WEBVTT - Hold On To Tesla, As Management Tackles Balance Sheet: Houchois 0:00:05.800 --> 0:00:08.320 Welcome to the Bloomberg p m L Podcast. I'm Pim 0:00:08.400 --> 0:00:11.200 Fox along with my co host Lisa A. Brahmowitz. Each 0:00:11.240 --> 0:00:14.440 day we bring you the most important, noteworthy, and useful 0:00:14.480 --> 0:00:17.079 interviews for you and your money, whether you're at the 0:00:17.120 --> 0:00:20.360 grocery store or the trading floor. Find the Bloomberg p 0:00:20.520 --> 0:00:27.479 m L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. 0:00:27.480 --> 0:00:30.280 There is a lot of pessimism around Tesla these days, 0:00:30.360 --> 0:00:33.280 so much so that Ellen Musk decided to joke about 0:00:33.520 --> 0:00:35.800 the fact that the company was filing for bankruptcy as 0:00:35.840 --> 0:00:39.280 an April Fool's joke. Here to talk about the bull 0:00:39.360 --> 0:00:43.560 case for Tesla is Philippe h equity analyst at Jeffrey's 0:00:43.600 --> 0:00:47.360 coming to us from London. Philip, there is so much 0:00:47.520 --> 0:00:51.000 negativity around Tesla right now as people ratchet down their 0:00:51.000 --> 0:00:54.800 production estimates. H, I'm wondering, what's the bull case here? 0:00:55.320 --> 0:00:58.520 Very morning, I'll qualify your coming. Um. We we upgrade 0:00:58.600 --> 0:01:01.400 from on the performed to hold day. Talking about the 0:01:01.400 --> 0:01:04.840 world case is probably a bit premature. Um. Although we 0:01:04.920 --> 0:01:07.880 have some some admiration and sympathy for what Tesla has 0:01:07.920 --> 0:01:11.240 achieved so far, our view is mostly that a lot 0:01:11.280 --> 0:01:13.319 of that news have been crystallized in the shower price 0:01:13.600 --> 0:01:16.360 last week and apparently today as well, and we think 0:01:16.360 --> 0:01:19.280 at this stage the probability of management getting a bit 0:01:19.319 --> 0:01:23.960 more curious about capital, structure, funding and guidance is likely 0:01:24.040 --> 0:01:26.560 to stick as a show price. Well, just to just 0:01:26.600 --> 0:01:28.640 to push back a little bit, I think that a 0:01:28.640 --> 0:01:30.640 lot of people are watching the bonds right now and 0:01:30.720 --> 0:01:34.039 watching the prices sink, basically locking Tesla out of the 0:01:34.120 --> 0:01:37.279 unsecured bond market. A lot of people believe that Tesla 0:01:37.319 --> 0:01:40.520 will have to raise equity and I'm just wondering, you know, 0:01:40.600 --> 0:01:44.199 if they can't raise four billion dollars by the first 0:01:44.280 --> 0:01:48.120 quarter next year, uh, They're debt could easily come under 0:01:48.160 --> 0:01:50.720 more pressure. At what point, you know, does this become 0:01:50.720 --> 0:01:55.000 a spiral? You know? Absolutely? I mean we were factored 0:01:55.040 --> 0:01:57.360 in the two point five to three billion capital race 0:01:57.440 --> 0:01:59.720 for some time um with a view that it might 0:01:59.800 --> 0:02:02.680 be mix of equity and debt. At this stage it 0:02:02.760 --> 0:02:04.680 seems like it would be higher than what we have 0:02:04.760 --> 0:02:08.519 in our estimates and also very much no weighted those 0:02:08.600 --> 0:02:12.920 kew towards the equity, so the dilution impact, of course 0:02:13.040 --> 0:02:16.639 is more severe, and raising capital in those circumstances with 0:02:16.720 --> 0:02:19.799 what happening in the bond side isn't easy. At the 0:02:19.840 --> 0:02:22.880 same time, we've seen before is if you raise capital 0:02:23.160 --> 0:02:25.520 in a what we call it professional manner, that you 0:02:25.600 --> 0:02:28.360 reassure investors that you have desition of something, you have 0:02:28.440 --> 0:02:32.280 a plan um, then you de risk the profile investment 0:02:32.280 --> 0:02:35.240 profiles the company, and I think that's possibly an opportune 0:02:35.240 --> 0:02:38.320 It isn't able to Testla today, so we need to 0:02:38.360 --> 0:02:40.760 be aware of the risk of more capital needed to 0:02:40.760 --> 0:02:43.320 be raised. At the same time, the benefit of stabilizing 0:02:43.360 --> 0:02:45.600 the