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

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

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

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

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Speaker 1: or watch us live on YouTube.

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Speaker 2: You know, you wait five more minutes and there's going

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Speaker 2: to be a new headline here to paramount S Guidance

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Speaker 2: versus Netflix for Warner Brothers. But we know that this

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Speaker 2: will be a deal that takes a long time to resolve.

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Speaker 3: You know, there are differences.

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Speaker 4: You know, the Paramount deal is all cash and it

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Speaker 4: is for the entire company. So those two things make

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Speaker 4: it much much cleaner than the Netflix one, which includes

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Speaker 4: twenty seven to seventy five and cash plus four dollars

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Speaker 4: per share in Netflix stock, which has historically been a

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Speaker 4: great thing to own. But it's contingent upon the separation

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Speaker 4: of the Warner brother separation of its cable networks, which

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Speaker 4: was a plan all law banned all along, and they've

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Speaker 4: already done a lot of work on it. And then

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Speaker 4: so the value, the value total value seems pretty darn similar.

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Speaker 4: It's just probably going to come down to who has

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Speaker 4: a cleaner path to approval, and you know, you could

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Speaker 4: do that math we talked to generally and it's that

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Speaker 4: math is pretty darn straightforward. But now we have the

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Speaker 4: added uncertainty which we historically had not had an M

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Speaker 4: and a of you know, this is becoming politicized, you know.

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Speaker 2: Absolutely, because so we'll see Paramount Skuideance controlled by David Ellison,

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Speaker 2: son of Larry Ellison. Ellison's have a very good relationship

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Speaker 2: with President Trump, with the White House, and so they

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Speaker 2: have made the argument implicitly or explicitly that this deal

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Speaker 2: has the President's blessing, so therefore it will go through

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Speaker 2: more easily. Whereas we know that there's a lot of

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Speaker 2: concern here about Netflix and it's bid for Warner Brothers

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Speaker 2: dis great assets, not even the entire company here, and

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Speaker 2: it all depends on how you define the streaming market,

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Speaker 2: whether it includes YouTube or not.

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Speaker 5: So there's a lot here to get through.

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Speaker 2: Let's bring in Chris Paul Mary Bloomberg News Senior editor

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Speaker 2: and Entertainment team leader on this deal. Chris, just give

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Speaker 2: us a sense of what people in LA are saying,

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Speaker 2: because most of these businesses take place in LA. Maybe

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Speaker 2: not as much as they once did, and I'm curious

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Speaker 2: to get a sense of how the industry is thinking

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Speaker 2: about it.

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Speaker 6: I can tell you I was having dinner Saturday night

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Speaker 6: at a time restaurant with the family, and my daughter's

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Speaker 6: friend who's seventeen.

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Speaker 7: She goes, Netflix is buying Water Brothers.

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Speaker 6: I mean, this is just one of those things that

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Speaker 6: just is shocking to everybody, but particularly to people that

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Speaker 6: work in Hollywood.

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Speaker 7: It's been a really tough few years.

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Speaker 6: We've seen, you know, so much consolidation in the industry already,

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Speaker 6: and job losses and movies and TVs shows being shot

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Speaker 6: overseas and strikes and just the you know, the promise

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Speaker 6: of another big merger like this. It's just, you know,

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Speaker 6: people are really unhappy and in shock.

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Speaker 4: Chris Surah feeling it seems like if Paramount were to

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Speaker 4: acquire Warner Brothers this discovery, there will be more overlap

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Speaker 4: therefore more jobs at risk.

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Speaker 3: Is that the Is that the correct way to think

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Speaker 3: about it.

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Speaker 6: Yeah, although you know they both acquires in Paramount and

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Speaker 6: one of Brothers, they're trying to downplay, you know, the

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Speaker 6: job loss as part of it. Netflix did say they

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Speaker 6: looked at two to three billion dollars in annual savings.

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Speaker 6: Much of that basically in overhead, you know, redundant jobs.

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Speaker 6: But they were each trying to make the case that

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Speaker 6: their merger would be a little bit less worse.

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Speaker 7: I guess you could say.

