The E.U. bites into Apple
Apple’s feud with global regulators escalated after the European Union on Monday charged the iPhone maker with stifling competition on its App Store, a breach that carries potentially big penalties and could upend a hugely profitable area of the tech giant’s business.
The $3 trillion company is the first to be charged under the Digital Markets Act, a landmark 2022 E.U. law that was designed to reduce the dominance of six mostly American “online gatekeepers.” Of those, Amazon, Google and Meta are also under investigation, and The Financial Times reports that Microsoft could face charges tied to its market dominance.
Here are the E.U.’s accusations against Apple:
The App Store violates so-called steering rules. Regulators say that app developers cannot easily inform their customers about new offerings, including cheaper deals, within Apple’s ecosystem.
The fees Apple charges are excessive.
The bloc is also investigating Apple again for noncompliance, including over a core technology fee that equates to a half-euro charge per user download.
Apple is facing a slew of regulatory hurdles at home and abroad, as the company plays catch-up in the artificial intelligence race. On Friday, Apple said it would delay rolling out new A.I. products and services in Europe because of “regulatory uncertainties.”
And the company already faces a $2 billion E.U. fine for impeding competition in the music streaming sector.
The clash is a big test for the Digital Markets Act. Under the D.M.A., fines can run as high as 20 percent of global revenue, which last year topped $380 billion at Apple. Repeat abuses would give the European Commission, the bloc’s executive arm, the additional power to force a divestment or sale.
“We are determined to use the clear and effective D.M.A. toolbox to finally open real opportunities for innovators and for consumers,” Thierry Breton, the E.U.’s internal market commissioner, said.
Apple and other tech giants are expected to challenge the scope of the markets act in court.
Apple has argued that its app store has been good for other businesses. It said on Monday that it had made a “number of changes” to the app store to comply with the D.M.A. and that it was “confident our plan complies with the law.”
A separate crackdown looms in the U.S. In March, the Justice Department, the District of Columbia and 16 states opened an antitrust suit against Apple, arguing that it designed its products so that customers are locked into the devices to the detriment of consumers and small businesses.
In other Apple news: the company and its longtime rival, Meta, are reportedly discussing partnering on A.I., according to The Wall Street Journal.
HERE’S WHAT’S HAPPENING
Federal prosecutors are said to recommend criminal charges against Boeing. A potential case against the embattled planemaker would arise out of accusations that it violated a 2021 settlement related to fatal 737 Max crashes in 2018 and 2019, Reuters reports. Under the terms of that agreement, Boeing agreed to overhaul its compliance practices; the company has since been under investigation for faults in more plane models.
ByteDance is reportedly working on a sanctions-compliant A.I. chip. The Chinese tech giant, which owns TikTok, is working with the American semiconductor giant Broadcom to design an advanced processor for artificial intelligence work, according to Reuters. It’s the latest effort by a Chinese company to get around U.S. sanctions that severely limit exports of advanced A.I. processors to China.
Advertising agencies are said to be preparing for a potential U.S. ban on TikTok. Marketing firms are adding contingencies including so-called kill clauses to contracts to get out of financial commitments if the video platform is blocked in America, The Financial Times reports. Ad spending is also shifting to rival platforms.
Y Combinator leads new opposition to proposed artificial intelligence regulation in California. The influential start-up accelerator and 140 of the founders it has backed said that a bill proposing mandatory risk assessments and transparency for large A.I. models could stifle the industry’s fastest-growing sector. Silicon Valley has been nearly united in its criticism of the measure.
Exclusive: Czech bidder for Vista raises its offer, again
The bidding war for Vista Outdoor, the parent company of CamelBak water bottles and Remington ammunition, has escalated once more.
Vista is expected to announce on Monday that it has accepted a sweetened $2 billion takeover proposal for its ammo business from the Czechoslovak Group, the Prague-based defense company, DealBook is first to report.
The details: CSG, as the Czech group is known, will now have added $90 million to its original takeover bid. (It increased its bid once before, last month.)
Under the terms of the new deal, Vista shareholders would receive $18 a share in cash for the ammo unit, known as the Kinetic Group, and one share in the company’s new publicly traded outdoor sports division.
It’s the latest twist for Vista. The company has repeatedly rejected takeover offers from MNC Capital, an investment firm run by a former Vista board member. MNC is offering more than $3 billion, which it argues is both a better financial deal and isn’t subject to the national security review that the Czech company is under.
But Vista has maintained that the CSG deal would provide more value for shareholders and that it will win national security approval.
Another bidder briefly emerged this month for Kinetic, with an offer that Vista said was “reasonably expected” to be superior to CSG’s. (While Vista hasn’t named the suitor, it was JDH Capital, an investment firm tied to the energy mogul Jeffrey Hildebrand, DealBook has confirmed after it was first reported by The Financial Times.)