story in the balance sheet is not to be 0:02:45.960 --> 0:02:49.280 to be neglected either. At what point do you believe 0:02:49.320 --> 0:02:52.200 investors will step back and lenders will not want to 0:02:52.240 --> 0:02:55.000 lend the company any more money. Is there a specific 0:02:55.280 --> 0:03:00.200 challenge that Tesla has and is there a time frame? Well, 0:03:00.240 --> 0:03:01.560 as we said before, I know a lot of the 0:03:01.639 --> 0:03:05.720 issues around Tesla are self inflicted. UM I think the 0:03:05.760 --> 0:03:10.000 market will probably welcome a slight pause in this aggressive 0:03:10.040 --> 0:03:14.799 guidance better visibility on how reasonably productively ramped up. So 0:03:14.840 --> 0:03:17.120 it's a combination of how the company is willing to 0:03:17.160 --> 0:03:21.440 package your message um allebal credibility on what can be achieving, 0:03:21.520 --> 0:03:25.600 What is too optimistic, and of course the amounts involved, 0:03:26.080 --> 0:03:28.680 and I think it's it's it's a difficult balance, um, 0:03:28.760 --> 0:03:30.799 but I think now is the right that is the 0:03:30.880 --> 0:03:33.760 right time to do it. Because of what seemed that 0:03:33.800 --> 0:03:35.880 it might have been a short term issue. It has 0:03:35.880 --> 0:03:38.160 been a short term issue for three quarters now, so 0:03:38.200 --> 0:03:40.520 it no longer qualifies and they need to do something 0:03:40.560 --> 0:03:44.600 a bit more um drastic, I think, to stimilize the 0:03:44.600 --> 0:03:47.200 equity story and something, you know, Philippe. One thing that 0:03:47.240 --> 0:03:50.360 I'm struggling to get my mind around is what is 0:03:50.400 --> 0:03:53.760 the main problem that that the Tesla faces right now? 0:03:53.840 --> 0:03:56.240 Is it? Is it a financing problem? Is it the 0:03:56.280 --> 0:03:59.920 fact that they have overpromised and underlivered quarter after quarter 0:04:00.200 --> 0:04:04.240 with the Model three delivery expected to also underwhelm people, 0:04:04.600 --> 0:04:06.520 or is it a management issue? And what we saw 0:04:06.520 --> 0:04:09.240 with Elon Musk and the April Falls tweet that didn't 0:04:09.240 --> 0:04:12.960 go over very well. I think at this stage the 0:04:13.000 --> 0:04:17.040 main issue is probably um the industrial approach. Now they 0:04:17.080 --> 0:04:21.560 have chosen a manufacturing process that is highly automated. Um. 0:04:21.560 --> 0:04:23.279 It is well known that in manufacturing there is a 0:04:23.320 --> 0:04:27.479 trade off between automation and and flexibility, and so that's 0:04:27.520 --> 0:04:29.520 one of one of the issues and if you're not 0:04:29.600 --> 0:04:32.360 running a full capacity, then your your your running costs 0:04:32.400 --> 0:04:35.200 are very high. And then there's another question mark, but 0:04:35.240 --> 0:04:37.200 it's very much a question mark is whether some of 0:04:37.400 --> 0:04:40.920 the proud development has lacked the invalidation, in which case 0:04:41.200 --> 0:04:44.120 some of the components may not be totally validated, and 0:04:44.160 --> 0:04:48.200 that might have be some of the reasons behind continue 0:04:48.200 --> 0:04:50.880 issues of fit and finish that some consumers have reported. 0:04:51.320 --> 0:04:53.719 Um So there's uncertainty there, but certainly it seems like 0:04:53.920 --> 0:04:59.839 very much the consequence of excessively aggressive manufacturing decisions made 0:04:59.839 --> 0:05:02.400 by the current management. But Philippe, it's not even just 0:05:02.440 --> 0:05:05.159 the current management. A recent review by Car and Driver 0:05:05.320 --> 0:05:08.800 magazine about the Tesla Model three said, quote, it's difficult 0:05:08.800 --> 0:05:13.240 to gauge exactly how disappointing the Model three's result is 0:05:13.680 --> 0:05:16.760 in that real world seventy five mile power highway fuel 0:05:16.800 --> 0:05:19.440 economy test. Indeed, they say that if it's a little 0:05:19.480 --> 0:05:22.440 cold outside lop off about a third of the range. 0:05:22.480 --> 0:05:25.640 If it gets even colder, the range will be even worse. 