Latest / Bloomberg Intelligence / Lot of Opportunities In Mexico's Energy Sector: IMF's Werner

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Lot of Opportunities In Mexico's Energy Sector: IMF's Werner · Bloomberg Intelligence

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  Speaker 1: Welcome to the Bloomberg PI and L Podcast. I'm pim Fox.
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  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
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  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg P and L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Get
• 0:33
  Speaker 1: ready for the election season. Yes, there are seven presidential
• 0:37
  Speaker 1: elections scheduled for Costa Rica, Cuba, Columbia, Paraguay, Mexico, Brazil,
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  Speaker 1: and Venezuela. Let's find out what they mean for investors.
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  Speaker 1: My guest Alejandro Werner. He is the director for Western
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  Speaker 1: Hemisphere Department for the International Monetary Fund and he joins
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  Speaker 1: us here in our eleven three oh studios. Alejandra, thank
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  Speaker 1: you very much for being here. All right, so we
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  Speaker 1: have these presidential elections. You can really select which one
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  Speaker 1: you want to begin with, maybe Mexico or Brazil or
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  Speaker 1: so on. But what do you think is the most
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  Speaker 1: important theme that we need to understand? Thanks for having me,
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  Speaker 1: and you're right, I mean, Latin America is going through
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  Speaker 1: a very interesting period on the one hand, and a
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  Speaker 1: world economy that it's just at the right point. I mean,
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  Speaker 1: with growth almost touching four percent for the year, commodity
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  Speaker 1: prices going up, very lax, financial markets are abandoned financing
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  Speaker 1: but on the other hand, some risk coming from outside
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  Speaker 1: but domestically a lot of political uncertainty. And if we
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  Speaker 1: move to the two largest economies in the region, Mexico Umbrassil,
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  Speaker 1: both of them having very competitive election process. In the
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  Speaker 1: case of Mexico, you have I mean one of the
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  Speaker 1: candidates Andres Manuel Lopez Aloro maybe showing up in the
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  Speaker 1: post with thirty percent of the voter's intentions, and the
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  Speaker 1: other two candidates Jos Antonio Meat from the p R
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  Speaker 1: I that it's in government that party now with twenty
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  Speaker 1: percent of the vote, and Anaya from the Band with
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  Speaker 1: another of the vote. Very widespread differences in terms of
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  Speaker 1: their policy policy proposals, I mean Mead and an Aya
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  Speaker 1: much more continuity, a lopes over a lot, much more
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  Speaker 1: let's say, critical of what has been done in the
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  Speaker 1: last few years, and that opening up some degree of
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  Speaker 1: uncertainty that is weighing on investment. An important element to
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  Speaker 1: highlight the Mexican election is only one round election. Whoever
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  Speaker 1: gets a simple majority becomes the president. Then we turned
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  Speaker 1: to Brazilia, I mean Brazili also having elections in October.
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  Speaker 1: This is a two round election, but still the Brazilian
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  Speaker 1: election is also very very wide. You have one candidate
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  Speaker 1: that it's running ahead in the polls, that is a
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  Speaker 1: former president, Lula da Silva, who's also going through a
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  Speaker 1: process and he has been found guilty by two levels
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  Speaker 1: of their judicial system or of corruption in in the past,
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  Speaker 1: so there's a legal discussion of whether he will be
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  Speaker 1: able to run or not. Then you have another right
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  Speaker 1: wing candidate, Bolsonaro, that is running second, and then a
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  Speaker 1: very open field of candidates with a smaller percentage of
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  Speaker 1: the vote. And what makes it the Brasilian elections so
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  Speaker 1: important is that Brazil it's still facing significant economic challenges
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  Speaker 1: in the next few years. Brasili just went through two
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  Speaker 1: years of recession in which the economy contracted in each
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  Speaker 1: year by three and a half percent. It's recently coming
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  Speaker 1: out of that process, but still need significant changes in
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  Speaker 1: its fiscal policy, in its trade policies, in its tax policies,
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  Speaker 1: and make the economy much more efficient. So Brazil really
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  Speaker 1: needs a president with a strong mandate to be able
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  Speaker 1: to implement a very important reform agenda. Will the voters,
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  Speaker 1: do you believe in Brazil offers someone that mandate to
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  Speaker 1: get these things accomplished, or it's too early in the
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  Speaker 1: in the campaign season, I mean, the campaign has not
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  Speaker 1: even started yet, so we will see how things shape
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  Speaker 1: shape up. But I think one has to remember also
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  Speaker 1: that there's a huge anti establishment sentiment in Brazil coming
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  Speaker 1: through out of the largest corruption scandal in the country's history,
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  Speaker 1: first affecting the state own oil company Petrogras, then affecting
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  Speaker 1: one of its major construction companies or the Breck. So
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  Speaker 1: I mean the population is looking for new alternatives. So
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  Speaker 1: so that opens the door for a Macron type consensus,
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  Speaker 1: but it also opens up the door for risks that
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  Speaker 1: catch the popular attention in the election season but then
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  Speaker 1: gives us very weak governments when they reach office now,
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  Speaker 1: and that's why those elections are so important. In other countries.
