WEBVTT - Chocolate Merger, SCOTUS & Texas Takes on Delaware 0:00:03.200 --> 0:00:08.000 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:00:09.440 --> 0:00:13.080 Will the FTC try to stop the largest packaged food 0:00:13.160 --> 0:00:17.239 deal in years? Mars, known for its candy like m 0:00:17.239 --> 0:00:20.520 and Ms, Milky Ways, Skittles, Twigs and on and on, 0:00:20.840 --> 0:00:24.680 wants to buy cheese at maker Kelenova for nearly thirty 0:00:24.720 --> 0:00:29.480 six billion dollars. But will FTC chair Lena Kahn's views 0:00:29.520 --> 0:00:34.040 about a chocolate oligopoly lead to a challenge to the deal? 0:00:34.400 --> 0:00:38.560 Joining me is Bloomberg Anti trust reporter Leon Nylan Leah 0:00:38.600 --> 0:00:41.320 tell us how Lena Kahan had a problem with the 0:00:41.440 --> 0:00:44.879 chocolate oligopoly about a decade. 0:00:44.560 --> 0:00:48.000 Ago before she became FTC chair and con worked for 0:00:48.360 --> 0:00:51.280 an advocacy group that focuses on anti chask to open markets, 0:00:51.320 --> 0:00:54.120 and she did a lot of research and writing sort 0:00:54.120 --> 0:00:57.760 of about consolidation within various industries and one of those 0:00:57.800 --> 0:01:01.120 a scud So. About ten years ago she wrote a 0:01:01.120 --> 0:01:04.120 story about how there had been a significant con coolidation 0:01:04.240 --> 0:01:08.640 within the candy industry, particularly chocolate candies, and how today 0:01:08.800 --> 0:01:13.720 there are only about three major chocolate companies That's Nestleie 0:01:14.280 --> 0:01:16.760 Mars and her Shee's. You know you have a couple 0:01:16.840 --> 0:01:20.800 other ones like Baro Rocho, which is an Italian company, 0:01:20.840 --> 0:01:23.640 but those are the big free So even though when 0:01:23.680 --> 0:01:26.640 you go to the bircery store you see like what 0:01:26.720 --> 0:01:30.399 looks like, you know, dozens of different brands, really most 0:01:30.400 --> 0:01:32.320 of those are owned by one of these free companies. 0:01:32.600 --> 0:01:35.040 And so she was lamenting a little bit. How when 0:01:35.080 --> 0:01:37.000 there is this kind of confolidation, there ends up being 0:01:37.040 --> 0:01:39.160 a little bit less innovation in market. 0:01:39.600 --> 0:01:42.959 See, now I would wish there was less innovation in 0:01:43.160 --> 0:01:47.520 candy so that I would not be so tempted. I 0:01:47.640 --> 0:01:51.200 never noticed that there was a lack of diversity in candy. 0:01:52.920 --> 0:01:56.600 So tell us about this proposed or possible Mars deal. 0:01:57.200 --> 0:02:00.200 Yeah, so Mars, which is primarily a candy company, is 0:02:00.240 --> 0:02:04.120 looking at buying Kelenova. Keelenova is a company that was 0:02:04.160 --> 0:02:07.840 spun out of Keellog to Kellogg, the cereal company decided 0:02:07.880 --> 0:02:11.200 to split up its business in between Kellogg the traditional 0:02:11.240 --> 0:02:14.119 cereal and like everything else it did, And so Keelenova 0:02:14.280 --> 0:02:17.160 is sort of the everything else. So it has pop tarts, 0:02:17.360 --> 0:02:20.520 it has cheese, it it has nutri grain bars, it 0:02:20.560 --> 0:02:22.799 has all of these other sort of like snack food 0:02:23.080 --> 0:02:27.400 and frozen items in packaged food, and so Mars would 0:02:27.440 --> 0:02:29.360 like to buy it because, as I said, primarily it 0:02:29.480 --> 0:02:32.200 is a candy company, but it would like to sort 0:02:32.200 --> 0:02:34.440 of get a little bit more into snack food. So 0:02:34.600 --> 0:02:37.080 they are looking at doing a thirty six billion dollars 0:02:37.120 --> 0:02:39.799 deal and it's really going to put Mars into one 0:02:39.840 --> 0:02:43.640 of the top packaged food companies in the world. So 0:02:43.760 --> 0:02:47.240 right now the top ones are Unilever, PepsiCo, and Nestlie 0:02:47.400 --> 0:02:50.120 and this would make Mars the number four, right behind 0:02:50.160 --> 0:02:52.960 those three. So the FTC is going to take a 0:02:53.000 --> 0:02:55.840 look at the dial because there's a lot of interest 0:02:55.919 --> 0:02:59.160 in food right now, particularly with all the inflation that's 0:02:59.200 --> 0:03:03.160 been going on. There's been some suggestions that the reason 0:03:03.200 --> 0:03:05.720 that food prices haven't come down as much is because 0:03:05.760 --> 0:03:08.320 there is so much consolidation in the industry that a 0:03:08.320 --> 0:03:10.880 lot of the food companies can sort of keep their 0:03:10.880 --> 0:03:13.640 prices high in a way that they would otherwise not 0:03:13.680 --> 0:03:15.320 be able to if there was more competition. 