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Business

U.S. court rejects J&J bankruptcy strategy for thousands of talc lawsuits

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Jan 30 (Reuters) – A U.S. appeals court on Monday shot down Johnson & Johnson’s (JNJ.N) attempt to offload tens of thousands of lawsuits over its talc products into bankruptcy court. The ruling marked the first major repudiation of an emerging legal strategy with the potential to upend U.S. corporate liability law.

J&J is among four major companies that have filed so-called Texas two-step bankruptcies to avoid potentially massive lawsuit exposure. The tactic involves creating a subsidiary to absorb the liabilities and to immediately file for Chapter 11.

The court ruled the healthcare conglomerate improperly placed its subsidiary into bankruptcy even though it faced no financial distress. J&J’s two-step sought to halt more than 38,000 lawsuits from plaintiffs alleging the company’s baby powder and other talc products caused cancer. The appeals court ruling revives those lawsuits.

Reuters last year detailed the secret planning of Texas two-steps by Johnson & Johnson and other major firms in a series of reports exploring corporate attempts to evade lawsuits through bankruptcies.

Monday’s decision by the U.S. 3rd Circuit Court of Appeals in Philadelphia dismissed the bankruptcy filed by the J&J subsidiary in 2021. Before the filing, J&J had faced costs of $3.5 billion in verdicts and settlements.

J&J shares closed down 3.7% – the biggest one-day percentage decline in two years. The company said in a statement that it would challenge the ruling and that its talc products are safe.

Plaintiffs attorneys and some legal experts have argued the two-step could set a dangerous precedent, providing a blueprint for any corporation to easily avoid undesirable litigation. The appeals court decision could force companies considering the strategy to more carefully consider its risks, two legal experts said.

“It is a push back on the notion that any company anywhere can use the same tactic to get rid of their mass tort liability,” said Lindsey Simon, a professor at University of Georgia School of Law.

Bankruptcy filings typically suspend litigation in trial courts, forcing plaintiffs into often time-consuming settlement negotiations while leaving them unable to pursue their cases in the courts where they originally sued.

The 3rd Circuit ruling does not directly impact three other Texas two-step bankruptcies, filed by subsidiaries of Koch Industries-owned Georgia Pacific, global construction giant Saint-Gobain(SGOB.PA), and Trane Technologies (2IS.F). Those cases fall under the jurisdiction of the 4th Circuit appeals court. 3M (MMM.N) attempted a similar maneuver, which is currently pending in the 7th Circuit.

Those companies did not comment on the 3rd Circuit ruling or did not immediately respond to inquiries. All have previously defended the bankruptcies as the best way to fairly compensate claimants. Plaintiffs’ attorneys have countered that the Texas two-step is an improper manipulation of the bankruptcy system. The strategy uses a Texas law to split an existing company in two, creating the new subsidiary meant to shoulder the lawsuits.

New Jersey-based Johnson & Johnson, valued at more than $400 billion, said its subsidiary’s bankruptcy was initiated in good faith. J&J initially pledged $2 billion to the subsidiary to resolve talc claims and entered into an agreement to fund an eventual settlement approved by a bankruptcy judge.

“Resolving this matter as quickly and efficiently as possible is in the best interests of claimants and all stakeholders,” J&J said.

A three-judge panel on the appeals court rejected J&J’s argument, finding the company’s subsidiary, LTL Management, was created solely to file for Chapter 11 protection but had no legitimate need for it. Only a debtor in financial distress can seek bankruptcy, the panel ruled. The judges pointed out that J&J assured that it would give LTL plenty of money to pay talc claimants.

“Good intentions – such as to protect the J&J brand or comprehensively resolve litigation – do not suffice alone,” the judges said in a 56-page opinion. “LTL, at the time of its filing, was highly solvent with access to cash to meet comfortably its liabilities.”

‘PROJECT PLATO’

The decision could force J&J to fight talc lawsuits for years in trial courts. The company has a mixed record fighting the suits so far. While the firm was hit with major judgments in some cases before filing bankruptcy, more than 1,500 talc lawsuits have been dismissed and the majority of cases that have gone to trial have resulted in verdicts favoring J&J, judgments for the company on appeal, or mistrials, according to its subsidiary’s court filings.

A December 2018 Reuters investigation revealed that J&J officials knew for decades about tests showing that the company’s talc sometimes contained traces of carcinogenic asbestos but kept that information from regulators and the public. J&J has said its talc does not contain asbestos and does not cause cancer.

