Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moven news.
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Speaker 2: Let's get back to the strike because we're getting red
Speaker 2: headlines across the Bloomberg terminal. Now from Sean Fain's Facebook
Speaker 2: live presentation, he says, the United Autoworkers Union is going
Speaker 2: to expand its strike, but only against General Motors and Stilantis.
Speaker 2: They're not going to expand their strike against Ford. Now.
Speaker 2: I'm not sure what's going to happen to Bronco Production.
Speaker 2: I'm sure a lot of people want to know about that,
Speaker 2: so I'll find out and get back to you on it.
Speaker 2: But they are going to expand their strike against GM.
Speaker 2: At Silantis, we have Kevin Tyne and standing by on
Speaker 2: the phone, Bloomberg Intelligence US autos analyst. Wait is he
Speaker 2: is he there?
Speaker 3: Yeah?
Speaker 2: Okay, good, he's on camera. He's not him on the phone.
Speaker 2: Did you hire him?
Speaker 1: Probably?
Speaker 2: Congratulations, he's very good, Kevin, What do you think about this?
Speaker 2: So it seems like they're getting along a little better
Speaker 2: with Bill Ford now and historically they do get along
Speaker 2: better with the Ford Motor Company because of the Ford
Speaker 2: family and because of Bill. Really with GM and Stilantis,
Speaker 2: they still have serious beef. How do you read it?
Speaker 4: Yeah, I mean using it as leverage, right, saying by
Speaker 4: expanding for Stilanthason GM and holding the line on Ford
Speaker 4: probably motivates, you know, the competitors to get in there
Speaker 4: and be a little bit more aggressive with with their
Speaker 4: negotiating in terms of what they're willing to give. But
Speaker 4: but you know, it's it's not over yet. You know,
Speaker 4: there's still probably a ways to go, and and you know,
Speaker 4: things like this, you might mean the biggest issues or
Speaker 4: the easiest issue, use the low hanging fruit is handled,
Speaker 4: but it's probably going to be in the details before
Speaker 4: anything is really agreed to across the board.
Speaker 1: Hey, Kevin, is there like you've probably done I'm sure
Speaker 1: you've done analysis. When does his strike start there hurt
Speaker 1: them financially? The big three?
Speaker 4: It's weeks, not you know, not days obviously, And keep
Speaker 4: in mind too, there's there was a build up of
Speaker 4: inventory ahead, so there are units on the ground, and
Speaker 4: you could think of it of a little bit of
Speaker 4: a working capital shift from one quarter to the next
Speaker 4: unless it gets you know, very long. The last one
Speaker 4: was forty days and twenty nineteen against General Motors, and
Speaker 4: that's significant, right, so, and historically, even though inventory is
Speaker 4: above where it was a year ago, it's still very low. Historically.
Speaker 4: I think I calculated it out to start September was
Speaker 4: probably about forty three days of inventory for the end
Speaker 4: Street has a whole and typically fifty five to sixty
Speaker 4: five days is considered manageable. So it's below what's considered
Speaker 4: you know, a healthy level. And at the worst, these
Speaker 4: the domestic automakers, they would have eighty ninety days supply
Speaker 4: in some months, so significantly off that, but but not
Speaker 4: as bad as it was prior to the to the pandemic.
Speaker 2: In terms of job security, I mean, we know that
Speaker 2: they're asking for pay rises. Obviously they also want to
Speaker 2: be pension, which is seems less likely, although I'd love
Speaker 2: to hear your take a four day work week, which
Speaker 2: is like nice, there's no way in hell, right, But
Speaker 2: they want actual job security. So from GM there's a
Speaker 2: ton of cars coming, you know, new production. Mary Barros
Speaker 2: say is they won't need fewer workers for electric vehicles.
Speaker 2: There's just a massive offering there from Stilantis, not so much.
Speaker 2: I mean, they have a couple brands that seems like
Speaker 2: they're about to die out.
Speaker 4: Yeah, look, and I think it's it's the line of
Speaker 4: sight is pretty clear, right. So the automakers have made
Speaker 4: a lot of money in the past couple of years,
Speaker 4: not even just through the last contract, but probably over
Speaker 4: the last decade, and it's very easy for the union
Speaker 4: to point to that and say, we want our share
Speaker 4: of that. You've been very profitable due to the concessions
Speaker 4: we've given over the last couple of contracts, all the
Speaker 4: way through the bankruptcy period, and it's not going to
Speaker 4: be easy for the manufacturers to hide that, right that
Speaker 4: you can see that money every day in every filing.
Speaker 4: But at the same time, the manufacturers can look at
Speaker 4: the unions and say, but look at our production. Look
Speaker 4: at our sales volume is way down from the twenty
Speaker 4: seventeen peak in this country. US sales in twenty seventeen,
Speaker 4: we're seventeen and a half million. We're running out of
Speaker 4: fifteen to four. So I think it's going to be
Speaker 4: the manufacturer's pointing to that and telling the union, we
Speaker 4: can't give you a whole lot of job security. This
Speaker 4: market is smaller and it's going to continue to be smaller.
Speaker 4: Transaction prices will be higher, margins will be better, the
Speaker 4: money will be there, but we can't guarantee capacity and
Speaker 4: headcount going forward. We need that flexibility. And then on
Speaker 4: pensions and healthcare, you know, the manufacturers have a very
Speaker 4: easy time of directing the eye of the union too.
Speaker 4: That's what we were bankrupt, remember in twenty two, thousand
Speaker 4: and nine and twenty ten, and that's the structure we had, right,
Speaker 4: So two of those three things are a little bit
Speaker 4: easier for the manufacturer to explain away.
Speaker 3: The money is not. So I think when.
Speaker 4: All is said and done, the likelihood is that the
Speaker 4: manufacturers pay up, but they want that flexibility to adjust
Speaker 4: the cost structure going forward. And I think, you know,
Speaker 4: the pension and healthcare going back to the way it
Speaker 4: was in prior to the bankruptcy period is just a
Speaker 4: non starter. I don't even think that gets discussed in
Speaker 4: any seriousness.
Speaker 1: So I didn't believe you, Kevin A. Couple of years
Speaker 1: ago when you said the industry was going to go
Speaker 1: from a mode of seventeen seventeen and a half million
Speaker 1: production down to you know, something materially less like fifteen
Speaker 1: and a half or something like that. But once again
Speaker 1: you were right, and that do you think the union
Speaker 1: believes that?
