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BI Weekend: Google Breakup, 10 Companies to Watch · Bloomberg Intelligence

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Speaker 3: On Today's Bloomberg Intelligence Show, we dig inside the big
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Speaker 3: business stories impacting Wall Street in the local markets.
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Speaker 4: Each and every week we provide in research and data
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Speaker 4: on some of the two thousand companies and one hundred
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Speaker 4: and thirty industries our analysts cover worldwide.
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Speaker 3: Today, we'll look at why negotiations between Boeing and it's
0:57
Speaker 3: striking workers are at an in pass.
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Speaker 4: Discuss why Honeywell International is planning to spin off its
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Speaker 4: advanced materials division.
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Speaker 3: But first we begin with some big news for Alphabet's Google.
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Speaker 4: This week, we heard that the US DOJ is considering
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Speaker 4: asking a federal judge to force Google to sell off
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Speaker 4: parts of its business.
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Speaker 3: This will be a historic breakup of one of the
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Speaker 3: world's biggest tech companies. For more, we were joined by
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Speaker 3: Mandep Singh, Bloomberg Intelligence Senior technost.
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Speaker 4: We first asked man Deep what he actually thinks will
1:24
Speaker 4: happen now with Google.
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Speaker 5: Well, so there are three big lawsuits out there against
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Speaker 5: Google in the US, two from DOJ. One is the
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Speaker 5: monopoly lawsuit with the lost and that's where we're looking
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Speaker 5: at remedies. The other one is also from dj against
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Speaker 5: their ad tech business, where the DOJ is looking at
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Speaker 5: their at tech stack and how you know, they control
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Speaker 5: all parts of the stack. The third one is from
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Speaker 5: the you know, different state attorney journals, again targeting their
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Speaker 5: at tech business. So when I look at, you know,
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Speaker 5: everything that obviously the regulators want to change with Google,
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Speaker 5: the ad tech piece is the one which comes up
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Speaker 5: over and over again, the fact that they control different
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Speaker 5: parts of the as tec. Now in the monopoly lawsuit,
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Speaker 5: they're talking about a force breakup of the Chrome business
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Speaker 5: or the play store business, Android business. I think it's
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Speaker 5: very hard to take out, you know, a single product
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Speaker 5: from a company like Google and say this is a
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Speaker 5: separate entity. It's just like it's all run or shared infrastructure.
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Speaker 5: I can't imagine you know, doing that with Google, and
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Speaker 5: you know, doing it successfully in the sense that Android
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Speaker 5: can be a separate company. Maybe YouTube, But again with YouTube,
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Speaker 5: it's run on that same infrastructure that searches run on.
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Speaker 5: So how do you split that infrastructure. It's very hard
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Speaker 5: to do it at the product level.
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Speaker 3: All right, here's some inside Bloomberg for you. You can get
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Speaker 3: really smart on a new piece of information that just
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Speaker 3: hit the tape about a company type in the ticker
2:53
Speaker 3: g oog L for Google in equity. Then hit BCO
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Speaker 3: BICO for Bloomberg Intelligence Company Research, and you get what's
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Speaker 3: called a recent event reaction. So I want to know
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Speaker 3: immediately what Mandeep Singh thinks about this stuff. And what
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Speaker 3: I read I didn't expect to read. We see a
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Speaker 3: breakup of Google's add tech business as the most likely
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Speaker 3: outcome for remedy in the company's monopoly case with the
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Speaker 3: US Justice Department. I thought what I would have read
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Speaker 3: is don't worry about it, but this has some teeth.
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Speaker 3: Here is what you're kind.
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Speaker 5: Of well, because they lost that first lawsuit at the
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Speaker 5: dog and the second one the ad tech as well.
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Speaker 5: It's very likely that the judge will rule against Google.
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Speaker 5: So when you lose the cases, there has to be
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Speaker 5: both behavior and structural remedy. And in the case of
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Speaker 5: behavior remedy, yeah, they can't make those payments to Apple anymore.
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Speaker 5: To be the default search or any other hardware maker,
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Speaker 5: they will have to open up Android to offer search
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Speaker 5: screens so that you just don't have to use Chrome
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Speaker 5: or Google Search. You can use bing Search for example.
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Speaker 5: So choice screens is another behavior. But the structural remedy
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Speaker 5: in terms of a forced sale, I find it hard
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Speaker 5: to believe that the dot will ask them to sell
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Speaker 5: a product. It has to be more at the technology
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Speaker 5: stack level.
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Speaker 6: So when we go to.
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Speaker 4: The ad tech stack, maybe that just dumptail with what
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Speaker 4: you were saying. So what does control the ad tech
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Speaker 4: stack mean when you're talking about Google.
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Speaker 5: So think of how an ad exchange works. You have
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Speaker 5: the supply side, you know, in terms of the publisher
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Speaker 5: ad inventory, and then you have the demand side, the
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Speaker 5: advertisers who are buying those ads, and then you have
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Speaker 5: the exchange in the middle, who is matching the supply
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Speaker 5: and the demand side for ads. Google has products across
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Speaker 5: the stack where they have a demand side platform, they
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Speaker 5: have a supply side ad platform. They are an online
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Speaker 5: exchange and they've built it over the years because they
4:52
Speaker 5: made a few acquisitions. Double Click was the most notable
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Speaker 5: one where they acquired all the capabilities to really operate
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Speaker 5: as an entity that knows everything when it comes to
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Speaker 5: digital ads being sold in the marketplace. So they control
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Speaker 5: that stack end to end. That's why when you compare
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Speaker 5: Google's ad pricing to everyone else out there, they are
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Speaker 5: far superior. One they have the best targeting. The other
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Speaker 5: is when you're operating a stack where you have the
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Speaker 5: dominant product across the different pieces, you have a pricing advantage.
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Speaker 5: And that's what you know. The regulators are saying that
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Speaker 5: this company controls pretty much everything in the ads stack.
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Speaker 3: But the advertisers themselves they're not complaining, of course not.
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Speaker 6: I mean they're getting like, who are they protecting?
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Speaker 3: This is a solution in search of a problem here
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Speaker 3: in my opinion, because I have a competition in this market.
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Speaker 3: I think I have competition. I mean, I Google's huge,
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Speaker 3: so it's Facebook, and now I've got this little company
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Speaker 3: in a Seattle called Amazon. They're monsters advertising player. So
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Speaker 3: where's the problem here?
