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Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg P and L

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

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Speaker 1: the shares of Rockwell Collins. They are up about four percent.

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Speaker 1: This follows a report from Bloomberg on Friday that United

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Speaker 1: Technologies may be considering an acquisition of Rockwell Collins. And

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Speaker 1: here to tell us more about this potential deal is

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Speaker 1: Bloomberg Intelligence. Is Joel Levington. He is an expert in

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Speaker 1: the world of corporate debt. And Douglas Rothacker, he is

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Speaker 1: our aerospace and autos analyst for Bloomberg Intelligence. Gentlemen, thank

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Speaker 1: you very much for being here in the studio in

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Speaker 1: our eleven three oh headquarters. You know, Doug, I want

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Speaker 1: to begin with you because can you tell people why

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Speaker 1: forget let's put the price aside. That's gonna be Joel's problem.

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Speaker 1: He's gonna figure out how to pay for it. Uh,

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Speaker 1: why would um U t X why would United Technologies

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Speaker 1: want to buy Rockwell Collins. Sure, yeah, morning, thanks for

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Speaker 1: having us. The strategic rational behind creating a forty billion

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Speaker 1: dollar revenue airspace portfolio is largely to defend against the

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Speaker 1: concerted efforts of Boeing, I would say for aftermarket services

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Speaker 1: and revenue that they're trying to get into pretty aggressively

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Speaker 1: and twofold to largely gain pricing power and scale. Right,

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Speaker 1: So as Boeing and Airbus work through years of development

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Speaker 1: and aircraft wore largely focused on profitability, right now, you know,

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Speaker 1: focus on improving margins and a lot of that is

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Speaker 1: going to trickle down to supply train pricing pressure. So

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Speaker 1: as you see United Technologies, you know in this part

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Speaker 1: ential deal deal, clearly it's an effort to you know,

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Speaker 1: fight against that troll comment on this because it's one

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Speaker 1: thing to have a great theory about, you know, uh,

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Speaker 1: air aircraft control systems, you've got pilot systems, avionics, all

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Speaker 1: this thing that's Rockwell Collins. Uh. Is there a price

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Speaker 1: at which this deal just looks bad? Because I mean

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Speaker 1: we've been down this road before, right, I mean we

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Speaker 1: we've seen in that you know, Rockwell Collins has been

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Speaker 1: kind of talked about as an acquisition target previously. That's true,

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Speaker 1: and given where the market is with high evaluations, uh,

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Speaker 1: what I can tell you is that the math works

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Speaker 1: with about a premium, which is pretty traditional for an

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Speaker 1: industrial asset. So you can make the math work relative

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Speaker 1: to uh EPs growth, which I think Doug get pittened

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Speaker 1: out at about seven percent. And then from a balance

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Speaker 1: sheet perspective, you could lever the company up to a

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Speaker 1: little over three times on a net debt basis, which

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Speaker 1: is actually better than when knew we'll try to buy

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Speaker 1: you U t X a little over a year ago

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Speaker 1: UM and perhaps retained the single A rating that the

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Speaker 1: company wants to maintain. Well, having said that, I mean,

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Speaker 1: would it be any problem for them to raise the money?

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Speaker 1: I don't think. So we got a thing today, one

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Speaker 1: and a half billion dollar bond offering from Tesla, So

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Speaker 1: I guess you know everybody can borrow money, right, and

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Speaker 1: that's coming with like a five percent coupon handle on it.

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Speaker 1: So it's so maybe you and I should and Duck

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Speaker 1: can open up a business together and and and finance

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Speaker 1: it with some debt. But I do think kind of

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Speaker 1: the interesting or maybe the more interesting way of doing

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Speaker 1: things would be if this would lead to a separate

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Speaker 1: split of United Technologies, which has also been discussed, where

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Speaker 1: you would have an aerospace business and an industrial business.

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Speaker 1: To me, that kind of makes the most logic and

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Speaker 1: sense given what their peers have done, whether you look

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Speaker 1: at a GE or dana Her and Emerson, where it

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Speaker 1: seems to be all the rage these days to be

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Speaker 1: a company that's single focused as opposed to a diversified

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Speaker 1: industrial with some pluses and binuses. Just come in a

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Speaker 1: little bit more about margins and pricing and if you

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Speaker 1: can maybe use an example for Rockwall cons because this

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Speaker 1: idea of an aftermarket uh, we all know that. You know,

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Speaker 1: when you buy an automobile, for example, the true cost

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Speaker 1: is not what you pay. The true cost is what

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Speaker 1: you pay for the life of the automobile, right right,

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Speaker 1: So if you look at Rockwell Collins and their recent

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Speaker 1: acquis just in b airspace there, you know, typical operating

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Speaker 1: margins are north of which is well above what the

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Speaker 1: United Technologies generates on their airspace portfolio. And a lot

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Speaker 1: of that comes from a very large business of aftermarket

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Speaker 1: products and services. Right. So when you go and buy

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Speaker 1: used aircraft, you completely tear out the insides, the guts

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Speaker 1: of it, refit it with UH new seats, new interiors,

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Speaker 1: and boom, your customers think they're sitting in a brand

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Speaker 1: new airplane. Right. So again, oh that's high margin and

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Speaker 1: would uh you know, I ran the numbers UH over

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Speaker 1: the weekend. If you combine on a proformer basis Rockwell

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Speaker 1: Collins UH to United Technologies aerospace portfolio, they look at,

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Speaker 1: you know, a marchin boost of hundred two hundred basis

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Speaker 1: points and that's just on the you know, excluding any

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Speaker 1: synergies or anything like that that that are potentially there.