Days later, however, Vista said that its new bidder had walked away; behind the scenes, MNC objected to the offer from JDH, since the two had previously explored a joint bid for Kinetic.
The new CSG deal adds another wrinkle for Vista’s meeting about the deal, which — after a postponement — is scheduled for July 2. One of two influential proxy advisory firms, Glass Lewis, has recommended backing the CSG offer.
But the other, Institutional Shareholder Services, changed its mind last week. It’s now recommending that shareholders abstain from voting on the deal, citing the regulatory uncertainty of the CSG bid. It supports a measure for Vista to again postpone its meeting and restart negotiations with MNC.
A new twist in a Tesla fight over lawyers’ fees
After Tesla shareholders overwhelmingly re-ratified a multibillion-dollar pay package for Elon Musk, some of them are now using the vote for another purpose: seeking to deny a multibillion-dollar payout to the lawyers who challenged it.
Some context: Richard Tornetta, a Tesla investor, sued the carmaker over the Musk pay plan, which was approved at the company’s 2018 annual meeting. Chancellor Kathaleen McCormick of Delaware’s Court of Chancery voided the package in January, finding that shareholders hadn’t been made aware of how much influence the C.E.O. had over its creation.
Tesla put the plan to a second vote at its annual meeting this month. The package was approved with 72 percent of votes cast, excluding Musk or his brother, Kimbal — including from the investment giants Vanguard and BlackRock.
In the meantime, Tornetta’s lawyers have been seeking court approval for payment in stock that has been valued at as much as $5.6 billion. Tesla says the lawyers should earn just a fraction of that.
“The plaintiff has offered no proof that he procured any benefit for Tesla or its shareholders,” two retail investors wrote in a filing opposing the fee request, pointing to the steep drop in Tesla’s stock price just after the judge’s decision as evidence of harm. (These investors say they own more stock than Tornetta, who held nine shares when he sued in 2018.)
As fans of Musk, they noted that they and others voted in favor of his big payday twice.
Tornetta’s lawyers shot back on Friday, arguing that the judge’s nullification of the Musk vote rescinded a highly dilutive grant of stock options and effectively restored some $51 billion worth of value to the company.
But they also offered the court an alternative to the stock payout they had been seeking: a cash payout, perhaps around $1.44 billion.
The fee request fight matters beyond the potentially record-setting payout. An appeal of McCormick’s decision nullifying the Musk compensation plan can’t proceed until the payout for the plaintiff’s lawyer is decided.
What’s next: A hearing on the fee request has been scheduled for July 8. But Tesla last week requested that it be postponed.
“There was peace in the valley for a period of time. Now, it’s quite chaotic.”
— John Malone, the telecom and media billionaire, on the future of streaming, which has disrupted his cable TV empire and hobbled media giants as they invest billions to catch up to Netflix.
The week ahead
The big event this week will be the first debate between President Biden and Donald Trump, on Thursday on CNN. Both will feel they have some momentum: Biden has edged ahead in opinion polls, while Trump has closed a fund-raising gap.
DealBook will be watching for more clarity on how the candidates would manage the economy and treat business in a second term. Voters have consistently dinged Biden for his economic stewardship, even as several indicators show the U.S. outperforming its peers. Trump’ plans, including sweeping tariffs and extending tax cuts, would be inflationary, some experts say, but a growing number of business leaders are backing him in hopes for more deregulation.
That doesn’t mean that Corporate America is stampeding back to Trump, wrote Jeffrey Sonnenfeld of the Yale Chief Executive Leadership Institute in a Times Opinion Guest Essay:
Not a single Fortune 100 chief executive has donated to the candidate so far this year, which indicates a major break from overwhelming business and executive support for Republican presidential candidates dating back over a century, to the days of Taft and stretching through Coolidge and the Bushes, all of whom had dozens of major company heads donating to their campaigns.
Here’s what else to watch this week:
Tuesday: The Conference Board is set to release its monthly consumer confidence index. FedEx and Carnival Corp. deliver quarterly results.
Thursday: Nike and H&M report earnings, providing potential clues about the outlook for consumer spending.
Friday: The Personal Consumption Expenditures price index, the Fed’s preferred inflation measure, is set to publish. It could influence whether the central bank cuts interest rates once or twice this year.
THE SPEED READ
Deals
UPS agreed to sell Coyote Logistics for about $1 billion, a steep drop from what it paid for the freight brokerage business in 2015. (WSJ)
Prosus, the giant European technology investor, said that its e-commerce business had finally turned a profit after increasing its focus on profitability. (Prosus)
Elections, politics and policy
Best of the rest
There’s inflation, and then there’s pet care inflation, as dog and cat M.R.I.s and related treatments now cost thousands of dollars. (NYT)
“It’s the Summer of the Finance Bro” (WSJ)
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