Speaker 4: Well, here's the thing, right is that is that you
Speaker 4: have to look at at least one other input. Right,
Speaker 4: everybody wants to talk about volume and the headline of
Speaker 4: seventeen and a half versus fifteen four, but revenue per
Speaker 4: unit matters, right, So while production and sales are down,
Speaker 4: average transaction price is at a record, right, We're heading
Speaker 4: to fifty thousand dollars, So when you multiply out just
Speaker 4: back of the envelope, the revenue pool is actually larger.
Speaker 4: So you know, you have to understand that not every
Speaker 4: unit is the same as every other unit. You know,
Speaker 4: a twenty thousand dollars Toyota Corolla is not a sixty
Speaker 4: five thousand dollars f one point fifty. And this industry
Speaker 4: is moving towards the latter to say, we just want
Speaker 4: to sell as many sixty five thousand dollars things as
Speaker 4: we can. We're willing to give up the bottom.
Speaker 3: Of that market.
Speaker 4: It means our volume goes away, but really the revenue
Speaker 4: pool and the revenue contribution and the profit contribution and
Speaker 4: your margins are just way better. And I think that's
Speaker 4: what this industry becomes going forward.
Speaker 2: By the way, on that note, I wanted originally I
Speaker 2: was planning on talking with you about the Jeep Grand
Speaker 2: Wagoneer Obsidian Series three that I'm driving right now, you know,
Speaker 2: before this hard news crash the party. But that is
Speaker 2: an extremely expensive vehicle. It's the biggest vehicle Jeep has
Speaker 2: ever made. The one I'm driving is one hundred and
Speaker 2: fourteen hundred and fifteen thousand dollars in this trim. And
Speaker 2: though I love the new Hurricane five to ten, the
Speaker 2: Inline six, it's amazing, five hundred and ten horse power,
Speaker 2: five hundred pound feet of torque. For the same price,
Speaker 2: you can get a Range Rover or a BMW X
Speaker 2: seven the M sixty version, or a Cadillac Escalade the
Speaker 2: Ultra super Luxury Platinum version. Like why are they selling
Speaker 2: these one hundred and thirteen hundred and fourteen thousand dollars Jeeps?
Speaker 4: Yeah, I mean, then look the average on Grand Wagoneer.
Speaker 4: I just looked it up. Is one hundred and five
Speaker 4: thousand is the average, you know, sales weighted, you know,
Speaker 4: but that's right there with Expedition, it's there with Suburban.
Speaker 4: That's what you know. Those have become the profit centers
Speaker 4: because you're sharing platform and components with pickup trucks and
Speaker 4: now you're just adding content that's pure profits. So you know,
Speaker 4: that's kind of my point is that, look, if you
Speaker 4: sell one of those how many you know, dodged darts
Speaker 4: did you have to sell to get.
Speaker 2: Anywhere near that?
Speaker 4: And you probably lost money on every Dodge Dart, which
Speaker 4: is why it doesn't exist anymore.
Speaker 3: You know.
Speaker 2: So the old world the hornet coming out.
Speaker 4: Yeah, well the old world would be like, run production
Speaker 4: on hornet all day long and then figure out how
Speaker 4: to sell it. And it's like the new model is
Speaker 4: going to be, Hey, if we can sell one or
Speaker 4: two Grand Wagoneers, we can cut production of hornet. Which
Speaker 4: is why I say in this contract negotiation, you know,
Speaker 4: the manufacturers need to protect that flexibility going forward, saying
Speaker 4: this is going to be a smaller market because we're
Speaker 4: selling more expensive things.
Speaker 1: Man's if I were an investor, I'd be like, I
Speaker 1: like this auto industry better than the old auto industry.
Speaker 2: Yeah, for sure.
Speaker 1: This industry's more, more problem and that's w Kevin has
Speaker 1: been telling us for years. That's where it's going.
Speaker 2: But if you're a UAW were feel that way.
Speaker 1: No, absolute opposite, Kevin Tinny, thanks so much for joining us.
Speaker 1: Kevin is our lead auto analyst for Bloomberg Intelligence.
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Speaker 2: Now. Yesterday, Paul and I were talking with a gentleman
Speaker 2: who said, you know, one of the big problems in
Speaker 2: terms of battery production is that a lot of the
Speaker 2: stuff is mined elsewhere, and then most of it is
Speaker 2: processed in China. Yep, China, China. So our next guest
Speaker 2: is hoping to change that a little bit. Nevade Alum
Speaker 2: joins us. He's president CEO of Evolution and they are
Speaker 2: working on a I guess cobalt processing plant in Yuma, Arizona,
Speaker 2: which should supply when it's up to speed about a
Speaker 2: million batteries? What a year, Nevade? Is that an annual
Speaker 2: figure that you want to be a cobalt for a
Speaker 2: million batteries a year?
Speaker 6: Yes, that's correct, Matt, one million a year. You know,
Speaker 6: right now.
Speaker 7: There's thirty cobalt processing facilities in China and zero in
Speaker 7: North America, so you know we need to catch up here.
Speaker 7: That's and you know, luckily we started this process a
Speaker 7: few years ago before the IRA and the other laws,
Speaker 7: and now we're catching a nice ailwind.
Speaker 6: So it's going really well.
Speaker 2: Well, do you get any financing benefits from that? Tax
Speaker 2: breaks from that legislation? I mean, are there subsidies that
Speaker 2: you can take advantage of here?
Speaker 6: Yeah?
Speaker 7: Absolutely, though I will say we were going to do
Speaker 7: this plant without those.
Speaker 6: Subsidies, but it's a great help for us for sure.
Speaker 2: So how much are you going to spend to build
Speaker 2: this plant? I know that Uma because I read in
Speaker 2: a local newspaper expects to have a ton of revenue
Speaker 2: sort of as a job as a knock on effect
Speaker 2: jobs and everything. But how much youre going to spend
Speaker 2: to build it? And when are you gonna be done
Speaker 2: making it all?
Speaker 1: A park?
Speaker 7: Around three hundred million dollars and it'll be done in
Speaker 7: twenty twenty six.
