WEBVTT - Middle-Market Debt Has Ballooned in Recent Years, Kahn Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.080 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. How 0:00:32.120 --> 0:00:35.159 do you value a business? How do you value a 0:00:35.280 --> 0:00:38.360 business for the basis of a non bank lender. Well, 0:00:38.400 --> 0:00:40.879 here to help us understand this world is Ronald Kahn. 0:00:41.040 --> 0:00:44.000 He is the managing director of Lincoln International and he's 0:00:44.040 --> 0:00:46.720 based in Chicago, but he joins us here in our 0:00:46.800 --> 0:00:49.519 eleven three oh studios. Ron always a pleasure, Thanks for 0:00:49.560 --> 0:00:52.360 being here. You know. Maybe let's just begin with something 0:00:52.400 --> 0:00:57.080 called the Lincoln Middle Market Index. Tell us what it is, 0:00:57.360 --> 0:01:00.080 and then we'll get into the issue of valuation and 0:01:00.320 --> 0:01:03.640 privately held companies. Great, okay, So you know that Lincoln 0:01:03.680 --> 0:01:06.840 International is a middle market investment banking firm. In addition 0:01:06.880 --> 0:01:10.080 to our M and A and ad advisory capabilities, we 0:01:10.160 --> 0:01:14.920 have valuation capabilities as well. And the valuations are basically 0:01:15.040 --> 0:01:17.920 for non bank lenders. If you remember two thousand and 0:01:17.959 --> 0:01:20.959 eight two thousand nine, the world turned upside down. Banks 0:01:20.959 --> 0:01:24.600 got out of middle market lending. Nin banks got involved 0:01:24.880 --> 0:01:29.400 UM public BDCs, private d BDCs, private debt funds, and 0:01:29.520 --> 0:01:32.640 most of them need valuations. UM. They need it because 0:01:32.680 --> 0:01:36.280 if they're public, they wanted UM conform with SEC regulations. 0:01:36.600 --> 0:01:38.839 If they're not public, UM, many of the more leverage 0:01:38.880 --> 0:01:43.360 and their lenders to the to these lenders also one valuations. 0:01:43.800 --> 0:01:47.360 Results of that, we have this a massive amount of 0:01:47.440 --> 0:01:51.120 data on privately held companies. Basically we've been doing this. 0:01:51.200 --> 0:01:54.680 In two thousand and eight, we have seventy nine bank lenders. 0:01:54.960 --> 0:01:59.200 We do about twelve portfolio companies every quarter. And as 0:01:59.240 --> 0:02:01.160 a result, we as I said, we have all this 0:02:01.240 --> 0:02:06.400 financial information. We've been doing reports on the number of 0:02:06.400 --> 0:02:10.160 companies that show earnings growth year over year, revenue growth 0:02:10.240 --> 0:02:13.040 year over year. That we've done and other people have 0:02:13.160 --> 0:02:15.560 done that. But we thought, at the beginning of year, 0:02:15.639 --> 0:02:18.800 what happens if you could create an index, an index 0:02:18.840 --> 0:02:22.680 that depicts the value of middle market company's enterprise value, 0:02:23.000 --> 0:02:26.880 so that's earnings plus they're multiple. I had no idea 0:02:26.919 --> 0:02:28.200 how to do it in next I mean, that was 0:02:28.240 --> 0:02:32.399 like way beyond me. But we wound up collaborating with 0:02:32.480 --> 0:02:35.120 Steve Kaplan, who is a professor at the University of 0:02:35.160 --> 0:02:38.960 Chicago Booth Steve. Steve is probably the pre eminent expert 0:02:39.080 --> 0:02:41.880 on private equity. He brought in one of his colleagues, 0:02:41.919 --> 0:02:44.760 Mike Mennis, who's a professor of accounting, and they figured 0:02:44.760 --> 0:02:46.520 out the man. They looked at all the statard and 0:02:46.560 --> 0:02:50.000 said we we can pull this together. So about ten 0:02:50.360 --> 0:02:53.000 ten days ago we came out with this Lincoln middle 0:02:53.040 --> 0:02:58.400 Market Index, which again um depicts the the enterprise value 0:02:58.560 --> 0:03:02.320 of an average middle market company mental market companies. We 0:03:02.320 --> 0:03:05.160 we defined for the index as companies that have an 0:03:05.240 --> 0:03:07.519 EBA d A of a hundred million dollars or less. 0:03:07.680 --> 0:03:10.760 But the average in this is twenty seven