1 00:00:02,720 --> 00:00:10,559 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,600 --> 00:00:14,560 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:14,600 --> 00:00:18,520 Speaker 1: Eastern on Applecarplay and Android Auto with the Bloomberg Business App. 4 00:00:18,640 --> 00:00:21,840 Speaker 1: Listen on demand wherever you get your podcasts, or watch 5 00:00:21,960 --> 00:00:23,080 Speaker 1: us live on YouTube. 6 00:00:24,280 --> 00:00:26,279 Speaker 2: Another big deal in the tech space, and I mean 7 00:00:26,360 --> 00:00:29,160 Speaker 2: not in the MNA space, but in the bond issuance space. 8 00:00:29,720 --> 00:00:33,800 Speaker 2: Alphabet looks to raise about fifteen billion dollars from a 9 00:00:33,920 --> 00:00:37,480 Speaker 2: US bond sale. Just the latest big tech company hitting 10 00:00:37,520 --> 00:00:39,520 Speaker 2: the bond market here, and why not? The market seems 11 00:00:39,560 --> 00:00:41,559 Speaker 2: to be wide open. It's check in with a professional here, 12 00:00:41,640 --> 00:00:45,120 Speaker 2: Rob Shiftman. He covers the bond markets for the big 13 00:00:45,200 --> 00:00:48,920 Speaker 2: TMT companies. Here, Rob, you've told us in the past 14 00:00:48,960 --> 00:00:52,000 Speaker 2: that these tech companies they raise money because they can, 15 00:00:52,080 --> 00:00:54,800 Speaker 2: not necessarily because they need it. But now they kind 16 00:00:54,800 --> 00:00:56,680 Speaker 2: of needed a little bit. Has that changed the narrative 17 00:00:56,680 --> 00:00:59,360 Speaker 2: at all? Because they try to fund all this AI build. 18 00:00:59,080 --> 00:01:03,680 Speaker 3: Out they don't really need it, Okay, but there's plenty 19 00:01:03,680 --> 00:01:08,080 Speaker 3: of access at reasonably low cost obviously all along the 20 00:01:08,120 --> 00:01:10,440 Speaker 3: curve with one hundred year deal on the market and 21 00:01:10,480 --> 00:01:13,639 Speaker 3: in multiple currencies. So I think since demand for AI 22 00:01:13,840 --> 00:01:16,160 Speaker 3: is so insatiable. I actually think you can still say 23 00:01:16,160 --> 00:01:20,280 Speaker 3: that demand for these AI tech companies' bonds are insatiable 24 00:01:20,319 --> 00:01:20,679 Speaker 3: as well. 25 00:01:21,120 --> 00:01:23,720 Speaker 4: Okay, you mentioned one hundred year bond. I thought forty 26 00:01:23,800 --> 00:01:26,080 Speaker 4: year bond for Oracle was kind of bananas, but one 27 00:01:26,160 --> 00:01:28,560 Speaker 4: hundred year bond, I mean, we don't even know if 28 00:01:28,560 --> 00:01:30,080 Speaker 4: this company is going to be around, and granted, they're 29 00:01:30,080 --> 00:01:32,520 Speaker 4: going to refinance a lot of things, so you know, 30 00:01:32,600 --> 00:01:34,840 Speaker 4: this isn't like in one hundred years people will necessarily 31 00:01:34,920 --> 00:01:35,600 Speaker 4: be collecting on this. 32 00:01:35,720 --> 00:01:37,360 Speaker 5: But how does that make sense? 33 00:01:37,560 --> 00:01:40,440 Speaker 3: Yeah, well, listen, based on what might happen with AI, 34 00:01:40,480 --> 00:01:41,800 Speaker 3: we don't know if any company is going to be 35 00:01:41,840 --> 00:01:46,120 Speaker 3: around forty or one hundred years, so the world changes 36 00:01:46,160 --> 00:01:47,840 Speaker 3: sort of quickly. But when you actually think about the 37 00:01:47,880 --> 00:01:50,000 Speaker 3: duration of one hundred year bond, it's pretty much the 38 00:01:50,080 --> 00:01:52,240 Speaker 3: same as a forty year bond or a thirty year bond, 39 00:01:52,520 --> 00:01:56,480 Speaker 3: So it sounds sort of astronomical, but really the risk 40 00:01:56,600 --> 00:02:00,120 Speaker 3: to the credit is pretty much the same, so I 41 00:02:00,120 --> 00:02:02,400 Speaker 3: wouldn't really think that too much about that. The one 42 00:02:02,400 --> 00:02:04,600 Speaker 3: thing to think about is, again we continue to talk 43 00:02:04,600 --> 00:02:08,480 Speaker 3: about how much excess capacity these companies have, how much 44 00:02:08,520 --> 00:02:12,160 Speaker 3: borrowing capacity they have. This morning, when S ANDP affirmed 45 00:02:12,360 --> 00:02:15,920 Speaker 3: Alphabet's double A plus rating, they said they have one 46 00:02:16,000 --> 00:02:20,079 Speaker 3: hundred and eighty billion of additional deck capacity before they 47 00:02:20,120 --> 00:02:22,880 Speaker 3: get to S and p's rating trigger. So it's not 48 00:02:23,000 --> 00:02:25,000 Speaker 3: just that they have a lot of capacity. That's how 49 00:02:25,040 --> 00:02:27,359 Speaker 3: much capacity they have a double A plus What does 50 00:02:27,360 --> 00:02:29,960 Speaker 3: that mean? What if they wanted to borrow a trillion dollars? 51 00:02:30,000 --> 00:02:33,480 Speaker 3: Could they? So obviously that's not realistic. But there's just 52 00:02:33,600 --> 00:02:35,600 Speaker 3: a lot of room here. And as these numbers get 53 00:02:35,600 --> 00:02:37,720 Speaker 3: bigger and bigger, we also have to remember there's a 54 00:02:37,720 --> 00:02:40,240 Speaker 3: flip side to this. Cash flow is also getting a 55 00:02:40,280 --> 00:02:42,560 Speaker 3: lot bigger as well, So in the near term, though 56 00:02:42,639 --> 00:02:44,880 Speaker 3: leverage is climbing a little bit. Again, there's a tremendous 57 00:02:44,919 --> 00:02:48,200 Speaker 3: amount of capacity from both raiders and from bomb markets. 