0:03:16.040 --> 0:03:20.360 They do compete in snack bars. Is the analysis going 0:03:20.400 --> 0:03:24.640 to depend on how they compete in snack bars or 0:03:24.680 --> 0:03:27.560 is it going to focus on their becoming then the 0:03:27.680 --> 0:03:31.639 fourth largest packaged food dealer. I mean, it really doesn't 0:03:31.639 --> 0:03:35.840 seem like there's a lot of overlap in what Mars 0:03:36.080 --> 0:03:37.280 and Kelenova do. 0:03:38.280 --> 0:03:41.520 Yeah, the biggest overlap is that you said in snack bars. 0:03:41.600 --> 0:03:44.280 So one of them owns Utri Grain and the other 0:03:44.320 --> 0:03:46.720 owns Matro's Bakery, And if you ever had those items, 0:03:46.720 --> 0:03:48.800 they're very similarly. You know, they have the fruit in 0:03:48.840 --> 0:03:51.040 the middle and then there's the grains on the outside. 0:03:51.440 --> 0:03:54.680 One of them also owns Hind Bars, you know, all 0:03:54.720 --> 0:03:57.800 those like nut and chocolate ones, and the other owns 0:03:57.880 --> 0:04:00.760 are expires, which they often have like fruit and that's 0:04:00.840 --> 0:04:03.560 mixed together into sort of a bar. But these are 0:04:03.600 --> 0:04:08.080 all sort of like the slightly healthier nack and or 0:04:08.160 --> 0:04:10.600 the real replacement type things that you might you know, 0:04:10.680 --> 0:04:13.760 grab when you're hungry. And so the FTC is definitely 0:04:13.760 --> 0:04:15.880 going to take a look at that. And you know, 0:04:15.960 --> 0:04:19.320 the traditional way that this would be resolved is that 0:04:19.360 --> 0:04:21.200 they would try and sell off one of these brands. 0:04:21.240 --> 0:04:22.920 They would keep one and they could sell off the other. 0:04:23.600 --> 0:04:27.240 This FTC has been a lot more reluctant to accept 0:04:27.400 --> 0:04:29.640 that kind of a deal. I mean, I am here 0:04:29.680 --> 0:04:32.280 in Portland because of the Kroger Albertson steal and that's 0:04:32.320 --> 0:04:34.800 exactly where they're challenging at Kroger and Auversons are saying, 0:04:34.800 --> 0:04:37.279 you know, we'll sell us some supermarkets, everything will be fine, 0:04:37.520 --> 0:04:39.839 and the FTC is like, eh, we're not really sure. 0:04:40.800 --> 0:04:43.719 So that may be a little bit harder in this case. 0:04:44.240 --> 0:04:47.520 How long does the FTC have before they have to 0:04:47.520 --> 0:04:49.720 make a decision in the Mars case. 0:04:50.000 --> 0:04:52.680 Yeah, so Mars and Kelenova just announced the steal a 0:04:52.680 --> 0:04:55.640 couple of weeks ago. They will file their initial paperwork 0:04:55.680 --> 0:04:59.040 pretty soon, and then the FEC will have thirty days 0:04:59.040 --> 0:05:01.479 to decide if it wants to do an in depth 0:05:01.600 --> 0:05:03.719 review that we call a second request. A lot of 0:05:03.720 --> 0:05:06.559 those people I spoke to said they believe that FPC 0:05:06.680 --> 0:05:09.000 is definitely going to do a second request here. Once 0:05:09.040 --> 0:05:11.279 it goes into the second request phase, that can take 0:05:11.360 --> 0:05:13.640 several months or maybe even up to a year for 0:05:13.720 --> 0:05:15.520 them to sort of make a decision about what they're 0:05:15.520 --> 0:05:16.360 going to do with the deal. 0:05:16.520 --> 0:05:21.400 So, speaking of Kroger Albertson's, I understand that the surgeon 0:05:21.520 --> 0:05:26.360 grocery prices played a big part in the opening statements 0:05:26.920 --> 0:05:27.680 at the trial. 