🐂 Blocking Merger

Markets

Stocks experienced a decline on Tuesday following indications from the Fed suggesting a potential slowdown in the relaxation of monetary policy, specifically in terms of cutting interest rates—a move not entirely aligned with investors' preferences. However, the most significant setback of the day was encountered by Spirit Airlines, as its stock plummeted by nearly 50% subsequent to a federal judge halting its planned merger with JetBlue. More details on this development will be discussed later.

Mergers

Jetblue - Spirit merger blocked

After a decade and a half of airline consolidation, the landscape of competition in the aviation industry faces uncertainty.

A federal judge's recent decision has put an end to JetBlue's attempt to acquire Spirit Airlines, disrupting a deal that had the potential to reshape the airline sector. Judge William Young, an avid Les Mis fan, sided with the Justice Department, which opposed the merger, expressing concerns that it would adversely impact customers by eliminating a budget-friendly travel option.

Beyond the inconvenience posed to financially strapped college students attending events like the Austin City Limits festival, the $3.8 billion agreement aimed to position JetBlue and Spirit as the fifth-largest airline in the U.S., following Delta, American, United, and Southwest. JetBlue and Spirit contended that the merger was crucial for them to effectively compete against the dominant Big Four airlines.

The historical context reveals that since 1960, the major carriers—Delta, American, United, and Southwest—have collectively absorbed 36 other airlines, establishing control over two-thirds of domestic air travel, according to the Bureau of Transportation Statistics, as reported by Axios.

This court ruling marks a significant win for antitrust regulators, showcasing the Justice Department's efforts to bring about changes in the airline industry. While facing challenges in the tech sector, the DOJ, under President Biden, has achieved success in curbing certain practices within the airline domain. Notably, last year, it compelled JetBlue to dissolve its Northeast Alliance partnership with American Airlines.

However, if 2024 was anticipated to be the year of mergers in the airline industry, the recent decision presents a less optimistic beginning. The judgment casts a shadow over the proposed merger between Hawaiian Airlines and Alaska Airlines, with experts speculating that the DOJ might intervene in that deal as well.

Looking ahead, JetBlue and Spirit released a joint statement expressing their disagreement with the ruling and indicating that they are assessing potential next steps. Following the news, Spirit's stock experienced a significant decline, while JetBlue's stock witnessed an increase.

Politics

The US launched new strikes against Houthi targets in Yemen

The recent airstrikes, marking the third round within the past week, specifically targeted Houthi militants. These militants were reportedly in the process of preparing to launch missiles at both commercial and US Navy ships in the Red Sea, as indicated by military officials. Concurrently, the US has initiated efforts to locate two Navy SEALS who went missing during an operation on Friday aimed at seizing Iranian-made missile parts en route to the Houthis.

The backdrop to these developments includes ongoing attacks by Houthi rebels on civilian ships, which they claim are in retaliation for Israel's actions against Hamas in Gaza. In response to the escalating conflict, Shell has joined the ranks of major companies suspending shipments through the Red Sea.

Government

Bipartisan tax policy could help kids and businesses

While cautiously avoiding excessive excitement to prevent alarming lawmakers, there appears to be potential progress in Congress. The chairs of significant committees, a House Republican and a Senate Democrat, have recently announced an agreement on a $78 billion plan. This proposed plan encompasses the introduction of a revamped child tax credit and extends corporate tax breaks until 2025.

Key components of the potential bill include benefits for lower-income families, allowing them to receive a more refundable child tax credit, even if it surpasses their tax liability. Currently, many lower-income families cannot claim anywhere near the $2,000 per child credit accessible to middle- and upper-income families. According to the Center on Budget and Policy Priorities, a left-leaning organization, the proposed tax credit has the potential to lift 400,000 children above the poverty line in the program's first year.

The bill also caters to Republican interests by incorporating $33 billion in corporate tax breaks, applicable retroactively, linked to expenses related to interest payments and research and development. Additionally, the entire bill is intended to be funded by phasing out a problematic Employee Retention Credit associated with fraud.

However, the timeline for passing this deal is challenging, with lawmakers aiming to secure approval before the commencement of tax season on January 29. This ambitious timeline requires swift passage through both the House and Senate, which, given their current challenges in collaboration, poses a considerable hurdle—akin to the reliability issues of a malfunctioning McDonald's ice cream machine.

Tech

Another Uber failure?

Uber has announced its intention to shut down the alcohol delivery platform Drizly by March. The ride-hailing giant acquired Drizly for $1.1 billion three years ago during a time when home alcohol delivery was gaining popularity.

However, the growth in the delivery market has slowed, and Drizly faced regulatory issues related to its management of user data. In light of these factors, Pierre-Dimitri Gore-Coty, Uber's Senior Vice President of Delivery, stated that the company is prioritizing Uber Eats. The focus is on consolidating services to allow consumers to access a variety of offerings, including food, groceries, and alcohol, all within a single app.

Drizly had already undergone workforce reductions, laying off 100 employees the previous year, and some of its features had been integrated into Uber Eats.

The acquisition by Uber also brought to light a 2020 data breach affecting 2.5 million Drizly users. The breach was attributed to a security vulnerability known to the company and its former CEO but left unaddressed. As a result, the Federal Trade Commission imposed restrictions on the types of customer information Drizly could collect and store, potentially impacting its ability to profit from selling data.

Uber's decision to discontinue Drizly follows a trend of major companies swiftly divesting subsidiaries that were once significant investments. Google, for instance, recently downsized the product team at Fitbit, a wearable tech brand it acquired for $2.1 billion in 2021, as it shifts focus to developing its own Pixel Watch.

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