Speaker 1: This is Bloomberg Intelligence with Alex Steel and Paulsweenye.
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Speaker 1: Intelligence with Alex Steel and Paulsweenye on Bloomberg Radio.
Speaker 2: On Today's Bloomberg Intelligence Show, we dig inside the big
Speaker 2: business stories impacting Wall Street and the global markets.
Speaker 3: Each and every week we provide in depth research and
Speaker 3: data on some of the two thousand companies in one
Speaker 3: hundred and thirty industries our analysts cover worldwide.
Speaker 2: Today, we'll break down a merger between two of the
Speaker 2: world's largest advertising groups PLAUS.
Speaker 3: We'll discuss why shares of the computer tech company Oracle
Speaker 3: fell by the most in a year.
Speaker 2: But first we dive into how I planned US supermarket
Speaker 2: merger between Kroger and Albertson's crumbled. And this came after
Speaker 2: Albertson terminated their.
Speaker 3: Packed Albertson's also set a file the lawsuit against Kroger,
Speaker 3: claiming the company failed to exercise best efforts to secure
Speaker 3: regulatory approval.
Speaker 2: The lawsuit comes after our federal judge blocked the deal,
Speaker 2: saying the merger with lesson competition and raise prices for
Speaker 2: your shoppers. For more.
Speaker 3: We are joined by Jen Ree Bloomberg Intelligence senior litigation analyst.
Speaker 2: We first asked Jen if it's common for merger partners
Speaker 2: on a broken deal to suit each other.
Speaker 4: It happens once in a while. Well, I'll say it's
Speaker 4: pretty rare, but it has happened. I mean, think about
Speaker 4: Anthemin Signa. I don't know if you remember that deal
Speaker 4: from back in twenty fifteen. It fell apart also, and
Speaker 4: there was litigation for a couple of years after the
Speaker 4: deal was terminated in Delaware. And you know, they both
Speaker 4: came out with nothing. Spent a lot of money and
Speaker 4: both came out with nothing.
Speaker 3: Is it true that you think that Kroger didn't do
Speaker 3: enough here? Like, do they have a leg to stand
Speaker 3: on Alberson?
Speaker 4: I think a breach of contract claim based on you know,
Speaker 4: failing to abide by sufficiently defending against the antitrust claims
Speaker 4: is very difficult because you know, this is really very
Speaker 4: subjective and to some extent, when companies go to court
Speaker 4: and they have a remedy, they're sort of rolling the dice.
Speaker 4: They're hoping they'll convince the judge, even though they didn't
Speaker 4: convince the FTC. And I'm not so sure that you
Speaker 4: can think of that as a breach in this case though,
Speaker 4: having meant a trial, the remedy really was deficient. I mean,
Speaker 4: it was very difficult to understand how a judge, after
Speaker 4: the FDC presented their case on how this deal could
Speaker 4: cause harm in thousands of markets, how a judge could
Speaker 4: accept the remedy that had been put forward by Kroger,
Speaker 4: which was really very piecemeal, very complicated and difficult, and
Speaker 4: didn't really have the best buyer. So you know, we're
Speaker 4: gonna have to see what happens here with this.
Speaker 2: I mean, so again, I kind of thought that's kind
Speaker 2: of what a partially what a breakup fee kind of
Speaker 2: covers there. I mean, if this deal doesn't go through
Speaker 2: for whatever reason, you guys wanted to buyas you initiated
Speaker 2: the deal, if it doesn't go through, right, you got
Speaker 2: to compensate.
Speaker 5: Me right, right, that's exactly right. The seller is really
Speaker 5: has a.
Speaker 4: Difficult time during that interim period, right, they lose employees.
Speaker 4: They can always enter new supply contracts, So this is
Speaker 4: really intended to make that seller whole, you know, in
Speaker 4: this case, I think now Kroger's turned around and said, no,
Speaker 4: it was it was Albertsons that breached the contract, you know,
Speaker 4: And of course they're probably doing that to get a
Speaker 4: little bit of leverage here. Maybe the hopes would be
Speaker 4: that they could settle for something less than that six
Speaker 4: hundred million breakup fee in order to make all the
Speaker 4: litigation go away. Maybe maybe that's what's happening here, just
Speaker 4: a little bit of leverage.
Speaker 5: But you know, again, we'll have to see what happens.
Speaker 4: It would be a shame if they continue to litigate
Speaker 4: this and spend millions more dollars.
Speaker 6: Good for the lawyers.
Speaker 7: A deal, dumb question? Is a deal really done?
Speaker 5: Oh?
Speaker 7: Yes, they killed for sure, it's done.
Speaker 4: So Albertson's is already terminated. They exercised their right under
Speaker 4: the agreement to terminate, so it is done.
Speaker 5: The deal.
Speaker 4: Agreement is no longer good. So if they even wanted
Speaker 4: to do another deal, they'd have to enter a new agreement.
Speaker 4: And now obviously there's antagonism between the.
Speaker 2: Companies, all right, in your world of antitrust, What is
Speaker 2: the expectation of change given a new administration, given you
Speaker 2: a Republican control House and Senate, is there any expectation
Speaker 2: that things will get easier?
Speaker 5: I think it get better.