58 00:02:48,240 --> 00:02:49,799 Speaker 3: I think all the skepticism here is really on the 59 00:02:49,840 --> 00:02:53,480 Speaker 3: equity side. It's all about multiples. What the trading price 60 00:02:53,480 --> 00:02:55,240 Speaker 3: for the equity is. What bond holders are telling you 61 00:02:55,720 --> 00:02:58,160 Speaker 3: is we're trading at the right prices. We're actually near 62 00:02:58,320 --> 00:03:01,600 Speaker 3: historical tights for the corporate bomb market. And you know 63 00:03:01,639 --> 00:03:04,120 Speaker 3: these bonds don't offer tons and tons of yield. The 64 00:03:04,240 --> 00:03:07,519 Speaker 3: bond holders are screaming, we are not worried. 65 00:03:08,040 --> 00:03:10,600 Speaker 4: They're not worried, and that's why these bonds don't offer 66 00:03:10,639 --> 00:03:13,200 Speaker 4: tons and tons of yield. Isn't there a risk of 67 00:03:13,280 --> 00:03:16,160 Speaker 4: concentration risk where investors, I mean, there's a lot of 68 00:03:16,200 --> 00:03:17,919 Speaker 4: debt coming to market, a lot of it coming from 69 00:03:17,919 --> 00:03:20,680 Speaker 4: big tech, and everyone wants to because these companies are 70 00:03:20,680 --> 00:03:21,280 Speaker 4: good for it. 71 00:03:21,360 --> 00:03:24,000 Speaker 5: But won't they be too overloaded on big tech debt? 72 00:03:24,160 --> 00:03:24,359 Speaker 6: Yeah? 73 00:03:24,360 --> 00:03:27,840 Speaker 3: You know, we've heard this historically for the last few decades. 74 00:03:28,160 --> 00:03:30,519 Speaker 3: You know, luckily, I've been around a long time and 75 00:03:30,520 --> 00:03:33,800 Speaker 3: I've seen this happen before, where you know, the market 76 00:03:33,919 --> 00:03:35,920 Speaker 3: people come back and say, we're full, we can't have 77 00:03:35,960 --> 00:03:38,480 Speaker 3: another bond. We have too much exposure to either one 78 00:03:38,520 --> 00:03:40,800 Speaker 3: individual name or to this sector. And you know what 79 00:03:40,920 --> 00:03:44,760 Speaker 3: changes that spreads. You offer a bigger concession and people 80 00:03:44,800 --> 00:03:47,360 Speaker 3: will come in. There's a price for everything. So if 81 00:03:47,400 --> 00:03:50,200 Speaker 3: Alphabet a year ago or two years ago or five 82 00:03:50,280 --> 00:03:52,520 Speaker 3: years ago might have printed a bond at treasuries plus 83 00:03:52,760 --> 00:03:54,960 Speaker 3: you know, thirty year bond at treasuries plus fifty or sixty, 84 00:03:55,160 --> 00:03:57,080 Speaker 3: So now they're going to print a bond at you know, 85 00:03:57,160 --> 00:03:59,360 Speaker 3: let's say one hundred over. So there's just that right 86 00:03:59,400 --> 00:04:01,960 Speaker 3: clearing level. We actually saw that with Oracle. You know, 87 00:04:02,000 --> 00:04:03,920 Speaker 3: we talked last week how that's sort of the poster 88 00:04:04,040 --> 00:04:06,240 Speaker 3: child for everything that people are worried about, and then 89 00:04:06,240 --> 00:04:08,200 Speaker 3: they got one hundred and thirty billion dollars a demand 90 00:04:08,280 --> 00:04:12,480 Speaker 3: because they boosted concessions higher. So I think, I don't 91 00:04:12,480 --> 00:04:13,640 Speaker 3: think that's really an issue. 92 00:04:14,560 --> 00:04:16,159 Speaker 2: They're not just issuing dollars, are they. 93 00:04:16,560 --> 00:04:20,840 Speaker 3: No, They're doing Swiss francs as well as pounds. I 94 00:04:20,839 --> 00:04:22,960 Speaker 3: also think there's other currencies they can go to. I mean, 95 00:04:23,080 --> 00:04:24,520 Speaker 3: I've actually had a lot of people ask me this one. 96 00:04:24,520 --> 00:04:27,120 Speaker 3: Why aren't they doing euros? There is a huge bid 97 00:04:27,279 --> 00:04:30,359 Speaker 3: in the euro market for tech paper because all of 98 00:04:30,360 --> 00:04:35,320 Speaker 3: these companies are effectively US denominated names issuing US dollar paper, 99 00:04:35,400 --> 00:04:38,279 Speaker 3: So I think there's another market in euros. There's also 100 00:04:38,360 --> 00:04:40,479 Speaker 3: I think it could be a huge yen a bid 101 00:04:40,520 --> 00:04:44,960 Speaker 3: as well. Historically, we like we've seen, particularly in telecommon media, 102 00:04:45,640 --> 00:04:48,520 Speaker 3: attracting a lot of Asian capitals, so I wouldn't be 103 00:04:48,600 --> 00:04:51,000 Speaker 3: surprised if that might be the next market. The reality 104 00:04:51,080 --> 00:04:53,159 Speaker 3: is some of these names they don't really need to 105 00:04:53,160 --> 00:04:55,280 Speaker 3: worry about at this point. There's so much dollar demand, 106 00:04:55,279 --> 00:04:58,000 Speaker 3: but it's interesting to see that. I think they can 107 00:04:58,040 --> 00:05:01,240 Speaker 3: price they can price their bonds title levels because there's 108 00:05:01,279 --> 00:05:03,200 Speaker 3: demand around the globe and multiple currencies. 