WEBVTT - Paramount Makes $108 Billion Hostile Bid for Warner Bros 0:00:02.720 --> 0:00:10.559 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.600 --> 0:00:14.560 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.600 --> 0:00:17.880 Eastern on Apple, Cocklay and Android Auto with the Bloomberg 0:00:17.920 --> 0:00:21.040 Business App. Listen on demand wherever you get your podcasts, 0:00:21.360 --> 0:00:23.560 or watch us live on YouTube. 0:00:24.239 --> 0:00:25.799 You know, you wait five more minutes and there's going 0:00:25.840 --> 0:00:27.800 to be a new headline here to paramount S Guidance 0:00:27.920 --> 0:00:30.720 versus Netflix for Warner Brothers. But we know that this 0:00:30.760 --> 0:00:33.640 will be a deal that takes a long time to resolve. 0:00:33.760 --> 0:00:34.720 You know, there are differences. 0:00:34.760 --> 0:00:37.479 You know, the Paramount deal is all cash and it 0:00:37.560 --> 0:00:40.680 is for the entire company. So those two things make 0:00:40.720 --> 0:00:45.000 it much much cleaner than the Netflix one, which includes 0:00:45.400 --> 0:00:48.440 twenty seven to seventy five and cash plus four dollars 0:00:48.479 --> 0:00:51.720 per share in Netflix stock, which has historically been a 0:00:51.720 --> 0:00:56.000 great thing to own. But it's contingent upon the separation 0:00:56.160 --> 0:00:58.840 of the Warner brother separation of its cable networks, which 0:00:58.960 --> 0:01:01.520 was a plan all law banned all along, and they've 0:01:01.760 --> 0:01:04.080 already done a lot of work on it. And then 0:01:04.240 --> 0:01:07.759 so the value, the value total value seems pretty darn similar. 0:01:08.200 --> 0:01:10.600 It's just probably going to come down to who has 0:01:10.640 --> 0:01:14.600 a cleaner path to approval, and you know, you could 0:01:14.600 --> 0:01:16.679 do that math we talked to generally and it's that 0:01:16.720 --> 0:01:20.000 math is pretty darn straightforward. But now we have the 0:01:20.120 --> 0:01:23.039 added uncertainty which we historically had not had an M 0:01:23.040 --> 0:01:26.200 and a of you know, this is becoming politicized, you know. 0:01:26.440 --> 0:01:31.040 Absolutely, because so we'll see Paramount Skuideance controlled by David Ellison, 0:01:31.720 --> 0:01:35.199 son of Larry Ellison. Ellison's have a very good relationship 0:01:35.240 --> 0:01:38.119 with President Trump, with the White House, and so they 0:01:38.240 --> 0:01:42.760 have made the argument implicitly or explicitly that this deal 0:01:42.880 --> 0:01:46.000 has the President's blessing, so therefore it will go through 0:01:46.040 --> 0:01:48.640 more easily. Whereas we know that there's a lot of 0:01:48.640 --> 0:01:53.120 concern here about Netflix and it's bid for Warner Brothers 0:01:53.200 --> 0:01:56.080 dis great assets, not even the entire company here, and 0:01:56.120 --> 0:01:58.880 it all depends on how you define the streaming market, 0:01:58.880 --> 0:02:00.240 whether it includes YouTube or not. 0:02:00.720 --> 0:02:02.480 So there's a lot here to get through. 0:02:02.560 --> 0:02:04.840 Let's bring in Chris Paul Mary Bloomberg News Senior editor 0:02:04.880 --> 0:02:08.040 and Entertainment team leader on this deal. Chris, just give 0:02:08.080 --> 0:02:10.080 us a sense of what people in LA are saying, 0:02:10.120 --> 0:02:14.120 because most of these businesses take place in LA. Maybe 0:02:14.120 --> 0:02:16.560 not as much as they once did, and I'm curious 0:02:16.800 --> 0:02:19.320 to get a sense of how the industry is thinking 0:02:19.360 --> 0:02:19.799 about it. 0:02:22.639 --> 0:02:24.959 I can tell you I was having dinner Saturday night 0:02:25.200 --> 0:02:28.760 at a time restaurant with the family, and my daughter's 0:02:28.760 --> 0:02:29.760 friend who's seventeen. 0:02:30.040 --> 0:02:32.520 She goes, Netflix is buying Water Brothers. 