Latest / Bloomberg Intelligence / Leon Black Steps Down Early From Apollo, Cedes Chair

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Leon Black Steps Down Early From Apollo, Cedes Chair · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day, we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. Now, let's talk a
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  Speaker 1: little bit about Apollo. Leon black is the famed billionaire
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  Speaker 1: who is one of the co founders of Apollo, but
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  Speaker 1: he was tangled up in the drama around disgraced financier
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  Speaker 1: Jeffrey Epstein and is stepping down as chief executive of
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  Speaker 1: his company a few months ahead of schedule. Shnelly Bassk
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  Speaker 1: covers Wall Street for US for Bloomberg News. Shaley, Um,
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  Speaker 1: does this mean that Apollo can make an earlier sort
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  Speaker 1: of uh restart at It's I guess pr campaign to
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  Speaker 1: get away from Epstein? Listen at. That's certainly the hope.
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  Speaker 1: If you look at Apollo shares in the year, they're
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  Speaker 1: pretty flat, whereas Blackstone is up more than twelve percent,
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  Speaker 1: so they're at a pretty big differential when you compare
• 1:11
  Speaker 1: them to their largest competitor. They have some big things
• 1:14
  Speaker 1: on the horizon for themselves. They agreed to an eleven
• 1:17
  Speaker 1: billion dollar deal to merge with the insurance company that
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  Speaker 1: they founded. So there is a hope that they can
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  Speaker 1: start moving past the scandal and into a growth phase.
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  Speaker 1: Uh and yeah, that's that is the main hope. It
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  Speaker 1: is a big surprise, right because Leon Black initially said
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  Speaker 1: he would step back a CEO but stay chairman, and
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  Speaker 1: now he's stepping back as chairman and CEO and um,
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  Speaker 1: he will be involved in the sense that he will
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  Speaker 1: remain the firm's largest shareholder. Sne has anything changed, Has
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  Speaker 1: any news come up to maybe, uh, precipitate this move here.
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  Speaker 1: I know that the news is generally as it relates
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  Speaker 1: to his relationship with Epstein, been very very unsettling for
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  Speaker 1: the firm. But has anything new come out? Well, yeah,
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  Speaker 1: the fact that he's stepping back come completely like this
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  Speaker 1: begs the question if investors were concerned that he remained
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  Speaker 1: it's affiliated with the firm at all. So the thing
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  Speaker 1: is he said to the board that really this has
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  Speaker 1: taken a toll on him. A lot of this public
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  Speaker 1: spotlight in light of his own relationship with Jeffrey Epstein. Remember,
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  Speaker 1: Apaulo did not have a relationship, just Leon Black did,
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  Speaker 1: and he said that it really took a toll on
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  Speaker 1: his health and that's why he's stepping back. So he
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  Speaker 1: did paint this as a very personal decision when when
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  Speaker 1: he announced this just this morning. Now you cover private
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  Speaker 1: equity for us and talked to the biggest movers and
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  Speaker 1: shakers in the industry and half for years, Leon Black
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  Speaker 1: paid Jeffrey Epstein a hundred and fifty eight million dollars
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  Speaker 1: for financial advice. Does that seem to you, you know,
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  Speaker 1: in the realm of billionaires, like something that's at all
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  Speaker 1: normal to do. Listen, it's a lot of money, and
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  Speaker 1: it really financed such a large amount of Jeffrey EPP's
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  Speaker 1: dean's own wealth that it did raise a ton of eyebrows.
