WEBVTT - Merck to Acquire Terns Pharmaceuticals in $6.7 Billion Deal 0:00:02.720 --> 0:00:10.559 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.600 --> 0:00:14.560 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.600 --> 0:00:17.840 Eastern on Apple, Cocklay and Android Auto with the Bloomberg 0:00:17.920 --> 0:00:21.040 Business App. Listen on demand wherever you get your podcasts, 0:00:21.360 --> 0:00:23.520 or watch us live on YouTube. 0:00:24.320 --> 0:00:26.040 We need to talk about the M and A deal 0:00:26.360 --> 0:00:29.480 that has come out in New York this morning. MRK 0:00:29.840 --> 0:00:33.640 to buy Turns Pharmaceuticals for six point seven billion dollars 0:00:34.200 --> 0:00:37.680 to grow in the blood cancer space. Michelle Davis is 0:00:37.720 --> 0:00:40.920 our senior deals reporter here in New York and is covering. 0:00:40.600 --> 0:00:41.479 This story for us. 0:00:41.760 --> 0:00:43.519 Feel like we should call it M and A Wednesday 0:00:43.560 --> 0:00:45.879 now because the deals no longer happen on Monday anymore. 0:00:46.200 --> 0:00:46.400 You know. 0:00:46.440 --> 0:00:48.400 It's because we have a deal show now, so of 0:00:48.400 --> 0:00:52.320 course that's why they're happening on Wednesday. But yeah, big 0:00:52.960 --> 0:00:54.720 deal for Merk today. It makes a lot of sense 0:00:54.720 --> 0:00:57.560 that they're doing this because they they're best selling drug, 0:00:57.600 --> 0:01:00.800 kay Truda, which contributed half of their last year thirty 0:01:00.840 --> 0:01:03.360 one billion dollars, is also the world's best selling drug 0:01:03.560 --> 0:01:05.560 is going off patent, so they really need to do 0:01:06.000 --> 0:01:09.200 M and A to replenish their pipeline turns is not. 0:01:09.600 --> 0:01:13.119 Its drug is not yet approved, but analysts are saying 0:01:13.200 --> 0:01:15.920 that in a few years, assuming it does get approval, 0:01:16.080 --> 0:01:18.200 it could have peak sales of several billion dollars. And 0:01:18.240 --> 0:01:20.959 so Mark, for Merk, it's a bet that at the 0:01:21.040 --> 0:01:22.840 end of the decade, around the same time that k 0:01:22.959 --> 0:01:25.919 Trude is going off patent, they will have this drug, 0:01:26.000 --> 0:01:28.240 you know, coming in to kind of help fill some 0:01:28.280 --> 0:01:28.800 of that hole. 0:01:29.720 --> 0:01:29.959 Mark. 0:01:30.040 --> 0:01:33.560 What are they saying about their M and A appetite? 0:01:33.640 --> 0:01:37.039 I guess because we you know, we joke that the 0:01:37.040 --> 0:01:41.679 pharmaceutical industry is such a deal heavy industry, pharm of biotech, 0:01:41.680 --> 0:01:42.120 that kind of thing. 0:01:42.160 --> 0:01:44.960 What's Merk saying? Because they do have that key true 0:01:44.920 --> 0:01:45.880 to risk exactly. 0:01:45.920 --> 0:01:47.720 So Mark has been one of the most aggressive when 0:01:47.720 --> 0:01:49.480 it comes to M and A. Earlier this year at 0:01:49.520 --> 0:01:52.720 the JPMorgan Healthcare Conference, the CEO Rob Davis said that 0:01:53.000 --> 0:01:55.680 he wants to do several deals in the tens of 0:01:55.760 --> 0:01:58.880 billion dollar range, and so that means we'll probably see 0:01:59.280 --> 0:02:03.280 more from them. Also interesting to note that Merk's stock 0:02:03.440 --> 0:02:05.680 is up today on the news, and normally in M 0:02:05.760 --> 0:02:08.000 and A the buyer's stock tends to go down on 0:02:08.000 --> 0:02:10.280 an announcement, but the fact that you know, shares their 0:02:10.360 --> 0:02:12.760 up means investors are applauding this and they you know, 0:02:12.840 --> 0:02:15.000 want merk To to keep doing stuff like this. 0:02:15.480 --> 0:02:18.200 So the deals worth six point seven billion dollars. It's 0:02:18.200 --> 0:02:20.959 a fifty three dollars a share in cash, which is 0:02:21.000 --> 0:02:24.200 a six percent premium to turns last clothes. There are 0:02:24.280 --> 