0:02:32.639 --> 0:02:34.600 I mean, this is just one of those things that 0:02:34.800 --> 0:02:37.639 just is shocking to everybody, but particularly to people that 0:02:37.720 --> 0:02:38.520 work in Hollywood. 0:02:38.600 --> 0:02:40.320 It's been a really tough few years. 0:02:40.360 --> 0:02:45.040 We've seen, you know, so much consolidation in the industry already, 0:02:45.520 --> 0:02:49.360 and job losses and movies and TVs shows being shot 0:02:49.400 --> 0:02:53.680 overseas and strikes and just the you know, the promise 0:02:53.720 --> 0:02:55.960 of another big merger like this. It's just, you know, 0:02:56.720 --> 0:02:59.680 people are really unhappy and in shock. 0:03:00.720 --> 0:03:05.320 Chris Surah feeling it seems like if Paramount were to 0:03:05.320 --> 0:03:08.919 acquire Warner Brothers this discovery, there will be more overlap 0:03:09.040 --> 0:03:11.280 therefore more jobs at risk. 0:03:11.400 --> 0:03:13.040 Is that the Is that the correct way to think 0:03:13.040 --> 0:03:13.400 about it. 0:03:14.600 --> 0:03:17.600 Yeah, although you know they both acquires in Paramount and 0:03:17.600 --> 0:03:20.440 one of Brothers, they're trying to downplay, you know, the 0:03:20.520 --> 0:03:24.040 job loss as part of it. Netflix did say they 0:03:24.040 --> 0:03:26.880 looked at two to three billion dollars in annual savings. 0:03:26.960 --> 0:03:30.720 Much of that basically in overhead, you know, redundant jobs. 0:03:32.120 --> 0:03:35.400 But they were each trying to make the case that 0:03:35.440 --> 0:03:37.680 their merger would be a little bit less worse. 0:03:37.720 --> 0:03:38.920 I guess you could say. 0:03:39.640 --> 0:03:43.200 Just a quick note here, we have a correction to make. 0:03:43.400 --> 0:03:45.880 The Bureau of Labor Statistics will now publish the October 0:03:45.880 --> 0:03:49.360 and November PPI data together in January. I mean, the 0:03:49.400 --> 0:03:50.920 net effect is at the end of the day, Paul, 0:03:50.960 --> 0:03:52.920 All this data will come out after the fed's meeting 0:03:53.400 --> 0:03:54.080 this Wednesday. 0:03:54.560 --> 0:03:58.960 Hey, Chris Paramount owns the Paramount movie in television studio. 0:03:59.240 --> 0:04:03.000 Warner Brothers are It's the Warner Brothers studio, is there, right? 0:04:04.080 --> 0:04:05.880 Can you put those two things together there? From a 0:04:05.920 --> 0:04:07.400 regulatory perspective. 0:04:07.960 --> 0:04:11.760 Well, what they're doing is they both said both Paramount 0:04:11.760 --> 0:04:14.520 and Netflix have said they want to kind of maintain 0:04:14.600 --> 0:04:18.520 the creative executives is working separately at Warner Brothers. Warner 0:04:18.520 --> 0:04:22.080 Brothers has had a phenomenal TV business. One of the 0:04:22.120 --> 0:04:25.560 issues for Netflix is that historically Netflix has produced just 0:04:25.800 --> 0:04:29.159 stuff for Netflix. But they have said they, you know, 0:04:29.240 --> 0:04:33.640 will continue the policy of Warner Brothers making shows for 0:04:33.720 --> 0:04:37.279 other people, you know, and they do, you know, have 0:04:37.360 --> 0:04:40.640 had a huge track record of that historically, so that's 0:04:40.640 --> 0:04:43.360 one of the things. Paramount also has said it would 0:04:43.440 --> 0:04:45.560 keep the Warner Brothers creative team together. 0:04:46.520 --> 0:04:49.159 I'm not sure I believe that I would argue just 0:04:49.160 --> 0:04:51.720 from my own perspective, Chris, I'm I wonder what the 0:04:51.720 --> 0:04:54.560 folks in la are thinking. This is kind of a 0:04:54.839 --> 0:04:58.760 more of a must have for Paramount sky Dance versus Netflix. 0:04:58.839 --> 0:05:02.640 It's nice to have. Do you think that's accurate? 