Facing unrelenting litigation, J&J enlisted law firm Jones Day, which had helped other companies execute Texas two-step bankruptcies to address asbestos-related lawsuits.

J&J’s effort, as Reuters reported last year, was internally dubbed “Project Plato,” and employees working on it signed confidentiality agreements. A company lawyer warned them to tell no one, including their spouses, about the plan.

Jones Day did not immediately respond to a request for comment.

The Texas two-step has garnered criticism from Democratic lawmakers in Washington, and inspired proposed legislation that would severely restrict the practice.

Senator Sheldon Whitehouse, a Democrat from Rhode Island, cheered Monday’s appeals court decision. Whitehouse chaired the first congressional hearing scrutinizing two-step bankruptcies in February of last year.

“Bankruptcy is meant to give honest debtors in unfortunate circumstances a fresh start,” he said, not to allow “large, highly profitable corporations” to avoid accountability for wrongdoing with a legal “shell game.”

Reporting by Tom Hals in Wilmington, Delaware; Mike Spector in New York; and Dan Levine in San Francisco; additional reporting by Dietrich Knauth and Chuck Mikolajczak in New York; editing by Bill Berkrot and Brian Thevenot

Our Standards: The Thomson Reuters Trust Principles.

Tom Hals

Thomson Reuters

Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate dealmaking.

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Business

Wall Street totters after mixed earnings, trade halt glitch

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  • SEC investigating NYSE opening bell glitch
  • 3M slides on downbeat Q1 forecast
  • J&J falls on sales warning; GE down on weak profit view
  • Microsoft to report quarterly earnings after market close
  • Indexes: Dow up 0.18%, S&P 500 off 0.13%, Nasdaq down 0.25%

NEW YORK, Jan 24 (Reuters) – Wall Street was mixed on Tuesday as a raft of mixed earnings took some wind out of the sails of the recent rally.

The session got off to an rocky start, as a spate of NYSE-listed stocks were halted at the opening bell due to an apparent technical glitch, which caused initial price confusion and prompted an investigation by the U.S. Securities and Exchange Commission (SEC).

More than 80 stocks were affected by the glitch, which caused wide swings in opening prices in stocks, including Walmart Inc (WMT.N) and Nike Inc (NKE.N).

“It looks like NYSE got on it real early,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta. “Now they’re trying to determine what opening trade prices were.”

“Everyone involved in trade settlements is going to have a long day today.”

All three indexes sputtered near the starting line, with little apparent momentum in either direction.

Fourth quarter earnings season is in full swing, with 72 of the companies in the S&P 500 having reported. Of those, 65% have beaten consensus, just a hair below the 66% long-term average, according to Refinitiv.

On aggregate, analysts now expect S&P 500 earnings 2.9% below the year-ago quarter, down from the 1.6% year-on-year decline seen on Jan. 1, per Refinitiv.

“Earnings don’t make a bull or bear case for the market yet, but there’s an anxiousness among investors to be long when the Fed is done raising rates,” Sroka added. “We’re hitting a ramp in the earnings cycle, and by next week we’ll have a lot more information on the direction of the market.”

Economic data showed shallower-than-expected contraction in the manufacturing and services sector in the first weeks of the year, suggesting that the Federal Reserve’s restrictive interest rates are dampening demand.

The Dow Jones Industrial Average (.DJI) rose 60.69 points, or 0.18%, to 33,690.25, the S&P 500 (.SPX) lost 5.36 points, or 0.13%, to 4,014.45 and the Nasdaq Composite (.IXIC) dropped 28.39 points, or 0.25%, to 11,336.03.

Among the 11 major sectors of the S&P 500, industrials was down the most.

Intercontinental Exchange Inc (ICE.N), owner of the New York Stock Exchange, dropped 2.5% as SEC investigators searched for the cause of Tuesday’s opening bell confusion.

Alphabet Inc (GOOGL.O) shares dipped 1.8% after the Justice Department filed a lawsuit against Google for abusing its dominance of the digital advertising business.

Johnson & Johnson’s (JNJ.N) profit guidance came in above analyst expectations. Even so, its stock softened 0.3%.

Industrial conglomerates 3M Co (MMM.N) and General Electric Co (GE.N) both provided underwhelming forward guidance due to inflationary headwinds.

3M’s shares were off 5.1% while General Electric’s were modestly lower.

Aerospace/defense companies Lockheed Martin Corp (LMT.N) and Raytheon Technologies Corp (RTX.N) were a study in contrasts, with the former issuing a disappointing profit forecast and the latter beating estimates on solid travel demand.

