A new road map for scrutinizing deals
The Justice Department and the Federal Trade Commission announced their long-awaited merger guidelines on Wednesday morning, and the proposed regulatory framework reveals that the regulators aren’t changing their aggressive approach despite losing a series of court cases when they tried to block transactions.
Regulators under administrations dating to President Lyndon Johnson have set out new guidelines, which serve largely as a matter of policy intent because they are not enforced by law. But the sweeping proposals introduced by Lina Khan, the F.T.C. chair, and Jonathan Kanter, the Justice Department’s top antitrust official, have one key distinguishing feature: a road map for judges to understand the regulators’ more progressive views on trustbusting via footnotes about case law — an apparent rebuttal to those who say that the tougher approach is not grounded in U.S. rules.
The guidelines broaden the scope for evaluating deals. The regulators say that current laws are not fit for the contemporary age. “We are updating our enforcement manual to reflect the realities of how firms do business in the modern economy,” Ms. Khan said in a statement, adding that the proposals would enable the F.T.C. to enforce “the mandate Congress has given us and the legal precedent on the books.”
The guidelines take into account how big dominant platforms can use their scale to entrench market power and stamp out nascent competition. (Critics of this approach argue that it is nearly impossible to know what threat young technologies may pose in the future.)
The proposals also suggest that regulators assess the cumulative effect of multiple deals, which could have implications for the private equity industry. And the guidelines aim to examine how deals affect employees, not just consumers.
The new rules continue the Biden administration’s wider fight against consolidation. “Competition is central to capitalism,” Lael Brainard, the director of the National Economic Council said in a speech this month. Alongside the new merger rules, the White House on Wednesday announced a new enforcement group to crack down on price gouging in food and agricultural markets.
Can the regulators get the courts on their side? Regulators have had some success pushing back against deals, but the courts have often disagreed with their views on deal making. The F.T.C. and the Justice Department have lost several lawsuits, most notably a move to block Microsoft’s $70 billion acquisition of Activision Blizzard.
What’s next? The guidelines will be subject to a 60-day comment period. Beyond that, the agencies will have to persuade the courts to agree with their interpretation of precedent. And deal makers will need to decide what battles they’re prepared to fight.
HERE’S WHAT’S HAPPENING
Meta and Microsoft team up on A.I. The social media giant will distribute a version of its technology available for free to commercial users for the first time via Microsoft’s Azure cloud computing platform. Microsoft also introduced a $30-per-month A.I. subscription for its Word, Excel and Teams users, sending shares soaring to a record high on Tuesday.
Senators plan to propose stock-ownership limits on lawmakers and federal officials. A forthcoming bill by Kirsten Gillibrand, Democrat of New York, and Josh Hawley, Republican of Missouri, would restrict legislators, their aides, the president, vice president and executive branch employees from owning individual stocks, even in blind trusts, according to The Wall Street Journal. The move comes amid a growing public outcry over policymakers owning shares in companies they regulate.
Donald Trump says he is likely to face another federal indictment. The former president disclosed that he has received a so-called target letter by Jack Smith, the special counsel investigating him over efforts to overturn the 2020 election results. It’s unclear how new criminal charges would affect Trump’s standing in campaign polls or fund-raising.
Britain’s antitrust regulator provisionally clears Broadcom’s takeover of VMware. The Competition and Markets Authority found that the $69 billion takeover of VMware, a corporate software maker, wouldn’t reduce competition. The agency is still negotiating with Microsoft and Activision Blizzard over potential changes to their $70 billion deal, after having moved to block it.
Michael Moritz leaves Sequoia
Michael Moritz, who has built a legacy as one of Silicon Valley’s leading venture capital investors, is leaving Sequoia Capital after nearly 38 years. Roelof Botha, the firm’s managing partner, announced the news to its limited partners in a memo this morning that has been seen by DealBook.
Mr. Moritz chronicled the early days of the internet. He was a reporter at Time magazine and became San Francisco bureau chief just as some of today’s tech behemoths were starting out. His work included books about Steve Jobs and Apple.
The venture capitalist had some big wins. He joined Sequoia in 1986 and led its investments in companies including Google, Yahoo, PayPal and Stripe. He has served as a partner — he gave up day-to-day management in 2012 after disclosing he was diagnosed with an unspecified medical condition — and chair.
Mr. Moritz is shifting his focus to Sequoia Heritage, the wealth management unit seeded in part by Mr. Moritz and Doug Leone, Sequoia’s former global managing partner. Mr. Botha said that Mr. Moritz would continue to represent the firm at a handful of companies but would be replaced on the boards over time.
His departure is the latest shift at Sequoia. The firm announced last month that it would split into three separate partnerships, hiving off the China business and spinning out its India and Southeast Asia operations. The U.S. and European business will retain the Sequoia brand.
Is Kim Kardashian’s clothing brand preparing to go public?