Speaker 4: I think some of the exuberance on Wall Street is
Speaker 4: maybe a little overdone. These huge deals between competitors are
Speaker 4: still going to get challenged. And we have to remember
Speaker 4: that the two Republican FTC commissioners who will still be
Speaker 4: there on the Commission both voted yes to sue the
Speaker 4: Tapestry could pre deal and to sue the temper See
Speaker 4: Le Mattress Firm deal. They both said yes we should sue,
Speaker 4: so they are aligned in some restricts with suing the
Speaker 4: deals that could cause harm. I do think what we're
Speaker 4: going to see though, is an uptaking deals that can
Speaker 4: close with settlements. We didn't have any of that in Biden.
Speaker 4: The Biden enforcers did not want to settle deals if
Speaker 4: the deal was bad. They wanted to challenge the deal,
Speaker 4: and that's what they did. I think in this case,
Speaker 4: once we have a majority of the FTC and new
Speaker 4: people at the DOJ. We're going to see that list
Speaker 4: of settled deals that then go on to close grow.
Speaker 3: What do you make of the potential new FTC people
Speaker 3: coming in, Well.
Speaker 5: I'll just say this.
Speaker 4: If Lenakon's mission was to stop consolidation and revitalize antitrust,
Speaker 4: their mission is going to be to stop with they
Speaker 4: perceive as censorship of conservative viewpoints by big tech platforms.
Speaker 4: There has been a lot of talk about that, even
Speaker 4: suggesting that there could be collusion amongst big tech platforms
Speaker 4: to censor conservative viewpoints and that the FTC should be
Speaker 4: going after these companies under the anti trust laws to
Speaker 4: stop that. And I think that's going to be a
Speaker 4: big focus.
Speaker 2: So what's the timing there at the FTC and the DOJ.
Speaker 2: When do the new sheriffs, if you will, kind of
Speaker 2: get in town.
Speaker 4: The FTC could be DOJ will be quick, these people
Speaker 4: will leave. The appointees by Biden will leave in January,
Speaker 4: and that is the expectation also that Lena Kon at
Speaker 4: the FTC will leave in January. As soon as Trump
Speaker 4: is inaugurated January twenty, then Andrew Ferguson will become the chair.
Speaker 4: If Lena Khan is still there, she'll then just become
Speaker 4: a commissioner, but she will probably leave and then at
Speaker 4: that point he just has to get his new appointment
Speaker 4: mark meter through the Senate confirmation process. It could take
Speaker 4: a few months. He has a majority in the Senate
Speaker 4: in the House. I don't think it's going to be
Speaker 4: too difficult. So it'll be a few months and in
Speaker 4: the meantime it'll be a two to two FTC. Probably
Speaker 4: the DJ will change over more quickly, probably in January.
Speaker 3: So if I'm a company and I'm interested in buying
Speaker 3: another company, do I get on the list now? Do
Speaker 3: I wait until all this stuff is cleared and then
Speaker 3: I get on the waiting list to get my deal done?
Speaker 3: Like what's my strategy?
Speaker 4: I think if you know that it has some issues,
Speaker 4: if you know you're probably going to get investigated, you
Speaker 4: can go ahead and file it now because you have
Speaker 4: eight months ahead of you and the new people will
Speaker 4: be the decision maker.
Speaker 5: So if you have a deal you.
Speaker 4: Think has no issues and could get through in thirty days,
Speaker 4: maybe you wait right because you have a greater hope
Speaker 4: of just getting get cleared in thirty days once the
Speaker 4: new people are in all right.
Speaker 3: Thanks to Jen Rey, Bloomberg Intelligence Senior Litigation analyst.
Speaker 2: This week we focused on a Bloomberg Big Take story
Speaker 2: entitled Jane Fraser stares down skeptics ahead of City's critical year.
Speaker 3: You can find it on Bloomberg dot Com and the Terminal,
Speaker 3: and the story looks at extensive reporting and an exclusive
Speaker 3: interview with Citygroup CEO Jane Fraser, and it illustrates her
Speaker 3: five year plan to turn the bank around.
Speaker 8: For more.
Speaker 2: We were joined by the story's author, Todd Gillespie, a
Speaker 2: Bloomberg Finance reporter.
Speaker 3: We first asked Todd to break down his reporting and
Speaker 3: how Citygroup has done recently.
Speaker 9: Thanks generally speaking as a sector have done really well
Speaker 9: this year. You know, Citi's kind of sitting the middle
Speaker 9: of the pack of the top six major US banks,
Speaker 9: so they're doing okay.
Speaker 8: You know.
Speaker 9: Mark Mason, the CFO, said that the bank is set
Speaker 9: to hit the top end of its revenue guidance for
Speaker 9: the end of this year. So after years of disappointing people,
Speaker 9: you know, investors, analysts, slowly maybe starting to think that
Speaker 9: she can turn the ship around.
Speaker 6: But it's a huge task.
Speaker 3: Why is the ship so big and why is it
Speaker 3: so hard to turn Well.
Speaker 9: City Group is you know, was once before the financial crisis,
Speaker 9: the world's largest financial company. It was the US's largest bank.
