Microsoft and OpenAI evade formal EU antitrust probe

Good morning. Here's what happened overnight and what you need to know today.

---

1.

Thick as thieves: The European Union’s competition regulators will not pursue a formal investigation into Microsoft’s USD13 billion ($20.26 billion) investment into OpenAI. In January, the European Commission announced that it was looking in to the relationship between the tech giants, after a leadership controversy late last year exposed its close connections. According to unnamed sources cited by Bloomberg, the European Commission has decided that the investment does not merit a formal probe as it falls short of a takeover, and that Microsoft does not control the direction of OpenAI. A Commission spokesperson told Bloomberg that in order to assess potential concerns over competition, the regulator would first need to determine that “there has been a change of control on a lasting basis” between the firms. (Bloomberg)

2.

Texas hold ‘em: Tesla has asked shareholders to approve the relocation of its state of incorporation in order to allow Elon Musk’s request for a USD56 billion ($87.17 billion) pay package. In February, a Delaware court, where Tesla is currently incorporated, voided the proposed package, ruling that the pay stub had been improperly approved by the company’s board and had short-changed shareholders. The lawsuit had been filed by a number of Tesla shareholders who claimed the award was excessive, despite having previously approved the pay deal in 2018. On Wednesday, Tesla chair Robyn Denholm, wrote to shareholders asking them to approve the relocation from Delaware to Texas and to ratify the new pay package. Denholm said: “We do not agree with what the Delaware Court decided […] Because the Delaware Court second-guessed your decision, Elon has not been paid for any of his work for Tesla for the past six years that has helped to generate significant growth and stockholder value.” The votes will be carried out during the company’s AGM on 13 June. (Tesla SEC filing)(Reuters)

3.

Sticky inflation: UK inflation cooled less than expected in March, stoking fears that the Bank of England could push back rate cuts. Data from the Office for National Statistics saw consumer prices rise 3.2% in the 12 months to March, down from 3.4% in February. While it was the lowest rate since September 2021, the results came in above the 3.1% that both the BoE and economists had forecast. On a monthly basis, CPI rose by 0.6%, compared with a rise of 0.8% in March 2023. While UK inflation is trending in the right direction, it is unlikely that the BoE will begin easing the country’s interest rates which are still at their highest in 16 years, until more concrete indications of cooling inflation are achieved. On Tuesday, US Fed chair Jerome Powell warned that the US central bank may keep rates higher for longer than anticipated on the back of surprise inflation data last week. (UK Office for National Statistics CPI data)(Capital Brief)

4.

Middle East conflict: Turkey’s leader Recep Tayyip Erdoğan will host the leader of Hamas, Ismail Haniyeh, in Turkey over the weekend, as he continues to criticise Israel over its action in Gaza. “The leader of the Palestinian cause will be my guest over the weekend,” Erdoğan told members of his ruling political party in parliament on Wednesday. During the session he also accused Israel of “genocide” and referred to the country as a “terrorist state.” Western nations are urging Israel to exercise restraint as it decides how to respond to Iran’s weekend missile and drone attack on the country, which saw it launch over 300 projectiles into Israel, the first time it has done so from Iranian soil. Erdoğan is coming under increased domestic pressure to bolster Palestinian support, as an Islamist party made strong gains in Turkey’s local elections in March, using the platform that Erdoğan is weak on the Israel-Palestine issue. (Financial Times)

5.

Winds of (pocket)change: French AI startup Mistral is in talks to raise capital at a USD5 billion valuation, according to sources cited by The Information. The OpenAI rival which develops open source artificial intelligence raised USD415 million at a valuation of USD2 billion in December last year. While sources don’t reveal which investors Mistral has been speaking with to foot the new funding round, existing backers including Andreessen Horowitz, Lightspeed Venture Partners and Microsoft have not shied away from topping up capital-intensive AI investments. The French company is hoping that AI customers in Europe will prefer to work with a locally based firm rather than AI behemoths abroad. (The Information)

6.

Trade wars are back: US President Joe Biden is pushing to triple tariffs on Chinese steel and aluminium in efforts to bolster the country’s steel sector and appeal blue collar workers ahead of the Presidential election. In a visit to Pittsburgh on Wednesday, Biden will propose new 25% tariffs on over USD1 billion worth of Chinese steel and aluminium products, raising the 7.5% rate imposed by Donald Trump. The Biden administration is also pressuring Mexico to block China from selling its metal products to the US indirectly from there. Biden will also launch an investigation into unfair Chinese trade practices across shipbuilding, maritime, and logistics sectors, over growing concerns that the practices are distorting the global shipbuilding market and eroding competition. (White House statement)(Reuters)

7.

Asia bank cuts: Morgan Stanley and HSBC will slash investment banking roles across Asia, according to sources cited by Reuters, as slower dealmaking drives more aggressive cost-cutting in the space. Morgan Stanley will reportedly cut 50 investment banking roles in the region this week, which will impact 13% of the bank’s Asian IB arm of 400 people. At HSBC, around 30 dealmakers are expected to be let go this week, with a spokesperson sating that the bank is continuing to invest in and grow the business, allocating people and resources to the immediate opportunities, while declining to comment on the job cuts. While Morgan Stanley and other large US banks have started to see an uptick in M&A activity this year, China’s slowing economy is hitting dealmaking activity. (Reuters)

8.

AI warning: CEO of the AI giant Arm Holdings, Rene Haas, has said the world’s data centres are on track to consume more electricity than India by 2030. Haas warned that the computing power required by artificial intelligence could overwhelm energy sources if the industry doesn’t change its approach to the tech. For AI systems to improve, they will need more training — a stage that involves bombarding the software with data — and that’s going to run up against the limits of energy capacity, Haas said. Arm’s AI chips have been designed in efforts to use energy more efficiently than traditional chips. Arm listed on the Nasdaq in September last year, raising USD4.87 billion in the biggest IPO to take place during 2023. (Bloomberg)