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Speaker 1: Bloombo Business News twenty four hours a day at Bloomberg

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Speaker 1: dot com, the Radio plus mobile. Last and on your radio,

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Speaker 1: this is a Bloomberg Business Flash and I'm Karen Moscow.

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Speaker 1: This updates brought to you by persons Inside sixteen, the

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Speaker 1: must attend event for advisers less than two weeks away

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Speaker 1: June seven through the ninth. If you haven't registered, you

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Speaker 1: still can visit inside dot com. That's I N S

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Speaker 1: I T E. Steen dot com. Commodities sliding led by medals.

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Speaker 1: While stocks in the US are little change. Is investors

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Speaker 1: await more clarity on the timing of the federal reserves,

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Speaker 1: next increase in interest rates and the outlook for inflation

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Speaker 1: the end of strengthen Aguage checked the markets every fifteen

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Speaker 1: minutes throughout the trading day on bloomberg s and P

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Speaker 1: five hundred again little changed at two Dow Jones Industrial

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Speaker 1: average up eleven points to seventeen thousand, five hundred fourteen,

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Speaker 1: and that's less than a tenth of upper cent. The

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Speaker 1: Nasdaq is up three ten percent or sixteen points eight

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Speaker 1: five tenure treasury of three thirty seconds, the yield one

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Speaker 1: point eight two percent yield on the two year point

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Speaker 1: eight nine percent, nimex s crude oil down one point

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Speaker 1: seven percent or eighty four cents to forty seven fifty

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Speaker 1: six of barrel comex schold on half percent or six

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Speaker 1: dollars twenty cents to twelve forty six seventy ounce, the

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Speaker 1: euro a dollar eleven ninety five the en one oh

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Speaker 1: nine point four four. They are offering sixty two billion

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Speaker 1: dollars to buy mons Santo and monts Santo is up

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Speaker 1: five and a half percent today. Area's Capital, the publicly

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Speaker 1: traded lender managed by alternative investment firm Areas Management, will

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Speaker 1: acquire American Capital and a deal valued at three point

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Speaker 1: four billion dollars and Tribune Publishing and fused with a

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Speaker 1: seventy point five million dollar investment from Nant Capital, rejecting

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Speaker 1: Gannett's latest takeover offer, escalating the battle between newspaper publishers.

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Speaker 1: That's a Bloomberg business flash. Tom and Mike Karen, thank

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Speaker 1: you so much. We are fortunate he is out of

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Speaker 1: Booth School, Chicago, and unlike some of the hysteria or

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Speaker 1: confusion of the media, Richard Bourke actually does acute analysis

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Speaker 1: the financials within the chemical space, and he joins us

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Speaker 1: now from Bloomberg Intelligence. Richard, thank you so much for

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Speaker 1: the clarity of your sensitivity analyzes of debt and equity

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Speaker 1: in this ginormous merger. You talked about debt capacity. How

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Speaker 1: aggressive is Beyar being, I mean Bears being very aggressive.

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Speaker 1: They are, but given that they have tucked the Ray

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Speaker 1: agencies and they will still be able to you know,

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Speaker 1: based on SAPs before on Friday said that they probably

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Speaker 1: would downgrade only two notches. They lose their A rating,

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Speaker 1: but they still be able to keep their investment grade rating.

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Speaker 1: And Bear also to their side, has pointed to in

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Speaker 1: the past they've done this when they bought Sharing and

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Speaker 1: been able to do lover back to A rating in

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Speaker 1: the past. Explained to our sophisticated audience how they get

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Speaker 1: to play by a different rule book and that whether

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Speaker 1: it's a creative next year or that. Clearly, and this

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Speaker 1: is very sophisticated, folks, the return on investment capital doesn't

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Speaker 1: click in for years. Why does Bear get away with

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Speaker 1: that and many other big companies don't. Well, it's it's

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Speaker 1: kinde of interesting and we have some precedents in the

