Mission: Impossible
And the most consequential antitrust trial in a generation wraps up.
1. Closing arguments wrapped in the most consequential antitrust trial in a generation, the case by the Justice Department and state attorneys general that Google’s preeminence as an internet search engine is an illegal monopoly propped up by more than $20 billion spent each year to lock out competition. Much of their arguments revolved around how much strength the company derives from contracts with companies like Apple that make Google the default search engine preloaded on cellphones and computers. They also said Google has trapped advertisers in a system where rates keep rising for poor returns. Google said its ubiquity simply shows it is better at delivering results customers want. It argued that the government defines the search engine market too narrowly and that companies like Facebook and TikTok are fierce competitors—an assertion U.S. District Judge Amit Mehta questioned. Google’s lawyer argued Friday that no “fat happy monopolist” would feel the need to innovate as it has. A decision from Mehta is likely to take several months.
2. The “slow-motion murder in plain sight” of Paramount Global continues. The period for exclusive talks between the company and Skydance Media ended Friday. Skydance had offered a $3 billion cash infusion to appease restive investors in its "last and best” proposal, while CEO Bob Bakish was awkwardly replaced with three existing division heads. In the revised offer from the Skydance consortium, which includes KKR and RedBird Capital, controlling shareholder Shari Redstone, who backed Skydance over an earlier offer from Apollo Global Management, might accept less than $2 billion for her stake, lower than initially offered, and roll a significant part of her holdings into the new company to align with shareholders. The consortium would then pay off debt and give more to common shareholders, a number of whom have vehemently opposed the deal as a payout for Redstone at their expense. The ouster of Bakish, whose relationship with Redstone had soured, was seen as possibly pressuring shareholders to back the Skydance bid by throwing the status quo into chaos.
Chaos they have. On Wednesday, Apollo, this time with Sony Pictures, made a revised, $26 billion, all-cash bid. Paramount’s special committee seems inclined to listen. Amid all this, Paramount and Charter Communications had to extend their deadline to negotiate a new carriage agreement. Upfront meetings with advertisers began. Paramount and Skydance were reportedly growing irritated over leaks. “As someone who spent some time in the writers room during the first season of ‘Succession,’” Bill Cohan wrote, “I can tell you that this is beyond any fictional scenario that we could have imagined, and did imagine, for the Roy family.”
Paramount’s earnings call on Monday came a few hours after Bakish’s dismissal. For nine minutes, the new leadership trio essentially recapped the press release, handing off to each other. They didn't take questions. They ended the call. Then the theme song from “Mission: Impossible" played on a loop.
3. Lawmakers slammed UnitedHealth Group’s handling of the February cyberattack that paralyzed the U.S. healthcare system, citing security failures and the disclosure of sensitive medical information of millions of Americans, and ripping the company for failing to provide adequate information. Hackers who broke into the Change Healthcare unit stole “maybe a third” of Americans' protected health data and personally identifiable information, CEO Andrew Witty admitted during two Capitol Hill hearings. He acknowledged lax security and a slow initial response, and confirmed the company paid a $22 million ransom to the group AlphV. The unit processes medical claims for some 900,000 physicians, 33,000 pharmacies, 5,500 hospitals and 600 laboratories in the U.S.—about half the nation’s total. The American Hospital Association said 94% of hospitals reported damage to cash flow, and more than half reported "significant or serious" financial damage after the hack. Cathy McMorris Rodgers, chair of the House Energy and Commerce Committee, said the company’s actions are likely to become “a case study in crisis mismanagement.” (Note: While the press has covered the hack and its fallout, at times in depth, the story deserves more attention and resources given its scale, impact and implications.)
