SE agreed to revive orders for close to 75 aircraft from Qatar Airways after reaching a settlement with the Middle East airline over a long-running dispute about chipping paint on its A350 wide-body models.
A spokesman for Airbus said it would now go ahead with delivering 50 A321 narrow-bodies and 23 remaining A350 twin-aisles previously ordered by Qatar.
The orders had been scrapped as part of an escalating, multibillion-dollar legal battle over the paint issue, which the airline had claimed could pose a safety concern. Airbus repeatedly denied the claims.
Airbus and Qatar Airways earlier Wednesday said in a joint statement that they had reached an “amicable and mutually agreeable settlement” in relation to the legal dispute. The companies didn’t disclose the details of the settlement other than to say the agreement didn’t amount to an admission of liability from either party. A program to repair the degradation on Qatar’s current fleet is under way, the companies added.
Qatar Airways had previously grounded 29 of its A350 jets and refused new deliveries over the issue, reducing its capacity amid a surge in travel to Doha for the 2022 FIFA World Cup. The airline has said the peeling paint was exposing the meshed copper foil that is designed to protect the aircraft from lightning strikes.
That led Qatar Airways to initiate legal proceedings against Airbus in London, in which the carrier had sought damages partly based on the impact on its operations from not being able to use the aircraft. A possible trial had been scheduled for later this year.
While the paint issue has also affected other A350s in service at other Airbus customers, only Qatar Airways had taken the step to unilaterally ground the aircraft. Airbus and the European Union Aviation Safety Agency, which oversees the Toulouse, France-based plane maker, have insisted that the issue is only cosmetic.
The situation had led to a broad fallout between Airbus and one of its biggest customers. In August, Airbus ended all new business with Qatar Airways, canceling contracts valued at more than $13 billion according to the latest available list prices and before the hefty discounts plane makers typically give to customers.
After Airbus canceled a deal to sell Qatar Airways 50 of its A321 jets, the Gulf carrier ordered up to 50 of rival
Boeing Co.
’s 737 MAX 10 single-aisle jets within two weeks. Qatar Airways had previously canceled most of an existing MAX order in 2020 after receiving five of the planes.
Airbus lawyers alleged that Qatar Airways had exaggerated concerns about the issue in an attempt to claim compensation and refuse delivery of aircraft that it didn’t need as the pandemic hit demand for air travel. The plane maker complained in court that the airline and its regulator, the Qatar Civil Aviation Authority, had failed to provide documentation that showed the technical justifications behind grounding the aircraft.
Qatar Airways has said it provided images of the damage, which it purported showed the scale of the issue and the potential safety risk.
Qatar Airways Chief Executive
Akbar Al Baker
has long had a reputation as a tough customer, publicly lashing out at both Airbus and Boeing when he perceives delivery or quality issues.
to resume pumping oil from its Venezuelan oil fields after President Nicolás Maduro’s government and an opposition coalition agreed to implement an estimated $3 billion humanitarian relief program and continue dialogue in Mexico City on efforts to hold free and fair elections.
Following the Norwegian-brokered agreement signed in Mexico City, the Biden administration granted a license to Chevron that allows the California-based oil company to return to its oil fields in joint ventures with the Venezuela national oil company, Petróleos de Venezuela SA. The new license, granted by the Treasury Department, permits Chevron to pump Venezuelan oil for the first time in years.
Biden administration officials said the license prohibits PdVSA from receiving profits from Chevron’s oil sales. The officials said the U.S. is prepared to revoke or amend the license, which will be in effect for six months, at any time if Venezuela doesn’t negotiate in good faith.
Venezuela produces some 700,000 barrels of oil a day, compared with more than 3 million in the 1990s.
Photo:
Isaac Urrutia/Reuters
“If Maduro again tries to use these negotiations to buy time to further consolidate his criminal dictatorship, the United States and our international partners must snap back the full force of our sanctions,” said Sen.
Robert Menendez
(D., N.J.), the chairman of the Senate Foreign Relations Committee.
The U.S. policy shift could signal an opening for other oil companies to resume their business in Venezuela two years after the Trump administration clamped down on Chevron and other companies’ activities there as part of a maximum-pressure campaign meant to oust the government led by Mr. Maduro. The Treasury Department action didn’t say how non-U.S. oil companies might re-engage with Venezuela.
Venezuela produces some 700,000 barrels of oil a day, compared with more than 3 million barrels a day in the 1990s. Some analysts said Venezuela could hit 1 million barrels a day in the medium term, a modest increment reflecting the dilapidated state of the country’s state-led oil industry.
Some Republican lawmakers criticized the Biden administration’s decision to clear the way for Chevron to pump more oil in Venezuela. “The Biden administration should allow American energy producers to unleash DOMESTIC production instead of begging dictators for oil,” Rep. Claudia Tenney (R., N.Y.) wrote on Twitter.
Biden administration officials said the decision to issue the license wasn’t a response to oil prices, which have been a major concern for President Biden and his top advisers in recent months as they seek to tackle inflation. “This is about the regime taking the steps needed to support the restoration of democracy in Venezuela,” one of the officials said.
The Wall Street Journal reported in October that the Biden administration was preparing to scale down sanctions on Venezuela’s regime to allow Chevron to resume pumping oil there.
Jorge Rodriguez led the Venezuelan delegation to the talks in Mexico City, where an agreement was signed.
Photo:
Henry Romero/Reuters
Under the new license, profits from the sale of oil will go toward repaying hundreds of millions of dollars in debt owed to Chevron by PdVSA, administration officials said. The U.S. will require that Chevron report details of its financial operations to ensure transparency, they said.
