Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well
Speaker 1: the shares of Rockwell Collins. They are up about four percent.
Speaker 1: This follows a report from Bloomberg on Friday that United
Speaker 1: Technologies may be considering an acquisition of Rockwell Collins. And
Speaker 1: here to tell us more about this potential deal is
Speaker 1: Bloomberg Intelligence. Is Joel Levington. He is an expert in
Speaker 1: the world of corporate debt. And Douglas Rothacker, he is
Speaker 1: our aerospace and autos analyst for Bloomberg Intelligence. Gentlemen, thank
Speaker 1: you very much for being here in the studio in
Speaker 1: our eleven three oh headquarters. You know, Doug, I want
Speaker 1: to begin with you because can you tell people why
Speaker 1: forget let's put the price aside. That's gonna be Joel's problem.
Speaker 1: He's gonna figure out how to pay for it. Uh,
Speaker 1: why would um U t X why would United Technologies
Speaker 1: want to buy Rockwell Collins. Sure, yeah, morning, thanks for
Speaker 1: having us. The strategic rational behind creating a forty billion
Speaker 1: dollar revenue airspace portfolio is largely to defend against the
Speaker 1: concerted efforts of Boeing, I would say for aftermarket services
Speaker 1: and revenue that they're trying to get into pretty aggressively
Speaker 1: and twofold to largely gain pricing power and scale. Right,
Speaker 1: So as Boeing and Airbus work through years of development
Speaker 1: and aircraft wore largely focused on profitability, right now, you know,
Speaker 1: focus on improving margins and a lot of that is
Speaker 1: going to trickle down to supply train pricing pressure. So
Speaker 1: as you see United Technologies, you know in this part
Speaker 1: ential deal deal, clearly it's an effort to you know,
Speaker 1: fight against that troll comment on this because it's one
Speaker 1: thing to have a great theory about, you know, uh,
Speaker 1: air aircraft control systems, you've got pilot systems, avionics, all
Speaker 1: this thing that's Rockwell Collins. Uh. Is there a price
Speaker 1: at which this deal just looks bad? Because I mean
Speaker 1: we've been down this road before, right, I mean we
Speaker 1: we've seen in that you know, Rockwell Collins has been
Speaker 1: kind of talked about as an acquisition target previously. That's true,
Speaker 1: and given where the market is with high evaluations, uh,
Speaker 1: what I can tell you is that the math works
Speaker 1: with about a premium, which is pretty traditional for an
Speaker 1: industrial asset. So you can make the math work relative
Speaker 1: to uh EPs growth, which I think Doug get pittened
Speaker 1: out at about seven percent. And then from a balance
Speaker 1: sheet perspective, you could lever the company up to a
Speaker 1: little over three times on a net debt basis, which
Speaker 1: is actually better than when knew we'll try to buy
Speaker 1: you U t X a little over a year ago
Speaker 1: UM and perhaps retained the single A rating that the
Speaker 1: company wants to maintain. Well, having said that, I mean,
Speaker 1: would it be any problem for them to raise the money?
Speaker 1: I don't think. So we got a thing today, one
Speaker 1: and a half billion dollar bond offering from Tesla, So
Speaker 1: I guess you know everybody can borrow money, right, and
Speaker 1: that's coming with like a five percent coupon handle on it.
Speaker 1: So it's so maybe you and I should and Duck
Speaker 1: can open up a business together and and and finance
Speaker 1: it with some debt. But I do think kind of
Speaker 1: the interesting or maybe the more interesting way of doing
Speaker 1: things would be if this would lead to a separate
Speaker 1: split of United Technologies, which has also been discussed, where
Speaker 1: you would have an aerospace business and an industrial business.
