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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg

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Speaker 1: Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Through Kimberly Clark buying ken View in a cash in

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Speaker 2: stock you're worth about forty billion dollars. To include debt

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Speaker 2: in there, the enterprise value blows up to forty eight

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Speaker 2: point seven billion dollars.

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Speaker 3: Diana Gomez a.

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Speaker 2: Senior equity research analyst for Bloomberg Intelligence and has been

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Speaker 2: covering this deal.

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Speaker 3: Diana, what's your first take on it?

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Speaker 4: So it is surprising in many ways from the perspective

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Speaker 4: of Kimroy Clark, I must confess it shows that ken

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Speaker 4: View really has a lot of work to do to

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Speaker 4: turn around the business since it's split from Change about

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Speaker 4: two years ago, and the third quarter miss just added

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Speaker 4: up to a pile of disappointing results.

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Speaker 5: Diane, I'm looking at the Cambrian clarkstock trading down eleven

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Speaker 5: twelve percent here. What's that telling you? Are they overpaying?

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Speaker 5: Is the market skeptical about synergies? What do you read

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Speaker 5: into that.

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Speaker 4: I believe more the later. In terms of the synergies,

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Speaker 4: it is quite a steep climb. Obviously, there's a ton

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Speaker 4: of law hanging fruit, let's say, in terms of efficiencies

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Speaker 4: that can be gained in terms of plugging the great iconic,

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Speaker 4: well known trusted brands from Canview into Caneview's system that

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Speaker 4: is running at more efficient level at the moment, but

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Speaker 4: it will there is septicism there because we are talking

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Speaker 4: about revenue synergies as well as cost synergies, and this

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Speaker 4: will be quite a complex new company. At the point

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Speaker 4: when Kimberly Clark was just simplifying as they were, they

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Speaker 4: are aiming to close the transaction on their international business

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Speaker 4: I think was segments like tissue in mid twenty twenty six,

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Speaker 4: and now this merger expected to close around the same time.

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Speaker 4: Just seems to complicate the picture a little bit. Oh yeah,

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Speaker 4: that is the TI And yes, and we know how

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Speaker 4: Kenby has been dealing with some crisis in the last

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Speaker 4: months with tailan Ore and then with talk all suits

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Speaker 4: outside the US as well.

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Speaker 3: So I'm glad you went there. The tailanol situation.

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Speaker 2: The Trump administration has been attacking Thailand a overall. Do

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Speaker 2: you think that's something that might complicate this deal? Could

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Speaker 2: regulators step in and hold things up or raise questions

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Speaker 2: that will just drag things out?

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Speaker 4: Quite different questions, I would say, but great questions. So

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Speaker 4: in terms of Taileno, the legal risk is there. The

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Speaker 4: can View was already fighting in the courts some lawsuits,

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Speaker 4: but we now have Texas State wall suit on top.

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Speaker 4: On top of it, the humor re quarks price when

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Speaker 4: we walk in terms of, for instance, and a bit

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Speaker 4: to enterprise value multiple and I'm taking twenty twenty six,

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Speaker 4: twenty twenty five sorry that they will report, so that

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Speaker 4: will come at about fourteen times, whereas history call transactions

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Speaker 4: in the consumer health space were in the range of

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Speaker 4: sixteen to twenty times, So fourteen times comes below that.

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Speaker 4: So really reflecting not only the struggles of can View

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Speaker 4: where their organic growth is still declining, but also the

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Speaker 4: viability risk with lawsuits that are ongoing. And that's a

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Speaker 4: new lawsuits that can be added as well. In terms

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Speaker 4: of the say antitrust competition regulatory approval, as I see it,

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Speaker 4: they don't really overlap directly, but it really depends on

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Speaker 4: a country region by region basis. Because we know the

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Speaker 4: US stands can be very different from the European Commission one.

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Speaker 5: Yeah, I should we expect more consolidation in the consumer

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Speaker 5: product space, do you think.

