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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 Applecarplay and Android Auto with the Bloomberg Business App.

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 1: us live on YouTube.

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Speaker 2: Here's some news out today. I think it's important, but

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Speaker 2: I'm not sure. Microsoft will no longer pay revenue to

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Speaker 2: open Ai. Instead, it's partnership with the leading artificial intelligence

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Speaker 2: firm will not be exclusive going forward. Microsoft stocks down

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Speaker 2: just fractionally on the news here. I'm not sure what

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Speaker 2: they're reading to it. But our next guest does know

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Speaker 2: Ed Ludlow be Tech co hosts. He is in our

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Speaker 2: San Francisco studio. Can you explain this news to us

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Speaker 2: and what it means?

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Speaker 3: This is important and it's the latest development in a

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Speaker 3: series of a changing relationship, and so Microsoft critically important

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Speaker 3: mega cap tech name and open Ai. Let's call it

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Speaker 3: the most profound AI company in this generation of AI companies.

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Speaker 3: And basically what Microsoft is allowing open Ai to do

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Speaker 3: is sell its products elsewhere. For a long time, they've

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Speaker 3: been tweaking the exclusivity by which Microsoft gets first DIBs

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Speaker 3: or first access to open ais tech and also is

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Speaker 3: a major distribution platform for open ais tech to third parties.

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Speaker 3: So the net result is like open ai can now

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Speaker 3: run but also sell its models on any cloud. And

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Speaker 3: you'll note that our colleagues in BI their main takeaways

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Speaker 3: from this is the Amazon will be a big beneficiary

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Speaker 3: of that decision, but there's also some mechanical stuff, so

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Speaker 3: believe it or not, Microsoft is the biggest shareholder of

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Speaker 3: open Ai. It has like twenty seven percent stake, but

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Speaker 3: for a really long time it's been paying money to

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Speaker 3: open Ai as a share of revenue from revenues it

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Speaker 3: generates using open ais tech. That's quite complicated. So that's

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Speaker 3: now ending. And open ai is a major customer of Microsoft,

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Speaker 3: even though Microsoft one of its main investors, and it

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Speaker 3: will keep paying Microsoft to use its cloud services. And

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Speaker 3: that's the net takeaway, all right.

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Speaker 4: So perhaps this is all kind of in the lead

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Speaker 4: up to open ai eventually going public, which is expected

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Speaker 4: to happen sometime this year. I also wanted to get

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Speaker 4: from you this story that we have here about China

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Speaker 4: blocking metas two billion dollar acquisition of this AI firm

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Speaker 4: called Manus.

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Speaker 5: It's an AI startup. Tell us a little bit more about.

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Speaker 4: This and whether this would really get in the way

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Speaker 4: of Meta wanting to acquire this company.

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Speaker 6: Yeah.

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Speaker 3: I mean, the way to look at it is that

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Speaker 3: it shows China still having power and an ability to

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Speaker 3: assert control over technology that originates from that country. You know,

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Speaker 3: that is the main part of it. Meta wanted Manus

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Speaker 3: to kind of build out their agentic offering because that

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Speaker 3: is what Manus does, It makes AI agents. But you know,

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Speaker 3: the one reason I suppose this story is so well

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Speaker 3: read on the terminal is that we are just a

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Speaker 3: few weeks away from President Trump meeting with Jijiping and

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Speaker 3: the access to technology in either direction across borders. You know,

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Speaker 3: that has been a point of negotiation right in the

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Speaker 3: relationship between these two countries.

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Speaker 2: Is there any expectation just along that front ed that

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Speaker 2: things will ever get better? I can't see a world

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Speaker 2: where I'd want China to have our best tech. I

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Speaker 2: can't imagine they'd want us to have their best tech.

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Speaker 7: Where are we on that?

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Speaker 6: Yeah?

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Speaker 3: Yeah, the net position of the administration is that they

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Speaker 3: do not want Chinese entities, companies, and other government entities

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Speaker 3: from having access to America's best technology. But that has

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Speaker 3: largely focused on the picks and shovels the chips that

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Speaker 3: are being used to develop that. The other way round,

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Speaker 3: the export of software from China to US has been

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Speaker 3: a much grayer area.

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Speaker 6: You'll see.