0:05:05.200 --> 0:05:07.360 Yeah, I you know, I think if you just look 0:05:07.360 --> 0:05:11.680 at the public commentence from the two Netflix co CEOs, 0:05:11.760 --> 0:05:14.159 you know, Greg Peters was initially kind of dismissive of 0:05:14.200 --> 0:05:17.320 media mergers and was really paring cold water on this idea. 0:05:17.760 --> 0:05:20.680 So I think that the idea that Netflix is. 0:05:20.560 --> 0:05:25.039 That all in uh is, you know, is definitely a 0:05:25.160 --> 0:05:30.320 legitimate one. Uh, you know, Paramount, I think, you know, 0:05:30.640 --> 0:05:34.640 Michael Maffat Nathanson put out of you know something over 0:05:34.680 --> 0:05:37.080 the weekend saying, and I think this is true. Netflix 0:05:37.120 --> 0:05:39.440 has been the winner historically, and so if you want 0:05:39.440 --> 0:05:42.280 to find a home, best home for your you know, 0:05:42.560 --> 0:05:46.360 outstanding intellectual property, Batman, Harry Potter, Game of Thrones, on 0:05:46.400 --> 0:05:48.479 and on, you know, they're the ones that are going 0:05:48.520 --> 0:05:50.320 to get it all around the globe and invested in 0:05:50.440 --> 0:05:55.920 all that. Putting two struggling companies together is it raises 0:05:55.920 --> 0:05:58.719 more issues. It's it's everyone always sort of seems to 0:05:58.760 --> 0:06:01.239 suggest that and almost any industry, but it doesn't always 0:06:02.200 --> 0:06:03.839 translate into outperformance. 0:06:04.640 --> 0:06:08.000 Chris, this deal, no matter who wins out, Netflix or 0:06:08.160 --> 0:06:10.640 Paramounts guidance will take a while to resolve. There's going 0:06:10.720 --> 0:06:12.559 to be legal challenges there. It's gonna be anti trust 0:06:12.560 --> 0:06:16.200 regulators looking into it. What does that mean that long 0:06:16.360 --> 0:06:19.359 lead time mean for Warner Brothers is ability to just 0:06:19.480 --> 0:06:23.400 do business and be the best performing studio it can be. 0:06:23.440 --> 0:06:25.480 In the meantime, it hurts it. 0:06:25.640 --> 0:06:27.960 I mean David's ask on footoo a note last week 0:06:28.040 --> 0:06:30.160 the CEO of Warner Brothers saying, everybody just focused on 0:06:30.200 --> 0:06:32.400 your work and listen to your business leader. 0:06:32.440 --> 0:06:33.440 This isn't gonna This is. 0:06:33.360 --> 0:06:35.400 Going to take a while, but you don't even have 0:06:35.440 --> 0:06:37.640 to look very far or very long to find out. 0:06:37.760 --> 0:06:40.479 If you remember, you know, the challenges AT and T 0:06:40.640 --> 0:06:42.640 had when it bulable Warner Brothers a few years ago. 0:06:42.680 --> 0:06:44.480 There was an extended there was a lawsuit by the 0:06:44.640 --> 0:06:47.320 Justice Department really extended time to. 0:06:47.279 --> 0:06:48.000 Close that deal. 0:06:48.600 --> 0:06:48.920 Uh. 0:06:49.040 --> 0:06:51.799 You know, many people believe that it held the company 0:06:51.880 --> 0:06:54.640 back in terms of you know, launching its own streaming 0:06:54.960 --> 0:06:59.400 service and you know, investing in the business. You know, 0:06:59.440 --> 0:07:03.800 I I don't see Warner Brothers core business helped by 0:07:03.839 --> 0:07:07.560 an extended regulatory review that really either bitter Paramount or 0:07:07.760 --> 0:07:08.719 Netflix would face. 0:07:10.040 --> 0:07:13.120 Stay with us. More from Bloomberg Intelligence coming up after this. 0:07:16.760 --> 0:07:20.440 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:07:20.520 --> 0:07:23.920 weekdays at ten am Eastern on Applecarplay and Android Auto 0:07:24.040 --> 0:07:27.080 with the Bloomberg Business App. Listen on demand wherever you 0:07:27.120 --> 0:07:30.520 get your podcasts, or watch us live on YouTube. 0:07:31.080 --> 0:07:33.840 All Right, the Warner Brothers Discovery deal just got a 0:07:33.880 --> 0:07:35.720 little bit hotter here today we have an over the 0:07:35.760 --> 0:07:40.320 top hostile bid from Paramount, sky Skydance, whatever they're called 0:07:40.360 --> 0:07:40.840 these days. 0:07:41.120 --> 0:07:43.920 That is for the entirety of the company. This is 0:07:43.960 --> 0:07:45.720 going to come down to regulatory hurdles. That's going to 0:07:45.760 --> 0:07:47.000 be one of the key key issues. 