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Speaker 1: But I want to bring in starboard value for just

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Speaker 1: a second here, because they were a focus last year

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Speaker 1: I believe when it had when you just mentioned that

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Speaker 1: be a UH aerospace right the the act with the

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Speaker 1: Biero Space acquisition that closed in April, Joel, I mean

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Speaker 1: they were pushing, they were saying, no, don't buy anything.

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Speaker 1: We we we want you to split, as you were

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Speaker 1: just saying in a new strategy, right and selling out

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Speaker 1: at a premium might be the elegant way out for

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Speaker 1: Rockwell Collins and their management team. So clearly you could

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Speaker 1: see that, and I think if you look at what's

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Speaker 1: happened with activists in the multi industrial space. Again, there

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Speaker 1: has been a huge push you could look at that

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Speaker 1: they wanted to get simpler. They wanted to get simpler.

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Speaker 1: They want to get multiples that are focused on the

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Speaker 1: different sectors and they want different balance sheets to reflect that.

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Speaker 1: So in the piece of United Technologies, what you have

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Speaker 1: putting the aerospace business aside, is this industrial business with carrier,

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Speaker 1: their security operations, UM and all the h VAC equipment

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Speaker 1: that could be levered let's say it about three and

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Speaker 1: a half times UH to mimic other peers, and with

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Speaker 1: that you can take a twenty billion dollar diven end

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Speaker 1: that goes a long way to paying for Rockwell Collins. Yeah. Well,

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Speaker 1: I mean it sounds good on the fine on the

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Speaker 1: balance sheet, right, I mean, it looks good financially. I'm wondering, Doug,

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Speaker 1: is there a technical or even uh sort of product

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Speaker 1: reason to keep it all together? Because one part of

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Speaker 1: the business helps to inform the other part and it

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Speaker 1: goes back and forth. UM. I think for the equity

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Speaker 1: shareholders to really get comfortable with this, we'd have to

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Speaker 1: get back to what Joel was mentioning about separating UM

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Speaker 1: the businesses. The the EPs secretion of seven percent is

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Speaker 1: is okay, it's uh, it's it's going to be a

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Speaker 1: very expensive acquisition, you know, Rockwell Collins up from October

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Speaker 1: when they announced quiring be Aerospace, and again Joel mentioned

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Speaker 1: probably looking at so premium on top of that. Um so,

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Speaker 1: I mean we'll see how the the the plans, uh

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Speaker 1: you know, play out. But isn't this it's a sickly

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Speaker 1: is it a cyclical business to a certain extent? I mean,

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Speaker 1: I know, you know, aftermarket's always got to replace the seeds,

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Speaker 1: you know, Avionyx and somebody. Well, then the nice thing

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Speaker 1: about aftermarket parts and services is that it's generally countercyclical

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Speaker 1: to what you have with new production. Right, so when

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Speaker 1: you're first here O E M supplier uh to Boeing

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Speaker 1: and Airbus, you're you know, you're at their mercing in

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Speaker 1: terms of raising and lowering production and the cycles of that. Uh.

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Speaker 1: Important offset to that is the aftermarket services business, which

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Speaker 1: again is very high margin where a lot of these

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Speaker 1: parts suppliers you know, uh, butter their bread as they say.

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Speaker 1: All right, well, you know, Joel, last point to you.

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Speaker 1: You know, if if Rockwell Collins, if this deal happens.

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Speaker 1: You think you're gonna see other deals. You're always gonna

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Speaker 1: see other deal I mean, well, because you know this

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Speaker 1: is like the consolidation. This is the special of the month, right,

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Speaker 1: Everyone kind of gets in this fever of oh we

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Speaker 1: gotta consolidate and then split right certainly in the arrows

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Speaker 1: of the aerospace supply chain. I think you're you have

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Speaker 1: to see consolidation happen because, as Doug was pointing out,

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Speaker 1: as Boeing tries to become more vertically integrated, you have

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Speaker 1: to be able to differentiate and push back on your

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Speaker 1: on your client. Yeah. Well, thanks very much for being here,

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Speaker 1: both of you. I really appreciated that. Joe Levington is

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Speaker 1: our senior credit analyst for Bloomberg Intelligence. And Douglas Rothacker

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Speaker 1: he is an aerospace defense analyst for Bloomberg Intelligence. And

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Speaker 1: just by way of a kind of shout out to Boeing,

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Speaker 1: they did a fly by that actually flew around the

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Speaker 1: United States in the shape of a Boeing airliner. Paul Sweeney,

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Speaker 1: he knows everything about the media and the Internet. He

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Speaker 1: is our US Director of Research for Media and Internet

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Speaker 1: Analysts for Bloomberg Intelligence and Paul thanks very much for

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Speaker 1: coming in. I want to begin by just asking you

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Speaker 1: about CBS and something with a T and T because

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Speaker 1: remember when A T and T launched that direct tv

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Speaker 1: now service, Well, they just reached an agreement with CBS

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Speaker 1: because that will give them a lot more programming. Can

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Speaker 1: we look forward to more of these kinds of deals

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Speaker 1: and what's in it for for both of them? Yeah,

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Speaker 1: I think we're gonna see more of these types of deals.

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Speaker 1: And Direct TV Now is a streaming direct to consumer

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Speaker 1: app similar to a Netflix and UM and it's kind

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Speaker 1: of a little bit of a skinny bundle, if you will.

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Speaker 1: But CBS just announced that they're gonna be part of it.

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Speaker 1: They're gonna be on air. It's very good for direct

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Speaker 1: TV now because CBS is the number one ranked broadcasting

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Speaker 1: network in terms of total audience. So plus they have

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Speaker 1: NFL football, So it's certainly a programmer and a source

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Speaker 1: of programming that you want to have on your service. Uh.

