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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim

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Speaker 1: Fox along with my co host Lisa A. Bramowitz. Each

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Speaker 1: day we bring you the most important, noteworthy, and useful

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Speaker 1: interviews for you and your money, whether you're at the

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Speaker 1: grocery store or the trading floor. Find the Bloomberg p

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Speaker 1: m L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.

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Speaker 1: Following the Supreme Court decision giving the President Trump's administration

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Speaker 1: leeway to enforce certain parts of their travel ban, we

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Speaker 1: are going to see some of that implemented starting an

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Speaker 1: a pm tonight Eastern time, UH, and we're getting a

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Speaker 1: little bit more of a sense of what the guidelines

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Speaker 1: are for, what the close relationships are for people who

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Speaker 1: will be allowed into the country for more and some

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Speaker 1: of the ramifications of this travel ban. I want to

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Speaker 1: bring in Brian and Egger. He's senior Gaming and Lodging

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Speaker 1: analyst for Bloombrick Intelligence and he joins us here in

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Speaker 1: the Bloombrig eleven three oh studios. Brian, I wanted to

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Speaker 1: start first with a sense of how much, if at all,

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Speaker 1: UH tourism, people just visiting the country or people UH

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Speaker 1: moving here has been affected by the proposition of the

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Speaker 1: travel ban and some of the rhetoric that we've heard

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Speaker 1: out of the administration. So I think you want to

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Speaker 1: parse between the direct effects and the indirect effects. Directly,

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Speaker 1: the impact has been to date pretty limited. Remember, the

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Speaker 1: top source markets from the Middle East coming to the

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Speaker 1: US are Israel, Turkey, Saudi Arabia clearly not affected by

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Speaker 1: this the Middle East. Even if you throw in Mexico,

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Speaker 1: where there's been travel concerns, uh, those source markets are

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Speaker 1: less than one percent of the hotel stays for companies

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Speaker 1: like Hilton, so it's it's com comparatively speaking, a small portion.

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Speaker 1: The bigger concerned is the indirect effects, you know, whether

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Speaker 1: it's the stronger U S dours or broader travel policy concerns.

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Speaker 1: Mary for example, has seen inbound arrivals from markets like

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Speaker 1: Mexico in the Middle East down that's in a in

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Speaker 1: a market where inbound international travel overall is flat, those

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Speaker 1: source markets have seen declines in inbound travel. Hard to

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Speaker 1: tell whether that's from currency. I think that's rough more

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Speaker 1: or less this year compared to last year exactly, And

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Speaker 1: they made that comment recently in an industry conference, So

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Speaker 1: hard to tell whether that's coming from a stronger dour

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Speaker 1: or the general broader concern that the US is somehow

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Speaker 1: riskier or less hospitable to travelers. But it does raise concerns,

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Speaker 1: and those concerns have have been articulated by hotel executives.

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Speaker 1: Is there any evidence to suggest, Brian, that maybe there

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Speaker 1: is a positive effect that people will feel that being

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Speaker 1: in the United States as a tourist destination is a safer,

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Speaker 1: more secure environment. UM, there is that possibility. The offset

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Speaker 1: is if you are a group travel plan or overseas

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Speaker 1: and you're trying to locate people at the future events

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Speaker 1: UH in the United States and your alternative choices having

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Speaker 1: an event on Canada or elsewhere, that the US might

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Speaker 1: be perceived to be somewhat riskier if there's a possibility

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Speaker 1: some of your perspective group visitors might not be able

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Speaker 1: to enter the country. What have some of the hotel

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Speaker 1: executive has been saying that they're doing to counter UH

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Speaker 1: this effect? Or are they do they have any control

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Speaker 1: over it? UH women to control over things like policy directly.

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Speaker 1: But I was at the m y U Hospitality Conference

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Speaker 1: a couple weeks ago. A lot of talk about Brand

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Speaker 1: America and trying to publicize the brand of the United

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Speaker 1: States being open for business for travelers. The fear they

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Speaker 1: have is there's another lost decade of travel, much as

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Speaker 1: what we had after O eleven, where for a variety

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Speaker 1: of reasons there might be a reduction in inbound visits

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Speaker 1: to the United States. The labor implications are also worth

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Speaker 1: noting because this, as you just described, may have an

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Speaker 1: effect on employment trends from people from Mexico. And it's true.

