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The Collapsed Nvidia Arm Deal Is a Warning Shot to Megacap Tech

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In what may be the least surprising news on Wall Street in a while, Nvidia ’s $40 billion deal to buy chip designer Arm from SoftBank has collapsed.

Investors certainly didn’t seem overly surprised, or concerned, as the stock failed to significantly move in premarket trading.

However, the regulatory unraveling of such a massive deal may be a cautionary tale, or even a warning shot to other megacap tech companies.

It’s great being a global company but that also comes with regulatory scrutiny from around the world. The Federal Trade Commission sued to block the acquisition in December, citing competition concerns and all but ending hopes for a deal. But it was also facing investigations by regulators in the U.K., Europe, and China.

Those hurdles became too much. The big win for antitrust regulation raises questions over the ability of Big Tech to expand through mergers and acquisitions.

Regulators aren’t afraid to show their teeth even when faced with the biggest semiconductor deal in history. It stands to reason that they will get those same teeth into Microsoft ’s $68.7 billion deal to buy videogame maker Activision Blizzard as well as any move for Peloton Interactive , with Apple and Amazon both mentioned as potential suitors.

Each deal is different, of course, but the regulatory intent has been made clear.

As for Nvidia, the company is likely to be largely unfazed. Since announcing the Arm deal, the company has heavily pushed into the metaverse.

The stock has climbed close to 70% in the past year and on Monday its market cap surpassed that of Facebook owner Meta Platforms for the first time—another tech giant jockeying to be a major player in the metaverse.

Callum Keown

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BP Posts Bumper Profit, New Round of Buybacks

Surging oil and gas prices last year helped BP post its highest profit since 2012, allowing the company to reduce debt and announce more share buybacks.

“Underlying replacement cost profit,” the company’s definition of net earnings, rose to $4.1 billion in the last quarter of 2021, above analysts’ estimates. Profit for the whole year jumped to $12.8 billion after a $5.7 billion loss the year before, the group said.
BP also said it would accelerate its energy transition and increase its spending on low-carbon and renewables energy, adding it hopes to achieve net-zero emissions earlier than its 2050 goal. Capital spending will increase to $14-to-$15 billion this year, the group said.
The group promised $4.15 billion worth of buybacks for this year, $1.5 billion more than previously expected.

What’s Next: BP’s bumper profit come after rivals such as Chevron , Exxon Mobil , and Shell recently reported similar results, mostly explained by rocketing crude prices. It is likely to fuel the debate over whether to slap a windfall tax on Big Oil.

Pierre Briançon

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Frontier’s $6.6B Deal for Spirit Creates Ultra-Low-Fare Airline

Frontier Group struck a deal for Spirit Airlines to create an ultra-low-fare airline with routes across the U.S., putting it firmly in competition with higher-priced carriers such as American Airlines , Delta Air Lines , Southwest Airlines , and United Airlines as the industry gears up for a surge in travel demand.

The combined airline would have more than 1,000 daily flights to 145 destinations, including locations in Latin America, the Caribbean, and small and midsize U.S. cities. Before the pandemic, Spirit and Frontier were the seventh- and eighth-largest by traffic, The Wall Street Journal reported.
The $6.6 billion transaction includes net debt and operating lease liabilities. At $25.83 per Spirit share, the price is 19% over Spirit’s closing price on Friday. Frontier shareholders would own 51.5%, and Spirit 48.5%.
The companies said the deal would deliver $1 billion in annual consumer savings. While the new airline could lower fares in some markets, travel experts don’t expect it to stop charging fees for seat selection or bringing a carry-on bag, for which other carriers don’t charge, MarketWatch reported.
Cowen airlines analyst Helane Becker noted that Frontier’s flights serve the Western U.S., while Spirit’s routes serve the Eastern U.S. and the Caribbean. Both fly to Mexico, and Central and South America, but “there isn’t a significant amount of route overlap,” for regulators to block the deal.

What’s Next: Pending approval by regulators and Spirit shareholders, the merger is expected to close in the second half of 2022. The new airline has more than 350 Airbus aircraft on order.

Callum Keown and Janet H. Cho

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Mask Mandates Ending in Previous Covid-19 Hot Spots

The governors of New Jersey, Connecticut, and Delaware are ending mask-wearing requirements for indoor locations and schools, as the number of new Covid-19 infections continues to dwindle and states look to return to life and business as usual.