0:05:28.279 --> 0:05:30.400 Yeah, you know, this is a merger between what the 0:05:30.480 --> 0:05:35.120 US calls the two largest traditional grocery stores, Kroger and Robertsons, 0:05:35.160 --> 0:05:38.279 and you know there's sort of one stop shop places 0:05:38.279 --> 0:05:40.040 where you go and you can get sort of all 0:05:40.040 --> 0:05:41.599 of the food you might need for a week. And 0:05:41.640 --> 0:05:44.160 they have alleged that both Kroger and Robertsons spend a 0:05:44.160 --> 0:05:47.520 lot of time thinking about how the other one prices, 0:05:47.520 --> 0:05:50.480 particularly on what they consider it to be consumer stables, 0:05:50.560 --> 0:05:54.159 which are things like milk, eggs, bananas, things along those 0:05:54.200 --> 0:05:57.400 lines that Americans purchased a lot, probably even weakly. So 0:05:57.560 --> 0:05:59.839 we have heard a lot about egg pricing in particular. 0:06:00.040 --> 0:06:02.000 You know, there's been a lot of up and down 0:06:02.040 --> 0:06:05.400 in egg pricing since the pandemic, in part because there's 0:06:05.440 --> 0:06:08.240 been a couple like bird flu outbreaks here in the US. 0:06:08.279 --> 0:06:12.600 But there has been some testimony that Albertson's and Kroger 0:06:12.600 --> 0:06:15.000 look to each other very significantly on how to price 0:06:15.040 --> 0:06:19.120 their eggs. They do weekly reports on what the other 0:06:19.200 --> 0:06:22.360 one is charging in the market, and they oftentimes, yeah, 0:06:22.520 --> 0:06:25.440 like adjust their pricing based on what either you know, 0:06:25.520 --> 0:06:28.680 Kroger or Albertson's just charging. The companies have argued that 0:06:28.720 --> 0:06:31.719 they don't compete with each other as much as the 0:06:31.760 --> 0:06:36.280 FTC claims that really their biggest competitors Walmart. Walmart obviously 0:06:36.400 --> 0:06:39.720 is one of the biggest food sellers in the United States. 0:06:39.760 --> 0:06:42.719 But you know, we've seen at this point dozens of 0:06:42.760 --> 0:06:45.839 documents in which Kroger and Albertsons refer to each other 0:06:45.920 --> 0:06:49.880 as either their primary competitor or their biggest competitor. And 0:06:49.920 --> 0:06:52.240 while they do look at Walmart for some pricing, it's 0:06:52.279 --> 0:06:55.359 pretty clear that they are very, very focused on the 0:06:55.440 --> 0:06:57.000 other traditional supermarkets. 0:06:57.600 --> 0:07:01.320 There was testimony at the trial about the company that 0:07:01.440 --> 0:07:06.279 would buy almost six hundred of the divested stores from 0:07:06.360 --> 0:07:09.960 Kroger and Albertson's CNS Grocery Wholesale. 0:07:10.080 --> 0:07:12.640 So in order to get the deal through, the companies 0:07:12.720 --> 0:07:15.400 knew that they competed directly in a lot of areas, 0:07:15.720 --> 0:07:18.679 and so they offered to sell five hundred and seventy 0:07:18.800 --> 0:07:21.800 nine stores to a company called CNS Grocery Coolesalers. So 0:07:21.880 --> 0:07:26.480 CNS is primarily a grocery holesaler. That means that they 0:07:26.840 --> 0:07:31.720 fiber products from the consumer packaged goods or from the farmers. 0:07:31.840 --> 0:07:33.560 They keep them in the warehouse, and then when the 0:07:33.600 --> 0:07:36.600 supermarket needs to stocket shelves, it orders from them and 0:07:36.640 --> 0:07:39.720 they send a truck to the serper market with all 0:07:39.720 --> 0:07:42.720 of the goods. So a lot of the bigger supermarkets 0:07:42.720 --> 0:07:45.640 like Kroger and Overritson sort of do this warehousing and 0:07:45.680 --> 0:07:50.280 distribution themselves, with smaller grocery chains to use wholesalers like CNS. So, 0:07:50.440 --> 0:07:53.280 as I said, CNS is primarily a wholesaler. It does 0:07:53.400 --> 0:07:57.680 operate twenty three grocery stores in upstate New York and Wisconsin, 0:07:57.920 --> 0:08:01.640 so buying five hundred and seventy nine stores would be 0:08:01.680 --> 0:08:05.680 like quite a significant change for this company, and they 0:08:05.800 --> 0:08:09.320 argue that they are really excited about this possibility, that 