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Speaker 3: The other big headline on the terminal is deep seek Right,

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Speaker 3: which is a very competent maker of open source models

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Speaker 3: and so like. The main takeaway in this sense is

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Speaker 3: that the direction of travel is China trying to cut

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Speaker 3: off access to its own companies from American capital, both

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Speaker 3: intellectual and financial capital, which is you know, how the

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Speaker 3: president passes. That is going to be very interesting to see.

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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, Coarclay, 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: Back to these markets here we're can get an IPO.

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Speaker 2: I think a lot of big IPOs are in the

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Speaker 2: offing here.

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Speaker 4: Stir and you're thinking open AI, You're thinking a topic.

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Speaker 4: You're thinking SpaceX.

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Speaker 2: Exactly right, and it looks like Bill Ackman's Purging Square

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Speaker 2: IPO that's going to be starting us off here at

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Speaker 2: least in this period of time. Let's just check them

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Speaker 2: with Billy Lipschalt. He does all the equity markets, including

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Speaker 2: the new issue markets. Bailly talked to us about Bill Ackman.

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Speaker 2: What's he bringing to the marketplace with this IPO.

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Speaker 8: Yeah, so he's bringing a closed end fund, so raising

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Speaker 8: some permanent capital, as Wall Street loves to do these days.

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Speaker 8: And as part of that deal, they're distributing shares of

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Speaker 8: Pershing Square Proper, which is the hedge fund which manages

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Speaker 8: the strategies. So that deal is expected to price tomorrow.

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Speaker 8: My colleague Anthony he has broke that they're expecting to

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Speaker 8: price it at five billion dollars.

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Speaker 6: Keep in mind, a few weeks ago when they.

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Speaker 8: Launched this process, excuse me last week, when they launched

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Speaker 8: this process, they said they would raise five to ten

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Speaker 8: billion dollars, so at the bottom of that range. And

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Speaker 8: if you think back two years ago, without the sweetener

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Speaker 8: of the hedge fund, they wanted to raise twenty five

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Speaker 8: billion dollars.

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Speaker 6: That ultimately was pulled.

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Speaker 8: So this has been a few years in the making,

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Speaker 8: but it does seem like we'll cross that finish line tomorrow.

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Speaker 4: Which part of this offering do investors want more the

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Speaker 4: closed end fund or the exposure to the hedge fund.

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Speaker 8: Hedge fund, I mean closed end funds historically or at

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Speaker 8: least recently, have traded at discounts. The London market, where

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Speaker 8: he currently has a closed edge foot closed end fund

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Speaker 8: trades at a wider discount than here in the US.

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Speaker 8: But just for reference that right now, according to our data,

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Speaker 8: is it a thirty two percent discount? So you're talking

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Speaker 8: about buying something that if you have the long term

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Speaker 8: vision in Bill Ackman and Ryan Israel and the team

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Speaker 8: at Pershing Square, you can buy it now and you

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Speaker 8: hold on to that closed end fund for as long

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Speaker 8: as you want, and you at least get access to

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Speaker 8: Pershing Square, the management company in the interim?

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Speaker 2: Is that discount, that thirty two percent discount, is that

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Speaker 2: bigger than typical?

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Speaker 7: So why is that? Why is he getting a discount?

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Speaker 2: Why is he having a hard time pushing out this

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Speaker 2: deal in the US market?

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Speaker 8: Well, it's wider because these things are more thinly traded

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Speaker 8: in the UK in Europe, so that's one part of it.

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Speaker 8: It's also the fact that these are essentially going to

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Speaker 8: be identical products. So if you're an investor, why would

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Speaker 8: you not cut a check today to get in at

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Speaker 8: least at NAV and then get the bonushares. I mean,

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Speaker 8: the counter argument is why would you not buy something

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Speaker 8: that's thirty two percent on sale?

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Speaker 6: Which is also the other.

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Speaker 8: Argument when you talk to folks in the closed end

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Speaker 8: fund space, is the only reason to get an incremental

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Speaker 8: buyer is someone who believes in the vision going forward.

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Speaker 7: So find first what a closed end fund is.