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Speaker 5: So it all comes down to how you look at
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Speaker 5: the market. If you look at the market the way
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Speaker 5: you just described, where Meta is as formidable as Google
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Speaker 5: and Amazon is a big third player, then yes there
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Speaker 5: is competition. But when you look at certain type of ads,
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Speaker 5: whether it's on the desktop or you know the third
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Speaker 5: party ads that are going through Google Ad Exchange, these
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Speaker 5: companies don't overlap. Like remember, Meta is a walled garden,
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Speaker 5: even though it's big in terms of the digital ad advertising,
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Speaker 5: it's its own world garden. Amazon is its own world
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Speaker 5: garden Google. So these companies have their own swim lanes.
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Speaker 5: They are big in terms of the digital ad dollars,
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Speaker 5: but they have their own swim lanes. They don't overlap.
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Speaker 5: And that's the objection that I think regulators have.
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Speaker 4: Okay, so if they wound up, you know, moving around
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Speaker 4: that ad tech stack and changing stuff up, what does
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Speaker 4: that change look like and how much money could then
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Speaker 4: Google lose?
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Speaker 5: Well? So Google Search obviously is a two hundred billion
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Speaker 5: dollars rund rate business, still the cash cow for Google.
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Speaker 5: That's where you know the Google Network piece, which is
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Speaker 5: the ads that Google shows on third party platforms. So
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Speaker 5: one is Google showing ads on YouTube and their own
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Speaker 5: search page. The other is Google showing ad on let's
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Speaker 5: say a New York Times or some other publisher. Because
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Speaker 5: it's going through the Google Ad Exchange. That's the part
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Speaker 5: that can be divested where and it's a thirty two
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Speaker 5: billion dollars rundred business. Within that two hundred billion, that's
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Speaker 5: the part that's not growing, but you could argue could
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Speaker 5: be split up in a way where I think Google
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Speaker 5: maybe a smaller search ad business. But at the same
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Speaker 5: time that will appease the regulators because they're not controlling
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Speaker 5: different parts of the ads tack.
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Speaker 3: Our thanks to Man Deep Seeing Bloomberg Intelligence senior tech
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Speaker 3: industry analyst.
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Speaker 4: Earlier this year, French multi billion dollar brand Perier came
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Speaker 4: under scrutiny following the discovery of traces of fecal matter
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Speaker 4: in one of the seven wells used to source its
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Speaker 4: mineral water. As a result, Perrier owner Nesle said it
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Speaker 4: had to close some of its wells in recent months.
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Speaker 3: Now, the globe water business is grappling with questions of sustainability.
8:03
Speaker 3: It's a subject of a Bloomberg Big Take story entitled
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Speaker 3: Perrier Contamination Woes add to three hundred and thirty billion
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Speaker 3: dollars sectors hurdles.
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Speaker 4: For more we were drawn by one of the story's
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Speaker 4: co authors, Dasha afanasch Vieva, a Bloomberg Consumer goods reporter.
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Speaker 3: We first asked Dasha to break down her findings from
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Speaker 3: the story.
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Speaker 7: So at the start of this year, Nesse had to
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Speaker 7: admit that it had been illegally filtering its mineral water
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Speaker 7: in France and in particular Perier. And the reason why
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Speaker 7: it's legal is because mineral water, under French law and
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Speaker 7: actually European law, you shouldn't really do much stuff with it.
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Speaker 7: It's supposed to be quite natural, whereas they were using
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Speaker 7: charcoal filters and using UV filters. So they kind of
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Speaker 7: come clean on that because there's a leaked report that
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Speaker 7: forces them to and then a few months later there's
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Speaker 7: another leaked report that says, well, there's vehical contaminants and
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Speaker 7: pesticide contaminants and pfast contaminants in the source the Perier saw.
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Speaker 7: And then after that, the other thing that happens is
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Speaker 7: that they have to suspend a well because of contaminants.
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Speaker 7: So it's all kind of wrapped up in trust issues
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Speaker 7: and contaminants. But I'd like to hide like no food
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Speaker 7: safety issues and no health issues.
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Speaker 4: So how does this evolve? Like how does Perry fix it?
9:18
Speaker 4: Like how much is going to cost all that good stuff?
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Speaker 7: Yeah, Perry found out back in twenty twenty that it
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Speaker 7: was doing this. It was doing the legal filtering. But
9:27
Speaker 7: a new boss came in in twenty twenty and realized
9:30
Speaker 7: they were doing this filtering and then brought in a
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Speaker 7: program to modernize the plant so you wouldn't have to
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Speaker 7: do it anymore. And that whole time they were in
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Speaker 7: conversation with regulators. They say to upgrade production and also
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Speaker 7: get everything shipshape, and they invested in modernizing the plant
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Speaker 7: something to the tune of one hundred and fifty million euros.
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Speaker 7: So they're saying, now it's all good, nothing to see here,
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Speaker 7: but that one well out of seven is still shut,
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Speaker 7: it is still suspended.
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Speaker 3: I should say this water, this is big business for France.
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Speaker 3: Reading your article today, Dasha, the world's biggest bottled water
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Speaker 3: exporting country, that be, France has fought hard to preserve
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Speaker 3: the integrity and identity of its water with an eye
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Speaker 3: on jobs and growth. The industry contributes one billion euros
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Speaker 3: each year to France's external trade indirectly or indirectly employees
10:18
Speaker 3: about thirty eight thousand people. So this is big business here,
10:21
Speaker 3: and I would think the brand value is what it's
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Speaker 3: all about here, So they have to be careful, don't they.
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Speaker 7: I think it is about the brand value. And Perry
10:30
Speaker 7: has had issues with this in the past decades and
10:32
Speaker 7: decades ago when there was a benzine contamination, so it
10:36
Speaker 7: did this massive recall, a global recall. So it has form.
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Speaker 7: And this very product hinges on this premium status and
10:45
Speaker 7: on this idea that it's sort of pure and better
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Speaker 7: than tap water. So you have to preserve that in
10:52
Speaker 7: the eye of the consumer. And maybe the individual consumer
10:55
Speaker 7: might not care how you're filtering it. But over time,
10:58
Speaker 7: these sort of this trick if you will have news
11:01
Speaker 7: definitely tarnishes or can tarnish the brand potentially.
11:06
Speaker 4: How big is a business is this? Like I got
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Speaker 4: a so to stream at home. You know, we bubble
11:11
Speaker 4: up our regular old New York tap water. But talk
11:14
Speaker 4: to me about the industry at large.