Speaker 6: We think, all.
Speaker 1: Right, so what actually happens at a cobalt processing facility
Speaker 1: and how does that how's that part of the whole
Speaker 1: battery situation.
Speaker 7: So cobolt is a really important metal, uh for EV batteries,
Speaker 7: for normal regulation and for energy density and for you know,
Speaker 7: giving you long range and good cold weather performance. It's
Speaker 7: also extremely important in aerospace and defense. It's used in
Speaker 7: hypersonic missiles and stealth bombers. So it's a really critical
Speaker 7: material for the United States to have self sufficiency in.
Speaker 7: So what we do is we take cobalt hydroxide, so
Speaker 7: already processed cobalt that is processed in Africa, and then
Speaker 7: it'll come here to the United States instead of going
Speaker 7: to China. And you know what the Chinese do is
Speaker 7: they just process it there and then send it back
Speaker 7: to the United States for the cars here such as
Speaker 7: Tesla and other electric automakers. But we want to skip
Speaker 7: the China step, just bring it straight here to America,
Speaker 7: process it into cobalt sulfate, which is the salt that
Speaker 7: goes into the cathode portion of the EV battery. And
Speaker 7: sell it to the new plants that have been announced
Speaker 7: in the United States by General Motors, LG, Samsung Ford.
Speaker 7: You know, they're spending billions of dollars building these what
Speaker 7: they call battery precursor plants. They're going to use nickel sulfate,
Speaker 7: cobalt sulfate, manganese sulfate and put it all together and
Speaker 7: make a battery pack.
Speaker 2: Now I've seen I guess a rendering of the plant
Speaker 2: in Yuma, and one of the things you immediately notice, Paul,
Speaker 2: check this out. Yeah, giant colar facility, even bigger than
Speaker 2: the actual processing plant. So I know, you guys want
Speaker 2: to be carbon neutral. This is all going to be
Speaker 2: powered by the sun.
Speaker 7: Yes, Indeed, Yuma County is the sunniest county in the
Speaker 7: United States, so it's it's pretty easy, we think, to
Speaker 7: do the full on solar power one hundred percent solar,
Speaker 7: no greenhouse gas, is, no propane, no diesel.
Speaker 6: So we also are.
Speaker 7: Going to be benefiting the local farmers by selling them
Speaker 7: back some of our excess solar production at cost. They're
Speaker 7: losing a lot of hydro power from.
Speaker 6: The lower levels on the Colorado.
Speaker 7: River, so they're very excited about our coming in and
Speaker 7: building this facility there.
Speaker 2: Well, I heard that you know you like Yuma, not
Speaker 2: only because I guess apparently your wife is from Yuma
Speaker 2: for one thing.
Speaker 6: That's right.
Speaker 2: It's also very sunny, low cost of living, low regulatory
Speaker 2: kind of hassle there, but it's close to like all
Speaker 2: the used batteries coming back out of California is what
Speaker 2: I read. So are you recycling cobalt there?
Speaker 6: We will. We intend to recycle as well.
Speaker 7: So you know, our first phase is to build a
Speaker 7: sulfate facility, which is sort of I think the easy,
Speaker 7: easier thing. It's a very established to tchnology around the world.
Speaker 7: As I said, there's thirty of these plants in China.
Speaker 7: And then as more and more batteries are spent and
Speaker 7: used up, we want to recycle some of those into
Speaker 7: turning them around and getting the cobalt back out of them.
Speaker 7: And then lastly we want to add a cobalt metal
Speaker 7: facility for aerospace and defense.
Speaker 6: So that's part of the strategic.
Speaker 7: Reserve announced by the President under the Defense Production Act.
Speaker 1: How do you think you will be able to compete
Speaker 1: against the Chinese? They actually have much greater scale, presumably
Speaker 1: government support to some level. How do you think about
Speaker 1: the competitive environment.
Speaker 7: Well, you know, there is no cobalt mined in China either.
Speaker 7: They all take it out of Africa, so we're competing
Speaker 7: with them in Africa. We're going to bring it here
Speaker 7: instead of taking to China, and so logistically we save money.
Speaker 7: The other great thing about Yuma County and where we
Speaker 7: are is right on the border of California and Mexico.
Speaker 7: So we need to come through the port of Long
Speaker 7: Beach or the port of Ensenada with our inputs. So
Speaker 7: and it's only three hours by truck from Ensenada or
Speaker 7: Long Beach. So I think logistically it's the great spot
Speaker 7: we're on in State eight. We're on the up railroad,
Speaker 7: so we we picked it. Also because logistics are important
Speaker 7: in these in these kinds of deals.
Speaker 1: What is it I mean from a competitive perspective? Again,
Speaker 1: can you will you be competing on price to your
Speaker 1: customers here? Can you because of the lower presumably the
Speaker 1: lower logistics costs of nothing else away from China?
Speaker 7: Yeah, Well, look, it's it's a combination of price, and
Speaker 7: we would have been competing on price initially, but more
Speaker 7: now there's tariffs on Chinese sul faith, there's the IRA
Speaker 7: regulations about Chinese inputs that come in to the EV
Speaker 7: battery supply chain. You know, there's a lot of new
Speaker 7: laws that are sort of helping us compete on price,
Speaker 7: so we may be able to charge us higher price
Speaker 7: than we might have ordinarily, you know if there were
Speaker 7: none of these laws.
Speaker 2: All right, it's I think a fascinating story, and we're
Speaker 2: finally starting to see movement, maybe because it's.
Speaker 1: Climate Week and we saw a bunch of these folks
Speaker 1: this week.
Speaker 2: No, I mean, I mean in terms of bringing processing
Speaker 2: here because Nevade, I don't know how much you talk
Speaker 2: with other people in the kind of battery supply chain,
Speaker 2: but I imagine we must be trying to bring a
Speaker 2: lot more processing of cobalt, lithium and rare earths to
Speaker 2: the US at some point.
Speaker 6: Right, Yes, it's all happening.
Speaker 7: It's it's hundreds of billions of dollars of investment, real
Speaker 7: you know, team effort, Lots of big corporations, as I mentioned, LG,
Speaker 7: General Motors, Samsung. They've announced billion dollar plants in Georgia,
Speaker 7: South Carolina, Tennessee, even Arizona. LG is building in a
Speaker 7: five and a half billion dollar plant just up the road.
