🐂 Danger vs Efficiency

Markets

Stocks maintained their festive momentum yesterday, contributing to the ongoing December rally. However, it was a less cheerful situation for VF Corp., the owner of Vans and The North Face, as their stock declined following the disclosure that a cyberattack would hinder the timely fulfillment of certain Christmas orders.

Tech

Adobe and Figma face antitrust scrutiny

The next time you feel down about a breakup, consider yourself lucky if you don't have to pay a fee for ending the relationship, unlike Adobe.

The anticipated $20 billion acquisition of design tool Figma by the software giant officially collapsed yesterday due to increasing pressure from competition regulators. This development halted what could have been one of the largest private software takeovers in history. Although both companies agreed to cancel the deal, Adobe is now obligated to pay Figma a $1 billion cash termination fee.

Let's rewind to September 2022 when Adobe initially agreed to acquire Figma, a rapidly growing competitor to some of Adobe's tools, with clientele including major tech firms like Uber, Zoom, and Google. However, EU and UK antitrust investigators voiced concerns that the acquisition would negatively impact customers and hinder innovation in product-design software by eliminating competition between two industry leaders. Regulators proposed that the companies sell off competing products to salvage the deal, but Figma's CEO stated that they and Adobe "no longer see a path toward regulatory approval."

This episode with Adobe and Figma is part of a trend where recent acquisition attempts face scrutiny from regulators, reflecting an era of heightened antitrust enforcement in both the US and Europe, particularly in the tech sector. For instance, Meta had to divest Giphy in May after UK regulators blocked the acquisition two years earlier. In another case, the American biotech company Illumina agreed to sell its cancer diagnostic test-maker, Grail, following a court battle with the Federal Trade Commission, which is increasingly challenging mergers under the Biden administration.

Zooming out, some analysts express concerns that antitrust crackdowns may limit opportunities for dealmaking. However, as of now, the business landscape remains active, with companies announcing over $40 billion in proposed mergers and acquisitions yesterday—more than four times the value announced on the last Monday before Christmas in 2022.

Industrials

US Steel is turning Japanese in a $14.1 billion deal.

US Steel, once an emblem of American industrial prowess and founded by luminaries such as J.P. Morgan and Andrew Carnegie, has reached an agreement to be acquired by Japan's Nippon Steel. This development concludes months of speculation about the future of the 122-year-old steel company, following its rejection of a $7.3 billion offer from domestic competitor Cleveland-Cliffs during the summer. Pending approval from regulators and US Steel's shareholders, the acquisition would position Nippon as the second-largest steel company globally and grant it a significant foothold in the US market, which has substantial steel demand, particularly in the automotive sector.

Auto

Nikola founder gets four years for fraud

Yesterday, Trevor Milton received a four-year prison sentence after being convicted of defrauding investors in the electric vehicle company he established. Although this is less severe than the 11-year sentence prosecutors sought, it surpasses the probation that Milton had requested. Nikola, briefly the third-most-valuable vehicle company in the US, saw a significant decline in its value when a short seller accused the company of providing false information about its technology. Prosecutors supported these claims, asserting that Milton misled about the company's progress, including a notorious video that purported to showcase one of its trucks in operation, whereas it was actually just rolled down a hill.

This incident adds to the growing list of challenges associated with the use of AI in media. In August, Gannett abandoned its AI local sports writing initiative after a poorly received story gained viral attention. The company faced renewed criticism in October over allegations that one of its websites, Reviewed, published reviews written by AI.

International

Red Sea attacks are disturbing global supply chain

British Petroleum has joined a growing list of companies suspending shipping through the Red Sea due to the perceived threat from Iran-backed Houthi rebels in Yemen. At least nine other carriers, including the Danish cargo giant Maersk, have also announced temporary avoidance of these turbulent waters.

Houthi militants have been targeting commercial vessels in the southern part of the Red Sea since the Israel–Hamas war began in October. This situation has become a global concern because the Red Sea feeds into the Suez Canal, a crucial maritime route where approximately 12% of world trade transits between Europe and Asia.

In response to the dangers posed by Houthi attacks, many shipping companies are prioritizing safety over speed by choosing to navigate around the southern tip of Africa instead. While these reroutings have increased the cost of moving cargo, maritime experts highlight that redirecting energy shipments, particularly oil, poses more significant challenges due to a shortage of available oil tankers compared to container ships. Unlike container ships, oil tankers cannot significantly accelerate to reclaim lost time.

Although not all oil carriers are changing routes, oil futures prices rose by 1.6% in response to concerns over the risks of Red Sea voyages. Additionally, the cost of insuring ships against perils in the Red Sea has also increased.

To address the security situation, the US, along with multiple European countries, Bahrain, and others, has agreed to significantly expand the international naval force that patrols the Red Sea. The US has also positioned the USS Dwight D. Eisenhower aircraft carrier near Yemen's coast, reportedly considering a strike against Houthi positions.