0:05:25.839 --> 0:05:29.360 That's not a management issue, that's a technical issue. That 0:05:29.560 --> 0:05:32.680 is a product concept issue, and it's something that has 0:05:32.680 --> 0:05:35.640 been has been part of the development of electric cars, 0:05:35.720 --> 0:05:39.520 and it seems to be maybe a perception among investors 0:05:39.600 --> 0:05:43.400 or customers that they can be a seamless transition away 0:05:43.400 --> 0:05:46.600 from unbush engine cars into electric cars. And the reality 0:05:46.680 --> 0:05:51.599 is still very much technology that is underdevelopment, underdevelopment um 0:05:51.640 --> 0:05:53.960 with no disappointments on the way as well as excacting 0:05:54.120 --> 0:05:58.400 no development in terms of no driving agreement. And so 0:05:58.440 --> 0:06:01.279 I think it's it's I think there has been a 0:06:01.320 --> 0:06:04.839 lot of different opinions, some negative in some sources more positive. 0:06:05.200 --> 0:06:07.359 I think it's very much a product that is evolving 0:06:07.880 --> 0:06:11.159 and that may be a surprise for investor residents. Do 0:06:11.200 --> 0:06:15.680 you do you drive a Tesla? I do not? Okay, alright, 0:06:15.720 --> 0:06:19.520 just checking, Thanks very much. Uh. Philippe Husha He is 0:06:19.600 --> 0:06:22.760 equity analyst for Jefferies joining us from London, talking about 0:06:22.839 --> 0:06:26.240 Tesla and the company's future. Right now, the company's stock 0:06:26.520 --> 0:06:30.359 is down nearly seven percent, shares a Tesla lower by 0:06:30.400 --> 0:06:37.800 more than eighteen dollars a share. Well, China retaliated against 0:06:37.800 --> 0:06:41.960 the US with three billion dollars worth of goods from 0:06:41.960 --> 0:06:45.880 the US getting slapped with tariffs. We're talking pork, We're 0:06:45.920 --> 0:06:50.600 talking other perhaps Jin saying things that are pretty peripheral 0:06:51.080 --> 0:06:53.880 in in size and in scope. So you know, the 0:06:53.960 --> 0:06:57.960 question is our markets missing the real show with the 0:06:58.240 --> 0:07:01.960 China US standoff? It isn't more severe than perhaps some 0:07:02.040 --> 0:07:05.039 people are counting on with US. I am so pleased 0:07:05.080 --> 0:07:07.479 to bring in Bill Rhodes, President and Chief Executive of 0:07:07.520 --> 0:07:11.400 William R. Rhodes Global Advisors, better known as Banker to 0:07:11.440 --> 0:07:14.400 the World, with his decades of experience at the front 0:07:14.440 --> 0:07:17.440 seat of international banking negotiations. Bill, thank you so much 0:07:17.480 --> 0:07:19.840 for being here. So what do you make of the 0:07:19.920 --> 0:07:23.360 twoford tat US China tariffs? Well, first of all, it's 0:07:23.360 --> 0:07:26.200 great to be uh here with Hugh Lisa and with 0:07:26.280 --> 0:07:30.080 Pim as always uh. I think no one should be 0:07:30.120 --> 0:07:35.280 surprised at this because President Trump ran on doing something 0:07:35.600 --> 0:07:38.840 with China. The question is are we doing it intelligently 0:07:39.040 --> 0:07:41.760 or are we not? Because we have to remember that 0:07:41.840 --> 0:07:45.360 Chi Jinping is now basically Emperor of China, and on 0:07:45.680 --> 0:07:48.680 this program number of months ago I predicted that he 0:07:48.680 --> 0:07:51.400 would be able to consolidate his power as core leader 0:07:51.960 --> 0:07:56.200 and now basically he is the leader almost for life, 0:07:56.360 --> 0:07:58.680 depending on how long he wants to stay around. So 0:07:59.120 --> 0:08:01.560 we're dealing with the different situation than we would have 0:08:01.640 --> 0:08:06.720 been a year ago. And we also need China if 0:08:06.720 --> 0:08:09.400 we're going to have a successful negotiation with North Korea 0:08:09.400 --> 0:08:12.200 and Kim Jong Oon. And that was brought I think 0:08:12.240 --> 0:08:15.040 holmed everyone with a visit of Kim Kim Jong Oon 0:08:15.160 --> 0:08:18.720 to Beijing. UH So, whether we like it or not, 0:08:19.280 --> 0:08:22.280 we can't just talk about trade with China. We also 0:08:22.400 --> 0:08:25.760 have to be very cognizant that without China's support where 0:08:26.720 --> 0:08:30.520 of their petroleum and uh an energy comes from China, 0:08:31.160 --> 0:08:33.800 we won't have a happy outcome in in that negotiation. 