Chevron spokesman Ray Fohr said the new license allows the company to commercialize the oil currently being produced at its joint-venture assets. He said the company will conduct its business in compliance within the current framework.
The license prohibits Chevron from paying taxes and royalties to the Venezuelan government, which surprised some experts. They had been expecting that direct revenue would encourage PdVSA to reroute oil cargoes away from obscure export channels, mostly to Chinese buyers at a steep discount, which Venezuela has relied on for years to skirt sanctions.
“If this is the case, Maduro doesn’t have significant incentives to allow that many cargoes of Chevron to go out,” said
Francisco Monaldi,
director of the Latin America Energy Program at Rice University’s Baker Institute for Public Policy. Sending oil to China, even at a heavy discount, would be better for Caracas than only paying debt to Chevron, he said.
The limited scope of the Chevron license is seen as a way to ensure that Mr. Maduro stays the course on negotiations. “Rather than fully opening the door for Venezuelan oil to flow to the U.S. market immediately, what the license proposes is a normalization path that is likely contingent on concessions from the Maduro regime on the political and human-rights front,” said
Luisa Palacios,
senior research scholar at the Columbia University Center on Global Energy Policy.
The license allows Venezuelan oil back into the U.S., historically its largest market, but only if the oil from the PdVSA-Chevron joint ventures is first sold to Chevron and doesn’t authorize exports from the ventures “to any jurisdiction other than the United States,” which appears to restrict PdVSA’s own share of the sales to the U.S. market, said Mr. Monaldi.
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The license prohibits transactions involving goods and services from Iran, a U.S.-sanctioned oil producer that has helped Venezuela overcome sanctions in recent years. It blocks dealings with Venezuelan entities owned or controlled by Western-sanctioned Russia, which has played a role in Venezuela’s oil industry.
Jorge Rodriguez,
the head of Venezuela’s Congress as well as the government’s delegation to the Mexico City talks, declined to comment on the issuance of the Chevron license.
Freddy Guevara,
a member of the opposition coalition’s delegation, said the estimated $3 billion in frozen funds intended for humanitarian relief and infrastructure projects in Venezuela would be administered by the United Nations. He cautioned that it would take time to implement the program fully. “It begins now, but the time period is up to three years,” he said.
The Venezuelan state funds frozen in overseas banks by sanctions are expected to be used to alleviate the country’s health, food and electric-power crises in part by building infrastructure for electricity and water-treatment needs. “Not one dollar will go to the vaults of the regime,” Mr. Guevara said.
Chevron plans to restore lost output as it performs maintenance and other essential work, but it won’t attempt major work that would require new investments in the country’s oil fields until debts of $4.2 billion are repaid. That could take about two to three years depending on oil-market conditions, according to people familiar with the matter.
PdVSA owes Chevron and other joint-venture partners their shares of more than two years of revenue from oil sales, after the 2020 U.S. sanctions barred the Venezuelan company from paying its partners, one of the people said. The license would allow Chevron to collect its share of dividends from its joint ventures such as Petropiar, in which Chevron is a 30% partner.
Analysts said the new agreement raises expectations that will take time and work to fulfill. “Ensuring the success of talks won’t be easy, but it’s clear that offering gradual sanctions relief like this in order to incentivize agreements is the only way forward. It’s a Champagne-popping moment for the negotiators, but much more work remains to be done,” said Geoff Ramsey, Venezuela director at the Washington Office on Latin America.
—José de Córdoba and Ginette Gonzalez contributed to this article.
Write to Collin Eaton at collin.eaton@wsj.com and Andrew Restuccia at andrew.restuccia@wsj.com
California’s Legislature passed a bill Monday to create a government panel that would set wages for an estimated half-million fast food workers in the state, a first-in-the-U.S. approach to workplace regulation that labor union backers hope will spread nationally.
The bill, known as the Fast Act, would establish a panel with members appointed by the governor and legislative leaders composed of workers, union representatives, employers and business advocates. They would set hourly wages of up to $22 for fast food workers starting next year and can increase them annually by the same rate as the consumer-price index, up to a maximum of 3.5%.
A previous version of the bill passed by the state Assembly in January also allowed the council to oversee workplace conditions such as scheduling and made restaurant chains joint employers of their franchise’s employers, potentially opening them to liability for labor violations.
Representatives for companies including
McDonald’s Corp.
,
Yum Brands Inc.
and
Chipotle Mexican Grill Inc.
succeeded in having those provisions removed in the state Senate via amendments over the past week, though they still oppose the bill.
“This is the biggest lobbying fight that the franchise sector has ever been in,” said
Matthew Haller,
president of the International Franchise Association, a trade group whose members own many fast food restaurants.
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A University of California, Riverside School of Business study commissioned by the franchisee association found that setting minimum wages between $22 and $43 would generate a 60% increase in labor costs and raise fast-food prices by about 20%.
California’s current minimum wage is $15 and is set to increase by 50 cents on Jan. 1.
The final version of the Fast Act passed both houses of the Democratic-controlled state Legislature on Monday. In both the Assembly and the Senate, all of the “yes” votes came from Democrats and every Republican who voted opposed the bill.
Democratic Gov.
Gavin Newsom
now has until Sept. 30 to decide whether to sign or veto the bill.
Mr. Newsom hasn’t taken a public stance on the current version of the bill, but his Department of Finance opposed the original version.
Labor unions backing the measure have long struggled to organize fast food workers, in part because the industry’s franchise model means there are so many different employers.