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  Speaker 1: In Latin America, I would say the election process generates
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  Speaker 1: much less uncertain t v s have the economic policies
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  Speaker 1: the case of Columbia, the case of Paract, by the
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  Speaker 1: case of Costa Rica, I think people are expecting are
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  Speaker 1: seen much more continuity in the economic framework, and on
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  Speaker 1: the back as I was saying, of recovery of copper prices,
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  Speaker 1: oil prices, agricultural goods prices, where these countries are major
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  Speaker 1: exporters of that, that paints a relatively good picture for
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  Speaker 1: Latin American. So if you were a foreign investor and
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  Speaker 1: you were looking to deploy some capital in Latin America,
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  Speaker 1: and of course, you know, just to sort of say
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  Speaker 1: it as a geographic region doesn't really do it justice
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  Speaker 1: because you're focusing on specific industries or specific types of investments.
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  Speaker 1: But where do you see the risk reward profile that
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  Speaker 1: you believe a foreign investor would accept in Latin America
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  Speaker 1: to actually put some capital work would highlight? I mean,
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  Speaker 1: obviously the case of Argentina. Argentina went through an important
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  Speaker 1: political change two years ago. The Macri administration just got
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  Speaker 1: a significant vote of confidence in a midterm election, and
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  Speaker 1: this government is trying to reach macroeconomic stability in in
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  Speaker 1: this country and also implement significant structural reforms in energy, telecom, infrastructure.
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  Speaker 1: So I think a lot of pent up demand for
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  Speaker 1: investment in this country, a lot of opportunities. Secondly, I
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  Speaker 1: would say, I mean Chile, Peru, Colombia countries that had
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  Speaker 1: to adjust when commodity prices fell. But now that commodity
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  Speaker 1: prices are going back up, I think they're entering in
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  Speaker 1: the right phase of the cycle. And I would highlight
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  Speaker 1: I mean the energy sector in Mexico. Mexico went through
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  Speaker 1: a very important energy reform three years ago. Now it's
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  Speaker 1: being implemented. Mexico used to be the country that was
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  Speaker 1: more close to local to private both domestic and international
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  Speaker 1: investment in the oil sector. Now it has changed that.
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  Speaker 1: So I think there's a lot of opport unities in
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  Speaker 1: the energy sector in Mexico to undertake important investment. Highlighting
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  Speaker 1: some regions in Latin America and let me just highlight
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  Speaker 1: I mean when you look at Panama and the Dominican Republic,
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  Speaker 1: these are countries that have been growing at five six
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  Speaker 1: for the last seven years, and I think this damis
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  Speaker 1: m will continue. I mean Panama also as a logistic
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  Speaker 1: hub with a very important e airport and obviously with
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  Speaker 1: the canal and the d R with very important investment
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  Speaker 1: in the tourism sector. I want to thank you very
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  Speaker 1: much for spending time with the sale. Hundre Verner is
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  Speaker 1: the director of Western Hemisphere Department for the International Monetary Fund.
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  Speaker 1: Thank you very much for your views on Latin America.