0:08:33.880 --> 0:08:36.160 So at the end of the day, we're gonna have 0:08:36.200 --> 0:08:39.880 to sit down with the Chinese and work things out. Uh. 0:08:40.040 --> 0:08:43.079 One of the major aspects also that I think needs 0:08:43.120 --> 0:08:46.480 to be uh worked on has been talked about, but 0:08:46.520 --> 0:08:49.679 I haven't seen much done about is the intellectual property 0:08:49.720 --> 0:08:52.400 area because there's no town. China has been very deficient 0:08:52.400 --> 0:08:56.480 in this area for quite some time, uh, not only 0:08:56.600 --> 0:09:00.079 the American companies but also with European companies. But but 0:09:00.120 --> 0:09:02.560 I guess that then I'm wondering, as I listened to you, 0:09:02.800 --> 0:09:06.079 so far, markets are taking the tariff talk as more bike, 0:09:06.320 --> 0:09:09.640 more bark than bite. Do you think that they're overly 0:09:09.800 --> 0:09:13.360 sanguine based on this sort of larger picture issues that 0:09:13.400 --> 0:09:16.560 the U. S And China are dealing with. Well, I 0:09:16.600 --> 0:09:21.319 think that you have to take these discussions on trade 0:09:21.400 --> 0:09:25.040 seriously because, uh, you know, we've been looking, particularly in 0:09:25.040 --> 0:09:27.480 the high tech area, we've been looking at China as 0:09:27.559 --> 0:09:31.120 the market of the future. Uh you know, whether it 0:09:31.160 --> 0:09:35.199 be Apple, Qualcom. I could just run through the names Facebook, etcetera, 0:09:35.840 --> 0:09:39.960 and uh what the Chinese are doing. And let's let's 0:09:39.960 --> 0:09:42.880 not forget where Ali Baba has come in ten years 0:09:43.040 --> 0:09:45.600 and ten cent. I mean nobody heard of Ali Baba 0:09:45.640 --> 0:09:49.040 ten years ago. So there there's a lot at stake here. 0:09:49.480 --> 0:09:54.439 The Qualcom situation in particular, they've held up this, uh 0:09:54.520 --> 0:09:58.720 this merger, uh you know, approval for Qualcom, which is 0:09:58.800 --> 0:10:01.560 key for them now that the Roadcom deal has fallen apart, 0:10:02.000 --> 0:10:04.160 and their attitude is, well, we want to take more 0:10:04.240 --> 0:10:07.720 time to look at it, which is basically saying, uh, 0:10:07.840 --> 0:10:10.240 if we can work some other deals and some other things, 0:10:10.280 --> 0:10:14.160 will approve it. So we've got a lot at stake here. Uh. 0:10:14.200 --> 0:10:17.440 And instead of having a talk with Mr Putin, I 0:10:17.480 --> 0:10:19.600 think maybe our president ought to be sitting down with 0:10:19.640 --> 0:10:22.960 Shi Jinping on all of these issues because I think 0:10:22.960 --> 0:10:25.320 that's much more important for the United States and sitting 0:10:25.360 --> 0:10:28.800 down with Putin at the stage of the game. Although 0:10:28.840 --> 0:10:31.600 I'm sure Mr Putin is very happy that that the 0:10:31.640 --> 0:10:34.520 President called him and said let's talk, I think our 0:10:34.600 --> 0:10:37.840 major concern should be China in all of these areas. 0:10:38.679 --> 0:10:43.520 Bill Rhodes, in January, you penned an op ed piece, 0:10:44.400 --> 0:10:48.280 and you've put your pen to paper many times the 0:10:48.360 --> 0:10:51.319 book Banker to the world. What did you say in 0:10:51.400 --> 0:10:53.760 that op ed piece? And maybe you could just reiterate 0:10:53.800 --> 0:10:57.600 it for people. Thank you for mentioning that pim I 0:10:57.679 --> 0:11:02.079 basically predicted um that we would have a correction of ten. 0:11:03.000 --> 0:11:05.319 I guess the low point was twelve. And we have 0:11:05.360 --> 0:11:09.120 a lot of volatility, which certainly is happening because there 0:11:09.160 --> 0:11:11.760 are so many uncertainties, including the ones that Leaves and 0:11:11.800 --> 0:11:14.560 I have just been talking about. And I think we 0:11:14.679 --> 0:11:17.560 also one of the things that a lot of people 0:11:18.040 --> 0:11:21.079 have not taken