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Speaker 4: Yes? So that's a team that I've been watching very closely. Obviously,

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Speaker 4: we had other large form of groups with significant consumer

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Speaker 4: health businesses, so we are talking not only over the

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Speaker 4: counter medicines but also the more personal care that deals

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Speaker 4: with wellness. Sanofi decided to sell it to private equity,

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Speaker 4: so at least for the next few years, that is

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Speaker 4: thought buyer is still considering while not considering, as management says,

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Speaker 4: puts it. But buyer still has their consumer health business

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Speaker 4: and they could be walking into either wasting it or

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Speaker 4: further consolidation within the current employers.

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Speaker 3: Stay with us.

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Speaker 5: More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: Paul and I were just joking about how there was

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Speaker 2: this headline that was basically clickbait, Amazon inching a thirty

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Speaker 2: eight billion dollar deal with open ai for in video chips.

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Speaker 3: You've got Amazon, you've got open.

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Speaker 2: Ai, you've gotten video, and you've got a massive number

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Speaker 2: thirty eight billion. So let's bring in man Deep Singh

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Speaker 2: Bloomberg Intelligence senior tech industry analysts on these latest developments.

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Speaker 3: Mandeep, I've lost.

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Speaker 2: Track of how many companies open ai has signed deals with.

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Speaker 2: It feels like the bigger questions who has it not

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Speaker 2: signed a deal with at this point.

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Speaker 6: That's a good way of framing it. But look, I

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Speaker 6: mean they have announced their intentions very clearly that they

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Speaker 6: want to add up to thirty gigawatts of capacity, So

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Speaker 6: in the end, it is all tied to that bigger

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Speaker 6: goal of you know, adding thirty gigawats. And just to

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Speaker 6: put it in perspective, I mean, the entire gigawatt capacity

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Speaker 6: of all the hyperscalers combined is around that ballpark thirty gigawats.

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Speaker 6: So they are talking about, you know, some big numbers

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Speaker 6: in terms of capacity editions. How they will do it,

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Speaker 6: one is through a deal with Oracle, so that was

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Speaker 6: a tree hundred billion dollar deal. Then they signed a

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Speaker 6: two hundred and fifty billion dollars deal with Microsoft. So

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Speaker 6: when you look at it. From that perspective, thirty eight

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Speaker 6: billion is not that big. And look, I mean I

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Speaker 6: can see what open ai is doing because they've seen

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Speaker 6: you know, and sign a deal with Microsoft first, and

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Speaker 6: then they signed a deal with Google TPUs. So Entropic

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Speaker 6: and open ai are the purest place when it comes

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Speaker 6: to llms. And if Entropic is getting all that compute

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Speaker 6: capacity from the two hyperscalers that you know, open ai

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Speaker 6: was doing business with, it was mostly Microsoft and then

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Speaker 6: Microsoft added Entropics. So from that perspective, I can see

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Speaker 6: why open ai wants to go to Amazon, which they

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Speaker 6: haven't done so far.

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Speaker 3: It's an arms race essentially.

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Speaker 5: Yeah, yeah, Nthropic, open Ai. These are private companies, correct, Yeah,

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Speaker 5: where are they getting this cash for all these big

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Speaker 5: purchases and investments and things? Am I missing the funding

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Speaker 5: rounds here?

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Speaker 4: Well?

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Speaker 6: So look at what they've done in terms of their valuation.

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Speaker 6: OpenAI has grown to five hundred billion dollars in valuation

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Speaker 6: this year. They started off the year at around two

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Speaker 6: hundred billion dollars. So that just goes to show that

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Speaker 6: every funding round they have attracted more money. In fact,

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Speaker 6: people are lining up to give them money now, I

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Speaker 6: mean granted, their revenue is still the latest numbers are

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Speaker 6: close to fifteen billion dollars in ARR. That's growing over

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Speaker 6: one hundred percent. Of what they have promised to investors

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Speaker 6: is they'll get to one hundred billion in ARAR by

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Speaker 6: twenty twenty seven, twenty twenty eight. What is average annual

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Speaker 6: and recurring revenue? So that's where that's how we measure

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Speaker 6: all the software companies. When you think about even fifteen

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Speaker 6: billion dollars in ARAR puts them among the top ten

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Speaker 6: software companies. So already openy is among the top ten

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Speaker 6: software account You.