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Speaker 2: Just a quick note here, we have a correction to make.

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Speaker 2: The Bureau of Labor Statistics will now publish the October

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Speaker 2: and November PPI data together in January. I mean, the

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Speaker 2: net effect is at the end of the day, Paul,

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Speaker 2: All this data will come out after the fed's meeting

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Speaker 2: this Wednesday.

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Speaker 4: Hey, Chris Paramount owns the Paramount movie in television studio.

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Speaker 4: Warner Brothers are It's the Warner Brothers studio, is there, right?

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Speaker 4: Can you put those two things together there? From a

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Speaker 4: regulatory perspective.

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Speaker 6: Well, what they're doing is they both said both Paramount

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Speaker 6: and Netflix have said they want to kind of maintain

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Speaker 6: the creative executives is working separately at Warner Brothers. Warner

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Speaker 6: Brothers has had a phenomenal TV business. One of the

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Speaker 6: issues for Netflix is that historically Netflix has produced just

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Speaker 6: stuff for Netflix. But they have said they, you know,

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Speaker 6: will continue the policy of Warner Brothers making shows for

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Speaker 6: other people, you know, and they do, you know, have

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Speaker 6: had a huge track record of that historically, so that's

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Speaker 6: one of the things. Paramount also has said it would

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Speaker 6: keep the Warner Brothers creative team together.

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Speaker 4: I'm not sure I believe that I would argue just

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Speaker 4: from my own perspective, Chris, I'm I wonder what the

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Speaker 4: folks in la are thinking. This is kind of a

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Speaker 4: more of a must have for Paramount sky Dance versus Netflix.

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Speaker 4: It's nice to have. Do you think that's accurate?

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Speaker 6: Yeah, I you know, I think if you just look

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Speaker 6: at the public commentence from the two Netflix co CEOs,

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Speaker 6: you know, Greg Peters was initially kind of dismissive of

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Speaker 6: media mergers and was really paring cold water on this idea.

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Speaker 7: So I think that the idea that Netflix is.

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Speaker 6: That all in uh is, you know, is definitely a

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Speaker 6: legitimate one. Uh, you know, Paramount, I think, you know,

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Speaker 6: Michael Maffat Nathanson put out of you know something over

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Speaker 6: the weekend saying, and I think this is true. Netflix

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Speaker 6: has been the winner historically, and so if you want

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Speaker 6: to find a home, best home for your you know,

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Speaker 6: outstanding intellectual property, Batman, Harry Potter, Game of Thrones, on

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Speaker 6: and on, you know, they're the ones that are going

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Speaker 6: to get it all around the globe and invested in

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Speaker 6: all that. Putting two struggling companies together is it raises

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Speaker 6: more issues. It's it's everyone always sort of seems to

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Speaker 6: suggest that and almost any industry, but it doesn't always

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Speaker 6: translate into outperformance.

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Speaker 2: Chris, this deal, no matter who wins out, Netflix or

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Speaker 2: Paramounts guidance will take a while to resolve. There's going

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Speaker 2: to be legal challenges there. It's gonna be anti trust

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Speaker 2: regulators looking into it. What does that mean that long

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Speaker 2: lead time mean for Warner Brothers is ability to just

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Speaker 2: do business and be the best performing studio it can be.

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Speaker 5: In the meantime, it hurts it.

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Speaker 6: I mean David's ask on footoo a note last week

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Speaker 6: the CEO of Warner Brothers saying, everybody just focused on

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Speaker 6: your work and listen to your business leader.

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Speaker 7: This isn't gonna This is.

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Speaker 6: Going to take a while, but you don't even have

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Speaker 6: to look very far or very long to find out.

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Speaker 6: If you remember, you know, the challenges AT and T

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Speaker 6: had when it bulable Warner Brothers a few years ago.

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Speaker 6: There was an extended there was a lawsuit by the

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Speaker 6: Justice Department really extended time to.

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Speaker 7: Close that deal.

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Speaker 8: Uh.

