Google faces a reckoning
Shares in Alphabet, Google’s parent company, were down in premarket trading on Wednesday on news that the Justice Department is said to be considering breaking up the technology giant for maintaining an illegal search monopoly.
That would be a devastating blow for the company, but it could also have huge ramifications for the broader tech sector, with Apple, Amazon and Meta all facing their own antitrust battles with the government.
A recap: In a ruling last week, Judge Amit Mehta of the U.S. District Court for the District of Columbia agreed with the government and multiple states that Google’s dominance in search was constraining competition. Google said it would appeal.
Mehta has asked both parties to submit suggested remedies by Sept. 4, with a hearing set to take place two days later.
Dismantling Google is one potential remedy the government is discussing, The Times’s David McCabe and Nico Grant report. That could involve forcing the company to break off Chrome, its web browser, or its Android smartphone operating system as a penalty for maintaining an illegal monopoly in search, a business that has generated enormous profits for years. (Bloomberg earlier reported details of the discussions.)
It would be the most significant antitrust ruling against a tech company since a drawn out effort more than two decades ago that targeted Microsoft. That move was ultimately reversed on appeal, but it slowed Microsoft’s dominance enough to open the door to new rivals, including Google.
Less severe options include: Ordering Google to open its trove of user data to competitors, or mandating that it abandon the deals that helped cement itself as the default search option on devices like the iPhone.
Tech companies are watching the case closely. Antitrust experts told DealBook last week that the Google search case could bolster the government’s antitrust lawsuits elsewhere against the likes of Amazon, Apple and Meta.
The case comes as Silicon Valley donors are warning about regulatory overreach. Backers of Donald Trump and Kamala Harris have raised their concerns with both presidential campaigns about Washington’s aggressive scrutiny under Lina Khan, the F.T.C. chair, and the S.E.C.’s Gary Gensler.
But even if voters were to elect a more tech-friendly president in November, Google will still have to contend with the 11 (mostly red) states demanding changes.
The reports took a bit of the shine off a splashy A.I. event Google held on Tuesday. The company introduced its new artificial intelligence-powered smartphones, aiming to turbocharge sales of its Pixel devices. In keeping with the buzz around A.I., Google’s stock initially jumped after the event, only to sink afterward.
HERE’S WHAT’S HAPPENING
Investors are focused on Wednesday’s inflation report. The Consumer Price Index, due out at 8:30 a.m. Eastern, is expected to show little change in inflation, month-on-month. Wall Street will be watching for clues on whether conditions are ripe for the Fed to cut interest rates next month.
Elliott Investment Management steps up its fight with Southwest Airlines. The activist investor wants 10 directors named to the company’s board, including the former heads of Virgin America and Air Canada. It also wants to oust Bob Jordan, Southwest’s C.E.O., and Gary Kelly, the executive chairman. The pressure comes as the low-cost airline tries to revamp its business and revitalize growth. Southwest said in a statement that Elliott had rejected its efforts to reach a settlement and that the airline would evaluate the investor’s latest proposal.
Norway’s sovereign wealth fund cuts its stakes in tech giants and Novo Nordisk. Norges Bank Investment Management, one of the world’s biggest investors, has trimmed many of its top holdings, including in Novo Nordisk, Meta and the Dutch chips equipment maker ASML. Still, its tech-heavy portfolio, led by Apple, Microsoft and Nvidia, helped drive huge first-half profits.
Japan’s prime minister plans to step down. Fumio Kishida said he would not run in the governing party’s leadership contest next month after a term marred by a corruption scandal and inflation. The announcement comes as Kishida has deepened defense ties with the U.S. to counter China.
A not-so-sweet deal
The snack food giant Mars has agreed to buy Kellanova, the company behind brands like Cheez-It and Pringles, for nearly $36 billion including debt.
The deal would be one of the biggest this year, and it comes as the industry faces the challenges of consumers pinched by inflation and the boom in weight-loss drugs, like Ozempic and Wegovy.
Mars is looking to expand beyond sweets. Kellanova was created last year, when Kellogg spun off its global snacks division from its North American cereal business. Mars, which is privately held and whose brands include M&Ms and Skittles, will pay $83.50 a share for Kellanova in an all-cash deal.
The popularity of appetite-suppressing medications is eating into the sector. Novo Nordisk’s Ozempic, and Eli Lilly’s Zepbound can help curb craving for sugary temptations, and have sent the pharma giants’ shares soaring. Big food companies are looking to bulk up, and build scale to meet the challenge.
Consumers are also increasingly opting for healthier snacks over sweet ones.
Kellanova has fared well despite those pressures. The company beat expectations and raised full-year sales forecasts in its latest quarterly earnings.
Mars wants to double the amount of money it earns from snacks. The company had sales of $50 billion last year, and has said it wants to double revenues from its snacks business to $36 billion. In the past four years, the company has acquired the North American business of Kind, the snack bar maker, Nature’s Bakery and Tru Fru, maker of chocolate-covered fruit snacks.