Speaker 9: This is a company that is probably the most global
Speaker 9: bank in the world. It's the only bank, for instance,
Speaker 9: that has a significant presence in Lebanon, where it had
Speaker 9: to evacuate staff earlier this year.
Speaker 6: We reported that earlier this year.
Speaker 9: And yeah, so you know, it's one of those banks
Speaker 9: that is so sprawling, which is one of its advantages
Speaker 9: because it gets, you know, it enables it to have
Speaker 9: this incredible global network of payment systems and m and
Speaker 9: a advice and you know X in all sorts of
Speaker 9: different countries.
Speaker 6: But it's also a big hindrance.
Speaker 9: And one of the things that Jane Fraser has tried
Speaker 9: to do is pull in exit you know, thirteen of
Speaker 9: its retail markets where it has retail banking presence. It's
Speaker 9: about IPO, it's retail business in Mexico by twenty twenty six.
Speaker 9: So it's really kind of trying to straighten, you know,
Speaker 9: downsize in the right ways she's saying, and also increase
Speaker 9: its feed businesses like wealth management and banking as well.
Speaker 2: What does City want to be when it grows up?
Speaker 2: Does it want to be JP Morgan? Is that the
Speaker 2: aspiration for City or they have a different strategy.
Speaker 9: I mean, it's hard to com bear, but yeah, I
Speaker 9: mean I probably say JP Morgan is a bank. I
Speaker 9: mean i'd say small steps, you know, I think Bank
Speaker 9: for America. The way that Bank of America came out
Speaker 9: of the financial crisis was something that City could have
Speaker 9: only hoped to emulate.
Speaker 8: Right.
Speaker 9: City has really been a laggard since the financial crisis
Speaker 9: in a way that Bank of America was able to
Speaker 9: suddenly turn that ship around fairly strongly. City is only
Speaker 9: just managing to maybe start to start do that.
Speaker 8: You know.
Speaker 9: It has very large servicesiness payment system, just like JP Morgan.
Speaker 9: It's obviously it's banking business has been traditionally one of
Speaker 9: the smaller on the M and A side, but larger
Speaker 9: on the DCM and ECM side. So it's trying to
Speaker 9: trying to see if it can kind of even out
Speaker 9: those businesses as well. So yeah, it's unclear. I mean, yeah,
Speaker 9: maybe if Jamie Diamond had stayed at City Group back
Speaker 9: in the day, it.
Speaker 6: Would have had a very different trajectory In talking.
Speaker 3: To shareholders and talking to analysts, what's the vibe on
Speaker 3: Jane Fraser, like, is she doing a good job?
Speaker 6: Is it?
Speaker 3: I realize it's only halfway through, but what's the confidence level?
Speaker 9: Yeah, well she's passed halfway through now. I mean she
Speaker 9: set out these targets in March twenty twenty two. She
Speaker 9: says that by the end of twenty twenty six she
Speaker 9: can get to a return on tangible common equity of
Speaker 9: eleven to twelve percent. They're sitting rather unhappily just under
Speaker 9: seven percent right now, which is one of the key
Speaker 9: metrics that investors an analyst, are quite unhappy with, to
Speaker 9: be honest. But people like her as a CEO, you know,
Speaker 9: people respect her. She's pretty forthright, she's got empathy, you know, regulators,
Speaker 9: you know folks. I think people like dealing with her
Speaker 9: as a person. But obviously, when you take a bank
Speaker 9: through this massive change, you know, right, they announced twenty
Speaker 9: thousand job cuts at the beginning of this year, nine
Speaker 9: thousand of those still to go in the next two years.
Speaker 9: It's it's, you know, you're obviously going to have enemies
Speaker 9: and people who really don't like the way that you're
Speaker 9: you're moving this thing around.
Speaker 2: What's next for city in their turner REMP plant. Is
Speaker 2: there a mile post that investors are saying for this
Speaker 2: is the next thing we need to see.
Speaker 9: The next thing everyone needs to see is positive operating
Speaker 9: leverage that really consistently comes through. That's you know, that's
Speaker 9: that's revenues outpacing growth and revenues outpacing expenses for them
Speaker 9: in the next twelve months. And they also really want
Speaker 9: to see strong growth towards that RTC that returns target
Speaker 9: every quarter, quarter by quarter, and that's the kind of
Speaker 9: consistency that city has lacked for the past decade that
Speaker 9: Jane Fraser is really trying to bring back to the
Speaker 9: business and show investors that they can believe the targets
Speaker 9: that she and her CFO Mark Mason set out and
Speaker 9: actually stick to those so that they have that confidence
Speaker 9: in the market, they can get rid of those regulatory
Speaker 9: burdens that have kneecapped them for so long, and that
Speaker 9: city can really come out of this stronger, more streamlined,
Speaker 9: and finally, you know, put behind it this bloat that
Speaker 9: has really weighed it down.
Speaker 3: You also mentioned in the piece, but how they do
Speaker 3: good numbers, They deliver good numbers, they don't get the
Speaker 3: credit for it and earnings.
Speaker 7: What's up with that?
Speaker 6: Totally?
Speaker 9: I mean every you know, every quarter there. You know,
Speaker 9: if they post strong revenues, it's the ROTC number that's
Speaker 9: not quite right. If the ROTC number is good, it's
Speaker 9: revenues that aren't quite right, or it's something like that.