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Speaker 1: Go ahead, yeah, I was gonna say that in states

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Speaker 1: like Nevada. Nevada employees, a large number of workers in

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Speaker 1: the hospitality industry were according to UH, PEW and other

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Speaker 1: research poll organizations, there's some evidence that the large percentage

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Speaker 1: of those individuals may be undocumented. So if there were

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Speaker 1: to be more stringent enforcement or focus on those on

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Speaker 1: those rules, UH difficult to quantify, but that could potentially

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Speaker 1: affect or disrupt the labor pool. If it reduces the

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Speaker 1: labor to pool, could actually potentially resulted in increase in

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Speaker 1: labor costs because of reduction and supply of workers. Much

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Speaker 1: of that is based on UH speculation, but you know,

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Speaker 1: those are the broader concerns. If in fact, that particular

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Speaker 1: topic gets more scrutiny. Well, I don't know if you've

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Speaker 1: got a chance to see the story, but this comes

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Speaker 1: out of Washington, out of the post there. Apparently there's

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Speaker 1: a restaurant in Baltimore which was visited by immigration and

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Speaker 1: Customs enforcement agent demanding the papers of the people that

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Speaker 1: worked at this dock side restaurants called boat House Canton.

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Speaker 1: And as a result of demanding these papers, all thirty

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Speaker 1: workers quit the staff. So they I mean the kitchen

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Speaker 1: staff resigned as a as a result of this. So

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Speaker 1: the implications can not just be you know, large scale

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Speaker 1: changes in tourism and travel, but can affect very uh

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Speaker 1: specific businesses this way absolutely well, you know, I have

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Speaker 1: to wonder though the hotel industry is under other pressure

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Speaker 1: aside from the immigration ban from specific countries, UH and

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Speaker 1: and just the general geopolitical environment. But it's being you know,

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Speaker 1: seriously challenged by Airbnb and other disintermediation sites that are

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Speaker 1: looking to pair people with homes that happen to be vacant.

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Speaker 1: I mean, do you have a sense of whether perhaps

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Speaker 1: hotel executives are using this as an excuse to cover

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Speaker 1: for maybe business they've lost. I wouldn't say it's an excuse.

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Speaker 1: But again, it's difficult when you see declines in travel

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Speaker 1: from certain UH, non US source markets, whether that's related

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Speaker 1: to something specifically like currency or a structural industry change,

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Speaker 1: or it's related to travel policy. It's somewhat difficult to stay,

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Speaker 1: and the lodging cycle is maturing, room RAAK growth is

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Speaker 1: slowing down. UH. Some of that is largely cyclical. UH.

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Speaker 1: Certainly the hotel industry has been adapting to the reality

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Speaker 1: of competition from um entities like Airbnb, and then of

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Speaker 1: course you have this overlay of uncertain travel policies from

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Speaker 1: the U. S. Government. So it's difficult to parse in

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Speaker 1: terms of which of these effects are having the most

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Speaker 1: discernible impact, but certainly they all they all come into

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Speaker 1: play here. I want to thank you very much for

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Speaker 1: coming in and sharing this information with us. Brian Egger

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Speaker 1: as our senior gaming and Lodging analyst for Bloomberg Intelligence,

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Speaker 1: speaking about the travel ban, that partial travel ban that

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Speaker 1: is expected to go into force at eight p m.

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Speaker 1: Eastern PIM. I'm still taken by what Brian said that

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Speaker 1: some of the big hotel executives said that at visits

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Speaker 1: from people from the Middle East of Mexico were down

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Speaker 1: twenty here over year. It's presenting a challenge. And I

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Speaker 1: just want to offer a footnote having to do with

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Speaker 1: that restaurant in Baltimore boat House. Uh. The owner says

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Speaker 1: every worker had passed the restaurant's vetting process and appeared

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Speaker 1: to be in the United States legally. So just to

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Speaker 1: give you that detail him. There was a fascinating story

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Speaker 1: today on the Bloomberg talking about the I R S

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Speaker 1: probing this Chronic Disease Fund, which is to nonprofit right

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Speaker 1: tax exempt status, and it has to do with the well,

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Speaker 1: a couple of companies that are involved in this cell

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Speaker 1: Jean Genetech, Novartis and Buyer. And here to tell us more,

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Speaker 1: we've got Robert Langreth. He is our expert when it

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Speaker 1: comes to healthcare reporting. Robert, thanks very much for being

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Speaker 1: with us. Maybe you could describe how is it that

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Speaker 1: these companies are connected to this nonprofit and what is

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Speaker 1: the I R S saying about their participation. Well, so

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Speaker 1: there are these these charities that have spun up in

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Speaker 1: the wake about ten years ago in the Medicare drug

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Speaker 1: band that came about, and there are these charities that

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Speaker 1: have spun up that essentially help patients pay for their

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Speaker 1: co pays are really expensive drugs for cancer and multiple grosses.