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  Speaker 1: On top of that, it was a hundred and fifty
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  Speaker 1: eight million dollars, largely for tax advice. Leon Black is
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  Speaker 1: a financial genius, right, so that amount of money for
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  Speaker 1: tax advice seemed like a lot of money to spend
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  Speaker 1: for any type of consultancy, let alone tax advice. What's
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  Speaker 1: the impact been on the firm? Has there been any
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  Speaker 1: impact on the firm from um this fallout with Mr Epstein. Listen, Yes, absolutely, investors,
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  Speaker 1: large pension funds were threatening to not really continue to
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  Speaker 1: invest in some of Apollo's largest funds, right, and which
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  Speaker 1: is why a lot of this decision had happened in
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  Speaker 1: the first place. Mark Rowan was really who was becoming
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  Speaker 1: the CEO of this firm, was behind some of the
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  Speaker 1: most profitable bets at Apollo, so it was a really
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  Speaker 1: natural choice to take over for the firm. He was
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  Speaker 1: also a co founder, so a lot of consistency. But yes,
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  Speaker 1: the the Epstein scandal really did weigh on Apollo. It
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  Speaker 1: seemed to very much weigh on Leon black himself. And
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  Speaker 1: these people are just looking forward to moving on and
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  Speaker 1: moving to the next phase of this firm. Again, they
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  Speaker 1: have a lot of catch up to do when you
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  Speaker 1: compare them with Blackstone, but this is certainly a big
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  Speaker 1: move for a firm that has really become a giant
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  Speaker 1: of finance. Ye. Hey, Shinali, thanks so much for joining.
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  Speaker 1: It's just a fascinating story here, Shinali Bostic. She is
• 4:20
  Speaker 1: Bloomberg's Wall Street reporter. We always enjoyed getting the latest
• 4:26
  Speaker 1: we all know of the many, many, many industries that
• 4:30
  Speaker 1: have been disrupted by COVID. I guess we saw first
• 4:33
  Speaker 1: and foremost, you know a year ago right about now,
• 4:36
  Speaker 1: leisure and lodging and just you know, how the consumer
• 4:40
  Speaker 1: goes about his or her daily life. Well, let's take
• 4:43
  Speaker 1: let's think about the insurance industry and what changes it
• 4:46
  Speaker 1: has had to implement as it deals with COVID. There's
• 4:49
  Speaker 1: nobody better to chat about that than Wayne Peacocky's the
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  Speaker 1: president and CEO of U s a A based in
• 4:55
  Speaker 1: beautiful San Antonio, Texas. I spent many, many day as
• 5:00
  Speaker 1: in San Antonio, Texas. Uh. Some great folks down there, Wayne,
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  Speaker 1: Thanks so much for joining us here. Again we think
• 5:05
  Speaker 1: about the pandemic disrupting a lot of industries. UH many
• 5:10
  Speaker 1: profoundly give us a sense of how it impacted your
• 5:13
  Speaker 1: business over the past twelve months. Well again, thanks for
• 5:16
  Speaker 1: having me on this morning, and great to be reaching
• 5:19
  Speaker 1: out from San Antonio. A little more beautiful this week
• 5:21
  Speaker 1: than a couple of weeks ago with the deep freeze,
• 5:23
  Speaker 1: so we're we're thawing out here today. You know, for us,
• 5:27
  Speaker 1: first and foremost was the need to get our employees
• 5:30
  Speaker 1: out of the office and working remotely. UM. And be
• 5:33
  Speaker 1: able to do that without interrupting service. I think we
• 5:36
  Speaker 1: did that pretty well back in March of last year.
• 5:40
  Speaker 1: But as we think back to last year, two big
• 5:43
  Speaker 1: themes I think that are important to historic catastrophe year
• 5:46
  Speaker 1: UM and the need to be able to serve members
• 5:50
  Speaker 1: in need UM without actually being able to get out
• 5:53
  Speaker 1: in virtually and physically inspect their their homes. So the
• 5:57
  Speaker 1: work we've been doing over the years to build digital
• 6:00
  Speaker 1: capabilities paid huge dividends as we adjusted our model to
• 6:04
  Speaker 1: do virtual adjusting for catastrophes. And in the auto insurance
• 6:09
  Speaker 1: business UM, as we all went home and businesses shut down,
• 6:13
  Speaker 1: UM folks stopped driving, So a very significant change in
• 6:17
  Speaker 1: the frequency of miles driven UM and accidents that will
• 6:20
  Speaker 1: come as a result of that. So two different stories
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  Speaker 1: for us UM in the insurance business last year. And
• 6:27
  Speaker 1: you Wayne have followed the Marine Corps philosophy for making
• 6:31
  Speaker 1: decisions solution. Tell us what that is. Well, I'll tell you.
