Latest / Bloomberg Intelligence / CoreWeave Shares Soar After Booming AI Demand Boosts Outlook

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CoreWeave Shares Soar After Booming AI Demand Boosts Outlook · Bloomberg Intelligence

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Speaker 2: All right, there's this company actor core Weave.
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Speaker 3: I don't really know what they do with their infrastructure
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Speaker 3: software company.
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Speaker 2: I hear it a bunch.
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Speaker 3: They offer cloud infrastructure platform that manages the complexity of engineering, assembling, running,
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Speaker 3: and monitoring state of the art infrastructure. So it's a
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Speaker 3: big tech company and it's called infrastructure software. The company
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Speaker 3: name is core Weave. The stocks up big time. They
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Speaker 3: reported some big time numbers last night. People look at
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Speaker 3: this company because it's one of the ways to get
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Speaker 3: a sense of where this AI spending is going.
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Speaker 2: And I guess.
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Speaker 3: The direction is up here. An rog Rana, he knows
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Speaker 3: what's going on here. He's a senior techanels for Bloomberg Intelligence.
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Speaker 2: An Rock do it better.
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Speaker 3: Job of explaining to our listeners and viewers what Core
1:03
Speaker 3: We've done and why it's important in the text thatack
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Speaker 3: and and kind of what we learned on the earnings.
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Speaker 4: Yeah, it's a think about it as somebody who's just
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Speaker 4: renting out in Nvidia GPUs too end customers. So if
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Speaker 4: Nvidia makes the products, these guys are installing it in
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Speaker 4: big data centers and letting people rent it out. Now,
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Speaker 4: this is part of a massive boom of a kind
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Speaker 4: of companies called neo clouds. So when you look at
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Speaker 4: the core cloud infrastructure, you know, you have your Amazon's,
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Speaker 4: your Microsofts, and your Googles. They do all sorts of things,
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Speaker 4: and then these guys specialize only in renting out you know,
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Speaker 4: I would say in most cases Nvidia GPU chips.
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Speaker 5: Is this a really exciting growing space or how does
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Speaker 5: this compare to other parts of AI?
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Speaker 4: This is arguably the most exciting place to grow for
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Speaker 4: all cloud infrastructure because this is really what people are
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Speaker 4: using to train their models. After the training, they would
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Speaker 4: need to install their applications and so forth. So, you know,
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Speaker 4: Corvid doing well is not a surprise to us, because
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Speaker 4: as we talked about just a few weeks ago, we
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Speaker 4: saw really good numbers from Google AWS and Microsoft. This
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Speaker 4: is just a continuation of that trade with Coveve and ABS.
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Speaker 4: Both of them actually they are both very close to
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Speaker 4: each other in terms of what they do, and one
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Speaker 4: would expect when Oracle reports next month it would be
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Speaker 4: very similar with them as well as to their cloud
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Speaker 4: infrastructure doing well as also.
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Speaker 3: All right, so, Honra, we got this stock up twenty
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Speaker 3: percent today, a fifty percent year today.
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Speaker 2: So what did we learn with their earnings and what
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Speaker 2: do we hear from.
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Speaker 3: Management on the call that's got investors all fired up today?
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Speaker 4: I think the biggest thing for to hear from the
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Speaker 4: call is that there is no shortage of demand right now.
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Speaker 4: It's all about AI compute constraints. What is the bottleneck
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Speaker 4: all about that? It's just a matter of how soon
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Speaker 4: can they get more data centers up and running. But
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Speaker 4: from a demand side, there is no issue, which is
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Speaker 4: actually what we have heard from all the others as well.
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Speaker 4: So the big question is you know who does it help?
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Speaker 4: This is part of what I call is the Invidia ecosystem.
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Speaker 4: This is really directly involved with all the GPUs and
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Speaker 4: what Invidia does. And now that in media is talking
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Speaker 4: about taking care of some of the financing issues out there,
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Speaker 4: I think the Invidia ecosystem becomes even stronger with this
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Speaker 4: particular print.