0:08:09.360 --> 0:08:12.000 they would really like to sort of diversify their company 0:08:12.000 --> 0:08:14.520 beyond just being a whole baler, and that it sort 0:08:14.520 --> 0:08:17.240 of makes sense for them, since they are so involved 0:08:17.240 --> 0:08:19.840 in groceries, to pick up grocery retailing. But the FEC 0:08:20.080 --> 0:08:22.240 argues that this is putting a lot of the risk 0:08:22.360 --> 0:08:26.280 onto consumers because if this divestiture package were to fail 0:08:26.560 --> 0:08:28.720 all of a sudden, there's not going to be as 0:08:28.760 --> 0:08:31.960 much grocery competition and a lot of places around the country, 0:08:32.080 --> 0:08:35.120 consumers would only have the option of the combined Kroger 0:08:35.120 --> 0:08:35.800 and Operts them. 0:08:36.240 --> 0:08:40.280 And CNS doesn't have a great record of keeping supermarkets 0:08:40.320 --> 0:08:40.959 that they buy. 0:08:41.520 --> 0:08:46.000 Yes, so historically, as I mentioned, CNS has played a 0:08:46.000 --> 0:08:48.760 little bit in the retail business. But what they would 0:08:48.800 --> 0:08:51.960 do is they would buy a couple grocery stores, primarily 0:08:51.960 --> 0:08:56.040 from other companies that were already their customers, and then 0:08:56.040 --> 0:08:57.960 they would keep them for a while and then sort 0:08:57.960 --> 0:09:00.640 of sell them off or sell them back to somebody else. 0:09:01.040 --> 0:09:04.040 So there was a period in time in the early 0:09:04.400 --> 0:09:07.200 mid two thousands when they had a couple hundred stores, 0:09:07.360 --> 0:09:10.520 but by twenty twelve they had completely exited the retail 0:09:10.520 --> 0:09:13.440 grocery industry. So for a long time they operated no 0:09:13.520 --> 0:09:16.960 grocery stores whatsoever. In about twenty twenty one, they sort 0:09:16.960 --> 0:09:19.320 of decided to get back into the retail business, and 0:09:19.360 --> 0:09:22.040 that's when they started acquiring a couple more stores, And 0:09:22.080 --> 0:09:24.400 as I said, they now operate just twenty three of 0:09:24.440 --> 0:09:27.040 them only in these two places in the country. Even 0:09:27.040 --> 0:09:30.640 though they are a big distributor, they also don't have 0:09:31.240 --> 0:09:34.480 any even of their distribution business in some areas of 0:09:34.520 --> 0:09:36.920 the country where they would be buying stores, So they 0:09:36.960 --> 0:09:39.960 don't do a lot of work right now in southern California, 0:09:40.080 --> 0:09:43.080 where they would be buying something like ninety something stores, 0:09:43.520 --> 0:09:46.680 and they don't do any real business in Colorado right now, 0:09:46.760 --> 0:09:49.480 where again they would be buying ninety something stores and 0:09:49.600 --> 0:09:53.400 taking over sort of the Safe Way brand in Colorado only. 0:09:54.080 --> 0:09:57.560 And this hearing is just to allow a judge to 0:09:57.679 --> 0:10:01.920 decide whether or not to issue a preliminary injunction against 0:10:02.000 --> 0:10:02.400 the deal. 0:10:03.320 --> 0:10:06.679 Yeah, so technically this is a preliminary injunction hearing. The 0:10:06.800 --> 0:10:09.520 judge is going to decide whether it's to block the 0:10:09.679 --> 0:10:12.960 deal from going through while the FTC move forward with 0:10:13.000 --> 0:10:15.599 a proceeding in it's in house court. The companies have 0:10:15.640 --> 0:10:18.440 already said that if the judge blocks the deal here, 0:10:18.480 --> 0:10:21.160 they're probably going to abandon because the deal has already 0:10:21.160 --> 0:10:24.040 now been pending for two years and they can't really 0:10:24.120 --> 0:10:26.600 keep waiting given all of the financing and things that 0:10:26.640 --> 0:10:28.839 are up in the air with this merger. So if 0:10:28.880 --> 0:10:31.880 she ends up ruling against them, they'll abandon the deal 0:10:31.920 --> 0:10:34.280 and sort of move forward with a new strategy. 0:10:34.679 --> 0:10:37.360 Do you know what other kinds of witnesses are going 0:10:37.400 --> 0:10:38.119 to testify? 