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Speaker 2: Through Kimberly Clark buying ken View in a cash in
Speaker 2: stock you're worth about forty billion dollars. To include debt
Speaker 2: in there, the enterprise value blows up to forty eight
Speaker 2: point seven billion dollars.
Speaker 3: Diana Gomez a.
Speaker 2: Senior equity research analyst for Bloomberg Intelligence and has been
Speaker 2: covering this deal.
Speaker 3: Diana, what's your first take on it?
Speaker 4: So it is surprising in many ways from the perspective
Speaker 4: of Kimroy Clark, I must confess it shows that ken
Speaker 4: View really has a lot of work to do to
Speaker 4: turn around the business since it's split from Change about
Speaker 4: two years ago, and the third quarter miss just added
Speaker 4: up to a pile of disappointing results.
Speaker 5: Diane, I'm looking at the Cambrian clarkstock trading down eleven
Speaker 5: twelve percent here. What's that telling you? Are they overpaying?
Speaker 5: Is the market skeptical about synergies? What do you read
Speaker 5: into that.
Speaker 4: I believe more the later. In terms of the synergies,
Speaker 4: it is quite a steep climb. Obviously, there's a ton
Speaker 4: of law hanging fruit, let's say, in terms of efficiencies
Speaker 4: that can be gained in terms of plugging the great iconic,
Speaker 4: well known trusted brands from Canview into Caneview's system that
Speaker 4: is running at more efficient level at the moment, but
Speaker 4: it will there is septicism there because we are talking
Speaker 4: about revenue synergies as well as cost synergies, and this
Speaker 4: will be quite a complex new company. At the point
Speaker 4: when Kimberly Clark was just simplifying as they were, they
Speaker 4: are aiming to close the transaction on their international business
Speaker 4: I think was segments like tissue in mid twenty twenty six,
Speaker 4: and now this merger expected to close around the same time.
Speaker 4: Just seems to complicate the picture a little bit. Oh yeah,
Speaker 4: that is the TI And yes, and we know how
Speaker 4: Kenby has been dealing with some crisis in the last
Speaker 4: months with tailan Ore and then with talk all suits
Speaker 4: outside the US as well.
Speaker 3: So I'm glad you went there. The tailanol situation.
Speaker 2: The Trump administration has been attacking Thailand a overall. Do
Speaker 2: you think that's something that might complicate this deal? Could
Speaker 2: regulators step in and hold things up or raise questions
Speaker 2: that will just drag things out?
Speaker 4: Quite different questions, I would say, but great questions. So
Speaker 4: in terms of Taileno, the legal risk is there. The
Speaker 4: can View was already fighting in the courts some lawsuits,
Speaker 4: but we now have Texas State wall suit on top.
Speaker 4: On top of it, the humor re quarks price when
Speaker 4: we walk in terms of, for instance, and a bit
Speaker 4: to enterprise value multiple and I'm taking twenty twenty six,
Speaker 4: twenty twenty five sorry that they will report, so that
Speaker 4: will come at about fourteen times, whereas history call transactions
Speaker 4: in the consumer health space were in the range of
Speaker 4: sixteen to twenty times, So fourteen times comes below that.
Speaker 4: So really reflecting not only the struggles of can View
Speaker 4: where their organic growth is still declining, but also the
Speaker 4: viability risk with lawsuits that are ongoing. And that's a
Speaker 4: new lawsuits that can be added as well. In terms
Speaker 4: of the say antitrust competition regulatory approval, as I see it,
Speaker 4: they don't really overlap directly, but it really depends on
Speaker 4: a country region by region basis. Because we know the
Speaker 4: US stands can be very different from the European Commission one.
Speaker 5: Yeah, I should we expect more consolidation in the consumer
Speaker 5: product space, do you think.
Speaker 4: Yes? So that's a team that I've been watching very closely. Obviously,
Speaker 4: we had other large form of groups with significant consumer
Speaker 4: health businesses, so we are talking not only over the
Speaker 4: counter medicines but also the more personal care that deals
Speaker 4: with wellness. Sanofi decided to sell it to private equity,
Speaker 4: so at least for the next few years, that is
Speaker 4: thought buyer is still considering while not considering, as management says,
Speaker 4: puts it. But buyer still has their consumer health business
Speaker 4: and they could be walking into either wasting it or
Speaker 4: further consolidation within the current employers.
Speaker 3: Stay with us.
Speaker 5: More from Bloomberg Intelligence coming up after this.