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Speaker 5: You mentioned data centers and some of the tension around
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Speaker 5: there and some of the choke points is that at
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Speaker 5: all a concern with companies like Corewave.
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Speaker 4: So this is why this is kind of a very
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Speaker 4: seasonal stock in that sense. You know, one quarter you
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Speaker 4: see it go up quite a bit, and neck quarter
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Speaker 4: it goes down a little bit. And then the volatility
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Speaker 4: is truly driven by this massive expansion of data center.
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Speaker 4: So if you hear out there that there is a
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Speaker 4: delay in data center build up, the stock's going to
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Speaker 4: get impacted. If you go out and see that in
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Speaker 4: media is you know, having some issue raising or not
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Speaker 4: not themselves raising, but their ecosystem is having issue raising
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Speaker 4: some kind of capital, They're going to have an impact.
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Speaker 4: And the third factor could be if companies or big
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Speaker 4: cloud cloud companies have started to use chips that are
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Speaker 4: different than Invidia, that also impacts them. So it's a
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Speaker 4: very volatile stock, but so is the entire space of
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Speaker 4: what we call new clouds or GPU as a service.
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Speaker 3: So I'm talking to your colleague Kujhon, we are Stacey
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Speaker 3: and I in a matter of moments about the semis.
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Speaker 3: Give me one good question I can askkon John sounds smart.
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Speaker 4: Tell them that how dependent is everybody just on Nvidia.
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Speaker 4: What can they do to get off the Invidia chips
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Speaker 4: and use their own chips to drive some of these
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Speaker 4: AI infrastructure demand because that is really the crux of
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Speaker 4: all the economics. So if you look at a big
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Speaker 4: data center, majority of that money goes to Invidia to
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Speaker 4: buy their chips. What can what can a hyperscaler or
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Speaker 4: for that Matteres somebody else do to de risk themselves
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Speaker 4: from Invidia chips.
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Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this.
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5:13
Speaker 3: On the earnings front, as Alexi was just reporting super Micro,
5:17
Speaker 3: the storage company, that hardware company.
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Speaker 2: They reported some really strong results last night.
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Speaker 3: In stock is up fourteen percent on the news today
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Speaker 3: up twenty three percent year to day. Let's check in
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Speaker 3: with Ujino. He is senior Technology channels for Bloomberg Intelligence,
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Speaker 3: which talked to us about super Micro computer.
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Speaker 2: Here. What did you learn with the results?
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Speaker 6: Yeah, hey, hey Paul, So look the vogue for me
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Speaker 6: at least was sixty billion dollars in the guidance for
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Speaker 6: physical twenty twenty seven. They blew that away. They got
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Speaker 6: it to sixty five to seventy two billion dollars. And
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Speaker 6: just me is that the AI infrastructure buildout is really
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Speaker 6: going well and super Micro is a big beneficiary of it.
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Speaker 5: What about Cisco, I know we're all expecting Cisco earnings
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Speaker 5: I believe come out after the bell today. They are
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Speaker 5: expected to be a huge market mover. I think the
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Speaker 5: stock is up more than sixty percent this year. What
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Speaker 5: are we expecting to see from them?
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Speaker 6: Yeah, hey, hey, Stacy, So I don't know how if
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Speaker 6: it's going to be a huge market mover, quite frankly,
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Speaker 6: because it's actually made a seller. Move over your date.
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Speaker 6: There's a couple of things they are going to lay
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Speaker 6: off fiscal twenty seven guidance this tonight, you know, streets,
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Speaker 6: I think at around sixty eight sixty nine billion dollars.
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Speaker 6: The hope is is that they're going to beat that's
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Speaker 6: seventy billion dollar. You know, can come in around seventy
6:32
Speaker 6: billion dollars on the sales side, and a lot of
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Speaker 6: it is going to be AI driven quite frankly, six
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Speaker 6: billion dollars in AI revenues that they guide it to
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Speaker 6: last quarter. I'm not quite sure if they'll raise the
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Speaker 6: guidance there because of some supply constraints. But look, all
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Speaker 6: the AI momentum is behind Cisco right now.