Lockheed Martin and Raytheon were up 1.5% and 2.5%, respectively.

Railroad operator Union Pacific Corp missed profit estimates as labor shortages and severe weather delayed shipments. Its shares shed 2.7%.

Microsoft Corp (MSFT.O) is due to report after the bell.

Advancing issues outnumbered declining ones on the NYSE by a 1.16-to-1 ratio; on Nasdaq, a 1.06-to-1 ratio favored decliners.

The S&P 500 posted 27 new 52-week highs and 10 new lows; the Nasdaq Composite recorded 69 new highs and 21 new lows.

Reporting by Stephen Culp; Additional reporting by Shreyashi Sanyal and Johann M Cherian in Bengaluru; Editing by Aurora Ellis

Our Standards: The Thomson Reuters Trust Principles.

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Business

New suppliers race to plug in to electric car market

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WOKING, England, Jan 23 (Reuters) – The global auto industry has committed $1.2 trillion to developing electric vehicles (EVs), providing a golden opportunity for new suppliers to grab contracts providing everything from battery packs to motors and inverters.

Startups specialising in batteries and coatings to protect EV parts, and suppliers traditionally focused on niche motorsports or Formula One (F1) racing, have been chasing EV contracts. Carmakers design platforms to last a decade, so high-volume models can generate large revenues for years.

The next generation of EVs is due to hit around 2025 and many carmakers have sought help plugging gaps in their expertise, providing a window of opportunity for new suppliers.

“We’ve gone back to the days of Henry Ford where everyone is asking ‘how do you make these things work properly?’,” says Nick Fry, CEO of F1 engineering and technology firm McLaren Applied.

“That’s a huge opportunity for companies like us.”

Bought from McLaren by private equity firm Greybull Capital in 2021, McLaren Applied has adapted an efficient inverter developed for F1 racing for EVs. An inverter helps control the flow of electricity to and from the battery pack.

The silicon carbide IPG5 inverter weighs just 5.5 kg (12 lb) and can extend an EV’s range by over 7%. Fry says McLaren Applied is working with around 20 carmakers and suppliers, and the inverter will appear in high-volume luxury EV models starting January 2025.

Mass-market carmakers often prefer to develop EV components in-house and own the technology themselves. After years of pandemic-related parts shortages, they are wary of over-reliance on suppliers.

“We just can’t afford to be reliant on third parties making those investments for us,” said Tim Slatter, head of Ford (F.N) in Britain.

Traditional suppliers, such as German heavyweights Bosch and Continental (CONG.DE), are also investing heavily in EVs and other technologies to stay ahead in a fast-changing industry.

But smaller companies say there are still opportunities, particularly with low-volume manufacturers that cannot afford huge EV investments, or luxury and high-performance carmakers seeking an edge.

Croatia’s Rimac, an electric hypercar maker part-owned by Germany’s Porsche AG (P911_p.DE) that also supplies battery systems and powertrain components to other automakers, says an undisclosed German carmaker will use a Rimac battery system in a high-performance model – with annual production of around 40,000 units – starting this year, with more signed up.

“We need to be 20%, 30% better than what they can do and then they work with us,” CEO Mate Rimac says. “If they can make a 100-kilowatt hour battery pack, we must make a 130-kilowatt pack in the same dimensions for the same cost.”

NO TIME TO LOSE

Some suppliers like Cambridge, Massachusetts-based Actnano have had long relationships with EV pioneer Tesla (TSLA.O). Actnano has developed a coating that protects EV parts from condensation and its business has spread to advanced driver-assistance systems (ADAS), as well as other carmakers including Volvo (VOLCARb.ST), Ford, BMW (BMWG.DE) and Porsche.

California-based startup CelLink has developed an entirely automated, flat and easy-to-install “flex harness”, instead of a wire harness to group and guide cables in a vehicle. CEO Kevin Coakley would not identify customers but said CelLink’s harnesses had been installed in around a million EVs. Only Tesla has that scale.

Coakley said CelLink was working with U.S. and European carmakers, and with a European battery maker on battery wiring.

Others are focused on low-volume manufacturers, like UK startup Ionetic, which develops battery packs that would be too expensive for smaller companies to make themselves.

“Currently it costs just too much to electrify, which is why you see some manufacturers delaying their electrification launch,” CEO James Eaton said.