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Speaker 6: You know, many people believe that it held the company

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Speaker 6: back in terms of you know, launching its own streaming

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Speaker 6: service and you know, investing in the business. You know,

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Speaker 6: I I don't see Warner Brothers core business helped by

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Speaker 6: an extended regulatory review that really either bitter Paramount or

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Speaker 6: Netflix would face.

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Speaker 3: 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 Applecarplay 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: All Right, the Warner Brothers Discovery deal just got a

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Speaker 4: little bit hotter here today we have an over the

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Speaker 4: top hostile bid from Paramount, sky Skydance, whatever they're called

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Speaker 4: these days.

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Speaker 3: That is for the entirety of the company. This is

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Speaker 3: going to come down to regulatory hurdles. That's going to

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Speaker 3: be one of the key key issues.

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Speaker 4: So for that return to generation covers all the antitrust

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Speaker 4: stuff here for Bloomberg Intelligence, Jen, does one potential buyer Paramount,

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Speaker 4: sky Dance or Netflix, does one have a clearer path

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Speaker 4: to regulatory approval.

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Speaker 9: I think absolutely. I think Paramount has a far clearer

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Speaker 9: path to approval. I mean, if you just think about

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Speaker 9: them in terms of the streaming overlap, and when I

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Speaker 9: talk about streaming, I am talking about a narrow market

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Speaker 9: for just streaming services and not a broader market that

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Speaker 9: might include YouTube. They are much smaller than Netflix, and

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Speaker 9: so when you combine HBO Max with Paramount Plus versus

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Speaker 9: combining HBO Max with Netflix, it creates far less of

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Speaker 9: a problem. You know, and looking across at the creation

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Speaker 9: of original scripted content, let's say that's a market that

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Speaker 9: the Department of Justice looks at. Again, the combination is

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Speaker 9: smaller than the combination of Netflix with Warner. And then

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Speaker 9: you have the added cable channels. So Paramount has cable channels,

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Speaker 9: Warner has cable channels. Netflix would not be buying those.

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Speaker 9: So that is an issue that arises in the Paramount

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Speaker 9: situation and not Netflix. But I do think if there's

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Speaker 9: any problem there, that's easily resolvable. So in my mind,

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Speaker 9: Paramount's the better buyer from an antitrust perspective.

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Speaker 2: I'm curious about the termination fees involved in this deal.

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Speaker 2: Netflix says that will pay a termination fee of five

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Speaker 2: billion dollars of the deal fails. That seems really large.

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Speaker 2: Paramount Skuidances offer includes a five billion dollar termination fee.

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Speaker 2: Just talk a little bit about the amounts involved there

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Speaker 2: and what the fact that well, at least to me,

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Speaker 2: it seems pretty large, says about what each side thinks

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Speaker 2: of the possibility of this going through or not.

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Speaker 9: Relatively speaking, it's a very large termination fee. You know,

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Speaker 9: you usually see these as two percent or three percent

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Speaker 9: of the purchase price, and Warners had to do that

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Speaker 9: when they negotiated this. I mean, there is a high

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Speaker 9: risk right that a Netflix deal would ultimately not get done,

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Speaker 9: that they could get sued in court, that they could

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Speaker 9: lose in court, it would break up.

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Speaker 3: So they need to be.

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Speaker 9: Protected because their business is just frozen for two years practically,

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Speaker 9: and it does impact a seller's business right to kind

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Speaker 9: of be in limbo that long. And that's what the

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Speaker 9: termination fee is meant to do. Now, I think they

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Speaker 9: have far less of a problem with Paramount, but you

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Speaker 9: never know, and so I think to protect themselves, Warner

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Speaker 9: would have wanted to work that in and Paramount wants

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Speaker 9: to give that kind of insurance in case there's some

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Speaker 9: problem there too.

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Speaker 3: Now, okay, so what are the next step?

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Speaker 4: So here, if I'm the board of Warner Brothers Discoverer,

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Speaker 4: do I have to respond to this thing?

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Speaker 9: Well, Paramount it's a hostile takeover, so they're going against

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Speaker 9: the board's wishes.

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Speaker 5: Basically, we know what the board wants.