seriously is we've had so much liquidity 0:11:21.120 --> 0:11:23.920 pumped in the markets by the major central banks of 0:11:23.960 --> 0:11:27.240 the world. Uh, and we've had this trying to reach 0:11:27.280 --> 0:11:30.440 and search for yield, and eventually it's come that's gonna 0:11:30.480 --> 0:11:33.480 come home and bite you. And because people think it 0:11:33.520 --> 0:11:35.760 will go on forever, and of course the FEDS taking 0:11:35.760 --> 0:11:39.920 the lead and ratcheting back with their balance sheet. Uh, 0:11:40.040 --> 0:11:42.880 it's not just raising interest rates, which everyone seems to 0:11:43.360 --> 0:11:47.160 you know, I think as a major preoccupation, uh for 0:11:47.200 --> 0:11:50.320 the future, which is important, But I gotta tell you 0:11:50.480 --> 0:11:53.240 maybe just as important and more important is we're reducing 0:11:53.280 --> 0:11:56.199 that balance sheet, the quantitative easing, and as that money 0:11:56.200 --> 0:12:00.760 gets taken out, interest rates go up, and I think 0:12:00.800 --> 0:12:02.959 you'll start to see movement in the e c B, 0:12:03.440 --> 0:12:07.000 the Bank Bank of England also, so stocks stocks are 0:12:07.080 --> 0:12:10.240 down two percent this year, okay, by the SMP five, 0:12:11.040 --> 0:12:13.719 you think they have another eight percent at least to go. No, 0:12:14.000 --> 0:12:16.679 what I was saying is, at the time I penned this, 0:12:16.760 --> 0:12:22.120 which is of January, Uh, when the hit came three 0:12:22.160 --> 0:12:24.880 months later, it dropped to be exact eleven and a 0:12:24.920 --> 0:12:28.439 half percent. So I was just calling for that correction. 0:12:29.040 --> 0:12:32.120 But I'm just saying the same points that are there. 0:12:32.640 --> 0:12:34.079 I think are going to come back to buy this 0:12:34.240 --> 0:12:37.080 later on in the year. Uh. And I think at 0:12:37.360 --> 0:12:40.400 at the very you know wordst we we might have 0:12:40.440 --> 0:12:43.840 a total adjustment of some but at least the ten 0:12:43.880 --> 0:12:46.240 percent we've already seen that correction, but I think we 0:12:46.280 --> 0:12:50.880 have further corrections to come. Which sector of US equities 0:12:50.880 --> 0:12:52.400 were just in general, which as a class do you 0:12:52.440 --> 0:12:54.920 think will be hardest hit? I think the tech side 0:12:54.960 --> 0:12:56.960 is the most vulnerable frame, even now, even with the 0:12:56.960 --> 0:12:58.720 sell off that we've seen recently. Yeah, I think so. 0:12:58.840 --> 0:13:01.880 And then the other thing which a surprise people, UH 0:13:02.040 --> 0:13:05.840 is everyone expected the bank's stocks to be soaring and 0:13:05.880 --> 0:13:08.200 they haven't. And this is UH, this has been a 0:13:08.200 --> 0:13:12.280 big surprise to UH a lot of fund managers, and 0:13:12.320 --> 0:13:14.840 some of these fund managers aren't doing too well, as 0:13:14.840 --> 0:13:18.000 you've seen by some of the announcements over the last 0:13:18.360 --> 0:13:23.120 couple of days. UH. This market is one that is 0:13:23.160 --> 0:13:27.800 going to be a rough ride with high volatility and 0:13:28.120 --> 0:13:32.120 the possibility that you can get some more major adjustments 0:13:32.120 --> 0:13:34.000 before you have flattening out, and then you have the 0:13:34.000 --> 0:13:37.000 whole point is if it's going to raise three or 0:13:37.000 --> 0:13:40.120 four times, UH, there's no doubt that unemployment's going to 0:13:40.200 --> 0:13:45.600 drop below four percent. And notwithstanding UH what I think 0:13:45.679 --> 0:13:47.440 is not going to be as stronger first quarter as 0:13:47.480 --> 0:13:51.000 people thought, I still think you have to take a 0:13:51.000 --> 0:13:54.319 look at the growth may not be as high as 0:13:54.320 --> 0:13:57.480 people UH. As people think. And so you have a 0:13:57.520 --> 0:14:00.920 lot of a lot of these things floating around. Can 0:14:01.240 --> 0:14:05.440 can you do thirty seconds on Mexico? The election began 0:14:05.520 --> 0:14:09.600 officially yesterday. Well, I think that that is a big unknown, 