Google avoided a forced breakup, while Kraft Heinz split
Google’s long-running antitrust saga produced its first real outcome, and investors liked what they saw. A federal judge barred the company from locking up exclusive contracts for Search, Chrome, Assistant and Gemini, but stopped well short of forcing any breakups. There will be no new Android company, no sale of Chrome and no broad ban on default browser payments.
The company will need to share more data with rivals, but that’s a much lighter burden than many feared. Shares in Alphabet (Google’s parent company) jumped more than 6% in after-hours trading (trading that takes place after the markets close), a sign the market had been bracing for something harsher.
It’s not the end of Google’s legal problems, however. A separate case involving its advertising tech business will be heard in September. For now, though, the Nasdaq Index got a lift from the relief rally, with investors betting that accusations of Google being a monopoly won’t translate into a company-splitting penalty any time soon.
August’s surveys painted a muddled picture of U.S. industry. The S&P Global Purchasing Managers’ Index (PMI) jumped to 53.0, its strongest reading in over three years, while the Institute for Supply Management's (ISM) Purchasing Managers’ Index improved but stayed in contraction at 48.7. Both suggest that factories saw improvements after a weak July, yet the underlying details tell two different stories. The S&P data pointed to rising orders and rehiring, with production running hot into late summer. The ISM figures, on the other hand, showed prices falling and employment still lagging. The common thread was concern over tariffs: managers reported stocking up inventories and paying more for inputs, with many already passing those higher costs along to customers. That leaves the inflation question hanging. If supply fears and tariffs push costs up, the consumer price index (CPI) will feel it. If margins absorb the pressure, the consumer may be spared. Either way, manufacturing looks set to give a short-term boost to growth, even if the inflation backdrop clouds the path ahead.
Kraft Heinz called time on its mega-merger, announcing that it will split into two public companies by 2026. The new “Global Taste Elevation Co.” will house the higher-growth brands, like Heinz Ketchup and Philadelphia Cream Cheese. That side brings in around $15 billion in annual sales, most of it from sauces and seasonings, with a decent foothold in emerging markets and food service.
The slower-growth grocery portfolio, which includes brands such as Oscar Mayer, Kraft Singles and Lunchables, will form “North American Grocery Co.” and is expected to produce stable cash flows. The breakup was pitched as a way to simplify operations and free up resources for sharper growth strategies. The board signed off on a tax-free split, with dividends preserved and both firms targeting investment-grade balance sheets.
The move comes as Kraft Heinz shares languish near COVID-19 lows (down nearly 40% since mid-2021). In what turned out to be a pretty eventful week in the world of Big Food, Nestlé fired its CEO and PepsiCo picked up a new activist investor in Elliott Management.
With jobs data in the rear-view mirror, inflation figures are up next, plus the market has a September rate cut fully priced at a quarter of a percentage point (25 basis points). Traders will keep debating whether U.S. Federal Reserve chair Powell will stick to the standard move or go bigger, but the odds of at least some kind of rate cut happening this month now look good.
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