0:02:27.400 some analysts out there who say that maybe Mark is 0:02:27.440 --> 0:02:31.160 not spending enough here and this invites other companies to 0:02:31.200 --> 0:02:33.520 come in and make their own bid for turn pharmaceuticals 0:02:33.560 --> 0:02:34.120 as well. 0:02:35.000 --> 0:02:37.519 You know, we will see if that happens. There were 0:02:37.600 --> 0:02:40.680 some bidding wars in pharma last year, with the Metzera 0:02:40.800 --> 0:02:42.880 deal being you know, one of the most notable ones 0:02:43.000 --> 0:02:46.960 that said the stock turns. The stock has increased like 0:02:47.040 --> 0:02:50.959 fifty percent since January on basically no news. So there 0:02:51.000 --> 0:02:52.880 could be an argument that maybe there was some built 0:02:52.880 --> 0:02:55.600 in you know, m and a speculation already into the 0:02:56.080 --> 0:03:00.280 already built baked into the price. But you know, you know, no, 0:03:00.600 --> 0:03:02.720 there are other pharma companies out there who are also 0:03:02.760 --> 0:03:06.040 trying to replenish their pipeline, so it wouldn't be unprecedented. 0:03:06.320 --> 0:03:08.560 Of course, which bankers were on this deal they don't have. 0:03:08.720 --> 0:03:11.680 They didn't list the Acquirer Advisor, but the financial target, 0:03:12.040 --> 0:03:16.360 Centerview Partners and Jefferies, so unusual or not unusual, which is. 0:03:16.560 --> 0:03:17.960 More boutiqui more boutiqui. 0:03:18.040 --> 0:03:20.720 Yeah, Centerview has I mean, they're generally on most of 0:03:20.760 --> 0:03:23.160 these on the cell side, and Jeffries has been doing 0:03:23.200 --> 0:03:24.320 a lot more on the sell side too. 0:03:24.400 --> 0:03:26.320 Yeah. The boutiques, like we used to call them boutiques, 0:03:26.360 --> 0:03:28.200 but in M and A they're not really boutiques anymore, 0:03:28.240 --> 0:03:28.600 are they? 0:03:28.720 --> 0:03:29.080 Exactly? 0:03:29.280 --> 0:03:31.360 They think they've really made a commitment doing real pgat 0:03:31.520 --> 0:03:34.920 and all those guys. Is there any regulatory risk when 0:03:34.960 --> 0:03:37.800 these healthcare deals get done? Or is it just a 0:03:37.800 --> 0:03:40.520 big mark buying a little biotech thing and nobody really cares? 0:03:40.520 --> 0:03:42.040 How's that work? Not as much. 0:03:42.120 --> 0:03:45.520 I mean, the last time we saw something kind of 0:03:45.560 --> 0:03:48.880 splashy get attention was when Amjen tried to buy Horizon 0:03:48.960 --> 0:03:51.720 and that FDC tried to block that deal. They ended 0:03:51.800 --> 0:03:54.240 up settling and the deal went through anyway. But in 0:03:54.760 --> 0:03:57.160 something like this where you know, turns of drug isn't 0:03:57.160 --> 0:04:01.440 even approved and it's biggest competitor is owned by Novardes, 0:04:01.880 --> 0:04:05.320 you know, the competing kind of compound. It seems unlikely. 0:04:05.920 --> 0:04:08.480 So given what Mark has done, in the fact that 0:04:08.760 --> 0:04:11.960 investors like the deals that it's made so far, I'm 0:04:12.000 --> 0:04:14.640 guessing we're going to expect to see more acquisitions from 0:04:14.680 --> 0:04:15.960 Mark in the coming weeks and months. 0:04:16.600 --> 0:04:20.800 That's probably yeah. Definitely stay with us. 0:04:20.839 --> 0:04:23.000 More from Bloomberg Intelligence coming up after this. 0:04:26.680 --> 0:04:30.360 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:04:30.440 --> 0:04:33.160 weekdays at ten am. He's done on Apple, Cocklay and 0:04:33.160 --> 0:04:36.440 Android Auto with the Bloomberg Business app. Listen on demand 0:04:36.480 --> 0:04:40.240 wherever you get your podcasts, or watch us live on YouTube. 