• 6:36
  Speaker 1: First of all, a global pandemic was not on my
• 6:39
  Speaker 1: priority list, and I became the CEO on February one
• 6:42
  Speaker 1: of last year. I had about nineteen days of grace
• 6:44
  Speaker 1: before the world began to you know, kind of unravel
• 6:47
  Speaker 1: and it became really clear that we needed to move
• 6:49
  Speaker 1: with speed UM to make decisions as simple as and
• 6:53
  Speaker 1: as complex as getting employees home UM and then just
• 6:56
  Speaker 1: you know, a range of decisions as we adapted and
• 6:59
  Speaker 1: changed the busines this. So we took on this philosophy
• 7:02
  Speaker 1: of you know, we're not gonna have perfect information, we
• 7:03
  Speaker 1: won't have everything that we need, but we do need
• 7:06
  Speaker 1: to make a good risk managed decision, and we need
• 7:08
  Speaker 1: to make it today. Um SE seems like a good
• 7:12
  Speaker 1: number to start with. And then recognizing this changing environment,
• 7:16
  Speaker 1: that conditions will change and we can rechoose tomorrow if necessary,
• 7:20
  Speaker 1: but better to choose today UM than not choose. And
• 7:23
  Speaker 1: I think that served us UM really well through the
• 7:26
  Speaker 1: height of the pandemic and thankfully as continuing to serve
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  Speaker 1: us today as we kind of taught ourselves that UM,
• 7:31
  Speaker 1: this big organization can move at a much faster pace
• 7:34
  Speaker 1: than maybe we thought possible before the pandemic arrived on
• 7:38
  Speaker 1: our doorstep. So Wayne USA A serves the needs the
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  Speaker 1: insurance needs of US military members and and and veterans
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  Speaker 1: talk to us about any special insurance needs they may
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  Speaker 1: need here around covid UM that you've had to deal
• 7:55
  Speaker 1: with well, like all of us, uh, you know, the
• 7:58
  Speaker 1: d O D shutdown as well. So we had military
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  Speaker 1: folks who were planning to move duty stations, UM, those
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  Speaker 1: were halted. In many cases, we'd started to help them
• 8:08
  Speaker 1: with their plans for their new location while they were
• 8:11
  Speaker 1: stuck in their old location. So just working through some
• 8:14
  Speaker 1: of those challenges as their kind of move was suspended
• 8:17
  Speaker 1: is an example. UM. I think from an insurance standpoint,
• 8:21
  Speaker 1: really kind of being there when they need us most.
• 8:24
  Speaker 1: But what we saw a lot, especially with enlisted folks
• 8:26
  Speaker 1: is um, you know that enlisted soldier or sailor airmen
• 8:29
  Speaker 1: is still getting their paycheck, but their spouse most likely
• 8:33
  Speaker 1: has been disaffected much more so than the average person
• 8:37
  Speaker 1: in the pandemic. So a lot of under employment or
• 8:40
  Speaker 1: no employment in that kind of second income for a
• 8:43
  Speaker 1: group of folks who are really kind of working paycheck
• 8:45
  Speaker 1: to paycheck every single month. So we had about a
• 8:48
  Speaker 1: million of our members that we helped either by you know, uh,
• 8:53
  Speaker 1: stringing out their payments to on a longer pace or
• 8:55
  Speaker 1: foregoing some of the payments that they owed us, both
• 8:58
  Speaker 1: in terms of banking UM and in our insurance portfolio.
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  Speaker 1: And it's just really helpful to that group to ease
• 9:05
  Speaker 1: the pain m as they work through some of the
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  Speaker 1: challenges like the rest of us did last year. And
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  Speaker 1: you you provided more than forty seven million dollars to
• 9:12
  Speaker 1: support COVID nineteen relief for families of the military, also
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  Speaker 1: fifty million over three years. You have a program to
• 9:20
  Speaker 1: support racial equity initiatives, and your return more than a
• 9:24
  Speaker 1: billion dollars in dividends to members during the pandemic. What
• 9:28
  Speaker 1: how does that compare in terms of returning dividends. Well,
• 9:32
  Speaker 1: it's something we really have. We we returned dividends every year.
• 9:35
  Speaker 1: It's part of the great part of the Usays Association.