New Jersey Gov. Phil Murphy set Mar. 7 as the end of mandates for schools and child care settings, and Connecticut Gov. Ned Lamont set Feb. 28 as the end of Connecticut’s statewide mandate. Delaware Gov. John Carney said the universal indoor mask mandate ends Friday at 8 a.m.
Murphy said Covid-19 hospitalizations have dropped by more than one-third from last week, intensive care unit numbers and ventilator counts “are tailing off considerably,” and that out of more than 1.4 million students, only about 2,650 student cases have been linked directly to in-school spread.
The New Jersey Education Association said that while it was “cautiously optimistic” that mask requirements can be relaxed based on current trends, Murphy should consider restoring the mandate if conditions change.
Evidence is growing that the Omicron-variant-driven surge is waning. The weekly U.S. average of new Covid-19 infections dipped to 293,000 on Monday, down 59% from two weeks ago and the first time this year it is below 300,000, according to the Journal. Hospitalizations are below 120,000.

What’s Next: New York’s statewide mandatory masking rules for indoor public spaces are set to expire Thursday, and Gov. Kathy Hochul is expected to make an announcement Wednesday about rules for businesses and indoor recreation.

Janet H. Cho

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‘Matrix’ Co-Producer Sues Warner Bros. Over HBO Max Release

Village Roadshow Entertainment Group, co-producer of The Matrix Resurrections, sued Warner Bros., saying the studio’s decision to release the movie on HBO Max streaming at the same time as it hit theaters last year hurt theater-ticket sales.

The 50-page lawsuit, filed Monday in Los Angeles Superior Court, says the studio moved the release date to 2021 from 2022 to attract subscribers to its HBO Max streaming platform. It also says Warner Bros. released its 2021 movies on HBO Max knowing it would “decimate” box office sales.
A Warner Bros. representative told Barron’s: “This is a frivolous attempt by Village Roadshow to avoid their contractual commitment to participate in the arbitration that we commenced against them last week. We have no doubt that this case will be resolved in our favor.”
In July, actress Scarlett Johansson sued Walt Disney Co. after it released Marvel’s Black Widow on its Disney+ streaming service at the same time the film opened in theaters. Johansson’s compensation was tied to box office results.
Johansson said her agreement with Disney‘s Marvel Entertainment guaranteed an exclusive release in theaters and was seeking as much as $80 million in damages. Disney denied the breach of contract but settled with her for an undisclosed sum in September.

What’s Next: The Matrix lawsuit said WarnerMedia benefits by driving up the value of its subsidiary, just as WarnerMedia prepares to spin off and merge with Discovery to create a new company called Warner Bros. Discovery. AT&T is expected to close that deal in the coming weeks.

Janet H. Cho

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Take-Two Forecasts Key Sales Measure Below Expectations

Take-Two Interactive Software CEO Strauss Zelnick told Barron’s that the game maker had strong performance in its Grand Theft Auto, Red Dead Redemption, and NBA 2K franchises, but it forecast net bookings in the fiscal fourth quarter between $808 million and $858 million, below expectations for $924.9 million.

Net bookings for the fiscal third quarter, a form of adjusted revenue, came in at $866 million, short of Wall Street estimates for $867.8 million, according to FactSet. Non-GAAP earnings in the fiscal third quarter were $1.32, compared with analysts’ estimate of $1.12.
The company kicked off a wave of videogame consolidation earlier this year when it announced a deal to buy mobile game firm Zynga . Take-Two expects that deal to close in the first quarter of the fiscal year that ends in March 2023.
In January, Xbox-maker Microsoft said it had agreed to buy Take-Two rival Activision Blizzard , and then Sony , which makes PlayStation, announced a deal to buy game studio Bungie.
Take-Two’s Zelnick told Barron’s he wasn’t concerned about the change in competition. “I’m not sure I see a significant impact on the landscape,” he said.

What’s Next: Take-Two is planning a Mar. 15 launch of the highly anticipated remastered version of Grand Theft Auto V on PlayStation 5 and Xbox Series X and Series S systems.

Connor Smith and Liz Moyer

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