109 00:05:03,880 --> 00:05:07,040 Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this. 110 00:05:10,880 --> 00:05:14,599 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 111 00:05:14,680 --> 00:05:17,360 Speaker 1: weekdays at ten am. He's done on Apple, Cocklay and 112 00:05:17,360 --> 00:05:20,640 Speaker 1: Android Auto with the Bloomberg Business App. Listen on demand 113 00:05:20,680 --> 00:05:24,240 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 114 00:05:25,120 --> 00:05:27,440 Speaker 4: We've got a lot of deal making news today. It 115 00:05:27,480 --> 00:05:29,599 Speaker 4: is Monday, after all, so m and A is to 116 00:05:29,640 --> 00:05:33,360 Speaker 4: be expected. But Eli Lilly has been especially busy today 117 00:05:34,200 --> 00:05:36,599 Speaker 4: because it made an investment over the weekend. It also 118 00:05:37,080 --> 00:05:39,400 Speaker 4: has made a purchase, an outright purchase as well, and 119 00:05:39,440 --> 00:05:42,039 Speaker 4: this is of course as a company is holding on 120 00:05:42,120 --> 00:05:46,719 Speaker 4: pretty well with its obesity drugs. Certainly in comparison, it 121 00:05:46,720 --> 00:05:49,640 Speaker 4: feels like to Novo Nordisk. Sam Fizzeli is our director 122 00:05:49,640 --> 00:05:53,200 Speaker 4: of Research for Global Industries and senior pharmaceuticals analysts, and 123 00:05:53,240 --> 00:05:54,960 Speaker 4: he joins us now to talk a little bit more 124 00:05:55,000 --> 00:05:58,719 Speaker 4: about what's happening with Eli Lilly. So Sam, our bi 125 00:05:58,839 --> 00:06:01,880 Speaker 4: drug boss, thanks for joining us as always on this Monday, 126 00:06:02,279 --> 00:06:06,720 Speaker 4: Eli Lilly buying a company called Orner Therapeutics for up 127 00:06:06,760 --> 00:06:09,880 Speaker 4: to two point four billion dollars in cash, shortly after 128 00:06:10,040 --> 00:06:12,479 Speaker 4: it has announced it's paying three hundred and fifty million 129 00:06:12,480 --> 00:06:15,920 Speaker 4: dollars to in Event Biologics from China. 130 00:06:16,080 --> 00:06:17,840 Speaker 5: Talk about what the common thread is. 131 00:06:17,800 --> 00:06:21,640 Speaker 4: Between both of these acquisitions or these transactions. 132 00:06:22,400 --> 00:06:27,440 Speaker 7: Yeah, sure, Scarlett. Common thread is I've got cash, that is, 133 00:06:27,640 --> 00:06:31,040 Speaker 7: I'm producing at a very rapid rate, and I need 134 00:06:31,120 --> 00:06:33,680 Speaker 7: to make sure that I've got a pipeline the day 135 00:06:33,720 --> 00:06:36,600 Speaker 7: that people are going to stop worrying about my patent's expiring. 136 00:06:36,760 --> 00:06:40,760 Speaker 7: So on long way off for these huge drugs. So 137 00:06:41,160 --> 00:06:44,640 Speaker 7: the more assets that these guys have with their massive 138 00:06:44,680 --> 00:06:47,280 Speaker 7: cash flow to invest in for R and D, the 139 00:06:47,440 --> 00:06:49,800 Speaker 7: higher the probability that they'll be coming to that point 140 00:06:49,839 --> 00:06:54,000 Speaker 7: where people start going, just like they're doing with Merk. Oh, gosh, 141 00:06:54,080 --> 00:06:56,320 Speaker 7: your thirty five billion dollar drugs, about the kind up 142 00:06:56,360 --> 00:06:59,640 Speaker 7: patent that's in Merks scenario, what are you going to 143 00:06:59,720 --> 00:07:01,880 Speaker 7: be replacing it with? And of course Mark has been 144 00:07:01,880 --> 00:07:04,520 Speaker 7: doing some moves there, Lily is doing these things. These 145 00:07:04,560 --> 00:07:07,599 Speaker 7: are two very separate deals. They've done about seven deals 146 00:07:07,600 --> 00:07:11,440 Speaker 7: with this Chinese company that you're referring to, Innovant and 147 00:07:11,560 --> 00:07:13,240 Speaker 7: the deal they bought. And I love the name of 148 00:07:13,280 --> 00:07:17,680 Speaker 7: this company, Orna. It's a circular RNA and I think, 149 00:07:18,880 --> 00:07:21,360 Speaker 7: you know, I couldn't have imagined a better name for 150 00:07:21,400 --> 00:07:24,120 Speaker 7: this company. It is another one of those ways of 151 00:07:24,160 --> 00:07:28,640 Speaker 7: trying to use RNA to impact biology in the page 152 00:07:28,680 --> 00:07:32,520 Speaker 7: in this person directly, like a vaccine, like cancer, or 153 00:07:32,520 --> 00:07:34,680 Speaker 7: whatever way you want to go. It's a very different approach, 154 00:07:34,720 --> 00:07:36,000 Speaker 7: but it's very interesting approach. 155 00:07:36,320 --> 00:07:39,960 Speaker 2: Boy, the gloves are coming off, Sam and this obesity 156 00:07:40,240 --> 00:07:44,280 Speaker 2: market here, Novo Nordisk suing Hymns and Hers for making 157 00:07:44,640 --> 00:07:48,440 Speaker 2: knockoffs of its obesity products. This seems really cut and 158 00:07:48,480 --> 00:07:52,119 Speaker 2: dry to me. How do you view this knockoff market 159 00:07:52,120 --> 00:07:53,760 Speaker 2: here for some of these drugs. 160 00:07:54,040 --> 00:07:57,000 Speaker 7: Well, you shouldn't have a knockoff market for these drugs. 161 00:07:56,560 --> 00:08:00,360 Speaker 7: There's no rules in the patent world. You know, you 162 00:08:00,440 --> 00:08:04,600 Speaker 7: invent something, you patented, you're supposed to have a while 163 00:08:05,000 --> 00:08:07,840 Speaker 7: to make some profits of it before generic companies come. 164 00:08:07,840 --> 00:08:11,400 Speaker 7: There's a very well set process for this, and of 165 00:08:11,400 --> 00:08:13,880 Speaker 7: course the companies try and extend their patents a bit 166 00:08:13,960 --> 00:08:15,960 Speaker 7: and keep stay on the market for a bit longer. 