0:14:10.280 --> 0:14:13.640 uh for the n after talks, because they have elections 0:14:13.679 --> 0:14:19.480 in July. And so running ahead now is Lopez Overlord, 0:14:19.960 --> 0:14:23.040 who is a wild card. He's to the sort of 0:14:23.080 --> 0:14:27.520 extreme left in Mexico, and we're not clear how he 0:14:27.600 --> 0:14:29.520 would move ahead on after if we don't get the 0:14:29.560 --> 0:14:33.360 talks done. So really, uh, there's a date here where 0:14:33.400 --> 0:14:35.720 if we can't get these enough to talks done before 0:14:36.520 --> 0:14:40.440 the elections in in Mexico, then that's a whole new ballgame. 0:14:40.680 --> 0:14:42.800 Thank you very much for being with us, Bill Rhodes. 0:14:42.800 --> 0:14:45.640 He is the author of Bankers to the World, Leadership 0:14:45.720 --> 0:14:49.520 Lessons from the front Lines of Global Finance. This is Bloomberg, 0:14:53.640 --> 0:14:58.040 Humana and Walmart, a marriage made in heaven. Well, perhaps 0:14:58.200 --> 0:15:00.760 here to join us and discuss this po nil tie 0:15:00.840 --> 0:15:03.800 up is Max Neeson, biotech, pharma and healthcare columnist and 0:15:03.800 --> 0:15:07.520 Tara La Chapelle, deal's columnist, both of Bloomberg gad Fly. 0:15:07.640 --> 0:15:11.160 They both write fabulous columns. Read them. Uh, Tara. I 0:15:11.160 --> 0:15:13.640 want to start with you because you cover the M 0:15:13.680 --> 0:15:16.120 and A market on a more broad level, and I'm 0:15:16.120 --> 0:15:21.680 wondering how concentrated has the healthcare specific deals been. I mean, 0:15:21.680 --> 0:15:24.240 in other words, how massive has the wave been this year? 0:15:24.280 --> 0:15:25.840 I want to set this up that way. Yeah, I 0:15:25.880 --> 0:15:29.360 mean it started with CVS Etna back in December. Really 0:15:29.440 --> 0:15:33.160 surprising deal, um, And it makes sense for strategic reasons 0:15:33.200 --> 0:15:36.280 which we've been writing. But the finances are what's so jarring. 0:15:36.360 --> 0:15:40.280 And now that we're seeing other companies explore similar really 0:15:40.440 --> 0:15:43.920 large mega deals, a lot of debt involved. Um, it's 0:15:43.960 --> 0:15:45.600 a little bit of cause for concerning you know, you 0:15:45.640 --> 0:15:47.800 have to question where what is behind this M and 0:15:47.880 --> 0:15:49.880 A wave and in the end is it going to 0:15:49.920 --> 0:15:53.520 be better for shareholders and for these companies. So Max, 0:15:53.560 --> 0:15:57.600 that raises the question of Humana and Walmart, and you 0:15:57.640 --> 0:16:00.320 know I oppose that to you. Do you think that 0:16:00.400 --> 0:16:03.280 this deal makes sense? Um? I think it does in 0:16:03.520 --> 0:16:05.800 in in a number of different ways. For one, Human 0:16:05.960 --> 0:16:10.000 is pretty heavily concentrated on the medicare market. That's a 0:16:10.000 --> 0:16:13.840 good overlap with the kind of Walmart's core customer base. 0:16:14.360 --> 0:16:17.920 They already have a partnership for Medicare, prescription drug programs, 0:16:18.120 --> 0:16:19.680 so they know how to work to each other with 0:16:19.720 --> 0:16:22.440 each other, and um, you know, Walmart. Anything they can 0:16:22.480 --> 0:16:25.960 do to kind of drive store traffic, whether it's by 0:16:26.080 --> 0:16:28.880 driving human and releas to clinics or making sure they 0:16:28.960 --> 0:16:34.240 use their pharmacies building their pharmacy business, that's also their benefit. Um. 0:16:34.280 --> 0:16:38.000 The question is, you know, whether they can actually drive 0:16:38.280 --> 0:16:40.480 the full amount of that benefit, considering they're kind of 0:16:41.000 --> 0:16:44.480 relative lack of experience and healthcare and managing and early 0:16:44.520 --> 0:16:47.720 health um. And also the fact that you know Astarmagine 0:16:47.800 --> 0:16:49.880 this is you know, the third in a in a 0:16:49.960 --> 0:16:53.120 line of deals, and these deals themselves come come on 0:16:53.200 --> 0:16:56.000 the heels of you know, United Health having spent almost 0:16:56.040 --> 0:17:01.360 a decade kind of following this integrated insurer provider model. 