Category: 3. Business

The UK government borrowed more than expected in October, official figures show, in the final snapshot of the public finances before Rachel Reeves’s crunch budget.

The Office for National Statistics said the government borrowed £17.4bn last month. That was lower than the same month last year, but still marked the third highest October deficit in the public finances on record. It is also higher than the £15bn City economists had forecast.

In the fiscal year so far, borrowing is running at £116.8bn – 8.4% higher than the same period in 2024, the ONS added, underlining the challenge facing Reeves in balancing the books.

The chancellor will deliver her second budget next Wednesday against a difficult political background, after the Treasury floated and then ditched plans to raise income tax.

She is expected to raise taxes significantly, in response to a downgrade in economic forecasts from the Office for Budget Responsibility.

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Google will confront the U.S. government’s latest attempt to topple its internet empire in federal court on Friday as a judge considers how to prevent the abusive tactics that culminated in parts of its digital ad network being branded as an illegal monopoly.

The courtroom showdown in Alexandria, Virginia, will pit lawyers from Google and the U.S. Department of Justice against each other in closing proceedings focused on the complex technology that distributes millions of digital ads across the internet each day.

After a lengthy trial last year, U.S. District Judge Leonie Brinkema ruled in April that pieces of Google’s ad technology had been rigged in a way that made it an illegal monopoly. That set up another 11-day trial earlier this fall to help Brinkema determine how to remedy its anti-competitive practices.

Friday’s closing arguments will give both Google and the Justice Department a final chance to sway Brinkema before she issues a ruling that probably won’t come until early next year.

The Justice Department wants Brinkema to force Google to sell some of the ad technology that it has spent nearly 20 years assembling, contending a breakup is the only way to rein in a company that the agency’s lawyers condemned as a “recidivist monopolist” in filings leading up to Friday’s hearing.

The condemnation refers not only to Google’s practices in digital advertising but also to the illegal monopoly that it unleashed through its dominant search engine. Federal prosecutors also sought a breakup in the search monopoly case, but the judge handling that issue rejected a proposal that would have required Google to sell its popular Chrome web browser.

Although Google is still being ordered to make reforms that it’s resisting, the outcome in the search monopoly case has been widely seen as a proverbial slap on the wrist. The belief that Google got off easy in the search case is the main reason the market value of its parent company Alphabet surged by about $950 billion, or 37%, to nearly $3.5 trillion since U.S. District Judge Amit Mehta’s decision came out in early September.

That setback hasn’t discouraged the Justice Department from arguing for a breakup of an ad tech system that handles 55 million requests per second, according to estimates provided by Google in court filings.

The huge volume of digital ads priced and distributed through Google’s technology is one of the main reasons that the company’s lawyers contend it would be too risky to force a dismantling of the intricate system.

“This is technology that absolutely has to keep working for consumers,” Google argues in documents leading up to Friday’s hearing. The company’s lawyers blasted the Justice Department’s proposal as a package of “legally unprecedented and unsupported divestitures.”

Besides arguing that its own proposed changes will bring more price transparency and foster more competition, Google is also citing market upheaval triggered by artificial intelligence as another reason for the judge to proceed cautiously with her decision.

In his decision in the search monopoly case, Mehta reasoned that AI was already posing more competition to Google.

But the Justice Department urged the judge to focus on the testimony from a litany of trial witnesses who outlined why Google shouldn’t be trusted to change its devious behavior.

The witnesses “explained how Google can manipulate computer algorithms that are the engine of its monopolies in ways too difficult to detect,” the Justice Department argued in court papers.

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TAIPEI, Taiwan — OpenAI and Taiwan electronics giant Foxconn have agreed to a partnership to design and manufacture key equipment for artificial intelligence data centers in the U.S. as part of ambitious plans to fortify American AI infrastructure.

Foxconn, which makes AI servers for Nvidia and assembles Apple products including the iPhone, will be co-designing and developing AI data center racks with OpenAI under the agreement, the companies said in separate statements on Thursday and Friday.