Speaker 1: To me, that kind of makes the most logic and
Speaker 1: sense given what their peers have done, whether you look
Speaker 1: at a GE or dana Her and Emerson, where it
Speaker 1: seems to be all the rage these days to be
Speaker 1: a company that's single focused as opposed to a diversified
Speaker 1: industrial with some pluses and binuses. Just come in a
Speaker 1: little bit more about margins and pricing and if you
Speaker 1: can maybe use an example for Rockwall cons because this
Speaker 1: idea of an aftermarket uh, we all know that. You know,
Speaker 1: when you buy an automobile, for example, the true cost
Speaker 1: is not what you pay. The true cost is what
Speaker 1: you pay for the life of the automobile, right right,
Speaker 1: So if you look at Rockwell Collins and their recent
Speaker 1: acquis just in b airspace there, you know, typical operating
Speaker 1: margins are north of which is well above what the
Speaker 1: United Technologies generates on their airspace portfolio. And a lot
Speaker 1: of that comes from a very large business of aftermarket
Speaker 1: products and services. Right. So when you go and buy
Speaker 1: used aircraft, you completely tear out the insides, the guts
Speaker 1: of it, refit it with UH new seats, new interiors,
Speaker 1: and boom, your customers think they're sitting in a brand
Speaker 1: new airplane. Right. So again, oh that's high margin and
Speaker 1: would uh you know, I ran the numbers UH over
Speaker 1: the weekend. If you combine on a proformer basis Rockwell
Speaker 1: Collins UH to United Technologies aerospace portfolio, they look at,
Speaker 1: you know, a marchin boost of hundred two hundred basis
Speaker 1: points and that's just on the you know, excluding any
Speaker 1: synergies or anything like that that that are potentially there.
Speaker 1: But I want to bring in starboard value for just
Speaker 1: a second here, because they were a focus last year
Speaker 1: I believe when it had when you just mentioned that
Speaker 1: be a UH aerospace right the the act with the
Speaker 1: Biero Space acquisition that closed in April, Joel, I mean
Speaker 1: they were pushing, they were saying, no, don't buy anything.
Speaker 1: We we we want you to split, as you were
Speaker 1: just saying in a new strategy, right and selling out
Speaker 1: at a premium might be the elegant way out for
Speaker 1: Rockwell Collins and their management team. So clearly you could
Speaker 1: see that, and I think if you look at what's
Speaker 1: happened with activists in the multi industrial space. Again, there
Speaker 1: has been a huge push you could look at that
Speaker 1: they wanted to get simpler. They wanted to get simpler.
Speaker 1: They want to get multiples that are focused on the
Speaker 1: different sectors and they want different balance sheets to reflect that.
Speaker 1: So in the piece of United Technologies, what you have
Speaker 1: putting the aerospace business aside, is this industrial business with carrier,
Speaker 1: their security operations, UM and all the h VAC equipment
Speaker 1: that could be levered let's say it about three and
Speaker 1: a half times UH to mimic other peers, and with
Speaker 1: that you can take a twenty billion dollar diven end
Speaker 1: that goes a long way to paying for Rockwell Collins. Yeah. Well,
Speaker 1: I mean it sounds good on the fine on the
Speaker 1: balance sheet, right, I mean, it looks good financially. I'm wondering, Doug,
Speaker 1: is there a technical or even uh sort of product
Speaker 1: reason to keep it all together? Because one part of
Speaker 1: the business helps to inform the other part and it
Speaker 1: goes back and forth. UM. I think for the equity
Speaker 1: shareholders to really get comfortable with this, we'd have to
Speaker 1: get back to what Joel was mentioning about separating UM
Speaker 1: the businesses. The the EPs secretion of seven percent is
Speaker 1: is okay, it's uh, it's it's going to be a
Speaker 1: very expensive acquisition, you know, Rockwell Collins up from October
Speaker 1: when they announced quiring be Aerospace, and again Joel mentioned
Speaker 1: probably looking at so premium on top of that. Um so,
Speaker 1: I mean we'll see how the the the plans, uh
Speaker 1: you know, play out. But isn't this it's a sickly
Speaker 1: is it a cyclical business to a certain extent? I mean,
Speaker 1: I know, you know, aftermarket's always got to replace the seeds,
Speaker 1: you know, Avionyx and somebody. Well, then the nice thing
Speaker 1: about aftermarket parts and services is that it's generally countercyclical
Speaker 1: to what you have with new production. Right, so when
Speaker 1: you're first here O E M supplier uh to Boeing
Speaker 1: and Airbus, you're you know, you're at their mercing in
Speaker 1: terms of raising and lowering production and the cycles of that. Uh.
Speaker 1: Important offset to that is the aftermarket services business, which
Speaker 1: again is very high margin where a lot of these
Speaker 1: parts suppliers you know, uh, butter their bread as they say.
Speaker 1: All right, well, you know, Joel, last point to you.
Speaker 1: You know, if if Rockwell Collins, if this deal happens.