0:07:47.200 --> 0:07:50.080 So for that return to generation covers all the antitrust 0:07:50.080 --> 0:07:55.520 stuff here for Bloomberg Intelligence, Jen, does one potential buyer Paramount, 0:07:55.520 --> 0:07:58.680 sky Dance or Netflix, does one have a clearer path 0:07:58.720 --> 0:07:59.720 to regulatory approval. 0:08:00.480 --> 0:08:03.520 I think absolutely. I think Paramount has a far clearer 0:08:03.560 --> 0:08:05.800 path to approval. I mean, if you just think about 0:08:05.800 --> 0:08:08.160 them in terms of the streaming overlap, and when I 0:08:08.160 --> 0:08:10.520 talk about streaming, I am talking about a narrow market 0:08:10.560 --> 0:08:13.280 for just streaming services and not a broader market that 0:08:13.360 --> 0:08:17.040 might include YouTube. They are much smaller than Netflix, and 0:08:17.080 --> 0:08:20.240 so when you combine HBO Max with Paramount Plus versus 0:08:20.240 --> 0:08:23.920 combining HBO Max with Netflix, it creates far less of 0:08:23.920 --> 0:08:27.080 a problem. You know, and looking across at the creation 0:08:27.160 --> 0:08:29.840 of original scripted content, let's say that's a market that 0:08:29.880 --> 0:08:32.600 the Department of Justice looks at. Again, the combination is 0:08:32.640 --> 0:08:36.120 smaller than the combination of Netflix with Warner. And then 0:08:36.160 --> 0:08:39.360 you have the added cable channels. So Paramount has cable channels, 0:08:39.360 --> 0:08:42.319 Warner has cable channels. Netflix would not be buying those. 0:08:42.480 --> 0:08:45.320 So that is an issue that arises in the Paramount 0:08:45.320 --> 0:08:47.800 situation and not Netflix. But I do think if there's 0:08:47.840 --> 0:08:50.600 any problem there, that's easily resolvable. So in my mind, 0:08:50.679 --> 0:08:53.880 Paramount's the better buyer from an antitrust perspective. 0:08:53.760 --> 0:08:56.920 I'm curious about the termination fees involved in this deal. 0:08:57.200 --> 0:08:59.360 Netflix says that will pay a termination fee of five 0:08:59.720 --> 0:09:02.480 billion dollars of the deal fails. That seems really large. 0:09:02.800 --> 0:09:06.520 Paramount Skuidances offer includes a five billion dollar termination fee. 0:09:06.800 --> 0:09:08.880 Just talk a little bit about the amounts involved there 0:09:08.920 --> 0:09:11.600 and what the fact that well, at least to me, 0:09:11.640 --> 0:09:14.160 it seems pretty large, says about what each side thinks 0:09:14.200 --> 0:09:15.720 of the possibility of this going through or not. 0:09:16.200 --> 0:09:18.800 Relatively speaking, it's a very large termination fee. You know, 0:09:18.840 --> 0:09:21.120 you usually see these as two percent or three percent 0:09:21.160 --> 0:09:24.000 of the purchase price, and Warners had to do that 0:09:24.040 --> 0:09:25.880 when they negotiated this. I mean, there is a high 0:09:26.000 --> 0:09:29.160 risk right that a Netflix deal would ultimately not get done, 0:09:29.200 --> 0:09:30.920 that they could get sued in court, that they could 0:09:30.920 --> 0:09:32.320 lose in court, it would break up. 0:09:32.600 --> 0:09:33.679 So they need to be. 0:09:33.640 --> 0:09:38.760 Protected because their business is just frozen for two years practically, 0:09:38.800 --> 0:09:42.280 and it does impact a seller's business right to kind 0:09:42.280 --> 0:09:44.679 of be in limbo that long. And that's what the 0:09:44.880 --> 0:09:47.600 termination fee is meant to do. Now, I think they 0:09:47.640 --> 0:09:49.560 have far less of a problem with Paramount, but you 0:09:49.640 --> 0:09:52.800 never know, and so I think to protect themselves, Warner 0:09:52.920 --> 0:09:54.920 would have wanted to work that in and Paramount wants 0:09:54.960 --> 0:09:56.960 to give that kind of insurance in case there's some 0:09:57.040 --> 0:09:57.800 problem there too. 0:09:58.160 --> 0:09:59.960 Now, okay, so what are the next step? 0:10:00.000 --> 0:10:02.440 So here, if I'm the board of Warner Brothers Discoverer, 0:10:03.920 --> 0:10:05.960 do I have to respond to this thing? 