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Speaker 1: chemical industry. Back um last year you had Rockwell album

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Speaker 1: Marle Brock bought Rockwall levered up past the metrics for

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Speaker 1: investment grade rating, which Bear is doing here. You also

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Speaker 1: had East Mchemical buying Tomenko and the same thing, and

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Speaker 1: interesting you had Montzal levering up to do a ten

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Speaker 1: billion dollars buy back on the three The only of

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Speaker 1: those free transactions, the only one that got downgraded was

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Speaker 1: Montsana know and the reason why the agencies will give

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Speaker 1: companies a path if they have a plan to d lever,

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Speaker 1: and this has usually been the case and M and

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Speaker 1: A transactions. And the only case that we did see

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Speaker 1: it down gray was a shared by back where they

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Speaker 1: were just transferring wealth from shareholders from dead holders to shareholders,

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Speaker 1: and the agencies don't look fondly on that. But if

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Speaker 1: you can present a credible plan to d lever to

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Speaker 1: the agencies, usually they will give you the benefit of

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Speaker 1: the doubt. And that appears to be what's happening in

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Speaker 1: this case. How how soon would Bear see enough of

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Speaker 1: a return to make this worthwhile? Well, because they're financing

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Speaker 1: it pretty much, we're all that the equit equit holders

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Speaker 1: not getting deluded that much, you know. They pointed to

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Speaker 1: their call that they actually see EPs creasy a year

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Speaker 1: with the in the deal. And that's an interesting point

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Speaker 1: that I think some people failed to grasp. If you

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Speaker 1: do it, I'll say, if you did a hard percent

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Speaker 1: debt financing, no may how much you pay, it's going

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Speaker 1: to be a creative to shareholders because you're financing, and

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Speaker 1: with debt, you're not deluding the shareholders. So that's kind

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Speaker 1: of what is happening here. The you know, they're issuing,

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Speaker 1: so you know the transactions being finance that debt, so

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Speaker 1: they will be able to point to EPs. But Mike,

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Speaker 1: I know you want to jump in here. Let me

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Speaker 1: be quick. Richard, Richard Bourke with this fabulous unbuyer, do

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Speaker 1: you assume that some of their tranches of debt will

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Speaker 1: be a negative yield or you know, under a quarter

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Speaker 1: of a percent Apple like debt. I mean, is it

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Speaker 1: so distorted by Mario dragging that they're going to be

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Speaker 1: able to do this totally a creative due to negative yields? Um.

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Speaker 1: I don't think they'll get aggular rates, but I think

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Speaker 1: the markets will look by this, you know again pointing

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Speaker 1: back last year when Manzano issued ten you know, announced

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Speaker 1: a ten billion dollars shared by back finance for that

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Speaker 1: they went to that market in the and this was

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Speaker 1: June of two thousand fourteen, where the US was not

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Speaker 1: a negative yield, but in a situation where we had

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Speaker 1: quantitative easing going on, and they only increased yield. That

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Speaker 1: they're at their three year point on their curved by

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Speaker 1: nine basis points and at the third year point on

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Speaker 1: their yield curve of twenty five basis points. So seeing

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Speaker 1: that the ECB is in the quantity of easy mode,

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Speaker 1: you know, we'll have to see if that holders when

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Speaker 1: the market, if the holders are going to extract their

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Speaker 1: pound of flush or they kind of looked through this

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Speaker 1: and see that everybody's like that, we might as well

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Speaker 1: jump on the bandway in Indian terms issued for four

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Speaker 1: years out three years out buyer holding limited paper with

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Speaker 1: a zero point five nine coupon trading your part extraordinary.

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Speaker 1: I mean, it's it's it's my I can tell you, Mike,

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Speaker 1: in my study of this is an amateur, unlike Mr Bourke,

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Speaker 1: who's a grizzled pro. I've never seen anything like this. Well,

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Speaker 1: is there a is there a final price estimate? Um

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Speaker 1: Richard that that makes any sense at this point in May?