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Speaker 3: So Booje with your networking storage all that kind of
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Speaker 3: those companies you follow, what's the feeling amongst them about
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Speaker 3: how much longer this AI spending keepex can continue, should continue?
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Speaker 6: Yeah, Look, you know we have to put this into
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Speaker 6: two buckets, Paul. One, you got the hyperscale cloud as
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Speaker 6: well as the I guess the neo cloud bucket, and
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Speaker 6: then the second bucket is the enterprise AI spending. Right
7:16
Speaker 6: so on the hyperscale, on the neo cloud side, I
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Speaker 6: only have visibility up until twenty twenty eight. I think
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Speaker 6: that there's gonna be good runway of growth in twenty
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Speaker 6: seven and into the early parts of twenty eight, and
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Speaker 6: you're gonna have larger deals and you know, lower margins
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Speaker 6: quite quite frankly, so you have good sales momentum there
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Speaker 6: and then the earning sale ones will follow over there.
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Speaker 6: The enterprise AI really hasn't started to ramp up, ye
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Speaker 6: quite frankly, Paul. And this is where Cisco and the
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Speaker 6: Dells and the hpees really start coming along, and it
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Speaker 6: is a better margin business. And you could start seeing
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Speaker 6: a second cycle starting to begin later this year and
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Speaker 6: in twenty seven.
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Speaker 5: What are the parts of AI? Because I know now
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Speaker 5: it's it's we're looking at different parts of the industry
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Speaker 5: and which parts of the industry are doing well or
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Speaker 5: seem to be doing well and have the brightest future.
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Speaker 5: What do you see right now when you look at
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Speaker 5: the different parts within the AI industry.
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Speaker 6: Yeah, so if you know, from my vantage point, we've
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Speaker 6: got the if we call the picks and shovels.
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Speaker 5: Play that's data centers.
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Speaker 6: Well, it's it's more more GPUs. Let's let's just okay, right,
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Speaker 6: that's that's powering the AI. But more more so than
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Speaker 6: than GPUs, the the optical names have actually been one
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Speaker 6: of the better performing areas if we look at you know, momentum.
8:41
Speaker 6: You know what my colleague Jake Silverman covers that name.
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Speaker 6: Uh they reported last night and they reported some stellar
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Speaker 6: numbers and stellar growth expectations, and that whole optical layer
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Speaker 6: that's trying to be the data across Uh, you know,
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Speaker 6: data centers as well as across the country that that
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Speaker 6: whole segment is going to actually blossom over through the
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Speaker 6: end of the decade. Companies are Corning, Siana, even Nokia
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Speaker 6: are going to be beneficiaries of that.
9:11
Speaker 3: So I don't know about you Wich, When I buy
9:13
Speaker 3: a PC stay shaped, I don't know.
9:15
Speaker 2: I went buy a PC at last I don't know.
9:17
Speaker 2: Five years, I don't know most maybe you can't.
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Speaker 5: Do anything on it by the end of the five years.
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Speaker 4: I don't know.
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Speaker 3: But I'm thinking, which I mean on these AI Capex,
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Speaker 3: I mean, if I buy a chip, or I buy
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Speaker 3: a GPU or TP or whatever it is, how long
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Speaker 3: does that last? I mean, are these companies can continue
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Speaker 3: to invest at these much higher levels for I guess
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Speaker 3: going forward?
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Speaker 6: Yeah, so if we well, look we're talking about, you know,
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Speaker 6: the raising of equity, the raising of capital to help
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Speaker 6: fund fund this, right, and when is the ROI and
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Speaker 6: I believe Neby's reported today, And they expect to get
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Speaker 6: the return on capital or invested a relative to the
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Speaker 6: data center investments that they're making in the span of
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Speaker 6: one point three years, right, which is down from two years.
10:08
Speaker 6: And the longevity or the asset life is supposed to
10:13
Speaker 6: be a five year depreciation cycle, so you know, just
10:18
Speaker 6: like your computer, Paul, five year depreciation cycle for the AI.