167 00:08:16,320 --> 00:08:18,200 Speaker 7: But at the end of the day, generics come, and 168 00:08:18,240 --> 00:08:20,240 Speaker 7: that's how the model works. The drugs get cheaper, good 169 00:08:20,320 --> 00:08:24,960 Speaker 7: drugs get cheaper. Everybody gets access. So here having someone 170 00:08:25,000 --> 00:08:26,600 Speaker 7: to go and say, okay, I'll go and buy and 171 00:08:26,680 --> 00:08:29,520 Speaker 7: source the active agent from somewhere and put it in 172 00:08:29,520 --> 00:08:32,040 Speaker 7: a syringe and sell it to people. That shouldn't be 173 00:08:32,040 --> 00:08:35,560 Speaker 7: allowed during a period of lack of supply, especially if 174 00:08:35,559 --> 00:08:38,480 Speaker 7: you have a very difficult to manufacture drug, which these 175 00:08:38,480 --> 00:08:42,040 Speaker 7: have been. That's fine, perhaps, and the FDA allows that, 176 00:08:42,120 --> 00:08:45,800 Speaker 7: But that ended nine months ago. Why hasn't this happened earlier? 177 00:08:45,840 --> 00:08:47,760 Speaker 7: I don't know, And I tell you I love the 178 00:08:48,360 --> 00:08:51,640 Speaker 7: take the Gloves off analogy. Are these guys heavy weights 179 00:08:51,880 --> 00:08:54,840 Speaker 7: or we see here drugs or are there lightweights or featherweights. 180 00:08:55,040 --> 00:08:57,800 Speaker 7: Let's see who's the heavyweights in this fite? 181 00:08:58,000 --> 00:09:01,319 Speaker 2: Hymn's and hers. That stock is down twenty today a 182 00:09:01,800 --> 00:09:03,400 Speaker 2: year to date, down about fifty. 183 00:09:03,600 --> 00:09:06,119 Speaker 3: Fifty two close, So it's definitely feeling. 184 00:09:05,880 --> 00:09:07,079 Speaker 5: It, definitely feeling it. 185 00:09:08,000 --> 00:09:12,160 Speaker 4: Sam Novo and Hyms actually had a partnership, I believe 186 00:09:12,280 --> 00:09:16,160 Speaker 4: last year, but they scrap that and their relationship has worsened. 187 00:09:16,360 --> 00:09:18,480 Speaker 4: What did that partnership look like? And perhaps did that 188 00:09:18,679 --> 00:09:22,280 Speaker 4: give Hims some room to feel like it could move 189 00:09:22,280 --> 00:09:26,640 Speaker 4: forward on, you know, coming up with these knockoff versions. 190 00:09:27,360 --> 00:09:29,440 Speaker 7: Yeah, wouldn't it be the easiest thing to do is 191 00:09:29,480 --> 00:09:32,600 Speaker 7: just to go to to No, I don't think Actually, 192 00:09:32,600 --> 00:09:34,080 Speaker 7: just want to ask you a question directly there, I 193 00:09:34,080 --> 00:09:35,680 Speaker 7: don't think so. I don't think they could have back 194 00:09:35,720 --> 00:09:39,640 Speaker 7: engineered the Novo noticed product, because the latest thing that 195 00:09:39,760 --> 00:09:46,040 Speaker 7: finally brought this to a to this hiatus that we 196 00:09:46,160 --> 00:09:49,640 Speaker 7: come to, to this pinnacle of fighting that we've come to, 197 00:09:50,360 --> 00:09:53,000 Speaker 7: was the oral drug. But they couldn't have had access 198 00:09:53,000 --> 00:09:55,200 Speaker 7: to the oral drug. It was only just got launched. 199 00:09:55,640 --> 00:09:59,080 Speaker 7: So reverse engineering something isn't something you do over three 200 00:09:59,160 --> 00:10:01,800 Speaker 7: or four months. That was the case. I think they 201 00:10:01,800 --> 00:10:03,920 Speaker 7: could have had a good relationship. Noble could have carried 202 00:10:03,920 --> 00:10:06,559 Speaker 7: on used them as a platform, But then Novo created 203 00:10:06,559 --> 00:10:10,120 Speaker 7: its own platform, Novo Care, just like Lily Direct, et cetera. 204 00:10:10,480 --> 00:10:13,040 Speaker 7: So I don't know how much that lasted. That much 205 00:10:13,080 --> 00:10:14,880 Speaker 7: revenue Novo got out of it, but it couldn't have 206 00:10:14,880 --> 00:10:15,440 Speaker 7: been very much. 207 00:10:15,920 --> 00:10:18,600 Speaker 2: Sam So having a drug here for obesity just a 208 00:10:18,679 --> 00:10:21,600 Speaker 2: gold mine. You can just and just think about how 209 00:10:21,600 --> 00:10:25,040 Speaker 2: big this marketplace could be. How about some type of 210 00:10:25,320 --> 00:10:28,720 Speaker 2: medicine for I don't know, baldness, that a couple of 211 00:10:28,720 --> 00:10:33,199 Speaker 2: my good who needs people in London may may be interested. 212 00:10:32,920 --> 00:10:37,040 Speaker 7: In who needs a drive for ballness. We are higher 213 00:10:37,120 --> 00:10:39,079 Speaker 7: up on the evolutionary treat my friend. 