eight million 0:03:10.800 --> 0:03:14.200 dollars um in EVA d A and there's about three 0:03:14.280 --> 0:03:17.440 hundred and fifty companies in the index. So ron before 0:03:17.440 --> 0:03:21.680 we get to uh, just the valuations themselves, I would 0:03:21.680 --> 0:03:23.440 love for you to give us a sense of how 0:03:23.520 --> 0:03:28.600 much this market of middle market corporate debt and company equity, 0:03:29.200 --> 0:03:32.600 how much it's grown, because, as you mentioned, business development 0:03:32.600 --> 0:03:35.640 companies are a big buyer of these companies, but it's 0:03:35.640 --> 0:03:38.160 not just them. Private equity firms are getting into private debt, 0:03:38.200 --> 0:03:40.440 so were hedge funds, were insurance company. This has been 0:03:40.960 --> 0:03:43.840 Holy grail increasingly. So how much has this market increased. 0:03:44.320 --> 0:03:48.160 It has increased exponentially and and and some of it 0:03:48.480 --> 0:03:51.280 has replaced the banks, the mental market banks, so so 0:03:51.480 --> 0:03:55.080 many of them used to be lenders to private equity firms, 0:03:55.080 --> 0:03:57.480 to these mental market companies, they pretty much have have 0:03:57.640 --> 0:04:01.800 exited the market. Interestingly, happen to be very big lenders 0:04:01.840 --> 0:04:05.800 to these new private dead funds, these um or or 0:04:06.080 --> 0:04:08.200 or BDC. So they might almost have as much money 0:04:08.200 --> 0:04:10.640 in the middle market today as they did before, but 0:04:10.760 --> 0:04:13.400 in a different um in a different aspect. But but 0:04:13.520 --> 0:04:16.920 the the number of these we we probably have when 0:04:17.080 --> 0:04:21.039 on the dead advisory side, we probably could go to oh, 0:04:21.080 --> 0:04:24.440 I would say a hundred and fifty hundred and seventy 0:04:25.000 --> 0:04:29.000 non bank lenders today. That that's that's how big the 0:04:29.080 --> 0:04:32.640 universe is. What is the bias of the non bank 0:04:32.720 --> 0:04:36.880 lenders when it comes to valuation? Um, well, that I 0:04:36.920 --> 0:04:38.440 think that I know I'm putting you on the hot 0:04:38.440 --> 0:04:40.280 seat a little bit, but but I think it's you. 0:04:40.520 --> 0:04:43.160 It's useful because they were also they have to respond 0:04:43.240 --> 0:04:46.000 to the market dynamic, right, I mean they can't just 0:04:47.040 --> 0:04:51.480 ignore what their investors are looking for. Um, that's right. 0:04:51.520 --> 0:04:54.799 I mean many many of these are SEC reporting entities, 0:04:54.839 --> 0:04:57.520 so they do want to play it down the middle. 0:04:58.080 --> 0:04:59.640 UM and I and I think, as I said, we 0:04:59.680 --> 0:05:03.040 do to hundred portfolio companies every quarter. I think I 0:05:03.080 --> 0:05:07.320 think our clients are very very um honest in what 0:05:07.400 --> 0:05:10.400 they're reporting. I think they do a really good job 0:05:10.440 --> 0:05:14.320 because you know, the consequences are just they're staggering. So 0:05:14.520 --> 0:05:16.160 I think I think everybody wants to play it by 0:05:16.160 --> 0:05:18.640 the book. So you said that there are a hundred 0:05:19.320 --> 0:05:22.440 seventy five uh non bank lenders that you could go to, 0:05:22.560 --> 0:05:25.760 what's it up from say five years ago? Oh, probably 0:05:25.760 --> 0:05:28.160 in two thousand a, two thousand nine. I bet they 0:05:28.200 --> 0:05:33.200 weren't more than thirty. I mean right right right now 0:05:33.240 --> 0:05:37.719 there there there there are fifty five sixty public b dcs, 0:05:37.839 --> 0:05:42.240 up from probably in two thousand eight business development corporations 0:05:42.360 --> 0:05:47.040 right through the new and the newest private b dcs. 0:05:47.400 --> 0:05:51.080 They are just um phenomenal. So I I think you 0:05:51.200 --> 0:05:55.440 probably have close to UM nine billion. I think is 0:05:55.480 --> 0:05:58.520 the last time I saw between public and private b dcs. 0:05:58.640 --> 0:06:01.680 Asset under management and I can't imagine that that it 0:06:01.760 --> 