0:10:38.640 --> 0:10:41.240 Yeah, we are almost done with the FTC's case, So 0:10:41.280 --> 0:10:44.400 we've heard from a lot of Koger and Albertson's sort 0:10:44.440 --> 0:10:47.480 of mid level managers in the various regions. We've heard 0:10:47.520 --> 0:10:51.360 actually a lot from various union officials because one of 0:10:51.360 --> 0:10:53.880 the interesting things about this case is the FTC has 0:10:54.040 --> 0:10:58.480 argued that it would produce competition for unionized labor because 0:10:58.520 --> 0:11:01.679 both Kroger and Albertsons have arge unionized work courses all 0:11:01.720 --> 0:11:04.959 of the people who work in the stores, and they 0:11:05.080 --> 0:11:08.400 argue that eliminating the competition between Kroger and Albertson's would 0:11:08.440 --> 0:11:11.360 lead to lower wages for their workers. The SEC is 0:11:11.400 --> 0:11:14.560 expected to finish up probably tomorrow morning, and then we're 0:11:14.559 --> 0:11:18.760 going to hear from the Kroger CEO and the Robertson CEO, 0:11:19.120 --> 0:11:20.720 who are going to talk a lot about, you know, 0:11:20.760 --> 0:11:22.400 why they want to steal some forward. 0:11:23.360 --> 0:11:27.920 It's very interesting because you have two of the issues 0:11:28.400 --> 0:11:32.480 in the presidential campaign, inflation and union jobs. 0:11:32.880 --> 0:11:35.679 The Harris campaign has already said that they oppose this merger, 0:11:35.880 --> 0:11:37.800 So we will see what happens. 0:11:38.280 --> 0:11:42.240 Thanks so much, Leah. That's Bloomberg Ante Trust reporter Leah Nylen. 0:11:42.720 --> 0:11:45.720 Coming up next on the Bloomberg Launch Show. Texas is 0:11:45.760 --> 0:11:48.920 making a long shot bid to become a business law 0:11:49.040 --> 0:11:53.120 center with a little help from Elon Musk i'm June Grosso. 0:11:53.120 --> 0:11:56.720 When you're listening to Bloomberg, there's no doubt that in 0:11:56.760 --> 0:12:00.199 the tiny state of Delaware is the world's per i'm 0:12:00.200 --> 0:12:04.679 ain in business court. The Delaware Court of Chancery, Delaware 0:12:04.760 --> 0:12:08.439 is the legal address for nearly three hundred thousand businesses 0:12:08.760 --> 0:12:12.720 like GM, Walmart and Goldman Sachs, and in a two 0:12:12.840 --> 0:12:18.239 century old commercial court, sits one chancellor, six vice chancellors, 0:12:18.320 --> 0:12:22.960 and three magistrates, considered the best judges in the business 0:12:22.960 --> 0:12:27.600 of judging business cases. Now into this picture comes an 0:12:27.800 --> 0:12:32.959 unlikely challenge from Texas. It's launching its own version of 0:12:33.000 --> 0:12:39.040 a business court without a designated courthouse or even designated courtrooms. 0:12:39.559 --> 0:12:43.720 Joining me is Bloomberg Texas legal reporter Madelin Meckelberg, who's 0:12:43.800 --> 0:12:48.880 investigated Texas's bid to become a business court hub. Madelin 0:12:49.000 --> 0:12:52.280 start by telling us about the Delaware Chancery Court. 0:12:52.920 --> 0:12:55.800 I think there is no question that the Chancery court 0:12:55.920 --> 0:12:59.640 is the pre eminent business court. And although it's the 0:13:00.520 --> 0:13:05.600 state and a small state court, it has global implications 0:13:05.679 --> 0:13:10.640 because so many businesses are incorporated in Delaware and have 0:13:10.760 --> 0:13:14.559 it set up so that litigation like shareholder actions go 0:13:14.679 --> 0:13:18.600 through the Chancery Court. There are decades and decades of 0:13:18.760 --> 0:13:22.720 precedent out of that court on really crucial business law cases, 0:13:23.280 --> 0:13:26.200 and those decisions, given the stature of this court, those 0:13:26.240 --> 0:13:30.240 decisions have impact felt across the whole country. I was 0:13:30.280 --> 0:13:33.080 speaking to a law professor at the University of Texas 0:13:33.120 --> 0:13:35.720 for this story, and he told me, is you're taking 0:13:35.720 --> 0:13:39.400 corporate law classes anywhere in the country. You're learning about 0:13:39.440 --> 0:13:42.600 Delaware law, whether you plan to practice in