Speaker 1: You think you're gonna see other deals. You're always gonna
Speaker 1: see other deal I mean, well, because you know this
Speaker 1: is like the consolidation. This is the special of the month, right,
Speaker 1: Everyone kind of gets in this fever of oh we
Speaker 1: gotta consolidate and then split right certainly in the arrows
Speaker 1: of the aerospace supply chain. I think you're you have
Speaker 1: to see consolidation happen because, as Doug was pointing out,
Speaker 1: as Boeing tries to become more vertically integrated, you have
Speaker 1: to be able to differentiate and push back on your
Speaker 1: on your client. Yeah. Well, thanks very much for being here,
Speaker 1: both of you. I really appreciated that. Joe Levington is
Speaker 1: our senior credit analyst for Bloomberg Intelligence. And Douglas Rothacker
Speaker 1: he is an aerospace defense analyst for Bloomberg Intelligence. And
Speaker 1: just by way of a kind of shout out to Boeing,
Speaker 1: they did a fly by that actually flew around the
Speaker 1: United States in the shape of a Boeing airliner. Paul Sweeney,
Speaker 1: he knows everything about the media and the Internet. He
Speaker 1: is our US Director of Research for Media and Internet
Speaker 1: Analysts for Bloomberg Intelligence and Paul thanks very much for
Speaker 1: coming in. I want to begin by just asking you
Speaker 1: about CBS and something with a T and T because
Speaker 1: remember when A T and T launched that direct tv
Speaker 1: now service, Well, they just reached an agreement with CBS
Speaker 1: because that will give them a lot more programming. Can
Speaker 1: we look forward to more of these kinds of deals
Speaker 1: and what's in it for for both of them? Yeah,
Speaker 1: I think we're gonna see more of these types of deals.
Speaker 1: And Direct TV Now is a streaming direct to consumer
Speaker 1: app similar to a Netflix and UM and it's kind
Speaker 1: of a little bit of a skinny bundle, if you will.
Speaker 1: But CBS just announced that they're gonna be part of it.
Speaker 1: They're gonna be on air. It's very good for direct
Speaker 1: TV now because CBS is the number one ranked broadcasting
Speaker 1: network in terms of total audience. So plus they have
Speaker 1: NFL football, So it's certainly a programmer and a source
Speaker 1: of programming that you want to have on your service. Uh.
Speaker 1: If you're CBS, UM, you're like a lot of these
Speaker 1: traditional media companies and you're trying to figure out, um,
Speaker 1: the business is changing, my viewer is are viewing my
Speaker 1: content on lots of different uh types of platforms. It's
Speaker 1: not just with the rabbit ears over the air like
Speaker 1: it was fifty years ago. It's not even just on
Speaker 1: cable television. It's now on satellite and now more and
Speaker 1: more it's now direct to consumer on some of these apps.
Speaker 1: And so I think, if you're CBS, you'r ABC, your Disney,
Speaker 1: you're all any of these players. You're trying to figure
Speaker 1: out do I need to be on all these platforms?
Speaker 1: If so, what do I need to get paid to
Speaker 1: make it worth my while? What happens to CBS, Because
Speaker 1: I know that you've mentioned in the past that CBS
Speaker 1: almost is like a standalone when it comes to programming content. Yes,
Speaker 1: CBS is a you know, it's it's the really the
Speaker 1: only standalone broadcast network, UM that investors can can play.
Speaker 1: The other broadcast networks are embedded in big media companies
Speaker 1: like Disney and Fox UM and CBS does own the
Speaker 1: Showtime premium net network as well. But if you're buying CBS,
Speaker 1: you're really buying a play on US broadcast television. UM.
Speaker 1: It's been a great business for them. Television advertising has
Speaker 1: generally been pretty decent over the last you know, coming
Speaker 1: out of the last ten years after the financial crisis.
Speaker 1: And what's really changed for the better for CBS has
Speaker 1: been a new revenue stream for them and for the
Speaker 1: broadcast industry, and that's retransmission fees. Uh. The broadcast networks
Speaker 1: are finally getting paid by the distributors the Comcast of
Speaker 1: the world to carry their programming. They never got paid
Speaker 1: for it before. Es Pianos got paid for their programming
Speaker 1: by the distributors, but the broadcast networks never did up
Speaker 1: until about seven or eight years ago. And CBS has
Speaker 1: really been a big beneficiary that that's been a driver
Speaker 1: of their revenue and profits. That looks to be a
Speaker 1: pretty good story going forward for CBS. So so why
Speaker 1: do you believe maybe the stock has not really performed
Speaker 1: that well this year. I mean the stock of CBS
Speaker 1: is basically unchanged. I mean that's not to say that
Speaker 1: hasn't had big moves. I mean this was, you know,
Speaker 1: a stock trading at fifty uh, let's say back in September. Yes,
Speaker 1: the media stocks, you know, they've had a great run
Speaker 1: over the last eight nine years after the financial crisis,
Speaker 1: but really in the last year or so, it's been
Speaker 1: kind of flattish and and year to date, you know,
Speaker 1: the media stocks are pretty flat up a little bit.