0:04:41.160 --> 0:04:43.960 Let's talk a little media here. Interesting story on the 0:04:43.960 --> 0:04:47.800 Bloomberg terminal. Walt Disney Chief executive officer Josh Tomorrow has 0:04:47.839 --> 0:04:51.520 seen two billion dollar technology bets, Falter one of them 0:04:51.920 --> 0:04:54.960 and raveling entirely just days into his new job. Let's 0:04:54.960 --> 0:04:56.600 see what this means for the Walt Disney Company. We've 0:04:56.600 --> 0:04:58.760 got some other media stuff to talk about, and we 0:04:58.920 --> 0:05:01.360 turned to Keitha Rugana, and she is the media analyst 0:05:01.400 --> 0:05:02.400 for Bloomberg Intelligence. 0:05:03.400 --> 0:05:05.600 Keitha, there's news out regarding Disney. 0:05:05.680 --> 0:05:07.320 Can you talk to us about a couple of these 0:05:07.360 --> 0:05:09.120 deals that seemingly are falling apart here. 0:05:10.520 --> 0:05:12.320 Yeah, this is a big deal, Paul. 0:05:12.360 --> 0:05:14.760 I mean, you know, Josh Tomorrow obviously took the helm 0:05:14.800 --> 0:05:17.400 at Disney just a week ago, and we're seeing this 0:05:17.520 --> 0:05:21.720 Open Ai Sora deal that you know, Disney had kind 0:05:21.720 --> 0:05:25.120 of inked about three months ago. And basically the deal 0:05:25.160 --> 0:05:27.600 here was that this would be a three year licensing 0:05:27.640 --> 0:05:30.560 agreement where Disney would make a one billion dollar equity 0:05:30.600 --> 0:05:34.279 investment into Open Ai and Sora would be allowed to 0:05:34.400 --> 0:05:36.840 use about two hundred of Disney's characters to kind of 0:05:36.839 --> 0:05:40.279 create all of these short form videos which you know, 0:05:40.440 --> 0:05:43.240 users could basically engage with on the Disney Plus platform. 0:05:43.680 --> 0:05:45.520 You know, this was kind of I think Disney's way 0:05:45.520 --> 0:05:48.760 of playing offense defense with you know, the whole rise 0:05:48.839 --> 0:05:51.800 in Ai and kind of if you can't beat them, 0:05:51.920 --> 0:05:54.680 join them, kind of really joining the bandwagon and saying, yes, 0:05:54.760 --> 0:05:57.920 we have a stake here with AI. So this falling 0:05:57.920 --> 0:06:02.720 apart definitely kind of leaves Disney definitely they were blindsided. 0:06:03.320 --> 0:06:03.440 Uh. 0:06:03.600 --> 0:06:06.240 They they've they've been kind of trying to do different 0:06:06.279 --> 0:06:09.520 things in terms of really monetizing their ip creating like 0:06:09.560 --> 0:06:14.080 this really uh this this franchise fandom if you will, right, 0:06:14.160 --> 0:06:16.560 really digging deep into it. That's what Josh Tomorrow has 0:06:16.560 --> 0:06:19.640 spoken both with this opening ideal as well as the 0:06:19.680 --> 0:06:21.840 Epic Games deal that was a deal that actually Josh 0:06:21.920 --> 0:06:24.520 Tomorrow had kind of broken. And just over the past 0:06:24.520 --> 0:06:26.720 few days we've kind of seen you know, a lot 0:06:26.720 --> 0:06:29.400 of news with Epic Games too, and so this really 0:06:29.480 --> 0:06:31.800 kind of now raises the stakes for them to kind 0:06:31.800 --> 0:06:34.599 of find out, you know, hoom else they can partner 0:06:34.640 --> 0:06:36.880 with to kind of deepen that that fan engagement. 0:06:37.440 --> 0:06:39.560 Okay, so he's got his work cut out for him. 0:06:39.640 --> 0:06:43.839 Certainly makes for a busy first week on the job. Gita. 0:06:43.880 --> 0:06:45.320 We also want to talk to you about what's going 0:06:45.320 --> 0:06:49.679 on with Netflix. It's bolstering its live streaming, live streaming 0:06:49.760 --> 0:06:53.479 mega events. There was the BTS Comeback Show, which I 0:06:53.480 --> 0:06:56.479 guess the live show didn't attract as many people as 0:06:56.520 --> 0:06:59.200 people as thought, you know, actually attending the net, but 0:06:59.279 --> 0:07:04.080 the actual streaming of it was a monster hit, wasn't it. 0:07:04.080 --> 0:07:06.680 It was a monster hits. Carlor, You're absolutely right, over 0:07:06.800 --> 0:07:10.480 eighteen million viewers worldwide. And this is again we come 0:07:10.520 --> 0:07:13.560 back to the basic buzzword with in media right now, 