Speaker 6: In Phoenix, just south of Phoenix.
Speaker 7: So that you know, is going to help us sell
Speaker 7: our product into the United States.
Speaker 2: Yeah, so it's moving. Yeah, the infrastructure, the supply chain
Speaker 2: is moving here.
Speaker 1: That's right, all right, Neved, thanks so much for joining us.
Speaker 1: Nevade Alam he is a president and CEO of Evolution
Speaker 1: there in getting into the battery business and the processing
Speaker 1: of all the cobolt and all that kind of stuff.
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Speaker 1: It is United Nations General Assembly Week here in New York.
Speaker 1: And then we've got lots of unga, lots of stuff happened,
Speaker 1: lots of terrible traffic. But one of the key areas
Speaker 1: is Russia and various sanctions on Russia as it relates
Speaker 1: to the Ukraine War. One area that is going to
Speaker 1: come up for discussion very soon is going to be
Speaker 1: banned on Russian diamonds, so we went to get to
Speaker 1: the bottom of that. We could do that with our
Speaker 1: next guest on Core Daga, CEO of Ongara and Encore,
Speaker 1: thanks so much for joining us again here talk to
Speaker 1: us about just remind us what you do at Angara.
Speaker 5: Sure.
Speaker 8: So, at Angara we are vertically integrated online jewelers. So
Speaker 8: we do everything from cutting and polishing gemstones, to designing jewelry,
Speaker 8: to manufacturing jewelry to retailing over the web in over
Speaker 8: thirty countries.
Speaker 6: All right.
Speaker 2: So I all right, So I had a question on
Speaker 2: a slightly dip before we get into that business, on
Speaker 2: a slightly different thing. I always kind of wonder, isn't
Speaker 2: Wharton the grad school? And I see some people who
Speaker 2: do the undergraduate thing at Wharton, But isn't that Penn.
Speaker 8: Yes, so Wharton is one of the schools in Penn.
Speaker 8: But it is undergrad and grad school.
Speaker 6: All right.
Speaker 2: So you go to Wharton, you study finance there in entrepreneurship,
Speaker 2: then you go get your MBA from Harvard. I've heard
Speaker 2: of it trade school. You decide I'm going to become
Speaker 2: a jeweler.
Speaker 3: Yeah.
Speaker 8: So interestingly, I grew up in the jewelry business, so
Speaker 8: I've kind of played with gemstones a say, age of five.
Speaker 8: I always thought I would never come into the industry
Speaker 8: because it is pretty antiquated and old fashioned, as you
Speaker 8: can imagine. But after work and I went to McKenzie.
Speaker 8: My largest project was turning around a major jewelry retailer,
Speaker 8: and that's when I fell in love with the trade again.
Speaker 8: I saw a lot of opportunities, especially online.
Speaker 1: So here we are.
Speaker 2: So you could have just gone straight to the jewelry business.
Speaker 2: You didn't need to stop. You didn't need to stop
Speaker 2: at McKenzie, You didn't need to stop at Harvard, right,
Speaker 2: But what did you learn at those places that gave
Speaker 2: you an edge now in this business?
Speaker 8: So, I think the industry is one of the most
Speaker 8: fragmented industries out there. So when you compare it to
Speaker 8: any other part of retail. So for example, Signet, which
Speaker 8: is the number one jeweler in the US, only has
Speaker 8: less than ten percent market share you compared to something
Speaker 8: like a best By, which has a much more dominant position.
Speaker 8: So the idea was, how do we structure the industry
Speaker 8: in a way that allows us to get to that
Speaker 8: scale where we can really dominate the industry?
Speaker 1: All Right, so one of the news items you and
Speaker 1: I were talking about it before is Russia. Russia supplies
Speaker 1: a lot of diamonds. Then they're going to I guess
Speaker 1: the G seven is gonna put some sanctions on it
Speaker 1: or something like that. What's what's happening there.
Speaker 8: Yeah, So in a couple of weeks there's likely to
Speaker 8: be a ban announced, and the ban would be for
Speaker 8: all Russian diamonds. So just as a precursor to this,
Speaker 8: April twenty twenty two, the Biden administration is issued in
Speaker 8: executive order to ban Russian diamonds. So this has already
Speaker 8: been done by the US and UK. The key difference
Speaker 8: here is twofold. One is instead of two countries, it's
Speaker 8: seven countries. And second, and I think far more importantly,
Speaker 8: is the previous band was only on rough. Now the
Speaker 8: thing is for rough diamonds, those get exported typically from
Speaker 8: Russia to India, China or Antwerp, and in this case,
Speaker 8: the cutting and polishing happens in those centers and those
Speaker 8: are then substantially transformed goods, so they are no longer
Speaker 8: considered Russian diamonds. So that previous band really had no teeth.
Speaker 8: This is very different because they're thinking about prohibiting cutting
Speaker 8: and polished Russian diamonds from entering any of the G seven,
Speaker 8: which is really sixty five percent of the total market demand.
Speaker 2: This is what we do with Russian goods that we
Speaker 2: want to put sanctions on them, so you know we're serious.
Speaker 2: But they can send the goods to India or China
Speaker 2: to get finished and then we'll buy them. Yeah, you
Speaker 2: know exactly.
Speaker 1: Russian terms of how big is Russian terms of being
Speaker 1: a supplier.
Speaker 8: So Russian diamond market is roughly four billion. There was
Speaker 8: four billion in exports back in twenty twenty one before
Speaker 8: the war. Just you know, just to compare that to
Speaker 8: the overall GDP. Overall Russian GDP in twenty twenty one
Speaker 8: was one point seven trillion, So you're really talking about
Speaker 8: point two percent of the market. To the previous point,
Speaker 8: it is more optics than reality because point two percent
Speaker 8: is a pretty small part of the overall market to change.
Speaker 1: All right, So where where do you typically get your diamonds?
Speaker 8: So we typically buy from siteholders, which are the customers
Speaker 8: of Dibber's. So typically Botswan and Sort is our number
Speaker 8: one source. So we started avoiding Russian diamonds back in
Speaker 8: twenty twenty two when the ban in the US was
Speaker 8: announced preemptively. So for US it doesn't really affect us
Speaker 8: because we don't source Russian diamonds in any case.