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Speaker 2: Paul and I were just joking about how there was
Speaker 2: this headline that was basically clickbait, Amazon inching a thirty
Speaker 2: eight billion dollar deal with open ai for in video chips.
Speaker 3: You've got Amazon, you've got open.
Speaker 2: Ai, you've gotten video, and you've got a massive number
Speaker 2: thirty eight billion. So let's bring in man Deep Singh
Speaker 2: Bloomberg Intelligence senior tech industry analysts on these latest developments.
Speaker 3: Mandeep, I've lost.
Speaker 2: Track of how many companies open ai has signed deals with.
Speaker 2: It feels like the bigger questions who has it not
Speaker 2: signed a deal with at this point.
Speaker 6: That's a good way of framing it. But look, I
Speaker 6: mean they have announced their intentions very clearly that they
Speaker 6: want to add up to thirty gigawatts of capacity, So
Speaker 6: in the end, it is all tied to that bigger
Speaker 6: goal of you know, adding thirty gigawats. And just to
Speaker 6: put it in perspective, I mean, the entire gigawatt capacity
Speaker 6: of all the hyperscalers combined is around that ballpark thirty gigawats.
Speaker 6: So they are talking about, you know, some big numbers
Speaker 6: in terms of capacity editions. How they will do it,
Speaker 6: one is through a deal with Oracle, so that was
Speaker 6: a tree hundred billion dollar deal. Then they signed a
Speaker 6: two hundred and fifty billion dollars deal with Microsoft. So
Speaker 6: when you look at it. From that perspective, thirty eight
Speaker 6: billion is not that big. And look, I mean I
Speaker 6: can see what open ai is doing because they've seen
Speaker 6: you know, and sign a deal with Microsoft first, and
Speaker 6: then they signed a deal with Google TPUs. So Entropic
Speaker 6: and open ai are the purest place when it comes
Speaker 6: to llms. And if Entropic is getting all that compute
Speaker 6: capacity from the two hyperscalers that you know, open ai
Speaker 6: was doing business with, it was mostly Microsoft and then
Speaker 6: Microsoft added Entropics. So from that perspective, I can see
Speaker 6: why open ai wants to go to Amazon, which they
Speaker 6: haven't done so far.
Speaker 3: It's an arms race essentially.
Speaker 5: Yeah, yeah, Nthropic, open Ai. These are private companies, correct, Yeah,
Speaker 5: where are they getting this cash for all these big
Speaker 5: purchases and investments and things? Am I missing the funding
Speaker 5: rounds here?
Speaker 4: Well?
Speaker 6: So look at what they've done in terms of their valuation.
Speaker 6: OpenAI has grown to five hundred billion dollars in valuation
Speaker 6: this year. They started off the year at around two
Speaker 6: hundred billion dollars. So that just goes to show that
Speaker 6: every funding round they have attracted more money. In fact,
Speaker 6: people are lining up to give them money now, I
Speaker 6: mean granted, their revenue is still the latest numbers are
Speaker 6: close to fifteen billion dollars in ARR. That's growing over
Speaker 6: one hundred percent. Of what they have promised to investors
Speaker 6: is they'll get to one hundred billion in ARAR by
Speaker 6: twenty twenty seven, twenty twenty eight. What is average annual
Speaker 6: and recurring revenue? So that's where that's how we measure
Speaker 6: all the software companies. When you think about even fifteen
Speaker 6: billion dollars in ARAR puts them among the top ten
Speaker 6: software companies. So already openy is among the top ten
Speaker 6: software account You.
Speaker 5: Walk in and I want to poke holes in it,
Speaker 5: but he's got to.
Speaker 2: I know, I'm shaking in my head as he's talking
Speaker 2: about this conviction.
Speaker 3: Mandy, is there a point where.
Speaker 2: Open ai gets so big that it has to go
Speaker 2: public that it can no longer stay a private company?
Speaker 6: I mean, they already changed this structure where Microsoft got
Speaker 6: a twenty seven percent stake.
Speaker 2: Now and so yeah, but they're like multiplying in growth,
Speaker 2: so this will last for a little bit. And then
Speaker 2: the same question arises again, isn't it does?
Speaker 6: But they are separating out the nonprofit part with the
Speaker 6: profit entity that will go public and then they will
Speaker 6: sell their shares. I don't know how much money they
Speaker 6: would want to raise, given how much they are already
Speaker 6: raising in the private market. So look, I mean it's
Speaker 6: inevitable a company like open Ai, if they get to
Speaker 6: one hundred billion in revenue over the next three years,
Speaker 6: they have to be a public company. I just can't
Speaker 6: imagine them being private.