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Speaker 1: If you're CBS, UM, you're like a lot of these

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Speaker 1: traditional media companies and you're trying to figure out, um,

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Speaker 1: the business is changing, my viewer is are viewing my

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Speaker 1: content on lots of different uh types of platforms. It's

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Speaker 1: not just with the rabbit ears over the air like

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Speaker 1: it was fifty years ago. It's not even just on

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Speaker 1: cable television. It's now on satellite and now more and

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Speaker 1: more it's now direct to consumer on some of these apps.

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Speaker 1: And so I think, if you're CBS, you'r ABC, your Disney,

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Speaker 1: you're all any of these players. You're trying to figure

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Speaker 1: out do I need to be on all these platforms?

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Speaker 1: If so, what do I need to get paid to

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Speaker 1: make it worth my while? What happens to CBS, Because

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Speaker 1: I know that you've mentioned in the past that CBS

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Speaker 1: almost is like a standalone when it comes to programming content. Yes,

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Speaker 1: CBS is a you know, it's it's the really the

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Speaker 1: only standalone broadcast network, UM that investors can can play.

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Speaker 1: The other broadcast networks are embedded in big media companies

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Speaker 1: like Disney and Fox UM and CBS does own the

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Speaker 1: Showtime premium net network as well. But if you're buying CBS,

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Speaker 1: you're really buying a play on US broadcast television. UM.

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Speaker 1: It's been a great business for them. Television advertising has

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Speaker 1: generally been pretty decent over the last you know, coming

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Speaker 1: out of the last ten years after the financial crisis.

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Speaker 1: And what's really changed for the better for CBS has

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Speaker 1: been a new revenue stream for them and for the

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Speaker 1: broadcast industry, and that's retransmission fees. Uh. The broadcast networks

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Speaker 1: are finally getting paid by the distributors the Comcast of

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Speaker 1: the world to carry their programming. They never got paid

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Speaker 1: for it before. Es Pianos got paid for their programming

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Speaker 1: by the distributors, but the broadcast networks never did up

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Speaker 1: until about seven or eight years ago. And CBS has

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Speaker 1: really been a big beneficiary that that's been a driver

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Speaker 1: of their revenue and profits. That looks to be a

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Speaker 1: pretty good story going forward for CBS. So so why

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Speaker 1: do you believe maybe the stock has not really performed

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Speaker 1: that well this year. I mean the stock of CBS

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Speaker 1: is basically unchanged. I mean that's not to say that

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Speaker 1: hasn't had big moves. I mean this was, you know,

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Speaker 1: a stock trading at fifty uh, let's say back in September. Yes,

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Speaker 1: the media stocks, you know, they've had a great run

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Speaker 1: over the last eight nine years after the financial crisis,

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Speaker 1: but really in the last year or so, it's been

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Speaker 1: kind of flattish and and year to date, you know,

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Speaker 1: the media stocks are pretty flat up a little bit.

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Speaker 1: But the real concerns are chord cutting. That is d

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Speaker 1: number one issue out there for the media sector. If

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Speaker 1: consumers really are cutting the chord in mass, everybody's economic

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Speaker 1: model as is at risk. The affiliate fees that the

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Speaker 1: content companies get paid, that's at risk. The advertising revenue

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Speaker 1: that's built upon a large audience that can be delivered,

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Speaker 1: that's at risk. And so what I think you're seeing

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Speaker 1: media investors do today is try to pick some winners

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Speaker 1: and losers within the group in general. Um, but right now,

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Speaker 1: I think we've had a rough third quarter results coming

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Speaker 1: out of the media sector. Maybe they can turn it

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Speaker 1: around tonight with CBS, who tends to be very bullish

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Speaker 1: about the prospects for the sector. Will see Disney tomorrow

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Speaker 1: night after the clothes, see what it has to say. Uh, investors,

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Speaker 1: they are particularly concerned about ESPN and the fact that

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Speaker 1: chord cutting is having on the great ESPN. Anything on

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Speaker 1: the horizon that you would point to as far as

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Speaker 1: someone may be making an acquisition or a run at CBS.

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Speaker 1: I mean, it's a twenty six billion dollar market cap

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Speaker 1: right now. Right Well, we just had a you know,

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Speaker 1: a big m and a trade in the media sector.

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Speaker 1: Last week when Discovery Communications and out they are buying

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Speaker 1: Scripts Networks Viacom, which is a sister company to CBS,

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Speaker 1: it was rumored to be a buyer for Scripts Networks,

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Speaker 1: which really caught people by surprise. Most people didn't view

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Speaker 1: Viacom as a buyer. But ultimately, when you talk about CBS,

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Speaker 1: you talk about Viacom, you're talking about Subner Redstone and

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Speaker 1: his common ownership of both companies. And the question remains,

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Speaker 1: does do these two companies should they be uh, you know,

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Speaker 1: maybe in a better position if they were to merge,

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Speaker 1: and remember they used to be together than they split

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Speaker 1: apart about ten years ago. The question is now in

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Speaker 1: a consolidating media world, in a world that's being disrupted

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Speaker 1: by the Internet like Netflix, Um, do these companies need

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Speaker 1: to be bigger, stronger, have more heft in the marketplace.

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Speaker 1: If so, then the easiest transaction for both of these

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Speaker 1: companies via common CBS to simply kind of merge back together.

