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The Morning Risk Report: U.S. Sues to Unwind Altria’s $12.8 Billion Investment in Juul
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A customer shops at a Juul shop in Jakarta, Indonesia, last year. PHOTO: AJENG DINAR ULFIANA/REUTERS
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Good morning. The Federal Trade Commission is suing Altria Group to unwind its $12.8 billion investment in Juul Labs, accusing the Marlboro maker of violating federal antitrust laws when it took a stake in the e-cigarette maker.
“Altria and Juul turned from competitors to collaborators by eliminating competition and sharing in Juul’s profits,” Ian Conner, director of the agency’s Bureau of Competition, said in a press statement. The FTC filed an administrative complaint against Altria on Wednesday, according to the statement. An administrative trial is scheduled for Jan. 5, 2021.
[Continued below...]
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“We believe that our investment in Juul does not harm competition and that the FTC misunderstood the facts,” Altria’s general counsel, Murray Garnick, said in a statement. “We are disappointed with the FTC’s decision, believe we have a strong defense and will vigorously defend our investment.” Juul declined to comment.
Altria, the largest U.S. tobacco company by sales, bought a 35% stake in Juul in December 2018. Sales of Juul’s sleek vaporizer had surged, vaulting it to the top of the e-cigarette market. Altria “dealt with this competitive threat by agreeing not to compete in return for a substantial ownership interest in Juul,” the FTC said in the statement.
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Chief Risk Officer Appointments on the Rise
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More companies are appointing chief risk officers, according to a new report from the Enterprise Risk Management Initiative at North Carolina State University.
Forty-two percent of companies have designated an individual to serve as CRO, up from 32% five years earlier, according to the report, which is based on survey data collected last fall. The increase was driven in part by a rise in CROs in the financial and nonprofit sectors, the report said. A smaller share of companies, 30%, said they have a formal enterprise risk management system in place, up from 25% five years earlier, according to the report.
The survey included responses from 563 companies of varying sizes from a range of industries, and was conducted in conjunction with the American Institute of Certified Public Accountants.
The report comes as companies are dealing with the fallout from the coronavirus pandemic, which has underscored the importance of identifying, assessing and managing enterprisewide risks. “Many executive teams are beginning to realize the implications of being ill-prepared to manage such a large-scale root-cause event of the magnitude of Covid-19,” the report said.
—Kristin Broughton
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Jerome Powell’s Federal Reserve says it will ease the supplementary leverage ratio for one year.
PHOTO: MANDEL NGAN/AGENCE FRANCE-PRESSE/GETTY IMAGES
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The Federal Reserve on Wednesday said it was temporarily taking steps to ease an obscure capital requirement for large banks to address strained conditions in the Treasury market.
The Fed said it was easing the supplementary leverage ratio—a way of curbing bankers’ risk-taking—for one year and hoped the change would free up lenders’ ability to serve homeowners and businesses rather than to increase share buybacks and dividends to shareholders.
The temporary change would exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the leverage ratio, and will be in effect until March 31, 2021.
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T-Mobile US closed its takeover of Sprint on Wednesday after a nearly two-year battle with federal and state authorities. Company executives said their combined resources would give them more firepower to pursue fifth-generation, or 5G, wireless technology, a push that aligned with the Trump administration’s policy priorities. But the merger still faced a drawn-out approval process at the Federal Communications Commission and Justice Department.
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U.S. health regulators ordered that the popular heartburn drug Zantac and other ranitidine generics be pulled from the market, citing a potential public-health risk. The Food and Drug Administration had found elevated levels of a possible cancer-causing chemical that led to voluntary recalls starting last year, including by French health-care giant Sanofi.
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Victims of wildfires caused by PG&E are seeking to upend its deal to exit bankruptcy. Two members of the claimants’ committee that represents fire victims in the giant California utility’s chapter 11 case resigned late last month and said they would campaign to defeat the exit plan. They cited concerns that it pays victims half a $13.5 billion settlement in PG&E shares, exposing them to greater risks than other creditors.
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Federal regulators are moving to make changes in the allocation of public airwaves to boost the speed of Wi-Fi networks, but at the possible expense of broadcasters, telecommunications firms and others who want the bandwidth for their business. The Federal Communications Commission said Wednesday it will vote April 23 on allowing Wi-Fi devices to access a wider swath of airwaves than they currently use.
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New Jersey will extend its current state budget by three months and push its tax-filing deadline to July 15, as lawmakers focus their attention on the state’s growing coronavirus crisis. The new tax deadline applies to both state-income tax and corporation business tax filings, Gov. Phil Murphy, Senate President Steve Sweeney and Assembly Speaker Craig Coughlin, all Democrats, said in a joint statement.
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Pipes for a proposed Kinder Morgan pipeline in Texas in August 2019. PHOTO: ERIC GAY/ASSOCIATED PRESS
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Independent auditors are tussling with two major challenges during the coronavirus pandemic: conducting audits in a world gone remote. And doing so in a business environment beset with uncertainty.
