Daily Business Briefing
Oct. 1, 2021, 8:17 a.m. ET
Oct. 1, 2021, 8:17 a.m. ET
The chairman of the Ozy Media board resigned on Thursday, saying he lacked the experience in “crisis management and investigations” to continue leading the company.
Marc Lasry, a hedge fund manager who is also a co-owner of the Milwaukee Bucks, made the announcement four days after The New York Times reported that someone from Ozy appeared to have impersonated a YouTube executive during a conference call with Goldman Sachs bankers while trying to raise $40 million dollars.
Ozy’s chief executive, Carlos Watson, told The Times that the person had been Samir Rao, the company’s co-founder and chief operating officer. During the call, the supposed YouTube executive praised Ozy, saying it was a great success on the platform. Mr. Watson attributed the incident to a mental health crisis. Mr. Rao has not replied to questions about his role on the call.
“I believe that going forward Ozy requires experience in areas like crisis management and investigations, where I do not have particular expertise,” Mr. Lasry said in an emailed statement. “For that reason, I have stepped down from the company’s board. I remain an investor in the company and wish it the best going forward.”
Ozy, which made its debut in 2013, presents itself as a popular millennial media company. It investors have included Emerson Collective, the organization run by Laurene Powell Jobs, and Axel Springer, the publishing giant based in Berlin. Ron Conway, a Silicon Valley investor and an early Ozy backer, said this week that he had returned his shares to the company.
Zoom’s roughly $15 billion acquisition of the call center software company Five9 fell apart on Thursday evening, when the companies said they would terminate a deal that had drawn national security scrutiny.
Five9 said in a news release that the deal had failed to garner enough support from its shareholders, and that the company would continue to operate independently. Allison Wilson, a spokeswoman for Five9, said the company believed it would build on its “current proven momentum” as an independent firm.
Zoom’s chief executive, Eric S. Yuan, said in a blog post that while the acquisition had been an opportunity for the company to expand, it “was in no way foundational to the success of our platform.” A spokesperson for Zoom, CJ Lin, said the company had no further comment.
The proposed deal between the companies, both based in California, had attracted government scrutiny. In August, the Justice Department pushed for a federal review to determine whether the deal “poses a risk to the national security or law enforcement interests of the United States,” according to a letter to the Federal Communications Commission. The agency said it was worried about the possibility of “foreign participation” in the transaction.
In December, a Zoom executive was indicted and accused of working with the Chinese government to disrupt online events held for the anniversary of the Tiananmen Square massacre.
A long list of worries caught up with Wall Street in September, the stock market’s worst month since the early days of the pandemic.
After a 1.2 percent slide on Thursday, the S&P 500 ended down 4.8 percent for September, its sharpest monthly decline since March 2020 and one that snapped a seven-month streak of gains.
Until the recent decline, investors had shaken off the emergence of the coronavirus’s Delta variant, problems with a backed-up supply chain and persistent inflation, with the S&P 500 rallying to a Sept. 2 record and a dizzying 21 percent gain since the beginning of the year. But stocks started to slide as concerns grew about political gridlock leading to a U.S. debt default and as instability in China’s real estate market shook Wall Street.
With investors also eyeing the Federal Reserve’s plans to start slowing its purchases of government-backed bonds, yields on the 10-year Treasury note jumped to their highest levels in months, reaching 1.55 percent on Wednesday. By Thursday afternoon the yield was 1.52 percent.
Large technology stocks, which have an outsize influence on the major stock indexes and which typically fall as bonds become more appealing to investors, recorded double-digit drops. Apple ended the month nearly 10 percent off its Sept. 7 record. The tech-heavy Nasdaq composite fell 5.31 percent in September, including a 0.4 percent drop on Thursday.
Throughout the month, Treasury Secretary Janet L. Yellen warned of economic catastrophe if Congress did not raise the U.S. debt limit. The Treasury is expected to run out of cash in October, at which point things like Social Security payments and government paychecks would be delayed, and interest rates could spike.
Adding to jitters were concerns that a default by China Evergrande Group would ripple through global markets. The company, which has about $300 billion in debt, faced several payment deadlines. Those concerns eased somewhat in recent days, in part as the company said it was selling a stake it held in Shengjing Bank for about $1.5 billion, with the proceeds going toward paying down its debts.