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Speaker 1: And these charities that turns out are largely funded by

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Speaker 1: the drugmakers themselves. But they're uh and it turns out

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Speaker 1: there and there's controversy over, you know, over are these

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Speaker 1: are these charities essentially you know, helping you know, by

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Speaker 1: paying for patients co pays and Medicare and other government programs.

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Speaker 1: Are they essential you know, helping the government uh, help

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Speaker 1: helping the drugmakers, you know, bill Medicare for some really

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Speaker 1: really expensive drugs and helping drugmakers keep up prices very

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Speaker 1: very high. So one of these charities, it turns out,

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Speaker 1: we found out that the US Internal Revenue Service opened

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Speaker 1: approbe into its tax exempt status and they are essentially

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Speaker 1: from the court followings that you can tell the i

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Speaker 1: RS is looking at, you know, whether the charity was

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Speaker 1: a quote conduit for drug makers, was giving impermissible benefits

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Speaker 1: to its corporate donors. And what that means, according to

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Speaker 1: one of the tax experts we looked at is that

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Speaker 1: essentially the i r S is exploring whether whether the

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Speaker 1: the charity essentially may have operated more like instead of

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Speaker 1: being a real tax charity for the public. They've operated

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Speaker 1: more like you know, but an effect more like a

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Speaker 1: marketing on the arm of their drug company donors. Well, Robert,

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Speaker 1: let me, let me just try to make sure that

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Speaker 1: I understand the flow of cash here. So, pharmaceutical companies

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Speaker 1: set up a nonprofit organization to help poor people obtain

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Speaker 1: medications that otherwise might be too expensive for them. And

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Speaker 1: as part of this program, the nonprofit seeks any reimbursements

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Speaker 1: that it could get from Medicaid or medicare as well

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Speaker 1: as donations from who. Yeah, So basically someone the pharmaceutical

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Speaker 1: company does not set up a charity, a charity like

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Speaker 1: is is supposed to be when they say they are independent.

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Speaker 1: And this this charity chronic that these funds says it

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Speaker 1: is court fully independent. But it turns out that in

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Speaker 1: two thousand eleven, the year that the IRS analyzed, you know,

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Speaker 1: almost all its donations were from drug companies. Uh and uh.

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Speaker 1: And it turns out and these donations were earmarked for

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Speaker 1: specific disease funds, and it often had often turned out

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Speaker 1: and that that a law, the vast majority of the

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Speaker 1: money that the dominant donor would give would offensively flow

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Speaker 1: back the patients taking the donor companies drugs Robert, what

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Speaker 1: I what this is? But what I want just to

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Speaker 1: ask you more specifically. So, if you're a company and

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Speaker 1: you donate money to a tax exempt organization, you get

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Speaker 1: the deduction for making that contribution. Correct supposedly, Okay, so

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Speaker 1: now you've got a tax deduction. But it's almost like

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Speaker 1: a washing machine, a spin cycle, because the money goes

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Speaker 1: to the nonprofit. But then the nonprofit uses that very

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Speaker 1: money to actually buy the drugs from the company that

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Speaker 1: gave the money in the first place. Se the nonprofit

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Speaker 1: uses the money to help patients getting to pay their

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Speaker 1: co pays for drugs for that disease. And yes, the

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Speaker 1: i r S analysis showed that most patients and many

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Speaker 1: of these funds, like for example, a cell Gene was

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Speaker 1: a big donor for fund for multiple loma, but it

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Speaker 1: turned out that nine four point five percent twous and

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Speaker 1: eleven of the money the charity spent on helping patients

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Speaker 1: co pays when the patients taking cell gene drugs, for example.