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Speaker 9: The board seems to prefer Netflix, even with all the

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Speaker 9: anti trust risk it brings. So now it's just going

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Speaker 9: to depend on what happens here as they go forward

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Speaker 9: and they solicit the shareholders. I think the deal that

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Speaker 9: would get done more quickly and has the surest path

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Speaker 9: would be the Paramount deal. So if Warner's interested in

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Speaker 9: getting something closed within the next year, I think Paramount

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Speaker 9: would be the company that they'd go with. I don't

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Speaker 9: see them getting a Netflix deal closed in the next year.

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Speaker 2: Let's talk about the politics part of this. Axios is

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Speaker 2: reporting that Jared Kushner is helping to finance Paramount's bid

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Speaker 2: for Warner Brothers Discovery, and that Axios is citing a

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Speaker 2: regulatory filing on this Kushner financing bid. Does that put

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Speaker 2: it in a better position? Because Larry Ellison has a

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Speaker 2: good relationship with President Trump, Jared kush Or, the president's

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Speaker 2: son in law, is involved here, even as Larry Ellison

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Speaker 2: tells other media that if he feels that the deal

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Speaker 2: was inherently biased towards Netflix.

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Speaker 9: Well, I would say if things were conventionally done, then

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Speaker 9: it shouldn't. It should be all about anti trust. It

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Speaker 9: should be the analysis the economists and their assessment of

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Speaker 9: the markets and the impact on the markets. But in

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Speaker 9: today's day and age, there is an impact from politics,

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Speaker 9: and the administration does seem to kind of micromanage these decisions,

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Speaker 9: and so I think politics is a significant factor here,

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Speaker 9: right next to anti trust. And from what you just

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Speaker 9: told me and what we've read, it seems paramounts the

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Speaker 9: favorite bidder by this administration as well.

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Speaker 3: 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. He's done on Apple, Cocklay and

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

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Speaker 1: wherever you get your podcasts, or US Live on YouTube.

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Speaker 2: One thing we didn't get to is the credit market.

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Speaker 2: And of course we've seen yields, we've seen spreads really

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Speaker 2: really tight, even as we've seen a lot more supply

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Speaker 2: come into the market because of all the spending on AI,

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Speaker 2: and there's going to be even more spending in twenty

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Speaker 2: twenty six. So let's bring in right now Steven Flynn,

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Speaker 2: he's a senior credit analyst at Bloomberg Intelligence, and Stephen,

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Speaker 2: we want to really dig into Netflix because as part

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Speaker 2: of this bid for Warner Brothers Discovery, it's going to

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Speaker 2: be getting a fifty nine billion dollar bridge loan, the

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Speaker 2: biggest investment grade bridge loan in a while, and of

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Speaker 2: course that means eventually that will be replaced by corporate

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Speaker 2: debt as well. How are you thinking about what kind

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Speaker 2: of market impact that will have.

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Speaker 10: Well, first of all, it's sort of that Netflix is

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Speaker 10: a very strong credit So Netflix has a significant market cap.

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Speaker 10: It's you know, four hundred and twenty five billion dollars

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Speaker 10: or so. The company is growing, revenue, growing evada, growing

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Speaker 10: free cash flow. It's net leverage ratio is very modest,

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Speaker 10: talking zero point four turns of leverage.

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Speaker 8: A company generates a ton of free cash flow.

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Speaker 10: So Netflix is a very strong credits rted A three A,

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Speaker 10: so they have the ability to borrow. So within that

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Speaker 10: fifty billion dollars that they have as acquisition debt. There's

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Speaker 10: been a reporter that's twenty five billion dollars will likely

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Speaker 10: be bonds, and there remain will probably be a combination

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Speaker 10: of term loans and maybe some other borrowing. And while

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Speaker 10: twenty five billion sounds like a lot, if we think

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Speaker 10: about Netflix bonds in the market right now, they're relatively scarce.

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Speaker 10: Right So if Netflix is part of communications, you think

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Speaker 10: about borrowers like a teen T Verise and Comcast T Mobile.

