPA said it acknowledges California’s withdrawal of the waiver requests “and as a result is taking no further action on CARB’s prior requests and considers these matters closed.”

President-elect Donald Trump is a champion of the fossil fuel industry, making it unlikely that his administration would have approved the California waivers. The state could, however, pursue waivers at some point in the future.

Under the federal Clean Air Act, California is allowed to set its own air standards, and other states are allowed to follow California’s lead. But federal government waivers are required. Most of California’s waivers have been granted, including approval in December of a California ban on new sales of gas-powered cars and light trucks by 2035.

Business

Elon Musk, Mark Zuckerberg and Jeff Bezos to Attend Trump’s Inauguration

Published

10 hours ago

January 15, 2025

Press Room

Elon Musk, Mark Zuckerberg and Jeff Bezos to Attend Trump’s Inauguration

Bezos, Zuckerberg and Coke at the inauguration

Corporate America had already raced to donate big sums to Donald Trump’s record-breaking inaugural fund. Now some of its leaders appear eager to jockey for prominent positions at the inauguration next week.

It’s a new reminder that for some of the nation’s biggest businesses, forging close ties to a president-elect who is promising hard-hitting policies like tariffs is a priority this time around.

Jeff Bezos and Mark Zuckerberg are expected to be on the inauguration dais, according to NBC News, alongside Elon Musk and several cabinet picks.

The presence of Musk isn’t a surprise, given the Tesla chief’s significant support of and huge influence over Trump. But the other tech moguls have only more recently been seen as supporters of the administration. (Indeed, Bezos frequently sparred with Trump during his first presidential term.)

It’s the latest effort by Bezos and Zuckerberg to burnish their Trump credentials. At the DealBook Summit in December, Bezos — whose Amazon has faced scrutiny under the Biden administration and whose Blue Origin is hoping to win government rocket contracts — said that he was “very hopeful” about Trump’s efforts to reduce regulation.

And Zuckerberg recently announced significant changes to Meta’s content moderation policy, including relaxing restrictions on speech seen as protecting groups including L.G.B.T.Q. people that won praise from Trump and other conservatives. On the inauguration front, Zuckerberg is also co-hosting a reception alongside the longtime Trump backers Miriam Adelson, Tilman Fertitta and Todd Ricketts.

Both tech moguls have visited Mar-a-Lago since the election, with Zuckerberg having done so more than once.

Coca-Cola took a different tack. The drinks giant’s C.E.O., James Quincey, gave Trump what an aide called the “first ever Presidential Commemorative Inaugural Diet Coke bottle.”

More broadly, business leaders want a piece of the inauguration action. The Times previously reported that the Trump inaugural fund had surpassed $170 million, a record, and that even major donors have been wait-listed for events.

Others are throwing unofficial events around Washington, including an “Inaugural Crypto Ball” that will feature Snoop Dogg, with tickets starting at $5,000, The Wall Street Journal reports.

It’s a reminder that C.E.O.s are reading the room, and preparing their companies for a president who has proposed creating an “External Revenue Service” to oversee what he has promised will be wide-ranging tariffs.

David Urban, a longtime Trump adviser who’s hosting a pre-inauguration event, told The Journal, “This is the world order, and if we’re going to succeed, we need to get with the world order.”

In other Trump news: The president-elect is expected to appear via videoconference at the World Economic Forum in Davos, Switzerland, which starts on Inauguration Day, according to Semafor.

HERE’S WHAT’S HAPPENING

Investors brace for the latest inflation data. The Consumer Price Index report, due out at 8:30 a.m. Eastern, is expected to show that inflation ticked up last month, most likely because of climbing food and fuel costs. Global bond markets have been rattled as slow progress on slowing inflation has prompted the Fed to slash its forecast for interest rate cuts.

More Trump cabinet picks will appear before the Senate on Wednesday. Senator Marco Rubio of Florida, the choice for secretary of state, is expected to field questions about his views on the Middle East, Ukraine and China, but is expected to be confirmed. Russell Vought, the pick to run the Office of Management and Budget, will most likely be asked about his advocacy for drastically shrinking the federal government, a key Trump objective. And Sean Duffy, the Fox Business host chosen to lead the Transportation Department, will probably face questions on how he would oversee matters including aviation safety and autonomous vehicles, the latter of which is a priority for Elon Musk.

Meta plans to lay off another 5 percent of its employees. Mark Zuckerberg, the tech giant’s C.E.O., told staff members to prepare for “extensive performance-based cuts” as the company braces for “an intense year.” The social media giant faces intense competition in the race to commercialize artificial intelligence.