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Speaker 1: And so the i r S IS sent summons is

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Speaker 1: to six different drug companies asking for more information about

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Speaker 1: their donations, including Bilogin, Johnson, and Johnson, Arose and nov

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Speaker 1: artists and there, and they're looking into this very carefully

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Speaker 1: and you know whether and whether into specifically whether it

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Speaker 1: is charity you know, has a right to retain as

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Speaker 1: tax exempt status, so this could and and yeah, it's

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Speaker 1: a it's a wonderful story. Robert, thank you very much

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Speaker 1: for bringing it to our attention. Robert Langrath is a

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Speaker 1: healthcare reporter for Bloomberg And Uh, I really recommend the story.

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Speaker 1: A charity funded by drugmakers draws I r S probe

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Speaker 1: on tax exemption. So very interesting because the amount of

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Speaker 1: money that we're talking about, for example, Selgen gave forty

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Speaker 1: two million, Genetech fourteen million, nov Artists three four million,

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Speaker 1: and so on. Well, to me, the issue though, really

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Speaker 1: is what you exactly nailed, which which is the tax

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Speaker 1: exemption they get for putting revenue back in their pockets.

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Speaker 1: Kind of interesting. Uh, spin cycling, do you know that

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Speaker 1: the twenty seven thousand flights and two point two million

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Speaker 1: passengers take to the guys in the United States every day?

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Speaker 1: And that means a lot of coordination and unfortunately it

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Speaker 1: means a lot of delays for many travelers. Here to

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Speaker 1: tell us more about the air Traffic Control System is

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Speaker 1: James Burnley. He is a partner at the Venable, but

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Speaker 1: it's more importantly for our topic today. He is the

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Speaker 1: former U S Secretary of Transportation from and just full disclosure.

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Speaker 1: Venable is a lobbying firm which represents American Airlines. Mr Burnley,

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Speaker 1: thank you very much for joining us. Can you describe

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Speaker 1: the current state of the air traffic control system? Good morning.

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Speaker 1: I'm gladed to be with you. The system is very safe,

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Speaker 1: and our controllers keep it that way by gradually slowing

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Speaker 1: it down because they're working without dated equipment UM and

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Speaker 1: we are at at this moment at the lowest ub

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Speaker 1: in twenty eight years in terms of fully qualified controllers.

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Speaker 1: But again I emphasize the system is safe. There is

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Speaker 1: a UM major effort underway in Congress as we speak

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Speaker 1: h to separate the air traffic control system from the

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Speaker 1: federal government. Sixty other countries have taken similar actions in

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Speaker 1: the last twenty five years. Because we're trying to run

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Speaker 1: a twenty four hour day, seven day a week, incredibly

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Speaker 1: complicated business serving those twenty seven thousand flights a day,

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Speaker 1: and it's bound up in red federal red tape and

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Speaker 1: procurement rules and personnel rules, It gets caught in budget

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Speaker 1: fights and it's just no way to run a big business.

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Speaker 1: So there's data showing that about half of all flight

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Speaker 1: delased are results of air traffic control inefficiencies, which is

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Speaker 1: rather stunning in my opinion. And you were talking about

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Speaker 1: how there are currently discussions ongoing in Congress to move

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Speaker 1: the f a A to a nonprofit that is separate

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Speaker 1: from the government. What surprises me is that there is

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Speaker 1: quite a bit of opposition to this plan. Can you

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Speaker 1: talk about why there has been a sort of party

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Speaker 1: divide about whether or not to privatize the f a

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Speaker 1: A and why there has been, frankly in the past,

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Speaker 1: bipartisan opposition to this move. Well, let me go at

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Speaker 1: it slightly differently, if I could. UM. In the mid

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Speaker 1: nine the first really serious, well thought out proposal to

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Speaker 1: take this step was made by the Clinton administration, and

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Speaker 1: it did not go anywhere in Congress. The Bush administration

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Speaker 1: Bush forty three UM attempt at a sort of reduced

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Speaker 1: version of what Clinton had proposed. The current proposal is

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Speaker 1: modeled on what the Canadians did in mid nineties, and

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Speaker 1: that is to spend off air traffic control into a

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Speaker 1: nonprofit corporation, has a board that is appointed by the

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Speaker 1: various users of the system, and it has worked incredibly well. UM.

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Speaker 1: So that's what we're debating today. UM. We find opposition

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Speaker 1: uh from several quarters, but support comes from the Air

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Speaker 1: Traffic Controllers Union for this reform as well as most

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Speaker 1: of the major airlines. The primary voice of opposition is

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Speaker 1: an association that represents the corporate jet operators, believe it

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Speaker 1: or not, and that's because they are getting heavily subsidized

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Speaker 1: under the current structure. They pay a tiny fuel tax,

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Speaker 1: and yet they use the same quality and quantity of

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Speaker 1: services for their planes that um seven three seven Jews

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Speaker 1: that are that are flown by my client, American Airlines.