Speaker 9: And you know these are often battles really on earning schools.
Speaker 9: These are longer arning schools than most banks have, and
Speaker 9: you can really listen to those yourself. They do get
Speaker 9: quite colorful and quite lengthy, so you know you need
Speaker 9: to have an extra shot of espresso while they're going through.
Speaker 2: Thanks to Todd Gillespie, Bloomberg Finance.
Speaker 3: Reporter, coming up well, break down the carbon market and
Speaker 3: why it's a key part to transforming the energy landscape.
Speaker 2: You listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 2: depth research and data on two thousand companies in one
Speaker 2: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 2: Bigo in the terminal.
Speaker 3: I'm Paul Sweeney and a Malex Steel, and this is Bloomberg.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 1: with the Bloomberg Business app, Listen on demand wherever you
Speaker 1: get your podcasts, or watch us live on YouTube.
Speaker 7: We move next to a big deal in the media space.
Speaker 3: This week we heard that Onakrom Group is acquiring inner
Speaker 3: Public Group to create the world's largest advertising company.
Speaker 2: The deal values into Public at thirteen point three billion
Speaker 2: dollars and the merger has seen as a response to
Speaker 2: the changing advertising landscape.
Speaker 8: For more.
Speaker 3: We are joined by Githermongana than Bloomberg intelligence analysts on
Speaker 3: US Media.
Speaker 2: We first asked Githa exactly why this deal happened.
Speaker 10: Over the past ten to fifteen years, advertising has been
Speaker 10: completely disrupted by the likes of you know, Google and
Speaker 10: Meta where we've seen a complete shift of ad budgets
Speaker 10: from traditional mediums like you know, TV and radio and
Speaker 10: newspaper to really all digital forms of advertising to the Internet.
Speaker 10: And so there has been a lot of disintermediation with
Speaker 10: the ad agency holding companies all of these you know
Speaker 10: Madison Avenue type of agency companies that are only really
Speaker 10: a handful of them left. So you have the big
Speaker 10: four omnicommon Interpublic are of course two US based agencies,
Speaker 10: but the bigger ones are their European rivals, Publicies and WPP.
Speaker 10: And really what we're trying, what they're trying to do
Speaker 10: here is, you know, it's become such a data driven business.
Speaker 10: There is so much competition from big tech and now
Speaker 10: of course with the advent of AI, you know, this
Speaker 10: threat of disintermediation is only growing more and more. And
Speaker 10: I think this is absolutely the right time for consolidation.
Speaker 10: And this really just tells us about the amount of
Speaker 10: secular pressures in this industry, very very similar to the
Speaker 10: linear TV model in a way.
Speaker 6: How cost intensive is this business? How much do they
Speaker 6: spend on labor?
Speaker 10: For instance, sixty percent, sixty percent of all of their
Speaker 10: costs are are on labor. So really, this merger, in
Speaker 10: so many ways, John is really about saving costs. They
Speaker 10: already outlined about seven hundred and fifty million dollars in
Speaker 10: cost energies, and of course that is likely to go
Speaker 10: up as they kind of eliminate redundancies. And if you
Speaker 10: just kind of look at it over the course of
Speaker 10: the next ten years, I mean there have been multiple
Speaker 10: studies that have been conducted that have said that you know,
Speaker 10: with AI being able to create campaigns. Being able to
Speaker 10: create all of these the creative elements of what an
Speaker 10: ad agency does, almost thirty three thousand jobs or post
Speaker 10: to almost forty percent of the ad agency sector's jobs
Speaker 10: would have anyway been eliminated. So it is really going
Speaker 10: to come down to saving on on labor.
Speaker 1: Wow.
Speaker 2: So in this world where it's it's Facebook and it's YouTube,
Speaker 2: and if I'm Coca Cola and I'm Ford Motor Company
Speaker 2: and I'm going to do a big advertising buy on
Speaker 2: one of these digital platforms, how different is is than
Speaker 2: forty years ago when I was just advertising on network television.
Speaker 10: Yeah, it's really different now because all of these small
Speaker 10: businesses actually now just go directly to Google and Meta.
Speaker 10: So the way that it is now working is all
Speaker 10: of the small mom and pop stores, medium sized businesses
Speaker 10: are not going to these ad agency networks anymore. So
Speaker 10: it's really only a handful of these big brands that
Speaker 10: are really still you know, having their campaigns kind of
Speaker 10: designed by the big you know, ad agency networks. And
Speaker 10: even in those big brands, even brands like p ANDNG,
Speaker 10: even brands like Apple are really kind of going more
Speaker 10: and more in house. So it has become really difficult
Speaker 10: for the ad agency companies to kind of survive in
Speaker 10: this changing world, and they have to keep adapting, and
Speaker 10: they have to keep acquiring more data centric businesses. They
Speaker 10: have to keep investing more in AI really and in data.
Speaker 10: And if you kind of just look at omnicommon Interpublic
Speaker 10: versus their European rivals, they're actually lagging behind a little
Speaker 10: bit in terms of AI and tech investments. And I
Speaker 10: think this deal was kind of prompted a little bit
Speaker 10: by that as well.