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  Speaker 1: Look forward to having you in the future. Much appreciate
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  Speaker 1: it coming. Japan's central bank governor said today that the
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  Speaker 1: country's economy is finally close to its target inflation rate
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  Speaker 1: of around two per cent. Let's find out what this
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  Speaker 1: means with our own Vincent Signarella. He is our global
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  Speaker 1: macro strategist for Bloomberg Intelligence. He joins me here in
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  Speaker 1: our eleven three oh studios. All right, Vincent, so what
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  Speaker 1: about these comments? He was speaking at Davos, and he
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  Speaker 1: also mentioned not only the economic the economics of the country,
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  Speaker 1: but the inflation target of two percent and the unemployment
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  Speaker 1: rate of two point seven percent. Well, Japan's economy is
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  Speaker 1: definitely improving, but hitting the inflation target unless you measure
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  Speaker 1: it in football fields. They know where close. I mean
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  Speaker 1: the the cp I X food X fresh food. One
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  Speaker 1: of the um marks to mark that the Bank of
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  Speaker 1: Japan uses for an inflation target on a year over
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  Speaker 1: year basis zero point three percent. Their target is two percent.
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  Speaker 1: So I think we have a ways to go before
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  Speaker 1: we hit Japan's inflation target. Okay, but you were telling
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  Speaker 1: me earlier and there was a lot of movement. I
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  Speaker 1: was watching the Japanese yen and we're trading right now
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  Speaker 1: one O eight seventy eight were his comments? Uh, I
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  Speaker 1: don't want to say misconstrued, but what was he trying
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  Speaker 1: to get at? What traders felt like that his comments
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  Speaker 1: were taken out of context. And what we understand is
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  Speaker 1: that he said what he said was exactly what he said,
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  Speaker 1: but he kind of chuckled after he said it. So
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  Speaker 1: if unless we have a central banker all of a
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  Speaker 1: sudden developing a sense of humor so he was doing
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  Speaker 1: maybe like a stand up routine in Dava, Well, I
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  Speaker 1: don't think it was that. I think what he was
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  Speaker 1: really addressing was the longer term prospects of Japanese inflation
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  Speaker 1: are approaching target. And I think you hear that from
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  Speaker 1: every central banker, and unfortunately we've heard that from every
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  Speaker 1: central banker for the better part of the last five years.
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  Speaker 1: So putting things into context, you can see that the
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  Speaker 1: eventually the goal is for Japan to reach the two
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  Speaker 1: percent target, as is the United States, as in Germany,
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  Speaker 1: the Eurozone, etcetera, etcetera. Well, everybody wants to reach whatever
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  Speaker 1: target there. Everybody wants to reach the change. Yes, But
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  Speaker 1: one of the things that really strikes me as odd
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  Speaker 1: to be honest with central bankers in this in this
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  Speaker 1: day and age, especially dragging with the Eurozone, is is
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  Speaker 1: in a real sweet spot. He's got unemployment falling, the
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  Speaker 1: economy is growing. So what that inflation isn't going up?
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  Speaker 1: We're not if this were two thousand eleven or two thousand,
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  Speaker 1: two thousand nine, where there people were talking about the
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  Speaker 1: potential for an actual depression. When you see inflation dropping
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  Speaker 1: and you think, oh my god, depression could be around
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  Speaker 1: the corner. That's when you worry about the lack of
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  Speaker 1: inflation and prices dropping. But when your economy is growing
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  Speaker 1: and your employment rate is falling and you don't have
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  Speaker 1: price pressure, that's to me time for a party, not
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  Speaker 1: for for worrying. So why do you believe they say this?
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  Speaker 1: I think they're concerned that there is always you know,
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  Speaker 1: we're at the long end of the growth cycle. This
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  Speaker 1: has been a very very long run. A lot of
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  Speaker 1: economists see this as a long in the tooth and
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  Speaker 1: that a recession is somewhere, perhaps around the corner, and
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  Speaker 1: if they don't get prices up and they don't get
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  Speaker 1: inflation up. The opportunity for them to address a recession,
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  Speaker 1: which could make prices decline further limits them. I mean,
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  Speaker 1: there's only so far they can lower rates, so in
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  Speaker 1: other words, they will not have the cover to raise
• 11:13
  Speaker 1: rates to then lower them in the future when they
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  Speaker 1: need to. Was shocked. Sometime last year rosen Grin, the
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  Speaker 1: FED rosen Grin on a panel said we're raising rates
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  Speaker 1: because we need to get them to a level so
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  Speaker 1: that when the next recession comes, we can lower them again,
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  Speaker 1: which to me sounded like the Marx Brothers when they
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  Speaker 1: talk about a contract. You know, it's like, I don't
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  Speaker 1: like the first close, you know, that kind of thing.