4. Shares of Novo Nordisk, maker of Ozempic and Wegovy, got dinged as rivals Amgen and Eli Lilly touted progress on competing drugs, and as sales of Wegovy fell short of expectations (even while doubling), though strong earnings beat estimates. With demand so high, the company faces supply constraints, prompting it to invest $6 billion to ramp up production. The FTC is asking about its $16.5 billion bid for Catalent, a contract drug maker. But the big picture is that thanks to its breakthrough semaglutide, Novo Nordisk remains on an incredible rocket-ship ride. Its market cap is bigger than the whole economy of its home country, Denmark. Its philanthropic foundation is now the world’s largest and twice the size of the Gates Foundation. It influences educational and research priorities, and politicians consider its perspective before decisions on immigration policy or new infrastructure development. It has created thousands of jobs in a six-million-person country. Danish pension funds are flush from record returns on Novo shares. Mortgages are cheaper as exports have forced Denmark’s central bank to keep interest rates low. Its every move is met with media scrutiny, making it especially vulnerable to public backlash and regulatory shifts. A strategic misstep would have a trickle-down impact on public coffers, scientific research and even jobs for the next generation of Danes. As CEO Lars Fruergaard Jørgensen recently told The New York Times, “Nobody had forecast this growth — no analyst, nobody in the company. Nobody forecast a 100-year-old company would grow more than 30 percent.” (Addendum: The maker of Oreos and Sour Patch Kids is relaxed about Ozempic, as is Molson Coors.)
5. Apple sparked hope its slowdown is easing with stronger-than-expected, if declining, sales for the fiscal second quarter, including in China, and predicted a return to growth. The company has posted sales drops in five of the past six quarters, hurt by a sluggish smartphone market and headwinds in China. A lack of innovative new devices also has been a factor, but the company aims to begin rectifying that on Tuesday when it will unveil new iPads. CEO Tim Cook is expected to lay out his his long-awaited strategy for generative AI in June. Shares were lifted by a $110 billion stock buyback. Since the start of the year, Apple has cancelled its long-standing car project, faced intense regulatory scrutiny in the U.S. and Europe and seen iPhone sales slip.
6. Amazon Web Services reached a $100 billion annual revenue run rate, off the back of growth in generative AI and the ongoing push of workloads to the cloud. Not only did the unit’s operating profit nearly double in the first quarter, it accounted for nearly two-thirds of all Amazon’s operating profit in a bang-up report. Amazon CEO Andy Jassy said the AI cloud opportunity is just beginning and could run for 10 or 20 years. Amazon is shelling out to build its capabilities; investment will “meaningfully increase” from the $48 billion spent in 2023. While OpenAI has grabbed the headlines, Jassy’s long-term focus on AI is bearing fruit.
7. Amid lower consumer confidence and cooler employment data, a persistent theme in earnings is that consumers feel more pinched. McDonald’s CEO Chris Kempczinski, after the chain missed expectations: The consumer “is certainly being very discriminating in how they spend their dollar ... I think it's important to recognize that all income cohorts are seeking value.” Starbucks CEO Laxman Narasimhan, after a surprise sales drop: “In this environment, many customers are being more exacting about where and how they choose to spend their money, particularly with stimulus savings mostly spent.” Jassy: “Customers are shopping but remain cautious, trading down on price when they can and seeking out deals.” (Note: You’ll never guess what Narasimhan calls his turnaround plan.)
8. A couple weeks ago, a top Elon Musk lieutenant, Mike Snyder, reassured members of Tesla’s energy organization that Musk believed that the Supercharger Network of electric charging stations was critical to the company, according to an email viewed by The Information. Last week, Musk laid off the whole 500-person team. The move stunned many employees and industry observers who consider the electrical charging stations one of Tesla’s key advantages. The latest round followed layoffs of 14,000 workers in April. Musk instructed his executives to be “absolutely hard core” about the cuts. They came on the heels of Musk’s whirlwind trip to China, where he met with senior officials, including Premier Li Qiang, China's No. 2, to discuss the rollout of Tesla's Full Self-Driving technology in the world's biggest auto market. It was big, showy and a little vague, but if Tesla does roll out self-driving in China it could boost revenue. One analyst called it a “watershed” moment.