Speaker 6: Can AI really deliver a creative execution for these firms?
Speaker 10: Yes, it can, maybe not at the highest level, but
Speaker 10: I think as you know, the algorithms kind of keep
Speaker 10: getting refined, we are definitely going to see a huge
Speaker 10: level of disintermediation. And even today, you know, we talk about,
Speaker 10: you know, these companies talk about how AI is helping
Speaker 10: them kind of refine their campaigns, kind of refine the messaging,
Speaker 10: get to better targeting. So AI is definitely a very
Speaker 10: very useful tool. And if you just kind of look
Speaker 10: at even Omnicom and Interpublic over the past year, one
Speaker 10: of the reasons why Interpublic has kind of been so
Speaker 10: keen to for the sale is because it has been
Speaker 10: losing so many clients. They lost a very very important
Speaker 10: client with Amazon, and really a whole string of account
Speaker 10: losses kind of precipitated this whole sale process. And on
Speaker 10: the other hand, if you look at Omnicom, they've actually
Speaker 10: have an AI assist tool called Omni which has helped
Speaker 10: them kind of really win a lot of clients. So
Speaker 10: we've kind of seen the two agency groups have very
Speaker 10: differing performances all right.
Speaker 3: Thanks to Keith Raganath and Bloomberg Intelligence Analysts on US media,
Speaker 3: each week.
Speaker 2: We look at research from Bloomberg and EF previously known
Speaker 2: as New Energy Finance.
Speaker 3: They're the team at Bloomberg that tracks and analyzes the
Speaker 3: energy transition from commodities to power, transport, industries, buildings, and
Speaker 3: agricultural sectors.
Speaker 2: This week, we took a look at the carbon market,
Speaker 2: a key part of transforming the energy landscape for more.
Speaker 2: We were joined by bo Chin b n EF, head
Speaker 2: of America's Environmental Markets and Weather analysts.
Speaker 3: We first asked bo to discuss what she's currently seeing
Speaker 3: in the US carbon market and what she expects in
Speaker 3: the year ahead.
Speaker 11: The US carbon market is now going through ups and downs,
Speaker 11: so this year has been super exciting year for US
Speaker 11: carbon markets. We have hit record highs. The most interesting
Speaker 11: carbon markets in US are on the coasts, so we
Speaker 11: have on the West coast California linked with Quebec, and
Speaker 11: then on the East Coast we have Regional Greenhouse Gas Initiative,
Speaker 11: which is a power sector specific carbon market focused on
Speaker 11: ten states. Both of these markets have seen price records.
Speaker 11: So looking at just West Coast, the California carbon price
Speaker 11: went up forty percent since twenty twenty three, hitting a
Speaker 11: record forty four dollars per ton, and we have seen
Speaker 11: this price is actually, unfortunately this year, come down thirty
Speaker 11: percent this year, and this is because of the reforms
Speaker 11: that have been proposed and also the delays of these reforms.
Speaker 11: On the East Coast we have a similar story. So
Speaker 11: it was a very polish story up till September with
Speaker 11: prices moving up seventy percent to twenty eight dollars per
Speaker 11: short ton, and then prices have since also come down
Speaker 11: twenty five percent because of their reforms.
Speaker 7: But we do expect next.
Speaker 11: Year to be a very exciting year as these reforms
Speaker 11: get concluded and we see more policy certainty within these markets.
Speaker 2: Explain it to me like I'm a five year old.
Speaker 2: What drives the price of carbon?
Speaker 7: I was going to ask that to you. Actually, yeah,
Speaker 7: carbon markets really is like commodity.
Speaker 2: Yeah, commodity, so demand, Yeah, it's demand.
Speaker 11: It's basically think it as a farmer's market where polluters
Speaker 11: go to buy permits and then abaters go to sell
Speaker 11: their permits. It depends how big family are feeding, how
Speaker 11: much demand is for that abatement, then that drives the price.
Speaker 11: In our world, we call that demand, and the price
Speaker 11: is a marginal abatement cost curve. So if you have
Speaker 11: a strong demand or a strong climate ambition and a
Speaker 11: very limited marginal abayment cost curve, that would lead to
Speaker 11: a high carbon price. And then vice versa. If you
Speaker 11: have low demand or low climate action and a very
Speaker 11: significant marginalbayment cost curve, meaning that you have cheap abatement
Speaker 11: and a vast amount of it, then you would have
Speaker 11: typically a lower carbon price.
Speaker 3: So to me, also the idea what the carbon price is,
Speaker 3: If you get it high enough, then companies are going
Speaker 3: to want to store their carbon because they're going to
Speaker 3: be able to then trade that credit and get money
Speaker 3: for it. Right, So the higher it is, the better
Speaker 3: it is for the environment because companies will be more
Speaker 3: incentivized to store their carbon or not produce it or
Speaker 3: to sell it.
Speaker 7: Right, Yeah, but what is that price?
Speaker 11: It really depends on the supply and demand assets a commodity.
Speaker 3: But like every talking about like eighty dollars, would it
Speaker 3: really be a good incentive?
Speaker 7: Is it one hundred?
Speaker 3: I mean any commodity is going to have that incentive price?
Speaker 11: Yeah, exactly. It depends on what technology you're looking at.