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Speaker 6: And if you think about it this way, right, even
10:25
Speaker 6: though you have the next generation in video chips coming online,
10:29
Speaker 6: those older genera you know, the H series of the
10:31
Speaker 6: A series, they're not obsolete. They can actually be you know,
10:35
Speaker 6: sold to other people who just don't need the higher
10:38
Speaker 6: power models out there. And the rental prices and you
10:42
Speaker 6: can look at the the Bloomberg sd B two hundred
10:47
Speaker 6: and the H one hundred index, right, they're actually rising
10:51
Speaker 6: primarily because of the demand for these rentals are just
10:54
Speaker 6: so high.
10:55
Speaker 5: There do seem to be some potential snags or obstacles
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Speaker 5: in the way of AI growth, one of them being
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Speaker 5: Data Center's political pressure. Is there anything that you think
11:03
Speaker 5: could derail this or anything you're watching out for, or
11:06
Speaker 5: is this train just to going too fast?
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Speaker 6: Yeah, I wouldn't say the train is going too fast,
11:12
Speaker 6: but I do think that there are some regulatory risks
11:15
Speaker 6: out there, Stacey. You know, look, nothing is going to
11:19
Speaker 6: go up into the right to perpetuity. Nothing has. If
11:22
Speaker 6: it did, i'd be a very yet. But the fact
11:25
Speaker 6: of the matter, but the fact of the matter is
11:27
Speaker 6: is that you are going to see bumps in the road,
11:30
Speaker 6: whether it's going to be regulatory, whether it's going to
11:32
Speaker 6: be supply chain, and that is going to be you know,
11:36
Speaker 6: intermediate terms risk to numbers.
11:39
Speaker 2: So for the companies you cover, what's the China risk
11:43
Speaker 2: slash opportunity? How do we think about that?
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Speaker 6: Well, for the companies that I cover, the China opportunities zero, right,
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Speaker 6: because the China sales exposures relatively slim to none and
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Speaker 6: China has their own providers there. From a risk perspective,
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Speaker 6: at the end of the day, it's going to be
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Speaker 6: supply chain, Paul, Right, we still source quite a bit
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Speaker 6: from China, whether it's going to be components and subcomponents,
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Speaker 6: and I'm not talking about chips per se. I'm actually
12:11
Speaker 6: thinking more along the lines of substrates and even the
12:14
Speaker 6: low lowly uh PCBs right, the the the green cards
12:19
Speaker 6: or green boards where the chips are you know, soldered
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Speaker 6: onto right, So that that that is a risk for
12:27
Speaker 6: me going not only to the AI related hardware names,
12:32
Speaker 6: but also to the PC vendors.
12:34
Speaker 2: Stay with us or from Bloomberg Intelligence coming up after.
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12:55
Speaker 2: All right, one place I haven't eaten? My kids tell
12:59
Speaker 2: me I have to Cava. They reported some numbers. What
13:02
Speaker 2: you learn. Cova does a nice job.
13:05
Speaker 7: You know.
13:05
Speaker 8: You should get over there.
13:06
Speaker 9: I get there once in a while. Over there in Wayne,
13:09
Speaker 9: New Jersey, we have a Chick fil A and a
13:11
Speaker 9: shake shack next to Wava. So I'll go to coma
13:14
Speaker 9: competitive and my son will do the Chick fil A
13:17
Speaker 9: or the shake shaft, you know.
13:18
Speaker 2: But they do a great job and they've crushed it
13:21
Speaker 2: in the first half of this year.
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Speaker 9: Sam Star sales over nine percent, traffic over five percent
13:26
Speaker 9: here in the first half of the year, mainly being
13:29
Speaker 9: driven by new pomegranate glaze, salmon.
13:33
Speaker 5: And this it does not sound am I wrong? Have
13:37
Speaker 5: you tried this?
13:38
Speaker 9: I have not tried their salmon. I tried their shrimp,
13:41
Speaker 9: which was excellent. It was intest but I have not
13:44
Speaker 9: tried the salmon. But they do a nice job with
13:48
Speaker 9: quality A and B. Not a lot of their competitors
13:54
Speaker 9: sell seafood, right, and so we've actually last year was
13:58
Speaker 9: the year of steak. We've actually seeing a much bigger
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Speaker 9: impact from their salmon sales than steak.