that court 0:13:42.760 --> 0:13:45.760 or not, because of the significance of the decisions that 0:13:45.800 --> 0:13:48.040 are coming out of the Chancery Court there, and. 0:13:48.160 --> 0:13:52.800 Also the court's ten officials. You know, the judges are 0:13:53.400 --> 0:13:55.640 experts in business law. 0:13:55.880 --> 0:13:59.480 That's exactly right. The idea is that these are people 0:13:59.520 --> 0:14:04.080 who come from really high profile corporate litigation practices already, 0:14:04.120 --> 0:14:07.120 they have a ton of experience and knowledge in this space, 0:14:07.760 --> 0:14:11.160 and they're appointed to serve twelve year terms in the court, 0:14:11.320 --> 0:14:15.040 and so they're really steeped in current issues of the day, 0:14:15.559 --> 0:14:17.920 and they have a reputation of being some of the 0:14:18.000 --> 0:14:19.720 top legal minds in the country. 0:14:20.280 --> 0:14:24.680 Now, Texas has made a concerted effort to attract businesses. 0:14:24.960 --> 0:14:28.280 Abbot is promoting the Texas miracle. What is that. 0:14:29.280 --> 0:14:30.200 That's a great question. 0:14:30.760 --> 0:14:33.240 Definitely, Texas has been working for a long time now 0:14:33.280 --> 0:14:37.040 to cementous reputation as a really business friendly state. I 0:14:37.040 --> 0:14:40.720 think the number changes, but there's something like fifty fortune 0:14:40.760 --> 0:14:44.520 five hundred companies that are headquartered here. But what Texas 0:14:44.520 --> 0:14:47.400 and Governor Abbott is talking about there is this idea 0:14:47.520 --> 0:14:51.760 that businesses can come to Texas and experience lower taxes, 0:14:51.840 --> 0:14:56.000 they can experience a really robust workforce. There's tons of 0:14:56.000 --> 0:14:59.360 physical space. Texas is a gin normalis state. So if 0:14:59.360 --> 0:15:01.720 you're looking for somewhere to set up a business, set 0:15:01.760 --> 0:15:04.600 up an operation, chances are we've got the land for 0:15:04.720 --> 0:15:07.800 you here. I think we're also have a reputation of 0:15:07.880 --> 0:15:11.480 having business friendly lawmakers who really are attuned to the 0:15:11.560 --> 0:15:14.720 issues of businesses and have shown a willingness to listen 0:15:14.720 --> 0:15:17.600 to what they're looking for when it comes to crafting 0:15:17.680 --> 0:15:20.680 regulations for the state. And so Abbott has been looking 0:15:20.720 --> 0:15:25.040 for ways to kind of expand on this reputation, add 0:15:25.120 --> 0:15:27.880 more to the arsenal things that Texas uses when it's 0:15:27.920 --> 0:15:30.680 trying to recruit companies to come to the states. And 0:15:30.720 --> 0:15:33.200 that's why we're chatting today. The latest development in that 0:15:33.240 --> 0:15:37.320 effort is the establishment of dedicated business courts here in Texas. 0:15:37.560 --> 0:15:41.000 Are they trying to become the next Delaware? Are they 0:15:41.040 --> 0:15:43.160 trying to directly compete with Delaware? 0:15:43.520 --> 0:15:47.440 So not necessarily, Texas is not the first state to 0:15:47.800 --> 0:15:51.320 attempt to create business courts. There's maybe twenty two other 0:15:51.400 --> 0:15:55.480 states that have some former fashion of specialty courts, and 0:15:55.560 --> 0:15:59.520 so on paper, the reason to pursue these courts is 0:15:59.560 --> 0:16:03.240 to set orate business cases from the regular docket, because 0:16:03.360 --> 0:16:07.720 right now a really complicated contract dispute or shareholder lawsuit 0:16:07.840 --> 0:16:11.440 is going to be decided alongside personal injury cases and 0:16:11.520 --> 0:16:15.240 family law disputes in state courts across Texas. And so 0:16:15.560 --> 0:16:17.840 what they're trying to do here is to create a 0:16:17.840 --> 0:16:21.160 similar system to Delaware, where you have specialty judges who 0:16:21.160 --> 0:16:24.200 have experience in business and corporate litigation who can help 0:16:24.280 --> 0:16:27.160 speed resolution of some of these cases that can tend 0:16:27.200 --> 0:16:29.840 to get stuck in the dockets. But I