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Speaker 7: It's not a huge business for Nesle, Forinestle, it's only
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Speaker 7: three point five percent of revenue. But the industry globally
11:22
Speaker 7: is around three hundred and six a billion and growing
11:26
Speaker 7: around four percent a year, so it is rather large,
11:29
Speaker 7: but as I say, not huge for Nestle.
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Speaker 3: So I mean, I guess if you're thinking about a
11:35
Speaker 3: green economy, you ask a good question here in the article.
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Speaker 3: Does it make ecological sense to transport millions of bottles
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Speaker 3: of water, about ninety seven percent of them made from plastic,
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Speaker 3: across the globe instead of sourcing it locally. How did
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Speaker 3: the French think about that?
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Speaker 7: Well, the French would say, our mineral water is super
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Speaker 7: special and are amazing tarooa. It's a bit like with wine.
11:55
Speaker 7: You know, it comes from this incredible terrowire and we
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Speaker 7: have the minerals, we have this heritage of producing it.
12:02
Speaker 7: And that's the rut of Perie's marketing. But what Perrier's
12:05
Speaker 7: done to protect its future revenue streams is they've said, well,
12:09
Speaker 7: we'll have this other whole other product called Maison Perier
12:12
Speaker 7: that they can filter how much they want because it's
12:15
Speaker 7: not called mineral water, and it's now fronted by Emily
12:20
Speaker 7: and Paris active Lily Collins, and it still travels to
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Speaker 7: the US. So even if you're making these if you
12:26
Speaker 7: think the Taro War French era is so so special.
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Speaker 7: If you're filtering the water, you sort of think, well,
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Speaker 7: why not just get the water in the US and
12:35
Speaker 7: filter it? And the reason is marketing.
12:38
Speaker 3: Our thanks to Dasha Afanasieva, Bloomberg Consumer Goods Reporter.
12:42
Speaker 4: Coming up, we're going to look at sustainable aviation fuel
12:44
Speaker 4: and why it's important and how it's being used.
12:47
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Speaker 3: hundred and thirty industries. You can access Bloomberg Intelligence via
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13:18
Speaker 4: We move next to the planemaker Boeing. This week, negotiations
13:22
Speaker 4: between Boeing and its striking workers broke down.
13:24
Speaker 3: Boeing withdrew a contract offer to striking workers that would
13:27
Speaker 3: have given them a thirty percent raise over four years.
13:29
Speaker 3: The contract also included at boost to retirement benefits.
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Speaker 4: The impath leaves Boeing with no clear path forward to
13:35
Speaker 4: overcome a month's long strike, and production remains shut down
13:38
Speaker 4: at it's key commercial manufacturing based on the US West Coast.
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Speaker 3: For more, we were joined by George ferguson Bloomberg Intelligence
13:44
Speaker 3: senior Aerospace, defense and airlines analysts.
13:46
Speaker 4: We first asked George why he thinks Boeing with through
13:48
Speaker 4: its contract offer.
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Speaker 8: I think you, if you're at the company, you have to,
13:53
Speaker 8: you know, make it look like there's a scarcity. I think,
13:56
Speaker 8: to whatever you offer right, so that the employees already
13:59
Speaker 8: to jump the next time you give them. I think,
14:03
Speaker 8: you know, a decent contract terms, but I don't know
14:08
Speaker 8: that it works here, right, So I think that it's
14:10
Speaker 8: interesting that they withdrew their offer. But I guess at
14:13
Speaker 8: the same time, I'm looking at the dock workers strike
14:17
Speaker 8: and they just got an agreement for what sixty percent
14:20
Speaker 8: over six years. It looks like ten percent a year
14:22
Speaker 8: to me if my mask still works Boeing. Boeing, folks,
14:27
Speaker 8: I think rejected a contract there's what thirty percent over
14:30
Speaker 8: four years. I think they're probably more highly skilled workers,
14:34
Speaker 8: no offense to the dock workers, but manufacturing airplanes a
14:38
Speaker 8: little more challenging, I think so. I think sort of
14:42
Speaker 8: the withdraws Boeing trying to make it feel scarce. I'm
14:45
Speaker 8: not sure that it works, George.
14:47
Speaker 3: The more I think about this story, the more I'd
14:49
Speaker 3: read about this story, it just doesn't look good from
14:52
Speaker 3: a Boeing perspective in terms of leverage here. But if
14:55
Speaker 3: I'm the union, if my guys can hit last a
14:58
Speaker 3: few more weeks, I can really flick some pain here
15:01
Speaker 3: on this company here, which strengthens my position. How do
15:05
Speaker 3: the pros think about this negotiation between these two sides?
15:09
Speaker 8: Yeah, I mean I agree. I think it's really challenging.
15:12
Speaker 8: Like I just said, you know, we've seen other increases
15:15
Speaker 8: in the marketplace for union labor higher than what this
15:20
Speaker 8: union's asking for. If you're Boeing, you just can't possibly
15:23
Speaker 8: be replaced thirty three thousand employees. There's just no way.
15:27
Speaker 8: And on top of it, again, there's skilled employees right,
15:31
Speaker 8: so they're handmaking aircraft, right, And if you decided you
15:36
Speaker 8: were going to backfill and train some, you'd have to
15:39
Speaker 8: have people on hand to train the new people coming
15:41
Speaker 8: in to make an airplane. Well, it's just it's impossible
15:45
Speaker 8: to replace them. And now where I think we're in
15:48
Speaker 8: this game of chicken, right where like we've talked about previously,
15:52
Speaker 8: Boeing's potentially gonna have a downgrade. But look, I think
15:55
Speaker 8: the downgrade doesn't matter as much anyways, Right, it's just
15:58
Speaker 8: a credit rating. You can get it back later on.
16:01
Speaker 8: This is the recovery of this company. That cash is dwindling.
16:06
Speaker 8: They have a lot of airplanes sitting in inventory. They
16:09
Speaker 8: need to get back to work, and I think if
16:11
Speaker 8: the workers can find a way to hold out, they
16:13
Speaker 8: can get a lot of what they've asked for.
16:15
Speaker 4: So I understand that. Then Boeing has to front it, right,
16:18
Speaker 4: they have to act like they're also playing hardball. How
16:21
Speaker 4: long do you think they can really realistically sustain that?