Since 1971, Swindon Powertrain has developed powerful motorsports engines. But it has now also developed battery packs, electric powertrains, e-axles and is working with around 20 customers, including carmakers and an electric vertical take-off and landing (eVTOL) aircraft maker.

“I realized if we don’t embrace this, we’re going to end up working for museums,” said managing director Raphael Caille.

But time may be running out.

Mate Rimac says major carmakers scrambled in the last three years to roll out EVs and now have strategies largely in place.

“For those who haven’t signed projects, I’m not sure how long the window of opportunity will remain open,” he said.

($1 = 0.8226 pounds)

Reporting by Nick Carey
Editing by Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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Business

Exclusive: Geely plans to turn maker of London black cabs into EV powerhouse

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COVENTRY, England, Jan 23 (Reuters) – China’s Geely (0175.HK) is planning a big investment to turn the maker of London’s iconic black taxis into a high-volume, all-electric brand with a range of commercial and passenger vehicles, executives at the unit told Reuters.

London Electric Vehicle Company (LEVC) also aims to expand its suite of services, which include cars arranging their own maintenance and recognising their owner’s interests to help them book activities.

“We need a developed product portfolio. We need to make big investments in terms of the technology and infrastructure,” LEVC Chief Executive Alex Nan said at the taxi maker’s headquarters in Coventry, central England. “Geely will make consistent investments into LEVC because this is a very unique project.”

LEVC builds a hybrid taxi model that starts at around 66,000 pounds ($81,500), which has a battery providing 64 miles (103 km) of range and a petrol range-extender giving it a total range of over 300 miles. The company’s business was hit hard by the pandemic and it laid off 140 staff in October.

Nan said LEVC and Geely would seek to attract other investors to its zero-emission portfolio and would look to partner with other carmakers to develop new technology.

Executives said the size of Geely’s investment would be disclosed later. So far the Chinese group, which took full control of LEVC in 2013, has invested 500 million pounds in it.

“Geely fully supports the new transition strategy laid out by LEVC’s board and executive team,” Geely said in a statement.

In 2021, Geely launched a 2 billion pound investment in another unit, niche British luxury sports carmaker Lotus, to massively expand production of its sports cars and build high-end SUVs and sedans in Britain and China. Geely is following a similar path in its plans to grow LEVC, executives said.

Britain’s EV ambitions were dealt a blow last week when startup Britishvolt, which had planned to build a major battery factory in northeast England, filed for administration.

“We need to make sure the UK environment as a whole is competitive and has its position on the world stage,” said LEVC managing director Chris Allen.

READY TO ACCELERATE

Geely owns multiple brands including Volvo (VOLCARb.ST) and – via a joint venture with Volvo – Polestar . Zeekr, another brand in the group, filed for a U.S. initial public offering last month.

As such, Geely faces a complexity that larger EV makers BYD (002594.SZ) and Tesla (TSLA.O) have avoided.

Allen said LEVC was exploring a range of commercial and passenger car models on a common electric platform. It can lean on other group brands that already have EVs to “move forward in a fast, agile way”.

The company already uses an infotainment system and software developed by Volvo and a steering wheel from the Swedish carmaker, allowing it to cut costs, Allen said.

“There’s nothing we couldn’t deliver in a very short time period if we needed to, but it’s just a question of timing,” he said, adding LEVC could easily have a full range of EVs on the road within five years.

“But in two years time, is the industry going to be ready, is the charging infrastructure going to be there, is consumer confidence going to be there?”

LEVC currently has the capacity to build 3,000 taxis a year running on a single shift at its Coventry factory. Allen said that could easily be increased to 20,000 and the plant had room to expand. It could also lean on production in China as Lotus has, Allen said. A major car plant produces on average around 300,000 vehicles per year.

“There’s a huge amount of value in our product that hasn’t ever really been maximised,” Allen said. “This is about growing LEVC into a much more recognizable brand on a global scale and expanding our product offering into as many spaces as we can.”

($1 = 0.8095 pounds)

Reporting by Nick Carey, Additional reporting by Zoey Zhange in Shanghai and Norihiko Shirouzu in Beijing
Editing by Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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Business

U.S. home sales slump to 12-year low; glimmers of hope emerging

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  • Existing home sales drop 1.5% in December
  • Sales fall 17.8% in 2022, sharpest annual decline since 2008
  • Median house price rises 2.3% from year ago

WASHINGTON, Jan 20 (Reuters) – U.S. existing home sales plunged to a 12-year low in December, but declining mortgage rates raised cautious optimism that the embattled housing market could be close to finding a floor.