0:07:13.600 --> 0:07:17.000 which is engagement. What are all the different ways that 0:07:17.040 --> 0:07:19.679 you can build engagement and you know, again the open 0:07:19.720 --> 0:07:22.080 AI saw a deal with Disney was again a way 0:07:22.120 --> 0:07:25.280 for Disney to build that engagement with their fans. Netflix 0:07:25.360 --> 0:07:28.000 kind of chasing all of these different types of content, 0:07:28.080 --> 0:07:30.360 you know, whether it is sports, whether it is this 0:07:30.480 --> 0:07:33.800 live event the bts come back to, or again trying 0:07:33.800 --> 0:07:36.600 to deepen that engagement, trying to deepen their connection with 0:07:36.840 --> 0:07:40.600 fans as you have more and more sources of you know, 0:07:40.680 --> 0:07:46.560 video basically competing for time spent. Again, huge, You're absolutely right, 0:07:46.680 --> 0:07:50.000 huge event for Netflix really shows how they can kind 0:07:50.080 --> 0:07:53.920 of go after all of these different genres and build 0:07:54.040 --> 0:08:00.280 that scale, build that appointment television kind of buzz and 0:08:00.440 --> 0:08:02.720 and you know, really get a good ROI on their 0:08:02.760 --> 0:08:05.600 investment there by the way, they're increasing their content spending 0:08:05.640 --> 0:08:08.480 four events like this this year by two billion dollars. 0:08:08.520 --> 0:08:11.320 That's a pretty sizable step up. So we're looking at them, 0:08:11.880 --> 0:08:14.600 you know, spending about twenty billion dollars scarlet this year 0:08:14.640 --> 0:08:15.200 on content. 0:08:15.480 --> 0:08:15.760 Wow. 0:08:16.280 --> 0:08:19.720 All right, Githa, it's opening day for my New York Yankees. 0:08:19.720 --> 0:08:21.960 They'll be opening up out in San Francisco this evening 0:08:22.000 --> 0:08:23.320 eight pm Eastern. 0:08:23.360 --> 0:08:25.200 First pitch. I'm not going to be a good game. 0:08:25.400 --> 0:08:28.240 Yep. I'm not going to ESPN and watch this I'm 0:08:28.280 --> 0:08:31.720 not even going to the Yankees' own network. Yes, I'm 0:08:31.720 --> 0:08:34.320 going to Netflix to watch this game tonight. 0:08:34.480 --> 0:08:35.559 Where are we in this world? 0:08:35.600 --> 0:08:37.559 Where are we in this world? Talk to us about 0:08:37.840 --> 0:08:40.120 you know, Netflix has set out we're never getting into sports. 0:08:40.120 --> 0:08:42.480 Well that's gone by the wayside. What do you think 0:08:42.480 --> 0:08:43.680 There's sports strategy is? 0:08:45.000 --> 0:08:47.320 So their sports strategy, Paul, I mean, this is a 0:08:47.320 --> 0:08:50.800 really important point. The sports strategy has been very very calculated, 0:08:50.960 --> 0:08:53.600 very very measured. At a time when we've seen other 0:08:53.679 --> 0:08:56.920 media companies like you know, Disney and Amazon and YouTube 0:08:56.960 --> 0:08:59.959 kind of spend billions and billions of dollars on sports rights, 0:09:00.200 --> 0:09:03.640 Netflix has taken a far more cautious approach, but an 0:09:03.640 --> 0:09:06.080 approach that has really served them well. So they started 0:09:06.080 --> 0:09:08.400 out with this five hundred million dollar deal for you know, 0:09:08.520 --> 0:09:12.600 WWE content. They went out after some NFL Christmas Day games. 0:09:12.800 --> 0:09:15.760 But this World Baseball Classic was actually their first big 0:09:15.800 --> 0:09:19.080 foray into world live sports, you know, an event in Japan, 0:09:19.400 --> 0:09:21.080 and it has really served them well. So you just 0:09:21.120 --> 0:09:23.320 look at the ROI on that event. They spent about 0:09:23.320 --> 0:09:26.640 one hundred million dollars for you know, forty seven games 0:09:26.640 --> 0:09:29.600 and they got something like thirty one million global viewers. 0:09:29.679 --> 0:09:33.160 Really a huge, huge viewing record for them, and again 0:09:33.280 --> 0:09:36.800 just shows how you know, by making really calculated bets 0:09:37.160 --> 0:09:40.400 again you can kind of build that buzz and for them, 0:09:40.480 --> 0:09:42.840 really build that critical engagement metric. 