16:26
Speaker 8: So, I mean that's the question, right, can Boeing last
16:29
Speaker 8: longer than the workers? If the workers can hold out
16:32
Speaker 8: multiple months, I don't think the company can hold out
16:36
Speaker 8: multiple months. I don't think there's customers that aren't getting airplanes,
16:40
Speaker 8: Like air Bus isn't making a lot of hay out
16:42
Speaker 8: of this, right, They're having similar problems with their supply chains,
16:46
Speaker 8: so it's not like they can surge and take a
16:48
Speaker 8: bunch of market share away. But Boeing can't let this
16:51
Speaker 8: go on for three or four months, right, that would
16:53
Speaker 8: start to hurt I think their market share. I think
16:56
Speaker 8: you see customers get in the airbus queue just thinking. Look,
16:59
Speaker 8: I just don't know when Boeing is going to write
17:00
Speaker 8: this ship and really build airplanes in large numbers anytime soon.
17:05
Speaker 2: So I don't think they have a quarter.
17:07
Speaker 8: I don't think they have three months.
17:09
Speaker 3: How far apart do you think that the two sides are?
17:11
Speaker 3: And is there any smart money betting on timing?
17:17
Speaker 8: So I don't know. I don't know if what smart
17:21
Speaker 8: money's betting on right now. But look, it seems like
17:25
Speaker 8: when you pull back your contract and you stop talking
17:28
Speaker 8: and the union goes to its corner and they're kind
17:29
Speaker 8: of irritated, it seems like something hasn't been set up
17:33
Speaker 8: well right. To me, frankly, I think it's just it's
17:35
Speaker 8: probably bad negotiating, right, don't you always kind of try
17:38
Speaker 8: to engage to a certain degree. So to me, it
17:42
Speaker 8: feels like it feels like they're really far apart because
17:45
Speaker 8: of just the rhetoric I'm hearing in the press. But
17:48
Speaker 8: like again, like a lot of things in life, some
17:52
Speaker 8: money can go a long way, can put smiles back
17:54
Speaker 8: in people's faces, and so you know, you could be
17:57
Speaker 8: surprised overnight if Boeing turns around and sweet and the
18:00
Speaker 8: offer and tries to get the deal done. But right
18:02
Speaker 8: now it feels like they're a distance apart.
18:04
Speaker 4: Well, aside from wages obviously, which is a big one,
18:06
Speaker 4: what's another really big sticking point or do you think
18:09
Speaker 4: it all just boils down to wages at this point.
18:11
Speaker 8: I think a lot of it boils down to wages.
18:14
Speaker 8: You know, we have heard that the union wants the
18:16
Speaker 8: pension back. I just can't believe they realistically thinking they're
18:20
Speaker 8: getting the pension back. But so I gotta believe they're
18:24
Speaker 8: looking for a sweetener on the four to one k,
18:27
Speaker 8: you know, some sort of added incentive there. And then
18:30
Speaker 8: the airplane. I haven't heard a lot of noise about
18:33
Speaker 8: negotiation about the next airplane. Again, if I were the union,
18:37
Speaker 8: especially if I was a union leadership, the machinist leadership,
18:40
Speaker 8: I would want the next Boeing seven thirty seven successor
18:44
Speaker 8: built in the Pacific Northwest in plants that machinists are
18:47
Speaker 8: working at because that's the life bullet of your union,
18:51
Speaker 8: right and that's the life butt.
18:52
Speaker 3: Of Boeing our thanks to George Ferguson, Bloomberg Intelligence Senior Aerospace,
18:56
Speaker 3: Defense and Airlines analysts.
18:57
Speaker 4: Each week we look at research from Bloomberg and e
19:00
Speaker 4: F previously known as Bloomberg New Energy Finance. They're the
19:02
Speaker 4: team at Bloomberg that tracks and analyzes the energy transition
19:05
Speaker 4: from commodities to power, transport, industries, buildings, and the ag sector.
19:10
Speaker 3: This se IF, we took a look at sustainable aviation
19:12
Speaker 3: fuel from where we were joined by Anna Davies BNEF,
19:15
Speaker 3: head of Renewables Fuels.
19:17
Speaker 4: We first asked Anna to explain what sustainable aviation fuel
19:20
Speaker 4: is and how it's being used.
19:22
Speaker 1: What is sustainable aviation fuel? You use it exactly like that.
19:25
Speaker 1: You can throw it in your private jet and go
19:27
Speaker 1: and it'll work just the same way. Really, it is,
19:30
Speaker 1: in its simplest form, molecularly, pretty much identical to fossil
19:34
Speaker 1: jet fuel. The only difference is it doesn't come from
19:36
Speaker 1: fossil fuels, so mostly it comes at the moment from biofuels.
19:40
Speaker 1: So instead of having a crude oil, you're using a biooil,
19:44
Speaker 1: so something like soybean oil or use cooking oil, the
19:46
Speaker 1: leftover oils from your deep fryer.
19:49
Speaker 4: Which would be the issue now, supply or demand when
19:52
Speaker 4: it comes to saff that is.
19:53
Speaker 1: A very good question, because everybody says we need more,
19:56
Speaker 1: there's not enough produced. There's all this demand that we
19:58
Speaker 1: need to.
19:58
Speaker 6: Replace fossil jet.
20:00
Speaker 1: But we have seen both suppliers and actually airlines kind
20:02
Speaker 1: of push back roll back their targets right now. The
20:06
Speaker 1: problem is it's expensive and nobody is really willing to
20:09
Speaker 1: pay it, So we see buyers not quite willing or
20:12
Speaker 1: able to step in to take it, and as a result,
20:14
Speaker 1: we don't see suppliers able to secure financing to build
20:16
Speaker 1: their facilities.
20:17
Speaker 3: So how do That's a Chicken and Yan type type
20:19
Speaker 3: of thing. How do you think you solve for that?
20:22
Speaker 3: Is that bringing the cost of production down? Is it
20:24
Speaker 3: trying to stimulate demand somehow?
20:26
Speaker 1: So we anticipate the cost of production at p nof,
20:29
Speaker 1: We try and calculate and marsh exactly, and we do
20:33
Speaker 1: not see the cost coming down to reach parity. Really
20:35
Speaker 1: like current jet fuel prices, it's always going to be
20:37
Speaker 1: orders a couple orders a magnitude above so the real
20:41
Speaker 1: crux that's needed is policy. You need to have a
20:43
Speaker 1: policy push to either incentivize its uptake or force it,
20:47
Speaker 1: and we're seeing both of those policies developing.