Speaker 3: And are the regulations that's push them in that direction?
Speaker 3: I mean, isn't it.
Speaker 2: You have a certain number of shareholders and at some
Speaker 2: point you have to you have to list.
Speaker 6: I mean, think about the backers of the company who
Speaker 6: are participating in these funding rounds. They would want an
Speaker 6: exit strategy. You know, you're you're kind of becoming an
Speaker 6: investor right now with the hope that you can get
Speaker 6: a return. And so once a company gets to one
Speaker 6: hundred billion dollars in revenue, I'm sure a lot of
Speaker 6: those investors will want an exit.
Speaker 5: Google announces big Capex race, stock goes up. Facebook and
Speaker 5: ounces big Kapex raised stock goes down.
Speaker 6: Why Because at the end of the day, you have
Speaker 6: to show ROI and you have to show revenue. In
Speaker 6: the case of Meta, they are planning to spend over
Speaker 6: one hundred billion dollars in capex next year with no
Speaker 6: explicit cloud revenue. So think of what Amazon's thirty eight
Speaker 6: billion dollar deal does today. It will add five billion
Speaker 6: dollars in revenue starting twenty late, twenty twenty six and
Speaker 6: twenty twenty seven onwards. Every year, this thirty eight billion
Speaker 6: dollar means they'll add five billion in revenue. That's how
Speaker 6: much open ai will end up paying Amazon. In the
Speaker 6: case of Meta, they're spending one hundred billion plus with
Speaker 6: no promises that they will somebody will pay for their infrastructure. Yes,
Speaker 6: they're getting some lift in their app pricing, but that's
Speaker 6: not enough to justify one hundred billion dollars in capex.
Speaker 6: So that's where the ROI question is the most obvious.
Speaker 6: In the case of Meta, because obviously they keep raising
Speaker 6: their numbers and they.
Speaker 5: Keep costing some say they're going to do other than advertising.
Speaker 5: What does Meta say they're going to get n one
Speaker 5: hundred billion dollars.
Speaker 6: Yeair pitches, We've got, you know, this family of apps
Speaker 6: with over three billion monthly active users, where people are
Speaker 6: spending forty minutes a day. We will give them more
Speaker 6: AI functionality. Look at what open ai has done with
Speaker 6: AI generated content. What Meta is saying is our AI
Speaker 6: generated content will be better than you know these llms,
Speaker 6: and that will drive engagement and will monetize it for
Speaker 6: you ads.
Speaker 2: Right, but they aren't able to provide explicit numbers in
Speaker 2: the same way that others are able to. So isn't
Speaker 2: that a good sign that equity investors are discerning are
Speaker 2: making a distinction between Meta and Amazon and alf BET
Speaker 2: and Microsoft that you know, they're poking holes in some
Speaker 2: of these narratives that the companies are.
Speaker 6: Are absolutely I think right now the market is making
Speaker 6: that distinction, which is why Amazon actually trails so far.
Speaker 6: It's only after their recent print that you got a
Speaker 6: lift in Amazon, and you know now with this deal,
Speaker 6: suddenly they're starting to see some more monetization for Amazon.
Speaker 2: So does that show that even if you're kind of
Speaker 2: late to the party as Amazon was, you can make
Speaker 2: up for lost ground, that the race hasn't gone too
Speaker 2: far ahead of you.
Speaker 6: I mean the paths right now is through AI infrastructure.
Speaker 6: Renting AI infrastructure, whether it's power or data center capacity
Speaker 6: or GPUs. That's where everyone is convinced there is revenue
Speaker 6: and there are profits. When it comes to applications. It's
Speaker 6: still very hazy in terms of which business model will
Speaker 6: actually generate profits or not. So I think the market
Speaker 6: has done a good job in terms of discerning where
Speaker 6: the monetization is so far.
Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
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Speaker 5: Berkshire Hathaway reported really strong earnings and it also reported
Speaker 5: that they have about three hundred and eighty two billion
Speaker 5: dollars of cash on the balance sheet, which begs the question,
Speaker 5: as it does every quarter, as it has for years,
Speaker 5: what do you do with all that money? Matthew Polozola,
Speaker 5: Senior Analyst, Property and capturin the Inschurch and Bloomberg Intelligence
Speaker 5: Droids is here in our studio.
Speaker 7: I'll tell you what you do.
Speaker 5: Your buy backstock and you put a three percent dividend
Speaker 5: yield on You give that cash back the shareholders. That
Speaker 5: falls on dep fears at Berkshire Hathaway, Right, I.