0:09:43.559 --> 0:09:46.000 Yeah, that is pretty incredible, and I guess part of 0:09:46.040 --> 0:09:48.520 it is also to build up the Netflix brand outside 0:09:48.559 --> 0:09:50.240 of the US, where sports rights have gotten to the 0:09:50.240 --> 0:09:52.920 point where it's prohibitive, but you look at the rest 0:09:52.920 --> 0:09:55.160 of the world and it's it's a little bit more doable. 0:09:56.400 --> 0:09:59.440 Absolutely So if you're just looking this year at sports right, 0:09:59.520 --> 0:10:04.000 scarlet companies are spending about over forty billion dollars just 0:10:04.080 --> 0:10:06.880 this year across the board for US sports rights, and 0:10:06.920 --> 0:10:09.600 we're only looking at that going up further and further. 0:10:09.679 --> 0:10:11.960 As you know, the NFL looks to high, high kits fees, 0:10:11.960 --> 0:10:13.320 the NBA looks to highkits fees. 0:10:13.520 --> 0:10:14.319 So yes, they do. 0:10:14.440 --> 0:10:18.800 They are making this really smart move by diversifying going 0:10:18.800 --> 0:10:21.720 across the board, and it's paying off. That's what's so 0:10:21.760 --> 0:10:22.320 great about it. 0:10:22.800 --> 0:10:23.000 To me. 0:10:23.640 --> 0:10:28.920 The defining moment will be when Netflix takes a Sunday 0:10:28.960 --> 0:10:34.160 package from the NFL, the NFL and Githa. I think 0:10:34.160 --> 0:10:36.560 that's that day is coming. What do you think? 0:10:37.800 --> 0:10:39.679 I also think it is coming. So they've already kind 0:10:39.720 --> 0:10:41.880 of dabbled with that, Paul. You know, they've done the 0:10:41.920 --> 0:10:44.120 Christmas Day Games again. They had some of the highest 0:10:44.160 --> 0:10:46.760 viewerships ever for the Christmas Day Games, something like thirty 0:10:46.760 --> 0:10:47.640 five million viewers. 0:10:48.559 --> 0:10:48.760 Yeah. 0:10:48.840 --> 0:10:53.920 Anyway, So I also think that they are definitely, you know, 0:10:54.000 --> 0:10:55.839 probably going to go for a digital package. I mean, 0:10:55.840 --> 0:10:58.840 I mean, the NFL wants to go there. They know 0:10:58.960 --> 0:11:02.320 that majority of the viewership is migrating to streaming and 0:11:02.360 --> 0:11:04.480 it would be stupid for them not to kind of 0:11:04.520 --> 0:11:06.959 sell a digital package. So I definitely think it's going 0:11:07.000 --> 0:11:08.280 to happen sooner rather than later. 0:11:10.080 --> 0:11:12.920 Stay with us. More from Bloomberg Intelligence coming up after this. 0:11:16.320 --> 0:11:20.000 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:11:20.080 --> 0:11:23.160 weekdays at ten am Eastern on Apple, Cocklay and Android 0:11:23.200 --> 0:11:26.480 Auto with the Bloomberg Business app. Listen on demand wherever 0:11:26.559 --> 0:11:29.680 you get your podcasts, or watch us live on YouTube. 0:11:30.600 --> 0:11:35.720 Chewey forecast is sales for the year that beat analyst expectations, 0:11:36.200 --> 0:11:38.520 stocks a pretty bigger ten twelve percent. Here today that's 0:11:38.559 --> 0:11:41.120 good news. Here, let's break it down with Diana prost Opine, 0:11:41.400 --> 0:11:44.440 Consumer staples analyst Bloomberg Intelligence. She joins us live here 0:11:44.440 --> 0:11:47.640 in our Bloomberg Interactive Broker studio. So, Chewy, what did 0:11:47.720 --> 0:11:49.040 you learn on their earnings call? 0:11:49.480 --> 0:11:52.880 Yeah, I mean they have been doing pretty well both 0:11:52.920 --> 0:11:58.559 on the top line and profitability. There's no complaints from investors, 0:11:58.640 --> 0:12:00.520 or at least they shouldn't be for eat quarter. 