Good morning. Andrew here. Is Netflix’s explanation for dropping out of the bidding war for Warner Brothers Discovery the full story? The streaming giant said that the price Paramount offered was just too much to match. But how much of the calculus to drop out was a fear that the Trump administration would block its deal? We go behind the scenes below. Meanwhile, the battle between the Pentagon and Anthropic for how the military can use A.I. is set to come to a climax — and may be a watershed moment for the industry. And Block’s decision to slash its work force by 40 percent because of A.I. productivity tools could be a harbinger of things to come. Watch this space. (Was this newsletter forwarded to you? Sign up here.)
What’s next for ParamountThe bidding war is over: Paramount has won the fight for Warner Bros. Discovery, after Netflix decided not to counter its $111 billion takeover bid for the media company. The decision caps a monthslong battle for Warner Bros. Discovery, home to an iconic Hollywood studio, HBO, franchises like Batman and Harry Potter — and a struggling streaming service and declining cable channels. In some ways, though, now comes the hard part. David Zaslav got what he wanted. Zaslav, the C.E.O. of Warner Bros. Discovery, saw his job as getting the best possible price for the media company. He turned down eight previous bids from Paramount before accepting an offer from Netflix. Now he has a $31-a-share takeover bid from Paramount, which includes a $7 billion payout if the offer is blocked by government regulators, as well as additional payments for every quarter the deal closes behind schedule. (Netflix is getting a $2.8 billion breakup fee.) Netflix emphasized that it wouldn’t seek to win at all costs. It could certainly afford to raise its bid for Warner Bros. Discovery — but shareholders have repeatedly expressed their displeasure with the cost of the deal. Earlier this month, Ted Sarandos, a co-C.E.O. of the streaming giant, said that he was “willing to walk away and let someone else overpay for things.” And while Netflix repeatedly said it believed its offer could win regulatory approval, Justice Department officials told Sarandos yesterday that they would conduct a fair but thorough review of the transaction, according to The Times. Some on Wall Street had speculated about Netflix’s commitment to its deal before yesterday, after the streaming company chose not to raise its bid before Warner Bros. Discovery deemed Paramount’s new offer as superior. Paramount now faces a different set of daunting challenges. Assuming the deal closes, David Ellison, its C.E.O., and his father, the billionaire Larry Ellison, will have their hands in a broad media and technology empire, one that also includes a stake in the U.S. version of TikTok and the software giant Oracle. But the transaction is effectively the largest leveraged buyout in history, saddling the combined Paramount-Warner Bros. Discovery, which remains far smaller than Netflix, with an eye-watering amount of debt. (Larry Ellison has personally guaranteed more than $40 billion of the Paramount bid.) Something that’s likely to happen is a wave of job losses — something Warner Bros. Discovery itself had flagged publicly — given Paramount’s goal of hitting perhaps $6 billion in cost savings.
U.S. mortgage rates drop to a four-year low. The average 30-year mortgage rate fell below 6 percent for the first time since September 2022, down from nearly 7 percent a year ago. High rates, part of a broader affordability crunch, have weighed on Americans seeking to buy a home but it’s unclear how much declining rates alone would revive the market. FedEx says it plans to return tariff refund money to customers. The shipping giant says that if it wins a lawsuit to reclaim money it paid out in levies that have since been overturned by the Supreme Court, it will reimburse shippers and consumers who ultimately bore those charges.More than 900 companies have now sued the U.S. for tariff refunds. Meta is said to agree to rent A.I. chips from Google. The multibillion-dollar deal will give Meta additional computing power to train its artificial intelligence models, The Information reports. It’s a victory for Google, which has stepped up efforts to market its chips as a lower-cost alternative to processors from Nvidia. The Information adds that Google is creating joint ventures with investment firms to lease chips to other customers.
“We cannot in good conscience accede”The deadline for Anthropic and the Pentagon to reach a compromise on the military use of the Claude artificial intelligence model is rapidly approaching, at 5:01 p.m. Eastern. And no deal appears near. Dario Amodei, Anthropic’s C.E.O., said yesterday that his artificial intelligence company won’t accept the Defense Department’s demands to loosen restrictions on the use of Claude, until recently the only A.I. model allowed for classified applications. The question now is whether the Pentagon will follow through on its threats to Anthropic — and what that might mean for the U.S. military and the A.I. industry. The latest: “We cannot in good conscience accede,” Amodei said in a statement, rejecting the Pentagon’s latest assurances that it would not use the technology for mass domestic surveillance or for fully autonomous lethal weapons. Emil Michael, the U.S. under secretary of war for research and engineering, accused Amodei of “putting our nation’s safety at risk.” Both sides still appear to be playing chicken. An unidentified government official told The Financial Times that the Trump administration would end all of its agreements to use Claude services. And while Anthropic said it hoped the Pentagon would reconsider, it added that it “will work to enable a smooth transition to another provider.” A lot is at stake:
What will other A.I. companies do? One provider, xAI, has agreed to the Pentagon’s demand to be able to deploy A.I. models for all lawful uses. Google is reportedly close to signing an agreement with the Pentagon along similar lines; OpenAI is in earlier stages of negotiations. But nearly 50 employees of OpenAI and 175 at Google signed an open letter calling on their companies’ leaders to stand with Anthropic. More than 100 Google workers also sent a letter to Jeff Dean, one of the tech giant’s top A.I. executives, demanding that their company adhere to Anthropic’s “red lines.”