But even with September’s drop, the S&P 500 remains more than 27 percent above its prepandemic record. Analysts have said throughout the month that a correction — a Wall Street term of art for a drop of more than 10 percent — would most likely be short-lived.
Retail stocks were among the worst performing on Thursday. Bed Bath & Beyond shares slid about 22 percent after the company slashed its sales forecast, saying that the recent rise in Covid-19 cases had led to a sharp slowdown in traffic to its stores and that costs and supply-chain problems were hitting its bottom line. The used vehicle retailer CarMax dropped nearly 13 percent, while Gap closed 8 percent lower.
Retailers are expecting delays and shortages of goods heading into the holiday shopping season, adding to higher labor costs and skyrocketing shipping fees. Consumer confidence is at its lowest level in seven months, the Conference Board reported on Tuesday.
Factories in Vietnam, the second-biggest supplier of apparel and footwear to the United States after China, have been forced to close or operate at severely reduced capacity as coronavirus cases surged. Power cuts and blackouts have also slowed or closed factories across China this week.
“Lingering supply chain constraints have become a major hurdle to inventory restocking,” Lydia Boussour, lead economist at Oxford Economics, wrote in a note. “Assuming the global virus situation gradually improves, we expect the bottlenecks will ease in 2022 as production ramps up and shipping congestion starts to clear.”
The sentiment was also voiced by Jerome H. Powell, the Fed chair, as he noted in Senate testimony on Wednesday that factory shutdowns and shipping problems were pushing inflation above the Fed’s goal of 2 percent on average.
Energy stocks were a bright spot for the S&P 500 in September, following oil prices higher. West Texas Intermediate, the U.S. benchmark crude, rose nearly 10 percent for the month.
John Mackey, the co-founder and chief executive of Whole Foods, is retiring next year, he wrote in a letter to employees that the grocer posted on its website on Thursday.
Under Mr. Mackey’s vision, Whole Foods brought organic and fresh food to suburbs and cities around the country. The company grew from a small organic grocer in Austin, Tex., into a chain with about 500 locations.
In 2017, he sold the business to Amazon for $13.4 billion, after what he told employees at the time was a six-week “whirlwind courtship,” but stayed on as chief executive after the deal.
“All parents reach a time when they must let go and trust that the values imparted will live on within their children,” he wrote on Thursday. “That time has nearly come for me and for Whole Foods.”
Amazon bought Whole Foods at a time of distress for the grocer, facing pressure from activist investors and competition from Walmart and other large grocers that made aggressive pushes to include more organic produce and other products. For Amazon, owning Whole Foods gave it a foothold into fresh grocery stores, a huge market.
Sales at Whole Foods stores barely grew after the Amazon sale, aside from home delivery. Amazon eventually introduced a new line of grocery stores, meant specifically for more online ordering and without limits on soda, sugary snacks and other mainstream products that Mr. Mackey would not let Whole Foods sell.
At the start of the pandemic, as panic buying set in, sales in Amazon’s physical stores, which are largely Whole Foods markets, shot up, but sales have since receded below prepandemic levels. Whole Foods recently announced a $10 fee for deliveries, even for Amazon Prime members, reflecting the costly economics of the business.
Mr. Mackey said that when he retires next September, the grocer’s operating chief, Jason Buechel, will take over as chief executive. Mr. Buechel, whom Mr. Mackey called “my personal choice” of successor, joined Whole Foods in 2013 and became the chief operating officer in 2019.
Mr. Mackey wrote a best seller about how companies should have a social conscience and consider all stakeholders, like employees and suppliers, in their decisions. He said in his note to employees that he found his higher purpose in 1976, while living in a vegetarian co-op called Prana House in Austin.
“My food consciousness was first awakened at Prana,” he wrote, “and I began to discover what I was called to do in this life.”
Regime change at Hollywood studios is almost always bloody. A new king or queen arrives and those loyal to the previous court lose their jobs.
But the guillotine has been dropping at Paramount Pictures with surprising speed, creating something of a panic inside the 109-year-old film company.