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Speaker 5: Walk in and I want to poke holes in it,

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Speaker 5: but he's got to.

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Speaker 2: I know, I'm shaking in my head as he's talking

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Speaker 2: about this conviction.

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Speaker 3: Mandy, is there a point where.

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Speaker 2: Open ai gets so big that it has to go

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Speaker 2: public that it can no longer stay a private company?

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Speaker 6: I mean, they already changed this structure where Microsoft got

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Speaker 6: a twenty seven percent stake.

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Speaker 2: Now and so yeah, but they're like multiplying in growth,

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Speaker 2: so this will last for a little bit. And then

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Speaker 2: the same question arises again, isn't it does?

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Speaker 6: But they are separating out the nonprofit part with the

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Speaker 6: profit entity that will go public and then they will

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Speaker 6: sell their shares. I don't know how much money they

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Speaker 6: would want to raise, given how much they are already

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Speaker 6: raising in the private market. So look, I mean it's

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Speaker 6: inevitable a company like open Ai, if they get to

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Speaker 6: one hundred billion in revenue over the next three years,

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Speaker 6: they have to be a public company. I just can't

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Speaker 6: imagine them being private.

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Speaker 3: And are the regulations that's push them in that direction?

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Speaker 3: I mean, isn't it.

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Speaker 2: You have a certain number of shareholders and at some

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Speaker 2: point you have to you have to list.

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Speaker 6: I mean, think about the backers of the company who

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Speaker 6: are participating in these funding rounds. They would want an

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Speaker 6: exit strategy. You know, you're you're kind of becoming an

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Speaker 6: investor right now with the hope that you can get

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Speaker 6: a return. And so once a company gets to one

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Speaker 6: hundred billion dollars in revenue, I'm sure a lot of

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Speaker 6: those investors will want an exit.

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Speaker 5: Google announces big Capex race, stock goes up. Facebook and

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Speaker 5: ounces big Kapex raised stock goes down.

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Speaker 6: Why Because at the end of the day, you have

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Speaker 6: to show ROI and you have to show revenue. In

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Speaker 6: the case of Meta, they are planning to spend over

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Speaker 6: one hundred billion dollars in capex next year with no

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Speaker 6: explicit cloud revenue. So think of what Amazon's thirty eight

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Speaker 6: billion dollar deal does today. It will add five billion

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Speaker 6: dollars in revenue starting twenty late, twenty twenty six and

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Speaker 6: twenty twenty seven onwards. Every year, this thirty eight billion

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Speaker 6: dollar means they'll add five billion in revenue. That's how

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Speaker 6: much open ai will end up paying Amazon. In the

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Speaker 6: case of Meta, they're spending one hundred billion plus with

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Speaker 6: no promises that they will somebody will pay for their infrastructure. Yes,

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Speaker 6: they're getting some lift in their app pricing, but that's

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Speaker 6: not enough to justify one hundred billion dollars in capex.

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Speaker 6: So that's where the ROI question is the most obvious.

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Speaker 6: In the case of Meta, because obviously they keep raising

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Speaker 6: their numbers and they.

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Speaker 5: Keep costing some say they're going to do other than advertising.

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Speaker 5: What does Meta say they're going to get n one

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Speaker 5: hundred billion dollars.

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Speaker 6: Yeair pitches, We've got, you know, this family of apps

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Speaker 6: with over three billion monthly active users, where people are

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Speaker 6: spending forty minutes a day. We will give them more

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Speaker 6: AI functionality. Look at what open ai has done with

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Speaker 6: AI generated content. What Meta is saying is our AI

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Speaker 6: generated content will be better than you know these llms,

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Speaker 6: and that will drive engagement and will monetize it for

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Speaker 6: you ads.

