Germany may no longer be the sick man of Europe, but it’s a little green around the gills these days. So companies there are hedging their bets by pumping record amounts of money into US ventures, the Financial Times reported.

Under the Weather

After recovering from its lengthy illness in the late 2000s, Germany — with its industrial prowess — became one of the most integral parts of the European economy for the next decade and a half. However, the post-covid global financial crisis and Russia’s invasion of Ukraine threw a wrench in all that progress, and the country’s economy is shrinking, with its GDP contracting by roughly 0.3% in 2023. 

Exports are down, consumer demand is weak, and the nation’s trade deficit with China is ballooning. Perhaps most problematic: It’s become more expensive to do business in Germany. Late last year, two out of every three German companies told a Deloitte survey that they relocated some of their operations abroad because of high energy costs. One of the most alluring markets is the US, where the economy is growing and both the Inflation Reduction Act and the CHIPS and Science Act offer attractive incentives: 

• German companies announced 185 capital projects in the US last year — 40% of them in the manufacturing sector — totaling a record $15.7 billion in foreign direct investment, up from $8.2 billion in 2022, the FT reported. By comparison, German businesses pledged just $5.9 billion to projects in China in 2023. 
• The most expensive investment was $2 billion from Volkswagen which will go toward a factory in South Carolina. BASF, the world’s largest chemical group, told the FT it plans to spend €3.7 billion ($4 billion) between 2023 and 2027 to expand its operations in North America.

Wake Up: Germany isn’t as bad off as it was in the 1990s, but at last month’s World Economic Forum, Finance Minister Christian Lindner said the nation is “tired” and needs a “strong cup of coffee.” He and other officials are encouraging a reduction in political bureaucracy to speed up the rollout of renewable energies and the immigration of skilled workers. He also said the EU shouldn’t try to “subsidize almost everything” like in the US, even though that’s a prime factor in winning German business. The country might need to add a double shot of espresso to that cup of coffee.

The EU has a new TikTok challenge. 

The European Commission said Monday it’s opened “formal proceedings” against TikTok. While that sounds like a black-tie event, it actually means the EU thinks TikTok might have broken some of the relatively new laws of the EU’s Digital Services Act (DSA) — specifically, ones that say Big Tech platforms need to be especially careful protecting minors. This is the latest in a slew of legal actions from regulators that aims to punish platforms for not protecting children — and it’s potentially the most threatening.

The Children Are Our Future

TikTok is only the second company to get bonked with the brand-new DSA regulatory bat, following a formal probe in December into whether Twitter/X had broken laws around disinformation and “deceptive design.” However, this isn’t the first time TikTok has taken some regulatory heat over how well it protects underage users on its platform. Thus far, successful(ish) enforcement has centered around children’s privacy.

In addition to privacy issues, the new DSA investigation will focus on a range of areas where the EU believes TikTok may have broken the law:

• The inquiry will examine whether TikTok did enough to mitigate the risk of its algorithm inducing “behavioral addictions” and “rabbit hole effects,” i.e., whether TikTok has been auto-cueing videos for kids that are likely to result in foreseeable negative effects on their well-being, including radicalization.
• The investigation will also look at transparency: whether TikTok has been assiduously keeping records of ads shown on the platform, and whether it’s been knowingly withholding data from researchers.

A TikTok spokesperson gave The Daily Upside the company’s official response: “TikTok has pioneered features and settings to protect teens and keep under 13s off the platform, issues the whole industry is grappling with. We’ll continue to work with experts and industry to keep young people on TikTok safe, and look forward to now having the opportunity to explain this work in detail to the Commission.” 

Addiction Diction: Social media companies have recently faced regulator lawsuits over children’s welfare, many from US states. Just on Friday, New York City filed a lawsuit against a collection of Big Tech platforms, including TikTok, accusing them of harming children’s mental health by designing their products to “attract, capture, and addict youth.” So far, US lawmakers’ attempts to prove that tech companies are creating addictive platforms have fallen flat. However, the EU isn’t trying to prove that TikTok is inherently addictive, but that it hasn’t done enough to stop its algorithms from driving vulnerable children toward habit-forming behaviors. It’s also resting on a fresh batch of legislative framework designed to deal with modern tech companies — for now, anyway.

A newly combined entity will soon sit atop the credit card industry. 

Capital One said late Monday that it will acquire Discover Financial Services in a deal worth more than $35 billion. The merger will create an all-in-one credit card titan.

Undiscovered Territory

It’s been a rocky few years for Discover, which nonetheless has long been pursued as an acquisition target for banks and tech companies alike looking to expand their financial services portfolios. In January, the credit card lender said its fourth-quarter profit fell 62% as it struggled to rebound from a compliance scandal that ultimately led to the resignation of CEO Roger Hochschild in August. 

And while its payments network isn’t quite at the heights of Visa or Mastercard, it’s large enough to appeal to a credit card lender like Capital One:

• By total purchase volume, Discover’s network ranks fourth, with Americans charging roughly $211 billion to their Discover cards in 2022, according to a recent Capital One research report. Visa ranks first ($5.83 trillion), Mastercard second ($2.44 trillion), and American Express third ($1.08 trillion).
• Capital One, the ninth-largest bank in the nation, employs both Visa and Mastercard for most of its credit cards. The company will likely switch at least some of those cards to Discover following the acquisition, according to the WSJ’s reporting, expanding their cardholder base in the process and folding in Discover users, who tend to have high credit scores.

Together, the two companies would create the largest US credit card company by loan volume, according to data from Bloomberg Intelligence.

Buying on Credit: Will that be cash or credit? Neither. The all-stock deal is valuing Discover at a premium on its current $28 billion market valuation, sources told the WSJ (Capital One has a market cap of around $52 billion). The massive deal continues 2024’s M&A U-turn from last year’s dealmaking drought. Through the first month and a half of the new year, dealmaking volume has spiked 90% compared to 2023 levels.