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Speaker 5: What is their trick here? Because from what I understand,
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Speaker 5: this is a really tough time in the restaurant industry,
14:10
Speaker 5: especially in kind of the middle class restaurant section. I know,
14:15
Speaker 5: it's gotten really really really competitive, and there's cyclospora, and
14:19
Speaker 5: there are a lot of challenges right now, tariffs, all
14:21
Speaker 5: of it. What is Kava doing? What is its secret
14:25
Speaker 5: other than the salmon.
14:26
Speaker 4: Of course?
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Speaker 9: Well, Number one, I'd say healthy Mediterranean cuisine, right, that's
14:31
Speaker 9: people more and more people are eating healthy, especially with glp's.
14:35
Speaker 5: Healthy fast food, right.
14:37
Speaker 9: Yeah, And so that's a big part of it. And
14:40
Speaker 9: really the equation in restaurants is the value equations about
14:43
Speaker 9: what you get for what you pay. And people are
14:46
Speaker 9: coming away from the Kava experience happy, right. They had
14:49
Speaker 9: a good, tasty meal, right in a nice environment, you know,
14:56
Speaker 9: good service with a smile, and people come back. We're
15:00
Speaker 9: just seeing a massive divergence between winners and losers and
15:02
Speaker 9: the restaurants. And it's been this way now for a
15:04
Speaker 9: few years. Because of the inflation. People are becoming more discerning.
15:08
Speaker 9: When they have a good experience, they go back if
15:10
Speaker 9: they don't see you.
15:11
Speaker 3: Red headline crossing the terminal writers. We speak Mike try
15:15
Speaker 3: and Fund Management assembling co investors for Wendy's bid. This
15:19
Speaker 3: according to the Financial Times. So what's going on with Wendy's.
15:24
Speaker 9: Well, try On has been trying to like, you know,
15:27
Speaker 9: pitch their book here. They've been involved in Wendy's for
15:30
Speaker 9: quite some time. There were some rumors earlier this year
15:35
Speaker 9: about them becoming involved, so you know, since they already
15:39
Speaker 9: have a stake in it, we kind of take this
15:40
Speaker 9: with a grain of salt. What I can say about
15:43
Speaker 9: Wendy's is we're a big fan of their new CEO.
15:47
Speaker 9: Bob Wright had worked at Wendy's for a very long time,
15:50
Speaker 9: so you know, he knew the business very very well.
15:54
Speaker 9: When he left Wendy's, he was previously head of International,
15:58
Speaker 9: Chief operating Officer I think was his last position. He
16:01
Speaker 9: became CEO of Pop Belly and he, you know, he
16:06
Speaker 9: orchestrated a very impressive turnaround. Stock went from two dollars
16:10
Speaker 9: in change and was bought out at like sixteen seventeen bucks, right,
16:14
Speaker 9: and so you know, in terms of myself, I'm a
16:18
Speaker 9: lot more optimistic about Wendy's going forward. I would think
16:21
Speaker 9: that the franchise e base is probably very energized because
16:25
Speaker 9: they know him intimately, right, and he's got a great
16:27
Speaker 9: plan to turn things around. So in general, I think,
16:32
Speaker 9: you know, things are looking up at.
16:34
Speaker 2: Ten percent on this news today, so maybe people are
16:37
Speaker 2: thinking this might be the real thing. I don't know.
16:41
Speaker 2: Brinker reported some salts. Remind us who Brinker is and
16:44
Speaker 2: the brands they have and.
16:45
Speaker 9: What they're Yeah, they own Chili's and Magiano's. Chili's has been.
16:50
Speaker 8: On a tear.
16:50
Speaker 9: I think Seamstar sales are up accumulatively about seventy percent
16:54
Speaker 9: over the last five years. You know, this is We've
16:57
Speaker 9: never seen this out of a brand that's been around.
17:00
Speaker 2: Are they just a rector too?
17:01
Speaker 4: Yeah?
17:02
Speaker 2: Are they just the right price point value points for folks?