0:12:00.920 --> 0:12:03.120 So I'm just looking at the stock here. 0:12:03.160 --> 0:12:05.120 The stock's up again about twelve percent today, but it 0:12:05.200 --> 0:12:07.520 is down twenty percent year to date and then about 0:12:07.520 --> 0:12:09.840 twenty percent over the trailing twelve months. What's the investment 0:12:09.920 --> 0:12:13.840 call here for Chewy? What are the growth drivers top 0:12:13.840 --> 0:12:14.760 line for this company? 0:12:15.000 --> 0:12:20.080 Yes, so it's their ability to grab consumers. Once you 0:12:20.280 --> 0:12:24.520 enter I guess the Chewy you know environment, it's difficult 0:12:24.520 --> 0:12:27.920 for you to leave. They have about eighty eighty four 0:12:28.040 --> 0:12:32.079 percent of their revenue comes from authorship, so it's pretty 0:12:32.160 --> 0:12:33.120 much you set it up. 0:12:33.160 --> 0:12:34.800 It's subscription based pretty much. 0:12:35.240 --> 0:12:38.480 So you set it up and every so often you 0:12:38.559 --> 0:12:41.199 get your goodies at your doorsteps. 0:12:41.240 --> 0:12:44.040 So did they compete against the Amazons of the world, 0:12:44.080 --> 0:12:47.640 the Walmarts of the world, the pets dot com they do. 0:12:48.080 --> 0:12:51.079 Yeah, so you know, they have about a third of 0:12:51.200 --> 0:12:57.280 the e commerce you know, market share in the United States. 0:12:57.760 --> 0:13:00.800 They compete with Amazon as around the same. 0:13:01.160 --> 0:13:02.840 Well, there are not many companies out there that can 0:13:02.880 --> 0:13:05.040 say they have a third of a market where you 0:13:05.080 --> 0:13:07.280 compete against an Amazon and a Walmart and things. 0:13:07.040 --> 0:13:08.079 Like that exactly. 0:13:08.280 --> 0:13:11.000 And the thing with Chew is that they have expanded 0:13:11.440 --> 0:13:15.160 beyond merchandise, beyond food and now you can get your 0:13:15.520 --> 0:13:18.079 you know, your pharmacy, you can get you know, your 0:13:18.160 --> 0:13:23.120 vet needs. They actually have vet locations, eighteen vet locations. 0:13:23.120 --> 0:13:25.120 They're starting to do that. 0:13:25.200 --> 0:13:28.160 They see that that engages customers more. 0:13:28.760 --> 0:13:30.720 So that is, you know, an upside for them. 0:13:31.040 --> 0:13:33.240 So how is that business? 0:13:33.280 --> 0:13:36.240 I have no idea because it's all kinds of pet 0:13:36.280 --> 0:13:38.840 food in general, then stuff like toys and all that 0:13:38.880 --> 0:13:39.440 kind of stuff. 0:13:39.880 --> 0:13:42.480 What's the terriff situation for those that kind of stuff. 0:13:42.559 --> 0:13:45.240 So it seems that they have been able to navigate 0:13:45.320 --> 0:13:49.600 that obviously, you know, some of the pressure they pass 0:13:49.800 --> 0:13:55.439 that through consumers. They're seeing a net sales per active consumer, 0:13:55.480 --> 0:13:58.640 which is kind of like you know, they're pricing grow 0:13:58.760 --> 0:14:00.000 in the low single digits. 0:14:00.400 --> 0:14:01.679 So they are comfortable with that. 0:14:03.160 --> 0:14:06.400 You know, the scale and the price on the product 0:14:06.400 --> 0:14:08.960 mix that they have allows them to kind of like 0:14:09.040 --> 0:14:11.760 get the hit on the margin without you know, showing 0:14:11.800 --> 0:14:12.600 it to us. 0:14:13.200 --> 0:14:16.719 This was a obviously a COVID stock that just like 0:14:16.720 --> 0:14:18.560 like a peloton a little bit. But this has obviously 0:14:18.600 --> 0:14:21.920 done much better post How do people view this? Is 0:14:21.920 --> 0:14:25.600 this a kind of a consumer staple kind of name? 0:14:26.560 --> 0:14:27.400 How do you think about that? 0:14:27.680 --> 0:14:31.320 I would say it's a it's a you know, it's 0:14:31.360 --> 0:14:34.240 a retailer, you know, the way that I will see it. 0:14:35.120 --> 0:14:39.000 You know, going back to the you know, pandemic and 0:14:39.040 --> 0:14:42.800 COVID they actually had obviously this was a very favorite 0:14:42.840 --> 0:14:46.800 stock because everybody was at home. And then you know, 0:14:46.840 --> 