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Speaker 1: All right, now, you mentioned Disney, so let's move on

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Speaker 1: to there because I want to get your thoughts on

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Speaker 1: ESPN that has been both an achilles heel and a

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Speaker 1: gold mine for Disney at different times. Right it it

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Speaker 1: continues to be by far the largest profit generator for

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Speaker 1: the Walt Disney Company, and really over the last twenty

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Speaker 1: years it has been the most consistent profit generator for

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Speaker 1: the company. Um, those days are over. UM. So what

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Speaker 1: you have at Disney now is cord cutting h impacting

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Speaker 1: the growth of their revenue, so putting pressure on their

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Speaker 1: revenue growth. That's a problem, but it's compounded by the

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Speaker 1: fact that their costs are primarily fixed. I mean, think

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Speaker 1: about the cost for ESPN. You think about these huge

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Speaker 1: sports contracts with the NFL, with Major League Baseball, with

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Speaker 1: all the college sports U leagues around the country. Those

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Speaker 1: are big, big ticket items and they are a fixed

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Speaker 1: cost over many years. And so if you're at at ESPN,

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Speaker 1: you're seeing your revenue pressured and your costs you know,

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Speaker 1: continuing to go up. So that's a real profit issue

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Speaker 1: for this company. It's been you know, really developing over

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Speaker 1: the last two years, and quite frankly, investors are are

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Speaker 1: very concerned about that. It's definitely impacted Disney, who you know,

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Speaker 1: despite you know, the concerns at ESPN, the other two

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Speaker 1: main businesses of the Walt Disney company. It's theme parks

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Speaker 1: um and um uh it's movie business are both doing great.

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Speaker 1: But again investors are really focusing on on ESPN. All right,

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Speaker 1: you want to do Fox, uh, twenty one century Fox

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Speaker 1: because they're waiting on a deal in the UK for

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Speaker 1: a Sky Yeah. The next big trade for the twenty

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Speaker 1: one century Fox and Rupert Murdoch. You know, one of

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Speaker 1: the great media moguls is to get even bigger, and

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Speaker 1: that is to own complete control of be Sky b

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Speaker 1: which is this big satellite provider in the UK and

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Speaker 1: in Italy and Germany. UM and that is being that

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Speaker 1: is under review. It was he was kind of thwarted

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Speaker 1: in this transaction about seven years ago. He's now come

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Speaker 1: back and the expectation is that transaction will be approved.

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Speaker 1: That would be a net positive for twenty one century

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Speaker 1: Fox because a lot of those markets in Europe there's

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Speaker 1: still more growth to go there in terms of pay

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Speaker 1: TV subscribers. It is not saturated like the US market,

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Speaker 1: and so a lot of investors believe that is a

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Speaker 1: better organic growth market than the US. Right now. Hey, Paul,

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Speaker 1: you know, as as something that's been doing this more

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Speaker 1: really more years than I know, you care to care

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Speaker 1: to admit, is can you give some advice to people

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Speaker 1: that are trying to sort of value these businesses When

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Speaker 1: you've got companies like Amazon getting into con tent and

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Speaker 1: you know, music from from Apple and so on, it's

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Speaker 1: hard to kind of get your fingers around this, it

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Speaker 1: really is. I mean, we have, you know, the traditional

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Speaker 1: metrics for media companies, whether that's price, price to earnings,

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Speaker 1: or enterprise value. But those are well established and we

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Speaker 1: know how to value you know, the Disneys of the world,

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Speaker 1: in the Foxes the world, in the Comcast of the world,

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Speaker 1: and we have historical benchmarks for when these stocks are

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Speaker 1: expensive or when they're cheap given their growth outlook. But

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Speaker 1: when you bring in some of these new disruptive stories

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Speaker 1: like Netflix, like Amazon that are coming into the movie business,

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Speaker 1: and you take a look at even at the internet companies,

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Speaker 1: the Internet companies are more media companies than they are

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Speaker 1: technology companies. They are driven by advertising revenue, and they

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Speaker 1: trade at different valuation multiples multiples revenue, and it's really

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Speaker 1: hard to compare. Thank you very much, Paul Sweeney. Here's

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Speaker 1: our expert US Director Research, senior Media Internet analyst for

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Speaker 1: Bloomberg Intelligence, Berkshire Hathaway. The shares are up nearly nine

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Speaker 1: percent so far this year, but what will move them higher?

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Speaker 1: Here to tell us more is Tara La Chapelle. Our

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Speaker 1: Deal's column is for Bloomberg Gadfly and you can follow

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Speaker 1: her on Twitter at Tara l. A c. H. Great

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Speaker 1: to have you with us, Thanks for coming into the studio. UM.

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Speaker 1: The report from Berkshire Hathaway last Friday not greeted by

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Speaker 1: the market with much enthusiasm. But this is a company

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Speaker 1: that has what a hundred billion dollars in cash right

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Speaker 1: which is almost exactly why it's not being greeted with enthusiasm, ironically,

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Speaker 1: because the results were a little lackluster. We saw another

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Speaker 1: underwriting loss in the insurance division, dragged down overall results.

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Speaker 1: So you know, the whole point of Berkshire's conglomerate is

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Speaker 1: that all these other businesses offset the ones that are having,

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Speaker 1: you know, going through difficult times, and this time it

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Speaker 1: did drag down earnings a little bit um nothing to

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Speaker 1: be concerned about, of course, but I think what it

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Speaker 1: comes down to is they have almost a hundred billion

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Speaker 1: in cash now and they're not really spending it, and

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Speaker 1: so what are the high return opportunities out there, what's

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Speaker 1: the reason to own the stock and what's Buffett thinking next?

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Speaker 1: So what do you believe is necessary for Berkshire Hathway,

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Speaker 1: Because you know they Burlington Northern Santa fe uh acquisition.