ViacomCBS, which owns Paramount, ousted Paramount’s chairman, James N. Gianopulos, on Sept. 13 and replaced him with Brian Robbins, a children’s television executive. By Sept. 17, Chris Petrikin, the studio’s respected executive vice president of global communications and corporate branding, had been shown the door. Emma Watts, president of the Paramount Motion Picture Group, was dismissed last week. And on Thursday, Paramount parted with its animation president, Mireille Soria.
Paramount declined to comment on the departures.
The speed with which Mr. Robbins is making changes reflects his personal style — forward charge! — and the vulnerable position in which Paramount and its corporate parent find themselves.
Paramount was once the most powerful studio in Hollywood, delivering culture-defining films like “The Godfather,” “Grease,” “Raiders of the Lost Ark,” “Forrest Gump” and “Beverly Hills Cop.” But severe mismanagement in the 2010s left it on life support. Mr. Gianopulos pulled it back from the brink, but the studio remains an also-ran, with many analysts viewing it as unequipped to compete with franchise-rich competitors like Disney and Universal.
Similarly, ViacomCBS ranks as a small player in the streaming business that has come to dominate the media industry. Mr. Robbins, who has online entertainment experience on his résumé and little attachment to calcified Hollywood business models, was installed at Paramount because ViacomCBS wants the studio to prioritize streaming distribution for films — in particular, feeding content to Paramount+, the conglomerate’s nascent streaming service.
United Airlines said on Thursday that the number of employees who could be fired for not being vaccinated has been nearly halved since it announced the results of a successful vaccine mandate less than two days earlier.
Now, the company said it plans to dismiss 320 of its 67,000 U.S. employees for failing to either provide proof of vaccination or a request an exemption for medical or religious reasons. That is down from 593 employees when the airline announced the results of its vaccination requirement this week.
United in August became one of the first large U.S. employers to require workers to be vaccinated against the coronavirus. Tyson, AT&T and other companies have since imposed similar mandates, and President Biden this month directed the Labor Department to require businesses with at least 100 workers to require vaccinations or weekly testing.
About 2,000 employees have sought exemptions. What happens to them could be determined by a lawsuit filed by some workers seeking to overturn United’s decision to place exempted workers on temporary unpaid leave.
United attributed the drop in the number of employees at risk of losing their jobs to late uploads of proofs of vaccination. United also said it expects the figure to drop further as human resources officials meet with people individually and determine that some have been vaccinated but failed to provide proof.
Treasury Secretary Janet L. Yellen said on Thursday that the statutory debt limit should be abolished, arguing that the borrowing cap is “destructive” and poses unnecessary risks to the economy.
She made the comments at a House Financial Services Committee hearing, as the United States faces an Oct. 18 deadline to raise or suspend the debt limit. Ms. Yellen warned on Thursday that failure to act would be “catastrophic” for the economy and said she supported proposed legislation to do away with the limit because it blocks the government from carrying out spending that Congress has authorized.
“I believe when Congress legislates expenditures and puts in place tax policy that determines taxes, those are the crucial decisions Congress is making,” Ms. Yellen said. “And if to finance those spending and tax decisions it is necessary to issue additional debt, I believe it is very destructive to put the president and myself, as Treasury secretary, in a situation where we might be unable to pay the bills that result from those past decisions.”
The debt limit was instituted in the early 20th century so the Treasury did not need to ask for permission each time it needed to issue bonds to pay bills. The first debt limit was part of the Second Liberty Bond Act of 1917, according to the Congressional Research Service. A general limit on the federal debt was imposed in 1939.
Republicans are refusing to join Democrats in raising the debt limit, insisting that they act alone in protest of big spending packages that Democrats hope to enact. At Thursday’s hearing, Ms. Yellen said dealing with the debt limit should be a bipartisan responsibility, because it allows the government to repay debts that were incurred by Democrats and Republicans.
If the debt limit is not addressed by the Oct. 18 deadline, Social Security payments will be delayed, troops might not receive their paychecks on time, and interest rates for mortgages and car loans could spike.
Ms. Yellen also warned that an erosion of confidence in the security of U.S. Treasury debt would be a “catastrophic event.”
Chicago’s brawny tabloid has entered into a merger agreement with the nonprofit organization behind the public radio show “This American Life.”
The Chicago Sun-Times, once home to the film critic Roger Ebert and the columnist Mike Royko, and Chicago Public Media, the owner of the city’s National Public Radio affiliate, WBEZ, announced on Wednesday that they had signed a nonbinding letter of intent that would allow the organization to acquire the paper. If the deal goes through, the publication that bills itself as Chicago’s oldest continuously published newspaper will become part of the nonprofit group.