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  Speaker 1: It it makes sense when you think about the idea
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  Speaker 1: that we need to get economic growth and economic pricing
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  Speaker 1: to a level so that if things retrench we have
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  Speaker 1: tools to fight it. But it doesn't make sense that
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  Speaker 1: you think, if we don't have inflation, we need to
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  Speaker 1: try to get ahead of something that just isn't there.
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  Speaker 1: Is it Also because I don't seem to live in
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  Speaker 1: the real world. I mean, because you're the scenario you're describing,
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  Speaker 1: I would imagine is pretty sympathetic to just about everybody
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  Speaker 1: that has to go out and pay for stuff. The
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  Speaker 1: the average bear doesn't look at cp I X food
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  Speaker 1: and energy. We look at food and energy market as
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  Speaker 1: in Yogi. I mean the average individual, they do eat
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  Speaker 1: food and they probably use some form of fossil fuel. Yeah.
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  Speaker 1: And when you say, oh it, there's no inflation in clothing, well,
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  Speaker 1: we're not actually close. Horses and changing are something after uh.
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  Speaker 1: And one of the things about there about the Fed's
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  Speaker 1: inflation um factor is the the housing component of the
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  Speaker 1: inflation is not about housing prices. It's about rent rental
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  Speaker 1: equivalenc rental equivalency. So when the housing prices were off
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  Speaker 1: the charts, that wasn't showing up in the inflation data.
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  Speaker 1: When you and I and everyone else realized when we
• 12:46
  Speaker 1: look to go from our home to perhaps another, that
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  Speaker 1: was real inflation. And that was that stings when it
• 12:53
  Speaker 1: looks and it's not as if you do that on
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  Speaker 1: a regular basis. It's not as if you go, oh
• 12:57
  Speaker 1: g it's so much less expensive. I think I'll move
• 12:59
  Speaker 1: down the the The The average mortgage, the average thirty year
• 13:02
  Speaker 1: mortgage gets turned over every seven years. So let's assume
• 13:05
  Speaker 1: that's a five to ten year decision. It stings, you
• 13:08
  Speaker 1: know when when rates go from four to six or whatever,
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  Speaker 1: that that's painful. Quickly, Secretary of the Treasury Stephen Minuchen,
• 13:16
  Speaker 1: do you buy this idea that he's trying to walk
• 13:19
  Speaker 1: back some of his comments about the dollar, and that,
• 13:22
  Speaker 1: as he says, they were also taken out of context.
• 13:24
  Speaker 1: I don't think that when someone says to you as
• 13:28
  Speaker 1: bluntly and as uh concisely as that question was asked,
• 13:33
  Speaker 1: that he was taking out of context. Okay, so you
• 13:36
  Speaker 1: don't think anybody that that the president's now effort to
• 13:39
  Speaker 1: say well, no, no, no, that we really do want
• 13:41
  Speaker 1: a strong dollar could have been negotiating tactic. It's very
• 13:45
  Speaker 1: possible because he's at Davos and he's face to face
• 13:48
  Speaker 1: with a lot of officials that this could have been
• 13:50
  Speaker 1: a little bit of an embarrassing moment for him. But
• 13:52
  Speaker 1: I think once he gets back home will probably hear
• 13:54
  Speaker 1: how they really feel well done. Thanks very much. He's
• 13:57
  Speaker 1: a pleasure. I have a great weekends. Cinnerella is our
• 14:00
  Speaker 1: global macro strategist for Bloomberg Intelligence and giving us a
• 14:05
  Speaker 1: little bit of a detail on the Bank of Japan's president.