Speaker 8: Think so, I mean looks certainly a good problem to have,
Speaker 8: and I would make e quibble a little bit so
Speaker 8: that that three eighty two includes twenty ish billion in
Speaker 8: treasuries that didn't settle, So it's probably three sixty billion.
Speaker 3: Just a lot.
Speaker 7: It's a lot now, I would say.
Speaker 8: The interesting thing thing is the stock has underperformed the
Speaker 8: market by like thirty percent since Buffett announced that he
Speaker 8: was stepping down in May, and they haven't bought any
Speaker 8: stock over that entire period.
Speaker 3: Yeah, it does that.
Speaker 5: I turned my mic on, I say why.
Speaker 7: Yeah, So.
Speaker 8: Buffett used to have a rule when the stock was
Speaker 8: above one point two times priced to book, they wouldn't
Speaker 8: buy it back. They kind of kicked that out and
Speaker 8: they said, we're just going to buy it back whenever
Speaker 8: we see intrinsic value below.
Speaker 7: So, you know, I don't to me it begs question.
Speaker 8: I mean, maybe he sees the stock as kind of
Speaker 8: fully valued, even down you know.
Speaker 2: Year to date, even with the lagging performance as well.
Speaker 2: So does that change when greg Able, the handpicked successor
Speaker 2: to warn Buffett, takes the reins officially at the end
Speaker 2: of the year.
Speaker 8: You know, Scarlet, he walks a fine line between putting
Speaker 8: some sort of stamp on the company maybe over time
Speaker 8: and then kind of respecting the ethos of Berkshire and
Speaker 8: how they've operated, I would hope something happens. I mean,
Speaker 8: they did a ten billion dollar deal in the fourth quarter,
Speaker 8: they bought the oxycam business from Occidental. They just don't
Speaker 8: have things that can move the needle very much. Even
Speaker 8: in the quarter, their net stock buys and sells or
Speaker 8: negative six billion dollars, so they were negative on other
Speaker 8: equities as well.
Speaker 2: Yeah, there were net seller stocks for twelfth straight quarter,
Speaker 2: and that cash and equivalence.
Speaker 3: Was at a record high at the end of September.
Speaker 2: Is that a signal that they're waiting for the market
Speaker 2: to tank, that they see a correction, maybe not tank
Speaker 2: that might be too strong, they see a correction or
Speaker 2: consolidation in the near terment.
Speaker 3: Are ready for it.
Speaker 7: They're always ready for it. You know.
Speaker 8: Buffett has always said, we're not looking to time the market.
Speaker 8: We're just looking for good companies. He's also been you know,
Speaker 8: when I talk to people that the thought is is
Speaker 8: he just hoarding money for greg Abel and kind of
Speaker 8: setting the company up and just handing it over.
Speaker 7: He's said he's not doing that. So, you know, unfortunately, don't.
Speaker 8: They don't talk to investors, so we don't can't really
Speaker 8: pick his brain besides at the annual meeting, so we
Speaker 8: don't exactly know what's going on there.
Speaker 7: I think he's just extra conservative in his old age.
Speaker 7: I guess right.
Speaker 5: And here's my cynical Wall Street perspective. When mister Buffet
Speaker 5: passes three percent dividend yield, massive stock buyback, do you
Speaker 5: think that's a scenario.
Speaker 7: I think.
Speaker 8: Dividend yield, hopefully you know, some sort of dividend, maybe
Speaker 8: special dividends. The buy back I think will also kind
Speaker 8: of weigh on what able sees the intrinsic value. So
Speaker 8: I would say probably hopefully dividend. I would say maybe
Speaker 8: more steady buyback. There's also they can't buy back a
Speaker 8: ton of shares on volume because you know, there's rules
Speaker 8: on how much they can buy back and how active
Speaker 8: they can be in the market, so that limits them
Speaker 8: a little bit.
Speaker 7: That's plan B. We got it.
Speaker 5: Don't you have to split the stock like a gajillion
Speaker 5: to one.
Speaker 7: They have the A shares and the B shares.
Speaker 8: But there's I don't have all the exact rules, but
Speaker 8: they've talked about we can only buy back so much
Speaker 8: at a time they bought by none. So I think
Speaker 8: a steady buy back plus some returns of capital and
Speaker 8: forms of I would hope special dividends. They maybe they
Speaker 8: don't want to be beholden too a regular quarterly dividend.
Speaker 3: Yeah, makes sense.
Speaker 2: Okay, so that's something we'll watch for when that eventually happens.