think, for 0:16:29.960 --> 0:16:32.400 reasons I'm sure we're going to talk about more, I 0:16:32.400 --> 0:16:36.360 think Texas's reputation just as a business friendly state, some 0:16:36.400 --> 0:16:39.680 of our more famous business residents here, it kind of 0:16:39.720 --> 0:16:43.280 gives Texas a bigger opportunity to go against Delaware, and 0:16:43.320 --> 0:16:45.640 so whether they're trying to or not, the way that 0:16:45.680 --> 0:16:48.400 the situation is playing out right now is that everyone's 0:16:48.440 --> 0:16:52.120 looking at Texas as maybe not a direct challenger to Delaware, 0:16:52.160 --> 0:16:56.520 but certainly an alternative to Delaware that could eventually kind 0:16:56.520 --> 0:16:59.440 of develop a similar reputation as a place to bring 0:16:59.440 --> 0:16:59.840 these kinds of. 0:17:00.600 --> 0:17:04.840 I think you are referencing perhaps Elon Musk, who I'm 0:17:04.880 --> 0:17:08.040 sure feels he's had a terrible time in the Delaware 0:17:08.160 --> 0:17:11.800 Chancery court and has been promoting Texas. 0:17:12.240 --> 0:17:15.880 That's exactly right. Elon Musk decided to shift the incorporation 0:17:16.160 --> 0:17:20.159 of Tesla and SpaceX to Texas. I think the final 0:17:20.200 --> 0:17:22.840 straw for him was when a judge in Delaware's Chancery 0:17:22.880 --> 0:17:26.800 court struck down his massive, massive fifty six billion dollar 0:17:26.960 --> 0:17:31.560 pay package that was approved by Tesla shareholders, and he said, guys, 0:17:31.600 --> 0:17:34.040 I'm going to Texas. He has a long history here 0:17:34.200 --> 0:17:38.199 of having his physical headquarters and office spaces here, but 0:17:38.280 --> 0:17:41.560 by moving the legal home of these companies here, he's 0:17:41.640 --> 0:17:45.520 kind of ensuring that these future spats involving shareholders and 0:17:45.600 --> 0:17:48.119 specifics of the business are going to be resolved in 0:17:48.200 --> 0:17:51.240 courts in Texas. Now, he hasn't said that he was 0:17:51.280 --> 0:17:55.200 coming here to specifically experience the business courts that we're 0:17:55.240 --> 0:17:58.040 setting up, but it's just the timing of it. He 0:17:58.040 --> 0:18:00.800 announced the decisions a few months ago, and Texas business 0:18:00.800 --> 0:18:05.080 courts just started operating this past weekend. So whether he 0:18:05.160 --> 0:18:06.879 wants to or not, I think he's going to be 0:18:06.920 --> 0:18:09.600 one of the early and most high profile cases that 0:18:09.640 --> 0:18:11.160 those courts see. 0:18:11.400 --> 0:18:15.760 So Chevron moved from California after one hundred and forty 0:18:15.760 --> 0:18:20.960 five years, you know, it was having problems with California's 0:18:21.080 --> 0:18:27.200 environmental policies and regulations. Are a lot of the corporations 0:18:27.240 --> 0:18:31.399 moving there trying to escape from states that are not 0:18:31.560 --> 0:18:34.679 as business friendly and going to Texas, which seems to 0:18:34.720 --> 0:18:36.520 have open arms out for business. 0:18:37.040 --> 0:18:39.679 I think that's certainly a factor for a lot of 0:18:39.720 --> 0:18:42.640 businesses that decide to come here. It's hard to imagine 0:18:42.640 --> 0:18:44.919 that being the only factor that they would make that 0:18:45.000 --> 0:18:48.040 decision based on, but certainly I think that's part of 0:18:48.080 --> 0:18:51.239 the idea of this Texas miracle, and part of the 0:18:51.440 --> 0:18:54.879 arsenal tools that Abbott uses to recruit businesses is this 0:18:55.040 --> 0:18:58.879 idea that yes, we are business friendly, we have business 0:18:58.960 --> 0:19:03.159 friendly judges here, and we have regulations that are friendly 0:19:03.160 --> 0:19:05.560 to business. Kind of all of the above, and I 0:19:05.640 --> 0:19:07.920 think that we're going to see a similar dynamic play 0:19:07.920 --> 0:19:10.960 out with these business courts where the judges in Texas 0:19:11.000 --> 0:19:14.920 are appointed by Abbot. I think a lot of people assume, 0:19:15.160 --> 0:19:19.000 probably correctly, that the judges share his similar ideology when 0:19:19.000 --> 0:19:21.160 it comes to business and when it comes to applying 0:19:21.240 --> 0:19:24.600 law in a maybe more conservative fashion. And so I 0:19:24.680 --> 0:19:28.120 think these courts will be an extension of what we've 0:19:28.119 --> 0:19:31.320 seen when it comes to presenting Texas as an alternative 0:19:31.440 --> 0:19:34.520 to some of these areas like California that are known 0:19:34.600 --> 0:19:36.520 for their more liberal policies. 