Speaker 11: What is the trigger point for a trigger price? So
Speaker 11: if you're like we typically say that the cheapest is
Speaker 11: the call to gas field switch in, and that also
Speaker 11: depends on the market, So in a Europe that typically
Speaker 11: is higher than US where gas is already very low.
Speaker 11: We also looked into this that not only a power
Speaker 11: sector now is the ones that are being trigger but
Speaker 11: also transport where you tilt from ice vehicle to a
Speaker 11: EV and a carbon price can help you to do that.
Speaker 11: And also carbon price doesn't work alone, so there's a
Speaker 11: lot of complementary policies. We are pretty much the yeah,
Speaker 11: final defense. So if other complementary policies didn't deliver the
Speaker 11: results we wanted to see, then carbon price can do
Speaker 11: the final lift.
Speaker 2: Hopefully interesting, So real quickly change in administrations coming up.
Speaker 2: What does that mean for your world?
Speaker 11: Yeah, it's really exciting actually for US. Maybe for the
Speaker 11: clean energy sector it's maybe not such positive news as
Speaker 11: potentially some subsidies like Inflation Reduction Act and other complementary
Speaker 11: policies for renewables and clean transport will be now reduced
Speaker 11: and there will be more support for oil and gas industry.
Speaker 11: But for carbon market this could be a good thing
Speaker 11: because we would have more emissions that would support carbon prices.
Speaker 11: But also a lot of states could now really double
Speaker 11: down on carbon market as a policy tool to support prices. Also,
Speaker 11: for investors, carbon price could become an attractive tool to
Speaker 11: invest because carbon markets, particularly those compliance carbon markets, can
Speaker 11: hedge inflation, which could become a topic now with the
Speaker 11: immigration rules and twists being changed with the new admin quickly.
Speaker 3: Is it a bad thing that it's so fragmented?
Speaker 6: Yes?
Speaker 3: Do we ever get to a place where there's like
Speaker 3: a US carbon price?
Speaker 6: We do hope.
Speaker 10: So for.
Speaker 11: National level carbon price, it will most likely not become
Speaker 11: a realistic thing in the next few years, but we
Speaker 11: could see more states linking like even right now we
Speaker 11: are seeing that Washington, which survived the repeal actually.
Speaker 7: In November as well.
Speaker 11: So now there's more opportunity for Washington state to be
Speaker 11: linked with a California.
Speaker 7: There are also other states that.
Speaker 11: Are talking about having a compliance carbon market. Actually right
Speaker 11: here in New York, very excited about Niki. I'm excited
Speaker 11: to make the sun O Mikid become a Hey Nikki.
Speaker 7: So New York is going to.
Speaker 11: Be a economy wide and it's going to be a
Speaker 11: similar size to California. So if these all get linked,
Speaker 11: then we could have a like maybe not an official
Speaker 11: national but a benchmark price our.
Speaker 2: Thanks to bo Chin b n Ef, head of America's
Speaker 2: Environmental Markets and weather analysts.
Speaker 3: Coming up on the program, we'll discuss why the department
Speaker 3: store chain may See has trimmed its profit outlook for
Speaker 3: the year.
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 2: bi go on the terminal, Paul Swinging and am Alex
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Speaker 3: Eleven thirty We moved next to the computer tech company Oracle.
Speaker 7: This week's shares of Oracle fell by the most in
Speaker 7: a year.
Speaker 2: That's after the company reported second quarter profit and revenue
Speaker 2: that missed analysts expectations from more.
Speaker 3: We are joined by anaag Rana, Bloomberg Intelligence technology analyst.
Speaker 2: First, ask on Arov what Oracle's results say about its business.
Speaker 8: See, when you look at the constant currency growth for
Speaker 8: a cloud infrastructure, it was fifty two percent. I think
Speaker 8: consensus was fifty one, so a slight beat, but the
Speaker 8: reaction tells me it was not good enough for byside investors.
Speaker 8: You know, from our side, there's no problem in terms
Speaker 8: of future growth prospects for that business because backlock's very strong.
Speaker 8: The demand is there. And for Oracle, they're actually getting
Speaker 8: work from Microsoft because Microsoft is leasing their data centers
Speaker 8: because it is having a huge backlog of work on
Speaker 8: their end.
Speaker 3: So does that mean this is just a Hey, the
Speaker 3: stock could run up really fast. Therefore, the expectator, just
Speaker 3: the expectation game, is that what I can read into
Speaker 3: the equity.
Speaker 8: I would absolutely say that because right now this has
Speaker 8: been the trade for twenty twenty four has been the
Speaker 8: infrastructure that's related to AI, so whether that's the chips,
Speaker 8: even the numbers were pretty good, and twenty twenty five
Speaker 8: could be a year where you will see the downstream
Speaker 8: impact of some of these AI infrastructures, which is cloud
Speaker 8: companies or other software companies coming up with applications that
Speaker 8: are based on some of these AI infrastructures. So we
Speaker 8: have a long way to go before we realize the
Speaker 8: true value of AI spending across the entire value chain.
Speaker 8: For this year, we just saw it in the you know,
Speaker 8: the cloud and the chips part of it.