A path to America for Chinese carmakersPresident Trump stunned the auto industry last month when he said he would welcome Chinese carmakers in America. “Let China come in,” he said in a speech in Detroit. Since then, Trump’s idea has been gaining traction in Washington — as both a potential trade chip in U.S.-Chinese trade talks and a lifeline for a U.S. auto industry that is falling behind Chinese rivals, Grady McGregor reports. Could Ford Motor team up with the Chinese? Much of the chatter has centered on reports linking Ford to joint ventures with Chinese automakers. In January, The Financial Times reported that Ford had discussed a partnership with China’s Xiaomi to manufacture cars in the United States. Bloomberg later reported that Ford’s C.E.O., Jim Farley, had discussed the idea of Chinese joint ventures with White House officials. Ford has denied both reports, including to DealBook. But the idea isn’t going away. “It has certainly entered the zeitgeist here in Washington,” Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies, a Washington think tank, told DealBook. China is speeding ahead on electric vehicles. The Chinese carmaker BYD overtook Tesla as the world’s top E.V. seller last year despite being locked out of the U.S. market. General Motors, Ford and Stellantis, meanwhile, have recently announced more than $50 billion in write-downs on E.V. investments. Weeks ahead of his summit with President Xi Jinping of China, Trump may be on the hunt for an auto agreement that creates U.S. jobs, boosts investment and lowers prices. The hurdles to a deal are steep. In addition to tariffs — Chinese cars exported to the U.S. face a 100 percent tariff rate — and other regulatory challenges, a Biden-era rule that takes effect in March will ban Chinese software in American cars because of spying fears. Politically, it’s also an uphill battle. Trump defied Washington consensus on China by allowing TikTok to keep operating in the U.S. and Nvidia to sell chips to China. But Congress remains deeply skeptical of China’s auto industry. “It’s not clear that Trump’s party would follow him,” Mazzocco said. U.S. automakers once created joint ventures in China. Now, American companies may need Chinese innovation and manufacturing power to stay competitive. “It’s the most humbling thing I have ever seen,” Farley said last year about the innovations in China’s E.V. industry. Tu Le, the founder of the consultancy Sino Auto Insights, said Chinese capital and technology could prove to be a boon for American automakers, similar to how Japanese and South Korean competition forced Detroit to adapt decades ago. “These Chinese cars are way too good to only be for Chinese consumers,” he told DealBook. “But if you want a level playing field, then you want them to build here.” “Intelligence tools have changed what it means to build and run a company.”— Jack Dorsey, the founder of Block, on why the payments company is laying off nearly half of its work force, or more than 4,000 employees. Dorsey has embraced the contention that artificial intelligence tools can replace programmers and many other white-collar workers — and argued that “a majority” of companies will make a similar move within the next year. Shares in Block soared in after-hours trading.
Talking A.I. with the C.E.O. of Heidrick & StrugglesEvery week, we’re asking a leader how he or she uses artificial intelligence. Tom Monahan, who leads the executive search firm Heidrick & Struggles, told DealBook that A.I. helped ask the right questions of clients. How do you personally use A.I.? In one day I could be jumping from a Fortune 10 energy company to a Series B start-up that is trying to think through its way to an I.P.O. There’s a generic agent that I’ve built, which preps me for a meeting. But then you can get really specific by ingesting recent performance data, recent news and the longevity of the executive team. We’ve heard a lot about A.I. automatically generating job applications or new recruiting tools that generate lists of candidates. How is it changing the work your company does? Everyone who’d be on the short list for a C.E.O. job is a good leader. This isn’t choosing between good and bad — it’s choosing right. A lot of our work is helping clients shape their demand priorities. A.I. does show up in other ways. It allows us to gather information about candidates. And it allows us to take nine to 15 board-member perspectives and identify places of alignment and misalignment. What are some specific new ways your employees are using A.I.? We built a set of lenses to look at client companies, which helps us ask interesting questions. You can say: If I were a rookie portfolio manager making a bull case to take a stake in this company, and I had to pitch my investment committee, write me that memo. And prepare three questions that the most skeptical portfolio manager might ask. We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
Deals
Politics, policy and regulation
Best of the rest
Thanks for reading! We’ll see you tomorrow. We’d like your feedback. Please email thoughts and |