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Speaker 8: It's everyone knows what a netf is. It's essentially that

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Speaker 8: except for you can't withdraw your money. So if you buy,

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Speaker 8: you participate in this. At fifty dollars, you can sell

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Speaker 8: it in the market. It's like these BDCs and other

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Speaker 8: products that are permanent capital.

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Speaker 6: You buy it, you can pay this sticker price if you.

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Speaker 8: Will, but you don't get access to what the underlying

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Speaker 8: assets actually are worth. So if you buy it fifty

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Speaker 8: at trades at ten percent discount, you certin around sell

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Speaker 8: at forty five bucks, you lost five bucks. But if

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Speaker 8: you buy the Pershing Square London deal at a discount

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Speaker 8: or buy it today, you don't necessarily.

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Speaker 6: Care about the discount.

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Speaker 8: You just care where you can turn around and sell

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Speaker 8: it in a minute, a day, a year.

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Speaker 4: Just remind us again about what Bill Ackman's investing thesis

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Speaker 4: is because he was one of the most vocal activist investors.

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Speaker 5: We can all remember herbal Life.

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Speaker 4: And what he tried to do there and didn't get done.

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Speaker 4: But he's not really pursuing that path anymore, is he.

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Speaker 8: No, he's become kind of a relatively long view, taking

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Speaker 8: a longer view, I guess you could say. I mean,

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Speaker 8: the counter argument is he has exposure to Brookfield, he

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Speaker 8: has his exposure to Howard Hughes, which has been a

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Speaker 8: big position in the company. Also loves the technology companies Amazon,

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Speaker 8: Alphabet has been backing and tweeting a nauseum about Fanny

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Speaker 8: and Freddy and what they can bring us always, so

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Speaker 8: not necessarily your old school activist where you come out

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Speaker 8: with some reports and go head to head with management.

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Speaker 6: Now kind of taking a longer view.

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Speaker 8: And again the counterpoint to from some investors is if

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Speaker 8: I get paid to invest money, why am I turning

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Speaker 8: around and paying a fee to invest in someone else

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Speaker 8: who's investing money. And when you look at the portfolio, yes,

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Speaker 8: he's had some big winners and has done well in

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Speaker 8: the long run, but Amazon, Alphabet.

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Speaker 6: Uber Universal Music Group, they aren't.

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Speaker 8: According to some people I talk to, you necessarily novel

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Speaker 8: names that are kind of under the radar, if.

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Speaker 2: You will, So, I guess, just thirty second stuff, How

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Speaker 2: has this performance been?

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Speaker 7: I mean, has it been.

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Speaker 6: Depending on their data, pretty good?

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Speaker 8: But if you if you use the London based close

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Speaker 8: end fund as a comp relative to the US market,

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Speaker 8: it's underperformed on I believe a one year and two

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Speaker 8: year longer out has outperformed.

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Speaker 6: It kind of just depends where you slice and dice that.

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Speaker 8: But all things considered, it comes back to the whole

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Speaker 8: debate around do you want active money or do you

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Speaker 8: want passive money. It's really hard to outperform the S

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Speaker 8: and P five hundred right now.

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Speaker 7: Yeah, and this is going to be mostly institutional money.

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Speaker 8: According to Anthony's scoop, about eighty five percent institutional, fifteen

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Speaker 8: percent retail. But still, if you do that math, that's

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Speaker 8: about seven hundred and fifty million dollars of retail money.

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Speaker 6: So not sire performance by any stretch. Stay with us.

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Speaker 7: 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 Applecarclay, and Android Auto

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

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

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Speaker 4: We're looking at earning season unfold right now. Of course,

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Speaker 4: this is one of the busiest weeks we had. Verizon

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Speaker 4: reporting results this morning after its larger rival AT and

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Speaker 4: T had reported last week. Verizon surprising investors to the

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Speaker 4: upside with phone subscriber gains, the first time that it

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Speaker 4: has added phone subscribers like net positive in a first

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Speaker 4: quarter since twenty thirteen. So let's bring in John Butler.

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Speaker 4: He's our senior telecom analyst for Bloomberg Intelligence. John, is

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Speaker 4: this credit to the new CEO, Dan Shulman that Verizon

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Speaker 4: has reported this phone subscriber gain?

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Speaker 9: Yeah, I think so, Scarlett. I mean, he really in

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Speaker 9: many ways brings a breath of fresh air to this name.