California lawmakers first floated the bill last year, with proponents arguing that tighter regulations were needed to protect fast food workers, who are overwhelmingly Black or Latino and who they say experience unpaid overtime and other labor violations.
The average U.S. home earned more last year than the average American worker. Prices for homes, groceries and gas are rising faster than Americans’ wages and that may be why sentiment and confidence have been so low recently. WSJ’s Dion Rabouin explains. Photo: Joe Raedle/Getty Images
Despite the recent changes, proponents said the bill is still a significant step forward. Lorena Gonzalez Fletcher, a former Democratic legislator who introduced the bill when she was in the Assembly, said it moves California closer to a labor model used in Europe where unions negotiate for wages and work conditions in an entire sector, rather than company-by-company.
“It’s still a big bold idea. And just the notion of giving workers a voice at the table will be fundamentally different for those workers,” said Ms. Gonzalez Fletcher, who now leads the California Labor Federation, the state’s largest union umbrella group.
The recent amendments call for the council to shut down in 2028 unless it is renewed, though inflation-adjusted wage increases for workers would continue.
The bill covers fast food restaurants that are part of a chain, that have limited or no table service and where customers order their food and pay before eating. The chain must have 100 or more locations nationally, up from 30 in a previous bill version.
California accounts for around 14% of total U.S. restaurant sales, and policy in the state tends to affect the rest of the sector, Citigroup Global Markets Inc. analysts wrote in a client note earlier this month.
Service Employees International Union President
Mary Kay Henry
said she hoped the bill would be a catalyst for similar movements across the country.
Investors have begun to ask about the act’s potential implications for restaurant chains at a time when companies are struggling with high food and labor costs, Wall Street analysts said.
“Obviously, we think it’s problematic on many, many fronts,” said
Paul Brown,
chief executive of Dunkin’ and Arby’s owner Inspire Brands Inc., in an interview. “I think it’s actually trying to solve a problem that doesn’t exist.”
have together spent more than $1 million to lobby lawmakers between 2021 and June 30 of this year, primarily on the Fast Act, state records show.
The International Franchise Association, which represents some 1,200 franchise brands, has spent $615,000 lobbying against the Fast Act and other legislation in that time.
Disclosures for lobbying spending since July 1 aren’t due until later this year, but industry advocacy against the bill has ramped up considerably during that time, people familiar with the effort said.
Labor unions have collectively spent more than $5 million to lobby the Legislature since the beginning of 2021, mostly on the Fast Act, state records show.
McDonald’s has encouraged franchisees around the country to email California lawmakers urging them to vote against the bill, according to a message viewed by The Wall Street Journal.
State Sen. Shannon Grove, a Republican, said on the Senate floor Monday that McDonald’s representatives told her that if the Fast Act becomes law, the company could stop expanding in California or leave altogether.
“Could we really survive without the golden arches?” Ms. Grove said.
Write to Heather Haddon at heather.haddon@wsj.com and Christine Mai-Duc at christine.maiduc@wsj.com
to offer the entertainment company’s Paramount+ streaming service to subscribers of Walmart’s membership program.
Walmart has been exploring a subscription video-streaming deal to draw more people to Walmart+ as it seeks to challenge
Amazon.com Inc.,
which has grown its own Prime membership program to about 200 million global members.
The companies agreed to a 12-month exclusivity agreement and a two-year deal that would give Walmart+ members access to Paramount’s ad-supported streaming service, according to people familiar with the deal. The perk will be available starting in September, Walmart said.
Walmart’s announcement on Monday came after The Wall Street Journal reported the two companies had reached an agreement. Walmart is scheduled to announce quarterly earnings on Tuesday.
The deal is the latest tie-up in the fast-changing streaming industry, where a growing group of companies are looking to bundle content to draw viewers or customers. YouTube is planning to launch an online store for streaming video services and has renewed talks with entertainment companies about participating in the platform. YouTube, which is owned by
Alphabet Inc.,
would join
Apple Inc.,
Roku Inc.
and Amazon, which all have hubs to sell streaming video services.
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Walmart executives have held talks in recent weeks to discuss a streaming deal with executives at
Walt Disney Co.
,
Comcast Corp.
and Paramount Global, according to people familiar with the matter.
While this partnership is new, Paramount and Walmart have worked together for years. Paramount has had an office in Bentonville, Ark., dedicated to Walmart, which historically has been a big seller of its consumer products and home entertainment.
Paramount Global runs the Paramount+ service, which has shows such as “Halo,” the “Star Trek” series and “Paw Patrol.” The company said this month that Paramount+ had more than 43 million subscribers at the end of its latest quarter.
Walmart introduced Walmart+ in 2020 and aims to use the service to add new streams of revenue beyond selling goods, as well rival the success Amazon has had with its Prime membership services. A subscription to Walmart+ costs $12.95 a month or $98 a year and includes free shipping on online orders and discounts on gasoline. The retailer has added perks to build interest, such as six months of the
Spotify
music-streaming service.
Walmart said Monday that Walmart+ has had positive membership growth every month since its launch, without specifying membership numbers. A Morgan Stanley survey in May said the service has about 16 million members, compared with about 15 million the previous November.
Amazon has invested heavily to ramp up its own Prime Video service, adding original programming and live sports. Prime Video is included along with free shipping and other perks in its Prime membership, which costs $14.99 a month or $139 a year in the U.S. Amazon also recently added a year of Grubhub’s restaurant delivery services for Prime subscribers.