0:17:01.480 --> 0:17:03.600 So everyone's sort of playing catch up, and it's a 0:17:03.640 --> 0:17:05.840 question if they'll they'll all be able to do it 0:17:05.880 --> 0:17:08.919 well and do it profitably. At the same time, Max 0:17:09.160 --> 0:17:11.679 am I just sort of getting stuck on this idea 0:17:11.760 --> 0:17:14.920 that this is not a healthcare company. Humanity is an 0:17:14.920 --> 0:17:18.679 insurance company. They are a healthcare ensure but they do 0:17:18.760 --> 0:17:22.800 not provide any of the healthcare that we're talking about 0:17:22.920 --> 0:17:26.760 is that accurate um, they actually have to do some role. 0:17:26.800 --> 0:17:30.680 I mean pretty much any insure is actively managing the care. 0:17:30.840 --> 0:17:32.600 No I understand that, but I mean they do not 0:17:32.720 --> 0:17:36.560 employ the doctors, the nurses, the pharmacists, or they're looking 0:17:36.600 --> 0:17:39.680 to employ more human as a separate deal with I believe, 0:17:39.720 --> 0:17:42.560 like a home hospical and and they've been doing some 0:17:42.640 --> 0:17:45.520 investments that they have a having investment in care coordinators 0:17:45.560 --> 0:17:48.280 to which kind of actively work to to keep people 0:17:48.320 --> 0:17:50.320 out of the emergency rooms and things like that. So 0:17:50.400 --> 0:17:53.320 this would be an opportunity for them to, you know, 0:17:53.480 --> 0:17:56.080 should this combination go forward to play more of a 0:17:56.200 --> 0:18:00.480 role in care provision. Well, Walmart's clinic press since being 0:18:00.560 --> 0:18:03.639 kind of the potential avenue, you'd imagine they'd invest heavily 0:18:03.680 --> 0:18:06.480 in that if they go through with steal Tara. I'm 0:18:06.480 --> 0:18:08.640 struck by the fact that Walmart shares are down more 0:18:08.680 --> 0:18:11.760 than three percent. Well Humanity shares are up more than 0:18:11.840 --> 0:18:14.560 five percent. Market seems to be judging this is a 0:18:14.640 --> 0:18:18.040 boon for Humana and a possible bust for Walmart. True, 0:18:18.080 --> 0:18:21.320 although we've gotten used to seeing a choirer shares rise 0:18:21.359 --> 0:18:24.520 on emany news, but traditionally the acchoire is supposed to fall. 0:18:24.600 --> 0:18:26.360 It's the way you know merger are but typically work. 0:18:26.400 --> 0:18:29.840 So it's not super unusual to see Walmart down, but 0:18:29.920 --> 0:18:32.680 it is a sign that perhaps UM shareholders a little 0:18:32.680 --> 0:18:35.159 bit worried about this deal. Again, it's not a super 0:18:35.200 --> 0:18:37.919 obvious fit, but it does make senses. Max explained for 0:18:37.960 --> 0:18:40.199 Walmart to do this, and you can see, you know, 0:18:40.200 --> 0:18:42.960 with the Amazon threat there why they would go this route. 0:18:43.000 --> 0:18:45.359 But also I would look at if you consider the 0:18:45.400 --> 0:18:48.240 CVS Etna deal and the signa express script steal in 0:18:48.280 --> 0:18:52.119 comparison to this possible transaction between Walmart and Humanity, this 0:18:52.119 --> 0:18:55.320 one would be a lot more financially healthy Walmart starting 0:18:55.320 --> 0:18:58.360 with a pristine balance sheet, They've got you know, investment 0:18:58.359 --> 0:19:00.879 greeting that's the tops for the industry. They really have 0:19:01.040 --> 0:19:02.880 a lot of room to do something this size if 0:19:02.880 --> 0:19:06.720 they wanted to. It wouldn't be as disconcerting as CBS 0:19:06.760 --> 0:19:08.680 at now, where you know they're taking on a whole 0:19:08.680 --> 0:19:10.879 lot of leverage for something that's a little bit outside 0:19:10.880 --> 0:19:13.320 their wheelhouse. In this case, I mean, the deal would 0:19:13.320 --> 0:19:15.040 be a creative and it really wouldn't do a whole 0:19:15.080 --> 0:19:20.040 lot to leverage. But why humanimax. Um, well human. I 0:19:20.400 --> 0:19:24.200 think it's some combination of the customer overlap and fit 0:19:24.600 --> 0:19:28.480 the prior relationship and just a size thing here. Um. 0:19:28.560 --> 0:19:33.040 You know, the the only big ensure