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Speaker 2: Right, but they aren't able to provide explicit numbers in

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Speaker 2: the same way that others are able to. So isn't

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Speaker 2: that a good sign that equity investors are discerning are

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Speaker 2: making a distinction between Meta and Amazon and alf BET

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Speaker 2: and Microsoft that you know, they're poking holes in some

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Speaker 2: of these narratives that the companies are.

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Speaker 6: Are absolutely I think right now the market is making

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Speaker 6: that distinction, which is why Amazon actually trails so far.

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Speaker 6: It's only after their recent print that you got a

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Speaker 6: lift in Amazon, and you know now with this deal,

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Speaker 6: suddenly they're starting to see some more monetization for Amazon.

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Speaker 2: So does that show that even if you're kind of

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Speaker 2: late to the party as Amazon was, you can make

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Speaker 2: up for lost ground, that the race hasn't gone too

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Speaker 2: far ahead of you.

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Speaker 6: I mean the paths right now is through AI infrastructure.

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Speaker 6: Renting AI infrastructure, whether it's power or data center capacity

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Speaker 6: or GPUs. That's where everyone is convinced there is revenue

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Speaker 6: and there are profits. When it comes to applications. It's

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Speaker 6: still very hazy in terms of which business model will

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Speaker 6: actually generate profits or not. So I think the market

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Speaker 6: has done a good job in terms of discerning where

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Speaker 6: the monetization is so far.

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Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 5: Berkshire Hathaway reported really strong earnings and it also reported

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Speaker 5: that they have about three hundred and eighty two billion

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Speaker 5: dollars of cash on the balance sheet, which begs the question,

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Speaker 5: as it does every quarter, as it has for years,

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Speaker 5: what do you do with all that money? Matthew Polozola,

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Speaker 5: Senior Analyst, Property and capturin the Inschurch and Bloomberg Intelligence

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Speaker 5: Droids is here in our studio.

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Speaker 7: I'll tell you what you do.

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Speaker 5: Your buy backstock and you put a three percent dividend

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Speaker 5: yield on You give that cash back the shareholders. That

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Speaker 5: falls on dep fears at Berkshire Hathaway, Right, I.

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Speaker 8: Think so, I mean looks certainly a good problem to have,

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Speaker 8: and I would make e quibble a little bit so

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Speaker 8: that that three eighty two includes twenty ish billion in

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Speaker 8: treasuries that didn't settle, So it's probably three sixty billion.

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Speaker 3: Just a lot.

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Speaker 7: It's a lot now, I would say.

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Speaker 8: The interesting thing thing is the stock has underperformed the

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Speaker 8: market by like thirty percent since Buffett announced that he

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Speaker 8: was stepping down in May, and they haven't bought any

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Speaker 8: stock over that entire period.

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Speaker 3: Yeah, it does that.

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Speaker 5: I turned my mic on, I say why.

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Speaker 7: Yeah, So.

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Speaker 8: Buffett used to have a rule when the stock was

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Speaker 8: above one point two times priced to book, they wouldn't

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Speaker 8: buy it back. They kind of kicked that out and

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Speaker 8: they said, we're just going to buy it back whenever

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Speaker 8: we see intrinsic value below.

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Speaker 7: So, you know, I don't to me it begs question.

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Speaker 8: I mean, maybe he sees the stock as kind of

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Speaker 8: fully valued, even down you know.

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Speaker 2: Year to date, even with the lagging performance as well.

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Speaker 2: So does that change when greg Able, the handpicked successor

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Speaker 2: to warn Buffett, takes the reins officially at the end

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Speaker 2: of the year.