0:06:04.480 was much more than twenty billion and two thousand eight, 0:06:04.520 --> 0:06:07.479 So it it it has been exponential. Are you concerned 0:06:07.600 --> 0:06:14.920 about the lending standards considering how much money is chasing companies? I? I, UM, 0:06:15.000 --> 0:06:17.760 that's a really good question. I mean lending it is 0:06:17.760 --> 0:06:21.960 certainly a borrow is market today. UM. The one thing 0:06:22.000 --> 0:06:24.719 that I think is is a governing factor is we 0:06:24.880 --> 0:06:29.200 see that debt as a percent of total enterprise value 0:06:29.560 --> 0:06:33.200 is still in the sixty six range, which means there's 0:06:33.240 --> 0:06:38.920 about thirty equity below them um in terms of enterprise value. Now, 0:06:39.040 --> 0:06:42.040 the flip side of that is, enterprise values themselves are 0:06:42.080 --> 0:06:45.839 are rather frosth because multiples have gone up considerably UM 0:06:46.040 --> 0:06:48.520 debt today, and it is not uncommon for companies to 0:06:48.560 --> 0:06:53.320 get six times leverage UM. Middle market companies againting five 0:06:53.360 --> 0:06:56.560 to six times leverage, and and and and and I 0:06:56.640 --> 0:06:58.839 will say, what what does concern me a little bit? 0:06:59.040 --> 0:07:02.440 Proform adjustment. Most of these companies are lending a selling 0:07:02.480 --> 0:07:05.000 off of proformer adjustments. Ron Com thank you so much 0:07:05.000 --> 0:07:08.320 for joining us, Managing director of Lincoln International based in Chicago, 0:07:08.560 --> 0:07:10.720 but joining us here in our eleven three oh studios. 0:07:10.760 --> 0:07:27.120 This is Boomberg. Well, turmoil in Germany will not end 0:07:27.400 --> 0:07:30.760 that soon. The latest news just crossing the Bloomberg Now. 0:07:31.080 --> 0:07:34.640 German Chancellor Angela Merkel said she would prefer to go 0:07:34.680 --> 0:07:38.520 ahead with new federal elections rather than try to form 0:07:38.560 --> 0:07:42.760 a minority government. Uh, she is weighing her options after 0:07:42.800 --> 0:07:46.760 the collapse of four party coalition talks late Sunday. Here 0:07:46.800 --> 0:07:50.240 to talk about the implications of this is Kit Jukes. 0:07:50.280 --> 0:07:54.200 He is chief global FX strategist for CETE General. He's 0:07:54.240 --> 0:07:57.120 coming to us from London. Kit, thank you so much 0:07:57.160 --> 0:08:00.400 for joining us. You know, there was a little bit 0:08:00.400 --> 0:08:03.840 of weakening in the euro initially last night as we 0:08:03.960 --> 0:08:09.400 got news of four party coalition talks breaking up yesterday. 0:08:09.480 --> 0:08:13.800 That has reversed. But this latest bit of information might 0:08:13.880 --> 0:08:17.000 change the picture. What's your take. Yeah, this latest piece 0:08:17.000 --> 0:08:20.080 will see the eurocon a little bit of pressure again. 0:08:20.720 --> 0:08:23.000 You know, there's obviously going to be a lot of 0:08:23.080 --> 0:08:27.000 uncertainty that there's I guess potentially four outcomes. You know 0:08:27.320 --> 0:08:29.760 that they continue or they've resumed the coalition talks and 0:08:29.840 --> 0:08:34.720 this Jamaica coalition revives itself. I suppose that's still technically possible, 0:08:35.800 --> 0:08:38.160 or you can have a minority government, which Angler Michal 0:08:38.200 --> 0:08:40.840 says she's not planning at the moment where she remains 0:08:40.840 --> 0:08:44.800 as chancellor and relies on presumably the FDP to to 0:08:44.920 --> 0:08:47.800 support her when she needs support. On on an ad 0:08:47.840 --> 0:08:51.320 hoc basis, that would have looked like very little change 0:08:51.600 --> 0:08:54.560 to an outsider who would have had significant domestic implications. 0:08:54.559 --> 0:08:57.120 But it would have been the kind of government you 0:08:57.200 --> 0:08:59.040 might have seen various other bits of Europe. And I 0:08:59.040 --> 0:09:01.720 think that's what was giving the market caused to say, look, 0:09:01.760 --> 0:09:05.280 this isn't this isn't concerning us too much. We've never 0:09:05.360 --> 0:09:10.839 had we've never had a minority government in Germany since 0:09:10.880 --> 0:09:13.480 the sort of modern times, since since the Second World War, 0:09:13.640 --> 0:09:17.520 I don't think, and we've not had fresh elections to 0:09:17.559 --> 0:09:20.360 try to solve the problems that way over that period either. 