A new bill would give TikTok a reprieve from a ban in the United States. Senator Ed Markey, Democrat of Massachusetts, said he planned to introduce the Extend the TikTok Deadline Act, which would give the video platform 270 additional days to be divested from its Chinese parent, ByteDance before being blacklisted. It’s the latest effort to buy TikTok time, as the app faces a Jan. 19 deadline set by a law; President-elect Donald Trump has opposed the potential ban as well.

A question of succession

JPMorgan Chase and BlackRock, the giant money manager, just reported earnings. (In short: Both handily beat analyst expectations.)

But the Wall Street giants are likely to face questioning on a particular issue on Wednesday: Which top lieutenants are in line to replace their larger-than-life C.E.O.s, Jamie Dimon and Larry Fink.

Who’s out:

Daniel Pinto, who had long been Dimon’s right-hand man, said he would officially drop his responsibilities as JPMorgan’s C.O.O. in June and retire at the end of 2026. Jenn Piepszak, the co-C.E.O. of the company’s core commercial and investment bank, has become C.O.O.
And Mark Wiedman, the head of BlackRock’s global client business and a top contender to succeed Fink, is planning to leave, according to news reports.

What Wall Street is gossiping about JPMorgan: Even in taking the C.O.O. role, JPMorgan said that Piepszak wasn’t interested in succeeding Dimon “at this time.” DealBook hears that while she genuinely appears not to want to pursue the top job, the phrasing covers her in case she changes her mind.

For now, that means the most likely candidates for the top spot are Marianne Lake, the company’s head of consumer and community banking; Troy Rohrbaugh, the other co-head of the commercial and investment bank; and Doug Petno, a co-head of global banking.

The buzz around BlackRock: Wiedman reportedly didn’t want to keep waiting to succeed Fink and is expected to seek a C.E.O. position elsewhere. (So sudden was his departure that he’s forfeiting about $8 million worth of stock options and, according to The Wall Street Journal, he doesn’t have another job lined up yet.)

Fink said on CNBC on Wednesday that Wiedman’s departure had been in the works for some time, with the executive having expressed a desire to leave about six months ago.

Other candidates to take over for Fink include Martin Small, BlackRock’s C.F.O.; Rob Goldstein, the firm’s C.O.O.; and Rachel Lord, the head of international.

But Dimon and Fink aren’t going anywhere just yet. Dimon, 68, said only last year that he might not be in the role in five years. And Fink, 72, said in July that he was working on succession planning: “When I do believe the next generation is ready, I’m out.”

The S.E.C. gets in a final shot at Musk

Another battle between Elon Musk and the S.E.C. erupted on Tuesday, with the agency suing the tech mogul over his 2022 purchase of Twitter.

It’s unclear what happens to the lawsuit once President-elect Donald Trump, who counts Musk as a close ally, takes office. But the agency’s reputation as an independent watchdog may be at stake.

A recap: The S.E.C. accused Musk of violating securities laws in his $44 billion acquisition of the social media company.

The agency said that Musk had failed to disclose his Twitter ownership stake for a pivotal 11-day stretch before revealing his intentions to purchase the company. That breach allowed him to buy up at least $150 million worth of Twitter shares at a lower price — to the detriment of existing shareholders, the agency argues.

The S.E.C. isn’t just seeking to fine Musk. It wants him to pay back the windfall. “That’s unusual,” Ann Lipton, a professor at Tulane Law School, told DealBook.

Alex Spiro, Musk’s lawyer, called the latest action a “sham” and accused the agency of waging a “multiyear campaign of harassment” against him.

The showdown sets up a tough question for the S.E.C. Will Paul Atkins, the president-elect’s widely respected pick to lead the agency, drop the case? Such a move could call the bedrock principle of S.E.C. independence into question.

Jay Clayton, who led the agency during Trump’s first term, earned the respect of the business community for running it in a largely drama-free manner. It was under Clayton that the S.E.C. sued Musk over his statements about taking Tesla private.

Musk, who is set to become Trump’s cost-cutting czar and is expected to have office space in the White House complex, has called for the “comprehensive overhaul” of agencies like the S.E.C. The billionaire said he would also like to see “punitive action against those individuals who have abused their regulatory power for personal and political gain.”

In related news: The Consumer Financial Protection Bureau sued Capital One, accusing it of cheating its depositors out of $2 billion in interest payments.

THE SPEED READ

Deals

DAZN, the streaming network backed by the billionaire businessman Len Blavatnik, is closing in on funding from Saudi Arabia’s sovereign wealth fund as the kingdom continues to expand its sports footprint. (NYT)
The Justice Department sued KKR, accusing the investment giant of withholding information during government reviews for several of its deals. KKR filed a countersuit. (Bloomberg)
OpenAI added Adebayo Ogunlesi, the billionaire co-founder of the infrastructure investment firm Global Infrastructure Partners, to its board. (FT)

Politics and policy

Best of the rest

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