Speaker 2: In the meantime, how are the businesses of Berkshire Hathway performing,
Speaker 2: especially insurance?
Speaker 7: Yeah? So all good.
Speaker 8: In the quarter, the insurance business made much more money
Speaker 8: than the year ago, but that was because they had
Speaker 8: a bunch of large losses in the year ago. They
Speaker 8: also had this favorable reserve development, which means they write
Speaker 8: business and those losses come in better or worse than
Speaker 8: they expect over time, and that was those losses were
Speaker 8: coming in better than they expected. So that is it's
Speaker 8: a good thing, but it's not a super high quality
Speaker 8: source of earnings.
Speaker 7: Beat.
Speaker 8: So the insurance business performed well on those two things
Speaker 8: which aren't super high quality in my opinion. The underlying
Speaker 8: business and the insurance doing well. The problem is hard
Speaker 8: for it to get much better next year. The underwriting side,
Speaker 8: the prices in that are going down so I think
Speaker 8: it's tough to see the insurance underwriting doing better next year.
Speaker 8: It's also tough to see the investment it's doing better
Speaker 8: next year. And we're talking about really just the fixed
Speaker 8: income investment. So like the equities, who knows what happens.
Speaker 8: But in terms of the interesting come, we saw that
Speaker 8: decline in the quarter as well.
Speaker 5: The business fundamentals of the underlying businesses.
Speaker 7: Did they move the stock historically? Not really.
Speaker 5: Yeah, it's tough because I asked the one fundamental question.
Speaker 7: That's enough. Let's get back to the main point of
Speaker 7: the story here. It's also my job too.
Speaker 5: But is there an activist investor who's ever oh, good question,
Speaker 5: one word about this company?
Speaker 8: So historically there have been investors very vocal about it.
Speaker 8: I don't, I don't have names, But no one's ever
Speaker 8: been able to move the new buffet's always the majority shareholder.
Speaker 8: So there's really been no one who's ever been forcing
Speaker 8: them to do anything. And so why would they even listen?
Speaker 2: And can you do that with a company that has
Speaker 2: an A class year and B class year with this
Speaker 2: what is.
Speaker 7: His voting control?
Speaker 8: I haven't done it, man, I don't, I don't, I
Speaker 8: don't know, at the top of my head, I thought
Speaker 8: it was something like sixty percent of the share or
Speaker 8: something like that, and other inside will hold more. So
Speaker 8: there's almost no way of wrestling control from him. The
Speaker 8: A shares and the B shares they did so the
Speaker 8: A shares are several hundred thousand dollars, and then they
Speaker 8: instituted the B shares and they're they're getting peg to
Speaker 8: each other, so they can't.
Speaker 7: You can't. You couldn't buy up the B shares and
Speaker 7: kind of take control either.
Speaker 2: They've come up with all kinds of rules to make
Speaker 2: sure that all the things you just proposed can't happen.
Speaker 7: He's not a dumb guy bother Yeah, exactly right. It's
Speaker 7: been extraordinary run.
Speaker 5: Is there a sense that the law of large numbers
Speaker 5: over the last several years, if not the last decade,
Speaker 5: is kind of caught up to this.
Speaker 7: Name, Yeah, for sure.
Speaker 8: I mean they they bought a company for twelve billion dollars, Allegheny,
Speaker 8: and it barely moves the needle. They bought this oxy
Speaker 8: Cam for ten billion, barely moves the needle. They bought
Speaker 8: like twenty billion of Chevron stock two years ago. It
Speaker 8: didn't even come up at the annual meeting. People didn't
Speaker 8: even ask about it. I was sitting there. I couldn't
Speaker 8: believe it is that no one's going to ask about this. So,
Speaker 8: you know, there's just things that are are tough for
Speaker 8: them to to move in from having so much money.
Speaker 8: They're making those investments in Japan, which I think are interesting.
Speaker 8: So they invest in the trading houses in Japan.
Speaker 7: It's hard for.
Speaker 8: Me to know a ton about those businesses. Some of
Speaker 8: them are like mini Berkshire's. Maybe this is stuff that
Speaker 8: they kind of do in the future. Also the energy business.
Speaker 8: Greg Abil's an energy guy. Aon is an insurance broker.
Speaker 8: They talked about last week. This huge opportunity with the
Speaker 8: hyperscalers needing risk transfer services and other things. So those
Speaker 8: are things that fit right into berkshires wheelhouse right, the
Speaker 8: risk transfer and the energy businesses, So those are opportunities
Speaker 8: for them in the future.
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