0:19:36.600 --> 0:19:40.640 Let's say Governor Abbot said the judges have a litany 0:19:40.680 --> 0:19:45.480 of experience in streamlining resolutions of business disputes. Do they? 0:19:45.600 --> 0:19:47.720 I mean, it doesn't seem like you can really compare 0:19:48.040 --> 0:19:52.200 the judges in Texas to the judges in Delaware. 0:19:52.720 --> 0:19:56.760 Definitely not. I mean Delaware's judges. This court has decades 0:19:56.760 --> 0:19:59.880 and decades of precedent. They serve for twelve year terms. 0:20:00.240 --> 0:20:03.720 This Business Court is, as we're speaking today, about two 0:20:03.760 --> 0:20:06.880 to three days old. So I think it really remains 0:20:06.880 --> 0:20:09.720 to be seen how they're going to handle these cases. 0:20:10.119 --> 0:20:13.760 Judges yappoints were required to have ten years of experience 0:20:13.880 --> 0:20:18.040 in either complex corporate litigation or as a judge in Texas, 0:20:18.119 --> 0:20:22.119 So they definitely do have experience in this space, but 0:20:22.359 --> 0:20:24.840 none of them, as far as I'm aware, have experience 0:20:25.000 --> 0:20:28.160 as a judge in this kind of setting of handling 0:20:28.160 --> 0:20:30.639 these specific disputes in a business court setting. So I 0:20:30.720 --> 0:20:32.520 think it's going to be one of the things people 0:20:32.560 --> 0:20:35.080 are watching for is how quickly they can take a 0:20:35.119 --> 0:20:37.520 case from filing to resolution. 0:20:38.320 --> 0:20:41.639 And also Texas courts in a lot of instances are 0:20:41.640 --> 0:20:43.879 going to have to follow Delaware law because that's the 0:20:43.920 --> 0:20:46.119 only law on some of these issues. 0:20:46.440 --> 0:20:48.720 That's right. I mean, these are state courts, and so 0:20:49.080 --> 0:20:52.399 they're going to be referring to Texas corporate law in 0:20:52.440 --> 0:20:55.640 a lot of fashions. And so we do have precedent 0:20:55.800 --> 0:20:58.480 in terms of how corporate law has been applied in 0:20:58.520 --> 0:21:00.600 cases in the past, just in a re Daduller's state 0:21:00.640 --> 0:21:03.359 court room. But a lot of those applications we've seen 0:21:03.400 --> 0:21:06.119 previously are based on Delaware case law. That's kind of 0:21:06.119 --> 0:21:08.680 what I was saying earlier, this idea that the power 0:21:08.680 --> 0:21:12.240 of Delaware chancery court is these huge decisions that have 0:21:12.320 --> 0:21:15.760 significance that are being applied in other cases, and I 0:21:15.760 --> 0:21:18.240 don't think that's an exception here. I think what's different 0:21:18.320 --> 0:21:22.400 is perhaps how these judges might apply or interpret those 0:21:22.400 --> 0:21:25.080 statutes when it comes to specific cases. I think that's 0:21:25.119 --> 0:21:28.160 another thing that remains to be seen, is how far 0:21:28.240 --> 0:21:31.760 they'll be willing to deviate from what's kind of standard 0:21:31.800 --> 0:21:33.479 and expected in this space. 0:21:34.160 --> 0:21:38.639 Madlin, As you pointed out in your story, the terms 0:21:38.640 --> 0:21:41.800 are only for two years the judges terms, so that 0:21:41.920 --> 0:21:44.879 means that they may be leaving in the middle of 0:21:44.920 --> 0:21:47.520 a case. I mean, we all know how long legal 0:21:47.560 --> 0:21:50.400 cases take, yes. 0:21:50.280 --> 0:21:52.960 And basically all the lawyers I spoke to for this 0:21:53.080 --> 0:21:55.160 story said that would be amazing to have a case 0:21:55.200 --> 0:21:57.840 that wraps up in two years or less. But I 0:21:57.840 --> 0:22:00.240