9. Berkshire Hathaway holds its annual meetingpalooza in Omaha today, with 93-year-old Warren Buffett presiding and an estimated 40,000 attendees. Buffett’s age is intensifying questions over the future of the conglomerate. Insurance, the underpinning of the company, is in the hands of Ajit Jain, making him maybe the most important person at Berkshire after Buffett. Also on the spot are the men set to take over the stock-picking portfolio, Ted Wrestler and Todd Combs. If they can’t match what Buffett did, what is the company’s value and why does it exist in a world where passive index funds are touted as safer, cheaper and more reliable than active fund managers? In the last decade, the FT shows, their returns have often lagged the S&P 500 and those of Buffett himself. Additionally, the energy business faces upheaval. Investors still want “eye-popping returns.” Buffett’s biggest holding is Apple (see above). A number of other tough questions are worth asking Buffett, no matter how much he wants to spend time waxing poetic about See’s Candies. This will be a bittersweet gathering since Charlie Munger, Buffett’s right-hand man, died at the age of 99 last fall.
10. Exxon Mobil is set to close a $60 billion deal (which The Journal called a “megadeal”) to buy Pioneer Natural Resources, but only after agreeing with the FTC not to add former Pioneer CEO Scott Sheffield to its board. The agency said it found evidence that Sheffield sent hundreds of messages to representatives of OPEC+ and fellow US producers about oil pricing and output, potentially driving up costs for consumers. Sheffield had been openly talking about the need for things like capital discipline and production limits to avoid the free spending that ruined many shale drillers a decade ago. But the agency said saying them to competitors in WhatsApp was collusive, and may refer the matter to the Justice Department. Pioneer calls that “a fundamental misunderstanding” of oil markets and his intent. After closing its largest merger in 25 years, Exxon will be far and away the biggest producer in the Permian Basin, which pumps more oil per day than Iraq, the second-largest OPEC-member.
11. HSBC boss Noel Quinn blindsided his team and investors by announcing he would retire after five years in the role, at the age of 62. Inside HSBC headquarters, the narrative was that it was impossible for both Quinn and group chair Mark Tucker to continue in their roles, since both were scheduled to depart at about the same time in three years. So Quinn, a lifer at the company, is out to allow Tucker to oversee the installation of the next CEO. Tucker, picking his fourth CEO in less than a decade, needs one with global reach who is willing to earn much less than the average U.S. bank CEO.
12. Peloton CEO Barry McCarthy stepped down after a little more than two years, as part of a restructuring that will cut 15% of the workforce at the exercise-bike maker, about 400 workers. Peloton’s market cap is down to less than $1.5 billion from an early-2021 peak of almost $50 billion, though it is now cash-flow positive. In a farewell memo, McCarthy wrote: “I once described turnarounds as a full contact sport; intellectually challenging, emotionally draining, physically exhausting, and all consuming, the decisions never more consequential, the urgency ever present, the teamwork never more central to the mission. From where I sit today, that pretty much summarizes my experience these last two years.”
13. Walmart's ambitious new private-label brand aims to reflect the nation’s embrace of more exotic food tastes and desire for healthier ingredients, a big bet as the retailer competes with the likes of Costco, Trader Joe’s and Whole Foods. Bettergoods will target new, often higher-income shoppers with foods such as cardamom rose raspberry jam and curry chicken empanadas (Note: That’s two separate items). Many of the more than 300 items added to shelves this year will cost $5 or less. To help pay for the launch, Walmart is cutting back elsewhere, closing all 51 of the health clinics it had opened over the past five years as it tried to build a bigger healthcare business in a challenged U.S. market.
14. The NBA is teed up to sign new long-term broadcasting agreements that would earn it about $76 billion over 11 years, or three times its current deal. Two winners are Disney and Amazon; the third will emerge from a bidding war between Comcast’s NBC Universal and WarnerBros Discovery. NBCUniversal, swooping in after Warner and the NBA failed to reach a renewal deal during their exclusivity window, is prepared to pay an average of about $2.5 billion a year to air the NBA. Warner’s TNT, one of the league’s oldest TV partners, paid an average fee of $1.2 billion under its current deal. Losing the NBA to NBC would be another blow for David Zaslav. But Charles Barkley would be fine. It could be great news for John Tesh, composer of the best NBA TV theme ever.