Speaker 1: But the real concerns are chord cutting. That is d
Speaker 1: number one issue out there for the media sector. If
Speaker 1: consumers really are cutting the chord in mass, everybody's economic
Speaker 1: model as is at risk. The affiliate fees that the
Speaker 1: content companies get paid, that's at risk. The advertising revenue
Speaker 1: that's built upon a large audience that can be delivered,
Speaker 1: that's at risk. And so what I think you're seeing
Speaker 1: media investors do today is try to pick some winners
Speaker 1: and losers within the group in general. Um, but right now,
Speaker 1: I think we've had a rough third quarter results coming
Speaker 1: out of the media sector. Maybe they can turn it
Speaker 1: around tonight with CBS, who tends to be very bullish
Speaker 1: about the prospects for the sector. Will see Disney tomorrow
Speaker 1: night after the clothes, see what it has to say. Uh, investors,
Speaker 1: they are particularly concerned about ESPN and the fact that
Speaker 1: chord cutting is having on the great ESPN. Anything on
Speaker 1: the horizon that you would point to as far as
Speaker 1: someone may be making an acquisition or a run at CBS.
Speaker 1: I mean, it's a twenty six billion dollar market cap
Speaker 1: right now. Right Well, we just had a you know,
Speaker 1: a big m and a trade in the media sector.
Speaker 1: Last week when Discovery Communications and out they are buying
Speaker 1: Scripts Networks Viacom, which is a sister company to CBS,
Speaker 1: it was rumored to be a buyer for Scripts Networks,
Speaker 1: which really caught people by surprise. Most people didn't view
Speaker 1: Viacom as a buyer. But ultimately, when you talk about CBS,
Speaker 1: you talk about Viacom, you're talking about Subner Redstone and
Speaker 1: his common ownership of both companies. And the question remains,
Speaker 1: does do these two companies should they be uh, you know,
Speaker 1: maybe in a better position if they were to merge,
Speaker 1: and remember they used to be together than they split
Speaker 1: apart about ten years ago. The question is now in
Speaker 1: a consolidating media world, in a world that's being disrupted
Speaker 1: by the Internet like Netflix, Um, do these companies need
Speaker 1: to be bigger, stronger, have more heft in the marketplace.
Speaker 1: If so, then the easiest transaction for both of these
Speaker 1: companies via common CBS to simply kind of merge back together.
Speaker 1: All right, now, you mentioned Disney, so let's move on
Speaker 1: to there because I want to get your thoughts on
Speaker 1: ESPN that has been both an achilles heel and a
Speaker 1: gold mine for Disney at different times. Right it it
Speaker 1: continues to be by far the largest profit generator for
Speaker 1: the Walt Disney Company, and really over the last twenty
Speaker 1: years it has been the most consistent profit generator for
Speaker 1: the company. Um, those days are over. UM. So what
Speaker 1: you have at Disney now is cord cutting h impacting
Speaker 1: the growth of their revenue, so putting pressure on their
Speaker 1: revenue growth. That's a problem, but it's compounded by the
Speaker 1: fact that their costs are primarily fixed. I mean, think
Speaker 1: about the cost for ESPN. You think about these huge
Speaker 1: sports contracts with the NFL, with Major League Baseball, with
Speaker 1: all the college sports U leagues around the country. Those
Speaker 1: are big, big ticket items and they are a fixed
Speaker 1: cost over many years. And so if you're at at ESPN,
Speaker 1: you're seeing your revenue pressured and your costs you know,
Speaker 1: continuing to go up. So that's a real profit issue
Speaker 1: for this company. It's been you know, really developing over
Speaker 1: the last two years, and quite frankly, investors are are
Speaker 1: very concerned about that. It's definitely impacted Disney, who you know,
Speaker 1: despite you know, the concerns at ESPN, the other two
Speaker 1: main businesses of the Walt Disney company. It's theme parks
Speaker 1: um and um uh it's movie business are both doing great.