• 9:38
  Speaker 1: When we have funds left over at the end, we
• 9:41
  Speaker 1: return them back to members. But these are special dividends
• 9:44
  Speaker 1: that we did throughout the year in recognition of our
• 9:47
  Speaker 1: auto insurance policy holders, you know, who are not driving
• 9:51
  Speaker 1: as much. We did a series of three of those
• 9:53
  Speaker 1: during the year, totally, as you said, about a billion dollars.
• 9:56
  Speaker 1: And then what we realized, you know, we can help
• 9:58
  Speaker 1: you know, members who are in need, but we really
• 10:01
  Speaker 1: needed to take an additional step, so we put almost
• 10:04
  Speaker 1: fifty million dollars into COVID relief, whether it was food
• 10:07
  Speaker 1: and security issues and markets where you know we work
• 10:10
  Speaker 1: and live, or very specifically about thirty million dollars UM
• 10:13
  Speaker 1: that we invested with military aid societies so that they
• 10:17
  Speaker 1: could give low interest loans or grants UM two soldier sailors,
• 10:21
  Speaker 1: airmen and National guardsman who you know may be having
• 10:24
  Speaker 1: a difficult time through that period. And then with the
• 10:28
  Speaker 1: social unrest um that we all experienced last year, we
• 10:31
  Speaker 1: recognize we need to do more on our part as well,
• 10:34
  Speaker 1: and so we've committed you know, fifty million dollars the
• 10:37
  Speaker 1: first in our history UM to try to attack and
• 10:39
  Speaker 1: address some of the challenges with systemic racism and the
• 10:42
  Speaker 1: inequalities that are kind of built into the fabric of
• 10:45
  Speaker 1: our society. So really interested in making a difference on
• 10:49
  Speaker 1: that front as well. All right, Wayne Peacock diving into
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  Speaker 1: the d pen taking over as President CEO of us
• 10:55
  Speaker 1: A a mere really days before the pandemic hit the
• 10:59
  Speaker 1: show orders the United States of America. Thanks so much
• 11:01
  Speaker 1: for joining us, Wayne. Let's get over to somebody who
• 11:07
  Speaker 1: is clearly an expert in how these markets work. Pete
• 11:10
  Speaker 1: Anderson joins us UH. He is the founder of Anderson
• 11:14
  Speaker 1: Capital management, and he's located in Boston and he beat
• 11:18
  Speaker 1: the SMP last year by forty point seven percent. Peter,
• 11:23
  Speaker 1: how well, first of all, tell us how you did that,
• 11:26
  Speaker 1: and tell us if your strategy has changed in one
• 11:30
  Speaker 1: I think we're doing a great job this year of
• 11:33
  Speaker 1: distracting ourselves more really matters. More about that later, but listen,
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  Speaker 1: I did this by focusing on fifteen stocks. Fifteen stocks only,
• 11:42
  Speaker 1: long holding period, just common sense about what I think
• 11:46
  Speaker 1: is going to go up and value regardless of whether
• 11:49
  Speaker 1: or not we had a lockdown or we're swinging from
• 11:52
  Speaker 1: the vines with an economic recovery. I picked stocks based
• 11:56
  Speaker 1: on fundamental outlooks and the demand that I or the
• 12:01
  Speaker 1: coming uh for those industries. All right, Peter, you're a
• 12:04
  Speaker 1: long time value investor and that's certainly had its time
• 12:09
  Speaker 1: and sun here really since September. I would suggest give
• 12:14
  Speaker 1: us your sense for kind of the legs you think
• 12:17
  Speaker 1: this trade has going forward. Well, you know, um, I
• 12:21
  Speaker 1: am both a value and a growth investor. I wanted
• 12:24
  Speaker 1: to just clarify that, and um I actually kind of
• 12:28
  Speaker 1: shunned those labels because, as I said, I just tried
• 12:30
  Speaker 1: to pick stocks that go up and as you know,
• 12:33
  Speaker 1: you know, all kinds of stocks go up. So what's
• 12:36
  Speaker 1: happening now though, is I think we've made the world
• 12:40
  Speaker 1: too complex for our own understanding. You know, this relationship
• 12:43
  Speaker 1: we're seeing it this morning right when the market opened,
• 12:46