17:04
Speaker 5: Well, no, this was a brand that was kind of
17:08
Speaker 5: you know, have you read Lobster's been struggling like a
17:12
Speaker 5: lot of their competitors really well, so you.
17:14
Speaker 9: Know, there's a few things that are boosting casual dining,
17:17
Speaker 9: but a lot of this is really based around what
17:20
Speaker 9: they've done. Chili's was always a great brand and it
17:24
Speaker 9: was mismatched for a very long time, and so they
17:26
Speaker 9: got back to the core of what Chili's was. They also,
17:30
Speaker 9: you know, started with really improving the operations. Then from
17:34
Speaker 9: there they started improving the marketing. And they have a
17:38
Speaker 9: best in class marketing team. So the CEO and the
17:41
Speaker 9: chief marketing officer, they did the old spice mell like
17:44
Speaker 9: a man.
17:45
Speaker 7: Man.
17:45
Speaker 9: They turned around KFC with the rotating colonels when they
17:49
Speaker 9: had all the famous comedians, right, So they're phenomenal in marketing.
17:53
Speaker 5: So that's been a big part.
17:55
Speaker 9: And now late more recently they've been continuing to work
17:59
Speaker 9: on the operation and continue to spend more on marketing.
18:02
Speaker 9: But now they can continue continually or upgrading the ingredients
18:06
Speaker 9: and the products on the menu, and you know, people
18:09
Speaker 9: are going they're trying it and they're coming back. They've
18:13
Speaker 9: they've had tremendous results.
18:14
Speaker 3: The more I talk to you about your companies and
18:16
Speaker 3: your industry, the more I learned that it's management is
18:19
Speaker 3: really important, so important man.
18:22
Speaker 5: So yeah, I mean I think more than with other companies.
18:25
Speaker 2: It just feels like operationally, there's more things they can.
18:27
Speaker 9: Do and yeah, and you know what it is. I think,
18:30
Speaker 9: in my opinion is you have tens of thousands of
18:33
Speaker 9: frontline workers that you have to get to buy in.
18:37
Speaker 6: Right.
18:37
Speaker 9: It's not just a small management if you're a tech company,
18:39
Speaker 9: a small management team that has to drink the kool aid.
18:42
Speaker 9: I mean, you have to get tens of thousands of
18:46
Speaker 9: every day regular people to buy in on your plan.
18:48
Speaker 9: And so if you're not a if you're not a
18:51
Speaker 9: good person with hospitality in your veins, they sniff that
18:54
Speaker 9: out real quick, and they're not They're not going to
18:56
Speaker 9: move mountains for you.
18:57
Speaker 5: Stay with us.
18:58
Speaker 2: More from Bloomberg Intelligence coming up after this.
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19:19
Speaker 3: Lest we forget, there is a one hundred and ten
19:21
Speaker 3: billion dollar merger out there waiting to get approved in
19:25
Speaker 3: the media space. Paramount and Warner Brothers Discover Discovery's going
19:28
Speaker 3: to reshape global Hollywood.
19:31
Speaker 2: Everybody's approved it.
19:33
Speaker 3: Everybody you think of, except twelve US states and that's
19:37
Speaker 3: a problem. So we got a chick in with Jenniferries.
19:40
Speaker 3: She's Bloomberg Intelligence Senior Litigation alll she's like the only
19:43
Speaker 3: voice that matters.
19:44
Speaker 7: Now.
19:44
Speaker 2: Nobody's talking to the bankers, nobody's talking to the consultants.
19:47
Speaker 3: It's all up to the lawyers. Jen, can you frame
19:50
Speaker 3: out this legal case where we are now and how
19:52
Speaker 3: it may play out?
19:55
Speaker 7: Yeah, Paul, thanks for having me. I mean, we're really
19:57
Speaker 7: at a stalemate here. I think it's off and forgotten
20:01
Speaker 7: that the States can step in just as the FTC
20:03
Speaker 7: and DOJ do and enforce federal antitrust laws in every way,
20:08
Speaker 7: including to try to block mergers, which is exactly what's
20:10
Speaker 7: happened here.