The deal would give Paramount+ a new avenue for growth in an increasingly competitive streaming market now that all of the major entertainment companies have streaming offerings and growth in the U.S. among many services, such as
Netflix Inc.,
has started to slow.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
The line between Amazon and Walmart is becoming increasingly blurred, as the two companies seek to maintain their slice of the estimated $5 trillion retail market while chipping away at the other’s share, often by borrowing the other’s ideas. Photos: Amazon/Walmart
HONG KONG—The city’s government cut the Covid-19 quarantine period for inbound travelers to three days from seven, easing a restriction many saw as excessive but falling short of what businesses say is needed to restore the connectivity vital to its role as Asia’s leading global financial center.
From Friday, travelers arriving in Hong Kong will be allowed to leave their quarantine hotels after three days, officials said at a briefing Monday. Over the following four days, they won’t be allowed into places now requiring a vaccine pass, such as gyms, bars and restaurants, but they will be able to go to work, shop at supermarkets and use public transport, provided they test negative for the coronavirus.
The city has been caught between sticking to stringent antivirus controls in line with Beijing’s zero-Covid policy and trying to retain its appeal as an open and globally connected base for business. As most of the world returns to normal, Hong Kong’s border controls and the perceived risk that it may resort to mainland-style lockdowns and other measures have led to public frustration and prompted many skilled workers to leave.
About 80,000 tourists are stranded on the Chinese island of Hainan, which local authorities call “the Hawaii of China,” after a surge in Covid-19 cases triggered a lockdown. All flights leaving the city of Sanya have been canceled since Saturday. Photo: CCTV
While business groups welcomed any cut to quarantine time, they say the restrictions are eating into Hong Kong’s competitive edge as a global financial center and regional base for multinational companies.
“Although a move in the right direction, further reduction of quarantine will accelerate connectivity, reduce business costs for companies, and attract international investment into the city,” said Joseph Armas, chairman of the American Chamber of Commerce in Hong Kong. “Ultimately, our members are hopeful for a zero quarantine or home quarantine direction as Hong Kong must reopen immediately and reconnect with other major cities.”
The shortened quarantine offers welcome relief to residents but is unlikely to benefit business travel or tourism, said
David Graham,
executive director of the British Chamber of Commerce in Hong Kong, a business lobby. A full lifting of quarantine controls is critical for Hong Kong’s economic and business outlook, he said.
Hong Kong’s recently appointed leader, John Lee, said the decision to shorten the quarantine was based on an assessment of the risk to public health, as well as lifestyle and economic considerations.
“It is a balance of factors,” Mr. Lee said. “While we can control the threat to public health, we also want to ensure society can have the maximum degree of economic and social activities so people can go about as normally as possible, and the competitiveness of Hong Kong can be maintained.”
Chief Executive John Lee, flanked by other officials at a briefing Monday, spoke of the need to maintain Hong Kong’s competitiveness.
Photo:
Lam Yik/Bloomberg News
The changes reflect the government’s reading of data showing that after three days people leaving quarantine pose no greater transmission threat than do others in the community. In contrast to the mainland’s no-tolerance policy on Covid cases, daily life has largely returned to normal in Hong Kong, with gyms and bars open—albeit with some restrictions, such as size of gatherings—even with thousands of new daily Covid cases.
While stringent isolation requirements—at one point last year, arrivals had to spend 21 days in hotel quarantine—had more support when the city had zero or very few cases, recent waves that resulted in tens of thousands of new infections every day made quarantine even more exasperating to people wanting to travel in and out of the city.
Mr. Lee and his team didn’t spell out a pathway to further reducing quarantine in the coming months. A crucial milestone comes in November, when Hong Kong plans to host a financial forum and its first Sevens in more than three years—a popular three-day rugby tournament that previously drew thousands of visitors each spring and coincided with conferences and other networking events. Even a truncated quarantine would likely be too much for these types of whirlwind trips to a city once famed for the ease and efficiency of its connections to the rest of the world.
More residents have flown out of Hong Kong’s airport than have arrived every month for the past year to July, with net departures of almost 120,000 in the first quarter of 2022, according to government data compiled by
David Webb,
a retired investment banker and longtime Hong Kong resident.
In a July 1 speech in Hong Kong, Chinese President
Xi Jinping
said that the city must retain its status as an international hub for the country. “The central government fully supports Hong Kong in its effort to maintain its distinctive status and edge, to improve its presence as an international financial, shipping and trading center, to keep its business environment free, open and regulated, and to maintain the common law, so as to expand and facilitate its exchanges with the world,” he said.
Pro-Beijing figures and government officials have since invoked Mr. Xi when pushing plans to open up to the rest of the world, ahead of any relaxation of border controls with the mainland—a goal of the previous administration. Mr. Lee said Monday that his team was still working to resume travel with the mainland.
After the Omicron variant of the coronavirus began to spread globally late last year, Singapore—Hong Kong’s perennial rival as the leading global financial center in Asia—laid out a clear road map from the Covid crisis and gradually removed all travel restrictions.
Singapore has been one of the biggest beneficiaries of Hong Kong’s isolation, with more executives and their families relocating to the city along with some of the marquee events that were another pillar of Hong Kong’s appeal. While many of those moves may prove temporary, the question facing Hong Kong’s leaders now is how to lure people back before the shift becomes permanent.
The shortened quarantine follows earlier easing measures, including the scrapping of a policy to suspend airline routes if a flight carried a certain number of Covid-positive passengers to the city. Visitors and returning residents must still provide proof of a negative PCR test result 48 hours before they board, along with vaccination proof. Unvaccinated visitors face a longer quarantine period.