The products Foxconn will manufacture in its U.S. facilities include cabling, networking and power systems for AI data centers, the companies said. OpenAI will have “early access” to evaluate and potentially to purchase them.

Foxconn has factories in the U.S., including in Ohio and Texas. The initial agreement does not include financial obligations or purchase commitments, the statements said.

The Taiwan contract manufacturer has been moving to diversity its business, developing electric vehicles and acquiring other electronics companies to build out its product offerings.

“This partnership is a step toward ensuring the core technologies of the AI era are built here,” Sam Altman, CEO of San Francisco-based OpenAI, said in the statement. “We believe this work will strengthen U.S. leadership and help ensure the benefits of AI are widely shared.”

OpenAI has committed $1.4 trillion to building AI infrastructure. It recently entered into multi-billion partnerships with Nvidia and AMD to expand the extensive computing power needed to support its AI models and services. It is also partnering with US chipmaker Broadcom in designing and making its own AI chips.

But its massive spending plans have worried investors, raising questions over its ability to recoup its investments and remain profitable. Altman said this month that OpenAI, a startup founded in 2015 and maker of ChatGPT, is expected to reach more than $20 billion in annualized revenue this year, growing to “hundreds of billions by 2030.”

Foxconn’s Taiwan-listed share price has risen 25% so far this year, along with the surge in prices for many tech companies benefiting from the craze for AI.

The Taiwan company’s net profit in the July-September quarter rose 17% from a year earlier to just over 57.6 billion new Taiwan dollars ($1.8 billion), with revenue from its cloud and networking business, including AI servers, contributing the most business.

“We believe the importance of the AI ​​industry is increasing significantly,” Liu said during Foxconn’s earnings call this month.

“I am very optimistic about the development of AI ​next year, and expect our cooperation with major clients and partners to become even closer,” said Liu.

___

Chan reported from Hong Kong

Story Continues

One scoop to start: Birmingham’s NEC events centre is being lined up for a sale by its private equity owner Blackstone, which hopes the host of everything from dog show Crufts to this year’s Reform UK party conference will fetch roughly £1bn.

In today’s newsletter:

• AI’s fear and loathing in Washington

• Patrick Drahi’s SFR high-wire act

• Abu Dhabi’s deal machine turns over

Is Maga turning on Trump’s AI optimism?

Nvidia, increasingly seen as the bellwether for the global financial system, left investors in limbo on Thursday after its strong earnings did not lead to a stock surge.

Investors have grown edgy over their artificial intelligence bets, which, depending on who one asks, is a massive bubble or the opportunity of a lifetime.

DD has closely covered the money side of the AI boom such as the financial engineering behind data centre projects, the circularity of OpenAI’s deals with tech giants and the private capital groups financing its infrastructure.

Today, we’re dipping our toes into politics and looking at Washington, where there are growing signs of an AI backlash that could cool Wall Street’s hottest trade.

The contradictions of AI politics were on display this week as US President Donald Trump hosted Saudi Arabia’s Crown Prince Mohammed bin Salman and brought tech moguls including Michael Dell, Jensen Huang and Elon Musk to a gala at the White House. During the visit, Trump touted a number of AI deals between the Middle Eastern nation and US tech giants, and approved the sale of chips to the kingdom.

But is Trump’s AI dealmaking with Riyadh and others a winning political message? Unemployment is rising, energy costs in suburban America are surging because of increased demand, and few communities want loud, sprawling boxes of technology in their backyards.

The FT’s Joe Miller reports in a deep dive that Trump’s unfettered embrace of AI and possible neutralisation of regulatory checks are growing increasingly contentious in Washington and within his Republican party.

Trump appears to be acquiescing to lobbying against AI regulations from Silicon Valley titans such as venture capital firm Andreessen Horowitz. Earlier this week, he backed a plan to restrict states from regulating AI, after a similar measure failed by 99 votes to one in the Senate over the summer.