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Speaker 9: You know, there's he's bringing a level of rigor to

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Speaker 9: managing the company there being more disciplined, I would say

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Speaker 9: on the promotions front, specifically, they have pulled back on

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Speaker 9: providing aggressive handset promotions. He has deployed AI across the organization.

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Speaker 9: So we're seeing very dramatic operating expense cuts, and that's

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Speaker 9: flowing through to cash flow growth. It also increases the

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Speaker 9: safety of the dividend, which they described as as quote

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Speaker 9: ironclad unquote. So for a high yielding stock like Verizon,

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Speaker 9: that's great news to investors, and I think that flow

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Speaker 9: through to cash flow that we're going to see in

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Speaker 9: coming quarters coming out of all these expense cuts. It

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Speaker 9: really I think is helping to boost optimism here.

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Speaker 2: John, how do people investors look at this wireless space

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Speaker 2: and kind of position them the T Mobiles, the Verizons

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Speaker 2: to AT and T's how do investors play it?

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Speaker 9: Yeah, I think they're all different, Paul. You know, AT

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Speaker 9: and T is trying to reposition as more of a

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Speaker 9: broadband growth story. I mean, wireless still drives the bus there,

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Speaker 9: represents well over fifty percent of revenue. It does for

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Speaker 9: all three carriers. But I think AT and T wants

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Speaker 9: to be the broadband name. T Mobile wants to be

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Speaker 9: the wireless leader. They have the most spectrum and increasingly

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Speaker 9: the best five G network out there, and I think

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Speaker 9: for Verizon they're looking for balance between the two. You know,

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Speaker 9: they just close the acquisition of Frontiers, so they have

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Speaker 9: a much bigger fiber territory and a better fiber growth

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Speaker 9: story now, but they also have room to improve on

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Speaker 9: the wireless front. So I would say Verizon a balance name,

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Speaker 9: at and T a broadband name, and T Mobile a five.

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Speaker 6: G leadership name. On the wireless side.

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Speaker 4: Who is Verizon taking these customers from, these mobile phone

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Speaker 4: subscribers from, because this is pretty much a saturated market

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Speaker 4: in the US.

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Speaker 9: It is scarlett. It's a great question. What they're doing

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Speaker 9: now is they're pivoting from being a shared donor. So

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Speaker 9: if you look in prior quarters, they have negative numbers

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Speaker 9: almost every quarter in terms of their post paid net ads.

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Speaker 9: They were really net losses this quarter. Thanks to Dan

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Speaker 9: Shulman and a change in strategy there, we're seeing postpaid

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Speaker 9: net ads driven mostly by improved churns. So they're not

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Speaker 9: losing subscribers anymore. They're being very disciplined about not raising

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Speaker 9: prices anymore. They've sent that message loud and clear out

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Speaker 9: to the subscriber base, and they're adding more value to

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Speaker 9: their plans through content and other added features.

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Speaker 6: On the margin, I.

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Speaker 9: Think they're picking up a little bit of share, and

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Speaker 9: it's always lit across the board. It's hard to pinpoint,

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Speaker 9: but it might be a little bit from AT and T,

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Speaker 9: a little bit from Cable, a little bit even from

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Speaker 9: T Mobile. And they also, by the way, have a

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Speaker 9: lot of upgrade activity from their prepaid plans into post paid,

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Speaker 9: which then get counted as postpaid net editions.

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Speaker 2: John, the telecoms business is a pretty couple intensive business.

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Speaker 2: Is there another cycle that the industry needs to go

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Speaker 2: through or is kind of five G kind of where

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Speaker 2: we are at the moment?

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Speaker 9: So we are what they call mid cycle with five G, Paul,

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Speaker 9: These generational upgrades and wireless tend to happen every ten years.

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Speaker 9: We're about five years plus into it, So I would

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Speaker 9: say as we get to twenty twenty nine and twenty thirty,

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Speaker 9: certainly we're going to see an upgrade of the radios

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Speaker 9: and the technology to six G.

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Speaker 6: But we have a few years to go yet.

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Speaker 9: I think it's an important question for Verizon because for them,

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Speaker 9: they haven't deployed all their five G spectrum yet, so

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Speaker 9: in my mind.

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Speaker 6: They have room to grow.