They must also conduct a rapid test every day until the tenth day of their arrival in the city, along with five PCR tests during that period, according to details published late Monday. Passengers who are allowed to fly without being vaccinated, previously subject to a longer quarantine in Hong Kong, will also follow the “3+4” model, the government said.
Unpredictable availability of quarantine hotels, and a rule barring anyone who is confirmed as a Covid-19 case within two weeks of their flight, have added complexity to travel plans. After Monday’s announcement, many businesses and lobby groups called for the government to urgently provide a road map to zero quarantine.
“Only by jettisoning the word ‘quarantine’ altogether can we really rebuild HK Inc.’s brand,” said Sally Wong, chief executive of the Hong Kong Investment Funds Association. “Many activities such as conferences and meetings are planned months ahead and if the government can throw light on the next step, it would be extremely helpful.”
was “temporarily on hold” because of concerns about fake accounts, a surprise twist that jolted investors and raised questions about his willingness to go through with the $44 billion transaction.
Mr. Musk’s grenade came in a tweet posted at 5:44 a.m. Eastern Time that was followed just over two hours later by another saying he was “still committed to acquisition.” Lawyers close to Mr. Musk urged him to send that follow-up tweet, according to people familiar with the matter.
The initial announcement was unorthodox not just in its timing and format, but because Mr. Musk referenced a recent Twitter disclosure about fake and spam accounts that it has made consistently for years—and because Mr. Musk has already signed an agreement for the purchase and waived detailed due diligence on the deal.
The sudden shake-up fueled questions about whether Mr. Musk is committed to a deal that was struck amid a sharp decline in technology stocks that has made Twitter less valuable on paper than it was a month ago when he made his offer of $54.20 a share. Twitter shares, which were already trading well below that level, closed down 9.7% in afternoon trading at $40.70.
People in Twitter’s camp said Mr. Musk’s first tweet was a surprise and that he hadn’t reached out to the company ahead of time. But they played down its significance and said the second tweet, indicating that the deal is still on, is the one that matters. The company continues working to complete the acquisition and is supplying Mr. Musk with all the relevant information under the terms of the contract, according to a person familiar with Twitter’s response.
Twitter CEO
Parag Agrawal
on Friday said “while I expect the deal to close, we need to be prepared for all scenarios,” a day after he internally announced a hiring freeze and cost cuts.
Mr. Musk was aware of questions about fake and spam accounts on Twitter when he agreed to the acquisition—he has raised concerns about it in his own tweets for years. In Friday’s post on his verified Twitter account, he said: “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.”
He linked to a May 2 report about a Twitter securities filing that said it estimates that false or spam accounts represented fewer than 5% of its daily active users. The company has reported the same figure in its annual reports since it went public in 2013.
It couldn’t be determined if the latest tweets were a negotiating tactic to abandon the transaction or reprice the deal.
The tweets come as many big tech stocks have been falling on Wall Street, including shares of Tesla, which retreated 29% since Mr. Musk’s investment in Twitter became public. Mr. Musk is using his Tesla holdings to help fund the Twitter deal. Meanwhile, Twitter’s stock price had traded below Mr. Musk’s offer price as investors wondered if the deal might get reworked or not get done.
Susannah Streeter,
an investment analyst at
Hargreaves Lansdown,
said there will be skepticism whether the fake accounts are the real reason for the delaying tactic. “The $44 billion price tag is huge, and it may be a strategy to row back on the amount he is prepared to pay to acquire the platform,” she said.
After Hindenburg Research LLC, an activist short seller, this week called the Twitter deal overpriced and said that there is “significant risk” it could get repriced lower, Mr. Musk tweeted in response: “Interesting. Don’t forget to look on the bright side of life sometimes!”
If the deal does fall apart, Mr. Musk could owe Twitter $1 billion depending on the reason for the breakup. The size of the breakup fees, at just over 2% of the deal value, is about average for similar transactions. Also called termination fees, the penalties are meant to deter parties from breaking agreements and address the expense and inconvenience of a failed deal.
Because Mr. Musk waived doing detailed due diligence on the deal, it could make it more difficult for him to back out over something like a discrepancy in the number of spam accounts. If he tries to, the company could attempt to force him to complete the deal under a legal protection called “specific performance,” though that maneuver is rarely successful in practice.
In 2020, luxury-goods conglomerate
LVMH Moët Hennessy Louis Vuitton SE
tried to back out of a deal to buy Tiffany & Co. for $16.2 billion after the pandemic hurt demand for high-end jewelry. Tiffany sued to enforce the agreement and LVMH countersued, arguing the business had been so deeply damaged that their original agreement was no longer valid. The two sides later agreed to cut the price by a relatively modest $430 million and settle related litigation.
Mr. Musk’s initial tweet Friday could be seen as critical of Twitter, which could further complicate things. The merger agreement stipulates that he can tweet about the deal so long as he doesn’t disparage the company or any of its representatives.
Before Friday, Mr. Musk had appeared to be moving forward on the deal in meetings with Twitter and hadn’t attempted to restart negotiations, but he had started asking questions about the number of spam accounts on the platform, people familiar with the matter said. A Twitter spokesman said Mr. Musk had visited the company May 6 as part of the transaction-planning process.
Twitter has warned that its estimate of fake and spam accounts is based on a sampling of accounts and that “the actual number of false or spam accounts could be higher than we have estimated.”
Mr. Musk’s tweets Friday are the latest twist in the unorthodox attempt to take over the social-media giant by the world’s richest man. It began with Mr. Musk buying a large chunk of Twitter shares on the open market earlier this year as a passive investor, which soon turned into a full-fledged buyout offer, outlined in a four-paragraph letter and several text messages to Twitter’s chairman.