20:49
Speaker 4: Which basically what that means is that have to subsidize
20:52
Speaker 4: the difference between staff and regular jet fuel. And what
20:54
Speaker 4: the IRA did it was really helpful and incentivizing the supply,
20:57
Speaker 4: but not the demand side of it. How close do
21:00
Speaker 4: you think that is right now?
21:02
Speaker 1: So the IRA, the Inflation Reduction Act, does offer a
21:05
Speaker 1: tax credit for sustainable aviation fuel production, which does help
21:08
Speaker 1: to project app there's still a lot of uncertainty as
21:11
Speaker 1: to what will qualify. You need to have a certain
21:13
Speaker 1: amount of types of feedstock in order to bring your
21:16
Speaker 1: actual emissions reduction down.
21:18
Speaker 6: That's a big issue in the market.
21:20
Speaker 1: It also is not only in place for a couple
21:21
Speaker 1: of years, which isn't going to help finance a thirty
21:23
Speaker 1: year facility. You see places like Europe taking the opposite
21:27
Speaker 1: approach where they're just mandating blending in so they're saying
21:30
Speaker 1: airlines and airports have to blend a certain amount and
21:33
Speaker 1: that's going to ramp up of the next few years.
21:35
Speaker 6: Sort it out, figure out the cost.
21:37
Speaker 1: And then you see places like Singapore which is actually
21:39
Speaker 1: imposing a levee on airline tickets and saying, Okay, we
21:43
Speaker 1: think staff is going to cost this much in order
21:45
Speaker 1: to blend in we have blending targets. We're just going
21:47
Speaker 1: to put an additional cost on airline tickets.
21:51
Speaker 6: In order to cover the cost of staff. I mean,
21:53
Speaker 6: see what works in theory?
21:54
Speaker 4: That makes sense, right, Like you just pass it down
21:57
Speaker 4: to the consumer. But it does point out that any
21:58
Speaker 4: anyergy transition that you can do will eventually be then
22:01
Speaker 4: passed on to the consumer.
22:03
Speaker 6: Consumer, tax payer.
22:04
Speaker 7: Yeah.
22:04
Speaker 3: Probably interesting. So what the US airlines are here? I'm
22:07
Speaker 3: just reading some of your research here. So BNF tracks
22:09
Speaker 3: airline net zero commitments and sustainable aviation fuel commitments, and
22:13
Speaker 3: currently forty four airlines counting for just under half of
22:16
Speaker 3: jet fuel consum globally have some saf target usually ten
22:19
Speaker 3: percent by twenty thirty. Is that good enough?
22:23
Speaker 6: Well, it's a target, So the question is will they
22:25
Speaker 6: hit those target?
22:26
Speaker 7: Is it real?
22:27
Speaker 6: Can they do that?
22:28
Speaker 1: And that's where we are starting to see some airlines
22:31
Speaker 1: procure staff volumes, like United procures a lot if you
22:34
Speaker 1: fly out if you fly on say United out of
22:36
Speaker 1: San Francisco or La Chances.
22:37
Speaker 6: Are there some staff in the tank.
22:39
Speaker 3: Can they blended?
22:40
Speaker 6: They can blend it one for one.
22:41
Speaker 1: That's one of the beautiful things about sustainable aviation fuel.
22:44
Speaker 4: Well, only that you can just like easy replacement, you
22:47
Speaker 4: can take the jet fuel allowed and put it back
22:49
Speaker 4: in versus if you did a hydrogen plane or some
22:51
Speaker 4: other kind of plane.
22:52
Speaker 1: Yeah, so you don't need new tanks or new aircrafts.
22:54
Speaker 1: You can blend it up to fifty percent currently is
22:57
Speaker 1: the regulatory system.
22:59
Speaker 6: It is currently.
23:00
Speaker 1: Produced in very small quantities. So right now, less than
23:02
Speaker 1: one percent of all jet fuel a sustainable aviation fuel,
23:05
Speaker 1: so we're talking very small volumes. It's produced a lot
23:08
Speaker 1: of oil and gas companies and refiners are in on
23:10
Speaker 1: this space. So next see there's a company called World
23:13
Speaker 1: Energy and one called Montana Renewables that are producing at
23:15
Speaker 1: the moment we're seeing P sixty six and Valero through
23:19
Speaker 1: their partnerships with Darling Ingredients.
23:20
Speaker 4: To those are regular refiners.
23:22
Speaker 3: So does who does jet fuel today?
23:24
Speaker 1: A lot of the refinery, So if you think of
23:26
Speaker 1: a refinery, go talk to the refinery.
23:27
Speaker 3: So you guys need to put out more.
23:29
Speaker 1: And a lot of them are looking at it because
23:30
Speaker 1: a lot of the process at the moment is similar.
23:32
Speaker 1: You basically, instead of taking a crude oil, you take
23:34
Speaker 1: a biooil, you put it through a refinery and get
23:38
Speaker 1: sustainable aviation fuel. So you can actually convert some existing
23:41
Speaker 1: oil refineries to take biofeedstocks and therefore make these biofuels.
23:46
Speaker 6: So we are seeing them active.
23:47
Speaker 4: What about the okay, so a different question, how do
23:51
Speaker 4: you think this industry develops and where does the strength develop?
23:55
Speaker 1: So a lot of this is policy led. We are
23:57
Speaker 1: starting to see a lot of policies support it though, because.
24:00
Speaker 6: Aviation is one of the crucks.
24:01
Speaker 1: You can make these types of sustainable fuels into a
24:05
Speaker 1: whole lot of things. You can make diesel molecules, you
24:07
Speaker 1: can make methanol molecules, petrochemicals. But aviation is the industry
24:11
Speaker 1: where there aren't any really good alternatives, especially if you're
24:13
Speaker 1: looking at like a twenty fifty SAP or net zero target,
24:17
Speaker 1: because hydrogen aircraft, electric aircraft, it takes decades to get
24:20
Speaker 1: those off the ground. It takes decades for fleets to
24:22
Speaker 1: roll over. So if you really want to decarbonize aviation
24:25
Speaker 1: by twenty fifty, you're going to need to decarbonize the
24:28
Speaker 1: fuel that they're currently using. So this is the area
24:30
Speaker 1: where we're seeing a lot of policies start to move.
24:32
Speaker 1: I've mentioned a few of them. We're starting to see
24:34
Speaker 1: some interest from different producers. We're starting to see a
24:36
Speaker 1: lot of investment going into this because everybody assumes.