214 00:10:39,000 --> 00:10:41,520 Speaker 2: I know, but that isn't isn't something like that in 215 00:10:41,559 --> 00:10:42,320 Speaker 2: the offing as well? 216 00:10:43,280 --> 00:10:45,080 Speaker 7: There is there is in fact a company is just 217 00:10:46,880 --> 00:10:49,600 Speaker 7: IPO that's got some ideas there. I think there are 218 00:10:49,679 --> 00:10:52,160 Speaker 7: drugs already alopecia drugs out there, but those are more 219 00:10:52,240 --> 00:10:56,040 Speaker 7: for serious cases, not for someone like me that nobody 220 00:10:56,120 --> 00:10:58,800 Speaker 7: cares anyone that I think that you'll ever be shocked 221 00:10:58,800 --> 00:11:00,000 Speaker 7: if I turned up with a bit of a hair. 222 00:11:00,679 --> 00:11:03,480 Speaker 7: So there are companies out there. This is something that 223 00:11:03,880 --> 00:11:07,640 Speaker 7: folks who for whatever reason lose hair really early in 224 00:11:07,679 --> 00:11:09,079 Speaker 7: their youth. I had a friend of mine who was 225 00:11:09,080 --> 00:11:11,320 Speaker 7: at the age of eighteen was going bold. So of 226 00:11:11,360 --> 00:11:14,480 Speaker 7: course that's very tough for somebody at that age, and 227 00:11:14,559 --> 00:11:16,920 Speaker 7: even you know forty year olds who don't want to 228 00:11:16,960 --> 00:11:18,920 Speaker 7: end up losing that beautiful hair they have. It's too 229 00:11:19,000 --> 00:11:21,440 Speaker 7: late for me, but those guys, Yes, there is a 230 00:11:21,559 --> 00:11:24,120 Speaker 7: meaningful market there, not going to be as big as 231 00:11:24,120 --> 00:11:26,880 Speaker 7: obesity do. I don't think stay with us. 232 00:11:27,080 --> 00:11:29,520 Speaker 2: More from Bloomberg Intelligence coming up after. 233 00:11:29,280 --> 00:11:36,679 Speaker 1: This, you're listening to the Bloomberg Intelligence podcast. Catch us 234 00:11:36,760 --> 00:11:39,800 Speaker 1: live weekdays at ten am Eastern on Apple, Coarplay and 235 00:11:39,800 --> 00:11:43,080 Speaker 1: Android Auto with the Bloomberg Business App. Listen on demand 236 00:11:43,120 --> 00:11:46,680 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 237 00:11:47,320 --> 00:11:49,400 Speaker 2: It's Monday, which means we often get a lot of 238 00:11:49,480 --> 00:11:52,480 Speaker 2: MNA activity. We certainly did today in the energy space. 239 00:11:52,960 --> 00:11:56,840 Speaker 2: Transocean remember them from the BP thing, Transortion to buy 240 00:11:57,040 --> 00:12:00,240 Speaker 2: Vlarus in a stock deal value of five point eight 241 00:12:00,240 --> 00:12:02,880 Speaker 2: billion dollars. Scott Levine joints as here he covers the 242 00:12:03,000 --> 00:12:07,840 Speaker 2: energy space for Bloomberg Intelligence. Scott, Who's Transotion, Who's Valaris? 243 00:12:07,880 --> 00:12:09,000 Speaker 2: And why are they getting together here? 244 00:12:09,440 --> 00:12:12,920 Speaker 8: Yeah, so two of the bigger names and offshore drilling. 245 00:12:13,559 --> 00:12:19,800 Speaker 8: Transocean has the largest backlog, Valaris has largest fleet. Valaris's 246 00:12:20,000 --> 00:12:22,520 Speaker 8: name may not be that familiar to a lot of 247 00:12:22,559 --> 00:12:25,199 Speaker 8: folks here. It was actually a combination of a two 248 00:12:25,240 --> 00:12:27,319 Speaker 8: companies called Ensco and row In a few years ago. 249 00:12:27,360 --> 00:12:30,160 Speaker 8: But there are two of the biggest offshore drillers, and 250 00:12:30,720 --> 00:12:33,640 Speaker 8: I think that this deal really has both offensive and 251 00:12:33,760 --> 00:12:39,760 Speaker 8: defensive motivations. Offshore drilling is in a little bit of 252 00:12:39,800 --> 00:12:43,200 Speaker 8: a recovery mode. Really kind of has been. Most of 253 00:12:43,240 --> 00:12:48,680 Speaker 8: the drillers went bankrupt. Actually during the twenty twenty one downturn, 254 00:12:50,200 --> 00:12:52,640 Speaker 8: Transotion was really one of the only companies that did 255 00:12:52,640 --> 00:12:57,400 Speaker 8: not go bankrupt. Valaris did, and so Transition has kind 256 00:12:57,400 --> 00:13:00,560 Speaker 8: of been saddled with all this debt as a result 257 00:13:00,679 --> 00:13:04,439 Speaker 8: of not having their balance sheet wipe during a bankruptcy, 258 00:13:04,480 --> 00:13:07,080 Speaker 8: and so that's been a limiting factor on their growth 259 00:13:07,080 --> 00:13:09,800 Speaker 8: for quite some time. And this deal, which is an 260 00:13:09,800 --> 00:13:14,679 Speaker 8: all stock deal, will accelerate their leveraging process and remove 261 00:13:14,800 --> 00:13:18,120 Speaker 8: some of that burden from them and better enable them 262 00:13:18,160 --> 00:13:22,120 Speaker 8: to capitalize on an upturn in offshore drilling. And the 263 00:13:22,160 --> 00:13:24,520 Speaker 8: second the thing that's important to note here is that 264 00:13:24,559 --> 00:13:29,440 Speaker 8: it brings a jack up fleet jet. So jackup fleet 265 00:13:29,600 --> 00:13:34,280 Speaker 8: jackups are basically shallow water rigs okay, as opposed to 266 00:13:34,320 --> 00:13:38,760 Speaker 8: the deep water drill ships or floaters, and Transotion had 267 00:13:38,800 --> 00:13:43,520 Speaker 8: exclusively been a floater. Fleet jackups are more to the 268 00:13:43,559 --> 00:13:47,640 Speaker 8: seabed and seabeds lower and shallow water, and Valaris is 269 00:13:47,679 --> 00:13:50,960 Speaker 8: one of the biggest players there, and so this gives 270 00:13:51,000 --> 00:13:55,559 Speaker 8: Transition exposure to the jack up or shallow water market, 271 00:13:55,960 --> 00:14:00,200 Speaker 8: which has really undergone an interesting phase in that it 272 00:14:00,240 --> 00:14:02,400 Speaker 8: was a bit of a downturn the last couple of years. 