Work-from-home mandates intended to stop the spread of the novel coronavirus are complicating auditors’ efforts to count inventory, assess changes in internal controls and track down evidence needed to sign off on companies’ financial statements, auditors say.
The disruption to business operations caused by the pandemic, meanwhile, is exposing companies’ liquidity problems and threatened debt covenants, which could result in auditors questioning going-concern assumptions.
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The road leading to a major technology center in Bangalore, India, was nearly empty Monday.
PHOTO: JAGADEESH NV/EPA/SHUTTERSTOCK
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Millions of workers in India and the Philippines do everything from writing computer code to fielding customer calls for companies across the globe. Now, with the new coronavirus hitting, they have been sent home to work.
The shift has introduced complications that are hurting the ability of the companies they work for—many of them major multinational banks, insurers, hospitals, retailers and airlines—to extend new loans, change and refund travel tickets, process claims, fill and cancel orders, and bill for services such as health care.
The change also threatens technology and outsourcing hubs that have become economic mainstays, providing huge numbers of jobs and critical foreign currency.
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Chinese workers returned to factory floors in March, but operations remained slow because of sluggish demand, damping hopes for a speedy recovery as the coronavirus pandemic continues to paralyze the global economy.
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Factories across the U.S., Asia and Europe cut output and jobs at the fastest pace since the global financial crisis, a sign the global economy has entered a deep freeze as governments lock down their populations in an effort to contain the novel coronavirus and minimize mortality.
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The market’s decline has already damaged retirement account balances. Now, more companies are cutting the contributions they make to employees’ 401(k) plans to save cash in the economic crisis sparked by the coronavirus.
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Restaurants’ increasing dependence on companies like DoorDash and Uber Eats during the coronavirus pandemic has inflamed their frustrations with the delivery services and prompted some eateries to strike back.
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A Boeing factory in Renton, Wash., last year.
PHOTO: GARY HE/EPA-EFE/SHUTTERSTOCK
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Boeing is expected to begin offering early retirement and buyout packages to its workforce as the plane maker comes to grips with the coronavirus pandemic’s deepening toll on the global aviation industry, people familiar with the matter said.
An internal announcement was expected as soon as early Thursday, one of these people said.
The Chicago-based aerospace giant is the largest U.S. exporter and one of the nation’s largest manufacturing employers. It has previously announced steps including a freeze on hiring and overtime as it seeks to preserve cash amid turmoil in the credit markets and a broader economic downturn.
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Tensions are breaking out between employers and workers across the U.S. as some companies push to keep producing during the coronavirus pandemic and some employees push back over health concerns and other issues.
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More Americans are expected to have filed for unemployment benefits in the past two weeks than in the prior six months, marking a drastic downshift in the U.S. labor market caused by the coronavirus pandemic.
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Occidental Petroleum Corp., which operates oil-and-gas projects including this one in New Mexico, bought Anadarko Petroleum Corp. in a $38 billion deal last year.
PHOTO: ERNEST SCHEYDER/REUTERS
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A top Occidental Petroleum executive has been forced out of the company as it deals with the repercussions of an ill-timed acquisition, a precipitous decline in crude prices and hefty debt, according to people familiar with the matter.
Occidental came under renewed pressure from activist investor Carl Icahn, a fervent critic of the Anadarko deal, last month as oil prices plummeted due to the new coronavirus pandemic and a Saudi-Russian oil-price war. The company reached a deal with Mr. Icahn that resulted in him replacing several members of the company’s board of directors.
Meanwhile, U.S. shale driller Whiting Petroleum Corp. filed for bankruptcy protection Wednesday, becoming the first sizable fracking company to succumb to the crash in oil prices.
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AT&T tapped former Hulu boss Jason Kilar as chief executive of its WarnerMedia unit, which houses HBO, CNN and the soon-to-launch streaming service HBO Max.
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Washington lobbyists’ phones are heating up as businesses, unions and trade groups angle to get funds to be made available under the stimulus package.
PHOTO: BILL CLARK/ZUMA PRESS
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Business is booming for the influence-peddling business. Companies and interest groups reeling from the coronavirus pandemic and economic collapse are snatching up lobbyists and regulatory experts to help them navigate the U.S. government bureaucracy for help. That includes figuring out how to get a slice of the roughly $2 trillion stimulus package approved last week by Congress.
“I have never seen anything like the demand for information right now,” said Ed Newberry, global managing partner of the policy and regulatory practice at Squire Patton Boggs. “And I’ve been practicing for 30 years.”
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Spotify Technology and Warner Music Group have reached a new global licensing agreement, the companies said, ending a contentious yearslong negotiation between the streaming giant and the third-largest music label.
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Zoom Video Communications’ newfound popularity amid the coronavirus pandemic is proving both a boon and a burden. The San Jose, Calif.-based company has almost overnight become a mainstream consumer brand. But that success is stretching its workforce, exposing gaps in Zoom’s ability to satisfy both its paying customers and the new users now flocking to its free service.
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