The report from the National Association of Realtors on Friday also showed the median house price increasing at the slowest pace since early in the COVID-19 pandemic as sellers in some parts of the country resorted to offering discounts.

The Federal Reserve’s fastest interest rate-hiking cycle since the 1980s has pushed housing into recession.

“Existing home sales are somewhat lagging,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. “The decline in mortgage rates could help undergird housing activity in the months ahead.”

Existing home sales, which are counted when a contract is closed, fell 1.5% to a seasonally adjusted annual rate of 4.02 million units last month, the lowest level since November 2010. That marked the 11th straight monthly decline in sales, the longest such stretch since 1999.

Reuters Graphics

Sales dropped in the Northeast, South and Midwest. They were unchanged in the West. Economists polled by Reuters had forecast home sales falling to a rate of 3.96 million units. December’s data likely reflected contracts signed some two months earlier.

Home resales, which account for a big chunk of U.S. housing sales, tumbled 34.0% on a year-on-year basis in December. They fell 17.8% to 5.03 million units in 2022, the lowest annual total since 2014 and the sharpest annual decline since 2008.

Reuters Graphics

The continued slump in sales, which meant less in broker commissions, was the latest indication that residential investment probably contracted in the fourth quarter, the seventh straight quarterly decline.

This would be the longest such streak since the collapse of the housing bubble triggered the Great Recession.

While a survey from the National Association of Home Builders this week showed confidence among single-family homebuilders improving in January, morale remained depressed.

Single-family homebuilding rebounded in December, but permits for future construction dropped to more than a 2-1/2- year low, and outside the pandemic plunge, they were the lowest since February 2016.

A “For Rent, For Sale” sign is seen outside of a home in Washington, U.S., July 7, 2022. REUTERS/Sarah Silbiger

Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. U.S. Treasury prices fell.

MORTGAGE RATES RETREATING

The worst of the housing market rout is, however, probably behind. The 30-year fixed mortgage rate retreated to an average 6.15% this week, the lowest level since mid-September, according to data from mortgage finance agency Freddie Mac.

The rate was down from 6.33% in the prior week and has declined from an average of 7.08% early in the fourth quarter, which was the highest since 2002. It, however, remains well above the 3.56% average during the same period last year.

The median existing house price increased 2.3% from a year earlier to $366,900 in December, with NAR Chief Economist Lawrence Yun noting that “markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year.”

The smallest price gain since May 2020, together with the pullback in mortgage rates, could help to improve affordability down the road, though much would depend on supply. Applications for loans to buy a home have increased so far this year, a sign that there are eager buyers waiting in the wings.

House prices increased 10.2% in 2022, boosted by an acute shortage of homes for sale. Housing inventory totaled 970,000 units last year. While that was an increase from the 880,000 units in 2021, supply was the second lowest on record.

“Home price growth is likely to continue to decelerate and we look for it to turn negative in 2023,” said Nancy Vanden Houten, a U.S. economist at Oxford Economics in New York. “The limited supply of homes for sale will prevent a steep decline.”

In December, there were 970,000 previously owned homes on the market, down 13.4% from November but up 10.2% from a year ago. At December’s sales pace, it would take 2.9 months to exhaust the current inventory of existing homes, up from 1.7 months a year ago. That is considerably lower than the 9.6 months of supply at the start of the 2007-2009 recession.

Though tight inventory remains an obstacle for buyers, the absence of excess supply means the housing market is unlikely to experience the dramatic collapse witnessed during the Great Recession.

A four-to-seven-month supply is viewed as a healthy balance between supply and demand. Properties typically remained on the market for 26 days last month, up from 24 days in November.

Fifty-seven percent of homes sold in December were on the market for less than a month. First-time buyers accounted for 31% of sales, up from 30% a year ago. All-cash sales made up 28% of transactions compared to 23% a year ago. Distressed sales, foreclosures and short sales were only 1% of sales in December.

“While the stabilization of affordability will be good news for potential home buyers, a lack of available inventory could remain a constraint for home buying activity,” said Orphe Divounguy, a senior economist at Zillow.

Reporting by Lucia Mutikani;
Editing by Dan Burns and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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World

Sex pills, designer clothes found in mafia boss Messina Denaro’s hideout

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  • Messina Denaro caught after 30 years on the run
  • Apartment found in Western Sicilian town
  • Doctor who prescribed cancer treatment under investigation

PALERMO, Italy, Jan 17 (Reuters) – Perfumes, designer clothes and sex pills were found on Tuesday in an apartment which investigators believe was the last hideout of Sicilian mafia boss Matteo Messina Denaro, judicial sources said, a day after the arrest of the fugitive.