0:10:06.559 --> 0:10:10.360 Well, Paramount it's a hostile takeover, so they're going against 0:10:10.400 --> 0:10:11.120 the board's wishes. 0:10:11.600 --> 0:10:13.199 Basically, we know what the board wants. 0:10:13.240 --> 0:10:16.600 The board seems to prefer Netflix, even with all the 0:10:16.600 --> 0:10:18.960 anti trust risk it brings. So now it's just going 0:10:19.000 --> 0:10:21.160 to depend on what happens here as they go forward 0:10:21.200 --> 0:10:26.520 and they solicit the shareholders. I think the deal that 0:10:26.559 --> 0:10:30.360 would get done more quickly and has the surest path 0:10:30.360 --> 0:10:32.520 would be the Paramount deal. So if Warner's interested in 0:10:32.559 --> 0:10:35.800 getting something closed within the next year, I think Paramount 0:10:35.800 --> 0:10:37.520 would be the company that they'd go with. I don't 0:10:37.520 --> 0:10:39.880 see them getting a Netflix deal closed in the next year. 0:10:40.400 --> 0:10:44.920 Let's talk about the politics part of this. Axios is 0:10:44.920 --> 0:10:47.840 reporting that Jared Kushner is helping to finance Paramount's bid 0:10:47.840 --> 0:10:51.200 for Warner Brothers Discovery, and that Axios is citing a 0:10:51.240 --> 0:10:55.080 regulatory filing on this Kushner financing bid. Does that put 0:10:55.080 --> 0:10:58.000 it in a better position? Because Larry Ellison has a 0:10:58.000 --> 0:11:01.080 good relationship with President Trump, Jared kush Or, the president's 0:11:01.120 --> 0:11:04.440 son in law, is involved here, even as Larry Ellison 0:11:04.480 --> 0:11:07.240 tells other media that if he feels that the deal 0:11:07.280 --> 0:11:09.640 was inherently biased towards Netflix. 0:11:09.400 --> 0:11:13.160 Well, I would say if things were conventionally done, then 0:11:13.280 --> 0:11:15.480 it shouldn't. It should be all about anti trust. It 0:11:15.480 --> 0:11:19.160 should be the analysis the economists and their assessment of 0:11:19.320 --> 0:11:21.880 the markets and the impact on the markets. But in 0:11:22.360 --> 0:11:25.880 today's day and age, there is an impact from politics, 0:11:25.920 --> 0:11:30.000 and the administration does seem to kind of micromanage these decisions, 0:11:30.000 --> 0:11:33.120 and so I think politics is a significant factor here, 0:11:33.360 --> 0:11:35.400 right next to anti trust. And from what you just 0:11:35.440 --> 0:11:37.960 told me and what we've read, it seems paramounts the 0:11:37.960 --> 0:11:40.120 favorite bidder by this administration as well. 0:11:40.920 --> 0:11:44.079 Stay with us more from Bloomberg Intelligence coming up after this. 0:11:47.960 --> 0:11:51.679 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:11:51.760 --> 0:11:54.440 weekdays at ten am. He's done on Apple, Cocklay and 0:11:54.440 --> 0:11:57.720 Android Auto with the Bloomberg Business app. Listen on demand 0:11:57.760 --> 0:12:01.960 wherever you get your podcasts, or US Live on YouTube. 0:12:02.400 --> 0:12:05.200 One thing we didn't get to is the credit market. 0:12:05.320 --> 0:12:09.000 And of course we've seen yields, we've seen spreads really 0:12:09.040 --> 0:12:11.960 really tight, even as we've seen a lot more supply 0:12:12.080 --> 0:12:14.280 come into the market because of all the spending on AI, 0:12:14.520 --> 0:12:16.559 and there's going to be even more spending in twenty 0:12:16.600 --> 0:12:19.720 twenty six. So let's bring in right now Steven Flynn, 0:12:19.720 --> 0:12:22.320 he's a senior credit analyst at Bloomberg Intelligence, and Stephen, 0:12:22.440 --> 0:12:26.680 we want to really dig into Netflix because as part 0:12:26.679 --> 0:12:29.600 of this bid for Warner Brothers Discovery, it's going to 0:12:29.600 --> 0:12:32.040 be getting a fifty nine billion dollar bridge loan, the 0:12:32.040 --> 0:12:34.960 biggest investment grade bridge loan in a while, and of 0:12:34.960 --> 0:12:37.400 course that means