Food Fight in the EU

Plus: Half a century later, Exxon returns to Lithium ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

May 22, 2023

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TOGETHER WITH

Good morning and happy Monday.

It’s the legal world’s newest powerhouse, at least in sheer number of lawyers. This weekend, law firms Shearman & Sterling and Allen & Overy announced a merger to create one of the world’s largest law firms, subject to a vote by partners at both offices. The new-look company would employ nearly 4,000 lawyers across 29 countries, and generate nearly $3.4 billion in annual revenue.

But even they need to lawyer up to get the deal done. Shearman & Sterling has hired Davis Polk & Wardwell as its legal counsel, while Allen & Overy has tapped Simpson Thacher & Bartlett LLP. As Calvin Trillin puts it: if law school is so hard, why do there seem to be so many lawyers?

Morning Brief:

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Food price caps – good for eaters, not for retailers.

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Meta wants to take on Twitter.

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Exxon hops back into the lithium game.

Policy

The EU’s Food Price Caps Might Not be the Right Answer to High Costs

(Photo Credit: Franki Chamaki/Unsplash)

EU policymakers are resorting to a blunt chef knife to keep food prices down.

In the face of the worst cost of living crisis in a generation, policymakers in the EU are at loggerheads over new policies involving price caps at the grocery store. Critics gripe that price caps don’t address the root causes of inflation in addition to putting pressure on businesses.

Food! Glorious Food!

While certain costs like energy have been on a downward trend for the past few months, Europeans are still struggling with high food prices. According to the EU’s consumer price index, the average cost of groceries has jumped nearly 15% year-over-year. One butcher at Budapest’s historic Grand Market Hall told the Associated Press it’s getting to the point where generally cheaper meats like ham and sausage are being considered “luxury food items.”

In response, governments are relying on price caps more than at any time since the mid-1900s. Croatia, which adopted the euro only this year, last month placed caps on foods including chicken, pork, and milk. In March, French retailers didn’t settle on specific caps, but did agree to bring their prices to the lowest possible level for some basic items. Spain cut sales tax on products like cheese, cereal, and eggs entirely.

Food is expensive, and the government says, “make it less expensive,” but that doesn’t quite address the bigger issues at play and can leave businesses worse for wear:

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In food retail – where margins are already low – price caps mean shops run the risk of negative margins i.e. they’re selling products for less than they bought them for. Lars Jonung, a Swedish economist, told the Financial Times, “As an instrument to reduce inflation, price controls do not work. But they are addictive and it’s difficult to kick the habit.”

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Price caps have not turned out well in the past. In 1985, Peruvian President Alan Garcia took office and issued price caps on sugar, rice, and other goods, but that paved the way for shortages and the emergence of black markets. His presidency ended with the country in a state of hyperinflation.

In the past, caps have also led to poorer quality food. During WWII when America began rationing all sorts of products, the meat industry was the center of what NPR’s Planet Money calls Skimpflation. Ground beef was fattier, steaks had more bone than meat, and sausages essentially just became hotdogs in a fancier package.

Crying over spilt milk: Over in the UK, retailers’ mark-up on milk has hit a 30-year high. Since the late 2000s, the average cost for a pint of milk fluctuated between 40 and 45 pence, but it’s been skyrocketing the past year and now sits at roughly 70 pence, according to the Office of National Statistics. Some consumers and economists view it less as a natural change in a tough economy and more as ruthless price gouging. Paul Donovan, chief economist at UBS Wealth Management, told the FT that the mark-ups are prime examples of “profit-led inflation.” Despite their shortcomings, Brits are likely wishing for some price caps of their own right about now.

-Griffin Kelly

Social Media

Meta Plans to Launch its Twitter Clone This Summer

Meta smells blood in the bird pool.

Twitter — long one of Meta’s ostensible chief rivals — is on the ropes. Mark Zuckerberg’s social media empire is eyeing a repeat of one of its most well-worn maneuvers: the copycat-and-kill. According to an internal email seen by TechCrunch, Meta’s blue bird clone will take flight later this summer.