Messina Denaro, 60, caught on Monday at a private hospital in Palermo after 30 years on the run, is being held in the central Italian city of L’Aquila, the Palermo prosecutor said. He was transferred from Sicily on the day of his arrest.

The apartment is in an a modest building near the centre of Campobello di Mazara, a town in the Western Sicilian province of Trapani, just a few kilometres from Messina Denaro’s home town of Castelvetrano.

Investigators found clothes, shoes, a well-stocked fridge and restaurant receipts there, judicial sources said. They also found potency pills.

“He had a regular life, he went to the supermarket,” said magistrate Paolo Guido, one the officials investigating Messina Denaro.

Neighbours described him as a friendly person.

“I live on the first floor of the building, sometimes I have seen this person, greeted him and nothing else. He responded in a cordial manner,” Rosario Cognata told Italian media.

[1/5] Carabinieri police stand guard near the hideout of Matteo Messina Denaro, Italy’s most wanted mafia boss, after he was arrested, in the Sicilian town of Campobello di Mazara, Italy, January 17, 2023. REUTERS/Antonio Parrinello

TASTE FOR LUXURY

Messina Denaro was known for his taste for luxury goods, including designer clothes and expensive sunglasses. Police said he was wearing a watch worth 35,000 euros ($38,000) when he was arrested.

Messina Denaro is believed to have lived in the apartment for the past year, judicial sources said, but police are still searching for other places where he might have spent time.

Investigators believe Messina Denaro was driven on Monday to Palermo’s La Maddalena hospital from Campobello di Mazara to be treated for cancer. The town was home to his alleged aide Giovanni Luppino, who was arrested with him.

Police placed under investigation medical doctor Alfonso Tumbarello on suspicion of aiding and abetting the mafia boss, judicial sources said, because he attended to Messina Denaro, who was undergoing anti-cancer treatment under a false name.

The sources said he gave the name of Andrea Bonafede, who was the owner of the apartment Messina Denaro was living in, and who is also under investigation.

Nicknamed “‘U Siccu” (The Skinny One), Messina Denaro picked up 20 life prison terms in trials held in absentia for his role in an array of mob murders, including the bomb attacks that killed anti-mafia prosecutors Giovanni Falcone and Paolo Borsellino in 1992.

Despite his illness, prosecutors said Messina Denaro was fit enough to serve time in prison where he will carry on with his cancer treatment.($1 = 0.9232 euros)

Additional reporting by Angelo Amante and Alvise Armellini in Rome
Writing by Angelo Amante
Editing by Keith Weir and Tomasz Janowski

Our Standards: The Thomson Reuters Trust Principles.

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Technology

Microsoft faces EU antitrust warning over Activision deal – sources

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BRUSSELS, Jan 16 (Reuters) – Microsoft (MSFT.O) is likely to receive an EU antitrust warning about its $69 billion bid for “Call of Duty” maker Activision Blizzard (ATVI.O), people familiar with the matter said, that could pose another challenge to completing the deal.

The European Commission is readying a charge sheet known as a statement of objections setting out its concerns about the deal which will be sent to Microsoft in the coming weeks, the people said.

The EU antitrust watchdog, which has set an April 11 deadline for its decision on the deal, declined to comment.

Microsoft said: “We’re continuing to work with the European Commission to address any marketplace concerns. Our goal is to bring more games to more people, and this deal will further that goal.”

The U.S. software giant and Xbox maker announced the acquisition in January last year to help it compete better with leaders Tencent (0700.HK) and Sony (6758.T).

U.S. and UK regulators, however, have voiced concerns, with the U.S. Federal Trade Commission going to court to block the deal.

Microsoft was expected to offer remedies to EU regulators in an attempt to avert a statement of charge and shorten the regulatory process, other sources familiar with the matter told Reuters in November.

The EU competition enforcer, however, is not expected to be open to remedies without first sending out its charge sheet, although there are ongoing informal discussions on concessions, the people said.

Microsoft last month reached a 10-year deal with Nintendo (7974.T) to make “Call of Duty” available on Nintendo consoles, saying it was open to a similar agreement with Sony, which is critical of the acquisition.

The deal has received the green light without conditions in Brazil, Saudi Arabia and Serbia.