0:14:50.760 the cohorts that were acquired during the pandemic they kind 0:14:50.800 --> 0:14:52.960 of reduced and that was kind of like a story 0:14:52.960 --> 0:14:55.760 of twenty twenty four. It was difficult for them to 0:14:55.880 --> 0:14:59.840 grow consumers because you know, the cohort was so massive 0:15:00.240 --> 0:15:03.920 that it was pretty much the you know, they couldn't 0:15:04.000 --> 0:15:05.920 keep up with you know, they couldn't keep a lot 0:15:05.920 --> 0:15:09.520 of those consumers. But that has turned around and they 0:15:09.560 --> 0:15:13.280 are seeing you know, significant growth. We actually expect that 0:15:13.520 --> 0:15:15.920 most of the growth in sales is probably going to 0:15:15.960 --> 0:15:18.360 come from active consumers rather than pricing. 0:15:18.720 --> 0:15:20.520 I mean, I look at you know, I know nothing 0:15:20.560 --> 0:15:22.240 about this business, but I look at the first place 0:15:22.280 --> 0:15:23.640 I look for when I look at p and LS 0:15:23.640 --> 0:15:26.040 at free cash flow. Great free cash flow here, I 0:15:26.040 --> 0:15:28.160 mek got seven hundred million dollars in for calendar or 0:15:28.200 --> 0:15:30.560 twenty six, maybe eight to fifty projected for calendar or 0:15:30.560 --> 0:15:31.000 twenty seven. 0:15:31.040 --> 0:15:32.720 What do they do with the free cash flow they 0:15:32.800 --> 0:15:33.720 invested in the business. 0:15:33.800 --> 0:15:39.040 They're growing scale, obviously, they're opening vets. That is something 0:15:39.040 --> 0:15:43.400 that they haven't pretty much experienced. They're actually in, you know, 0:15:43.520 --> 0:15:46.880 investing outside of the United States. You know, they're trying 0:15:46.880 --> 0:15:50.920 to get into Canada. They're given some of that back 0:15:51.000 --> 0:15:54.000 and share repurchases, but we don't necessarily expect it to 0:15:54.040 --> 0:15:54.880 be significant. 0:15:56.280 --> 0:15:57.800 You know, in twenty twenty six, what's. 0:15:57.680 --> 0:16:01.720 The big what's the margin analysis you guys do as 0:16:01.760 --> 0:16:06.120 analysts and investors, where's the leverage in the income statement 0:16:06.160 --> 0:16:09.360 that maybe improve margins because there's a retailer type margins. 0:16:09.440 --> 0:16:12.000 Yeah, what can they do? Really? 0:16:12.640 --> 0:16:15.920 I mean there are actually it seems that you know, 0:16:16.360 --> 0:16:20.960 they're working a lot with leverage, operating leverage. You know, 0:16:21.040 --> 0:16:23.960 in their distribution centers they seem to be you know, 0:16:24.000 --> 0:16:28.360 they are automated, so that has been building scale, you know, 0:16:28.480 --> 0:16:32.840 trying to get consumers to buy more premium brands. They 0:16:32.840 --> 0:16:35.960 have private label which they wanted to grow it to 0:16:36.120 --> 0:16:39.480 like the main teens. That is going to add about 0:16:39.560 --> 0:16:43.120 five hundred basis points to gross margin and you know, 0:16:43.240 --> 0:16:48.640 other non merchandise revenue, so that is usually higher profit 0:16:48.760 --> 0:16:49.760 than merchandise. 0:16:50.720 --> 0:16:53.800 Stay with us. More from Bloomberg Intelligence coming up after this. 0:16:57.760 --> 0:17:01.440 You're listening to the Bloomberg Intelligence Plot. Catch us live 0:17:01.520 --> 0:17:04.600 weekdays at ten am. He's done on Applecarclay, and Android 0:17:04.640 --> 0:17:07.919 Auto with the Bloomberg Business App. Listen on demand wherever 0:17:08.000 --> 0:17:11.120 you get your podcasts, or watch us live on YouTube. 