“This would allow us to invest in our people, improve the news products we create and strengthen our digital future,” Nykia Wright, the Sun-Times chief executive, said in a statement.
The potential deal stands in contrast with the one reached by The Sun-Times’s age-old rival, The Chicago Tribune, whose parent company, Tribune Publishing, was sold this year to the New York hedge fund Alden Global Capital.
The Sun-Times came about with the 1948 merger of The Chicago Sun and The Chicago Daily Times. The tabloid was owned by the extended family of the Chicago department store magnate Marshall Field before it was sold to Rupert Murdoch for $90 million in 1983. Three years later, Mr. Murdoch flipped it to a group of investors for $145 million.
After a series of further ownership changes, and an attempt by Tribune Publishing to buy the paper, a group of local unions and businessmen, including Michael Sacks, an investor, and Rocky Wirtz, the owner of the Chicago Blackhawks hockey team, took ownership of The Sun-Times in 2019.
WBEZ, the noncommercial radio station, might be best known for “This American Life,” the narrative audio show hosted by Ira Glass, which has had an outsize influence on podcasting. (Last year, The New York Times announced a partnership with “This American Life,” which WBEZ no longer owns.)
Matt Moog, the interim chief executive of Chicago Public Media, said a merger “has the potential to be both a light and a hope for Chicago news.”
Alden Global Capital’s purchase of Tribune Publishing, which owns The Baltimore Sun, The Daily News and several other metropolitan dailies in addition to The Tribune, gained shareholder approval in May. The sale was resisted by many journalists who cited the hedge fund’s penchant for cutting costs at the papers it already owned through a subsidiary, MediaNews Group.
The Sun-Times’s potential move to local nonprofit ownership would mirror the corporate structure of The Philadelphia Inquirer, which in 2016 was donated by its owner, H.F. Lenfest, a cable magnate, to the Lenfest Institute for Journalism, a nonprofit organization he had established.
Jim Friedlich, the chief executive of the Lenfest Institute, said in an email that he had advised Chicago Public Media on its potential acquisition of The Sun-Times.
“The city’s news capacity has been gutted over the years by out-of-town hedge fund owners, the secular decline of print and a failure to invest in the digital transformation of local news products,” Mr. Friedlich said. “Today’s announcement is wonderful news and a model for other public media and local newspapers to emulate.”
After 18 months during which it subsidized 11.6 million jobs, Britain’s government-funded furlough program ended on Thursday, along with some other pandemic relief measures. While it marked another milestone in Britain’s efforts to put the pandemic in the past, the country is experiencing a slowing economic recovery and increasingly severe supply chain disruptions.
Facing this uncertain recovery, the government announced a new pot of money on Thursday to support families as the country heads into what is expected to be a hard winter, with rising energy prices, higher inflation and cuts to benefits for millions of people.
Beginning in October, local authorities can distribute money from a 500 million-pound ($673 million) fund to households that need help paying for essential items such as food, clothing and utilities.
The fund “will provide a lifeline for those at risk of struggling to keep up with their bills over the winter, adding to the support the government is already providing to help people with the cost of living,” Rishi Sunak, the chancellor of the Exchequer, said in a statement.
For the Conservative government, the furlough program was a dramatic intervention. It helped pay up to 80 percent of wages for millions of people whose work schedules were cut throughout the pandemic and stopped unemployment spiking higher during lockdowns. By mid-August it had cost nearly £69 billion. At its peak, about nine million people were on the program, nearly a third of Britain’s work force.
The Resolution Foundation, which studies living standards, estimates that one million people were still on furlough as the program ended. Many analysts expect unemployment to rise even though job vacancies in Britain have climbed to a record high. There is a mismatch between the kinds of jobs that need filling and the skills held by people available to work, creating an unexpected labor market quandary.
But now the Treasury is trying to shore up its finances, looking for ways to raise tax revenue and cut spending. Grants for self-employed workers also ended on Thursday, and VAT, a type of sales tax, will be increased for hospitality, hotel and leisure attractions. The government is also ending a £20-a-week increase to a major government benefit program, Universal Credit, which will affect more than five million people.