0:09:20.840 --> 0:09:24.160 But that's the other alternatives, so and will continue with 0:09:24.200 --> 0:09:28.000 the uncertainty. I still, you know, when we look at 0:09:28.000 --> 0:09:31.320 the potential outcomes for markets, if the foreign stange markets 0:09:31.320 --> 0:09:35.600 relatively insucient um, the fixed income market equally, so it 0:09:35.640 --> 0:09:39.480 hasn't had a significant impact on on European government bonds. 0:09:39.480 --> 0:09:42.079 It's not making people nervous. The European central banks sits 0:09:42.160 --> 0:09:46.760 behind the markets and keeps things calm. The economy is 0:09:47.040 --> 0:09:49.280 moving ahead in Germany, is moving ahead in Europe. So 0:09:49.800 --> 0:09:52.720 the fact that there's political uncertainty, in fact, stability and 0:09:52.760 --> 0:09:55.080 status grow, which is all you get with this inability 0:09:55.120 --> 0:09:57.800 to form a government. It isn't isn't the worst thing 0:09:57.840 --> 0:09:59.440 to do, you know, to see, but I think the 0:09:59.440 --> 0:10:02.960 markets they will be nervous until they know what does 0:10:03.040 --> 0:10:04.920 come out, and I suspect we might be sort of 0:10:04.960 --> 0:10:09.000 grindingly increasingly nervous over the next few days. Just to 0:10:09.040 --> 0:10:12.079 tell people, why is it called the Jamaica coalition and 0:10:12.200 --> 0:10:14.640 has to do with the colors of the Jamaican flag. 0:10:15.160 --> 0:10:16.880 I'm going to really have to work hard in terms 0:10:16.920 --> 0:10:19.080 of the colors of the Jamasic coalition. But it's the 0:10:19.840 --> 0:10:23.240 it's the black, red, yellow, green that you get to 0:10:23.280 --> 0:10:27.200 get a coalition of the correct of the right, so 0:10:27.280 --> 0:10:29.679 you get the free Free Democrats are the are the 0:10:29.880 --> 0:10:32.719 yellow right and the green obviously the green and the 0:10:32.800 --> 0:10:38.520 Christian Democrats are the black. The Free Democrats their pro business. 0:10:38.640 --> 0:10:41.679 What do they not like or what do they like 0:10:41.760 --> 0:10:44.800 about the potential coalition or does it have really to 0:10:44.880 --> 0:10:50.360 do with migration and immigrants more to do with migration policy. 0:10:50.440 --> 0:10:54.400 I think that there were accusations within the coalition talks 0:10:54.440 --> 0:10:56.360 that they planned for a while to be pulling out 0:10:56.400 --> 0:10:59.880 and that this was a um, you know, an imprompt 0:11:00.000 --> 0:11:02.160 a move that seems remarkably well planned, if that's the 0:11:02.240 --> 0:11:05.040 right way of putting it. Um. So, it was always 0:11:05.040 --> 0:11:06.520 going to be hard to get them in, and they 0:11:06.640 --> 0:11:09.120 they in a sense, would be the ones who would 0:11:09.160 --> 0:11:13.560 be happiest with um with continuing with a minority government 0:11:13.559 --> 0:11:15.200 is saying, right, there are things we don't like, but 0:11:15.240 --> 0:11:17.360 we'd quite like to have power, and just we're not 0:11:17.400 --> 0:11:19.520 going to promise a coalition deal where we find up 0:11:19.600 --> 0:11:22.480 certain things will vacue on an ad hoc basis. Kid, 0:11:23.200 --> 0:11:27.040 Is it fair to view the latest developments in Germany 0:11:27.200 --> 0:11:31.080 through the lens of populism and sort of the increase 0:11:31.120 --> 0:11:35.360 that we've seen in this populist uprising, whether it's the US, 0:11:35.559 --> 0:11:38.760 or whether it's Italy or Spain or or wherever? I mean? 0:11:38.960 --> 0:11:41.880 Is it basically another iteration of that, but this time 0:11:42.080 --> 0:11:46.800 in Europe's most important economy. Well, if we have, if 0:11:46.840 --> 0:11:49.440 we have another round of elections, I think