Speaker 2: How fungible are these stones? I mean, how would you
Speaker 2: know if a diamond came, you know, cut, polished, finished,
Speaker 2: out of Russia. It doesn't have any kind of like
Speaker 2: microchip inside it.
Speaker 8: There's no tag, right, It's hard, and that's why this
Speaker 8: ban is going to be especially difficult to enforce. But
Speaker 8: the idea behind it is really implementing blockchain technology and
Speaker 8: ledger systems throughout the supply chain to be able to
Speaker 8: figure out what's going from Russia versus elsewhere. And honestly,
Speaker 8: I think it's actually kind of great because all of
Speaker 8: a sudden traceability becomes enforced in the diamond industry, which
Speaker 8: is great soul. We can make sure we don't get
Speaker 8: any conflict diamonds, blood diamonds and the like.
Speaker 1: Talk to us about the diamond market today, how's it
Speaker 1: been over the last year or two or is it?
Speaker 1: Are diamonds more expensive less expensive?
Speaker 8: So natural diamonds have been getting crushed so since their
Speaker 8: peak in mid twenty twenty two, they are down roughly
Speaker 8: thirty five to fifty percent.
Speaker 1: In wise of value. A few reasons.
Speaker 8: One is that there is a natural lack of demand
Speaker 8: in China as well as the US, which are the
Speaker 8: two major consumers of diamonds, and people are going out
Speaker 8: a lot more. They're eating out, traveling, and a lot
Speaker 8: of that consumption power is going there. But I think
Speaker 8: the bigger issue is lab grown diamonds.
Speaker 1: And you guys do lab grown diamonds, right.
Speaker 8: We have launched lab grown and so a few interesting
Speaker 8: statistics on lab grown Back in twenty eighteen, it was
Speaker 8: like two percent the market. This last year, thirty six
Speaker 8: percent of engagement rings sold were labrown engagement rings. Over
Speaker 8: half of current diamond distribution in the US is lab grown,
Speaker 8: So really they've taken off it's a perfect substitute chemically, physically, optically,
Speaker 8: the same discounts ranging anywhere from seventy five to ninety
Speaker 8: percent of their name.
Speaker 6: Wow.
Speaker 2: So basically I get my wife a lab grown diamond, Yeah,
Speaker 2: if I give her a two carrot honker on a
Speaker 2: platinum ring, she will be just as pleased as if
Speaker 2: I gave her like a real blood.
Speaker 8: Diamond, well, not a blood diamond. Per se, but a
Speaker 8: natural diamonds call it yes, yeah, so absolutely, and she.
Speaker 2: Takes it down to Wilson Jewelers and Scarsdale. They're not
Speaker 2: going to know the difference.
Speaker 8: They will not. The only way you can know the
Speaker 8: difference is if you send it to the GIA or
Speaker 8: IGI or another certification lab and there's small traces of
Speaker 8: nitrogen in natural diamonds that do not exist in lab room.
Speaker 8: That's really the only way you'll be able to tell
Speaker 8: the difference.
Speaker 2: But it's visually. I'm never buying a real diamond a game.
Speaker 1: Yeah, I mean, boy, if I had known that back
Speaker 1: in the day, they didn't have them that guy, I know,
Speaker 1: I know, I know, I know. Trust me. Ancor Daga,
Speaker 1: thanks so much for joining us. Acre Daga, CEO of ANGAA.
Speaker 5: You're listening to the team. Ken's are Live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg dot com,
Speaker 5: the iHeartRadio app and the Bloomberg Business App, or listen
Speaker 5: on demand wherever you get your podcasts.
Speaker 1: Let's talk med tech Boston Scientific. I have no idea
Speaker 1: what they do, but it's a big company. It's like
Speaker 1: eighty billion dollars in market cap stocks up sixteen percent.
Speaker 2: Do they make medical hardware?
Speaker 1: Medical devices?
Speaker 9: Right?
Speaker 1: Stuff StuffYeah stuff that you know, so it's medical devices.
Speaker 1: Matt Hendrickson, he knows what they do. He's a senior
Speaker 1: equity analyst covering the med tech business with Bloomberg Intelligence
Speaker 1: Boston Scientific. Just give me the thirty seconds. What did
Speaker 1: they do and why do we care?
Speaker 3: Yeah?
Speaker 10: They make stuff okay, like stints, right, So they make stints.
Speaker 3: It started off with stints and then it turned into
Speaker 3: heart vale.
Speaker 10: This turns into and what some of the products we'll
Speaker 10: probably talk about is the Watchmen device, which goes into
Speaker 10: the heart. They create catheters and then they go into endoscopy,
Speaker 10: so singles use scopes to help with you know, various
Speaker 10: endoscopic procedures.
Speaker 1: All right, So like splunk splunk, except what the people
Speaker 1: splunk for people? Okay, now that makes sense, I get
Speaker 1: it now. During the pandemic, hospitals were overloaded with just
Speaker 1: dealing with COVID patients, so people weren't doing surgeries and
Speaker 1: procedures and things like that. And that's not good for
Speaker 1: a company like uh Post and Scientific or Metronic or
Speaker 1: something like that.
Speaker 10: No, they need procedural volume, especially in the cardiology side
Speaker 10: to get their organic revenue growth, which is kind of
Speaker 10: the key driver for their valuation all those aspects.
Speaker 3: Once the hospital beds are filled with COVID patients.
Speaker 10: They couldn't do heart procedures. That that's mostly in the
Speaker 10: back mirror.
Speaker 1: So now are we back to more normalized.
Speaker 10: If anything, we're kind of going still through kind of
Speaker 10: this backlogs. We're kind of getting an extra tailwind in enitionship.
Speaker 2: Operations maybe as opposed to revenge travel, although surely that
Speaker 2: is happening. I mean it must be happening.
Speaker 10: Well someone I mean for Boston, I mean someone who
Speaker 10: can probably wait a year or two for a procedure.
Speaker 10: Now they're going back to their doctor like hey, I'm
Speaker 10: ready now, and you know, the doctor's like, great, we.
Speaker 3: Need the volume. We need to make our money, so
Speaker 3: come on.
Speaker 6: In, all right.