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Speaker 1: They just got eight hundred million in cash in the

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Speaker 1: from the railroad. Um. Also I understand you know that

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Speaker 1: they want to be even bigger in the energy business.

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Speaker 1: They're trying to acquire the Texas utility Encore, right, So

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Speaker 1: that deal makes a lot of sense for Burlington Northern

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Speaker 1: and that business has been great for them to total

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Speaker 1: home run of an acquisition for Berkshire. But with all

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Speaker 1: this cash, a deal like Encore, which I believe is

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Speaker 1: around nine billion dollars, really isn't enough to move the

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Speaker 1: needle that much anymore. It's it's great for that division,

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Speaker 1: but overall, when you have a hundred billion dollars of

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Speaker 1: cash and it's just sitting there with these low returns,

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Speaker 1: it makes sense for Berkshire to start thinking about bigger acquisitions.

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Speaker 1: I mean, we could see the fifty billion to even

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Speaker 1: a hundred billion dollar range. Realistically, it's not crazy to

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Speaker 1: think that they could do something like that. The problem

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Speaker 1: is finding a target that's worth that price and would

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Speaker 1: fit in with the conglomerate. Well, you mentioned in your

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Speaker 1: story that you know, the equity investments that warm Buffett

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Speaker 1: has made, whether it's craft Hinds, whether it's airlines, Apple

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Speaker 1: and so on, that's all been they've done pretty well.

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Speaker 1: Oh those have been great. I mean Apple, It's so funny,

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Speaker 1: right because Buffett for so long was opposed to investing

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Speaker 1: in things that really didn't um weren't his expertise industrial

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Speaker 1: companies or insurance businesses, right, So to to have Apple

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Speaker 1: be sort of this incredible investment for them, and in

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Speaker 1: kudos to their UM investing lieutenants there. But it's just

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Speaker 1: been really fun to watch. But even though those are

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Speaker 1: doing really well again, it's like they need to think

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Speaker 1: about a big acquisition to take in house, not just

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Speaker 1: these equity investments that are doing well. But in doing

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Speaker 1: your research, you find that investors in Berkshire Hathaway have

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Speaker 1: a different criteria when it comes to what they do

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Speaker 1: with their money. They want to be there because warm

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Speaker 1: buffets there, right, And I think that's where the issue

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Speaker 1: is now because if the and you own the stock

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Speaker 1: is because Buffett can take that money that all these

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Speaker 1: businesses are throwing off and invest it far better than

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Speaker 1: your return would be if he had paid, you know,

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Speaker 1: a dividend or was buying backstock at these levels. Then

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Speaker 1: I mean, we're looking at this and we're waiting for

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Speaker 1: him to do that, and there really hasn't been a

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Speaker 1: whole lot of deal activity in the past year. So

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Speaker 1: I mean, he did do the Precision Cast Parts deal.

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Speaker 1: Now that's clothes. That's been doing very well for the

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Speaker 1: manufacturing division. But it's like, Okay, well, what's next now?

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Speaker 1: Because the reason the shareholder's own the stock is because

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Speaker 1: they want to see him invest the money. And if

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Speaker 1: he's not going to find a great target that's really

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Speaker 1: going to move the needle, then it begs the question,

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Speaker 1: you know, do does Berkshire start to pay a dividend? Right?

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Speaker 1: But but I guess my point is do investor's care.

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Speaker 1: I mean, I understand from a theoretical point of view,

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Speaker 1: but when you go to the annual meeting in Omaha,

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Speaker 1: you don't find people saying, oh, I wish they do this,

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Speaker 1: I wish they did that. No one's pounting the table saying,

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Speaker 1: you know they I mean, everyone trust buffet. I think

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Speaker 1: the problem is Buffett is going to be eighty seven

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Speaker 1: this month, and people are starting to think about what

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Speaker 1: does Berkshire look like after Buffett? And I think he

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Speaker 1: needs to sort of open the door for his successor

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Speaker 1: to have that wiggle room, you know, have a good deal, opportunities,

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Speaker 1: have the ability to pay a diven if if that's

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Speaker 1: going to be the reality and this sort of slow

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Speaker 1: growth world, um, I think Buffett sort of needs to

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Speaker 1: start giving commentary on that. And I think that's what

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Speaker 1: people are looking for. It's not that they're thinking he's

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Speaker 1: you know, not living up to what he's promised them

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Speaker 1: or anything, but it's just that they're waiting to see, well,

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Speaker 1: what's Berkshire look like now for the next ten, fifteen,

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Speaker 1: twenty years. Maybe he's just waiting for the right pitch, right,

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Speaker 1: I mean, because I note that just I guess it

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Speaker 1: was over the last month when a Bank of America

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Speaker 1: Merrill Lynch announced, you know that they were paying Buffett

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Speaker 1: because of his participation. And you know, he strikes these

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Speaker 1: sort of idiosyncratic deals with preferred stock that you know,

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Speaker 1: they really pay off, right, I mean, the Craft Hyans deal,

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Speaker 1: the same thing. I mean, that's been great for Berkshire.

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Speaker 1: I think we're waiting to see kraft Hians do something

428
00:21:54,960 --> 00:21:57,120
Speaker 1: else and that Buffett will sort of bankroll the deal

429
00:21:57,160 --> 00:22:01,919
Speaker 1: and get another sort of high return preferred doc situation. Again. Um,

430
00:22:01,960 --> 00:22:03,920
Speaker 1: but I think it's you need is a really big

431
00:22:03,960 --> 00:22:06,680
Speaker 1: sell off, or you know, you need somebody get into

432
00:22:06,720 --> 00:22:09,119
Speaker 1: a lot of trouble. But also I think it's it's

433
00:22:09,119 --> 00:22:11,119
Speaker 1: a little more nuance on that now too, because you

434
00:22:11,200 --> 00:22:15,520
Speaker 1: have all these big companies that are thinking about acquisitions themselves.