  Speaker 1: this inverse relationship with the treasuries. When the yield goes up,
• 12:51
  Speaker 1: the market goes down. Whoever thought of that? And why
• 12:54
  Speaker 1: is that now the new narrative? I mean, I'm just
• 12:57
  Speaker 1: ignoring those, uh that dynamic and you know it's ainful
• 13:00
  Speaker 1: sometimes because let me put you to this way, if
• 13:02
  Speaker 1: I sell the stock every time rates went up, I
• 13:05
  Speaker 1: wouldn't end up owning anything. So you've got to have
• 13:08
  Speaker 1: a longer term perspective. And I also think that rates
• 13:11
  Speaker 1: are too low. I'm probably the only person out there
• 13:14
  Speaker 1: that's going to say this publicly, but we're on the
• 13:18
  Speaker 1: We're going to embark on one of the greatest economic
• 13:21
  Speaker 1: recoveries of all time, right, I think we all can
• 13:23
  Speaker 1: agree upon that. And with a ten year you know,
• 13:27
  Speaker 1: hitting perhaps a two yield, I think that's absolutely fine
• 13:31
  Speaker 1: with me. In fact, you know, it hasn't been long
• 13:34
  Speaker 1: where we've seen a three percent yield. People need to
• 13:37
  Speaker 1: think about in perspective a great growth scenario, and you
• 13:42
  Speaker 1: do have to have yields going up. It's just part
• 13:44
  Speaker 1: of the calculus of the economics. I mean. The concern,
• 13:48
  Speaker 1: of course, is that we get with that great growth scenario,
• 13:52
  Speaker 1: great inflation um and that forces the Fed's hand. Are
• 13:56
  Speaker 1: you not worried as as Sharon Powell um uh calmed
• 14:02
  Speaker 1: you in terms of worrying about rate rises. Well, you know,
• 14:06
  Speaker 1: you asked how I got out to the forty plus
• 14:08
  Speaker 1: percent last year, and a lot of this stuff, um
• 14:11
  Speaker 1: it was all due respect to the chairman and other analysts.
• 14:15
  Speaker 1: A lot of it is somewhat noise, and I think
• 14:18
  Speaker 1: you have to factor it into a more complex picture,
• 14:22
  Speaker 1: you know. I do say some things are simple, but
• 14:24
  Speaker 1: some things are complex, and in this case, you know,
• 14:28
  Speaker 1: the FT is trying its best to calm h. What
• 14:32
  Speaker 1: I would say is a very emotional market, you know,
• 14:34
  Speaker 1: since the beginning of one I think everything changed. If
• 14:38
  Speaker 1: we look back to January and think of the narratives,
• 14:41
  Speaker 1: you know, space travel, uh, spacts, all these kinds of
• 14:46
  Speaker 1: really newly focused areas. I think we have to put
• 14:51
  Speaker 1: that in perspective, as you do with the FED and
• 14:54
  Speaker 1: their narrative on rates. I do think the FED is
• 14:57
  Speaker 1: probably saying that they don't want you have this recovery
• 15:02
  Speaker 1: dampened at all. So it's very, very sensitive. But when
• 15:05
  Speaker 1: you just strip all this way, what is driving this.
• 15:08
  Speaker 1: It's this pent up, huge recovery that we're going to have.
• 15:11
  Speaker 1: We're right on the brink of this, and I think
• 15:13
  Speaker 1: would be shameful for people to think that if rates
• 15:16
  Speaker 1: are going up, um, it's a bad time to invest
• 15:18
  Speaker 1: in growth stocks. All right, So what are some of
• 15:21
  Speaker 1: the sectors that you think or or that you know
• 15:24
  Speaker 1: you're putting some money to work in right now? Well,
• 15:27
  Speaker 1: you know, I've always liked and I continue to like,
• 15:31
  Speaker 1: you know, growth stocks. So in UM cyber security, that
• 15:35
  Speaker 1: is never going to go away, right So, I think
• 15:38
  Speaker 1: last time we mentioned Palo Alto and cyber Arc, and
• 15:41
  Speaker 1: those are two companies that are dear to my heart,
• 15:43
  Speaker 1: and I think regardless of what will happen rising rates,
• 15:48
  Speaker 1: decreasing rates, you know, slowing development, whatever people want to
• 15:52
  Speaker 1: throw in terms of the narrative of the day, these
• 15:54
  Speaker 1: stocks are going to be survivors. The most recent stock
• 15:58
  Speaker 1: I added though, and I mentioned I did match and SPACs.