Elon Musk has cultivated close ties with Beijing to build Tesla’s business in China. Now that he is buying Twitter and focusing on free speech, WSJ looks at how China has used the social-media platform to promote its views, and why that’s raising concerns. Photo Illustration: Sharon Shi
The per-share offer price of $54.20 contained a veiled reference to marijuana. The latest bombshell comes on a superstitious date: Friday the 13th.
Truist Securities analyst
Youssef Squali
said he could see a scenario where Mr. Musk tries reducing the offer price by 15% to 20%, to $46 or $43 a share. “If he’s successful, then his ability to secure funding while lowering his reliance on Tesla shares increases pretty dramatically,” Mr. Squali said.
In addition to financing from Wall Street, Mr. Musk has had to sell at least $8.5 billion worth of Tesla shares to fund the deal. He has also assembled a cast of 19 investors, from a Saudi prince to Silicon Valley stalwarts, to put up another $7 billion.
Meanwhile, federal regulators are investigating Mr. Musk’s late disclosure last month of his sizable stake in Twitter, a lag that allowed him to buy more stock without alerting other shareholders to his ownership, The Wall Street Journal reported Thursday, citing people familiar with the matter.
Mr. Musk made his filing on April 4, at least 10 days after his stake surpassed the trigger point for disclosure. He hasn’t publicly explained why he didn’t file in a timely manner. An attorney for Mr. Musk didn’t respond to a message seeking comment.
Amid Mr. Musk’s takeover attempt, Twitter has been dealing with the disruptions in the digital advertising market from global economic turmoil and the war in Ukraine. The company said Thursday that it was pausing hiring and looking to cut costs and announced the departure of two senior executives.
“Effective this week, we are pausing most hiring and backfills, except for business critical roles,” Twitter’s Mr. Agrawal wrote in a memo, which was viewed by The Wall Street Journal. Twitter’s move adds to broader upheaval in the tech industry in recent weeks in which several companies have been cutting staff and spending or slowing hiring.
—Georgia Wells, Anna Hirtenstein and Dave Michaels
contributed to this article.
Write to Sarah E. Needleman at sarah.needleman@wsj.com and Cara Lombardo at cara.lombardo@wsj.com
agreed to reduce his potential compensation by about $10 million this year, responding to shareholder concerns over changes that
GE’s
GE 0.88%
board made to executives’ pay packages in 2020.
In August 2020, the GE board revised Mr. Culp’s contract, extending it until 2024 and awarding him a special stock grant during the year that was valued at more than $100 million by the end of 2020. Asset managers called the awards poorly linked to the company’s performance, which they characterized as trailing that of GE’s peers.
Nearly 58% of GE shares were voted against the board’s compensation practices at last year’s annual meeting. It is rare for shareholders to withhold their support for such say-on-pay votes at major companies.
For 2022, Mr. Culp stands to receive a $5 million equity award, instead of the $15 million set out in his revised contract, if he and the company meet performance targets. Exceeding those targets or falling short would increase or reduce the award, respectively.
GE reduced Mr. Culp’s potential 2022 pay following discussions with most of its major shareholders last year, the company said in its annual proxy statement.
“There was shareholder concern around the timing, size and structure of the 2020 retention grant made as part of the extension,” GE said in its filing, along with shareholder support for Mr. Culp’s leadership. The company also said it doesn’t plan to make similar changes to its CEO’s pay in future years.
On Thursday, GE reported paying Mr. Culp $22.7 million for 2021, including a cash bonus of $4.2 million and salary of $2.5 million as well as a $15 million equity award. The equity award was made before the 2021 annual meeting, GE said in the filing.
His 2021 pay trailed the $73.2 million that GE reported paying him in 2020, but it roughly matched the $24.6 million paid in 2019, Mr. Culp’s first full year heading the company, securities filings show.
GE said in its proxy that the board would also limit its use of discretion when determining executive bonuses, after shareholders expressed concerns that GE used discretion in 2020 to award bonuses rather than pegging them to performance measures.
The company said Mr. Culp’s bonus for 2021 paid out at 112% of target, reflecting better-than-target free-cash-flow and margin-expansion figures, and worse-than-target revenue growth, as well as a penalty based on companywide safety metrics.
A GE spokeswoman said the company spoke with investors holding about half the company’s shares, and three-quarters of those held by institutional investors, after the failed say-on-pay vote.
Ukrainian President Volodymyr Zelensky ordered the mobilization of reservists as Russian troops poured into Ukraine’s eastern Donbas region and Western nations announced measures to punish Moscow for recognizing two Russian-controlled statelets there as independent, signaling the potential rising economic price on Russia for further aggression.
Mr. Zelensky, in a televised address, said Russia’s threat to Ukraine’s sovereignty is forcing him to recall contract military personnel to active duty and to mobilize members of the newly created territorial defense brigades for exercises. He said Ukraine wouldn’t carry out a general mobilization of civilians, urging them to continue normal life.
Cinderella, Elsa and their friends are moving back in with Barbie.
Mattel Inc.
MAT 9.05%
has won the license to produce toys based on
Walt Disney Co.
DIS 0.59%
’s princess lineup and from the recent blockbuster “Frozen” franchise, wresting the properties back from its rival
Hasbro Inc.,
HAS -2.23%
according to Mattel executives.
The deal reunites the characters with their previous home. Mattel lost the license to Hasbro in 2016, a financial and symbolic setback that precipitated a period of four chief executive officers at Mattel and compounding challenges as they tried to fill the $440 million hole from losing the business.