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Speaker 1: So they're staring up a lot of opposition, a lot

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Speaker 1: of misinformation, and and it is unfortunately become a fairly

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Speaker 1: polarized issue. It should not be. I mean again, this

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Speaker 1: is this is an issue that back in the nineties

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Speaker 1: the Democratic administration of Bill Clinton and algal Are worked

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Speaker 1: very hard to try to push Mr Brindam, Can you

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Speaker 1: describe the technological improvements that would be gained by having

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Speaker 1: a revamped system and finally getting something twenty first century

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Speaker 1: in place. Let me give you one example that I

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Speaker 1: think it's very stark. UM our controllers today keep track

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Speaker 1: of the planes that that individual controller is responsible for.

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Speaker 1: On paper strips. The Canadians got rid of paper strips

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Speaker 1: in the f a A. Has a contract today if

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Speaker 1: all goes perfectly, will mean that we get rid of

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Speaker 1: paper strips and our only in our eighty nine business

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Speaker 1: busiest facilities. So we're talking about a plan that leaves

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Speaker 1: paper strips in use in many of the smaller facilities.

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Speaker 1: Why is this taking way through this century? Well, again,

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Speaker 1: we're talking about UM federal budget fights. For example, the

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Speaker 1: first time we did sequestration in the f a A

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Speaker 1: closed down the training academy in Oklahoma. Took nearly a

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Speaker 1: year to get the pipeline filled back up with trainees.

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Speaker 1: UM the Inspector General at d T the g a O,

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Speaker 1: which is you know, as an investigative arm of Congress,

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Speaker 1: UM have written countless reports over the last thirty years

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Speaker 1: about the disconnects and simply trying to buy new equipment

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Speaker 1: that you get because of appropriations issues, because of Congress

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Speaker 1: doing twenty three short term extensions in the early two

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Speaker 1: thousands of the f A a s basic authorizing legislation.

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Speaker 1: We're trying to run this huge, complex, seven day a week,

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Speaker 1: twenty four hour day business and you just can't do

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Speaker 1: it within the federal government expect the kinds of outcomes

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Speaker 1: that we all expect. Yeah, well, I mean it's clearly

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Speaker 1: a bit of a mess, and it seems like everybody

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Speaker 1: agrees with that, and it needs to be modernized. Are

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Speaker 1: two big issues that strike me as compelling arguments for

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Speaker 1: why the f A has not been privatized. First of all,

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Speaker 1: there's a security issue, right because, uh, this is a crucial,

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Speaker 1: uh nexus of transportation for the US and if that

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Speaker 1: could be compromised in any way, Uh, that could be

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Speaker 1: a really a huge issue. That's number one. And number two,

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Speaker 1: if the financial interest is sort of moved, even to

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Speaker 1: a nonprofit, there's a question of which parties will benefit more.

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Speaker 1: And you know, can consider the needle be pushed in

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Speaker 1: one direction or another. How would you respond to those things? Well,

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Speaker 1: security is not an issue. No one wants to change

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Speaker 1: our current set up on security. Security of course, for

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Speaker 1: all transportation is now handled by the Department of Homeland

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Speaker 1: Security and t s A, not by the Air Traffic

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Speaker 1: control system, so that would not change in any way.

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Speaker 1: The air traffic control system would still be regulated by

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Speaker 1: the f A. A nobody's proposing to take the whole

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Speaker 1: FAA out of the government. Just see our traffic control

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Speaker 1: system part of it. The FAA regulators who write all

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Speaker 1: kinds of aviation safety regulations would remain within the Departments Transportation,

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Speaker 1: just like the regulators a NITZA that write regulations for

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Speaker 1: safety and the automobiles, and the Federal Railroad Administration and

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Speaker 1: other such arms. So that would that would just not

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Speaker 1: be a problem. The interests involved here the first and

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Speaker 1: foremost of the interest of passengers. And today you can

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Speaker 1: pick any two major hubs and once you will find

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Speaker 1: because we do have an incredibly safe system, we're keeping

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Speaker 1: it safe by swowing things down gradually, so that today,