435
00:22:15,600 --> 00:22:17,840
Speaker 1: So it's a much more competitive m and A environment

436
00:22:17,920 --> 00:22:20,520
Speaker 1: right now. Buffett is used to someone calling him up

437
00:22:20,520 --> 00:22:21,879
Speaker 1: and saying, you know, we want to sell to you,

438
00:22:21,960 --> 00:22:25,359
Speaker 1: here's our price. I don't think that that's as realistic nowadays.

439
00:22:25,400 --> 00:22:27,240
Speaker 1: I think there's so much em and a happening, and

440
00:22:27,240 --> 00:22:30,560
Speaker 1: people are paying incredible prices for some of these deals,

441
00:22:30,640 --> 00:22:33,479
Speaker 1: and I don't know that Buffett is willing to you know,

442
00:22:33,680 --> 00:22:36,480
Speaker 1: overpay of course, so it becomes a little more tricky.

443
00:22:36,520 --> 00:22:38,840
Speaker 1: And then also he's looking for companies with really solid

444
00:22:38,880 --> 00:22:40,800
Speaker 1: management teams that want to be around for a really

445
00:22:40,840 --> 00:22:43,880
Speaker 1: long time, and with all this activist investors out there

446
00:22:44,280 --> 00:22:46,719
Speaker 1: and a lot of shake ups up top, and you know,

447
00:22:47,119 --> 00:22:49,440
Speaker 1: I think it's just it's becoming a lot harder to

448
00:22:49,480 --> 00:22:52,200
Speaker 1: find companies that fit his criteria. Thank you very much

449
00:22:52,240 --> 00:22:54,280
Speaker 1: for coming in and spending time with us. Tara la

450
00:22:54,400 --> 00:22:58,359
Speaker 1: Chapelle is our deals columnist for Bloomberg Gadfly, speaking about

451
00:22:58,520 --> 00:23:12,919
Speaker 1: a Berkshire Hathaway and that a hundred billion dollars of cash. Alright,

452
00:23:12,960 --> 00:23:15,800
Speaker 1: no vacation when it comes to negotiations of what is

453
00:23:15,840 --> 00:23:18,320
Speaker 1: the future of Sprint. And here to tell us more

454
00:23:18,400 --> 00:23:22,199
Speaker 1: is Alex Sherman, our deal's reporter for Bloomberg News. Alex,

455
00:23:22,240 --> 00:23:24,520
Speaker 1: always a pleasure. Maybe you could just give us the

456
00:23:24,600 --> 00:23:26,520
Speaker 1: lay of the land, because there are a lot of

457
00:23:26,560 --> 00:23:30,919
Speaker 1: moving parts here. You've got Sprint, T Mobile, Comcast, Charter

458
00:23:31,200 --> 00:23:33,240
Speaker 1: and go ahead. I'm sure there must be something else

459
00:23:33,240 --> 00:23:37,480
Speaker 1: I'm forgetting. I'm sure there is him. You basically got

460
00:23:37,480 --> 00:23:39,399
Speaker 1: the gist of it there, but already that's quite a

461
00:23:39,440 --> 00:23:43,200
Speaker 1: bit so. Last week we did a bunch of reporting

462
00:23:43,440 --> 00:23:48,560
Speaker 1: suggesting that Soft Bank and it's billionaire owners, Mathayoshi's son

463
00:23:49,600 --> 00:23:54,359
Speaker 1: was considering buying Charter, which would be a huge deal,

464
00:23:54,440 --> 00:23:57,520
Speaker 1: one of the largest deals ever probably let's say about

465
00:23:57,520 --> 00:23:59,679
Speaker 1: a hundred and fifty billion dollars. After the attack on

466
00:23:59,760 --> 00:24:04,000
Speaker 1: a reasonable premium. Uh they Haffik has not made a

467
00:24:04,040 --> 00:24:07,919
Speaker 1: formal bid for Charter, but what we reported was that

468
00:24:07,960 --> 00:24:11,440
Speaker 1: it was at least considering it, and this would unite Sprint,

469
00:24:11,440 --> 00:24:14,200
Speaker 1: the fourth largest US wireless player, with Charter, the second

470
00:24:14,280 --> 00:24:18,240
Speaker 1: largest US cable provider, and give the United States its

471
00:24:18,320 --> 00:24:23,240
Speaker 1: first true wireless flash cable combined company if it were

472
00:24:23,320 --> 00:24:26,440
Speaker 1: to happen. What my colleagues Scott Maritz and I reported

473
00:24:26,560 --> 00:24:30,639
Speaker 1: last night was that in addition to this, Sprint has

474
00:24:30,720 --> 00:24:34,680
Speaker 1: also resumed talks about a potential merger with T Mobile,

475
00:24:35,119 --> 00:24:39,560
Speaker 1: something that has been sort of batted around by both

476
00:24:39,560 --> 00:24:43,000
Speaker 1: sides for years. You should think of this as Sprint

477
00:24:43,520 --> 00:24:46,119
Speaker 1: covering its basis before it spends a hundred and fifty

478
00:24:46,119 --> 00:24:49,560
Speaker 1: billion dollars on Charter. It probably wants to see if

479
00:24:49,560 --> 00:24:52,080
Speaker 1: a deal with T Mobile can be done, because there

480
00:24:52,119 --> 00:24:56,640
Speaker 1: are so many synergies in this deal that they would

481
00:24:56,680 --> 00:25:00,280
Speaker 1: be doing themselves a disservice if they didn't look very

482
00:25:00,320 --> 00:25:02,040
Speaker 1: hard at it. So I think that's where we are

483
00:25:02,119 --> 00:25:05,560
Speaker 1: right now, where Sprint is looking at both options. Well,

484
00:25:05,720 --> 00:25:08,240
Speaker 1: what about just let's talk about Sprint for just a second,

485
00:25:08,280 --> 00:25:10,480
Speaker 1: because I understand in the last quarter they lost thirty

486
00:25:10,520 --> 00:25:16,040
Speaker 1: nine customers. Is there something inherently broken at Sprint? There

487
00:25:16,119 --> 00:25:18,920
Speaker 1: is something inherently broken at Sprint as Sprint stands today.