• 14:24
  Speaker 1: There were just two hundred and thirty seven initial public
• 14:27
  Speaker 1: offerings in TWEEN in the United States. Now that compares
• 14:32
  Speaker 1: to more than two thousand listings on foreign markets. Could
• 14:36
  Speaker 1: that actually change as a result of a change in
• 14:40
  Speaker 1: policy at the Securities and Exchange Commission. Here to help
• 14:43
  Speaker 1: us understand the situation is Ben bain our financial regulations
• 14:47
  Speaker 1: reporter for Bloomberg. He joins us from our Washington d
• 14:50
  Speaker 1: C Bureau and Ben can be followed on Twitter at
• 14:54
  Speaker 1: Ben bain Well. Ben, maybe just describe the current situation
• 14:59
  Speaker 1: about share holders in companies and their ability to bring
• 15:03
  Speaker 1: lawsuits to sue those companies and what kind of a
• 15:07
  Speaker 1: tool that has been for shareholders in the past. Sure,
• 15:11
  Speaker 1: good morning, thanks a lot. So. I mean, as you mentioned,
• 15:15
  Speaker 1: just two hundred and thirty seven I p o s
• 15:16
  Speaker 1: in the us UH last year that compares with almost
• 15:21
  Speaker 1: a thousand. So kind of going back to when SEC
• 15:25
  Speaker 1: Chairman J. Clayton was was picked by by by Donald
• 15:29
  Speaker 1: Trump to to take the job in and in his
• 15:31
  Speaker 1: initial kind of eight months or so on the job,
• 15:33
  Speaker 1: he's highlighted this is something that he's going to be
• 15:36
  Speaker 1: focused on. He wants to increase public markets. One issue
• 15:40
  Speaker 1: that for the longest time, business groups, particularly the US
• 15:43
  Speaker 1: Chamber of Commerce, have have really hammered on as a
• 15:45
  Speaker 1: deterrent UM two companies going public is the ability for
• 15:49
  Speaker 1: UM for plaintiff shareholders UM, you know in this case,
• 15:53
  Speaker 1: to band together UH in class action suits and sue companies. UM.
• 15:58
  Speaker 1: From the Chamber of Commerce perspective and other business groups,
• 16:01
  Speaker 1: they say a lot of times these are frivolous lawsuits
• 16:03
  Speaker 1: and they really end up UH you know, dragging on
• 16:06
  Speaker 1: the economy. On the other side of the coin, investor
• 16:08
  Speaker 1: advocate groups UM you know, some of the big groups
• 16:12
  Speaker 1: that represent state pension funds for example, to see these
• 16:15
  Speaker 1: class action suits is one of the key checks they
• 16:17
  Speaker 1: have and the key ways they have UH to push
• 16:20
  Speaker 1: back against against companies. So so this was something that
• 16:24
  Speaker 1: all kind of came to a head. UM Back in
• 16:26
  Speaker 1: two thousand twelve, private equity giant Carlyle tried to include
• 16:31
  Speaker 1: UM a clause and it's it's registration documents for its
• 16:34
  Speaker 1: I p O that basically would have forced UM shareholders
• 16:37
  Speaker 1: into arbitration. UM. It would have said they had to
• 16:40
  Speaker 1: basically deal with the company outside of court. They couldn't
• 16:43
  Speaker 1: go to federal court to bring their grievances. The SEC
• 16:45
  Speaker 1: at the time under the Obama administration, UH ended up
• 16:49
  Speaker 1: basically saying, you know, we're not gonna we're not getting
• 16:51
  Speaker 1: a fast track your registration if you do that. There
• 16:53
  Speaker 1: was a lot of pushback. Democratic lawmakers on the hill, UM,
• 16:57
  Speaker 1: you know, wrote letters, and eventually Carlisle to off pull
• 17:00
  Speaker 1: the clause and ended up I ping without it. We're
• 17:03
  Speaker 1: hearing now that um, the SEC is UH is privately
• 17:07
  Speaker 1: you know, indicating that that it's open to reconsidering this.