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Speaker 1: compared to twenty years ago, for example, between New York

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Speaker 1: and Washington, the airline schedules, if the planes fly according

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Speaker 1: to the published schedules, are need to thirty minutes longer

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Speaker 1: just from New York to d C compared to twenty

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Speaker 1: years ago. You can pick any other two city pairs

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Speaker 1: of larger cities, and you'll find some more examples. So

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Speaker 1: it is becoming a major drag on the economy, first

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Speaker 1: and foremost for those of us, the passengers, And thank

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Speaker 1: you very much. James Burnley. He is a former U

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Speaker 1: S Secretary of Transportation to nine currently a partner at

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Speaker 1: Venable labbying firm representing American airlines, talking about the future

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Speaker 1: of our air traffic control system. We did get news

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Speaker 1: today that Walgreen's Boots Alliance scrapped its deal to purchase

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Speaker 1: Right Aid, and partly this is because of the Federal

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Speaker 1: Trade Commission scrutiny of this deal is possibly violating anti

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Speaker 1: trust rules. Um Brick Sutherland gods like columnist joins us

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Speaker 1: now to give us a little bit of perspective and Brooke,

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Speaker 1: you know, Walgreens seems to be doing just fine. It's

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Speaker 1: for as far as trading goes. But so let's focus

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Speaker 1: on right Aid because at least based on the share activity,

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Speaker 1: the activity and the equities, this looks catastrophic for them,

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Speaker 1: is it. Yeah, you know, it's not a great deal

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Speaker 1: for Right Aid. You know, I do think that Walgreens

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Speaker 1: is playing a pretty decent price for the number of

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Speaker 1: stores that they're getting, But I mean, you think about it,

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Speaker 1: right it is essentially giving over half of its stores,

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Speaker 1: but then it's still has to go on and try

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Speaker 1: to compete against a Walgreens that's now going to be

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Speaker 1: better off, and of CBS that's already huge, And so

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Speaker 1: I mean, it's you really have to sort of wonder

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Speaker 1: if this was really regulators intention where they block this

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Speaker 1: deal on the premise that Walgreens and right Aid will

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Speaker 1: will have too much pricing power and there's going to

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Speaker 1: be antitrust concerns. But now you're essentially just going to

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Speaker 1: be left with the exact same situation where right It

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Speaker 1: is essentially not able to as effectively compete well, and

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Speaker 1: we should just say that, yes, Walgreens is no longer

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Speaker 1: going to buy right Aid outright, but they are going

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Speaker 1: to purchase about of right aid stores. What proportion of

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Speaker 1: their stores aren't that's about half, okay, half something like that.

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Speaker 1: But I mean, here here's an interesting parallel, right because

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Speaker 1: in the same week that we're talking about this, Staples

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Speaker 1: and Sycamore partners right and Staples was going to buy

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Speaker 1: office depot. Regulators nixed that deal, so they tried to

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Speaker 1: shop themselves around and they ended up being bought by

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Speaker 1: private equity for six point nine billion. So is that

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Speaker 1: what happens do you believe to the rest of right

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Speaker 1: A I I think you have to ask that question.

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Speaker 1: I mean, so Staples is getting purchased at a very

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Speaker 1: low price, and if right Aid sells itself down the road,

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Speaker 1: is it going to command anywhere near what it was

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Speaker 1: potentially going to sell itself to Walgreen's fork. No, I

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Speaker 1: don't think so. I mean, I think retail in general

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Speaker 1: is in a tough spot. Drug store type things. People

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Speaker 1: are increasingly going to Amazon for um and like I said,

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Speaker 1: they're in a tough spot now where they have to

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Speaker 1: compete eating against a much larger competitor that's now getting

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Speaker 1: even bigger UM. And I think you know, the real

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Speaker 1: sort of question here is is do regulators need to

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Speaker 1: change their sort of paradigm for the way that they

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Speaker 1: view these deals. Amazon has clearly changed the retail landscape,

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Speaker 1: and is it really Can you really justify saying that

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Speaker 1: these companies will be too strong when they're combined and

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Speaker 1: have too much pricing power or do you have to

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Speaker 1: maybe take a step back and rethink this because the

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Speaker 1: end resulture exactly. Yeah, the end result is that you

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Speaker 1: you know, prevent these companies from combining, but do you

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Speaker 1: know some of them may not be able to survive

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Speaker 1: on their own. I think that's certainly true for Staples

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Speaker 1: office depot. You know, when you look down the road,

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Speaker 1: will they ever be back to what they were? No?