Speaker 1: But again investors are really focusing on on ESPN. All right,
Speaker 1: you want to do Fox, uh, twenty one century Fox
Speaker 1: because they're waiting on a deal in the UK for
Speaker 1: a Sky Yeah. The next big trade for the twenty
Speaker 1: one century Fox and Rupert Murdoch. You know, one of
Speaker 1: the great media moguls is to get even bigger, and
Speaker 1: that is to own complete control of be Sky b
Speaker 1: which is this big satellite provider in the UK and
Speaker 1: in Italy and Germany. UM and that is being that
Speaker 1: is under review. It was he was kind of thwarted
Speaker 1: in this transaction about seven years ago. He's now come
Speaker 1: back and the expectation is that transaction will be approved.
Speaker 1: That would be a net positive for twenty one century
Speaker 1: Fox because a lot of those markets in Europe there's
Speaker 1: still more growth to go there in terms of pay
Speaker 1: TV subscribers. It is not saturated like the US market,
Speaker 1: and so a lot of investors believe that is a
Speaker 1: better organic growth market than the US. Right now. Hey, Paul,
Speaker 1: you know, as as something that's been doing this more
Speaker 1: really more years than I know, you care to care
Speaker 1: to admit, is can you give some advice to people
Speaker 1: that are trying to sort of value these businesses When
Speaker 1: you've got companies like Amazon getting into con tent and
Speaker 1: you know, music from from Apple and so on, it's
Speaker 1: hard to kind of get your fingers around this, it
Speaker 1: really is. I mean, we have, you know, the traditional
Speaker 1: metrics for media companies, whether that's price, price to earnings,
Speaker 1: or enterprise value. But those are well established and we
Speaker 1: know how to value you know, the Disneys of the world,
Speaker 1: in the Foxes the world, in the Comcast of the world,
Speaker 1: and we have historical benchmarks for when these stocks are
Speaker 1: expensive or when they're cheap given their growth outlook. But
Speaker 1: when you bring in some of these new disruptive stories
Speaker 1: like Netflix, like Amazon that are coming into the movie business,
Speaker 1: and you take a look at even at the internet companies,
Speaker 1: the Internet companies are more media companies than they are
Speaker 1: technology companies. They are driven by advertising revenue, and they
Speaker 1: trade at different valuation multiples multiples revenue, and it's really
Speaker 1: hard to compare. Thank you very much, Paul Sweeney. Here's
Speaker 1: our expert US Director Research, senior Media Internet analyst for
Speaker 1: Bloomberg Intelligence, Berkshire Hathaway. The shares are up nearly nine
Speaker 1: percent so far this year, but what will move them higher?
Speaker 1: Here to tell us more is Tara La Chapelle. Our
Speaker 1: Deal's column is for Bloomberg Gadfly and you can follow
Speaker 1: her on Twitter at Tara l. A c. H. Great
Speaker 1: to have you with us, Thanks for coming into the studio. UM.
Speaker 1: The report from Berkshire Hathaway last Friday not greeted by
Speaker 1: the market with much enthusiasm. But this is a company
Speaker 1: that has what a hundred billion dollars in cash right
Speaker 1: which is almost exactly why it's not being greeted with enthusiasm, ironically,
Speaker 1: because the results were a little lackluster. We saw another
Speaker 1: underwriting loss in the insurance division, dragged down overall results.
Speaker 1: So you know, the whole point of Berkshire's conglomerate is
Speaker 1: that all these other businesses offset the ones that are having,
Speaker 1: you know, going through difficult times, and this time it
Speaker 1: did drag down earnings a little bit um nothing to
Speaker 1: be concerned about, of course, but I think what it
Speaker 1: comes down to is they have almost a hundred billion
Speaker 1: in cash now and they're not really spending it, and
Speaker 1: so what are the high return opportunities out there, what's
Speaker 1: the reason to own the stock and what's Buffett thinking next?
Speaker 1: So what do you believe is necessary for Berkshire Hathway,
Speaker 1: Because you know they Burlington Northern Santa fe uh acquisition.
Speaker 1: They just got eight hundred million in cash in the
Speaker 1: from the railroad. Um. Also I understand you know that
Speaker 1: they want to be even bigger in the energy business.
Speaker 1: They're trying to acquire the Texas utility Encore, right, So
Speaker 1: that deal makes a lot of sense for Burlington Northern
Speaker 1: and that business has been great for them to total
Speaker 1: home run of an acquisition for Berkshire. But with all
Speaker 1: this cash, a deal like Encore, which I believe is
Speaker 1: around nine billion dollars, really isn't enough to move the
Speaker 1: needle that much anymore. It's it's great for that division,
Speaker 1: but overall, when you have a hundred billion dollars of
Speaker 1: cash and it's just sitting there with these low returns,
Speaker 1: it makes sense for Berkshire to start thinking about bigger acquisitions.