488
00:25:19,160 --> 00:25:22,280
Speaker 1: I mean, this has been a long time money losing operation.

489
00:25:22,560 --> 00:25:26,359
Speaker 1: The the bet on Sprint is that they are well

490
00:25:26,400 --> 00:25:31,639
Speaker 1: positioned for tomorrow's wireless world. So today we all have

491
00:25:32,080 --> 00:25:35,600
Speaker 1: what's known as an LTE standard or other people call

492
00:25:35,680 --> 00:25:39,160
Speaker 1: it four G. In a five G world, this would

493
00:25:39,200 --> 00:25:42,840
Speaker 1: be you know, five G standing for generation. Uh. Many

494
00:25:42,880 --> 00:25:47,359
Speaker 1: people feel like Sprint has the correct wireless spectrum or

495
00:25:47,400 --> 00:25:51,879
Speaker 1: wireless air waves that if combined with so called small

496
00:25:51,920 --> 00:25:55,160
Speaker 1: cell technology, which is owned in large part by cable

497
00:25:55,160 --> 00:25:58,080
Speaker 1: companies but also Sprint on some uh, that Sprint can

498
00:25:58,119 --> 00:26:03,639
Speaker 1: actually be a much strong, younger competitor. However, the finances

499
00:26:03,680 --> 00:26:06,720
Speaker 1: are what they are today, and that's why Masayoshi's son,

500
00:26:07,119 --> 00:26:10,200
Speaker 1: the founder of soft Bank, who owns plus of Sprint,

501
00:26:10,520 --> 00:26:13,160
Speaker 1: has been so aggressive in trying to do a deal

502
00:26:13,320 --> 00:26:17,000
Speaker 1: because Sprint as it stands today is not well positioned

503
00:26:17,040 --> 00:26:19,480
Speaker 1: at all. So it needs to be a much more

504
00:26:19,600 --> 00:26:22,480
Speaker 1: robust company. You combine that with T Mobile, you combine

505
00:26:22,480 --> 00:26:24,640
Speaker 1: it with Charter, you combine it with some other company,

506
00:26:24,920 --> 00:26:27,240
Speaker 1: then Sprint can sort of get from where it is

507
00:26:27,280 --> 00:26:31,879
Speaker 1: today to the ties when five G technology will kick in,

508
00:26:31,960 --> 00:26:36,120
Speaker 1: and theoretically Sprint would be a much stronger company then

509
00:26:36,880 --> 00:26:39,560
Speaker 1: because of the airwaves it owns I like this idea

510
00:26:39,600 --> 00:26:41,760
Speaker 1: that you know, it's all in the future, right, it's

511
00:26:41,760 --> 00:26:45,840
Speaker 1: all in the creation of this rhetorical Uh sort of

512
00:26:45,880 --> 00:26:49,520
Speaker 1: makes sense a program, but you know, it just makes

513
00:26:49,520 --> 00:26:51,879
Speaker 1: me think of John Ledger and T Mobile because when

514
00:26:51,960 --> 00:26:54,600
Speaker 1: he came in, people were leaving T Mobile for dead,

515
00:26:54,640 --> 00:26:58,120
Speaker 1: but they actually took some initiatives that have not only

516
00:26:58,200 --> 00:27:01,560
Speaker 1: changed the industry but have forced the competition to follow them.

517
00:27:01,560 --> 00:27:04,200
Speaker 1: Why doesn't Sprint take a leaf out of their book? Well,

518
00:27:04,240 --> 00:27:06,399
Speaker 1: that's a great question, and I suppose they merged with

519
00:27:06,480 --> 00:27:08,760
Speaker 1: T Mobile would do that because in the end, here

520
00:27:08,840 --> 00:27:11,639
Speaker 1: Mateyoshi Son, who has a three hundred year plan has

521
00:27:11,960 --> 00:27:14,040
Speaker 1: uh and that's not an exaggeration. He literally has a

522
00:27:14,040 --> 00:27:16,960
Speaker 1: three hundred year plan for his company. UM has two

523
00:27:16,960 --> 00:27:21,119
Speaker 1: options here, UH, If you buy charter Mateyoshi Son would

524
00:27:21,160 --> 00:27:24,880
Speaker 1: stay in control of this new company UH, and therefore

525
00:27:24,920 --> 00:27:27,440
Speaker 1: would be able to dictate its terms. If they merge

526
00:27:27,440 --> 00:27:30,000
Speaker 1: with T Mobile, so I think would actually have to

527
00:27:30,040 --> 00:27:33,360
Speaker 1: sell Sprint and it would be run by T Mobile

528
00:27:33,880 --> 00:27:36,399
Speaker 1: and John Ledger. So I think that the the the

529
00:27:36,520 --> 00:27:39,399
Speaker 1: idea there would be Sprint would say, look, we we

530
00:27:39,520 --> 00:27:42,959
Speaker 1: understand here that this combined company is stronger, and frankly,