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Speaker 1: And I note that it's a hundred and a share offer.

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Speaker 1: Monsto trading only four right now with the markets open

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Speaker 1: one oh seven seventy. Normally, in an acquisition situation like this,

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Speaker 1: you'd see the the company being acquired, you know, you'd

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Speaker 1: see shares rising to meet the share price or over

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Speaker 1: it if they want to drive the price up. Well,

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Speaker 1: but I mean, let's go back a year ago and

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Speaker 1: swap Montzala's name for Cigenta and buyer's name for Montsano,

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Speaker 1: and we had the same almost the same transaction, the

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Speaker 1: same rationale, and you never saw Gensenes shares pop up

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Speaker 1: to what Montsala was rumored to be offering. I think,

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Speaker 1: you know, people do have concerns, you know, one over

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Speaker 1: the regulatory if regulatory issues will maybe sculet part of

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Speaker 1: the deal, and too you know it's AGENTA was able

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Speaker 1: to successfully kind say no, it's gonna be really interesting.

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Speaker 1: Now issues on other foot with Montzana. What you know,

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Speaker 1: if they're gonna kind of all the page from Cigentas

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Speaker 1: playbook in around trying to fend off this merger. The

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Speaker 1: way Cigenta was able to they are has to uh,

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Speaker 1: you know, have an equity increase to minimize the amount

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Speaker 1: of debt, and the folks at Bloomberg Gadfly who are

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Speaker 1: writing that they could end up with a projected net

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Speaker 1: that a fifty five billion euros four times it's estimated

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Speaker 1: proform at brilliantly, said Michael McKee. I mean, Richard Bourke,

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Speaker 1: if rates go up and how much do they go

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Speaker 1: up within your sensitivity analysis, where this becomes problematic for

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Speaker 1: Bay or addicted to the freelance they've got right now, Um,

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Speaker 1: it's all going to depend what the final price it

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Speaker 1: works out to be paid, whether it becomes problematic, But

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Speaker 1: right now, given where that markets are trading, it doesn't

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Speaker 1: look like it's gonna be a problem for them to

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Speaker 1: you know, finances deal. Richard Burke, thank you so much,

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Speaker 1: greatly appreciate it. I'm by this is a moving target folk.

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Speaker 1: Somehow I think we'll be speaking with Mr Bourke again.

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Speaker 1: Bloomer can tell you just like that was brilliant, that

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Speaker 1: was really valuable. And Chris he is writing on gad fly,

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Speaker 1: makes a very you know, interesting point. He says, the

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Speaker 1: basically what you get is a highly leveraged entity and

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Speaker 1: buyer doing a deal that won't pay off for shareholders

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Speaker 1: for at least three years. Yeah. Well, City Group, peter

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Speaker 1: A City Group, and I use this this morning with

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Speaker 1: the CEO, who I thought his response was very fair

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Speaker 1: and very eloquent. Uh. City Group looks a return on

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Speaker 1: invested capital versus capital expense and they get a cross

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Speaker 1: rate out of two thousand twenty three. Now you know

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Speaker 1: there's a squishy number. I get that. And as you said, Mike,

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Speaker 1: there may be a revaluation here by mon Santo looking

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Speaker 1: for a higher price. But don't lock me in, folks

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Speaker 1: to three. But um, nevertheless, it has a flavor of

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Speaker 1: deals of another time versus the certitude of accretion that

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Speaker 1: we've seen the last year or two with cheap money.

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Speaker 1: That was very cool, Richard Burke, thank you so much. Um.

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Speaker 1: It's an interesting week and we're watching combodies yet a

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Speaker 1: weaker year, row stronger, dollar stronger again. This morning we

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Speaker 1: are produced by y U n Our, Global technical Director.

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Speaker 1: Can fell you it's Bloomberg Savants