Good morning. We're looking at why the White House is cheering a move to block a grocery megadeal; how Citigroup's big hire puts pressure on its C.E.O.; the regulatory questions raised by Microsoft's latest A.I. deal; and we're remembering a Buffett beneficiary, whose fortune enabled his wife's billion-dollar gift to a Bronx medical school. (Was this newsletter forwarded to you? Sign up here.)
Kroger, Albertsons and the politics of inflationA paradox at the heart of the U.S. economy is that consumers are feeling squeezed even as growth indicators look strong — and are taking it out on President Biden's approval ratings. So the White House probably cheered a move by the F.T.C. and several states yesterday to block Kroger's $25 billion bid to buy Albertsons, arguing that the biggest supermarket merger in U.S. history would raise prices and hit union workers' bargaining power. The Biden administration has little influence over inflation, but it's still getting heat. Consumers are spending the highest proportion of their income on food in 30 years, and an internal White House analysis found that grocery prices had the biggest impact on consumer sentiment. The Fed has jacked up interest rates to a 20-year-high in an effort to cool inflation, but progress on that has slowed in recent months. Biden is blaming big business. In a video released on Super Bowl Sunday, he went after "shrinkflation," lashing out at companies for reducing packaging sizes and food portions without cutting prices. Biden is expected to reiterate that view in his State of the Union address next month.
The president could point to the F.T.C.'s tough approach to M.&A. The agency operates independently, but Lina Khan, the F.T.C.'s chair, has taken the most aggressive and expansive antitrust enforcement stance in decades. That may help Biden's message with voters that he's fighting for their interests. "When large corporations are not checked by healthy competition, they too often do not pass cost savings on to consumers and exploit their workers," an official at the National Economic Council said yesterday. Some companies aren't helping themselves. Kellogg's, for example, is marketing cereal as an affordable meal option for cash-strapped families. "Cereal for dinner is something that is probably more on trend now, and we would expect to continue as that consumer is under pressure," Kellogg's C.E.O. Gary Pilnick told CNBC last week. Perhaps predictably, his comments drew blowback on social media. Another big test comes on Thursday with a new batch of inflation data set to be published. Economists expect to see inflation ticking up again.
Macy's will close nearly a third of its nameplate stores. The shuttering of 150 Macy's-branded stores — along with an expansion of the Bloomingdale's and Bluemercury brands — is a bid by Tony Spring, the retailer's new C.E.O., to turn the company around. Macy's has battled a yearslong decline and an unwanted takeover bid. Chipmakers are seeking more than $70 billion in federal subsidies. Semiconductor companies have asked for roughly double the money set aside to help bolster domestic chip production, according to Commerce Secretary Gina Raimondo. She added that the U.S. is set to produce about 20 percent of the most advanced types of logic chips by the end of the decade. Exxon Mobil threatens to derail Chevron's $53 billion takeover of Hess. Exxon and China's CNOOC said they had a right of first refusal for the stake in a Guyana oil project held by Hess, Chevron disclosed in a regulatory filing. Chevron disagreed; the two sides are in talks. Much of what Chevron finds appealing in Hess rests in the Guyana project, one of the world's most promising oil sources.