Speaker 2: The demand is so robust on a rock that I've
Speaker 2: heard companies talk about maybe even some shortage of some
Speaker 2: components of some of the things they want to buy.
Speaker 2: Talk to us about that. What did Oracle say?
Speaker 8: Yeah, Oracle is no different than other companies because even
Speaker 8: for Microsoft, they cannot get up data centers at the
Speaker 8: same rate as they're seeing demand coming from open AI.
Speaker 8: They are not They are everybody's having struggled to procure
Speaker 8: in video GPUs to train some of these models. And
Speaker 8: that's the case. Oracle's backlock is so strong. But you
Speaker 8: know there has been supply challenges. They are spending a
Speaker 8: lot of money on capital expenditure. Last year approximately, they
Speaker 8: spent about seven billion dollars in capex. This year is
Speaker 8: going to be double of that fourteen billion dollars. So
Speaker 8: I mean it we see that when these companies spend
Speaker 8: money to expand their capacity, we know that demand is
Speaker 8: behind it.
Speaker 7: So this is like the software stuff.
Speaker 3: So Nvidia supplies the chips for Oracle, who then uses
Speaker 3: builds the software stuff for companies like Eccentric or Amazon
Speaker 3: AM I is that correct?
Speaker 8: Yeah, it's you got it right. In this case, what's
Speaker 8: happening is companies like Microsoft, Google, AWS, and Oracle are
Speaker 8: building an infrastructure on which companies can build applications. So
Speaker 8: these companies could be accentual, it could be JP Morgan,
Speaker 8: it could be Citybank, et cetera. These companies will go
Speaker 8: out and create their own AI apps that can then
Speaker 8: be used internally by the companies. And I mean you
Speaker 8: can do this in house also by buying AI servers
Speaker 8: but cloud is usually a better and each cheaper way
Speaker 8: to go because you can turn it off if you
Speaker 8: don't like it. So that's what we are seeing right.
Speaker 2: Now is peak AI anywhere on the horizon there on
Speaker 2: a rug.
Speaker 8: That's a very very good and tough question, frankly, because
Speaker 8: the question is going to be will people get bored
Speaker 8: in the AI infrastructure space, and they will will they
Speaker 8: move to somewhere else? We saw that in the last
Speaker 8: three months suddenly the interest in Salesforce, for example, and
Speaker 8: that is because Salesforce is the second leg of this equation.
Speaker 8: One is the infrastructure we talked about. Second is the application.
Speaker 8: Salesforce created some AI application that can help you do
Speaker 8: you know, fix your online orders, automatically, do some referns,
Speaker 8: et cetera. So that's the application part of it. We
Speaker 8: think next yer is going to be a lot of
Speaker 8: Salesforce like applications that will come to the market by
Speaker 8: different software companies that will help people be more productive.
Speaker 8: And then the third and the final layer would be
Speaker 8: the consulting companies that are helping in the implementation of
Speaker 8: that that goes in tandem with software companies. But we
Speaker 8: think there are multiple years before we see the true
Speaker 8: realization of the funding that's happening right now.
Speaker 7: All right, quickly on a rag.
Speaker 3: Adobe is a competitor Oracle and what do we learn
Speaker 3: from Oracle as relates to Adobe.
Speaker 8: Yeah, from a from Wells. They're both software companies, but
Speaker 8: they do slightly different things. For Adobe, the big question
Speaker 8: is going to be is their business being cannibalized by
Speaker 8: open source AI tools. We don't think that's the case
Speaker 8: right now, but that's a big argument in this space.
Speaker 8: If you look at the entire software space right now,
Speaker 8: Adobe's probably the one where do you have the biggest
Speaker 8: argument whether they're going to be the net beneficiaries of
Speaker 8: AI or whether they're going to get hurt by I.
Speaker 8: For Adobe, we expect them to go out and come
Speaker 8: out and say that the adoption rate of their own
Speaker 8: AI tools is picking up, and that's really what we
Speaker 8: are looking for. All right.
Speaker 3: Thanks to Anna Agrana Bloomberg Intelligence and your technology analyst.
Speaker 2: We move next to the retail space and Macy's. This week,
Speaker 2: the department store chain said it had trimmed its profit
Speaker 2: outlook for the year.
Speaker 3: This comes after Macy's concluded its investigation into an employee
Speaker 3: that hid millions of dollars and expenses. The discovery of
Speaker 3: the accounting eras led Macy's to delay its full earnings
Speaker 3: report back in November.
Speaker 2: For more, we were joined by Mary Ross Gilbert Bloomberg
Speaker 2: Intelligence senior Ecuadanalysts. We first asked Mary to walk us
Speaker 2: through Macy's recent investigation.