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Much has changed since then. Mattel CEO
Ynon Kreiz,
who joined in 2018, has stabilized operations with over $1 billion in cost cuts, overhauled leadership, revived key brands such as Barbie and rebuilt relationships with Hollywood studios. Since the day the Disney properties walked away, Mattel executives vowed to win them back.
“It was an important priority, and it’s something we worked hard to win,” Mr. Kreiz said. Mattel showed it could manage evergreen brands that aren’t dependent on big movies, he said.
Mattel will start selling new Disney toys in 2023, and the business will be managed by the same group that has overseen Barbie’s comeback. Financial terms of the deal weren’t disclosed.
For Hasbro, the change comes as the maker of Nerf guns and Monopoly games is making the transition to a new CEO following the death of its longtime leader,
Brian Goldner,
last year. Under his watch, Hasbro surpassed Mattel in annual sales and made an unsuccessful approach to take over its rival.
Hasbro declined to comment on losing the Disney princess and “Frozen” line but said it renewed its Star Wars license recently and will soon start making Indiana Jones toys too. Both are properties of Lucasfilm, which is owned by Disney.
Hasbro’s products inspired by Disney movies included a princess pop-up play set.
Photo:
Charles Sykes/Invision/Hasbro/Associated Press
Shares of Mattel jumped about 8% in early morning trading, after The Wall Street Journal reported on the deal. Shares of Hasbro slipped about 2.5%.
Mattel’s loss of the Disney license originally represented a high-profile fracturing of a relationship between one of the largest toy manufacturers and one of the most powerful companies in entertainment. It was a rare dust-up between companies whose founders worked together since the 1950s, when Mattel advertised toys during the “Mickey Mouse Club” show.
In the early 2010s, Barbie was floundering, with sales dropping for several years. Mattel devoted more resources to shoring up its marquee property. Disney’s princess dolls, meanwhile, were managed by a separate team in a competing unit.
Then, in 2013, Mattel came up with a toy line called Ever After High, which featured dolls based on the children of classic fairy tale characters, including Cinderella, Sleeping Beauty and Snow White. That flew too close to the Disney princess orbit. The following year Disney notified Mattel that it was going to Hasbro. (Mattel no longer sells the Ever After High toys.)
“Losing the franchise was not only a financial challenge for us but a really emotional one,” said Mattel President and Chief Operating Officer
Richard Dickson,
who rejoined Mattel for a second stint months before Disney made its decision. “It was a wake-up call for Mattel.”
The fallout started soon after. In early 2015, Mattel fired CEO
Bryan Stockton.
His successor,
Chris Sinclair,
focused on plugging revenue lost from the license with a range of items without staying power, which added complexity and extra costs to operations. Another CEO, former Google executive
Margo Georgiadis,
lasted about a year before leaving.
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Mr. Kreiz has brought stability to the top job at Mattel. The former television executive cut one-third of jobs and closed several factories to stem ongoing losses. He helped patch up Mattel’s fractured relationships with retailers and Hollywood studios. Key brands such as Barbie and Hot Wheels responded to new marketing and items. Fisher-Price has stabilized, too.
Though sales are still below their peak of $6.5 billion in 2013, Mattel is on pace for more than $5.3 billion in revenue for 2021, according to analysts, up more than 15% from 2020. Projections for net income of $789 million are the highest since 2013. Analysts expect Hasbro to bring in more than $6 billion in 2021 sales, according to FactSet estimates.
A bit of corporate restructuring allowed Mattel to present a stronger case to Disney that the properties would get appropriate attention, Mr. Kreiz said. Instead of organizing its business around boys, girls and infant products, Mattel is now structured around categories such as dolls, vehicles and action figures. The Disney characters will slide into the doll division and be managed by the same group that has overseen Barbie’s comeback.
Barbie has a more open-ended play pattern than the Disney characters, whose stories are imprinted on film and in books. “Side by side, we know that we can exponentially create more value, more play and more business by complementing the narrative rather than competing with it,” Mr. Dickson said.
The transition raises some questions for Hasbro, which aimed to use the Disney princess and Frozen license to build up its catalog of toys geared toward girls. But the property faltered a bit under its new owner, people in the toy industry said.
Jim Silver, CEO of TTPM, an online toy-review site, estimates that the Disney property is about half as big as it was when it left Mattel, in part because of a lack of new content to boost consumer interest in the characters. The Disney deal didn’t reach the levels Hasbro was hoping to achieve, he said.
Mr. Silver said Hasbro has other toys for girls on the upswing, including My Little Pony toys boosted by a recent Netflix movie, so the shift of the Disney license might not be as dramatic as it was when Mattel lost it. “I think Mattel will do very well with it, and for Hasbro, I don’t think the economics made sense,” he said.
UBS analyst Arpiné Kocharyan estimates the Disney princess and Frozen license could bring in about $300 million in a nonmovie year. Even after paying royalties to Disney, it could still produce a higher profit margin for Mattel than it did at Hasbro, she said, because Mattel owns much of its doll manufacturing, making it more economical to produce incremental units.
Ms. Kocharyan said Hasbro’s addition of the Indiana Jones license, with a feature film due in 2023, could offset more than half of the lost revenue. Hasbro also has the Disney license for Marvel characters.
aims to shake up the game industry by expanding the software giant’s library of blockbuster videogames and bolstering its efforts to entice consumers to its cloud-gaming service.