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Speaker 8: You know, Scarlet, he walks a fine line between putting

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Speaker 8: some sort of stamp on the company maybe over time

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Speaker 8: and then kind of respecting the ethos of Berkshire and

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Speaker 8: how they've operated, I would hope something happens. I mean,

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Speaker 8: they did a ten billion dollar deal in the fourth quarter,

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Speaker 8: they bought the oxycam business from Occidental. They just don't

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Speaker 8: have things that can move the needle very much. Even

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Speaker 8: in the quarter, their net stock buys and sells or

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Speaker 8: negative six billion dollars, so they were negative on other

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Speaker 8: equities as well.

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Speaker 2: Yeah, there were net seller stocks for twelfth straight quarter,

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Speaker 2: and that cash and equivalence.

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Speaker 3: Was at a record high at the end of September.

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Speaker 2: Is that a signal that they're waiting for the market

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Speaker 2: to tank, that they see a correction, maybe not tank

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Speaker 2: that might be too strong, they see a correction or

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Speaker 2: consolidation in the near terment.

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Speaker 3: Are ready for it.

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Speaker 7: They're always ready for it. You know.

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Speaker 8: Buffett has always said, we're not looking to time the market.

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Speaker 8: We're just looking for good companies. He's also been you know,

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Speaker 8: when I talk to people that the thought is is

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Speaker 8: he just hoarding money for greg Abel and kind of

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Speaker 8: setting the company up and just handing it over.

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Speaker 7: He's said he's not doing that. So, you know, unfortunately, don't.

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Speaker 8: They don't talk to investors, so we don't can't really

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Speaker 8: pick his brain besides at the annual meeting, so we

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Speaker 8: don't exactly know what's going on there.

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Speaker 7: I think he's just extra conservative in his old age.

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Speaker 7: I guess right.

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Speaker 5: And here's my cynical Wall Street perspective. When mister Buffet

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Speaker 5: passes three percent dividend yield, massive stock buyback, do you

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Speaker 5: think that's a scenario.

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Speaker 7: I think.

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Speaker 8: Dividend yield, hopefully you know, some sort of dividend, maybe

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Speaker 8: special dividends. The buy back I think will also kind

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Speaker 8: of weigh on what able sees the intrinsic value. So

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Speaker 8: I would say probably hopefully dividend. I would say maybe

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Speaker 8: more steady buyback. There's also they can't buy back a

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Speaker 8: ton of shares on volume because you know, there's rules

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Speaker 8: on how much they can buy back and how active

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Speaker 8: they can be in the market, so that limits them

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Speaker 8: a little bit.

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Speaker 7: That's plan B. We got it.

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Speaker 5: Don't you have to split the stock like a gajillion

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Speaker 5: to one.

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Speaker 7: They have the A shares and the B shares.

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Speaker 8: But there's I don't have all the exact rules, but

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Speaker 8: they've talked about we can only buy back so much

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Speaker 8: at a time they bought by none. So I think

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Speaker 8: a steady buy back plus some returns of capital and

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Speaker 8: forms of I would hope special dividends. They maybe they

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Speaker 8: don't want to be beholden too a regular quarterly dividend.

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Speaker 3: Yeah, makes sense.

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Speaker 2: Okay, so that's something we'll watch for when that eventually happens.

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Speaker 2: In the meantime, how are the businesses of Berkshire Hathway performing,

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Speaker 2: especially insurance?

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Speaker 7: Yeah? So all good.

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Speaker 8: In the quarter, the insurance business made much more money

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Speaker 8: than the year ago, but that was because they had

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Speaker 8: a bunch of large losses in the year ago. They

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Speaker 8: also had this favorable reserve development, which means they write

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Speaker 8: business and those losses come in better or worse than

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Speaker 8: they expect over time, and that was those losses were

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Speaker 8: coming in better than they expected. So that is it's

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Speaker 8: a good thing, but it's not a super high quality

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Speaker 8: source of earnings.

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Speaker 7: Beat.