“Shows what money can do,” Republican senator Josh Hawley said of the move. Hawley is a notorious tech sceptic. But there are more mainstream critics such as Florida governor Ron DeSantis who called the plan “an insult to voters”.

Arkansas governor Sarah Huckabee Sanders, who served as Trump’s White House press secretary in his first term, said: “Drop the pre-emption plan now and protect our kids and communities.”

Some Republicans in Congress have warned Trump’s embrace of light-touch AI regulation could hurt them electorally, a person close to the party leadership told the FT, amid concerns about job losses, high energy prices and child safety.

DD expects the AI discourse in Washington will increasingly break unfavourably for the bulls.

The benefits of the technology largely accrue to the billionaires at the White House this week, but are considered a growing threat inside many swing-state households.

French telecoms may have another shot at the Drahi empire

A trio of French telecoms groups are preparing to try again for SFR, the French company owned by billionaire Patrick Drahi’s telecoms empire Altice.

It comes at a busy time for Drahi and his debt-fuelled group.

The French police have been carrying out a sweeping probe into an alleged scheme by employees and suppliers to defraud Altice. (Drahi has previously denied knowledge of the alleged scheme and said the allegations had come “as a huge shock”.)

This year, Drahi renegotiated Altice France’s €24bn debt pile in one of Europe’s biggest such restructurings. He’s been looking to sell assets to pay off some of those loans — and potentially exit telecoms entirely.

On top of all that, his auction house Sotheby’s has been haemorrhaging cash.

Now, fresh from seeing their original €17bn offer rejected last month, French telecoms groups Orange, Bouygues and Iliad are trying again.

The consortium is considering widening the scope of its original bid to include other Altice France assets, in an effort to encourage the French-Israeli tycoon to the negotiating table.

But there are a lot of hurdles. Any sale will have to contend with competition scrutiny, and some in the consortium believe French regulators may look more favourably on a deal than their counterparts in Brussels would, according to people familiar with their thinking.

Drahi is simultaneously running processes to sell some assets within Altice France to separate buyers in an effort to give himself options.

One bid for SFR’s B2B operations has been received, meaning that whatever happens, Drahi will try to play the field.

XRG’s musical chairs

When Abu Dhabi’s national oil company Adnoc puts its mind to something, it doesn’t take very long for the group to dominate.

And over the past year, it has solidified itself as the energy sector’s most ambitious dealmaker through its new vehicle called XRG.

The fledgling entity — which was set up to buy international gas, chemicals and low-carbon energy businesses — has already tried to strike more than $40bn of acquisitions.

XRG had big ambitions from day one. Adnoc CEO Sultan al-Jaber set the bar high, saying last year that it would be a “transformative investment company” and constructed a board of big-hitting finance names like Blackstone president Jon Gray and former BP chief Bernard Looney. 

But the buying machine is now getting a team in place to take those ambitions even further, the FT’s Malcolm Moore and DD’s Ivan Levingston report, with all of the moves resembling something like musical chairs.

First there’s former Goldman Sachs banker Nameer Siddiqui, who’s joining the group as its next chief investment officer. He was most recently an executive at Phillips 66, defending the US refiner against activist investor Elliott Management.

Meanwhile Klaus Froehlich, who led the deals team for XRG and Adnoc, will step back from his role at the former. And XRG chief operating officer Khaled Salmeen will leave the company in January.

All together, the moves add up to serious change after a busy first year of activity.

The group is not slowing down, targeting a continued run of investment with plans to spend between $10bn and $30bn on infrastructure investment over five years, and its enterprise value has risen to $150bn. 

Yet its first year wasn’t all rosy. XRG decided to withdraw a $19bn bid for the Australian oil and gas company Santos, for instance. Now with a new team in place, maybe it’ll make another swing at the group.

