The New Frontier in Antitrust Fights?

The next big antitrust fight?

Frontier Airlines said today it plans to buy a rival budget airline, Spirit, for $2.9 billion in stock and cash. The companies pledged that merging would create jobs and save consumers money, but the deal is almost sure to draw tough scrutiny from the Biden administration’s emboldened antitrust enforcers.

It’s a deal pitched on lowering fares. Frontier and Spirit spent much of their deal announcement touting the potential benefits of their union for consumers: A deal would provide $1 billion in annual cost savings, and allow the merged company to offer new routes and more reliable service. The transaction could also directly create 10,000 new jobs by 2026, the airlines said.

“We are thrilled to join forces with Frontier to further democratize air travel,” Ted Christie, Spirit’s C.E.O., said, arguing that combining with Spirit would help the two better compete against bigger rivals like American, Delta and United. Bill Franke, Frontier’s chairman, runs Indigo Partners, the airline’s largest shareholder, and previously helped turn around Spirit when he was chairman there. He is “proud to partner with them in creating a disruptive airline,” the merger announcement said.

Expect skepticism from the Biden administration, which is increasingly challenging mergers in court on the belief that they reduce competition and raise prices. Biden officials have already begun challenging alliances in the airline industry, which critics say has become too consolidated after a series of mergers. The billions in emergency grants and loans that the government gave to airlines during the pandemic also put a spotlight on the industry and its business practices.

Shares in Spirit jumped in premarket trading, though they remained below Frontier’s bid of $25.83 per share, implying some skepticism that the transaction will be completed. That said, shares in other airlines were up on the news, which is not usually how shares of competitors react to the potential entry of a “disruptive” new challenger. It’s another sign that Frontier and Spirit could face a challenge in convincing regulators that their merger would actually lead to stiffer competition and lower prices.

HERE’S WHAT’S HAPPENING

Spotify has a $100 million response to its Joe Rogan controversy. The streaming platform said it would invest in licensing more content from “historically marginalized groups,” after Rogan apologized for his past use of a racial slur. Dozens of episodes of his show were deleted from the platform.

Peloton soars on potential takeover interest. Shares in the embattled home fitness company were up over 20 percent in premarket trading following news reports that Amazon and Nike, among others, are weighing bids. But a sale is unlikely unless John Foley, Peloton’s co-founder and C.E.O., is on board, since he and other insiders control a majority of votes.

Ottawa declares an emergency over antigovernment protests. Officials said the city was under “siege” by truckers and others demonstrating against government policies, including vaccination mandates. Meanwhile, Australia will reopen its borders to vaccinated visitors this month, and the C.E.O. of Delta Air Lines asked federal officials to ban unruly passengers, including those refusing to heed in-flight mask mandates.

Peng Shuai meets with the Olympics chief. The Chinese tennis player, who largely disappeared from public view after accusing a government official of sexual abuse, met with Thomas Bach, the president of the International Olympic Committee, in Beijing over the weekend. The meeting was meant to allay concerns about Peng’s safety, but many questions remain.

The N.F.L.’s commissioner says diversity efforts have failed. In a memo to the league’s 32 teams, Roger Goodell said that the results of N.F.L. policies to improve diversity within coaching staffs “have been unacceptable.” They are Goodell’s first public comments since a former head coach sued the league for racial discrimination.

Wall Street’s wee hours are getting wilder

Peloton’s soaring share price after markets closed on Friday was just one of several huge after-hours moves in recent days. Others included Facebook’s 22 percent plunge and Amazon’s 17 percent rise. What’s going on?

U.S. stock markets are officially open from 9:30 a.m. to 4 p.m. Eastern. But traders can buy and sell on various electronic trading networks at any hour. Given lower volumes, trading can be more volatile when markets are closed. Recently, after-hours swings have been getting even bigger.

Some of the after-hours volatility reflects the current state of economic uncertainty. After all, volatility during regular market hours is up as well. A mix of rising inflation and slowing profits, along with the lingering effects of the pandemic, has unsettled markets in recent weeks.

Computer trading may also be a factor. Unlike humans, computers don’t mind working all night. Last year, researchers at the New York Fed said computer traders, and the start of trading in Europe, were largely responsible for (relatively predictable) overnight swings in stock prices. But some see a more nefarious explanation: Bruce Knuteson, a former quantitative analyst at the hedge fund D.E. Shaw, has published a number of papers that accuse quant funds of taking advantage of after-hours trading to manipulate stock prices.

Wild swings in stock prices after hours give the impression that something is amiss, even if it’s not. Some say that operators of after-hours trading venues should act as market makers do during normal trading hours, stepping in between buyers and sellers to smooth out movements. Others want the S.E.C. to take a closer look at overnight electronic markets, as it has with dark pools and other alternative trading venues, to assure investors that nothing fishy is going on.

Modern Monetary Theory is put to the test

The economist Stephanie Kelton helped popularize Modern Monetary Theory, an emerging school of thought that is undergoing its first major test during the pandemic. A weekend profile of Kelton in The Times got economists talking, namely about whether the theory has passed the test or not.