Reporting by Foo Yun Chee
Editing by Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

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Business

S&P 500 near flat as investors weigh chances of less aggressive rate hikes

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  • Tech shares gain
  • Macy’s, Lululemon drop on holiday-quarter warnings
  • Indexes: Dow down 0.3%, S&P 500 down 0.1%, Nasdaq up 0.6%

NEW YORK, Jan 9 (Reuters) – The S&P 500 index (.SPX) erased early gains to close nearly flat on Monday as expectations that the Federal Reserve will become less aggressive with its interest rate hikes were offset by lingering worries about inflation.

The Dow ended lower, and the Nasdaq Composite (.IXIC) ended well off the day’s highs.

Investors are awaiting comments Tuesday from Fed Chair Jerome Powell, who some strategists expect could say more time is needed to show inflation is under control.

Money market bets were showing 77% odds of a 25-basis point hike in the Fed’s February policy meeting.

A consumer prices report due Thursday could be key for rate expectations, said Quincy Krosby, chief global strategist, LPL Financial in Charlotte, North Carolina. “The CPI report this week is going to be essential for fine-tuning the Fed funds futures market.”

Investors also may have sold some shares after recent strong market gains, said Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago. “You’re seeing a little bit of profit-taking ahead of the CPI number due out this week.”

The technology sector (.SPLRCT) gained as Treasury yields fell. Consumer discretionary stocks (.SPLRCD) also rose, with Amazon.com Inc (AMZN.O) up 1.5% after Jefferies said it saw cost pressures easing for the e-commerce giant in the second half of the year.

Also, S&P 500 companies are about to kick off the fourth-quarter earnings period, with results from top U.S. banks expected later this week.

Traders work on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 5, 2023. REUTERS/Andrew Kelly

The Dow Jones Industrial Average (.DJI) fell 112.96 points, or 0.34%, to 33,517.65, the S&P 500 (.SPX) lost 2.99 points, or 0.08%, to 3,892.09 and the Nasdaq Composite (.IXIC) added 66.36 points, or 0.63%, to 10,635.65.

Shares of Broadcom Inc (AVGO.O) fell in late trading to end down 2% after Bloomberg, citing people familiar with the matter, reported that Apple Inc (AAPL.O) plans to drop a Broadcom chip in 2025 and use an in-house design instead.

Friday’s jobs report, which showed a moderation in wage increases, lifted hopes that the Fed might become less aggressive in its rate-hike push to reduce inflation.

Tesla Inc (TSLA.O) shares rose 5.9% after the electric-vehicle maker indicated longer waiting times for some versions of the Model Y in China, signaling the recent price cuts could be stoking demand.

Macy’s Inc (M.N) fell 7.7% and Lululemon Athletica Inc (LULU.O) dropped 9.3% after both retailers issued disappointing holiday-quarter forecasts.

Volume on U.S. exchanges was 11.35 billion shares, compared with the 10.90 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered decliners on the NYSE by a 1.85-to-1 ratio; on Nasdaq, a 1.48-to-1 ratio favored advancers.

The S&P 500 posted 13 new 52-week highs and two new lows; the Nasdaq Composite recorded 129 new highs and 32 new lows.

Additional reporting by Shubham Batra, Amruta Khandekar and Ankika Biswas in Bengaluru; Editing by Shounak Dasgupta and Richard Chang

Our Standards: The Thomson Reuters Trust Principles.

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Business

Tesla slashes car prices in China for second time in 3 months

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SHANGHAI, Jan 6 (Reuters) – Tesla (TSLA.O) cut car prices in China for the second time in less than three months on Friday, fuelling a price war amid a darkening demand outlook in the world’s largest auto market.

The latest cut, along with a reduction in October as well as various incentives that amount to as much as 10,000 yuan extended to Chinese buyers over the past three months, mean a 13% to 24% reduction in Tesla’s prices from September, according to Reuters calculations.

On Friday, the U.S. electric vehicles (EV) maker slashed prices for all versions of its Model 3 and Model Y cars in China by between 6% to 13.5%, according to Reuters calculations based on the prices shown on its website. The starting price for Model 3, for instance, was cut to 229,900 yuan ($33,427) from 265,900 yuan. It cut prices in Japan on the same day.

“Tesla’s price adjustments are backed by innumerous engineering innovations,” Grace Tao, Tesla’s vice president in charge of external communications in China, posted on her Weibo social media account on Friday. “(They) answer the government’s call to promote economic development and encourage consumption.”