Job moves 

• Citigroup chief financial officer Mark Mason is stepping down from his role, and will become executive vice-chair at the US bank. He will be replaced by Gonzalo Luchetti, who currently heads its US retail division.

• The Takeover Panel, the UK’s mergers regulator, has extended the term of director-general Omar Faruqui until the end of July. 

• Willkie Farr & Gallagher has elected 30 new partners, from offices including New York, London and Los Angeles. The group includes about a dozen lawyers from the corporate and financial services team.

Smart reads

Losing interest It’s not just LPs wondering whether their promised PE returns will ever materialise. Private equity employees are quitting some of the industry’s biggest firms, The Wall Street Journal reports, as they grow tired of waiting for their “carry”. 

Trump bump The credit the US extended to Argentina ahead of elections last month was a lifeline for Javier Milei — and a boon for a group of hedge funds, the FT reports. 

Cantor deals US commerce secretary Howard Lutnick is the country’s dealmaker and bruiser in chief. But he’s promoting data centre projects that are creating huge business for companies run by his sons, The New York Times reports. 

News round-up

SEC weighs looser independence rules for Big Four auditors (FT)

Top Fed official warns on risk hedge funds pose to $30tn Treasury market (FT)

Walmart to shift listing to Nasdaq as retailer raises sales forecasts (FT)

US healthcare group Abbott bets on cancer screening technology in $23bn deal (FT)

Paramount makes surprise knockout bid for UK Champions League rights (FT)

Big Four partner promotions sink to five-year low in UK (FT)

US banks shelve $20bn bailout plan for Argentina (WSJ)

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Europe may well be sleepwalking into deindustrialisation, as Ineos chair Sir Jim Ratcliffe has indicated. But it is hard to see it changing direction. The UK chemicals group Ratcliffe runs — whose debt has been sold off by concerned investors — will not be the last to come under pressure.

The problem, for European commodities chemicals companies such as Ineos Group, its affiliate Ineos Quattro, BASF, Synesqo, Arkema, Evonik and Lanxess, is that producing in the continent is relatively expensive. Natural gas, which accounts for 85 per cent of the cost of manufacturing fertilisers and ammonia, cost Europeans about four times what it did in the US in the third quarter of this year, according to Oxford Economics. Strict environmental standards and carbon costs add to the burden.

That is a formula for disappointment. European companies’ share of the global chemicals market declined from 28 per cent in 2003 to 13 per cent in 2023, according to Barclays research, a trend that has continued since. Sector stocks have underperformed the Euro Stoxx 600 index by more than 30 per cent over the past two years.

The problem is bigger for petrochemicals and commodities chemicals makers, among them Ratcliffe’s companies and others such as Venator and Kem One. Speciality chemicals companies such as Synthomer, Arkema, ASK Chemicals and Seqens have the advantage of relatively less competition, though they are vulnerable to innovation by rivals.

Protectionism might seem like a solution, at least to the companies themselves. Ineos Group said it was filing EU anti-dumping cases against imports of cheap substitutes. As Europe’s fourth-largest industrial sector, chemicals underpin industries including defence, agriculture and pharmaceuticals. But trade curbs risk raising costs for consumers and inviting retaliation. A third of EU chemical sales is exports.

Smaller, leveraged companies have been the first to bear the brunt. Apollo-owned Kem One’s €450mn bond due in 2028 has fallen to 14 cents on the euro. Loans to Seqens have changed hands at roughly half their face value. Chemicals groups account for 5.4 per cent of the European leveraged loan market and are down 2.8 per cent year to date through October on Morningstar’s European Leveraged Loan Index.

That might understate what could be a much graver problem. Barclays analysts argue that, at worst, chemicals groups could find they have a “terminal value” — the sum of their long-term cash flows starting from a few years out — of zero, and should slash their indebtedness sooner rather than later. That leaves a lot of toxic waste to wade through.

gaia.freydefont@ft.com