most people 0:11:49.520 --> 0:11:52.600 would expect that the big winners would be um the 0:11:52.800 --> 0:11:56.520 f D party, so the most populist party, and so 0:11:57.080 --> 0:11:59.360 it would certainly be interpreted that way. I'm part of 0:11:59.360 --> 0:12:01.920 me wonders whether this is about populism or whether this 0:12:02.000 --> 0:12:06.600 is about a push away from traditional parties. Um, you 0:12:06.640 --> 0:12:09.800 could argue, you could argue whether President Trump is populist 0:12:10.000 --> 0:12:12.959 or isn't really a Republican. He's just flying under the flag. 0:12:13.000 --> 0:12:15.560 And it's remove away from the sort of heart land 0:12:15.600 --> 0:12:18.080 of the policies of of of your two main parties 0:12:18.080 --> 0:12:21.480 in the States and likewise in other countries. So we know, 0:12:21.520 --> 0:12:23.839 we could we could argue about the terminology, but it's 0:12:23.840 --> 0:12:27.960 certainly away from the accepted established over the last fifty 0:12:28.040 --> 0:12:30.480 years sort of order of which are the big political parties, 0:12:30.800 --> 0:12:33.839 into something that's got a populist element. But it's also 0:12:34.120 --> 0:12:37.120 i think much more, much more uncertain, much more fluid 0:12:37.200 --> 0:12:40.000 changes a lot. Wouldn't you expect to see you sell 0:12:40.080 --> 0:12:45.439 off in European sovereign debt um, Yeah, you know, that 0:12:45.640 --> 0:12:47.920 is more of a measure of uncertaintyan anything else. And 0:12:48.000 --> 0:12:50.640 what's happening even now as we speak staring at my 0:12:50.720 --> 0:12:56.520 screens is um. You know, Spanish and Italian debt is 0:12:56.559 --> 0:13:01.880 out performing slightly German government today, So m you know, 0:13:01.880 --> 0:13:04.120 when it's not risk aversion, it's more the Germans are 0:13:04.160 --> 0:13:06.719 doing less well than the others, which looks like stability 0:13:06.800 --> 0:13:08.800 from from most angles. So you know, you want to 0:13:08.840 --> 0:13:11.040 remember that we've still got the European Central Bank buying 0:13:11.040 --> 0:13:13.400 government bonds on a regular basis and standing by the 0:13:13.440 --> 0:13:17.480 market and has negative interest rates to underneath it. So um, 0:13:17.520 --> 0:13:19.720 you know, when everything's difficult, there aren't very many government 0:13:19.760 --> 0:13:22.319 bonds to sell, and and that is almost coming back 0:13:22.360 --> 0:13:24.280 to the core of it. At this point in time, 0:13:24.320 --> 0:13:27.200 the European Central Bank is is what matters most. The 0:13:27.280 --> 0:13:31.000 euro is weakening on this news against the dollar now 0:13:31.040 --> 0:13:34.160 at one point one seven. Do you think that it 0:13:34.240 --> 0:13:36.760 will continue to weekend through year end and kind of 0:13:36.760 --> 0:13:39.120 give rise to strengthen the dollar. I'll give you about 0:13:39.120 --> 0:13:43.679 twenty seconds. We've been stuck between a one one eighty 0:13:43.800 --> 0:13:45.960 range for almost so long I can't remember or dream 0:13:46.000 --> 0:13:47.720 of a life outside that. I think we'll still be 0:13:47.800 --> 0:13:50.360 in that range at Christmas. I'm a bread, thank you 0:13:50.480 --> 0:13:53.640 very much. A kid. Jukes he is chief a global 0:13:53.679 --> 0:13:57.080 effect strategist for Association or EL. He's joining us from 0:13:57.240 --> 0:13:59.440 London and just to note that the European Central Bank 0:13:59.480 --> 0:14:03.000 President Mario drag will be appearing before a committee on 0:14:03.080 --> 0:14:18.760 Economic and Monetary Affairs in Brussels. I want to turn 0:14:18.760 --> 0:14:21.480 our attention now to the world of automobiles, and we 0:14:21.520 --> 0:14:24.240 have Kevin Tynan. He is the senior autos analyst for 0:14:24.560 --> 0:14:31.000 Bloomberg Intelligence. Kevin bob Lutts, the former GM chief executive. 