24:39
Speaker 6: The market will get there.
24:40
Speaker 1: So, for instance, there's a different way of producing it
24:43
Speaker 1: where you take green hydrogen and captured carbon dioxide to
24:46
Speaker 1: make the fuel. That's popular because you don't have the
24:49
Speaker 1: food verus fuel issues of a biofuel. Just earlier this
24:53
Speaker 1: month we saw Brookfield invest over a billion dollars into
24:56
Speaker 1: one of these e fuel facilities.
24:58
Speaker 3: I need to go check out when these worthies are.
25:00
Speaker 3: They just like in Texas and Louisiana. World They California, California.
25:03
Speaker 1: A lot of the fuel is sold in California and
25:05
Speaker 1: a lot of the old refineries are being converted there,
25:07
Speaker 1: but they are being produced everywhere. It depends on where
25:10
Speaker 1: the feedstock is, so you can see a lot of
25:12
Speaker 1: feedstock in the Midwest, a lot of the productions coming
25:14
Speaker 1: out there. We're starting to see e fuels which are
25:17
Speaker 1: take green hydrogen. They need to be near cheap renewable energy,
25:20
Speaker 1: and so you'll see a lot of these fuels.
25:23
Speaker 3: As efficient as carbon the regular fuel, because I don't
25:27
Speaker 3: want to be thirty five thousand feet in the air
25:28
Speaker 3: and then engine as reliable.
25:30
Speaker 1: Yeah, thank you, Yes, it produces jet aspec fuel. There
25:35
Speaker 1: are questions if you had one hundred percent staff in
25:37
Speaker 1: your tank. Actually a lot of the fossil jet fuels
25:40
Speaker 1: have some aromatics that end up in the jet fuel
25:42
Speaker 1: stream and that actually helps with seals in the engines.
25:44
Speaker 1: So they're testing that out, but nobody we don't have
25:47
Speaker 1: the quantities produced that you're anywhere near one hundred percent
25:49
Speaker 1: these days, and in general you could think of it
25:51
Speaker 1: as exactly the same as jet fuel.
25:53
Speaker 3: Our thanks to Anna Davies, b n EF, head of
25:55
Speaker 3: Renewables Fuels.
25:57
Speaker 4: Coming up, we look at Bloomberg Intelligence's list of ten
26:00
Speaker 4: needs to watch in the fourth quarter.
26:01
Speaker 3: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
26:04
Speaker 3: depth research and data on two thousand companies and one
26:06
Speaker 3: hundred and thirty industries. Can access Bloomberg Intelligence via Bigo
26:10
Speaker 3: on the terminal.
26:10
Speaker 4: Now, Paul Sweeney and am Alex Steel, and this is Bloomberg.
26:18
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
26:22
Speaker 2: weekdays at ten am Eastern on applecar Play and Android
26:26
Speaker 2: Auto with the Bloomberg Business app. You can also listen
26:29
Speaker 2: live on Amazon Alexa from our flagship New York station,
26:32
Speaker 2: Just say Alexa Play Bloomberg eleven thirty.
26:37
Speaker 4: Back in January, Bloomberg Intelligence came up with a list
26:39
Speaker 4: of fifty companies to watch in twenty twenty four, and
26:42
Speaker 4: now they're back with a list of ten companies to
26:44
Speaker 4: watch specifically in the fourth quarter.
26:46
Speaker 3: This is based on scenarios from our bi analysts who
26:48
Speaker 3: sorted through the barrel to find the good apples across
26:51
Speaker 3: sectors and regions.
26:52
Speaker 4: For more. We are joined by Tim Craig, head, Bloomberg
26:54
Speaker 4: Intelligence Global Chief Content Officer.
26:57
Speaker 3: We first asked Tim to talk about the companies on
26:59
Speaker 3: the list.
27:00
Speaker 9: Just to put context. This list of ten are all
27:03
Speaker 9: focus ideas of ours, so companies where we have a
27:06
Speaker 9: high conviction view that we think is different from what
27:08
Speaker 9: the market thinks, and there's catalyst ahead. True Leave is
27:13
Speaker 9: a marijuana grower and a distributor. They have stores. Seventy
27:17
Speaker 9: percent of their stores are in Florida, and Florida has
27:21
Speaker 9: on the referendum this November, the potential for legalization for
27:25
Speaker 9: recreational use. It would be a big deal for truely
27:28
Speaker 9: that this were to come through.
27:30
Speaker 3: Yeah, maybe Florida a huge market. And you know what
27:32
Speaker 3: I recognize when we went over to Hireland, Coupic Sco.
27:34
Speaker 3: They don't do the gummy thing over there. They don't
27:36
Speaker 3: have the weed thing They're gonna get on board there.
27:39
Speaker 6: They just got answer down.
27:40
Speaker 4: Maybe that's what they don't.
27:41
Speaker 9: Really need to I'll on that they just go to
27:43
Speaker 9: New York and then they come back to.
27:45
Speaker 3: Exact Ireland exactly. Anti Sports talk to us about that
27:49
Speaker 3: because I feel like I know they're an Asian company,
27:51
Speaker 3: so I'm assuming this has a China call to it.
27:54
Speaker 9: It does with an interesting twist. Anta is a is
27:58
Speaker 9: a sportswear company. They have a number of brands. I
28:01
Speaker 9: think when I've been on your show before, you may
28:03
Speaker 9: have seen that I've had an Arctics best one.
28:08
Speaker 3: Is like an extreme biker, climber hiker. All the stuff
28:13
Speaker 3: that I.
28:13
Speaker 6: Just have good for you. I got nothing on that.
28:16
Speaker 9: But no Arctics is owned by Anta. But the reason
28:20
Speaker 9: why Anta is on here is twofold number one. Do
28:23
Speaker 9: have a lot of things going on from the standpoint
28:25
Speaker 9: of driving their business with various brands and the Olympics
28:29
Speaker 9: playthrough will get results when they report next in terms
28:33
Speaker 9: of how good it's been the China national team or
28:37
Speaker 9: anti sports kit. But it's also the case you've seen
28:41
Speaker 9: lots of news about Adidas and Nike and how they're
28:45
Speaker 9: trying to get their inventory under control. That's making pricing
28:50
Speaker 9: better for sports where generally, and we think that that's
28:53
Speaker 9: playing through into anti sports margins as a corollary.