Speaker 12: What happened here is that they had a single employee
Speaker 12: who basically hid small package delivery expenses of about one
Speaker 12: hundred and fifty one million. That was over a three
Speaker 12: year period, so were the year to date. I think
Speaker 12: it was about nine million is the effect in the
Speaker 12: for that period. So the company, of course had to
Speaker 12: lower their guidance, and the gross margin figures anyps of
Speaker 12: course because it drops all the way down there, but
Speaker 12: it doesn't affect cash. So that's the good news and
Speaker 12: it's put behind him. What they have done is they've
Speaker 12: improved their financial controls. They've added some additional checks and
Speaker 12: balances there. So I think this is now behind them,
Speaker 12: and I think the real focus here is on the
Speaker 12: go forward operations. And I say go forward meaning let's
Speaker 12: exclude the one hundred and fifty stores that they're going
Speaker 12: to close. Sixty five of those stores will close in
Speaker 12: the fourth quarter. That's ahead of the original fifty they
Speaker 12: slated to close, and then the other eighty five maybe
Speaker 12: that'll get done by next year instead of the next
Speaker 12: two years. Nonetheless, if you put those aside and you
Speaker 12: look at what's going on with the go forward business,
Speaker 12: we're seeing sequentially sequential improvement with the first fifty stores
Speaker 12: that they've completely revamped actually posting a positive increase. They
Speaker 12: were up one point nine percent in the third quarter,
Speaker 12: and that's the third quarter of positive comp improven there.
Speaker 12: So we're actually seeing signs that the plans, the initiatives
Speaker 12: that they're employing are working. So we see some green
Speaker 12: shoots in there. What does it let me think this
Speaker 12: accounting issue is behind them all right?
Speaker 2: What does a revamped store look like? What's the strategy
Speaker 2: behind a revamped store?
Speaker 5: Paul, That's a good question.
Speaker 12: So what that means is is they've really up their
Speaker 12: game in terms of merchandising. They brought in new brands
Speaker 12: like Lafitte, La Levec Fee, Donna, Karen, Carl Lagerfeld, Steve Madden.
Speaker 12: These brands offer great style and value to the company.
Speaker 12: Their private label program has been completely revamped. Now that's
Speaker 12: only about fifteen percent of sales. So the biggest part
Speaker 12: is really bringing me in these other brands. But not
Speaker 12: only that, they've uped their game in terms of service.
Speaker 12: They now have salespeople in the shoe department and then
Speaker 12: they have runners. So what happens is a salesperson will
Speaker 12: be working directly with a client and they'll say, hey,
Speaker 12: I need size eight, size eight and a half in this,
Speaker 12: and then they run and go get them. And then
Speaker 12: also they have service in handbags and in women's ready
Speaker 12: to wear. So having boosted the service levels also improving
Speaker 12: the overall appearance throughout the stores. We've been in our
Speaker 12: channel checks watching this happen, and we see the improvement.
Speaker 12: We see how that they got rid of some brands
Speaker 12: that were less relevant, brought in these newer ones. And
Speaker 12: we also saw during that Black Friday, we saw this
Speaker 12: year more traffic in the stores than we saw in the.
Speaker 5: Prior two years.
Speaker 12: And of course when you look at the data, their
Speaker 12: sales were better this year. They saw an increase in
Speaker 12: the Black Friday through Cyber Monday and the consumer transaction data,
Speaker 12: and that's something the company mentioned on the call today
Speaker 12: that yes, they're seeing strong you know, or sort of
Speaker 12: sequential improvement versus the third quarter into the fourth quarter.
Speaker 5: So I think those are some of the part.
Speaker 3: You're describing Mary. The revamped stores. It sounds a little
Speaker 3: bit like Bloomingdale's Light.
Speaker 5: You know what.
Speaker 12: That's exactly if you look at a let's say, one
Speaker 12: of their better what what they would call that, one
Speaker 12: of their flagships. So we have one here right next
Speaker 12: door in Century City, it does very much look like
Speaker 12: a Bloomingdale's.
Speaker 5: The store is interesting. It's brand new.
Speaker 12: I mean they've remodeled it four or five times within
Speaker 12: the last few years. What I mean by that is
Speaker 12: they've expanded beauty. So you walk in, it's an incredible
Speaker 12: showcase of beauty.
Speaker 5: Also includes Blue Mercury, of course.
Speaker 12: So we we've seen just and the stores so much brighter.
Speaker 12: But even in a tired old mall down in southern
Speaker 12: California that I will go to, even that store looks
Speaker 12: much better, even though it's sort of a tired location.
Speaker 5: They've really improved it.
Speaker 12: The better brands that they've incorporated, making these little Calvin
Speaker 12: Klein they look like little boutique shops, Michael Core's, Calvin Kleine,
Speaker 12: Tommy Hillfigure those are all in there and beautifully appointed.
Speaker 12: It's much more open. There's not just a sea of merchandise.
Speaker 12: It just makes more sense. So that's been extended across
Speaker 12: another hundred stores, so not just a fifty, but another
Speaker 12: one hundred.
Speaker 2: All right, So what's the company saying just about holiday
Speaker 2: sales so far? It is kind of confirmed what you've seen.
Speaker 5: Yes, they did.
Speaker 12: They said that they saw a good start to the
Speaker 12: holiday season, but of course we still have more to go.
Speaker 12: So no, and they act actually raised their guidance ATAD
Speaker 12: so I thought that was also an indication of what
Speaker 12: they're seeing, and so they could potentially beat the guidance
Speaker 12: because when they put things the guidance out, they really
Speaker 12: attempt to exceed those figures.
Speaker 3: Right. Thanks to Mary Ross Gilbert, Bloomberg Intelligence Senior Equity Analyst.
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