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Speaker 10: Those companies have huge debt loads and are large parts

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Speaker 10: of the investment grade corporate bond indict. So Netflix is

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Speaker 10: relatively small, So I think that there could be a

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Speaker 10: lot of interest in Netflix bonds, So I don't think

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Speaker 10: it's a problem at all.

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Speaker 4: And then the news of the day here Paramount coming

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Speaker 4: back over the top of the hostile bid Warner Brothers Discovery.

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Speaker 4: They're talking about fifty four billion dollars of debt commitments

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Speaker 4: from Bank of America, City and Apollo. So again, your

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Speaker 4: market is going to have a lot to say about

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Speaker 4: how this deal gets done, isn't it.

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Speaker 10: Yeah, this is a completely different story, right So Netflix,

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Speaker 10: of sorry, paramounts guiddances on the edge of investment grade.

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Speaker 10: So the investment grade by excuse me, by Moody's and Fitch,

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Speaker 10: High yield by S and P. If you you know,

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Speaker 10: they're talking about the combined company could have about one

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Speaker 10: hundred billion dollars a debt.

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Speaker 8: So if we look at the debt loads at.

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Speaker 10: Both paramounts, Guidance and Warner Brothers, you're talking about an

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Speaker 10: incremental fifty billion dollars.

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Speaker 8: You just they have a you know, fifty four billion

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Speaker 8: dollar commitment.

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Speaker 10: You're talking about pro form net leverage over five times,

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Speaker 10: and that's including synergies, right, so that's going to be

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Speaker 10: much tougher. You're talking probably a good chunk of that

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Speaker 10: will be high yield, and that is a lot for

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Speaker 10: the highield market. Now, the highal markets very strong. Issuance

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Speaker 10: is up, yields are down. I think you know it's

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Speaker 10: the highal market is very favorable. But this would probably

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Speaker 10: be the biggest name in high yald. The biggest name

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Speaker 10: highyield right now is Charter, So Charter unsecured bonds are

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Speaker 10: the biggest name. There's about twenty five billion dollars market

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Speaker 10: value for Charter bonds in the Bloomberg Highyield in it

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Speaker 10: depending on how they set it up but this could

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Speaker 10: easily become you know, the biggest name or close to it,

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Speaker 10: So that makes it much tougher.

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Speaker 8: Now we have to see all the details.

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Speaker 4: But so if I'm a shareholder Warner Brothers Discovery a

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Speaker 4: the regulatory aspect which Jenery just walked us through.

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Speaker 3: But now I've got the sitting there.

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Speaker 4: If I'm an equity shoulder, do I want to be

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Speaker 4: sitting there with a balance sheet of five times leverage?

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Speaker 10: Well, if you're a Warner brother shareholder, you're getting cash, right,

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Speaker 10: so you could only But if you're a paramount shaholder, yes,

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Speaker 10: you have to be concerned that the pro form of

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Speaker 10: company will have a significant amount of leverage.

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Speaker 8: And that has a big name in high yield.

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Speaker 10: But you do you know they also have big backers

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Speaker 10: behind them, right between the Allison family and Redbird Capital.

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Speaker 3: Pramon scot Dance stock is up five percent today.

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Speaker 5: Yeah, well, I mean, but this is not going to

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Speaker 5: end anytime soon. This is going to drag on.

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Speaker 2: So Stephen, media companies being heavily indebted, what do we

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Speaker 2: know from about the appeal of this sector to investors?

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Speaker 2: I mean, I think about Warner Brothers Discovery when it

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Speaker 2: came into being. It took on a lot of David

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Speaker 2: Zasov spent years trying to pair that down.

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Speaker 8: Yeah, and he was unsuccessful.

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Speaker 10: Right, the company was junked and they ended up doing

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Speaker 10: a massive tender offer where they put in a lot

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Speaker 10: of secure debt ahead of the existing bonds and then

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Speaker 10: use that to tender for existing bonds at a discount

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Speaker 10: to par So bondholders really got hurt then, and then

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Speaker 10: the company, you know, was junked.

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Speaker 8: So it's been tough.