• 17:10
  Speaker 1: And this would probably be one of the biggest things
• 17:12
  Speaker 1: that they could do. UM, at least if you talked
• 17:15
  Speaker 1: to to to kind of business groups to to encourage
• 17:18
  Speaker 1: more I P O. S Now, wasn't there a report
• 17:20
  Speaker 1: you note in your in your article that the Treasury
• 17:24
  Speaker 1: Secretary Stephen Minuchin has weighed in on this. What did
• 17:27
  Speaker 1: he say? Yeah? So, I mean, you know, one thing
• 17:29
  Speaker 1: that the Treasury Department did last year is they issued
• 17:33
  Speaker 1: these reports which are kind of like a high level
• 17:36
  Speaker 1: guide for how the Trump administration sees UH financial regulators
• 17:41
  Speaker 1: and and where they want them to go. And one
• 17:43
  Speaker 1: of the things they did in the report on Capital Markets,
• 17:45
  Speaker 1: which focused on the SEC, was they basically encouraged the
• 17:49
  Speaker 1: SEC and state regulators to take a look at this
• 17:51
  Speaker 1: issue and said that, you know, this could very well
• 17:53
  Speaker 1: be a way to uh you know, to encourage more
• 17:57
  Speaker 1: public companies. So that certainly the SEC certainly has cover
• 18:00
  Speaker 1: politically from the Trump administration to do this. Yeah, the
• 18:03
  Speaker 1: Trump administration has already gone in the record and said, well, yeah,
• 18:06
  Speaker 1: we you know, we think it's it's a good idea
• 18:08
  Speaker 1: to take a look at this again. Now, you interviewed
• 18:10
  Speaker 1: a gentleman named Kevin Kennedy, a partner at Simpson Thatcher
• 18:14
  Speaker 1: and Palo out to the law from there. What did
• 18:17
  Speaker 1: he tell you? He said, I mean, you know, just
• 18:20
  Speaker 1: like like you hear from a lot of um, a
• 18:23
  Speaker 1: lot of lawyers, uh you know who represent uh you know,
• 18:27
  Speaker 1: would the issuers that that this would be kind of
• 18:29
  Speaker 1: a major a major change. Um, you know, this is
• 18:32
  Speaker 1: something that uh, you know, companies have have for a
• 18:36
  Speaker 1: long time, uh complained about and um, you know, and
• 18:40
  Speaker 1: he said that, you know, he's heard instances of of
• 18:42
  Speaker 1: SEC staff, you know, basically encouraging companies to come forward with,
• 18:46
  Speaker 1: uh with some proposals that that would include these type
• 18:49
  Speaker 1: of arbitration closets. It's not necessarily a done deal. It's
• 18:52
  Speaker 1: not to say that uh the SEC has you know,
• 18:55
  Speaker 1: come down one way or another. But but what we
• 18:58
  Speaker 1: understand is that, um, you know, there's definitely a willingness
• 19:02
  Speaker 1: to to revisit this issue which was which was very
• 19:04
  Speaker 1: contentious and very heated back in two thousand twelve. Well,
• 19:08
  Speaker 1: the chairman, as you mentioned, Jake Clayton, he's got a
• 19:10
  Speaker 1: lot of experience in this particular area because he was
• 19:13
  Speaker 1: a lawyer who worked on Ali Baba Group Holdings initial
• 19:17
  Speaker 1: public offering. Correct, that's right, that's right. Yeah, he's I mean,
• 19:20
  Speaker 1: he's he's a Wall Street deals lawyer and uh, you know,
• 19:22
  Speaker 1: and from the very beginning, UM, you know, he has
• 19:26
  Speaker 1: fashioned himself as someone who wanted to use his position
• 19:30
  Speaker 1: at the SEC UH to deal with UH to really
• 19:33
  Speaker 1: focus on UM public markets. He's a believer and he
• 19:37
  Speaker 1: says it over and over again in his public comments
• 19:40
  Speaker 1: that UM, if companies go public earlier, they offer people
• 19:45
  Speaker 1: opportunities that that they would and otherwise he hasn't come
• 19:48
  Speaker 1: out and said, you know, he hasn't. He said he
• 19:50
  Speaker 1: doesn't want to UH do anything to to curb private markets,
• 19:54
  Speaker 1: but he's obviously looking for carrots he can give to
• 19:57
  Speaker 1: companies UH to come to go public. And you know,
• 20:01
  Speaker 1: pretty much anyone you talked to either on the side
• 20:04
  Speaker 1: of UH, people who think that you know, they really
• 20:07
  Speaker 1: want these class action lawsuits. They see them as an
• 20:09
  Speaker 1: important check on corporations or business groups like the Chamber
• 20:13
  Speaker 1: of Commerce, who who you know, want nothing more than
• 20:16
  Speaker 1: than these forced arbitration clauses. They see this is a
• 20:19
  Speaker 1: is a real big issue. So if this goes forward,
• 20:21
  Speaker 1: it's certainly something that's that you know, that's going to
• 20:24
  Speaker 1: play out with a lot of interest here in Washington
• 20:26
  Speaker 1: and elsewhere clearly and just quickly he who does he
• 20:30
  Speaker 1: is selected to run the SEC unit that oversees corporate disclosures.