eventually that will be replaced by corporate 0:12:37.480 --> 0:12:40.520 debt as well. How are you thinking about what kind 0:12:40.559 --> 0:12:42.000 of market impact that will have. 0:12:42.400 --> 0:12:44.360 Well, first of all, it's sort of that Netflix is 0:12:44.400 --> 0:12:47.920 a very strong credit So Netflix has a significant market cap. 0:12:48.000 --> 0:12:50.080 It's you know, four hundred and twenty five billion dollars 0:12:50.200 --> 0:12:53.520 or so. The company is growing, revenue, growing evada, growing 0:12:53.559 --> 0:12:56.800 free cash flow. It's net leverage ratio is very modest, 0:12:56.880 --> 0:12:59.880 talking zero point four turns of leverage. 0:13:00.240 --> 0:13:02.319 A company generates a ton of free cash flow. 0:13:02.679 --> 0:13:05.760 So Netflix is a very strong credits rted A three A, 0:13:05.960 --> 0:13:08.679 so they have the ability to borrow. So within that 0:13:08.720 --> 0:13:11.440 fifty billion dollars that they have as acquisition debt. There's 0:13:11.440 --> 0:13:13.679 been a reporter that's twenty five billion dollars will likely 0:13:13.720 --> 0:13:15.760 be bonds, and there remain will probably be a combination 0:13:15.840 --> 0:13:18.560 of term loans and maybe some other borrowing. And while 0:13:18.600 --> 0:13:20.520 twenty five billion sounds like a lot, if we think 0:13:20.520 --> 0:13:24.040 about Netflix bonds in the market right now, they're relatively scarce. 0:13:24.160 --> 0:13:26.520 Right So if Netflix is part of communications, you think 0:13:26.520 --> 0:13:30.680 about borrowers like a teen T Verise and Comcast T Mobile. 0:13:30.960 --> 0:13:33.680 Those companies have huge debt loads and are large parts 0:13:33.760 --> 0:13:36.960 of the investment grade corporate bond indict. So Netflix is 0:13:37.360 --> 0:13:39.520 relatively small, So I think that there could be a 0:13:39.520 --> 0:13:41.280 lot of interest in Netflix bonds, So I don't think 0:13:41.320 --> 0:13:42.199 it's a problem at all. 0:13:42.640 --> 0:13:44.640 And then the news of the day here Paramount coming 0:13:44.679 --> 0:13:48.160 back over the top of the hostile bid Warner Brothers Discovery. 0:13:49.440 --> 0:13:52.040 They're talking about fifty four billion dollars of debt commitments 0:13:52.040 --> 0:13:54.880 from Bank of America, City and Apollo. So again, your 0:13:54.920 --> 0:13:57.360 market is going to have a lot to say about 0:13:57.440 --> 0:13:59.839 how this deal gets done, isn't it. 0:14:00.040 --> 0:14:02.560 Yeah, this is a completely different story, right So Netflix, 0:14:02.679 --> 0:14:06.640 of sorry, paramounts guiddances on the edge of investment grade. 0:14:06.679 --> 0:14:10.440 So the investment grade by excuse me, by Moody's and Fitch, 0:14:10.679 --> 0:14:13.760 High yield by S and P. If you you know, 0:14:13.760 --> 0:14:15.920 they're talking about the combined company could have about one 0:14:16.000 --> 0:14:17.480 hundred billion dollars a debt. 0:14:17.559 --> 0:14:19.360 So if we look at the debt loads at. 0:14:19.320 --> 0:14:22.440 Both paramounts, Guidance and Warner Brothers, you're talking about an 0:14:22.480 --> 0:14:23.800 incremental fifty billion dollars. 0:14:23.800 --> 0:14:25.320 You just they have a you know, fifty four billion 0:14:25.360 --> 0:14:26.080 dollar commitment. 0:14:27.120 --> 0:14:30.520 You're talking about pro form net leverage over five times, 0:14:30.800 --> 0:14:34.760 and that's including synergies, right, so that's going to be 0:14:34.880 --> 0:14:37.760 much tougher. You're talking probably a good chunk of that 0:14:37.840 --> 0:14:40.880 will be high yield, and that is a lot for 0:14:40.920 --> 0:14:43.920 the highield market. Now, the highal markets very strong. Issuance 0:14:44.000 --> 0:14:46.360 is up, yields are down. I think you know it's 0:14:46.760 --> 0:14:49.800 the highal market is very favorable. But this would probably 0:14:49.800 --> 0:14:51.520 be the biggest name in high yald. The biggest name 0:14:51.560 --> 0:14:54.840 highyield right now is Charter, So Charter unsecured bonds are 0:14:54.880 --> 0:14:57.400 the biggest name. There's about twenty five billion dollars market 0:14:57.440 --> 0:15:01.160 value for Charter bonds in the Bloomberg Highyield in it 0:15:01.240 --> 0:15:03.120 depending on how they set it up but this could 0:15:03.120 --> 0:15:05.840 easily become you know, the biggest name or close to it, 0:15:06.080 --> 0:15:07.480 So that makes it much tougher. 