273 00:14:02,440 --> 00:14:06,920 Speaker 8: The biggest jack up driller is saudij Ramcoat, and a 274 00:14:06,920 --> 00:14:10,760 Speaker 8: couple of years ago Saudia Ramco made significant cuts to 275 00:14:10,840 --> 00:14:16,200 Speaker 8: their drilling program. They essentially Saudi Arabia abandoned plans to 276 00:14:16,360 --> 00:14:20,000 Speaker 8: increase their oil production capacity to thirteen million barrels a day. 277 00:14:20,400 --> 00:14:22,880 Speaker 8: And what we've seen since then is a lot of 278 00:14:22,960 --> 00:14:26,720 Speaker 8: jack up rigs being laid off effectively in twenty twenty 279 00:14:26,720 --> 00:14:31,000 Speaker 8: four and twenty twenty five. Indication suggests those rigs will 280 00:14:31,000 --> 00:14:35,640 Speaker 8: return this year, so that market is bottomed and maybe 281 00:14:35,960 --> 00:14:38,920 Speaker 8: on the cusp of an upswing. So this deal will 282 00:14:38,960 --> 00:14:42,360 Speaker 8: give Transition the ability to participate in that recovery. 283 00:14:42,720 --> 00:14:43,920 Speaker 5: So in terms of. 284 00:14:43,800 --> 00:14:45,800 Speaker 4: Why now, when it comes to the timing of this deal, 285 00:14:45,960 --> 00:14:49,760 Speaker 4: the COEO transortion cited a multi year drilling up cycle. 286 00:14:50,240 --> 00:14:51,760 Speaker 5: Where are we in that cycle? Are we? 287 00:14:52,080 --> 00:14:52,280 Speaker 6: You know? 288 00:14:52,400 --> 00:14:53,360 Speaker 5: First inning? Are we? 289 00:14:54,960 --> 00:14:57,400 Speaker 8: It's kind of been an interesting up cycle. So we 290 00:14:57,480 --> 00:15:02,600 Speaker 8: saw an inflection in twenty two and twenty three, and 291 00:15:02,680 --> 00:15:04,920 Speaker 8: twenty four and twenty five, we've seen kind of a 292 00:15:04,960 --> 00:15:08,680 Speaker 8: plateau to a slight pullback. Now I do believe we're 293 00:15:08,680 --> 00:15:10,920 Speaker 8: in a recovery and have been and this has kind 294 00:15:10,920 --> 00:15:15,480 Speaker 8: of been more of a mid cycle pause associated rather 295 00:15:15,560 --> 00:15:17,960 Speaker 8: than a downturn and offshore drilling. So I do think 296 00:15:18,000 --> 00:15:23,280 Speaker 8: the recovery is intact, but I think the cadence has 297 00:15:23,320 --> 00:15:28,800 Speaker 8: certainly slowed and in fact deteriorated, and offshore drillers, like 298 00:15:30,200 --> 00:15:33,560 Speaker 8: energy service companies, have been off to the races this year. 299 00:15:33,680 --> 00:15:36,320 Speaker 8: I think the oil price is held in better than expected. 300 00:15:37,360 --> 00:15:40,200 Speaker 8: Some of that is due to some of the tensions 301 00:15:40,200 --> 00:15:43,480 Speaker 8: in the Middle East, I Ran, et cetera, Venezuela as well. 302 00:15:44,440 --> 00:15:47,160 Speaker 8: So the punchline really is that we're still in I 303 00:15:47,160 --> 00:15:49,480 Speaker 8: think a mid cycle pause until maybe the second half 304 00:15:49,560 --> 00:15:52,200 Speaker 8: of this year, and in terms of what inning we're in, 305 00:15:52,560 --> 00:15:55,600 Speaker 8: I think we're probably like third fourth earn it, third 306 00:15:55,720 --> 00:15:59,680 Speaker 8: fourth inning, but it's been in kind of an unconventional recovery. 307 00:16:00,080 --> 00:16:02,440 Speaker 2: Will the regulators allow these two companies to get the other. 308 00:16:02,800 --> 00:16:05,880 Speaker 8: Yeah, I think so, And it's a good question. These 309 00:16:05,920 --> 00:16:08,040 Speaker 8: are the two of the largest players that are out there, 310 00:16:08,880 --> 00:16:14,120 Speaker 8: and rig CEO expressed extreme confidence that that will be 311 00:16:14,240 --> 00:16:17,520 Speaker 8: the case. It's a competitive market, there's a lot of 312 00:16:18,040 --> 00:16:23,120 Speaker 8: fragmentation smaller players in the market, and it's generally the 313 00:16:23,240 --> 00:16:27,640 Speaker 8: quality of certain assets that determine which guys win which contracts. 314 00:16:28,360 --> 00:16:31,440 Speaker 8: A lot of it depends on which rigs are capable 315 00:16:31,520 --> 00:16:34,720 Speaker 8: of drilling for which projects, and so no, I do 316 00:16:34,840 --> 00:16:41,680 Speaker 8: think that this should get a relatively quick approval. Certainly 317 00:16:41,760 --> 00:16:44,280 Speaker 8: they're talking second half of this year. That's a much 318 00:16:44,320 --> 00:16:48,960 Speaker 8: shorter timeline than the last major oil field services merger, 319 00:16:49,320 --> 00:16:52,240 Speaker 8: which was Schlumberge Champion X that took over a year 320 00:16:52,920 --> 00:16:56,320 Speaker 8: two year and a half to approve and required significant divestures. 321 00:16:56,360 --> 00:16:59,040 Speaker 8: But offshore drilling is a different market. 322 00:17:01,760 --> 00:17:04,679 Speaker 2: Stay with us. More from Bloomberg Intelligence coming up there For. 323 00:17:04,760 --> 00:17:11,320 Speaker 1: This you're listening to the Bloomberg Intelligence podcast. Catch us 324 00:17:11,359 --> 00:17:14,359 Speaker 1: Live weekdays at ten am Eastern on Apple Coarclay, and 325 00:17:14,359 --> 00:17:17,680 Speaker 1: Android Auto with the Bloomberg Business app. Listen on demand 326 00:17:17,720 --> 00:17:21,280 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 327 00:17:21,840 --> 00:17:26,640 Speaker 2: The Trump administration is considering a potential antitrust probe into 328 00:17:26,840 --> 00:17:29,960 Speaker 2: US homebuilders. Presumably this kind of goes to the issue 329 00:17:29,960 --> 00:17:33,480 Speaker 2: of affordability or like thereof in the housing market. The 330 00:17:33,560 --> 00:17:37,119 Speaker 2: question is how impactful is it for this industry and 331 00:17:37,160 --> 00:17:39,760 Speaker 2: for the companies the homebuilders in this industry to get 332 00:17:39,800 --> 00:17:42,239 Speaker 2: some answers there returned to Drew Redding and covers all 333 00:17:42,240 --> 00:17:45,600 Speaker 2: the homebuilders for Bloomberg Intelligence. He also is a sconce 334 00:17:45,880 --> 00:17:48,400 Speaker 2: down in Princeton, New Jersey at our campus down there, 335 00:17:48,560 --> 00:17:51,760 Speaker 2: Drew talk to us about this potential lawsuit by the 336 00:17:51,760 --> 00:17:54,800 Speaker 2: Trump administration. How serious is the industry taking this? 337 00:17:56,440 --> 00:17:59,560 Speaker 6: Right? So, according to the report, there's actually no indication 338 00:17:59,640 --> 00:18:04,600 Speaker 6: that any formal investigation has started. I guess what's that 339 00:18:04,720 --> 00:18:07,919 Speaker 6: play here is that it was hinted at that one 340 00:18:07,960 --> 00:18:10,800 Speaker 6: of the industry trade groups, the leading builders of America. 341 00:18:11,600 --> 00:18:14,000 Speaker 6: Builders within that, including some of the large public builders 342 00:18:14,040 --> 00:18:17,320 Speaker 6: that were highlighted like Ador, Horton and Lenar, we're sharing 343 00:18:17,359 --> 00:18:21,919 Speaker 6: information that could be used to restrict home prices or inventory. 344 00:18:22,760 --> 00:18:22,960 Speaker 7: Uh. 345 00:18:23,040 --> 00:18:25,680 Speaker 6: You know, we've seen this this tactic from the administration 346 00:18:25,760 --> 00:18:27,600 Speaker 6: in the past, where the leaks some information to the 347 00:18:27,600 --> 00:18:30,520 Speaker 6: public kind of has to put out a feeler for 348 00:18:30,800 --> 00:18:33,080 Speaker 6: you know, what the how what the industry's response will be. 349 00:18:34,520 --> 00:18:38,040 Speaker 6: You know, But to this point, it doesn't appear that 350 00:18:38,080 --> 00:18:42,280 Speaker 6: there there's actually any concrete evidence of wrongdoing. It's interesting 351 00:18:42,320 --> 00:18:45,320 Speaker 6: because the home builders have been in the crosshairs of 352 00:18:45,320 --> 00:18:48,800 Speaker 6: the administration since the end of last year. You know, 353 00:18:48,840 --> 00:18:52,160 Speaker 6: there's been rhetoric saying that if the builders don't put 354 00:18:52,160 --> 00:18:54,879 Speaker 6: their lots into production and start building houses, that the 355 00:18:54,960 --> 00:18:59,280 Speaker 6: gcs could pull liquidity. There's been dialogue suggesting that the 356 00:18:59,560 --> 00:19:02,199 Speaker 6: public home builders shouldn't be buying back their stocks, they 357 00:19:02,200 --> 00:19:04,760 Speaker 6: should be putting that into production, and that's actually become 358 00:19:04,760 --> 00:19:07,320 Speaker 6: a big part of their business model. There's also been 359 00:19:07,359 --> 00:19:10,680 Speaker 6: talk about them, you know, not being able to utilize 360 00:19:10,680 --> 00:19:14,119 Speaker 6: their forward purchase commitments, which is how they've gotten buyers 361 00:19:14,119 --> 00:19:17,399 Speaker 6: monthly payment solo by buying down mortgage rates. So, you know, 362 00:19:17,720 --> 00:19:21,000 Speaker 6: I think this certainly heightens the rhetoric, and I think 363 00:19:21,000 --> 00:19:23,320 Speaker 6: it's something that's going to continue as we go through 364 00:19:23,359 --> 00:19:23,640 Speaker 6: the year. 365 00:19:24,160 --> 00:19:26,639 Speaker 4: Okay, So even as they've been as there's been tension 366 00:19:26,720 --> 00:19:29,000 Speaker 4: between the White House and the home building industry, there's 367 00:19:29,040 --> 00:19:32,479 Speaker 4: also some talk of them working together. Right, there's all 368 00:19:32,520 --> 00:19:36,880 Speaker 4: this discussion about Trump homes, builders working on a plan 369 00:19:36,920 --> 00:19:40,200 Speaker 4: for massive program to develop these so called Trump homes 370 00:19:40,200 --> 00:19:42,679 Speaker 4: that would at least address the supply shortage. 371 00:19:43,720 --> 00:19:47,000 Speaker 6: Yeah, that's a great point, Scarlett, And it's interesting because 372 00:19:47,359 --> 00:19:51,159 Speaker 6: you know, the tone of this relationship between policymakers and 373 00:19:51,200 --> 00:19:54,000 Speaker 6: the homebuilders seems to change by the day. I just 374 00:19:54,040 --> 00:19:57,080 Speaker 6: mentioned that they've been in the administration's crosshairs. But at 375 00:19:57,080 --> 00:19:59,360 Speaker 6: the same time, we've heard from the administration and from 376 00:19:59,400 --> 00:20:02,199 Speaker 6: the large PubL with builders during their earnings calls that 377 00:20:02,240 --> 00:20:05,600 Speaker 6: they have been working collaborative, collaboratively to find a solution 378 00:20:06,160 --> 00:20:09,520 Speaker 6: to thousand affordabilities problem, whether that's through you know, demand 379 00:20:09,600 --> 00:20:13,200 Speaker 6: side stimulus or finding ways to bring new supply to market. 