Good morning. Andrew here. President Trump’s executive order allowing the Justice Department to sue states over their artificial intelligence regulations is likely to turn into the next big court battle over states’ rights — possibly going all the way to the Supreme Court. Also: We take a look at Trump’s effort to upend proxy advisers, which have long been criticized for conflicts of interest. We also go deep on the Ellison family’s personal economics and, if you’re a skier (as I am), you’ll be particularly interested in our reporting on the challenges facing Vail Resorts. (Was this newsletter forwarded to you? Sign up here.)
Paramount, and a question about financing commitmentsShares in Oracle tumbled 10 percent yesterday on fears about whether its hugely expensive effort to become an artificial intelligence giant will pay off. That plunge is doing more than raise questions about the future of the A.I. stock rally. It also casts a spotlight on Paramount’s $78 billion hostile takeover bid for Warner Bros. Discovery, which is backed in part by billions furnished by Larry Ellison, Oracle’s co-founder and chairman. Ellison, one of the world’s richest men and the father of Paramount’s C.E.O., has the billions on hand. But concerns about the solidity of his support for the Paramount bid were a factor in Warner Bros. Discovery accepting a rival $72 billion offer from Netflix, Lauren Hirsch reports. Financing is crucial for Paramount’s bid. It and Netflix have each lined up more than $50 billion in debt financing. But Paramount’s market capitalization is around $15 billion, a fraction of Warner Bros. Discovery’s. Its debt load is roughly equal to its market cap, and its credit rating is well in “junk” territory. By contrast, Netflix has a market value of $420 billion and an investment-grade credit rating. What we know about Paramount’s financing: The media company has lined up $54 billion in loans from major lenders. But $40 billion in equity, including from several Middle Eastern state investors, is being backstopped by the Lawrence J. Ellison Revocable Trust and RedBird Capital Partners. In weighing takeover bids in recent weeks, Warner Bros. Discovery’s board was concerned about the Ellison trust being revocable, meaning it could be modified at any time, according to two people with knowledge of the matter. Moreover, the trust wanted a $2.8 billion limit on damages it would have to pay if Paramount didn’t live up to its contractual obligations. Shareholders “will put some pressure on Warner to engage,” Jim Woolery, a veteran M.&A. lawyer and the founder of the advisory firm Woolery & Co., told DealBook. “But they’ll also put some pressure on Paramount to put up more evidence of capital.” Paramount called concerns about its financing absurd. “To suggest that we are not ‘good for the money’ (or might commit fraud to try to escape our obligations) is absurd,” Paramount wrote to Warner Bros. Discovery investors on Wednesday. Paramount argued that Warner Bros. Discovery never raised its concerns or questions about the trust or the equity commitment with it before picking Netflix. Paramount added that the Ellison trust had more than $250 billion of assets, including roughly 1.16 billion shares of Oracle.
President Trump seeks to neuter state laws regulating artificial intelligence. Trump signed an executive order yesterday giving the attorney general the authority to sue states and overturn laws that don’t support “the United States’ global A.I. dominance.” It’s a win for technology companies like OpenAI and their backers, including the venture capital firm Andreessen Horowitz, that have called for a single U.S. set of A.I. regulations. Health insurance costs for millions of Americans are set to jump. A Democratic effort to extend expiring health care subsidies failed in the Senate despite support from some Republicans. Democrats also rejected a Republican proposal to replace the subsidies with direct payments to Americans who buy the most basic health insurance plans. That makes it all but certain that health care costs for many will rise at a time when affordability is becoming a divisive political issue. The U.S. increases economic pressure on Venezuela. The Trump administration issued new sanctions on the family of President Nicolás Maduro and on the country’s oil sector, and moved to keep the oil from a large tanker that U.S. forces seized off Venezuela’s coast. As Trump pushes for the ouster of Maduro, whom he accused of sending a surge of drugs and immigrants into the U.S., the Pentagon is also preparing to intercept more ships transporting Venezuelan oil in the region, according to Reuters. Trump vs. the proxy advisersWe’ve written before about the growing political pressure on ISS and Glass Lewis, the proxy advisory businesses that for years were influential voices on corporate shareholder matters. Now President Trump has intensified a crackdown on the firms via executive order, as Republicans seek to curtail the companies’ power. Trump directed several federal agencies to tighten regulations on proxy advisers:
These firms “wield enormous influence over corporate governance matters,” the executive order reads, adding that they “regularly” use their power to “advance and prioritize radical politically motivated agendas” instead of focusing on shareholder returns. More from the executive order: The United States must therefore increase oversight of and take action to restore public confidence in the proxy advisor industry, including by promoting accountability, transparency, and competition. It’s a potentially serious blow to ISS and Glass Lewis, which have already grappled with state investigations and faced criticism from corporate leaders including Elon Musk and Jamie Dimon. Big money management giants, themselves facing political pressure, have emphasized that they make their own investment decisions, though smaller investors often still rely on the proxy firms’ reports. ISS told Bloomberg that it was reviewing the executive order, adding in a statement that it “does not dictate or set corporate governance standards.” Can Vail Resorts regain its balance?Ski season is upon us. That should be good news for Vail Resorts, the world’s largest mountain-resort operator. But this winter will provide a crucial test for a new pricing plan the company is betting on to break out of a multiyear slide, writes Niko Gallogly. Visits to Vail’s North American mountains fell last year, even though the number of skiers hitting the slopes in the U.S. increased overall. The company’s stock is down 17 percent year-to-date and more than 50 percent from its peak in 2021. The man behind Vail’s turnaround plan is Rob Katz, who returned for a second stint as C.E.O. in May after a four-year break, during which he served as board chair. In his first run as C.E.O., from 2006 to 2021, Katz masterminded an innovative pricing strategy that helped power the company’s decade-plus of expansion. Recently, though, Vail’s pricing plans have left skiers cold. This week Katz announced the first big swing of his second tenure: a 30 percent discount for advance buyers of lift tickets, the prices of which have swelled to eye-popping levels in recent years. At Vail’s flagship mountain in Colorado, the peak price for a single day-of ticket, which also allows access to nearby Beaver Creek and several other mountains, was $329 last season.
Vail’s lift-ticket prices have been “intentionally” aggressive, Katz told DealBook. They pushed customers to buy Epic Passes, the all-access season pass that Vail introduced in 2008 and which are sold before the winter season. (Epic Passes went on sale this year at $1,051.) Pass-holders now account for about 75 percent of Vail visitors. Ski resorts’ balance sheets depend heavily on snowfall — a business model now under stress as climate change disrupts winter weather patterns. The subscription model lets Vail hedge against some seasonal risk. Katz used the upfront payments to finance investments like snow makers and an acquisition binge. But season pass sales have begun to stall after years of strong growth. Katz rejected the idea that the season-pass market was saturated and said he was confident that improved marketing and pricing tactics would soon push up sales growth. A pricing pivot: Vail is now looking to grow its lift-ticket sales again, though Katz added that passes would always be Vail’s core revenue strategy. That shifting focus includes a new 30 percent discount for lift tickets purchased a month in advance and a 50 percent discount for customers skiing with a friend who has an Epic Pass. “Consumer A.I. is OpenAI. If that disappears for them, the company would not be nearly as valuable.”— Rayan Krishnan, the C.E.O. of Vals AI, a company that tracks the performance of artificial intelligence models. OpenAI, the maker of ChatGPT, has raced to protect its lead with consumers in the face of renewed competition from Google and others. One step OpenAI announced yesterday: a deal with Disney that would let users of its Sora video-generation app use Disney, Marvel, Pixar and Star Wars characters in their creations.
Talking A.I. with the C.E.O. of Thomson ReutersEvery week, we’re asking a chief executive how he or she uses artificial intelligence. This week, Steve Hasker, who leads the multinational news, information and technology company Thomson Reuters, told DealBook that he expects the apprenticeship model to change. His answers have been condensed and edited. How do you personally use A. I.? I would say, “All day every day.” Have you given any directives to your team about what you want them to do with A.I.? It’s been a multi-decade journey that has really accelerated in a hockey stick manner. We took a build-partner-buy approach. We’d already set up a $100 million venture fund — we’re now moving to the second fund of $150 million. One thing we did was pivot to really look almost exclusively at A.I.-driven tools. And that has been a tremendous source of sort of intel. They’ve made a series of investments and a bunch of those look promising, but more important, from my point of view, it has opened up our aperture. And it has brought to our product and engineering teams some intelligence as to what V.C. funds are funding and start-up innovation. Do you expect the apprenticeship model to change for a young lawyer, accountant, or journalist? The superficial answer is that instead of getting people who you’re confident have deep technical skills that mean they’re going to be able to produce a first draft of a contract or a brief fairly quickly, and are prepared to do all-nighters, tools will produce that first draft. And so a first-year employee needs to have critical-thinking skills, and be creative and curious. What does that look like in terms of the shape of the pyramid work force? Does it turn into a torpedo or a diamond? We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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