The planned $75 billion deal would be Microsoft’s biggest ever and its most ambitious investment yet in its plan to turn its Game Pass subscription service into the
Netflix
of gaming. Once the acquisition closes, Microsoft said it would be the world’s third-largest game company by sales, with 30 game studios under its belt, including the developers of popular franchises Call of Duty, World of Warcraft and Candy Crush.
Around a decade ago, Microsoft shifted to bringing its corporate clients to subscription-based cloud services. The move has helped lift its market value to $2 trillion and maintain its status as one of the world’s top tech companies. The Activision acquisition positions Microsoft to use the same tactic on consumers by persuading gamers to abandon their expensive hardware and play on the cloud.
“Together with Activision Blizzard, we have an incredible opportunity to invest and innovate, to create the best content, community and cloud for gamers to build substantial new value for our shareholders,” said Microsoft Chief Executive
Satya Nadella
on an investor and media call Tuesday.
With more gamers playing on smartphones rather than pricey game consoles and computers, companies around the world are racing to develop services for streaming high-end games to all kinds of devices the same way movies and TV shows are streamed.
Amazon.com Inc.,
Alphabet Inc.’s
Google,
Sony Group Corp.
and a host of smaller players are trying, but Microsoft has taken a large early lead in the emerging cloud-game space by spending billions of dollars on acquisitions and infrastructure, analysts said.
“Microsoft has big aspirations in gaming,” said
Mark Moerdler,
a Bernstein Research analyst. “Microsoft has been buying a number of studios because of what they’re trying to build with Game Pass and subscription gaming.”
If the company can convert some of Activision’s nearly 400 million monthly active users into subscribers, it could significantly bolster its cloud-game business, Mr. Moerdler said.
Subscribers to Microsoft’s Game Pass have increased 39% in the past year to 25 million, the company said. A billboard in New York pitching Activision’s ’Call of Duty: Vanguard.’
Photo:
Richard B. Levine/Zuma Press
Cloud gaming is an emerging technology that allows people to stream games using nearly any internet-connected device with a screen, much as they stream videos on Netflix, Hulu and other platforms. Streaming games is more challenging, though, because games are interactive and require a lot more data to run smoothly. While Netflix moved into mobile games last year, it has so far offered only a handful of games that subscribers must download to an Android or iOS device—not games that can be streamed via the cloud.
Consumer spending on cloud-game services reached $3.7 billion last year, with Microsoft’s Game Pass accounting for 60%, according to research firm Omdia, which forecasts total cloud-game revenue will hit $12 billion by 2026.
Along with announcing its planned acquisition, Microsoft said Tuesday that subscribers to Game Pass—which includes cloud gaming, online multiplayer support and access to a large, rotating library of games—have increased 39% in the past year to 25 million.
Mr. Nadella said Microsoft plans to bring as many Activision games as it can to Game Pass. As it has done with games from developers it has acquired previously, Microsoft could make future games from Activision exclusive on Game Pass and Xbox consoles, analysts said.
“We do think our investment in cloud creates a unique capability for triple-A content to reach any screen on any device,” Microsoft game chief
Phil Spencer
said after the Activision deal was announced.
Growing its cloud-game business will help Microsoft diversify further into consumer-facing businesses. That could narrow the leads Sony’s PlayStation has on Microsoft in game hardware and Amazon’s in cloud services. Mr. Nadella’s broader strategy for Microsoft puts cloud computing at the center of a collection of disparate businesses, from corporate software and enterprise data storage to social media and digital advertising.
Microsoft’s commitments to gaming and the cloud have been years in the making. Since taking over in 2014, Mr. Nadella has leaned heavily on offering the company’s enterprise customers cloud-computing services to power their businesses. This strategy has been the primary driver behind Microsoft’s ascent to become the world’s second-most-valuable company behind
Apple Inc.,
with a market valuation of nearly $2.3 trillion.
Ms. Wu, a target of the GamerGate scandal, says Activision Blizzard’s CEO led a culture of non-accountability, during an interview at WSJ’s Women In: The Tech Industry event.
For years, gaming took a back seat at Microsoft, where consumer-facing businesses got less attention, former and current employees said. The Xbox team was slotted under the Windows operating system and didn’t directly report to the CEO, as Mr. Nadella focused on selling the Office 365 business-software suite and developing the cloud-computing business. The Xbox group struggled to find its place in this structure, the employees said, as the unit was always competing with Windows priorities for investments, typically without success, they said.
“Under Windows, we had to make trade-offs between investing in big gaming initiatives and features for Windows enterprise customers,” said
Richard Irving,
who spent 12 years working on Xbox before leaving Microsoft in 2016. “That was the challenge of being in the Windows division.”
A Microsoft spokesman declined to comment on the company’s previous management of its game business.
A few years ago, Microsoft decided to become more aggressive about expanding its cloud usage to gaming, its main touch point with consumers. Internally, there has been concern that Microsoft is too dependent on enterprise for growth, said people familiar with company strategy. The decision to do more in gaming came after Microsoft looked at the possibility of buying consumer-facing businesses including TikTok,
Pinterest
and Discord, the people said.
It started snapping up game makers, spending more than $10 billion to buy game studios and build a vast library. The company has added popular titles such as the Doom franchise, acquired last year.
Microsoft isn’t alone. The global videogame industry has been riding a wave of consolidation and investing in recent years. Spending on mergers and acquisitions nearly tripled to $26.2 billion in 2021 from $8.9 billion in 2020, data from PitchBook show. And venture-capital deals nearly doubled to a record $11.2 billion from $6.4 billion, according to the private-market-data firm.
Write to Aaron Tilley at aaron.tilley@wsj.com and Sarah E. Needleman at sarah.needleman@wsj.com