0:15:07.520 --> 0:15:08.880 Now we have to see all the details. 0:15:08.920 --> 0:15:12.760 But so if I'm a shareholder Warner Brothers Discovery a 0:15:12.920 --> 0:15:15.640 the regulatory aspect which Jenery just walked us through. 0:15:15.880 --> 0:15:16.840 But now I've got the sitting there. 0:15:16.840 --> 0:15:18.840 If I'm an equity shoulder, do I want to be 0:15:18.960 --> 0:15:22.160 sitting there with a balance sheet of five times leverage? 0:15:23.360 --> 0:15:25.840 Well, if you're a Warner brother shareholder, you're getting cash, right, 0:15:25.960 --> 0:15:28.760 so you could only But if you're a paramount shaholder, yes, 0:15:28.760 --> 0:15:30.240 you have to be concerned that the pro form of 0:15:30.280 --> 0:15:32.800 company will have a significant amount of leverage. 0:15:33.160 --> 0:15:34.880 And that has a big name in high yield. 0:15:35.720 --> 0:15:37.680 But you do you know they also have big backers 0:15:37.680 --> 0:15:40.800 behind them, right between the Allison family and Redbird Capital. 0:15:41.600 --> 0:15:43.720 Pramon scot Dance stock is up five percent today. 0:15:44.000 --> 0:15:45.280 Yeah, well, I mean, but this is not going to 0:15:45.360 --> 0:15:47.040 end anytime soon. This is going to drag on. 0:15:47.320 --> 0:15:51.080 So Stephen, media companies being heavily indebted, what do we 0:15:51.240 --> 0:15:55.760 know from about the appeal of this sector to investors? 0:15:55.760 --> 0:15:58.440 I mean, I think about Warner Brothers Discovery when it 0:15:58.600 --> 0:16:00.680 came into being. It took on a lot of David 0:16:00.760 --> 0:16:02.680 Zasov spent years trying to pair that down. 0:16:03.080 --> 0:16:04.320 Yeah, and he was unsuccessful. 0:16:04.400 --> 0:16:06.840 Right, the company was junked and they ended up doing 0:16:06.880 --> 0:16:08.840 a massive tender offer where they put in a lot 0:16:08.880 --> 0:16:11.120 of secure debt ahead of the existing bonds and then 0:16:11.200 --> 0:16:13.840 use that to tender for existing bonds at a discount 0:16:13.840 --> 0:16:16.840 to par So bondholders really got hurt then, and then 0:16:16.880 --> 0:16:18.320 the company, you know, was junked. 0:16:18.360 --> 0:16:19.480 So it's been tough. 0:16:19.520 --> 0:16:21.560 It's you know, when you think about communications in general, 0:16:21.600 --> 0:16:24.320 people feel a lot more comfort. We're lending to more 0:16:24.360 --> 0:16:28.200 traditional communications companies like telecom cable, you have hard assets, 0:16:28.920 --> 0:16:30.240 it's a little bit easier to lend to. 0:16:30.280 --> 0:16:31.680 It is a little bit tougher in media. So this 0:16:31.680 --> 0:16:33.040 would be a large name for media. 0:16:33.720 --> 0:16:34.720 What's paramounts? 0:16:34.800 --> 0:16:38.880 Does Paramount have a view like does a marketplace have 0:16:38.920 --> 0:16:39.840 a view on powamount? 0:16:40.040 --> 0:16:43.120 Well, Paramount, it's not a very large name and it 0:16:43.200 --> 0:16:47.400 is on the cusp of IG. It trades very wide 0:16:47.440 --> 0:16:49.600 for IG, but that's because it's on the cusp and 0:16:49.640 --> 0:16:51.840 there's fears of a certain deal like this. Now there's 0:16:51.840 --> 0:16:54.160 two sides, right, you have the positive of the Elson 0:16:54.240 --> 0:16:57.800 family and Redbird coming in and saying, hey, there's support there. 