0:17:11.800 --> 0:17:14.360 All right, let's check in with Justin Priden right now. 0:17:14.400 --> 0:17:18.119 He is vice president of consulting Services at Revenue Management Solutions, 0:17:18.160 --> 0:17:21.600 and he's also an attendee at the Bloomberg Intelligence Farm, 0:17:21.720 --> 0:17:25.560 Food and Fuel conference where they are talking about rising costs, 0:17:25.600 --> 0:17:29.159 especially fertilizer costs, what that means for agriculture, and what 0:17:29.160 --> 0:17:34.480 that means down the line for food operators, restaurant trends. Justin, 0:17:34.560 --> 0:17:37.439 thank you so much for joining us. Tell me about 0:17:37.520 --> 0:17:40.880 what you've discussed at this conference and how you think 0:17:40.920 --> 0:17:45.040 about what that means for restaurant menus and the restaurant industry. 0:17:46.680 --> 0:17:49.480 Paul Scarlett, thank you so much for having me, and again, 0:17:49.520 --> 0:17:52.000 the conference has been wonderful about talking about some of 0:17:52.080 --> 0:17:56.399 those input pieces that's really fundamental to restaurants and what 0:17:56.440 --> 0:17:58.639 their costs they're seeing in the bottom line when it 0:17:58.680 --> 0:18:01.840 comes to the products on their menus. At Revenue Management Solutions, 0:18:01.880 --> 0:18:03.879 we're always working to keep our clients ahead of the 0:18:03.920 --> 0:18:06.520 curve and be proactive when it comes to those cost 0:18:06.560 --> 0:18:08.920 inputs that they can meet the guests where they're at 0:18:09.119 --> 0:18:10.720 when it comes to what items are on the menu, 0:18:10.800 --> 0:18:13.119 their prices and all these pieces, and a lot of 0:18:13.119 --> 0:18:16.240 the topics that have been really important at this conference 0:18:16.320 --> 0:18:19.040 is what these what the downstream effects are going to 0:18:19.840 --> 0:18:22.440 or what the initial effects here are going to cause 0:18:22.440 --> 0:18:24.520 for those menus when it comes to costs and what 0:18:24.600 --> 0:18:27.359 comes to operators are going to be reacting to in 0:18:27.359 --> 0:18:28.520 that food and beverage industry. 0:18:29.320 --> 0:18:32.479 All right, here's the term I dislike slash hate the 0:18:32.520 --> 0:18:34.800 most in the food business over the last six months, 0:18:34.920 --> 0:18:37.679 and that is protein. When did they start using protein 0:18:37.720 --> 0:18:39.440 as opposed to just saying, hey, do you want chicken 0:18:39.480 --> 0:18:40.040 on your salad? 0:18:40.119 --> 0:18:40.800 It sounds better? 0:18:41.200 --> 0:18:44.600 I don't know, So talk to us about that, I mean, 0:18:45.400 --> 0:18:46.640 justin protein. 0:18:46.680 --> 0:18:49.720 Tell us why it's become an issue or a topic 0:18:49.760 --> 0:18:52.080 within the restaurant and food industry and how we should 0:18:52.080 --> 0:18:52.600 think about it. 0:18:53.800 --> 0:18:55.239 Paul, I hear you there, and it's so fun as 0:18:55.280 --> 0:18:59.159 a restaurant or originally myself, just calling it protein and 0:18:59.200 --> 0:19:01.440 going there just doesn't sounds good, right. It's not something 0:19:01.480 --> 0:19:03.480 that you think about when you're on the menu and 0:19:03.520 --> 0:19:06.520 think about, hey, I really feel like a protein section today. 0:19:07.520 --> 0:19:11.000 But really it's become a major piece, and it's always 0:19:11.040 --> 0:19:12.920 been a major piece of menus. I mean we see 0:19:13.000 --> 0:19:15.879 right now roughly about eighty five percent just of menu 0:19:15.960 --> 0:19:19.280 items making up that just the core chicken, beef, ork 0:19:19.359 --> 0:19:21.720 type of items. So it's always been there. But the 0:19:21.800 --> 0:19:23.560 real focus on it right now is a is you're 0:19:23.560 --> 0:19:26.600 starting to see a lot of trends focus on protein 0:19:26.720 --> 0:19:30.040 rich or a lot of protein within the diet. These 0:19:30.040 --> 0:19:32.760 are becoming even more important to consumers. Some of the 0:19:32.800 --> 0:19:35.919 generational shift too, you're starting to see is that it's 0:19:35.920 --> 0:19:38.080 even more important to the millennials who are in the 0:19:38.080 --> 0:19:40.560 market now and really becoming some of the chief spenders 0:19:40.600 --> 0:19:44.040