20:11
Speaker 8: So they did sue.
20:13
Speaker 7: They have alleged harm in three separate markets, two that
20:16
Speaker 7: have to do with a theatrical distribution and one that
20:19
Speaker 7: has to do with the licensing of basic cable channels.
20:22
Speaker 7: They are in California before what looks like a pretty
20:25
Speaker 7: good judge for them, and right now have a trial
20:28
Speaker 7: date set for March. Based on news reports, it's pretty
20:32
Speaker 7: apparent that Paramount would like to settle this case. They've
20:35
Speaker 7: been talking about settling, and apparently they made an offer
20:38
Speaker 7: on May twelfth to settle the case with the States,
20:40
Speaker 7: but the States are just not talking right now. And
20:43
Speaker 7: I think what we're seeing now is a pr campaign
20:46
Speaker 7: on both sides where they're playing chicken. You have the
20:49
Speaker 7: States talking about we're not going to settle, we want
20:51
Speaker 7: to break up the deal, We're going to go to trial.
20:53
Speaker 7: And you have Paramount now talking about pulling their businesses
20:56
Speaker 7: out of California and moving them entirely to another state.
21:00
Speaker 7: I will tell you, Paul, I do still think, even
21:03
Speaker 7: though they're so far apart, that down the road this case,
21:06
Speaker 7: this matter could settle, and with a settlement, the deal
21:09
Speaker 7: could close.
21:11
Speaker 5: It's interesting the threat to leave the state. How big
21:14
Speaker 5: of a deal is that. I know the Attorney General
21:16
Speaker 5: of California compared it to blackmail.
21:19
Speaker 2: Is that fair?
21:22
Speaker 8: Again?
21:22
Speaker 7: You know, I don't know that blackmail is fair. What
21:25
Speaker 7: I think of with that threat is gaining leverage. Right now,
21:29
Speaker 7: Paramount has very little leverage. Time is not on their side.
21:32
Speaker 7: They have a ticking fee that's going to kick in
21:34
Speaker 7: as of October first if this deal doesn't close, as
21:37
Speaker 7: well as additional financing fees that kick in if it's
21:40
Speaker 7: not closed by the spring.
21:42
Speaker 8: And they have really no leverage.
21:44
Speaker 7: So far, all the judges pre trial decisions have gone
21:48
Speaker 7: in favor of the States. They would really like to
21:51
Speaker 7: settle with just what we call behavioral commitments. These are
21:54
Speaker 7: just promises to conduct the combined business in a certain way,
21:57
Speaker 7: whereas it's pretty understood that the States are looking for
22:00
Speaker 7: something structural like a sale of basic cable channels, maybe
22:04
Speaker 7: even the sale of a movie studio. And so they're
22:06
Speaker 7: very far apart in that respect, and I think Paramount
22:10
Speaker 7: is doing what they can to try to get leverage.
22:12
Speaker 8: Now I'm not saying that their threats aren't real.
22:15
Speaker 7: You know, that's up to what the executives in the
22:18
Speaker 7: board are doing and talking about it very well. Maybe
22:21
Speaker 7: they've said that it's been approved, and it very well
22:23
Speaker 7: may be that this is something they're really realistically thinking about.
22:27
Speaker 7: But in terms of what's going on with the lawsuit,
22:30
Speaker 7: I see it as an effort to gain some leverage
22:32
Speaker 7: and settlement discussions.
22:34
Speaker 3: You know, I don't know who the attorneys were for
22:36
Speaker 3: Warner Brothers Discovery and crafting this merger deal, but they
22:38
Speaker 3: deserve a big pat on the back. Seven billion dollar
22:41
Speaker 3: breakup fee plus a ticking fee that could add one
22:44
Speaker 3: point six billion dollars. That's real money even to the Ellisons. Yes, boy,
22:50
Speaker 3: the numbers that are just huge legally on the legal fundamentals,
22:54
Speaker 3: do you think one side has an advantage over the
22:56
Speaker 3: other if it were to go to trial, Well, let
22:58
Speaker 3: me first.