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Speaker 8: So the insurance business performed well on those two things

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Speaker 8: which aren't super high quality in my opinion. The underlying

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Speaker 8: business and the insurance doing well. The problem is hard

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Speaker 8: for it to get much better next year. The underwriting side,

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Speaker 8: the prices in that are going down so I think

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Speaker 8: it's tough to see the insurance underwriting doing better next year.

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Speaker 8: It's also tough to see the investment it's doing better

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Speaker 8: next year. And we're talking about really just the fixed

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Speaker 8: income investment. So like the equities, who knows what happens.

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Speaker 8: But in terms of the interesting come, we saw that

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Speaker 8: decline in the quarter as well.

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Speaker 5: The business fundamentals of the underlying businesses.

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Speaker 7: Did they move the stock historically? Not really.

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Speaker 5: Yeah, it's tough because I asked the one fundamental question.

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Speaker 7: That's enough. Let's get back to the main point of

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Speaker 7: the story here. It's also my job too.

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Speaker 5: But is there an activist investor who's ever oh, good question,

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Speaker 5: one word about this company?

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Speaker 8: So historically there have been investors very vocal about it.

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Speaker 8: I don't, I don't have names, But no one's ever

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Speaker 8: been able to move the new buffet's always the majority shareholder.

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Speaker 8: So there's really been no one who's ever been forcing

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Speaker 8: them to do anything. And so why would they even listen?

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Speaker 2: And can you do that with a company that has

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Speaker 2: an A class year and B class year with this

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Speaker 2: what is.

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Speaker 7: His voting control?

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Speaker 8: I haven't done it, man, I don't, I don't, I

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Speaker 8: don't know, at the top of my head, I thought

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Speaker 8: it was something like sixty percent of the share or

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Speaker 8: something like that, and other inside will hold more. So

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Speaker 8: there's almost no way of wrestling control from him. The

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Speaker 8: A shares and the B shares they did so the

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Speaker 8: A shares are several hundred thousand dollars, and then they

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Speaker 8: instituted the B shares and they're they're getting peg to

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Speaker 8: each other, so they can't.

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Speaker 7: You can't. You couldn't buy up the B shares and

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Speaker 7: kind of take control either.

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Speaker 2: They've come up with all kinds of rules to make

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Speaker 2: sure that all the things you just proposed can't happen.

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Speaker 7: He's not a dumb guy bother Yeah, exactly right. It's

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Speaker 7: been extraordinary run.

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Speaker 5: Is there a sense that the law of large numbers

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Speaker 5: over the last several years, if not the last decade,

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Speaker 5: is kind of caught up to this.

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Speaker 7: Name, Yeah, for sure.

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Speaker 8: I mean they they bought a company for twelve billion dollars, Allegheny,

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Speaker 8: and it barely moves the needle. They bought this oxy

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Speaker 8: Cam for ten billion, barely moves the needle. They bought

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Speaker 8: like twenty billion of Chevron stock two years ago. It

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Speaker 8: didn't even come up at the annual meeting. People didn't

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Speaker 8: even ask about it. I was sitting there. I couldn't

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Speaker 8: believe it is that no one's going to ask about this. So,

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Speaker 8: you know, there's just things that are are tough for

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Speaker 8: them to to move in from having so much money.

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Speaker 8: They're making those investments in Japan, which I think are interesting.

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Speaker 8: So they invest in the trading houses in Japan.

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Speaker 7: It's hard for.

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Speaker 8: Me to know a ton about those businesses. Some of

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Speaker 8: them are like mini Berkshire's. Maybe this is stuff that

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Speaker 8: they kind of do in the future. Also the energy business.

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Speaker 8: Greg Abil's an energy guy. Aon is an insurance broker.

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Speaker 8: They talked about last week. This huge opportunity with the

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Speaker 8: hyperscalers needing risk transfer services and other things. So those

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Speaker 8: are things that fit right into berkshires wheelhouse right, the

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Speaker 8: risk transfer and the energy businesses, So those are opportunities

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Speaker 8: for them in the future.

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