• 16:00
  Speaker 1: You know, I'm negative on most SPACs that are startups
• 16:05
  Speaker 1: bacts in the sense that they buy companies that don't
• 16:07
  Speaker 1: have any operating history. But there are plenty of companies
• 16:09
  Speaker 1: out there that's back will buy that does have operating history.
• 16:13
  Speaker 1: And a company that I'm very excited about is called
• 16:15
  Speaker 1: Danimer Scientific. They make biodegradable plastic. And I'm not um
• 16:22
  Speaker 1: an E s G investor, but when I do see
• 16:24
  Speaker 1: a company that has a uh tremendously attractive product such
• 16:30
  Speaker 1: as plastic the will biodegrade in your backyard, I do
• 16:33
  Speaker 1: get excited about that because the addressable market is so large.
• 16:36
  Speaker 1: So that is the most recent stock that I've added.
• 16:39
  Speaker 1: And other than that, I still own in video, uh,
• 16:42
  Speaker 1: cybersecurity I mentioned, and data storage basic you know, the
• 16:46
  Speaker 1: basic building blocks of a starring economy. Hey, Peter, thanks
• 16:50
  Speaker 1: so much for joining us and sharing your thoughts here.
• 16:52
  Speaker 1: Peter Anderson, founder of Anderson Capital Management based in a Boston.
• 16:58
  Speaker 1: UH optimistic outlook on the market there, Um Matt and
• 17:02
  Speaker 1: he's he kind of has a concentrated portfolio of names
• 17:05
  Speaker 1: that again he thinks they're just good, solid names. Uh.
• 17:09
  Speaker 1: And he's got some growth and some value in there.
• 17:11
  Speaker 1: I hope we can get him back for a little
• 17:12
  Speaker 1: bit longer. I mean, Peter Anderson went to Harvard and
• 17:16
  Speaker 1: Yale and he's an overseer of the Boston Symphony Orchestra,
• 17:21
  Speaker 1: and I do hope we can get back to Boston
• 17:23
  Speaker 1: for the Pops. Hopefully this fourth of July we can
• 17:26
  Speaker 1: see them play live again in the Shell. Well. A big,
• 17:32
  Speaker 1: big trade in the railroad business. Canadian Pacific Railway agreed
• 17:37
  Speaker 1: to buy Kansas City Southern for twenty five billion dollars,
• 17:40
  Speaker 1: creating the only network that cuts through the US, Mexico
• 17:44
  Speaker 1: and Canada in the first year of those nations new
• 17:47
  Speaker 1: trade alliance. Canadian Pacific Railway CEO Keith Creole spoke with
• 17:51
  Speaker 1: Bloomberg's Ed Hammond earlier today and had this to say
• 17:54
  Speaker 1: about the deal. With the common vision of common operating philosophy,
• 17:58
  Speaker 1: creating a network that can become the true backbone connecting
• 18:01
  Speaker 1: three countries on the hills of the U S M
• 18:04
  Speaker 1: C agreement that enables commerce between the three companies, that
• 18:07
  Speaker 1: at a time that the trade has never been more important,
• 18:10
  Speaker 1: is compelling. The benefits are compelling. That was Canadian Pacific
• 18:15
  Speaker 1: Railways CEO Keith A. Creole talking about the merits of
• 18:18
  Speaker 1: that deal. Let's break it down with Lee Classical. Lee
• 18:21
  Speaker 1: is the senior transportation analysts for Bloomberg Intelligence. He's been
• 18:25
  Speaker 1: covering these railroad companies for decades. So Lee, thanks so
• 18:28
  Speaker 1: much for joining us here. This deal, when you think
• 18:30
  Speaker 1: about it from a geographic perspective, boy, it really makes
• 18:33
  Speaker 1: a lot of sense, doesn't Yeah, Hey, Paul, thanks for
• 18:36
  Speaker 1: having me on. Yeah, I mean yeah, we've been a
• 18:38
  Speaker 1: pro both East proponent of this deal for quite some time. Uh,
• 18:42
  Speaker 1: it just makes complete sense. You know, the two railroads
• 18:45
  Speaker 1: and only interchange in one spot. There's not a lot