Speaker 1: So Boston Scientific had an investor day. What was kind
Speaker 1: of the message they wanted to get across.
Speaker 10: Well, the big thing was so we talked about organic
Speaker 10: growth being kind of the driver for valuation. They were
Speaker 10: traditionally in the high single digit so they were in
Speaker 10: six to eight percent. Was kind of their long term
Speaker 10: project or long term outlook. Or goal, and so this
Speaker 10: this meeting this week, they bumped it up to eight
Speaker 10: to ten percent. Okay, so it's and this is a
Speaker 10: company that's making fourteen expected to make fourteen.
Speaker 3: Billion dollars in sales this year.
Speaker 10: So we're not talking about some small company making additional
Speaker 10: like two million dollars to get to that growth. You're
Speaker 10: talking about very incremental growth to kind of drive that
Speaker 10: eight to time pent organic growth.
Speaker 1: So what did the market. Had the market respond to that?
Speaker 3: They were They were up two percent, and so so
Speaker 3: far this week they're still up.
Speaker 1: Well, so what's driving is it? What's driving this growth here?
Speaker 2: I mean, is they also make I mean they do
Speaker 2: M and A right, and they just do a deal yep.
Speaker 10: So yeah, they just acquired a company called Relievant, which
Speaker 10: is the procedure in your vertebrate to ablate the nerves
Speaker 10: to help.
Speaker 3: With that lower back pain essentially.
Speaker 9: Wow.
Speaker 2: Yeah, that sounds like a good thing, but it hurts
Speaker 2: to even think about that procedure.
Speaker 1: People say back is the worst.
Speaker 2: Yeah, can't get it all.
Speaker 1: Right, So what's so what's your call on Boston Scientific?
Speaker 9: Well?
Speaker 3: I think I mean right now it's trading at about you.
Speaker 1: Can't read those numbers. The font on his page of
Speaker 1: his compage, give me, give me this. It is the
Speaker 1: smallest font. Yeah, it's like, forget about it. You can't
Speaker 1: read that.
Speaker 3: It's my little chie cheek. Yeah, okay exactly, but it's
Speaker 3: training twenty four times.
Speaker 10: Pe got that eight percent growth, the call should be
Speaker 10: that investor or the analyst, the consensus should be upping
Speaker 10: their estimates and that should be getting you know, normally,
Speaker 10: when you say eight to ten percent, you know the
Speaker 10: street goes at nine percent.
Speaker 3: Yeah, r down in the middle.
Speaker 10: If you get that nine percent growth, you should be
Speaker 10: able to see that multiple go up to something that's
Speaker 10: more like like the twenty eight times range. And so
Speaker 10: that's kind of the big call, as they kind of
Speaker 10: you know, during the meeting, they kept saying the next level,
Speaker 10: the next level, the next level. Right, Well, if they're
Speaker 10: able to be able to achieve that growth and get
Speaker 10: too closer to ten percent versus the eight percent, they'll
Speaker 10: get to that next level in the multiple.
Speaker 2: By the wait, I mean, who else is there? If
Speaker 2: I want a stent, I'm probably going to get it
Speaker 2: from Boston Scientific, right, Well.
Speaker 10: I mean, yeah, a stent is a stent is you're
Speaker 10: gonna get is either a bit Metronic or Boston, but
Speaker 10: those are kind of the slower growing side. This is
Speaker 10: some of their key growth drivers beside the M and
Speaker 10: A is going to be the Watchman device. Now that's
Speaker 10: a product that's going from like a two billion dollar
Speaker 10: market to.
Speaker 1: What's the Watchmen device.
Speaker 3: Watchmen is for.
Speaker 10: Its device that closes the left atrial appendage in the heart,
Speaker 10: and essentially what it does is that appendage for people
Speaker 10: with atrial fibrillation, holds blood in that little appendage, it
Speaker 10: clots and then it turns into a stroke risk. They
Speaker 10: close that appendage with this device and then therefore essentially
Speaker 10: removing the risk of blood clotting in that appendage and then.
Speaker 3: Going up to the brain for a stroke.
Speaker 2: But did we not need that appendage to begin with?
Speaker 3: I mean, you know, that's what they found out over time,
Speaker 3: is that no, they didn't.
Speaker 10: It's kind of the same thing as your appendix, you
Speaker 10: kind of it's kind of just sticking out there and
Speaker 10: you don't need it, and you can.
Speaker 3: Cut it off. They were cutting it off.
Speaker 10: Now this is a non surgical procedure for being able
Speaker 10: to do the same thing.
Speaker 1: Yeah, all right, So talk to us just more broadly
Speaker 1: about the medical device business.
Speaker 2: What's thea you mentioned a couple Abbot, Medtronic. I know
Speaker 2: Striker because I love the name and they make you know,
Speaker 2: hips and stuff.
Speaker 3: Edward's Life Sciences, Yep, they're they're doing heart valves yep.
Speaker 3: So that's you know, everything.
Speaker 10: Everything is trying to minimize kind of the openness of surgery.
Speaker 10: So it's all minimally invasive procedure. So you know, you're
Speaker 10: just the last one was Edwards. They have taken an
Speaker 10: open heart procedure and have created a technology that you
Speaker 10: take a catheter and.
Speaker 3: You don't have to open the heart. You can just
Speaker 3: go straight up through the or earth.
Speaker 10: It's like it looks like a little like spy like
Speaker 10: in the spy movies, those little like cameras, like those
Speaker 10: snakes around.
Speaker 3: Yeah, it's kind of just.
Speaker 10: Like that, and it delivers the valve and there it's done.
Speaker 10: There it's been but the medtech sector has been hit
Speaker 10: hard because of kind of the g LP trend that's
Speaker 10: going on. What's the goop trin the GOLP drugs that
Speaker 10: are coming out for obesity.
Speaker 2: Yes, true, gov we go v and I would sell
Speaker 2: a medical device company because I think there's gonna be
Speaker 2: less prestigures, because gonna be you're not gonna you're not
Speaker 2: gonna be nearly as at risk of a heart attack
Speaker 2: or stroke if you don't weigh three hundred pounds. So
Speaker 2: if you used to weigh three hundred pounds and you
Speaker 2: go it an ozepic shot once a week or I
Speaker 2: don't know, once a month, however it.