15. Publicly, Bill Gates has been almost entirely out of the picture at Microsoft since 2021, following allegations that he had behaved inappropriately toward female employees. In fact, Gates has been quietly orchestrating much of Microsoft's AI revolution from behind the scenes. Current and former executives say Gates remains intimately involved in the company's operations — advising on strategy, reviewing products, recruiting high-level executives, and nurturing Microsoft's crucial relationship with Sam Altman, the cofounder and CEO of OpenAI. In 2017, just before Microsoft forged a partnership with a then relatively unknown startup called OpenAI, Gates shared a memo with CEO Satay Nadella and a small group of the company's top executive predicting a new world order would soon be brought on by what he called "AI agents" — digital personal assistants that could anticipate our every want and need. The correspondence anticipated Copilot, the artificial-intelligence tool that has helped propel Microsoft to become the world's most valuable public company.
16. McKinsey & Co. sought to rally partners with upbeat declarations and blasts of rock and rap music in Copenhagen last month, trying to boost morale in a tumultuous period for the consulting firm. Global Managing Partner Bob Sternfels told his fellow partners at the mid-April event that McKinsey expects a good 2024 after a challenging 18 months, calling it a “turn the page” moment. McKinsey is battling problems on many fronts while the broader industry is experiencing a slowdown in demand. The firm has warned about 3,000 consultants that their performance is unsatisfactory and needs to improve. It has been cutting hundreds of jobs in its technology and other divisions.
17. Hybe, the company behind K-pop sensation BTS, is embroiled in a bizarre feud with one of its powerhouse subsidiaries, Ador, and its CEO, Min Hee Jin. Hybe set the furor off on April 22, when it launched a probe of Min over an alleged effort to go independent. Since then South Korea’s music scene has been rocked by claims and rumors involving claims that Hybe had “copied” Ador’s star girl group, NewJeans, for its new girl group ILLIT; that Min had allowed a religious “shaman” from outside the company to influence business decisions; and, most recently, that Hyde is linked to an alleged yoga cult called Dahn World. On its YouTube channel, DahnWorld, described as “a meditation entity also rumored to be a religious cult,” felt compelled to state that it has no connection to Hybe or to K-pop titans BTS.
18. The regular market for US equities runs for 390 minutes on a standard trading day. But eventually the last 10 might be the only ones that matter. About a third of all S&P 500 stock trades are now executed in the final 10 minutes of the session, according to data compiled by BestEx Research, a developer of trading algorithms. That’s up from 27% in 2021. Fresh evidence suggests the trend may be hurting liquidity and distorting prices. It’s new ammo for critics of the global boom in passive investing, because index funds drive the phenomenon. These products typically buy and sell shares at the close, since the last prices of the day are used to set the benchmarks they aim to replicate.
Columns: Andrew A. Rosen: Bob Bakish is the first C-Suite departure of the “streaming wars” era to leave entirely because of an ill-conceived streaming strategy of their own. Lucas Shaw: HBO’s password plan looks a lot like Netflix. Matt Winkler: In Jamie Dimon’s America, the stock market has already voted. John Authers: If they want to pressure companies, activists should up their stakes, not divest. Alan Beattie: U.S. labor unions are using a German supply chain regulation to take on Mercedes.
Footnotes: Auditor BF Borgers gets walloped by the SEC for “massive fraud”; its largest client is Donald Trump’s media company…WeWork spurns Adam Neumann as it moves to exit bankruptcy…Johnson & Johnson puts forth a $6.5 billion offer to settle talc-related personal-injury claims...Rio Tinto “no comments” when asked about bidding for Anglo American…But Glencore is “studying" a bid, sources tell Reuters…Binance founder gets four months in prison, plots a comeback… CoinBase’s “blowout” first quarter…SVB Financial sells its VC arm...Bill Hwang of Archegos fights two avoid prison...Universal Music and TikTok reach a new licensing deal, allowing artists back on…Embraer is gunning for Boeing…Running HR has gone from a sleepy backwater to a powerful job….Bill Gross: “Total return” strategy is dead…Brian Chesky: Airbnb is “going big” on AI…Microsoft is the latest to expand in Indonesia…How BlackRock is conquering crypto…Buyout of L’Occitane looms…Shopify embraced a “new shape” to plot an 18-month comeback.
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