• 18:48
  Speaker 1: of overlap of their network, and so you know, we
• 18:52
  Speaker 1: don't see it as a huge issue for you know,
• 18:55
  Speaker 1: hurting competition amongst the railroads and maybe other modes. I
• 18:58
  Speaker 1: think it's the net net in for the railroads because
• 19:02
  Speaker 1: it's really expanding their reach and if you can keep
• 19:05
  Speaker 1: people on your network longer, that's not only good for
• 19:08
  Speaker 1: your your bottom line, but it's also good for service
• 19:11
  Speaker 1: for customers because there's less interchanges happening, uh, and less
• 19:15
  Speaker 1: opportunity for things to go wrong, because that's usually what
• 19:18
  Speaker 1: it does. First of all, I want to say how
• 19:20
  Speaker 1: cool it is that we're talking about railroads Yeah. I
• 19:23
  Speaker 1: saw this pop up on my daybreak app on on
• 19:27
  Speaker 1: the weekend and I thought, wow, that is so old
• 19:29
  Speaker 1: economy and so cool. Such a big number too. Um,
• 19:33
  Speaker 1: are we gonna see more deals like this? Lee? I mean,
• 19:36
  Speaker 1: we've seen a number of railroad stocks jump in reaction. Yeah.
• 19:41
  Speaker 1: The reality is probably not for a very long time.
• 19:44
  Speaker 1: The industry is extremely consolidated. This will bring it to
• 19:48
  Speaker 1: six class one rails. Those are the biggest railroads in
• 19:51
  Speaker 1: North America. Um. You know, maybe a longer term and
• 19:55
  Speaker 1: when I say longer term, ten plus years, you could
• 19:58
  Speaker 1: see an East marry a West, or maybe Canadian Nationals
• 20:02
  Speaker 1: try to get deeper into the East. But you know,
• 20:05
  Speaker 1: those kind of transactions will face extreme regulatory hurdles. Um.
• 20:10
  Speaker 1: And it will not be easy to get done. I mean,
• 20:13
  Speaker 1: you know this deal is not is not a slam
• 20:15
  Speaker 1: dunk because it still needs you know, approval from the regulators.
• 20:18
  Speaker 1: You know, we do think of the things I was
• 20:19
  Speaker 1: mentioned about earlier, about the fact that there's not a
• 20:22
  Speaker 1: lot of overlap with the networks, and we don't think
• 20:24
  Speaker 1: it's going to impact a competition in a negative way.
• 20:27
  Speaker 1: You know, we think that the deal does get done
• 20:30
  Speaker 1: and also Kansas City was exempt for some of the
• 20:32
  Speaker 1: high hurdle rates that the STB has has has kind
• 20:36
  Speaker 1: of implemented about the teen plus years ago. There is
• 20:40
  Speaker 1: some you know, risk that maybe the STB might revive
• 20:43
  Speaker 1: revised those rules, but we still think, you know, the
• 20:47
  Speaker 1: probabilities that the deal does get done. Lee, talk to
• 20:50
  Speaker 1: us about some of the business you expect to go
• 20:53
  Speaker 1: over this railroad, you know, once they get combined. Here
• 20:57
  Speaker 1: as we think about Canada, the US and Mexico. Yeah,
• 21:01
  Speaker 1: so you know, the reality is is that they are
• 21:04
  Speaker 1: creating the kind of transportation network for the future. I
• 21:08
  Speaker 1: know that's sounds silly when we're talking about old world
• 21:11
  Speaker 1: economy railroads, but you know, we're we're one of our
• 21:15
  Speaker 1: major long term thesis is that you know, we're going
• 21:18
  Speaker 1: to see a lot more on shoring into Mexico, UH,
• 21:22
  Speaker 1: given UH shippers wanting to be closer to their customers
• 21:26
  Speaker 1: and the fact that they want to diversify away from
• 21:28
  Speaker 1: from Asia and China, you know, given that trade issues
• 21:32
  Speaker 1: are going to probably continue between the U S and China. UM.