Speaker 3: Works sometime it's daily or yeah.
Speaker 2: Pill forms as well. So if you can take these
Speaker 2: drugs and get into better shape, you're not gonna need
Speaker 2: a stint.
Speaker 3: That's that's the that's the thesis going on right now.
Speaker 9: Wow.
Speaker 3: But I mean there's there's a lot of caveats too.
Speaker 10: There's zimmer Bioment, for example, it's another orthopedic company like Striker.
Speaker 10: Their CEO came out and said, hey, some of these
Speaker 10: patients who were too obese for surgery, if they take
Speaker 10: these weight loss drugs, then they'll be healthy enough to
Speaker 10: get their knee replacement or to get their hip replacement.
Speaker 3: Uh.
Speaker 10: And then the other thing too is you know there's
Speaker 10: data coming out. I mean, the diabetes companies have been
Speaker 10: trying to fight back hard on this, but they're showing
Speaker 10: data that these patients who are taking these glps, these
Speaker 10: weight loss drugs, they're they're not taking them after a year,
Speaker 10: they're not taking them after two years.
Speaker 3: So it's you know, and it's something.
Speaker 2: Where but they keep the weight off.
Speaker 3: No, So these they try.
Speaker 2: These, they don't keep the weight off.
Speaker 3: And half of these patients are like just dropping out
Speaker 3: after a year even more.
Speaker 2: But so they lose weight, They lose a year and
Speaker 2: then they're like I liked being fat.
Speaker 10: I see it as like, do you want to keep
Speaker 10: you know, injecting yourself with this every single day or
Speaker 10: even once a week.
Speaker 3: It's you know, it's a it's it's a lot.
Speaker 2: And yeah, but so as being obese, Yeah, so I
Speaker 2: would probably rather object inject myself.
Speaker 10: Probably, But I also at the same time, if you
Speaker 10: keep injecting yourself and then you know there is bariatric
Speaker 10: surgery as kind of that you know, safe safety net there.
Speaker 2: Then you go like this would be interesting to hear.
Speaker 2: I I mean, I wonder if beriatric surgery is better
Speaker 2: or worse the band in terms of in terms of
Speaker 2: losing the weight and keeping it off. I wonder which
Speaker 2: one's better longer term.
Speaker 3: We hear more about that kind of in this third
Speaker 3: quarter call.
Speaker 10: And so that's could be intuitive surgical, and that's gonna
Speaker 10: be metronic.
Speaker 3: And yeah, it's a it's a stay tuned type of dude.
Speaker 2: What a fascinating industry to.
Speaker 3: Cover it is?
Speaker 1: It is, it's good stuff. I mean, the whole healthcare
Speaker 1: space is just you got it. It's just it's never
Speaker 1: going away. It's always a growth industry. You're always going
Speaker 1: to have a job if you're in the helpcare well.
Speaker 2: And lately I've been looking at like pictures of FDR
Speaker 2: or pictures of ideas, say it looked like one hundred
Speaker 2: years old and they died when they were sixty.
Speaker 1: Matt Hundredston's senior ecodanalysts covering all the medtech space for
Speaker 1: Bloomberg Intelligence, joining us live here in our Bloomberg Interactive
Speaker 1: broker studio. This is Bloomberg.
Speaker 5: You're listening to the tape Cat's are live program Bloomberg
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
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Speaker 5: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: Let's look at the M and A front here. We've
Speaker 1: got a big M and A trade looks like it
Speaker 1: actually might close. Microsoft Activision sixty nine billion dollars. We
Speaker 1: got some approval I think from the UK's regulatory body.
Speaker 1: That was kind of the last one to fall. Jennifer
Speaker 1: rejoins us. She's a senior litigation analyst. She focuses on antitrust.
Speaker 1: It is right down her alley. She does that off
Speaker 1: for Bloomberg Intelligence. So, Jen, what did the UK authority's
Speaker 1: rule here on this Microsoft Activision deal?
Speaker 9: Well, Paul, at long last, it finally looks like this
Speaker 9: deal is going to close. What they have said is
Speaker 9: that a new remedy that Microsoft proposed about a month
Speaker 9: ago or so is probably sufficient to cure the concerns
Speaker 9: they had about the deal. That it looks likely that
Speaker 9: it's sufficient. This is a provisional decision, and so what
Speaker 9: they will do now is listen to comments by interested
Speaker 9: public other entities to participate in the market, and then
Speaker 9: at some point after October sixth, issue of final ruling.
Speaker 9: But really, Paul, this is called provisional, but this is it.
Speaker 9: I mean, they're going to ultimately clear this deal, there's
Speaker 9: no doubt in my mind.
Speaker 2: The weird thing to me was, if you're going to
Speaker 2: do a big M and a transaction, I get that
Speaker 2: you need to have the US regulators approve it, right
Speaker 2: and I get because it's a massive market, I get
Speaker 2: that you're going to have to have Europe approve it.
Speaker 2: But England do they really matter that much anymore?
Speaker 9: Well, I guess they do now they've made a big
Speaker 9: splash in the antitrust world. You know, the UK used
Speaker 9: to be part of the European Union before Brexit, so
Speaker 9: it didn't really issue its own opinions with respect to
Speaker 9: these big global mergers that were big enough to trigger
Speaker 9: European Commission review. You know, there might have been other
Speaker 9: deals that actually did trigger just only UK review in
Speaker 9: which the UK was still involved, but for the most part,
Speaker 9: when you had these big acquisitions like Microsoft activisions, you
Speaker 9: didn't have the UK independently involved. And now they are,
Speaker 9: and I think they really want to flex their muscles.
Speaker 9: They want to show that they are a real antidrus regulator.
Speaker 2: I mean, obviously that would common as tongue in cheek.
Speaker 2: So if you're British and you're offended. Please don't email
Speaker 2: my boss. They do have sixty seven million people, but
Speaker 2: again it's only sixty seven million people in the UK.
Speaker 2: What other regulators do I have to worry about?
Speaker 6: Am I am?
Speaker 2: I going to the Indonesian regulator. They have a lot
Speaker 2: of people, Well what about India? Do they look at
Speaker 2: the M and a deal?