left standing, uh, 0:19:33.040 --> 0:19:35.520 other than Human is is Anthem, which is a much 0:19:35.560 --> 0:19:38.439 bigger mouthful, and they're much more focused on sort of 0:19:38.440 --> 0:19:41.280 the corporate market, which would be a little bit trickier 0:19:41.320 --> 0:19:44.120 for Walmart. Um, this one, you know, it doesn't quite 0:19:44.160 --> 0:19:48.200 have that kind of potential conflict of interest. And also, um, 0:19:48.400 --> 0:19:50.360 it's just a more bite sized way of getting into 0:19:50.359 --> 0:19:52.680 this market. And I think the thing that doesn't get 0:19:52.720 --> 0:19:55.359 mentioned quite as much is it's also an opportunity for 0:19:55.480 --> 0:19:58.200 Walmart and more aggressively or more in you know, more 0:19:58.240 --> 0:20:01.200 in house manner. Man need the healthcare of their one 0:20:01.200 --> 0:20:04.679 point five million US employees. They already do, um some 0:20:04.840 --> 0:20:07.480 of some care abirds sing on their own yourself insured, 0:20:07.520 --> 0:20:09.840 but this would be a way to take that entirely 0:20:09.840 --> 0:20:12.720 in house. Tara la Chappelle, can you do twenty seconds 0:20:12.720 --> 0:20:16.000 on CBS viacom just give us an update. Sure, it 0:20:16.040 --> 0:20:20.000 sounds like those talks are progressing and as expected. I 0:20:20.040 --> 0:20:22.760 think that that deal we'll see that at sometime next 0:20:22.880 --> 0:20:25.880 quarter um. It makes a whole lot of sense ZBS 0:20:25.960 --> 0:20:29.439 and Viacom to TV network operators that need more scale 0:20:29.440 --> 0:20:32.560 in this environment as all the distributors have emerging, So 0:20:32.560 --> 0:20:34.879 it makes sense for these guys to get back together potentially. 0:20:35.160 --> 0:20:37.720 Thank you both very much. Tara La Chapelle our deal's 0:20:37.760 --> 0:20:41.480 columnist for Bloomberg Gadfly, and you can follow Tara on 0:20:41.520 --> 0:20:45.119 Twitter at Tara la c H. So that's t A 0:20:45.480 --> 0:20:48.800 r A l A c H. And Max Neisson, our 0:20:49.040 --> 0:20:53.040 Gadfly columnst for all things biotech, pharmaceutical and healthcare, and 0:20:53.119 --> 0:20:55.760 you can follow him on Twitter at Max Neson N 0:20:55.800 --> 0:21:01.520 I S E N. I've already had three cups of 0:21:01.560 --> 0:21:05.240 coffee today, and I'm a little bit concerned about what 0:21:05.320 --> 0:21:08.159 that might mean from my body, not only just with 0:21:08.240 --> 0:21:10.879 respect to being too hyped up, but perhaps what it 0:21:10.920 --> 0:21:13.560 has to do with cancer. Here to discuss this issue, 0:21:13.640 --> 0:21:18.359 Jennifer bratashs she covers the US retail sector for with 0:21:18.440 --> 0:21:21.880 staples and restaurants being her focus for Bloomberg Intelligence. John, 0:21:21.920 --> 0:21:24.040 thank you so much for being with us. There was 0:21:24.240 --> 0:21:29.639 a court ruling in California basically forcing Starbucks and some 0:21:29.760 --> 0:21:35.080 others to reveal some connection between cancer and coffee. Please explain, 0:21:35.480 --> 0:21:38.120 good morning and thanks thanks for having me so. So, Yes, 0:21:38.160 --> 0:21:41.119 there was a lawsuit that was filed by a nonprofit 0:21:41.200 --> 0:21:45.040 organization that counsels for education and research on toxins UM, 0:21:45.320 --> 0:21:49.240 and our judgment was was given earlier this week, UM 0:21:49.320 --> 0:21:52.600 from the superior court judge who ruled that UM, these 0:21:52.760 --> 0:21:55.879 these coffee companies and other retailers that sell coffee in 0:21:55.920 --> 0:22:00.240 their stores UM may have to show or disclose that 0:22:00.400 --> 0:22:03.280 there's a potential cancer risk UM from one of the 0:22:03.359 --> 0:22:07.240 chemicals that is a byproduct of the roasting processing coffee. UM, 0:22:07.240 --> 0:22:11.520 and that that's the chemical acrylamide. So is this something 0:22:11.560 --> 0:22:16.480 that would actually have an effect on Starbucks? Is roasting process? 0:22:16.480 --> 0:22:19.640 I mean, could they switch to something else? Um? Actually, 0:22:19.680 --> 0:22:22.679