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Speaker 10: It's you know, when you think about communications in general,

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Speaker 10: people feel a lot more comfort. We're lending to more

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Speaker 10: traditional communications companies like telecom cable, you have hard assets,

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Speaker 10: it's a little bit easier to lend to.

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Speaker 8: It is a little bit tougher in media. So this

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Speaker 8: would be a large name for media.

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Speaker 3: What's paramounts?

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Speaker 4: Does Paramount have a view like does a marketplace have

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Speaker 4: a view on powamount?

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Speaker 10: Well, Paramount, it's not a very large name and it

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Speaker 10: is on the cusp of IG. It trades very wide

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Speaker 10: for IG, but that's because it's on the cusp and

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Speaker 10: there's fears of a certain deal like this. Now there's

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Speaker 10: two sides, right, you have the positive of the Elson

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Speaker 10: family and Redbird coming in and saying, hey, there's support there.

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Speaker 10: You know, I know we have somebody that's that backing us.

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Speaker 10: Things can't get too bad. And the flip side, you know,

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Speaker 10: the business is challenged, and you know there is the

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Speaker 10: risk of.

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Speaker 4: High yield I mean back of my date for this,

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Speaker 4: this kind of deal and your higeld I mean high

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Speaker 4: yield market. Five phone calls, I would I would get

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Speaker 4: a sense of whether.

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Speaker 3: The deal could get done. Is it still like that today?

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Speaker 6: Yeah?

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Speaker 8: Sure, if you call the right people, that's right.

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Speaker 3: And I knew the people to call, and they would say,

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Speaker 3: I don't think so, Paul, I don't think we can

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Speaker 3: get this.

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Speaker 11: You know.

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Speaker 2: Well, speaking of the right people, Jared Kushner is part

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Speaker 2: of this paramount hostile deal bid for Warner Brother's Discovery

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Speaker 2: through Affinity, the firm that he runs. So there's all

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Speaker 2: kinds of political considerations as well.

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Speaker 5: How do you anticipate.

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Speaker 2: Warner Brother's Discovery bonds to trade in the meantime, I mean,

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Speaker 2: what does that look like?

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Speaker 10: Well, they've been very volatile, right, So if you go

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Speaker 10: back a couple of months ago when they got jumped in,

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Speaker 10: there was the big tenor offer of the bonds were crushed,

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Speaker 10: they were chart trading at large discounts to par. Then

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Speaker 10: they've had a nice run over the last couple of

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Speaker 10: months with all the speculation of being bought out. Now

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Speaker 10: the Netflick Flicks deal happened and the existing bonds appear

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Speaker 10: to be left behind with global networks business which is

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Speaker 10: somewhat deteriorating. So the mons traded off a little bit

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Speaker 10: on Friday and then now coming in with having Ellison

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Speaker 10: in Redbord behind you, that's giving a little bit more

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Speaker 10: of a left but they're likely to remain very volatile.

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Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.

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

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

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

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

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Speaker 2: IBM buying conflent for nine point three billion dollars in

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Speaker 2: cash or eleven billion dollars if you include debt on

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Speaker 2: our Agrana is Bloomberg Intelligence's technology analysts and he joins

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Speaker 2: us now, So on rag, what can you tell us

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Speaker 2: about how this fits in with IBM's ambitions, in particular

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Speaker 2: it's AI ambitions, which it's really been repositioning as business around.

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Speaker 11: ViBe's done a very good job since the acquisition of

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Speaker 11: red Hat. Not only did they pivot and move towards software,

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Speaker 11: which is a much higher margin business, they actually have

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Speaker 11: margin improvement because the gross margin of those businesses is

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Speaker 11: very high. Since then, they've bought a number of companies

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Speaker 11: Harshi Corp, Appto and now Confluent. The big thing what

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Speaker 11: we want to think about over here is enterprises do

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Speaker 11: not always go with either AWS or Microsoft. They do,

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Speaker 11: you know, look at open source as a way of

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Speaker 11: building their infrastructure. Confluent specializes in open source streaming data platform,

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Speaker 11: which is when you are looking at real time data,

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Speaker 11: whether it is you know, something that comes from a

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Speaker 11: telemetric device or even transactions that are happening at a

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Speaker 11: retailer or a bank, you can ingest that data directly

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Speaker 11: into your system and then make sense out of it. Now,

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Speaker 11: that's going to be helpful as enterprises infuse more AI

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Speaker 11: into their application. So strategically, smart move financially also smart.