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Speaker 9: A little bit in terms of the quality of their

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Speaker 9: five G network. And getting back to Scarlett's question about

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Speaker 9: where net ads are coming from, I think is the

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Speaker 9: network quality roofs that churn improves, so you're not losing

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Speaker 9: subscribers and you're enticing new people over to the network.

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Speaker 9: So we're mid cycle to answer your question, and about

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Speaker 9: four years away from that sixty.

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Speaker 4: Upgrade, John, T Mobile will be reporting results tomorrow, the

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Speaker 4: twenty eighth. Now that we've heard from Ate and Tea

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Speaker 4: and Verizon, what's the element of surprise going to be

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Speaker 4: for T Mobile?

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Speaker 9: I think the element is surprised. There might be on

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Speaker 9: the broadband side again, Scarlet, they have the best wireless

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Speaker 9: network out there right now with the most spectrums, so

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Speaker 9: spectrum equates to capacity.

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Speaker 6: To handle a lot of data.

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Speaker 9: They have been a leader in fixed wireless access, that

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Speaker 9: ability to provide a broadband link into the home over

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Speaker 9: your wireless network, and Verizon was weak there and my

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Speaker 9: read through there was T Mobile may have picked up

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Speaker 9: share in fixed wireless access. So if there's a surprise

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Speaker 9: in store with T Mobile, my guess is it's probably

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Speaker 9: going to be on the broadband side.

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Speaker 6: Stay with us.

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Speaker 7: More from Bloomberg Intelligence coming up there for this.

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

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Speaker 2: Scarla Foom, Paul Sweeney Life. You're in our Bloomberg Interactive

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Speaker 2: Broker Studio.

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Speaker 7: Streaming live on YouTube.

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Speaker 2: There's been some unusual news I'll call it out of

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Speaker 2: the airline industry recently, like two of the major airlines

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Speaker 2: may bee merging. How would that ever happen?

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Speaker 4: I know it wouldn't let other smaller airlines combine. So

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Speaker 4: how on earth could in an American and a United

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Speaker 4: be joined.

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Speaker 2: Yep, we've got you know, maybe the US government taking

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Speaker 2: a big equity stake at another airline.

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Speaker 7: I don't know what's going on out there, but said

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Speaker 7: Phillip does. It's his job.

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Speaker 2: He's a deputy team leader for Global Aviation at Bloomberg News.

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Speaker 2: So let's start with United Airlines America Airlines potential discussion

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Speaker 2: of a potential merger.

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Speaker 7: Where did that come from and what's the status of

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Speaker 7: that now?

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Speaker 10: So American Allies has rebuffed United attempt to merge with them,

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Speaker 10: and so Scott Kirby has been talking about merging with

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Speaker 10: American Airlines for some time now. Bloomberg Groups has reported

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Speaker 10: it a couple of days ago, and Americans sort of

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Speaker 10: came out publicly by the end of the week saying

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Speaker 10: that they didn't think it was a good idea. There

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Speaker 10: was antitrust concerns. Then the Trump administration chimed in saying

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Speaker 10: that he wasn't in favor of Trump said he wasn't

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Speaker 10: in favor of a deal between American and United. And

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Speaker 10: so this seems to be a last attempt by Scott

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Speaker 10: Kirby to explain why the deal makes sense, and he

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Speaker 10: talks about how with some domestic asset, with some domestic

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Speaker 10: sort of reductions, this deal could have got through anti

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Speaker 10: trust scrutiny, and it sort of shows that United Airlines

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Speaker 10: is still not quite over being burned on this deal

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Speaker 10: and sort of is explaining why the rational makes sense.

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Speaker 4: Which makes me wonder whether United might be looking at

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Speaker 4: a smaller partner instead of American. You know, they wanted

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Speaker 4: to be the biggest airline by joining with American, but

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Speaker 4: if that can't be done, then maybe there's another partner

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Speaker 4: out there. And there is talk about more consolidation needed

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Speaker 4: right there is.

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Speaker 10: I mean everyone's been talking about how consolidation in the

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Speaker 10: airline industry is inevitable, especially as the high fuel prices

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Speaker 10: sort of hit the discount carriers and the smaller carriers

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Speaker 10: much harder than United and Delta. So United and Delta

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Speaker 10: have made that entire business based on the premium demand

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Speaker 10: and premium traffic, and that traffic has sort of helped them.