The Joseph Rowntree Foundation, a charity dedicated to ending poverty, is one of many organizations that have urged the government not to end the extra Universal Credit benefit. On Thursday it said the new £500 million fund was an inadequate alternative.
“The support available through this fund is provided on a discretionary basis to families facing emergency situations,” Helen Barnard, the charity’s deputy director, said in a statement. “It does not come close to meeting the scale of the challenge facing millions of families on low incomes as a cost-of-living crisis looms and our social security system is cut down to inadequate levels.”
Last week, Kwasi Kwarteng, the government’s business secretary, said many households could experience a “very difficult winter.” Already, some commentators have compared the long lines at gas pumps, higher inflation and product shortages in supermarkets to the dreary days of the 1970s in Britain, which ended in the so-called Winter of Discontent.
Prices have recently been rising faster than expected. A related phenomenon — executives mentioning “inflation” on calls with investors — has also been running hot, the DealBook newsletter reports.
Mentions of “inflation” on earnings calls are at their highest in more than a decade, according to FactSet. The term came up at more than 220 S&P 500 companies during second-quarter earnings calls, beating the previous record, set one quarter earlier, showing that the surge in prices isn’t a passing preoccupation.
This doesn’t appear to be a big problem for profits — yet. A few companies have recently trimmed their forecasts because inflation was eating into their margins, but earnings expectations on the whole for S&P 500 firms are higher today than they were in June, according to FactSet.
Sherwin-Williams cut its sales and earnings forecast this week, citing rising prices and shortages of raw materials. “We are increasing our full-year raw material inflation outlook to be up a high-teens percentage compared to last year,” John Morikis, the company’s chief executive, told analysts.
FedEx trimmed its full-year profit guidance last week, in part because of the “higher operating costs we are incurring,” said Mike Lenz, the company’s chief financial officer. FedEx is raising many of its shipping rates by nearly 6 percent starting next year.
At General Mills, “ideally you’d not like to go back to retailers multiple times or consumers with price increases, but we’re clearly not in an ideal market,” said Jeff Harmening, the company’s chief executive, adding, “People understand the need to revise plans.”
In the next few weeks, companies will start to report third-quarter results. Central bankers have said that supply disruptions could prolong a period of high inflation, so it’s a safe bet that the “I” word will remain a popular discussion topic.
The Delta variant of the coronavirus is on a rampage in Vietnam, the second-biggest supplier of apparel and footwear to the United States after China, highlighting the uneven distribution of vaccines globally and the perils that new outbreaks pose to the world’s economy, Sapna Maheshwari and Patricia Cohen report for The New York Times.
With the holiday season fast approaching, many American retailers are anticipating delays and shortages of goods, along with higher prices tied to labor and already skyrocketing shipping costs. Nike cut its sales forecast last week, citing the loss of 10 weeks of production in Vietnam since mid-July and reopenings set to start in phases in October. Everlane said it was facing delays of four to eight weeks.
The densely packed industrial hub of Ho Chi Minh City, the country’s virus epicenter, has experienced a series of increasingly stringent lockdowns, with many factories temporarily closing in July. That paralyzed commercial activity and added stress to a strained global supply chain. Although new cases have started to decline, the government extended the lockdown through the end of September, as it struggles to vaccinate its residents.
American companies are looking outside Vietnam, often returning to Chinese factories that they worked with previously or finding partners in other countries that are not in the middle of a surge.
Whether they will have enough time to shift before the holidays is questionable. “September is a bad time to reposition things,” said Gordon Hanson, an economist and urban policy professor at Harvard Kennedy School.
Retailers are already trying to prepare customers. L.L. Bean is warning about holiday shipping delays and shortages and urging early shopping. READ THE ARTICLE →
The economy has begun to rebound from the coronavirus pandemic, but millions of people still haven’t returned to work. Some are looking but haven’t been able to find jobs. Others can’t work because of child care or other responsibilities. Still others say the pandemic led them to rethink how they prioritize their careers.
What is keeping you on the sidelines right now? How are you getting by financially without a steady paycheck? How has your time away from work changed your life, both now and in the future?
Today in the On Tech newsletter, Shira Ovide writes that those online eyeglass and mattress start-ups aren’t tech. But they are innovative.