Jane Fraser's last stand?It was a coup for Citigroup to poach JPMorgan Chase's Vis Raghavan to lead its banking division. The hire fills the last outstanding leadership position created by a sweeping overhaul of the Wall Street giant. It means that Jane Fraser, Citi's C.E.O., now has her team in place, and she'll be expected to show that she can turn the firm around. Fraser has already been under pressure to produce results. Her restructuring was meant to give her more hands-on control over the bank's main businesses (and led to at least 20,000 job cuts throughout the firm). Citi's board recently raised her annual pay to $26 million, citing her announcing what it called "the most consequential set of changes to its organizational and management model since the 2008 financial crisis." Analysts have doubts that this time will be different. "I count 12 restructurings at Citigroup. And I count 12 restructurings that have failed at Citigroup," Mike Mayo, the veteran banking analyst, said last month on an earnings call. "Why is this time different?" Raghavan is a crucial hire. He will oversee one of Citi's most prominent businesses. He'll also have the title of executive vice chair, which means that he "will help shape and drive our firm wide strategy and assist me with key strategic initiatives," Fraser wrote in an internal memo yesterday. It's a step up for Raghavan. The longtime JPMorgan veteran became sole head of the investment banking division just last month. He was also the head of Europe, the Middle East and Africa. But he remained several layers removed from Jamie Dimon, the bank's C.E.O. At Citi, he'll report directly to Fraser. Can he help Citi break back into Wall Street's investment banking elite? The firm has long lagged behind JPMorgan, Morgan Stanley and Goldman Sachs in key areas: It hasn't ranked in the top three for M.&A. or equity capital markets, by deal volume, for the past 10 years, according to Dealogic. It has fared better in debt capital markets, ranking second or third during that time. Fraser knows she's under scrutiny. "I recognize '24 is a critical year," she said on an earnings call last month. But while Citi's stock price is up 32 percent since she revealed her reorganization plan, it's down 19 percent since she took over as C.E.O. in March 2021. Microsoft's day-old A.I. deal under scrutinyMicrosoft's latest deal with a buzzy artificial intelligence start-up is already raising concerns among regulators. The Windows maker pitched its partnership with France's Mistral as a bid to expand beyond its relationship with OpenAI and help A.I. innovation, but skeptics say it's the latest example of Big Tech trying to stifle competition. Now, European regulators say they may investigate the relationship. Mistral is one of Europe's big A.I. hopes. The company was founded last year by a trio of former Google and Meta researchers and a former French digital minister, and has raised hundreds of millions of euros at a $2 billion valuation. It has pitched itself as a rival to OpenAI, and its backers include Andreessen Horowitz, General Catalyst, Lightspeed Venture Partners and Eric Schmidt, Google's former C.E.O. Microsoft and Mistral signed a "multi-year partnership," but released few details. The tech giant will reportedly invest about 15 million euros ($16.2 million) and provide the cloud-computing firepower needed to scale up the start-up's algorithms. Mistral's services will also be offered on the Azure cloud platform. Regulators on both sides of the Atlantic are already on high alert. U.S., British and European authorities are looking into Microsoft's relationship with OpenAI, in which Microsoft has already invested $13 billion and has a nonvoting board seat. A representative for the European Commission has said regulators will analyze the deal once they have a copy of the agreement. That could lead to a formal investigation, according to Reuters. Microsoft played down regulatory concerns about its Mistral investment. The company probably hopes that partnering with another start-up will please regulators looking into its ties to OpenAI. Yet Max von Thun, a director at the Open Market Institute, a competition policy think-tank, said that could backfire if Mistral was now prevented from competing with OpenAI and Microsoft's competitors. "If you want a really competitive A.I. ecosystem, you don't want a challenger to OpenAI to be reliant on Microsoft infrastructure and investment," he told DealBook.
A Buffett friend's billion-dollar legacyRuth Gottesman's $1 billion donation to the Albert Einstein College of Medicine in the Bronx, which will make the school tuition free, is notable for more than its eye-popping figure. It's also part of the legacy of her late husband, the financier Sandy Gottesman, a close friend of Warren Buffett's. Gottesman made his billions by investing early in Berkshire Hathaway. (He also founded and ran First Manhattan, a wealth management firm that now oversees about $20 billion.) By the time he died in 2022, Forbes estimated his net worth at $3 billion. "There probably has never been a better return on any stock held for 44 years in the history of Wall Street," Gottesman wrote of Berkshire a decade before his death. He and Buffett were close for nearly 60 years. From The Times's obituary of Gottesman: From 1963 to 1965 Mr. Gottesman frequently flew to Omaha, Mr. Buffett's base, meeting him in the afternoon, joining him for dinner and then talking with him until 2 or 3 in the morning. On one occasion, they talked so late that they found themselves locked inside Mr. Buffett's office building. Mr. Gottesman typically caught early-morning flights back to New York. Gottesman reportedly inspired Berkshire's investment in Apple. When Gottesman lost his iPhone in a cab in 2016, word of the incident got to Buffett, according to the book "After Steve: How Apple Became a Trillion-Dollar Company and Lost its Soul" by Tripp Mickle, a tech reporter at The Times. Buffett saw in his friend's distraught reaction a sign that the iPhone, and its maker, had become indispensable. He soon built up Berkshire's stake in Apple, shares now worth $174 billion. Gottesman left an unexpected bundle of Berkshire shares to his wife when he died, she told The Times. His instructions were simple: "Do whatever you think is right with it." Dr. Gottesman, a former professor at Einstein who chairs its board of trustees, decided to help the school. Asked what her husband would think of the gift, she said, "He gave me the opportunity to do this, and I think he would be happy — I hope so." We hope you've enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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Tuesday, February 27, 2024
DealBook: Price war
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