28:57
Speaker 4: That's interesting when you compare it to like sing I
29:00
Speaker 4: understand that they do different things, but still you've also
29:04
Speaker 4: on here. So this is basically straight up railroad stock.
29:08
Speaker 4: Why do you guys like this one?
29:09
Speaker 9: Well, there's two things here. If you were to look
29:12
Speaker 9: at a three year, five year type chart, you would
29:15
Speaker 9: see that this company has gone through some problems. They
29:20
Speaker 9: had a big right off and problem that was announced
29:23
Speaker 9: a year or so ago. Stock had collapsed, that's been
29:27
Speaker 9: settled and they're on the right track. No pun intended
29:31
Speaker 9: at this point. But importantly, there is a new European
29:36
Speaker 9: union wide signaling system that's coming into place that is
29:41
Speaker 9: meant to be reducing a lot of complication between different
29:45
Speaker 9: countries and whatnot, and it's an Alstom system and in
29:48
Speaker 9: general the train businesses is running pretty well. We think
29:52
Speaker 9: they're on a road for recovery.
29:53
Speaker 3: One of the bigger market cap names on your list
29:56
Speaker 3: is Saudi National Bank, and I'll start with I know
30:00
Speaker 3: nothing about Saudi National Bank, but it's fifty seven billion
30:02
Speaker 3: market cap. What's the story there?
30:05
Speaker 9: Yeah, you know, it's really interesting. And this is true
30:07
Speaker 9: for Saudi National Bank. It's also true for some others
30:11
Speaker 9: in the country. It's running contra to what most banks
30:16
Speaker 9: are experiencing. I think there's been lots of news and
30:19
Speaker 9: coverage and certainly we've written about the pressure coming ahead
30:23
Speaker 9: for most banks with their net interest margins. As interest
30:28
Speaker 9: rates start to decline, you know, their loan pricing comes down,
30:32
Speaker 9: and you know that's not great for margins. Saudi National
30:36
Speaker 9: Bank isn't is an interesting case. We're given the nature
30:39
Speaker 9: of how their loans reprice versus their deposits repricing. They
30:44
Speaker 9: actually stand to see over the course of the next
30:46
Speaker 9: six to twelve months, then interest margin growth and expansion,
30:51
Speaker 9: and so it's running counter given just simply the nature
30:55
Speaker 9: of their asset and liability mix to normal bank profitability
30:59
Speaker 9: in the aren't cycle we're in. So it's a really
31:01
Speaker 9: unusual story.
31:03
Speaker 4: Okay, we got like a minute, can you do for
31:05
Speaker 4: solar for me? Because that's for me, that's a TVD
31:08
Speaker 4: based on what happens with the Inflation Reduction Act here
31:11
Speaker 4: in the US, But you tell.
31:12
Speaker 9: Me it absolutely is. I mean, we all know that
31:17
Speaker 9: the election coming up is going to have a lot
31:19
Speaker 9: of implications for what happens from energy transition related spending
31:25
Speaker 9: and whatnot. That said, we're still going to see solar
31:28
Speaker 9: panels as a renewable energy source continued to grow. These
31:33
Speaker 9: guys are in the catbird seat, so to speak, from
31:37
Speaker 9: the standpoint of they have a dominant position in the US.
31:40
Speaker 9: They've got good technology. Even though the Chinese producers are
31:44
Speaker 9: bigger and lower cost with arguably better technology, there's way
31:48
Speaker 9: too many restrictions for China product to come into the States,
31:52
Speaker 9: and so for solar is not you wouldn't say it's
31:55
Speaker 9: in a monopoly position, but it's a very advantaged position.
31:58
Speaker 9: And almost regardless of what happens with the IRA, we
32:02
Speaker 9: think that they've got wind that they're back for better
32:04
Speaker 9: order growth going ahead.
32:05
Speaker 4: All right, thanks to Tim craig Head, Bloomberg Intelligence Research
32:08
Speaker 4: of Global Chief Content Officer.
32:10
Speaker 3: We moved next to news on Honeywell International. This week,
32:13
Speaker 3: we heard that Honeywell plans to spin off its advanced
32:15
Speaker 3: materials division.
32:16
Speaker 4: It's the latest move by the industrial conglomerate to reshape
32:19
Speaker 4: its portfolio, and this comes as there have been calls
32:21
Speaker 4: for the company to spin off or trium it's holdings
32:23
Speaker 4: for more.
32:23
Speaker 3: We were joined by Karen Uberlhart, Bloomberg Intelligence Senior industrials Analysts.
32:27
Speaker 4: We first asked Karen if this potential spinoff is a
32:29
Speaker 4: big enough catalyst for Honeywell.
32:31
Speaker 10: It's big enough to count.
32:33
Speaker 11: I don't think it's big enough to settle the question
32:37
Speaker 11: of should they have more focus.
32:39
Speaker 10: They've tried on the M and A side, which.
32:41
Speaker 11: They were criticized for not doing any deals despite sitting
32:44
Speaker 11: on ten to twelve billion dollars in cash for a
32:46
Speaker 11: very long time. They've done four deals under the new CEO,
32:49
Speaker 11: one of them rather large. It's not moving the needle
32:53
Speaker 11: because acquisitions take time to tell you if they're successful
32:56
Speaker 11: or not right. But they haven't done anything on the
32:59
Speaker 11: divestitor side since twenty sixteen, when they did the two spinoffs,
33:03
Speaker 11: so they were looking to do something. I thought they'd
33:06
Speaker 11: do something, but it had to be big. Is this
33:08
Speaker 11: big enough?
33:09
Speaker 9: No?
33:09
Speaker 11: But he did signal at a conference recently that if
33:12
Speaker 11: they didn't do something material by the end of this year,
33:14
Speaker 11: he'd be disappointed, so we knew something was coming. I
33:17
Speaker 11: don't know if this is enough.
33:19
Speaker 3: So, I mean, Alex, no one on Global Wall Street
33:21
Speaker 3: has more experience with divestitures than Karen Haart. She's been
33:26
Speaker 3: covering these industrial companies for decades and they're always buying
33:28
Speaker 3: something or selling something. And the best example is Ge.
33:32
Speaker 3: And it seems like Ge has gotten to a spot
33:34
Speaker 3: where the market likes where they are and how they're positioned.
33:38
Speaker 3: Is Honeywell, Karen trying to do something like Ge.
33:41
Speaker 4: To be fair, g you took a real long degeneration.
33:45
Speaker 11: I said, yeah, I said, don't bet against Larry.