Speaker 9: You know, you know what people don't notice. But I'll
Speaker 9: tell you what. When these deals get filed, sometimes they're
Speaker 9: filed with over one hundred jurisdictions. There are they could
Speaker 9: be fire out filed in Azerbijan. There are so many
Speaker 9: jurisdictions with competition authorities, so you know there's a whole
Speaker 9: group within these law firms. We have to assess every
Speaker 9: single jurisdiction globally where a deal has to get filed,
Speaker 9: where it might trigger the thresholds for that country or
Speaker 9: that jurisdiction. But in reality, the jurisdictions that really have
Speaker 9: the law behind them and I think the will to
Speaker 9: actually block a deal are primarily the US, EU, China
Speaker 9: and now UK.
Speaker 1: Yeah, it's interesting. So I mean I saw some reporting
Speaker 1: jen which kind of goes to what you said to
Speaker 1: that the what you're talking about about the UK, and
Speaker 1: the UK says, hey, you know, we're going to kind
Speaker 1: of prove this one here, but you better be careful
Speaker 1: what you bring to us because we're going to be
Speaker 1: We're not going to be a pushover here. So I
Speaker 1: guess that if you're an anti trust m and a lawyer,
Speaker 1: you got to keep that into account.
Speaker 9: These days, you know, absolutely, I think it's getting harder
Speaker 9: and harder. I mean, just the fact that the FTC
Speaker 9: and DJ are changing a lot of rules, making it
Speaker 9: more onerous actually to notify the deal to the regulators,
Speaker 9: more expensive as well, and have these extended review timelines
Speaker 9: and have become very unpredictable. Now you have to deal
Speaker 9: also with this unpredictable CMA in the UK, and I
Speaker 9: think that it just adds to the uncertainty of deals
Speaker 9: that makes it harder and harder for the merger arbe
Speaker 9: treasures to actually do what they do. And I think,
Speaker 9: you know what I'm thinking about right now is the
Speaker 9: Adobe Sigma deal because I wonder what the UK is
Speaker 9: going to do on that one. It's moved into a
Speaker 9: phase two on it, and I could see the UK
Speaker 9: actually being one of those regulators that tries to block
Speaker 9: that deal.
Speaker 1: Hey, Jen. I mean on the banking side, we usually
Speaker 1: charged a percentage of the deal size as our fee,
Speaker 1: and that got negotiated up front, that percentage. How does
Speaker 1: it work on the legal side? Is it still all
Speaker 1: about hours? Billable hours? So I mean a case like
Speaker 1: this with all the anti trust must have been just
Speaker 1: a juicy yeah, juicy deal for the lawyers.
Speaker 9: Yeah, oh yeah, it's all about hours. And I'll tell
Speaker 9: you the attorney's logs and serious hours. When these jurisdictions
Speaker 9: go into those in depth investigations, they are rigorous. They
Speaker 9: take a lot of work. I mean, that's what I
Speaker 9: spent most of my legal practice doing was responding to
Speaker 9: these second requests from the Federal Trade Commission in the
Speaker 9: Department of Justice, and they ask for a lot of data,
Speaker 9: a lot of information, a lot of responses to questions.
Speaker 9: There are depositions, there are interviews of company executives. It
Speaker 9: takes a lot of time, and when it's so protracted
Speaker 9: like Microsoft activision, with appeals and going in to court,
Speaker 9: it is expensive. Those lawyers did very well, by the way.
Speaker 2: On that note, and kind of an aside, but do
Speaker 2: you round up to the nearest hour? I mean, if
Speaker 2: you're if you're driving home to Westchester and you a
Speaker 2: lawyer for one of these cases and somebody calls you
Speaker 2: from the company to talk about it, and it's like
Speaker 2: a five minute conversation. Is that one billable hour?
Speaker 6: No?
Speaker 9: No, Now, I will say that every law firm has
Speaker 9: different rules about what becomes a billable hour and what
Speaker 9: doesn't become a billable hour. I can only vouch for
Speaker 9: the firm I work for, which was very careful about
Speaker 9: these things, and a five minute call would not have
Speaker 9: been a billable hour. But if those five minute calls
Speaker 9: start to add up, you know, maybe you have a
Speaker 9: billable hour there.
Speaker 6: And it also.
Speaker 9: Sometimes depends on how much do the legal counsel within
Speaker 9: the company push back on those bills, because they do
Speaker 9: and they can, and you.
Speaker 1: Know see in my experience, it's been, well, quarter hours
Speaker 1: you get built for like a five minute phone call,
Speaker 1: you'd get built a quarter hour.
Speaker 2: Right, Well, that makes more sense.
Speaker 1: Yeah, and Jen, how about the senior partner just devolved
Speaker 1: away from Michigan, I mean, no Microsoft, Microsoft, to just
Speaker 1: kind of how they make money. So the senior partners
Speaker 1: at these white che New York law firms, do they
Speaker 1: still have the bill hours or they just take a salary.
Speaker 9: Oh no, they bill hours, everybody built. Yeah, no, they
Speaker 9: bill hours and it goes to the client. I mean, look,
Speaker 9: I haven't done practicing on now for about eight years,
Speaker 9: but as far as I know, things haven't changed. And
Speaker 9: the senior partners have to keep the calendar just the
Speaker 9: same way the associates do and log all their time,
Speaker 9: bill their hours.
Speaker 1: That is just no way to live a life, right, Yeah.
Speaker 2: I feel like the bankers may have it figured out,
Speaker 2: but maybe I'm wrong.
Speaker 1: Yeah, I don't know. The lawyers do just fine as
Speaker 1: far as I can tell you. All right, Jen, thanks
Speaker 1: so much for joining us giving us a little primer
Speaker 1: on how to how you earn your money in the
Speaker 1: law firm. So your bill hours, I guess. Jennifer Ree,
Speaker 1: senior litigation analyst covering the anti hour costs.
Speaker 2: At one of the top white shoe law firms.
Speaker 1: Boy, I don't know. Five hundred hour, thousand dollars an hour,
Speaker 1: definitely over a thousand, over a thousand bank all right.
Speaker 1: I mean I don't know if I would break down
Speaker 1: my deal feed into hours, and I don't know how
Speaker 1: that would be looking.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
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Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 2: at Matt Miller nineteen seventy three.
Speaker 1: And I'm Paul Sweeney. I'm on Twitter at pt Sweeney.
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