22:59
Speaker 7: Address all those Remember that they were fighting with Netflix
23:02
Speaker 7: for these assets really viciously. Apparently they've had to fight
23:05
Speaker 7: for these assets the whole way through, so I think
23:07
Speaker 7: they had to sweeten the pot by adding that taking fee,
23:10
Speaker 7: in that big breakup fee, in order to win over
23:13
Speaker 7: from Netflix.
23:14
Speaker 8: Now on the case, Paul, here's how I see it.
23:17
Speaker 7: I think ultimately the companies probably have the better legal
23:21
Speaker 7: argument once all the evidence is fleshed out, once you
23:24
Speaker 7: have economic analyses, and once you've really dug into the
23:28
Speaker 7: markets that have been promoted by the States and what
23:32
Speaker 7: they say the market shares are in those markets, I
23:34
Speaker 7: think prob. Again, it depends on the evidence, which we
23:37
Speaker 7: haven't seen yet, but I still would lean toward the
23:39
Speaker 7: company's winning. But the bigger problem they have right now
23:42
Speaker 7: is this timing issue, because it's not just about the expense,
23:46
Speaker 7: but the longer a deals that's been signed can't close
23:49
Speaker 7: the risk.
23:50
Speaker 8: Earites is for the deal, the more likely it is
23:52
Speaker 8: to fall apart.
23:53
Speaker 7: And they also have a June fourth drop dead date,
23:56
Speaker 7: So as of June fourth, if this is not closed,
23:58
Speaker 7: Warner Brothers can walk away and collect that seven billion
24:01
Speaker 7: dollar fee.
24:02
Speaker 5: So is this level of drama in trouble typical in
24:06
Speaker 5: a merger of this size or is this extraordinary?
24:11
Speaker 7: I would call this extraordinary. I think to me, you
24:14
Speaker 7: can have a lot of drama with a lot of
24:16
Speaker 7: these kinds of deals. I think here the irritation and
24:19
Speaker 7: the drama is added to the fact that you have
24:21
Speaker 7: sixty five or sixty six global jurisdictions that have cleared it,
24:25
Speaker 7: and the only thing that's standing in their way are
24:27
Speaker 7: twelve states.
24:28
Speaker 8: And I think that's got to be very frustrating.
24:30
Speaker 7: And I also think that these companies probably didn't worn't
24:34
Speaker 7: quite realistic about what was going to happen with this
24:36
Speaker 7: deal when they thought through their legal strategy. You know,
24:39
Speaker 7: the most interesting thing is Stacy, when I think about
24:41
Speaker 7: the last time that I think of this much drama
24:44
Speaker 7: was also dealing with CNN and also dealing with Time
24:48
Speaker 7: Warner assets, and that was when AT and T tried
24:50
Speaker 7: to buy Time Warner At that time, Macon del Raheem
24:53
Speaker 7: was the Assistant Attorney General in charge of Anti Trust
24:56
Speaker 7: at the Department of Justice.
24:57
Speaker 8: He is now General counsel for Paramount.
25:00
Speaker 7: We went to court to try to block that deal,
25:01
Speaker 7: to try to force the divestiture of sand And when
25:04
Speaker 7: I think of the drama, I think it involved the
25:06
Speaker 7: same assets and jen.
25:08
Speaker 3: You know, having covered these companies for almost forty years,
25:12
Speaker 3: I know a lot of the players on both sides.
25:13
Speaker 3: I don't think any of them want to go through
25:15
Speaker 3: discovery and have their emails and texts and stuff look that.
25:19
Speaker 7: You know, Paul, I completely agree, and that's why I
25:22
Speaker 7: think right now they're very far apart on settlement, that
25:25
Speaker 7: they're both out there with very aggressive stances. But the
25:28
Speaker 7: closer and closer we get to that October date for Paramount,
25:31
Speaker 7: the more incentive they have to settle, And the closer
25:34
Speaker 7: and the more we get into discovery, I think the
25:37
Speaker 7: more both sides have an incentive to settle.
25:39
Speaker 8: So we just may see the temperature change as we
25:42
Speaker 8: go forward.
25:42
Speaker 3: Here.
25:45
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