Speaker 1: I mean, we could see the fifty billion to even
Speaker 1: a hundred billion dollar range. Realistically, it's not crazy to
Speaker 1: think that they could do something like that. The problem
Speaker 1: is finding a target that's worth that price and would
Speaker 1: fit in with the conglomerate. Well, you mentioned in your
Speaker 1: story that you know, the equity investments that warm Buffett
Speaker 1: has made, whether it's craft Hinds, whether it's airlines, Apple
Speaker 1: and so on, that's all been they've done pretty well.
Speaker 1: Oh those have been great. I mean Apple, It's so funny,
Speaker 1: right because Buffett for so long was opposed to investing
Speaker 1: in things that really didn't um weren't his expertise industrial
Speaker 1: companies or insurance businesses, right, So to to have Apple
Speaker 1: be sort of this incredible investment for them, and in
Speaker 1: kudos to their UM investing lieutenants there. But it's just
Speaker 1: been really fun to watch. But even though those are
Speaker 1: doing really well again, it's like they need to think
Speaker 1: about a big acquisition to take in house, not just
Speaker 1: these equity investments that are doing well. But in doing
Speaker 1: your research, you find that investors in Berkshire Hathaway have
Speaker 1: a different criteria when it comes to what they do
Speaker 1: with their money. They want to be there because warm
Speaker 1: buffets there, right, And I think that's where the issue
Speaker 1: is now because if the and you own the stock
Speaker 1: is because Buffett can take that money that all these
Speaker 1: businesses are throwing off and invest it far better than
Speaker 1: your return would be if he had paid, you know,
Speaker 1: a dividend or was buying backstock at these levels. Then
Speaker 1: I mean, we're looking at this and we're waiting for
Speaker 1: him to do that, and there really hasn't been a
Speaker 1: whole lot of deal activity in the past year. So
Speaker 1: I mean, he did do the Precision Cast Parts deal.
Speaker 1: Now that's clothes. That's been doing very well for the
Speaker 1: manufacturing division. But it's like, Okay, well, what's next now?
Speaker 1: Because the reason the shareholder's own the stock is because
Speaker 1: they want to see him invest the money. And if
Speaker 1: he's not going to find a great target that's really
Speaker 1: going to move the needle, then it begs the question,
Speaker 1: you know, do does Berkshire start to pay a dividend? Right?
Speaker 1: But but I guess my point is do investor's care.
Speaker 1: I mean, I understand from a theoretical point of view,
Speaker 1: but when you go to the annual meeting in Omaha,
Speaker 1: you don't find people saying, oh, I wish they do this,
Speaker 1: I wish they did that. No one's pounting the table saying,
Speaker 1: you know they I mean, everyone trust buffet. I think
Speaker 1: the problem is Buffett is going to be eighty seven
Speaker 1: this month, and people are starting to think about what
Speaker 1: does Berkshire look like after Buffett? And I think he
Speaker 1: needs to sort of open the door for his successor
Speaker 1: to have that wiggle room, you know, have a good deal, opportunities,
Speaker 1: have the ability to pay a diven if if that's
Speaker 1: going to be the reality and this sort of slow
Speaker 1: growth world, um, I think Buffett sort of needs to
Speaker 1: start giving commentary on that. And I think that's what
Speaker 1: people are looking for. It's not that they're thinking he's
Speaker 1: you know, not living up to what he's promised them
Speaker 1: or anything, but it's just that they're waiting to see, well,
Speaker 1: what's Berkshire look like now for the next ten, fifteen,
Speaker 1: twenty years. Maybe he's just waiting for the right pitch, right,
Speaker 1: I mean, because I note that just I guess it
Speaker 1: was over the last month when a Bank of America
Speaker 1: Merrill Lynch announced, you know that they were paying Buffett
Speaker 1: because of his participation. And you know, he strikes these
Speaker 1: sort of idiosyncratic deals with preferred stock that you know,
Speaker 1: they really pay off, right, I mean, the Craft Hyans deal,
Speaker 1: the same thing. I mean, that's been great for Berkshire.
Speaker 1: I think we're waiting to see kraft Hians do something
Speaker 1: else and that Buffett will sort of bankroll the deal
Speaker 1: and get another sort of high return preferred doc situation. Again. Um,
Speaker 1: but I think it's you need is a really big
Speaker 1: sell off, or you know, you need somebody get into
Speaker 1: a lot of trouble. But also I think it's it's
Speaker 1: a little more nuance on that now too, because you
Speaker 1: have all these big companies that are thinking about acquisitions themselves.