0:14:31.040 --> 0:14:34.560 You know, he's been skeptical about Tesla uh and their 0:14:34.600 --> 0:14:39.600 future for a long time, and he retired from General Motors. UH. 0:14:39.600 --> 0:14:43.800 He also worked obviously for Ford and Chrysler and BMW, 0:14:44.200 --> 0:14:47.760 and I believe he's got some very specific comments when 0:14:47.840 --> 0:14:50.680 it comes to Tesla. He says, boy, the future does 0:14:50.760 --> 0:14:54.600 not look good. Uh. He says Tesla is doomed. Why 0:14:54.640 --> 0:14:58.360 do you think he says that, Well, just because of 0:14:58.440 --> 0:15:02.520 the financial condition and the company. UM. You know he 0:15:02.560 --> 0:15:05.720 talks about it where you you know, you can't cover 0:15:05.800 --> 0:15:10.360 your cost of manufacturing. Uh. They've had access to capital 0:15:10.480 --> 0:15:13.720 basically for free, and it's just not a sustainable model. 0:15:14.160 --> 0:15:17.800 And the idea that I think the company gets valued 0:15:17.840 --> 0:15:21.320 as if it's a technology company. And I think Bob 0:15:21.400 --> 0:15:24.080 Lutz knows at the end of the day, they are manufacturing, 0:15:24.280 --> 0:15:26.560 and it's expensive to do so, and you have long 0:15:26.640 --> 0:15:30.320 lead times. Uh. So there's the is a company that's 0:15:30.360 --> 0:15:32.680 not being valued as an automaker when what they're doing 0:15:32.760 --> 0:15:35.280 is making automobiles. All right, So let's dig into some 0:15:35.360 --> 0:15:38.840 of what it's making. Tesla just announced to Great Fan 0:15:38.960 --> 0:15:45.800 Fan Fair trucks, autonomous trucks and electric trucks, and uh. 0:15:45.880 --> 0:15:50.080 There is some speculation, Kevin, that they are pre selling 0:15:50.720 --> 0:15:54.960 these trucks years ahead of their actually being made in 0:15:55.080 --> 0:15:58.720 order to raise money to continue production of their current 0:15:58.840 --> 0:16:03.240 orders rather than have to go to the public markets 0:16:03.240 --> 0:16:06.000 through Wall Street. Do you think that there is much 0:16:06.280 --> 0:16:09.400 truth to that? There's there probably is some truth to that. 0:16:09.520 --> 0:16:11.800 I think at the end of the day, though, what 0:16:11.800 --> 0:16:14.520 what they will need in the next capital rays will 0:16:14.600 --> 0:16:20.360 be sooner and much a much, much larger scale than 0:16:20.400 --> 0:16:24.240 what they would get through these you know, thousand roadster 0:16:25.160 --> 0:16:31.920 uh deposits. Uh probably somewhere in the ballpark of two 0:16:31.960 --> 0:16:34.200 billion dollars. You know, if you just look at their 0:16:34.320 --> 0:16:38.120 cash burn run raid and what they have in the bank, Uh, 0:16:38.160 --> 0:16:43.080 you're probably looking at miden where you know, and that's 0:16:43.080 --> 0:16:46.120 assuming running it right to the edge. UM. And I 0:16:46.160 --> 0:16:48.680 think one thing that they didn't do. They've had that 0:16:48.720 --> 0:16:52.480 one profitable quarter of that third quarter last year, UM, 0:16:52.520 --> 0:16:55.080 and they didn't go right to the market then. And 0:16:55.120 --> 0:16:58.400 it's more of an issue of you have this fanfare 0:16:58.520 --> 0:17:01.560 from the truck and the roads to UM and you 0:17:01.600 --> 0:17:03.520 know you're gonna need to go back. I would be 0:17:03.560 --> 0:17:05.879 doing it now while the hype is high, although the 0:17:05.920 --> 0:17:09.640 stocks down big today. UM, you know, sort of doing 0:17:09.640 --> 0:17:11.560 it when you can instead of when you have to. 0:17:11.920 --> 0:17:14.320 So let's talk about a legal threat that they have. 0:17:14.480 --> 0:17:16.640 Just to sort of put that two billion dollar potential 0:17:16.680 --> 0:17:22.080 capital raise into context, there is a four point seven 0:17:22.160 --> 0:17:26.960 billion dollar legal settlement that could be coming up for Tesla. 