380 00:20:14,200 --> 00:20:14,399 Speaker 7: You know. 381 00:20:14,440 --> 00:20:16,720 Speaker 6: So it is interesting to hear that, you know, just 382 00:20:16,760 --> 00:20:19,439 Speaker 6: the day after you mentioned that the builders brought the 383 00:20:19,480 --> 00:20:22,400 Speaker 6: concept of Trump Homes, which would essentially be a rent 384 00:20:22,400 --> 00:20:25,200 Speaker 6: to own program that we're hearing, you know, this from 385 00:20:25,240 --> 00:20:25,840 Speaker 6: the administration. 386 00:20:27,440 --> 00:20:30,639 Speaker 2: Interest rates, mortgage rates. What's the industry saying about mortgage 387 00:20:30,680 --> 00:20:32,440 Speaker 2: rates and where they may go throughout the course of 388 00:20:32,480 --> 00:20:32,880 Speaker 2: this year. 389 00:20:34,320 --> 00:20:36,879 Speaker 6: Yeah, we've actually made pretty good progress on mortgage rates. 390 00:20:36,920 --> 00:20:40,200 Speaker 6: Were down about one hundred basis points from last year. 391 00:20:41,040 --> 00:20:44,359 Speaker 6: You know. The administration's directive for the GCS to purchase 392 00:20:44,400 --> 00:20:48,520 Speaker 6: a hundred billion worth of mbs has certainly helped. I 393 00:20:48,520 --> 00:20:50,600 Speaker 6: think the consensus is that a lot of the juice 394 00:20:50,640 --> 00:20:52,720 Speaker 6: from the policy end has been squeezed. 395 00:20:52,840 --> 00:20:53,600 Speaker 7: If you look at. 396 00:20:53,480 --> 00:20:57,040 Speaker 6: Spreads between thirty year mortgages and ten year treasury rates, 397 00:20:57,040 --> 00:21:00,800 Speaker 6: we're approaching more normalized levels. You know, there may be 398 00:21:00,960 --> 00:21:03,360 Speaker 6: is a little bit more room you can make up there, 399 00:21:03,359 --> 00:21:07,160 Speaker 6: but I think the bulk of the move has already happened. 400 00:21:07,160 --> 00:21:08,120 Speaker 7: I think, you know, in. 401 00:21:08,080 --> 00:21:10,200 Speaker 6: Order to get lower mortgage rates, you probably have to 402 00:21:10,240 --> 00:21:13,640 Speaker 6: see lower tenure treasure yields, which are going to respond 403 00:21:13,680 --> 00:21:16,760 Speaker 6: to you know, fiscal policy and things of that nature. 404 00:21:18,000 --> 00:21:20,680 Speaker 6: You know, affordability has improved a little bit from last year, 405 00:21:20,680 --> 00:21:24,159 Speaker 6: but we still haven't seen that significant demand response. I 406 00:21:24,200 --> 00:21:26,040 Speaker 6: think that a lot of builders have been hoping for. 407 00:21:26,600 --> 00:21:28,560 Speaker 6: And you know, the reason for that, and we've highlighted 408 00:21:28,560 --> 00:21:30,800 Speaker 6: this several times, is that there's just more concern out 409 00:21:30,800 --> 00:21:33,960 Speaker 6: there in the market as to the direction of the economy, 410 00:21:34,000 --> 00:21:35,880 Speaker 6: what's going to happen with the labor market. So it's 411 00:21:35,920 --> 00:21:39,840 Speaker 6: taken a lot of urgency out of home shoppers. And 412 00:21:39,960 --> 00:21:41,919 Speaker 6: you know, the other thing to point out is I 413 00:21:41,920 --> 00:21:43,840 Speaker 6: think that there's a lot of people sitting out there 414 00:21:43,840 --> 00:21:45,800 Speaker 6: on the sidelines. We're saying, you know, I think in 415 00:21:45,840 --> 00:21:48,399 Speaker 6: the next six to twelve months, mortgage rates and or 416 00:21:48,480 --> 00:21:50,640 Speaker 6: home prices are going to come down. So I think 417 00:21:50,800 --> 00:21:52,359 Speaker 6: there might be a better time to get into the 418 00:21:52,400 --> 00:21:53,919 Speaker 6: market very quickly. 419 00:21:54,080 --> 00:21:54,359 Speaker 5: Drew. 420 00:21:54,840 --> 00:21:58,439 Speaker 4: We also know that we have some home builders reporting 421 00:21:58,480 --> 00:22:01,280 Speaker 4: results in the weeks to come. Toll Brothers, which of 422 00:22:01,280 --> 00:22:05,119 Speaker 4: course is big in luxury housing, is reporting on February seventeenth. 423 00:22:05,560 --> 00:22:06,639 Speaker 5: What's the tone going to be like? 424 00:22:08,119 --> 00:22:10,440 Speaker 6: Yeah, So, by and large, I think the move up 425 00:22:10,440 --> 00:22:12,920 Speaker 6: and the luxury segments of the market have done better 426 00:22:12,960 --> 00:22:16,280 Speaker 6: on a relative basis, And you know, it makes total sense. 427 00:22:16,320 --> 00:22:20,160 Speaker 6: You have the lower end to whose buyers are more 428 00:22:20,200 --> 00:22:24,240 Speaker 6: sensitive to fluctuations and mortgage rates, so pricing has held 429 00:22:24,280 --> 00:22:25,679 Speaker 6: up better at the higher end. I think we're going 430 00:22:25,760 --> 00:22:28,440 Speaker 6: to continue to hear that. What's important to remember is though, 431 00:22:28,480 --> 00:22:31,000 Speaker 6: just because you're at the high end, you're somewhat insulated 432 00:22:31,000 --> 00:22:32,840 Speaker 6: from what's happened in the market, but you're not immune 433 00:22:33,119 --> 00:22:35,600 Speaker 6: because the housing is an ecosystem. In order to get 434 00:22:35,600 --> 00:22:38,040 Speaker 6: more volumes at higher price points, you need to see 435 00:22:38,040 --> 00:22:39,880 Speaker 6: demand funnel up from the low end. 436 00:22:41,080 --> 00:22:45,760 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, 437 00:22:45,960 --> 00:22:49,440 Speaker 1: and anywhere else you get your podcasts. 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