Wake Up, Tweeple

Elon Musk’s turn at the Twitter helm hasn’t exactly been a financial homerun. A recent report from Insider Intelligence forecasts that the social platform will bring in just $2.9 billion in advertising revenue this year, well down from the $4.7 billion projections made in November 2022, which would have been on par with recent years. Even worse, last month, a group of vendors proposed a class action lawsuit against Twitter alleging it is failing to pay tens of thousands of dollars worth of overdue bills.

That’s left plenty of room for a slew of imitators to snap up microblogging market share, including the “federated” Mastodon, newsletter platform Substack’s “Notes” vertical, and Bluesky, which was born in Twitter’s very own startup incubator before an eventual spin-out (Twitter founder and former CEO Jack Dorsey sits on Bluesky’s board).

Still, no single platform quite yet carries the heft of Musk’s Twitter — though Meta’s alternative, reportedly dubbed internally as “P90” or “Barcelona,” may just be the closest thing. And it’s taking a few cues from the other competitors:

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Like Bluesky and Mastodon, Meta’s Twitter clone will be built on a so-called decentralized network. This means, theoretically, users will one day be able to join specific servers with specific users and defined content moderation rules; Mastodon has gone all-in on this siloing ethos, while Bluesky still funnels all users into one main server, for now at least.

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As always, Meta has the money advantage. That means it’ll be fairly well baked at launch, with key features such as direct messages (still absent from Bluesky), connections with power users (TechCrunch reports the company is focused on onboarding A-list users, like celebrities and politicians), and ease of access (users will be able to log in via existing Instagram accounts).

Sunset Boulevard: Of course, if P90 fails, it won’t be the first time Meta has struggled to replicate a competitor. Its Yik Yak clone, tbh, shuttered less than a year after its October 2017 launch due to low usage. Its Nextdoor clone, Neighbors, was scuttled last fall. And the Cameo lookalike Super was put to rest in February. As the old saying goes: If you can’t beat them, be them; and if you can’t be them, quietly scuttle the whole operation and try to be someone else.

– Brian Boyle

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Energy

ExxonMobil Breaks into the Lithium Market with Arkansas Land Purchase

As it prepares for a future beyond black gold ExxonMobil is turning to silvery-white gold.

Exxon, a name synonymous with the oil industry in the US, has taken the first steps toward doing business in a future where the world is less dependent on petroleum. Sources told The Wall Street Journal that the largest offshoot of John D. Rockefeller’s Standard Oil is now on the hunt for lithium. Fitting, given one of its labs was the actual birthplace of the first lithium battery in the 70s.

Keeps Going, and Going, and Going

Lithium, the lightest metal on the periodic table of elements, is used for all sorts of modern products – cell phones, laptops, smart watches, tablets – generally as the main component of their batteries. Lithium batteries charge quicker, last longer, and provide more power than conventional lead-acid batteries.

And now with car makers taking huge steps away from the internal combustion engine to usher in the true era of the electric vehicle, the need for lithium has punched through the sunroof. As the automotive industry pivots, so too does the fossil fuels sector:

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Exxon purchased 120,000 acres in Arkansas’ Smackover Formation from exploration company Galvanic Energy for more than $100 million, sources told the WSJ. The area has been known for its rich oil deposits since the early 1900s, but just last year, Galvanic Energy reported the area has enough lithium to produce batteries for 50 million cars.

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It’s not quite an immediate needle-mover for the $430 billion market cap Exxon, but it’s a way of expanding its reach to other materials while still focusing on its flagship product. Oil will remain Exxon’s bread and butter for the foreseeable future, but its new venture into lithium is kind of like adding margarine to the breakfast table.

“It’s a classic hedge against the prospect of eventually declining oil demand,” Pavel Molchanov, an analyst at Raymond James, told the WSJ.

There from the Beginning: The Smackover deal marks a return to the lithium market for Exxon, which pioneered the industry roughly half a century ago. Chemist Stanley Whittingham helped develop the lithium battery while working at Exxon in the 1970s. The market proved too small at the time to justify all the research, digging, and production, but in 2019, Whittingham received a Nobel Prize for his efforts, and now lithium-ion batteries are the most popular form of energy storage.

-Griffin Kelly

Extra Upside

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Office culture: UK bankers commit far less financial misconduct while working from home, report finds.

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Holding pattern: Fed official voices support for halting rate hikes in June meeting.

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