0:16:58.200 --> 0:17:00.760 You know, I know we have somebody that's that backing us. 0:17:00.800 --> 0:17:03.440 Things can't get too bad. And the flip side, you know, 0:17:03.720 --> 0:17:05.680 the business is challenged, and you know there is the 0:17:05.760 --> 0:17:06.200 risk of. 0:17:06.200 --> 0:17:08.760 High yield I mean back of my date for this, 0:17:08.760 --> 0:17:11.000 this kind of deal and your higeld I mean high 0:17:11.040 --> 0:17:13.520 yield market. Five phone calls, I would I would get 0:17:13.520 --> 0:17:14.480 a sense of whether. 0:17:14.280 --> 0:17:16.560 The deal could get done. Is it still like that today? 0:17:16.960 --> 0:17:17.160 Yeah? 0:17:17.200 --> 0:17:18.720 Sure, if you call the right people, that's right. 0:17:18.760 --> 0:17:21.280 And I knew the people to call, and they would say, 0:17:21.760 --> 0:17:23.359 I don't think so, Paul, I don't think we can 0:17:23.400 --> 0:17:23.639 get this. 0:17:23.840 --> 0:17:24.040 You know. 0:17:24.280 --> 0:17:26.280 Well, speaking of the right people, Jared Kushner is part 0:17:26.280 --> 0:17:29.920 of this paramount hostile deal bid for Warner Brother's Discovery 0:17:29.920 --> 0:17:32.760 through Affinity, the firm that he runs. So there's all 0:17:32.840 --> 0:17:36.080 kinds of political considerations as well. 0:17:36.400 --> 0:17:38.240 How do you anticipate. 0:17:39.280 --> 0:17:41.600 Warner Brother's Discovery bonds to trade in the meantime, I mean, 0:17:41.600 --> 0:17:42.520 what does that look like? 0:17:42.760 --> 0:17:44.560 Well, they've been very volatile, right, So if you go 0:17:44.600 --> 0:17:46.240 back a couple of months ago when they got jumped in, 0:17:46.280 --> 0:17:48.439 there was the big tenor offer of the bonds were crushed, 0:17:48.440 --> 0:17:51.720 they were chart trading at large discounts to par. Then 0:17:51.720 --> 0:17:53.440 they've had a nice run over the last couple of 0:17:53.480 --> 0:17:56.000 months with all the speculation of being bought out. Now 0:17:56.040 --> 0:17:58.879 the Netflick Flicks deal happened and the existing bonds appear 0:17:58.920 --> 0:18:01.639 to be left behind with global networks business which is 0:18:01.680 --> 0:18:04.320 somewhat deteriorating. So the mons traded off a little bit 0:18:04.320 --> 0:18:07.600 on Friday and then now coming in with having Ellison 0:18:08.040 --> 0:18:10.479 in Redbord behind you, that's giving a little bit more 0:18:10.520 --> 0:18:13.280 of a left but they're likely to remain very volatile. 0:18:13.880 --> 0:18:17.040 Stay with us. More from Bloomberg Intelligence coming up after this. 0:18:20.920 --> 0:18:24.600 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:18:24.720 --> 0:18:27.760 weekdays at ten am Eastern on Apple, Cocklay and Android 0:18:27.800 --> 0:18:31.120 Auto with the Bloomberg Business app. Listen on demand wherever 0:18:31.160 --> 0:18:34.240 you get your podcasts, or watch us live on YouTube. 0:18:35.200 --> 0:18:38.080 IBM buying conflent for nine point three billion dollars in 0:18:38.119 --> 0:18:40.520 cash or eleven billion dollars if you include debt on 0:18:40.640 --> 0:18:43.920 our Agrana is Bloomberg Intelligence's technology analysts and he joins 0:18:43.960 --> 0:18:46.040 us now, So on rag, what can you tell us 0:18:46.040 --> 0:18:49.480 about how this fits in with IBM's ambitions, in particular 0:18:49.600 --> 0:18:53.320 it's AI ambitions, which it's really been repositioning as business around. 0:18:53.920 --> 0:18:56.439 ViBe's done a very good job since the acquisition of 0:18:56.440 --> 0:18:59.959 red Hat. Not only did they pivot and move towards software, 0:19:00.119 --> 0:19:02.840 which is a much higher margin business, they actually have 0:19:03.200 --> 0:19:06.359 margin improvement because the gross margin of those businesses is 0:19:06.440 --> 0:19:09.040 very high. Since then, they've bought a number of companies 0:19:09.080 --> 0:19:13.159 Harshi Corp, Appto and now Confluent. The big thing what 0:19:13.200 --> 0:19:17.119 we want to think about over here is enterprises do 0:19:17.320 --> 0:19:21.640