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Speaker 1: And I don't think right aid is necessarily going to

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Speaker 1: be back to what it was. Either it may continue on,

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Speaker 1: but it's not going to be, you know, in a

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Speaker 1: position of strength. So what what do you think right

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Speaker 1: aids rationalization was for agreeing to sell just the stores

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Speaker 1: and not itself. They have not been doing very well.

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Speaker 1: They're results have gotten significantly weaker since when they originally

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Speaker 1: agreed to sell to Walgreens. And this deal was actually

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Speaker 1: aren't amended once before, partly because Right aids results had deteriorated,

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Speaker 1: partly because they were already sort of getting pushed back

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Speaker 1: from antitrust authorities, and they amended the deal to try

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Speaker 1: to head off some of those complaints. Um, you know,

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Speaker 1: I think right aid is maybe looking for a cash

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Speaker 1: infusion and to to just sort of do something. But

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Speaker 1: you know what's interesting is that their share is their

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Speaker 1: share prices down about but their bond prices are surging.

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Speaker 1: And this is compelling to me because basically this indicates

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Speaker 1: that bond traders are saying something happened where they have

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Speaker 1: more cash and we're going to get paid, But it

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Speaker 1: doesn't mean that their growth prospects are any better. Is

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Speaker 1: that an accurate reading? Yeah? I think so. I think

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Speaker 1: that's a good way of looking at I mean, on

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Speaker 1: the other hand, if you do have a smaller store count,

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Speaker 1: that is maybe not a bad place to be in

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Speaker 1: as a retailer in general these days. But they have

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Speaker 1: to use this in the right way. How do they

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Speaker 1: actually make their stores more profitable because they're not all

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Speaker 1: that profitable right now. How do you get people coming

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Speaker 1: in there? How do you compete with Amazon? How do

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Speaker 1: you compete with Walgreens? I mean, they really have to

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Speaker 1: use this money in the right way. Well, it's gonna

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Speaker 1: just ask you know, this infusion of cash right from Walgreens,

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Speaker 1: as you mentioned, at least the stock is down about

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Speaker 1: twenty five of right aid Um just just really shows

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Speaker 1: that bond holders, bond investors, they only care about getting

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Speaker 1: paid back. They really don't have an interest in whether

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Speaker 1: the company is going to be a successful company in

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Speaker 1: the future or not. They just want to get paid

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Speaker 1: for the bonds that they hold. Is that a decent description? Yeah?

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Speaker 1: I mean that that well, right, And there's just a

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Speaker 1: different calculation. It's not about how much the company is

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Speaker 1: going to grow, but they's not about the company at all.

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Speaker 1: They don't really care as long as they get the

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Speaker 1: money from the bonds, right. But it indicates to me

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Speaker 1: that these bond holders do not think that right, AI's

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Speaker 1: going to file for bankruptcy anytime soon. No, And I

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Speaker 1: you know, I don't think they're hovering on the brink here.

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Speaker 1: I guess my point about the regulators is just sort

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Speaker 1: of the longer term question about the survivor nature of

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Speaker 1: these companies, and you know how strong they're truly going

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Speaker 1: to be if you don't allow them to go through

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Speaker 1: with these deals for Staples off as depot. I really

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Speaker 1: do believe that that merger was sort of their best hope,

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Speaker 1: and you could combine the companies and sort of take

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Speaker 1: out the cost and work on making the business that

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Speaker 1: they do have as profitable as possible and sort of

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Speaker 1: have that scale to take on the Amazons and the

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Speaker 1: Walmarts and everyone else out there. And now you instead

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Speaker 1: have Staples selling to a private equity firm, and the

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Speaker 1: endgame here is still really sort of a question mark.

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Speaker 1: I want to thank you very much for joining us.

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Speaker 1: Brooks Sutherland is Bloomberg Gadfly colums covering deals and as

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Speaker 1: we learned, Walgreen's buying those stores. Read her column. Yes,

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Speaker 1: she's awesome. Well I was gonna see yes, of course.

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Speaker 1: Thanks for listening to the Bloomberg P and L podcast.

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Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

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00:28:02,240 --> 00:28:05,680
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

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Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

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Speaker 1: It's one before the podcast. You can always catch us

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Speaker 1: worldwide on Bloomberg Radio