What We Learned This Week

Spirit Airlines to Remain Independent: A federal judge intervened to halt the proposed merger between JetBlue and Spirit Airlines this week following a lawsuit by the DOJ aiming to prevent the consolidation. This marks a significant development and underscores the Biden administration's commitment to preventing potentially anti-competitive business practices. The DOJ's argument in the lawsuit emphasized the potential adverse impact on customers who rely on Spirit's budget-friendly fares. JetBlue's plan to reconfigure Spirit's aircraft and implement higher average fares factored into the DOJ's opposition. Following the news, Spirit's stock plummeted over 60%, representing a more than 90% decline from its 2014 peak. The sharp drop suggests the market's surprise at the decision and raises intriguing implications for near-term M&A activity.

Rocky Start to 2024: The market is grappling to regain stability following a strong conclusion to 2023. Recent data points have failed to instill much confidence, marked by a steady increase in interest rates, disappointing growth figures in China, an unexpected uptick in inflation in the UK, cautious statements from major bank CEOs, and diminished expectations for imminent rate cuts. While individually these factors may not be substantial, their collective impact contributes to an overall negative sentiment. Coupled with a lack of notably positive data points, short-term investors are opting to secure profits after the previous rally. Our attention now turns to 4Q earnings for a comprehensive assessment of the fundamental landscape of companies.

Apple Avoids Watch Ban, Again: Apple narrowly averted a ban on its latest Apple Watch models due to an ongoing patent dispute over the blood oxygen sensor. Despite successfully delaying the ban initially, it was eventually enforced, compelling Apple to halt sales of the affected models. In a swift response, Apple modified the design, temporarily removing the blood oxygen sensor feature until the dispute is resolved. While this allows uninterrupted sales of the updated models, the sensor issue may take months to resolve. This development follows a challenging start to the year for Apple, addressing concerns about product sales and margins. However, long-term perspectives consider Apple's enduring value, with recent achievements, such as the iPhone becoming the world's best-selling phone, showcasing the strength of the brand.

Burger King Getting a Revamp: Restaurant Brands International (parent company of Burger King and Popeyes) is acquiring its largest franchisee, Carrols Restaurant Group, encompassing over 1,000 Burger King and 60 Popeyes locations nationwide. This move aims to drive restaurant improvements and enhance sales, particularly for Burger King, which seeks to regain market share lost to Wendy's. By taking control of this significant franchisee base, Restaurant Brands can expedite its strategy to revamp locations, with plans to swiftly update 600 outlets post-acquisition. The subsequent upgrades are anticipated to precede a substantial refranchising effort. This approach is noteworthy, leveraging ownership to propel change within an asset-light model like Restaurant Brands, where direct influence over the franchise base may be limited.