33:48
Speaker 10: But it took a very long time for it to work.
33:50
Speaker 3: So I don't think so it's Honeywell in the same
33:53
Speaker 3: kind of strategy.
33:55
Speaker 10: You know, they have very good businesses.
33:57
Speaker 11: They were never in the trouble that Ge was in,
34:00
Speaker 11: and you know, and they're one of the more most
34:03
Speaker 11: profitable companies in the group. The problem is there's a
34:05
Speaker 11: lack of catalyst number one and number two. As we know,
34:08
Speaker 11: these things go in waves and people want focus now.
34:11
Speaker 11: You know, I've said over the cycles, they break them
34:13
Speaker 11: all up, they put them back together, they break them
34:15
Speaker 11: all up. We're in the break them all up now
34:17
Speaker 11: And a lot of the companies have really paired down,
34:20
Speaker 11: like the ah VAT companies for example.
34:22
Speaker 10: So people want something big.
34:25
Speaker 11: And the other point I'd say is they have you know,
34:27
Speaker 11: mediocre organic growth for a while now, but they always
34:30
Speaker 11: delivered on earnings. They missed for the first time in
34:32
Speaker 11: the last quarter and that' stuck.
34:34
Speaker 10: Blew up because they don't miss. So you know, it's
34:36
Speaker 10: it's been an underperformer now on any time period.
34:39
Speaker 11: You want to look one, three, five years and he's frustrated.
34:42
Speaker 10: You can tell. But I think there has to be
34:45
Speaker 10: something more.
34:46
Speaker 4: What is honeywell now? So if I was to go
34:50
Speaker 4: to you and be like, what did they do?
34:51
Speaker 3: Won't be your answer.
34:53
Speaker 11: The biggest business is aerospace, very well positioned. They're very
34:57
Speaker 11: good business, a good long term outlook. Building automation is
35:01
Speaker 11: a second one. It's the rest of the three are smaller,
35:05
Speaker 11: and that's a decent business. I don't think it's a
35:08
Speaker 11: particularly high grower, and they did a big acquisition there.
35:11
Speaker 11: The other third big business is automation, and it's factorial
35:15
Speaker 11: industrial automation, process automation, it's warehouse automation, which has not
35:19
Speaker 11: worked out that well so far, and a few other
35:22
Speaker 11: bits and pieces. And the third piece is what remains
35:25
Speaker 11: of the chemical business, which is a catalyst business called
35:27
Speaker 11: up So, Karen, I know.
35:30
Speaker 3: From reading your research and talking to over the years,
35:32
Speaker 3: you got to get the right CEO in there to
35:35
Speaker 3: really get things done because you start big, big lumbering companies.
35:39
Speaker 3: The CEO now, Vimal Kopor, has been in the role
35:41
Speaker 3: for a little more than a year, but he's been
35:42
Speaker 3: at Honeywell for a long time. What's the street feeling
35:46
Speaker 3: about himc the guy who, like Larry Colp, can get
35:49
Speaker 3: things done.
35:50
Speaker 11: I think people were surprised but took the change positively
35:55
Speaker 11: because people have been frustrated that they sat on so
35:58
Speaker 11: much cash and probably didn't and didn't do anything with it,
36:01
Speaker 11: and people wanted bigger changes, so he took the first
36:05
Speaker 11: step with all the acquisitions. I think operationally, you know,
36:10
Speaker 11: he does.
36:11
Speaker 10: A great job.
36:12
Speaker 11: That's been the Honeywell story I think we'll have to
36:14
Speaker 11: wait and see what else he does in the portfolio change.
36:16
Speaker 11: This is a decent size move, but it's only ten
36:18
Speaker 11: percent of the company, so I'd say wait and see
36:21
Speaker 11: on that.
36:21
Speaker 4: When we've talked in the past, it's really been that
36:24
Speaker 4: warehouse part of the business because it's so very, very
36:27
Speaker 4: very early cyclical, and that's been causing a lot of
36:31
Speaker 4: short term pain for that business. Have we hit a trough,
36:35
Speaker 4: like is there a recovery in sight? Or to buy
36:39
Speaker 4: the CEO some time.
36:41
Speaker 11: It sounds like by the order pattern that things have troughed.
36:45
Speaker 11: You know, there was an overbuilding warehouses as we know right,
36:48
Speaker 11: and then it collapsed and they only got one or
36:50
Speaker 11: two good years out of that deal before it collapsed.
36:52
Speaker 10: They've structurally fixed it. The margins are not bad.
36:55
Speaker 11: It looks like it's troughed, but I don't think we're
36:59
Speaker 11: expecting a really big rebound. But one thing I will
37:02
Speaker 11: say that the CEO said, you know, it's four percent
37:04
Speaker 11: of the company now only because its trunk so much,
37:08
Speaker 11: But it's we get spent a lot more time than
37:09
Speaker 11: four percent of the time.
37:11
Speaker 10: That's because it's still not fixed. It needs volume.
37:14
Speaker 11: I thought that was when they might think about doing
37:16
Speaker 11: something with but again, not enough to move the needle.
37:19
Speaker 11: And I'm not sure they're convinced it doesn't have a
37:21
Speaker 11: good long term story. We're convinced, I think in generally.
37:24
Speaker 3: I think about the dividend here, Karen, dividend two point
37:28
Speaker 3: two percent dividend yield. I got, you know, six seven
37:31
Speaker 3: billion dollars for free cash flow every year. Should they
37:34
Speaker 3: be paying more of a dividend or do you think
37:35
Speaker 3: most industries are happy with a two point two percent
37:37
Speaker 3: divid yield.
37:38
Speaker 10: I think that's okay.
37:39
Speaker 11: I think they'd rather have them use the cash in
37:42
Speaker 11: a more active way, like either more buybacks or more deals.
37:46
Speaker 11: So the question is will they do anything with it
37:49
Speaker 11: when they get rid of this business, which will dilute earnings.
37:53
Speaker 11: I think they'll probably take the route of buyback and
37:56
Speaker 11: grow into the dividend. It's not going to be like
37:58
Speaker 11: it was with Emerson years ago and the dividend was
38:00
Speaker 11: way too large after they sold a third of the company.
38:03
Speaker 11: I think they'll keep the dividend. I don't know that
38:05
Speaker 11: they'll grow it all right.
38:06
Speaker 4: Thanks to Karen Uberheart, Bloomberg Intelligence Senior Industries analyst, this is.
38:10
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