• 21:36
  Speaker 1: And so you know, you have Canada with all the
• 21:39
  Speaker 1: great natural resources. You have the US that consume a
• 21:43
  Speaker 1: lot of stuff and then you have Mexico increasing their
• 21:46
  Speaker 1: manufacturing footprint, so it just seems like it's just a
• 21:50
  Speaker 1: great deal for future growth. Um. You know, there's one
• 21:55
  Speaker 1: of one of the great things about the KSU network
• 21:57
  Speaker 1: again to the Southern network is their cross board or
• 22:00
  Speaker 1: business that's been a high growth area for the railroad
• 22:03
  Speaker 1: and you know, we can we expect back to continue
• 22:06
  Speaker 1: as more and more stuff are manufactured you south to
• 22:10
  Speaker 1: the border of the US. Lee. Is there any cutting
• 22:14
  Speaker 1: edge aspect to the research, I mean, to the to
• 22:17
  Speaker 1: the industry that you research. I mean, is there any
• 22:19
  Speaker 1: kind of hyperloop or you know, um, super green people
• 22:24
  Speaker 1: carrier uh stuff going on? Or is it all still
• 22:27
  Speaker 1: old school railroad? Yeah? Outside of me working on a
• 22:30
  Speaker 1: teleporting machine in my shed. H there's really there's really not.
• 22:36
  Speaker 1: Uh the reality is it like railroads good if you
• 22:40
  Speaker 1: think about operate without people because I mean they're on
• 22:44
  Speaker 1: a fixed track, so that there's some of the safety
• 22:46
  Speaker 1: issues of autonomous trucking doesn't really apply to railroads. There
• 22:50
  Speaker 1: is a benefit to having people in the locomotive, you know,
• 22:53
  Speaker 1: in case something goes wrong or you know, you need
• 22:55
  Speaker 1: to deal with an exemption. But there's no there's not
• 22:58
  Speaker 1: really any any any any out there. The rails are
• 23:01
  Speaker 1: tinkering more with alternative fuels and that's really a kind
• 23:05
  Speaker 1: of a push to try to you know, be more
• 23:07
  Speaker 1: green and reduced her carbon footprint. Uh. You know, it's
• 23:12
  Speaker 1: a lot of the railroads and I would say even
• 23:13
  Speaker 1: the trucking companies and you know, companies like FedEx and
• 23:16
  Speaker 1: ups have really started to embrace the E S G
• 23:19
  Speaker 1: aspect of their businesses just because it's becoming more and
• 23:22
  Speaker 1: more important to institutional investors out there. Uh, real quick here,
• 23:28
  Speaker 1: precision railroading is important to this deal. Yeah, it is.
• 23:32
  Speaker 1: I mean, so Canadians to fix to have more of
• 23:34
  Speaker 1: a mature position scheduling railroading. They've been doing it for
• 23:37
  Speaker 1: a long time. They've pivoted towards growth a couple of
• 23:41
  Speaker 1: years ago in Kansas City is kind of in the
• 23:43
  Speaker 1: early uh inning And if you think about it, a
• 23:47
  Speaker 1: lot of the folks to Kansas City, they've done really
• 23:49
  Speaker 1: at Kansas City Southern they've done a really good job
• 23:51
  Speaker 1: at implementing ps ARE. But they can learn a lot
• 23:55
  Speaker 1: from the kind of the doing it for a lot
• 23:57
  Speaker 1: longer over at DP. So you we believe that because
• 24:02
  Speaker 1: of PP taking over at KS too, which won't happen
• 24:05
  Speaker 1: for probably a year in terms of an operation standpoint,
• 24:08
  Speaker 1: but they might be able to accelerate uh that's mark
• 24:11
  Speaker 1: transformation and just leave five in additional synergies. Lee, Thanks
• 24:15
  Speaker 1: so much, Lee Clasgow, their senior transport logistics and shipping
• 24:18
  Speaker 1: analysts for Bloomberg Intelligence. Thanks for listening to the Bloomberg
• 24:22
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• 24:26
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• 24:31
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• 24:34
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• 24:37
  Speaker 1: You can always catch us worldwide at Bloomberg Radio