Skims, the clothing brand co-founded by Kim Kardashian, has raised $270 million in its latest fund-raising round, DealBook’s Michael de la Merced is first to report, valuing the company at $4 billion.
It’s yet another haul by the four-year-old company to help maintain its rapid growth. But it may also spur questions about whether Skims is setting itself up for another milestone: an I.P.O.
Skims has grown rapidly. The company, which is now profitable, is on track for $750 million in sales this year, up from $500 million in 2022. That was driven in large part by its expansion beyond shapewear into loungewear, swim and more.
The company, which got its start in e-commerce, is also pushing into physical retail: It plans to open flagship locations next year, in Los Angeles and New York, after opening up outposts inside stores including Nordstrom and Saks.
The round was led by Wellington Management, an asset manager known for investing in start-ups close to going public. The latest round brings Skims’s fund-raising total to $670 million.
Ms. Kardashian — who was certified a billionaire after a 2021 investment round — is still the company’s biggest shareholder; she and the company’s C.E.O., Jens Grede, together own a majority stake.
An I.P.O. is likely in the company’s future. In addition to bringing on Wellington — whose entrance into a company’s cap table almost always precedes a public offering — the brand has taken other steps consistent with those of many start-ups that eventually pursued a stock sale, including hiring a C.F.O.
Mr. Grede declined to say when Skims would go public — “we certainly have no rush,” he told DealBook — but said that stock market investors had recently shown interest in consumer-facing businesses. And he added that an I.P.O. remained a goal: “At some point in the future, Skims deserves to be a public company.”
A big check on, and from, Tesla’s board
As Tesla faces questions about its corporate governance from Senator Elizabeth Warren, Elon Musk’s car company has agreed to pay $735 million to settle an oversight-related fight.
The proposed payout, one of the largest in a shareholder derivative lawsuit, is meant to settle accusations by the Detroit police and fire retirement fund that the electric carmaker was too bound to its C.E.O. — and, according to the plaintiff, “grossly” overpaid its board as a result.
The lawsuit accused Tesla’s directors of failing to provide proper oversight. By paying its members “unfair and excessive compensation” (in both cash and options grants) from 2017 through 2020, when the suit was filed, the board deprived shareholders of significant sums of money that belonged to the company. It noted that a majority of independent Tesla shareholders rejected changes to director pay in 2014 and 2019.
The lawsuit also accused Mr. Musk of stacking the board with friends and family, ensuring outcomes he wanted and avoiding independent oversight. Among the defendants in the suit are Musk himself; his brother, Kimbal Musk; Robyn Denholm, Tesla’s chair since 2018; James Murdoch, a current director; and the former board members Antonio Gracias, Stephen Jurvetson and Larry Ellison.
In a court filing, Tesla denied wrongdoing, saying that its directors had acted in good faith but agreed to settle to end costly litigation. As part of the proposed settlement, the defendants agreed not to take any compensation for 2021, 2022 and 2023, and the company will provide investors with more detail about how it comes up with board compensation proposals.
There’s one matter the settlement won’t address: Mr. Musk’s $56 billion pay package, which is the subject of a separate lawsuit that could be decided soon.
Carvana secures a debt lifeline
Carvana announced a debt-restructuring agreement that’s intended to ease its ballooning interest payments and help it avoid bankruptcy, as the once high-flying online auto dealer contends with slowing sales and a slumping stock price.
Carvana bet big on a used-car boom. It acquired a car auction business for $2.2 billion in May 2022, just as the Fed was raising interest rates. Carvana sales have dropped drastically since, leaving the company with a glut of inventory, and big losses.
The Times’s Neal Boudette and Joe Rennison report on Carvana’s debt deal, noting the company will also issue about $350 million in new stock.
Its shares leaped nearly 25 percent in premarket trading.
THE SPEED READ
Deals
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The investment giant Blackstone is poised to reach $1 trillion in assets under management, despite scrutiny in recent months over troubles at one of its property funds. (FT)
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Middle Eastern sovereign wealth funds have invested billions to help private equity funds, including KKR, EQT and Brookfield, close deals as other funding dries up. (Bloomberg)
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VanMoof, a Dutch maker of a popular line of electric bikes that raised $128 million two years ago, has filed for bankruptcy. (The Verge)
Artificial intelligence
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Over 8,000 authors signed a letter to tech C.E.O.s asking them not to use their work to train their A.I. tools without compensation. (WSJ)
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Gary Gensler, the S.E.C.’s chair, is worried that A.I. tools could create a herd mentality among investors that could lead to a financial crisis. (Insider)
Best of the rest
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“How Dubai Became ‘the New Geneva’ for Russian Oil Trade.” (FT)
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Gucci’s C.E.O., Marco Bizzarri, is stepping down amid a shake-up at the brand’s parent company, the luxury conglomerate Kering. (NYT)
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Angelo Mozilo, who turned Countrywide Financial into a mortgage giant before becoming vilified for its role in the 2008 financial crisis, died on Sunday. He was 84. (NYT)
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