0:17:27.200 --> 0:17:29.520 We haven't heard that much about this. Do you care 0:17:29.520 --> 0:17:34.119 about this? Um? Yeah. There's a lot of noise, UM, 0:17:34.160 --> 0:17:35.919 you know, from a lot of different parties, and and 0:17:35.960 --> 0:17:39.879 you just think about uh, you know, the union, U, 0:17:39.960 --> 0:17:42.119 A W trying to get in there. You know. So 0:17:42.200 --> 0:17:44.600 it's I think you really have to be careful and 0:17:44.640 --> 0:17:47.800 sift through that, he said, She said kind of things 0:17:47.800 --> 0:17:50.280 that go on around this company. And really what I 0:17:50.320 --> 0:17:52.800 try and do in that case is is get beyond 0:17:53.880 --> 0:17:56.600 you know, that noise, the noise of this truck and 0:17:56.720 --> 0:17:59.399 roaster and really get into what this what it's going 0:17:59.440 --> 0:18:02.320 to take for this company to get Model three out 0:18:02.400 --> 0:18:05.800 and delivered, um, you know, because that's the core business 0:18:05.840 --> 0:18:08.879 that's going to enable them to fund all these other projects. 0:18:09.320 --> 0:18:11.520 And really until that happens, there's a lot of this 0:18:11.560 --> 0:18:13.919 other noise going on. Well, I wondered, Kevin, if you 0:18:13.920 --> 0:18:17.120 could just speak a little bit about the credibility that 0:18:17.200 --> 0:18:20.960 Elon Musk has, because in July when they announced the 0:18:21.080 --> 0:18:24.919 Model three, they were anticipating a production rate of about 0:18:24.960 --> 0:18:28.480 twenty thousand cars a month by the end of December, 0:18:28.960 --> 0:18:31.600 And I read a couple of notes over the weekend 0:18:31.640 --> 0:18:36.880 that said that Tesla produced two hundred and sixty Model 0:18:37.000 --> 0:18:42.040 threes in the last quarter. That's three a day. Yeah, 0:18:42.200 --> 0:18:45.160 and and it's really a different world in that sense him. 0:18:45.240 --> 0:18:47.960 You know, we we think back to you know, Ala 0:18:48.040 --> 0:18:54.520 Molally and and you know, even yeah, you know, you know, uh, 0:18:54.840 --> 0:18:57.879 you know, under under promise and over deliver, and then 0:18:58.040 --> 0:19:00.840 this is really a very different scenario areo. You know. 0:19:00.880 --> 0:19:02.280 But at the end of the day, I think the 0:19:02.359 --> 0:19:05.320 people that are are long the Tesla stock will say, well, 0:19:05.359 --> 0:19:07.359 it doesn't really hit that many targets but he gets 0:19:07.400 --> 0:19:10.399 there eventually and what he does deliver is really good. Okay, 0:19:10.400 --> 0:19:11.920 but if you were able to if you did this 0:19:12.080 --> 0:19:14.679 at let's say GM, which I think, what are they 0:19:14.800 --> 0:19:18.320 selling how many vaults of five thousands? Well they did 0:19:18.320 --> 0:19:21.919 about last month yea, so um no, But you're right 0:19:21.960 --> 0:19:24.200 to your point. There's a lot of things and and 0:19:24.240 --> 0:19:28.000 even electric vehicle technology in the first place. If you remember, 0:19:28.760 --> 0:19:30.760 early in the early days of Model Left, there were 0:19:30.800 --> 0:19:35.080 some fires just because of the battery chemistry, where I 0:19:35.119 --> 0:19:37.840 think investors looked at General Motors and Ford and said, 0:19:37.840 --> 0:19:39.600 how come you guys aren't doing this, And they said, look, 0:19:39.640 --> 0:19:42.000 if we put cars out there that went on fire, we'd, 0:19:42.480 --> 0:19:45.119 you know, we'd be crucified for that. So we're waiting 0:19:45.119 --> 0:19:47.640 for the technology to develop to where we can put 0:19:47.720 --> 0:19:51.280 vehicles out there safely. Autopilot as Tesla calls it. Is 0:19:51.320 --> 0:19:54.320 another thing that General Motors could not get away with 0:19:54.480 --> 0:19:57.399 any deaths in that we see what happens with the 0:19:57.440 --> 0:20:01.600 ignition recall and what happens there the sort of idea 0:20:01.600 --> 0:20:04.760 of beta testing on your customers. General Motors, Ford, Fiat 0:20:04.800 --> 0:20:07.920 Christ are all the big manufacturers, the global manufacturers, Toyota, 0:20:08.440 --> 0:20:11.080 couldn't get away with that. I'm just wondering when you 0:20:11.119 --> 0:20:15.280 said about the people who are sticking with Tesla, I mean, 0:20:15.400 --> 0:20:17.480 isn't a big part of this that the people sticking 0:20:17.520 --> 0:20:20.199 with Tesla or Elon Musk himself that he owns a 0:20:20.240 --> 0:20:24.520 good proportion of the shares. Yeah, absolutely, absolutely, but there 0:20:24.640 --> 0:20:27.960 is a very loyal I mean, he in an industry 0:20:28.000 --> 0:20:32.040 that is seen as company dinosaur companies. You know, he's 0:20:32.200 --> 0:20:34.439 he's a breath of fresh air because his vision is 0:20:34.720 --> 0:20:38.120 sort of unlimited. Um, you know, so, I think there's 0:20:38.240 --> 0:20:40.679 there's a lot of believers in that sense that that 0:20:40.760 --> 0:20:43.480 he's a disruptor and that this is the new Norman. 