Mars isn’t alone in looking beyond sugary treats. In recent years, Hershey’s bought Amplify Snack Brands, the parent group of SkinnyPop, and Dot’s Pretzels. Mondelez acquired Clif Bar for almost $3 billion in 2022.
The $20 billion dollar man
Starbucks shares soared on Tuesday after the coffee chain announced that Brian Niccol, the Chipotle boss, would be its new C.E.O. and chairman, adding about $20 billion to the company’s market value.
DealBook dug into the man behind the enthusiasm, and took a look at how long the honeymoon might last.
Starbucks had been mulling a change for months. The board identified Niccol as its preferred candidate to replace Laxman Narasimhan, hoping he could replicate his success in turning around Chipotle. “In the industry, he’s probably the most successful C.E.O. right now,” Mellody Hobson, the Starbucks chairwoman, told The Wall Street Journal.
Niccol took over at Chipotle in 2018 as the company faced down a series of crises. Investors had been dumping their shares following a string of food safety issues.
Niccol helped rebuild trust with consumers and investors. Chipotle’s shares rose nearly 40 percent in his first year, and are up almost ninefold since he took over. The business has performed especially well this year, even as rivals have been stung by slower consumer spending in the face of inflationary pressures.
In a sign of Niccol’s value, Chipotle shares fell more than 7 percent on Tuesday on the news of his departure.
Niccol’s strong suit: an understanding of tech, operations and brand marketing. Before joining Chipotle, he spent three years as C.E.O. of Taco Bell, was an executive at Pizza Hut, and worked in brand management at Procter & Gamble.
He expanded Chipotle’s drive-through options, delivery services and loyalty program. His efforts included the Autocado, a robotic avocado-processor intended to speed up production of guacamole. At Taco Bell, he sold stores to franchisees and focused on digital initiatives like mobile ordering and understood how to use social media.
How much time will investors give Niccol? Elliott Investment Management, the activist investor that had been agitating at Starbucks under Narasimhan, called Niccol’s appointment a “transformational step.” If the past is precedent, Niccol will most likely want to focus heavily on operations and technology at Starbucks when he starts in September, efforts that could be expensive.
Starbucks also faces a host of challenges his previous employers didn’t. Sales are slowing in China and the U.S. And, coffee bean commodity prices have been volatile. Shareholders will be anxious to hear his turnaround plans.
Why Big Tech is worried about SB 1047
Over the past year, tech leaders have warned about the risks of artificial intelligence and pushed for regulators to set up guardrails to ensure that it is developed in a secure fashion without crimping innovation or potential profits.
But Silicon Valley is now increasingly concerned about legislation in California that could serve as a precedent for other regulators looking at A.I., The Times’s Cade Metz and Cecilia Kang report.
The bill known as SB 1047 winding through the state legislature in Sacramento. It’s troubling tech leaders based in the state as it calls on companies to take tough precautions, including testing the safety of A.I before releasing them to the public.
Opponents believe it will choke the progress of technologies that promise to increase worker productivity, improve health care and fight climate change.
Supporters believe the bill will help prevent disasters and place guardrails on the work of companies that are too focused on profits. Just last year, many A.I. experts and tech executives led public discussions about the risks of A.I. and even urged lawmakers in Washington to help set up those guardrails.
Now, in an about-face, the tech industry is recoiling at an attempt to do exactly that in California.
There’s a lot at stake. The status quo has been good for Big Tech. Exhibit A: The “Magnificent Seven” tech stocks at the core of the A.I. boom, are flying, up more than 30 percent this year, and the privately held ChatGPT maker, OpenAI, is valued at roughly $80 billion.
THE SPEED READ
Deals
The German defense group Rheinmetall will buy the U.S. military vehicle parts maker Loc Performance for $950 million, after seeing record sales following Russia’s full-scale invasion of Ukraine. (Bloomberg)
Avon Products has filed for bankruptcy, after a wave of lawsuits claiming that the talc in its products were contaminated with cancer-causing substances. (Fox News)
Elections, politics and policy
Kamala Harris is trying to differentiate her economic agenda from President Biden’s without abandoning his policies. (WSJ)
The European Commission distanced itself from a warning by one of its most senior officials to Elon Musk about potentially harmful content on X. (FT)
Best of the rest
“How ‘Deepfake Elon Musk’ Became the Internet’s Biggest Scammer” (NYT)
Behold the extended-range electric vehicle, or EREV — an E.V. that promises more than 600 miles per charge. The catch: it takes gasoline. (Bloomberg Businessweek)
We’d like your feedback! Please email thoughts and suggestions to [email protected].
The post Google’s Stock Falls as the Government Weighs Breaking Up the Company appeared first on New York Times.