• 20:34
  Speaker 1: Yeah so he so, so he hired um Um will
• 20:37
  Speaker 1: William a hindman um who's also a you know, a
• 20:41
  Speaker 1: well known lawyer um out in hell out who's working
• 20:44
  Speaker 1: a lot of these deals too. So there's certainly no
• 20:45
  Speaker 1: stranger to some of these issues and um and and
• 20:48
  Speaker 1: there's certainly something they're looking at. Thanks very much for
• 20:50
  Speaker 1: being with us. Ben Bayne is our financial regulations reporter
• 20:54
  Speaker 1: for Bloomberg News, joining us from our Washington bureau. You
• 20:57
  Speaker 1: can follow him on Twitter at ben Bay. Now time
• 21:15
  Speaker 1: to turn to a non public company, and this would
• 21:17
  Speaker 1: be Dell Technologies. It is just four years since Michael
• 21:22
  Speaker 1: Dell took the company private and here to help us
• 21:25
  Speaker 1: understand why they would want to go public again is
• 21:28
  Speaker 1: our own on entree of us in our senior semiconductor
• 21:31
  Speaker 1: and hardware analyst for Bloomberg Intelligence and on on. Uh,
• 21:35
  Speaker 1: you didn't get much sleep last night because the call
• 21:38
  Speaker 1: came down that g Maybe Dell is going to consider
• 21:41
  Speaker 1: going public yet again. Why would they do this so?
• 21:45
  Speaker 1: Multiple reasons, to be quite honest. One is UM. Perhaps
• 21:50
  Speaker 1: they want to be leaner and reduce some of their debt.
• 21:53
  Speaker 1: Perhaps they want to be more futuristic, pivot the company
• 21:56
  Speaker 1: towards UM more of a cloud model UM. Or it
• 22:01
  Speaker 1: could be the an old school reason simply to deleverage
• 22:05
  Speaker 1: and put a moat around their existing businesses so that
• 22:07
  Speaker 1: they can operate better. Now. Each of these goals can
• 22:11
  Speaker 1: be fulfilled through one or more large complex transactions, as
• 22:14
  Speaker 1: it's always the case when Dell seems to be involved.
• 22:18
  Speaker 1: But if you look at their stated goal to become
• 22:20
  Speaker 1: the essential infrastructure company as they advertise, is they want
• 22:25
  Speaker 1: to keep large pieces of what they already own and
• 22:28
  Speaker 1: perhaps to a full company I p O. So if
• 22:30
  Speaker 1: you look at the pieces of the pie, they have
• 22:32
  Speaker 1: a PC segment, they have an infrastructure segment, they have
• 22:36
  Speaker 1: a services business which is highly attached to the previous
• 22:40
  Speaker 1: two segments, and then they have the software segment. UM. Again,
• 22:43
  Speaker 1: there are two pieces there. One is the pivotal more
• 22:46
  Speaker 1: cloud oriented business, and then they have the very popular
• 22:50
  Speaker 1: public vm ware business, of which they own roughly about
• 22:54
  Speaker 1: an economic contriest of about twenty eight percent. So when
• 22:58
  Speaker 1: you put all of this together there this could be
• 23:01
  Speaker 1: well in excess of an eighty billion dollar company from
• 23:05
  Speaker 1: from a valuation standpoint, well in excess of that. So
• 23:08
  Speaker 1: the question is if you want to deleverage that UM,
• 23:13
  Speaker 1: how which pieces are you going to try and monetize.
