Stop Peeking Behind Our Hedges

Plus: Small nukes are being met with big yawns by investors ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

December 13, 2023

SPONSORED BY   KNIGHTSCOPE

Good morning.

It was just a matter of time before robots got their turn in the swimsuit issue.

The board of directors at Sports Illustrated publisher The Arena Group has fired CEO Ross Levinsohn after tech-news publication Futurism last month reported that the once-storied magazine had resorted to posting poorly written AI-generated articles under bylines of fake reporters. Rest assured, our newsletter is written by humans – even if you-know-who won't stop auto-correcting our spelling.

ENERGY

The American Dream of Tiny Nuclear Power Plants Hangs By a Thread

Big investors aren't flocking to small nukes.

Nuclear energy experts told the Financial Times that funding for startups developing a new, smaller type of nuclear power station called a small modular reactor (SMR) has begun to dry up. A couple of high-profile projects to build SMRs in the US have suffered major setbacks, and with nuclear energy stations requiring so much upfront investment, this could mean SMRs are doomed to fail before they even split their first atom.

Chain Reactions

Nuclear is a divisive issue, but some see it as a good way to transition away from fossil fuels. The thing is, nuclear power plants are wildly, and often unpredictably, expensive to build. The promise behind SMRs is that they're easier and less costly to set up than traditional power stations, offering a standardized one-size-fits-all construction model. However, SMRs are an unproven quantity — it's unknown whether they'll be able to achieve the economies of scale that they promise, and their potential operational risks aren't fully understood yet.

Private investors may be hesitant but some countries are plunging in. In July, the UK set up a subsidy pot of $206 million for SMR construction. However, even though eager young startups have chased that funding, it doesn't guarantee success, and a year of high interest rates has been harsh on energy projects that need a lot of upfront financing including mature technologies like wind and solar power, let alone nuclear projects:

Last month, US SMR startup NuScale canceled plans to build the first SMR in the US, citing a lack of interest from power utilities — quite possibly because the cost of buying power from the planned plant went up over 50% since 2021.
In October, another SMR darling called X-energy iced plans to go public via a SPAC. "There were certain realities about the market, which [...] put public equity providers in a risk-off situation," X-energy's CEO told the FT.

Now that the COP28 climate summit is winding down with a somewhat anemic deal on fossil fuels, stopping short of calling for a total phase-out, SMR startups have lost some of their edge selling themselves as an urgent need for bridging the gap to a sustainable energy future.

Vertical Integration: SMR startup Oklo, which is backed by OpenAI's boomerang CEO Sam Altman, is still planning to go public via a SPAC early next year. We're told SPACs are still out and about. Meanwhile, The Wall Street Journal reported Tuesday that Microsoft, OpenAI's biggest investor, is planning to increase its use of nuclear power and even seems to be incorporating SMRs into its electricity planning. Building and maintaining generative AI tools like ChatGPT gobbles up huge amounts of data, so building out energy resources makes sense. The fact that it happens to be one of Altman's hobby horses? A pleasant bonus.

Written by Isobel Asher Hamilton

Coming up Short

Short-selling — betting against a security and cashing in when it goes down in value — has long been criticized for its lack of transparency and disclosure as well as for how it can incentivize hedge funds to drag down share prices to help their short positions. The SEC adopted two new rules in October that require more intricate reporting of short positions than previously required.

Proponents of the new rules argued that disclosing more data allows both the public and regulators to be better equipped to respond to potential destabilizing market events. But in their lawsuit, the hedge funds say that the SEC "adopted fundamentally contradictory approaches" by instituting the two different rules:

The first rule requires traders to report the securities loaned to facilitate the short sale, with the SEC then publishing the information anonymously and on delay. The second rule requires short-selling activity reporting from some institutional investors, with the data also eventually published anonymously on a delayed basis.
The ramped-up disclosure could inadvertently end up "revealing confidential investment strategies and potentially facilitating retaliation or other manipulative activities," the plaintiffs argued in their filing, a hat tip to the PTSD inflicted by meme-stockers driving up the share price of GameStop to undermine hedge funds' short positions in early 2021.

British Open: When US regulators zig, the UK's zag. Earlier this year, England's regulators significantly decreased the disclosure requirements that hedge funds need to reveal on short positions on London-listed company stocks, arguing that more disclosure can risk both trend-setting or short squeezes. It's amazing the impact a brigade of Redditors can have around the world.

Written by Brian Boyle

REAL ESTATE

Wyndham Hotels Faces Hostile Takeover Campaign from Choice Hotels

Photo of a Wyndham hotel in Las Vegas, Nevada

Photo by Harrison Keely via CC BY 4.0

Now Wyndham Hotels is doing it the hard way. Or maybe this is the easy way?

On Tuesday, following numerous failed attempts to talk Wyndham into a merger, Choice Hotels – parent company of Econo Lodge, Quality Inn, and more – launched a hostile takeover campaign for its hospitality rival.

You Leave Us No Choice

In October, Choice publicized a $7.8 billion cash-and-stock offer that valued Wyndham at roughly $90 per share, or about a 30% premium of its share price at the time. Wyndham's board rejected the deal, citing regulatory risks and a low-ball offer. Now, Choice is making the same offer — and taking it instead to Wyndham shareholders.

In this "exchange offer," Choice plans to nominate a slate of directors for Wyndham's 2024 annual shareholder meeting, effectively allowing shareholders to vote for or against a takeover. Choice also is already laying the groundwork for regulatory approval, preemptively squashing Wyndham's concerns:

Adding Wyndham chains like La Quinta and Travelodge would have a new-look Choice accounting for roughly 17% of all US hotel rooms. The company says that would allow it to compete more seriously with Marriott and Hilton.
Choice has already engaged the FTC on an antitrust review process for a deal. It's also arguing that its hotels are operated by franchisees who are empowered to set their own prices, therefore limiting potential harm and higher prices for consumers.

"While we would have preferred to come to a negotiated agreement, the Wyndham board's refusal to explore a transaction has left us with no choice but to take our proposal directly to Wyndham's shareholders," Choice CEO Patrick Pacious said in a mildly ironic statement, given the name of the company he runs.

Budget Kings: Hotels have been stung pretty hard by inflation, which has fueled demand for budget hotels. That's been relatively good news for both Wyndham and Choice, which each have a slew of budget options in their portfolios. Last year, Choice spent $675 million to acquire the Radisson chain of hotels, which we hear may or may not be reasonable.

Written by Brian Boyle

Extra Upside

David beats Goliath: Epic Games wins its antitrust case over Google.
Christmas tree inflation is real in New York, but only one of them costs nearly $1,800.
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