What’s Modern Monetary Theory? M.M.T. is reminiscent of Keynesian economics, whose proponents believe that governments should spend money in recessions. M.M.T. supporters believe that the government can spend as much as it wants, whenever it wants, without repercussions like higher inflation or spiraling interest rates — as long as the economy has capacity to absorb the spending.

Is the theory holding up? The government spent trillions during the pandemic and inflation is now rising faster than it has in decades. Does that mean M.M.T. has failed its test? If prices are rising because of pandemic-related supply issues, then the jury is still out. And Kelton argues that true M.M.T. would have more carefully assessed the economy’s capacity, and designed stabilizers like higher taxes to cool things down when they started to overheat. She also notes that interest rates have not skyrocketed after the large borrowing binge, as many critics warned they would.

What do economists think? A selection of reactions to Kelton’s profile over the weekend:

• Larry Summers, the former Treasury secretary and adviser to President Obama, wrote on Twitter: “There are things MMT says that are true and things it says that are new but unfortunately there is no overlap.”

• Claudia Sahm of the Jain Family Institute, who is a former Fed economist, said that Kelton’s critics “know damn well that MMT is rising in prominence and it’s driving the policy debate in a good direction — away from debt-level obsessions and hatred of government programs.”

• Michael Strain of the American Enterprise Institute said M.M.T.’s “big claim was that massive deficits would not lead to inflation. Huge fail.”

• Kelton responded: “MMT has obviously proven correct. Its big claim was that massive deficits would not lead to runaway interest via bond vigilantes or insolvency. Huge win.”

Assessing the “S” in E.S.G.

Investors are increasingly focused on how companies manage environmental, social and governance issues. When it comes to E.S.G., the “S” often gets short shrift, sometimes leaving major funds unwittingly supporting practices they explicitly oppose.

“The ‘S’ is just much harder generally because it is harder to define and measure,” said Michael Posner, who runs the Center for Business and Human Rights at N.Y.U.’s Stern School of Business. “So everyone makes it up as they go along.”

What counts as social? The category is expansive, encompassing corporate policies on hiring, health care, labor and human rights. “You can measure air quality but you can’t easily figure out harassment,” Posner noted. (Indeed, a major new report has crunched the numbers on companies’ “net zero” emissions and found some wanting.) And when companies track social measures — like Meta on content moderation or Coca-Cola on human rights in China — they often claim the information is proprietary, Posner said.

E.S.G. investing is a multitrillion-dollar business. JPMorgan Chase said last year that E.S.G. investing had gone mainstream, with E.S.G.-linked funds attracting more new money than other strategies. In June, the bank acquired OpenInvest, which creates “values based” investment services. It’s one of many firms that have emerged to measure E.S.G., like Just Capital, a research group backed by billionaire investor Paul Tudor Jones, which ranks the top 100 E.S.G. stocks.

But experts warn there is more to E.S.G. than meets the eye. The momentum and money flowing to E.S.G. “hides the ambiguity and complexity of the ‘S’ for investors,” said Sancia Dalley, who leads investor engagement at the nonprofit RFK Human Rights. Private prison companies are a prime example, she said. Even sophisticated investors can’t easily figure out contractual ties in the industry, so sometimes they believe they have divested from the sector but continue to back food or service suppliers. “The ‘S’ includes many of the tough issues investors are reluctant to touch,” Dalley said.

THE SPEED READ

Deals

• Toshiba plans to break itself into two companies, not three, as part of a revised corporate revamp. (WSJ)

• Two more big shareholders of Unilever called on the consumer goods giant to weigh changes, including breaking itself up. (FT)

• The TV broadcaster Tegna is reportedly in advanced talks to sell itself to its biggest shareholder, Standard General, for about $5.3 billion. (Bloomberg)

• Credit Suisse’s latest financial innovation is selling debt securities linked to loans that financed customers’ yachts and private jets. (FT)

Policy

• The Biden administration released a report outlining several dozen steps it intends to take to promote union membership. (NYT)

• Yale will form a committee to evaluate gift policies to ensure that wealthy donors don’t impinge on academic freedom. (NYT)

• British officials warned that they will tightly regulate the so-called metaverse. (FT)

• “This Is the Only Goldman Banker Standing Trial for 1MDB” (Bloomberg)

Crypto

• This wireless internet company may be proof of a practical use for decentralized crypto technology. (NYT)

• The recent plunge in cryptocurrency prices may dent the industry’s surging job market. (Bloomberg)

• Expect a bevy of crypto company ads during the Super Bowl. (WSJ)

Best of the rest

• Experts are increasingly worried about hard-to-find hardware errors in the tiny chips that power today’s vast computing services. (NYT)

• A man charged with kidnapping the housekeeper of a ranch owned by Mike Bloomberg said he was looking for the billionaire or his daughters. (AP)

• Avocado prices are climbing. Blame the Super Bowl. (Bloomberg)

• Big Wall Street bonuses are driving sales in yachts, Porsches and property. (Insider)

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