• 23:17
  Speaker 1: Are you going to sell off a piece of the
• 23:20
  Speaker 1: infrastructure business, are you trying to monetize piece of the
• 23:24
  Speaker 1: software business that you don't want, and then potentially use
• 23:27
  Speaker 1: those funds to option a de leverage option B buy
• 23:31
  Speaker 1: back more of the pieces of the pie that they
• 23:34
  Speaker 1: don't own, so that they become a more holistic quote
• 23:37
  Speaker 1: unquote infrastructure UM infrastructure company or essential infrastructure company Okay,
• 23:43
  Speaker 1: So you mentioned the vm where steak. They I believe
• 23:48
  Speaker 1: that was a sixty seven billion dollar deal. So the
• 23:52
  Speaker 1: company Dell Technologies has what about forty six billion dollars
• 23:55
  Speaker 1: in debt currently, So if you look at the they
• 24:00
  Speaker 1: have roughly about fifty three billion dollars or dead part
• 24:03
  Speaker 1: of about eight eight billions, so roughly about uh six
• 24:08
  Speaker 1: points seven seven times leverage. So uh, leverage is a
• 24:13
  Speaker 1: key question here. If you want to d leverage or
• 24:16
  Speaker 1: if you want to UM buy back more of vm Ware,
• 24:20
  Speaker 1: for example, you have to find the money somewhere and
• 24:23
  Speaker 1: you could potentially monetize a different piece of the pie
• 24:27
  Speaker 1: to bring bm Ware back in the house. Is it
• 24:29
  Speaker 1: also because they just want to maybe silver Lake, which
• 24:32
  Speaker 1: is the private equity firm that helped them go private,
• 24:36
  Speaker 1: they want to get out. They'd like to make their money,
• 24:39
  Speaker 1: absolutely so, UM, and that could very well be a reason. UM.
• 24:46
  Speaker 1: The question is there's multiple options on the table. So
• 24:49
  Speaker 1: option is to punt pieces of the legacy business. Option
• 24:53
  Speaker 1: B is to um ip of the whole company. Options
• 24:57
  Speaker 1: C is to punt pieces of the software business. UM
• 25:01
  Speaker 1: An option D E n F could be combinations of A,
• 25:03
  Speaker 1: B and C. So you have multiple different options here.
• 25:07
  Speaker 1: The question is what does Dell want to be? Um,
• 25:11
  Speaker 1: do you want to have a holistic PC infrastructure services
• 25:16
  Speaker 1: plus software business, which is quite the opposite route of
• 25:19
  Speaker 1: what hp Q and hp have done. Or do you
• 25:24
  Speaker 1: want to be a sharper leaner company, keep the infrastructure,
• 25:27
  Speaker 1: punt the PCs, punt the software um or monetize pieces
• 25:32
  Speaker 1: of different pipes. So you've got a bunch of different options.
• 25:35
  Speaker 1: And to be quite honest, um, UM, we don't know
• 25:39
  Speaker 1: what Dell wants to be, so we can't really draw
• 25:41
  Speaker 1: ano conclusions until they tell us exactly what their strategy is.
• 25:44
  Speaker 1: Absolutely we know what the pieces of worth. We just
• 25:46
  Speaker 1: don't know what pieces are going to stay on the table,
• 25:48
  Speaker 1: what pieces are going to be punted. All right, Well,
• 25:50
  Speaker 1: thanks very much on intrit of us and I'm sure
• 25:52
  Speaker 1: they're going to ruin one of your other late nights
• 25:54
  Speaker 1: by doing it at the very last minute on intried
• 25:56
  Speaker 1: of us and as our senior semiconductor and hardware analysts
• 26:00
  Speaker 1: for Bloomberg Intelligence talking about Dell Technologies and the potential
• 26:05
  Speaker 1: for the company to go public. Once again, thanks for
• 26:12
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 26:14
  Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or
• 26:18
  Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm on
• 26:22
  Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramowits
• 26:26
  Speaker 1: one before the podcast. You can always catch us worldwide
• 26:29
  Speaker 1: on Bloomberg Radio