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Speaker 10: Whether even the current upheaval where passengers are willing to

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Speaker 10: pay higher prices just because they want to fly on

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Speaker 10: those two carriers, that hasn't read been this case with

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Speaker 10: other smaller carriers, especially at the sort of lower end

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Speaker 10: of that case economy. We have passengers saying that, hey,

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Speaker 10: do I need to take this trip? Can I hold

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Speaker 10: off on traveling? And so there's some hesitancy in bookings

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Speaker 10: and that's really sort of creating pain for the smaller carriers.

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Speaker 2: So for the smaller carriers, particularly with these higher jet

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Speaker 2: fuel prices, what's their future? I mean, wait, it looks

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Speaker 2: like they may need to be bit bled out those

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Speaker 2: certain extent absolutely.

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Speaker 10: I mean so Spirit Airlines, which is in its second bankruptcy,

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Speaker 10: is already sort of working on a plan for the

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Speaker 10: Trump administration to take out offer as much as five

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Speaker 10: hundred million in exchange for warrants that could allow it

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Speaker 10: to purchase up the ninety percent of Spirit Airlines and

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Speaker 10: the other localst carriers are sort of jumping in and saying, hey,

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Speaker 10: we need some assistance as well. And so the Association

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Speaker 10: of Value Carriers, which represents other airlines like Frontier and Novello,

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Speaker 10: has asked for two and a half billion dollars in

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Speaker 10: aid for the industry and sort of tied to jet fuel,

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Speaker 10: saying that they expect jet fuel to be over four

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Speaker 10: dollars a gallon for the rest of the year.

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Speaker 4: Which I guess is not unreasonable given where things are

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Speaker 4: going with the war in Iran specifically, we've seen the US.

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Speaker 5: Government come to the aid of airlines in the past.

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Speaker 4: I think back to twenty twenty twenty one. Didn't the

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Speaker 4: airlines get a lot of money from the federal government

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Speaker 4: that was never converted into equity.

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Speaker 10: They did, and at that time, during COVID, a lot

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Speaker 10: of basically fly airlines were grounded and airlines were sort

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Speaker 10: of forced to sort of keep planes on the ground,

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Speaker 10: and so airlines were given eight two and a half

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Speaker 10: billion dollars waid from the government in order to keep

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Speaker 10: workers on and not sort of layoff workers, and that

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Speaker 10: was sort of a key part of it. So there

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Speaker 10: is precedent during COVID, but sort of making an exception

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Speaker 10: for one airline at a time of crisis is something

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Speaker 10: that's not quite as precedented.

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Speaker 2: So what's the Is there a concern in the US

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Speaker 2: that if these regional low cost airlines don't I can't

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Speaker 2: figure out an economic model to thrive, that air service

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Speaker 2: and secondary and tertiary markets in this country may not

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Speaker 2: be as good or as vibrant.

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Speaker 10: And also there'll be less competition, so that basically drives

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Speaker 10: up prices. And so there is a concern that having

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Speaker 10: fewer airlines will lead to higher prices and that's not

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Speaker 10: great for the consumer, and especially at a time when

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Speaker 10: you're looking at an election, you have much higher prices.

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Speaker 10: People will see that immediately.

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Speaker 4: What is the latest with Spirit Airlines seeking some kind

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Speaker 4: of I'm going to call it a bailout, but okay,

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Speaker 4: a loan of up to five hundred million dollars.

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Speaker 5: I mean, this is something we've been reporting on the

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Speaker 5: last few days. Has there been any response from the

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Speaker 5: government on this?

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Speaker 10: There has Donald Trump came out and said that he

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Speaker 10: is in favor of a bailout he did talk about

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Speaker 10: how he would say fourteen thousand jobs, and there has

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Speaker 10: been some noise from this administration that they may be

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Speaker 10: receptive to the idea of offering Spirit a lifeline that

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Speaker 10: would get them out of bankruptcy and allow them to

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Speaker 10: sort of continue, despite the fact that oil prices have

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Speaker 10: upended whatever calculations they did have before they were going

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Speaker 10: to exit bankruptcy.

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