531
00:27:43,080 --> 00:27:45,239
Speaker 1: T Mobile, you've done a better job than us over

532
00:27:45,280 --> 00:27:48,040
Speaker 1: the past few years of running this company. It's certainly

533
00:27:48,080 --> 00:27:51,520
Speaker 1: possible that Sprint could have done exactly what T Mobile

534
00:27:51,560 --> 00:27:54,000
Speaker 1: did under price, be very aggressive, have a much better

535
00:27:54,040 --> 00:27:57,440
Speaker 1: marketing plan, sort of failed on all of these. Uh

536
00:27:57,680 --> 00:28:00,159
Speaker 1: if if if you follow John Ledger on Twitter, he's

537
00:28:00,200 --> 00:28:04,080
Speaker 1: constantly mocking Sprint and it's sort of second rate promotions

538
00:28:04,160 --> 00:28:08,560
Speaker 1: and also it's second rate network. Uh So, the idea

539
00:28:08,600 --> 00:28:10,680
Speaker 1: here then would be this combined company would in fact

540
00:28:10,720 --> 00:28:14,480
Speaker 1: be run by Ledger and Sun would give up on Sprint.

541
00:28:14,480 --> 00:28:16,320
Speaker 1: He would still own some of the company, but he

542
00:28:16,359 --> 00:28:19,520
Speaker 1: would no longer be the controlling shareholders. So very much

543
00:28:19,600 --> 00:28:22,359
Speaker 1: two different outlooks there. Some people tell me the idea

544
00:28:22,400 --> 00:28:25,400
Speaker 1: would be after Sprint bought Charter, if that's the plan

545
00:28:25,520 --> 00:28:27,879
Speaker 1: that happens, it would then go after T Mobile, and

546
00:28:27,920 --> 00:28:30,520
Speaker 1: in that case stop think actually would be able to

547
00:28:30,520 --> 00:28:33,240
Speaker 1: maintain control of the company because it would be so

548
00:28:33,359 --> 00:28:36,440
Speaker 1: much bigger than T Mobile. Of course it is still

549
00:28:36,440 --> 00:28:40,240
Speaker 1: to be determined. If T Mobile's German owners, Deutsche Telecom,

550
00:28:40,240 --> 00:28:43,280
Speaker 1: would even be interested in selling the company, we know

551
00:28:43,440 --> 00:28:46,160
Speaker 1: for the time being they are not, which is why

552
00:28:46,200 --> 00:28:50,440
Speaker 1: the Sprint Temo deal may actually happen with the Germans

553
00:28:50,720 --> 00:28:54,200
Speaker 1: buying and consolidating the new Sprint Temo company. Of course,

554
00:28:54,240 --> 00:28:59,200
Speaker 1: that wouldn't mean anti trust regulations or review. Yeah, why

555
00:28:59,200 --> 00:29:04,160
Speaker 1: doesn't Mastios he sagn just hired John Leger. Well, that's

556
00:29:04,160 --> 00:29:07,000
Speaker 1: a good question. Um. I think part of the reason

557
00:29:07,160 --> 00:29:11,640
Speaker 1: is that he feels like Stephen John Leger at this

558
00:29:11,720 --> 00:29:14,480
Speaker 1: Maybe it's too little, too late. Look, he did hire

559
00:29:15,560 --> 00:29:19,560
Speaker 1: a person named Maurice Claure excuse me, Marcello Claure. Um,

560
00:29:19,880 --> 00:29:21,760
Speaker 1: I would say a few years ago at this point,

561
00:29:22,240 --> 00:29:25,120
Speaker 1: to try to turn around the net worth of previous

562
00:29:25,120 --> 00:29:28,040
Speaker 1: CEO's name was Dan Hessey. Uh So, the idea at

563
00:29:28,040 --> 00:29:31,520
Speaker 1: the time was to bring in someone that Massio she

564
00:29:31,600 --> 00:29:34,560
Speaker 1: soun was familiar with to to turn around the company.

565
00:29:34,560 --> 00:29:36,160
Speaker 1: And look, if you if you go on a pure

566
00:29:36,160 --> 00:29:40,120
Speaker 1: stock performance, even though Sprint continues to struggle, actually you

567
00:29:40,160 --> 00:29:43,160
Speaker 1: could make a very strong case that Sprint has turned

568
00:29:43,160 --> 00:29:45,000
Speaker 1: it around. I mean their shares were training around two

569
00:29:45,000 --> 00:29:47,800
Speaker 1: dollars a share at one point now eight dollars and

570
00:29:47,840 --> 00:29:49,960
Speaker 1: seventy three cents now a lot of a lot of

571
00:29:50,000 --> 00:29:52,240
Speaker 1: that m and a premium, but still tapped off the

572
00:29:52,280 --> 00:29:54,360
Speaker 1: Clare and the Sprint team for getting the share price up.

573
00:29:54,400 --> 00:29:56,920
Speaker 1: We gotta leave it there. Alex Sherman, our tech media

574
00:29:56,920 --> 00:30:02,840
Speaker 1: and telecom m and a reporter from Bloomberg News. Thanks

575
00:30:02,840 --> 00:30:05,480
Speaker 1: for listening to the Bloomberg P and L podcast. You

576
00:30:05,480 --> 00:30:09,280
Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

577
00:30:09,400 --> 00:30:12,880
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

578
00:30:12,920 --> 00:30:16,920
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

579
00:30:17,040 --> 00:30:19,640
Speaker 1: It's one before the podcast. You can always catch us

580
00:30:19,680 --> 00:30:21,240
Speaker 1: worldwide on Bloomberg Radio