Speaker 1: So it's a much more competitive m and A environment
Speaker 1: right now. Buffett is used to someone calling him up
Speaker 1: and saying, you know, we want to sell to you,
Speaker 1: here's our price. I don't think that that's as realistic nowadays.
Speaker 1: I think there's so much em and a happening, and
Speaker 1: people are paying incredible prices for some of these deals,
Speaker 1: and I don't know that Buffett is willing to you know,
Speaker 1: overpay of course, so it becomes a little more tricky.
Speaker 1: And then also he's looking for companies with really solid
Speaker 1: management teams that want to be around for a really
Speaker 1: long time, and with all this activist investors out there
Speaker 1: and a lot of shake ups up top, and you know,
Speaker 1: I think it's just it's becoming a lot harder to
Speaker 1: find companies that fit his criteria. Thank you very much
Speaker 1: for coming in and spending time with us. Tara la
Speaker 1: Chapelle is our deals columnist for Bloomberg Gadfly, speaking about
Speaker 1: a Berkshire Hathaway and that a hundred billion dollars of cash. Alright,
Speaker 1: no vacation when it comes to negotiations of what is
Speaker 1: the future of Sprint. And here to tell us more
Speaker 1: is Alex Sherman, our deal's reporter for Bloomberg News. Alex,
Speaker 1: always a pleasure. Maybe you could just give us the
Speaker 1: lay of the land, because there are a lot of
Speaker 1: moving parts here. You've got Sprint, T Mobile, Comcast, Charter
Speaker 1: and go ahead. I'm sure there must be something else
Speaker 1: I'm forgetting. I'm sure there is him. You basically got
Speaker 1: the gist of it there, but already that's quite a
Speaker 1: bit so. Last week we did a bunch of reporting
Speaker 1: suggesting that Soft Bank and it's billionaire owners, Mathayoshi's son
Speaker 1: was considering buying Charter, which would be a huge deal,
Speaker 1: one of the largest deals ever probably let's say about
Speaker 1: a hundred and fifty billion dollars. After the attack on
Speaker 1: a reasonable premium. Uh they Haffik has not made a
Speaker 1: formal bid for Charter, but what we reported was that
Speaker 1: it was at least considering it, and this would unite Sprint,
Speaker 1: the fourth largest US wireless player, with Charter, the second
Speaker 1: largest US cable provider, and give the United States its
Speaker 1: first true wireless flash cable combined company if it were
Speaker 1: to happen. What my colleagues Scott Maritz and I reported
Speaker 1: last night was that in addition to this, Sprint has
Speaker 1: also resumed talks about a potential merger with T Mobile,
Speaker 1: something that has been sort of batted around by both
Speaker 1: sides for years. You should think of this as Sprint
Speaker 1: covering its basis before it spends a hundred and fifty
Speaker 1: billion dollars on Charter. It probably wants to see if
Speaker 1: a deal with T Mobile can be done, because there
Speaker 1: are so many synergies in this deal that they would
Speaker 1: be doing themselves a disservice if they didn't look very
Speaker 1: hard at it. So I think that's where we are
Speaker 1: right now, where Sprint is looking at both options. Well,
Speaker 1: what about just let's talk about Sprint for just a second,
Speaker 1: because I understand in the last quarter they lost thirty
Speaker 1: nine customers. Is there something inherently broken at Sprint? There
Speaker 1: is something inherently broken at Sprint as Sprint stands today.
Speaker 1: I mean, this has been a long time money losing operation.
Speaker 1: The the bet on Sprint is that they are well
Speaker 1: positioned for tomorrow's wireless world. So today we all have
Speaker 1: what's known as an LTE standard or other people call
Speaker 1: it four G. In a five G world, this would
Speaker 1: be you know, five G standing for generation. Uh. Many
Speaker 1: people feel like Sprint has the correct wireless spectrum or
Speaker 1: wireless air waves that if combined with so called small
Speaker 1: cell technology, which is owned in large part by cable
Speaker 1: companies but also Sprint on some uh, that Sprint can
Speaker 1: actually be a much strong, younger competitor. However, the finances
Speaker 1: are what they are today, and that's why Masayoshi's son,
Speaker 1: the founder of soft Bank, who owns plus of Sprint,
Speaker 1: has been so aggressive in trying to do a deal
Speaker 1: because Sprint as it stands today is not well positioned
Speaker 1: at all. So it needs to be a much more
Speaker 1: robust company. You combine that with T Mobile, you combine
Speaker 1: it with Charter, you combine it with some other company,
Speaker 1: then Sprint can sort of get from where it is
Speaker 1: today to the ties when five G technology will kick in,
Speaker 1: and theoretically Sprint would be a much stronger company then
Speaker 1: because of the airwaves it owns I like this idea
Speaker 1: that you know, it's all in the future, right, it's
Speaker 1: all in the creation of this rhetorical Uh sort of
Speaker 1: makes sense a program, but you know, it just makes
Speaker 1: me think of John Ledger and T Mobile because when
Speaker 1: he came in, people were leaving T Mobile for dead,
Speaker 1: but they actually took some initiatives that have not only
Speaker 1: changed the industry but have forced the competition to follow them.