0:20:43.600 --> 0:20:47.040 This is the kick that the auto industry needed, right. 0:20:47.560 --> 0:20:49.680 Kevin Tynan, thank you so much for joining us. Kevin 0:20:49.760 --> 0:20:54.440 Tynan is our senior autos analyst for Bloomberg Intelligence. He's 0:20:54.520 --> 0:20:57.520 coming to us from our b I headquarters in Princeton, 0:20:57.560 --> 0:21:13.720 New Jersey. Marvel Technology has agreed to buy the chip 0:21:13.800 --> 0:21:17.600 maker Cavium for a cash and stock deal valued at 0:21:17.600 --> 0:21:21.160 about six billion dollars, and this will set up more 0:21:21.200 --> 0:21:25.879 competition with industry giants such as Intel and the Broadcom 0:21:25.920 --> 0:21:28.480 Here to tell us more about This is ed Hamming, 0:21:28.560 --> 0:21:32.280 our deals reporter for Bloomberg and ed uh, this seems 0:21:32.359 --> 0:21:37.800 like a bid to really consolidate not only the semiconductors 0:21:37.840 --> 0:21:41.959 that are used for data storage, but also communications and 0:21:42.119 --> 0:21:47.240 networking chips, because that is Caviums hotspot, right exactly that 0:21:47.320 --> 0:21:49.560 and that's that's really the key to this deal. I mean, 0:21:49.560 --> 0:21:51.480 if you if you want to think about it like this, 0:21:51.480 --> 0:21:56.080 this is really Marvel buying future. Because my vows business 0:21:56.320 --> 0:21:58.679 is in hard drives, which obviously you know, we use 0:21:58.760 --> 0:22:02.199 less and less. It's it's very slow growth, it's fairly stable, 0:22:02.240 --> 0:22:04.200 but what they don't have is anything that would take 0:22:04.240 --> 0:22:06.760 them into sort of the modern era in terms of having, 0:22:06.800 --> 0:22:09.520 as you say, sort of networking processes. So that's what 0:22:09.600 --> 0:22:11.560 they get through this deal with Cavium, which is why 0:22:11.600 --> 0:22:13.760 you're seeing it's you know, it's a fairly healthy premium. 0:22:14.119 --> 0:22:16.760 But also crucially you've seen Marvel's stock rise quite a 0:22:16.800 --> 0:22:18.800 lot this morning on the back of this news. All right, 0:22:18.840 --> 0:22:21.040 so let's talk about that premium. I mean, as we've 0:22:21.080 --> 0:22:24.639 been talking, this has been a very active year for 0:22:24.800 --> 0:22:28.840 chipmaker consolidation, at least discussions of such activity. And I'm 0:22:28.880 --> 0:22:32.320 just wondering, is anyone questioning the prices that are being paid. 0:22:32.400 --> 0:22:35.400 Marvel is shelling out or has agreed to shell out 0:22:35.400 --> 0:22:38.240 about six billion dollars for Cavium, which, as you say, 0:22:38.400 --> 0:22:42.000 is a premium. Is anyone saying it's too much at 0:22:42.080 --> 0:22:44.439 this point? They're not. There's so much consolidation in the 0:22:44.480 --> 0:22:48.160 space that you know, I think investors are rewarding those 0:22:48.200 --> 0:22:50.520 companies are going out and acquiring because it's sort of 0:22:50.560 --> 0:22:53.960 acquire or be acquired, and so there is some sense that, look, 0:22:54.000 --> 0:22:56.919 Marvel does this deal now with Cavium, but that doesn't 0:22:56.960 --> 0:22:59.280 actually take Marvel off the table in terms of being 0:22:59.320 --> 0:23:02.480 a takeout targe itself. Um, and you saw on a 0:23:02.600 --> 0:23:04.639 much much larger scale just a few weeks ago, and 0:23:04.640 --> 0:23:08.680 Broadcom obviously announced the deal for or an offer for Quidcome. 0:23:08.720 --> 0:23:10.520 I should say that value the company at a hundred 0:23:10.520 --> 0:23:12.640