The price cuts come after December deliveries of Tesla’s China-made cars hit their lowest in five months, and also just days after Beijing ended a subsidy programme that helped build the world’s largest EV market. Softening demand has forced Tesla and its rivals to absorb the brunt of that decision.

China Merchants Bank International (CMBI), which warned in July that China’s EV sector was headed for a price war, said Tesla’s price reduction affirmed the prediction, adding that the U.S. firm may have to do more, especially as competition with its Chinese rivals intensifies.

The Model 3 and Y have been the only models Tesla delivers in China, though on Friday it announced prices for the Model S and Model X in China.

“Tesla needs to further cut prices and expand its sales network in China’s lower-tier cities amid ageing models,” said CMBI analyst Shi Ji.

“We expect new EV production capacity in China to outpace new demand in 2023 and Tesla Shanghai’s capacity utilisation could drop to about or even below 80% this year if its Berlin plant ramps up.”

BYD (002594.SZ), which has a much larger variety of offerings that comprise both plug-in and pure electric vehicles, saw its retail sales in China double in December while Tesla’s fell 42%, according to data from CMBI.

Tesla did not offer any additional comment when contacted by Reuters. A spokesperson referred to Tao’s Weibo post.

The car maker’s discounts have brought the starting price of Model 3 to the same level of BYD’s best-selling Han EV sedan, which is sold from 219,800 yuan. The Chinese EV maker recently raised the prices for its best-selling models after losing the central government subsidies.

Sales of BYD’s Han series, including the plug-in hybrid versions, were more than double that of Model 3’s in China in the first 11 months, according to the China Passenger Car Association.

The China prices of the Model 3 and Model Y cars are now 24% to 32% lower than those in the United States, Tesla’s largest market, Reuters calculations showed, due to reasons including different material and labour costs.

Tesla also cut the prices of Model 3 and Model Y cars by about 10% each in Japan, the first time it had done so since 2021. The price for the Model 3 rear wheel drive version is now 5.369 million yen ($40,091), down from 5.964 million yen.

($1 = 6.8775 Chinese yuan)

($1 = 133.9200 yen)

Reporting by Zhang Yan and Brenda Goh; Editing by Kim Coghill and Muralikumar Anantharaman

Our Standards: The Thomson Reuters Trust Principles.

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Technology

Sony, Honda roll out prototype of ‘Afeela’ EV that uses Qualcomm tech

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Jan 4 (Reuters) – Japan’s Sony (6758.T) on Wednesday unveiled a prototype of the new “Afeela” electric vehicles it will build together with Honda (7267.T), saying it would harness its vast entertainment content as it looks to become a player in next-generation cars.

Sony gave a glimpse of the Afeela, which sports rounded corners and a sleek black roof, at the CES 2023 technology trade show in Las Vegas. The car will use technology from hardware maker Qualcomm Inc (QCOM.O), including its “Snapdragon” digital chassis.

Sony’s long-awaited push into electric vehicles – it announced the venture with Honda in March – shows how manufacturers are increasingly focused on the cockpit experience in cars, which offers the potential to sell content via subscription services cars, especially as autonomous driving capabilities improve.

“In order to realise intelligent mobility, continuous software updates and high-performance computing are required,” Yashuhide Mizuno, the chief executive of Sony Honda Mobility, told the trade show. “To that end, we will work closely with Qualcomm.”

Qualcomm on Wednesday launched a new processor, the Snapdragon Ride Flex SoC, that handles both assisted driving and cockpit functions, including entertainment. Previously those functions were handled on different chips, and bringing them together can help bring down costs, a Qualcomm executive told Reuters.

Sony is also looking to harness its traditional strengths in sensors. The Afeela will be equipped with more than 40 sensors, Mizuno said. The car will use the “Unreal Engine” 3-D creation tool from Epic Games, the maker of the “Fortnite” series of games.

For Honda, the venture with Sony may allow it to speed up what has so far been a slow shift to electric. It has also struggled over the years to make gains in the luxury vehicle market with its Acura brand. The new EV will be priced at a premium, the venture has said.

The venture between Sony Group Corp and Honda Motor Co Ltd aims to deliver its first electric vehicles by early 2026 in North America.

Shares of Sony were up 1.6% in Tokyo trade, while Honda shares were flat. The benchmark Nikkei 225 (.N225) was little changed.

Reporting by Kiyoshi Takenaka; Additional reporting by Jane Lanhee Lee in San Francisco; Writing by David Dolan; Editing by Chang-Ran Kim and Muralikumar Anantharaman

Our Standards: The Thomson Reuters Trust Principles.

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