Speaker 1: Why doesn't Sprint take a leaf out of their book? Well,
Speaker 1: that's a great question, and I suppose they merged with
Speaker 1: T Mobile would do that because in the end, here
Speaker 1: Mateyoshi Son, who has a three hundred year plan has
Speaker 1: uh and that's not an exaggeration. He literally has a
Speaker 1: three hundred year plan for his company. UM has two
Speaker 1: options here, UH, If you buy charter Mateyoshi Son would
Speaker 1: stay in control of this new company UH, and therefore
Speaker 1: would be able to dictate its terms. If they merge
Speaker 1: with T Mobile, so I think would actually have to
Speaker 1: sell Sprint and it would be run by T Mobile
Speaker 1: and John Ledger. So I think that the the the
Speaker 1: idea there would be Sprint would say, look, we we
Speaker 1: understand here that this combined company is stronger, and frankly,
Speaker 1: T Mobile, you've done a better job than us over
Speaker 1: the past few years of running this company. It's certainly
Speaker 1: possible that Sprint could have done exactly what T Mobile
Speaker 1: did under price, be very aggressive, have a much better
Speaker 1: marketing plan, sort of failed on all of these. Uh
Speaker 1: if if if you follow John Ledger on Twitter, he's
Speaker 1: constantly mocking Sprint and it's sort of second rate promotions
Speaker 1: and also it's second rate network. Uh So, the idea
Speaker 1: here then would be this combined company would in fact
Speaker 1: be run by Ledger and Sun would give up on Sprint.
Speaker 1: He would still own some of the company, but he
Speaker 1: would no longer be the controlling shareholders. So very much
Speaker 1: two different outlooks there. Some people tell me the idea
Speaker 1: would be after Sprint bought Charter, if that's the plan
Speaker 1: that happens, it would then go after T Mobile, and
Speaker 1: in that case stop think actually would be able to
Speaker 1: maintain control of the company because it would be so
Speaker 1: much bigger than T Mobile. Of course it is still
Speaker 1: to be determined. If T Mobile's German owners, Deutsche Telecom,
Speaker 1: would even be interested in selling the company, we know
Speaker 1: for the time being they are not, which is why
Speaker 1: the Sprint Temo deal may actually happen with the Germans
Speaker 1: buying and consolidating the new Sprint Temo company. Of course,
Speaker 1: that wouldn't mean anti trust regulations or review. Yeah, why
Speaker 1: doesn't Mastios he sagn just hired John Leger. Well, that's
Speaker 1: a good question. Um. I think part of the reason
Speaker 1: is that he feels like Stephen John Leger at this
Speaker 1: Maybe it's too little, too late. Look, he did hire
Speaker 1: a person named Maurice Claure excuse me, Marcello Claure. Um,
Speaker 1: I would say a few years ago at this point,
Speaker 1: to try to turn around the net worth of previous
Speaker 1: CEO's name was Dan Hessey. Uh So, the idea at
Speaker 1: the time was to bring in someone that Massio she
Speaker 1: soun was familiar with to to turn around the company.
Speaker 1: And look, if you if you go on a pure
Speaker 1: stock performance, even though Sprint continues to struggle, actually you
Speaker 1: could make a very strong case that Sprint has turned
Speaker 1: it around. I mean their shares were training around two
Speaker 1: dollars a share at one point now eight dollars and
Speaker 1: seventy three cents now a lot of a lot of
Speaker 1: that m and a premium, but still tapped off the
Speaker 1: Clare and the Sprint team for getting the share price up.
Speaker 1: We gotta leave it there. Alex Sherman, our tech media
Speaker 1: and telecom m and a reporter from Bloomberg News. Thanks
Speaker 1: for listening to the Bloomberg P and L podcast. You
Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
Speaker 1: It's one before the podcast. You can always catch us
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