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Speaker 4: Red headline crossing the Bloomberg terminal the BLS to not

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Speaker 4: publish October PPI data, which I.

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Speaker 2: Believe makes sense given that if I recall correctly, the

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Speaker 2: BILS already told us that it's not publishing October jobs

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Speaker 2: or CPI data either, right, So that's kind.

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Speaker 3: Of what we heard from a lot of it at Connors.

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Speaker 3: We'll talk to Mike McKey about that. Yes, absolutely, Yeah,

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Speaker 3: that's coming up all right. IBM, this is as a kid.

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Speaker 4: IBM was technology, that was the impitomy of tech technology.

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Speaker 4: Then the Internet came along and they kind of missed it,

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Speaker 4: so you didn't think about them a whole lot. Now,

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Speaker 4: if you put up a stock chart, over the last

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Speaker 4: five years, the S ANDP has compounded at about fifteen

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Speaker 4: percent per year. IBM over that timeframe twenty six percent

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Speaker 4: per year ANAG what's the what is the turnaround of

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Speaker 4: this aircraft carry over the last five years? Now?

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Speaker 11: As I said, I think it is the acquisition of

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Speaker 11: red Hot. I think the CEO has done a very

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Speaker 11: good job of blending that particular you could say, operations

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Speaker 11: within their services platform, because when you think about the

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Speaker 11: IBM prior to that, it was very services heavy. That's

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Speaker 11: a business that has forty fifty percent gross margin, not

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Speaker 11: as profitable as software businesses. By being open, by going

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Speaker 11: out and buying software businesses, their financial profile has changed,

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Speaker 11: their cash flow has changed, and I think it's more

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Speaker 11: stable in nature. They're still not at a point that

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Speaker 11: their sales growth is going to be in double digits,

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Speaker 11: but they are inching towards their target and it may

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00:21:18,520 --> 00:21:20,879
Speaker 11: be you know, two to three years before they get there.

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Speaker 2: So, Honor rog what's interesting about this particular acquisition is

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Speaker 2: IBM is definitely making inroads or greater inroads into AI,

442
00:21:27,880 --> 00:21:31,040
Speaker 2: but this is not a data center driven acquisition.

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Speaker 5: What do you think that means in terms of the next.

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Speaker 2: Stage of M and A that we're going to hear

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00:21:35,400 --> 00:21:38,359
Speaker 2: from the tech industry when it comes to taking advantage

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00:21:38,440 --> 00:21:42,560
Speaker 2: of opportunities in AI, but not necessarily buying AI data centers.

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Speaker 11: You see, everybody has their own strategy what they are

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00:21:45,840 --> 00:21:48,520
Speaker 11: focusing on. IBM luckily, and it's good for them that

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00:21:48,560 --> 00:21:50,560
Speaker 11: they don't want to be in that, you know, a

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00:21:50,680 --> 00:21:54,119
Speaker 11: capital intensive heavy data center business. Because this is a

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Speaker 11: company that generates let's say fourteen fifteen billion in free

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00:21:57,359 --> 00:21:59,880
Speaker 11: cash flow. They can't go out and buy another day

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Speaker 11: expand into a data center space where the capital investments

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Speaker 11: is multiples of that. They are doing the smart thing

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Speaker 11: of buying software companies that are not capital intensive heavy.

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Speaker 11: When you are going out and creating a new application,

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Speaker 11: you know the raw material You need the raw materials

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Speaker 11: to create or embed that. And that's where they are

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00:22:19,160 --> 00:22:21,800
Speaker 11: focused on and I think for what they do, it's

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00:22:21,840 --> 00:22:23,080
Speaker 11: it's a very smart place to be in.

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