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Larry Ellison’s Guarantee Ups Warner Bros. Stakes to a New Level · Bloomberg Intelligence

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  Speaker 2: All right, let's talk a little bit more about this.
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  Speaker 3: Larry Ellison personally backing the paramount bid for Warner Brothers.
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  Speaker 3: It's something Warner Brothers was looking for and they appear
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  Speaker 3: to have gotten it now. Stephen Flynn is Bloomberg Intelligence
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  Speaker 3: Senior credit analyst here and is in studio with us.
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  Speaker 2: Great to see you, Stephen, Thanks good to be here.
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  Speaker 2: Break it down for me.
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  Speaker 3: What does it mean when Paramounts Guidance says that Larry Ellison,
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  Speaker 3: the chairman of Oracle, is offering a personal financial guarantee
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  Speaker 3: of forty point four billion dollars in equity financing.
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  Speaker 2: If something falls apart, what are they going to call
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  Speaker 2: upon Larry Ellison.
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  Speaker 4: To do well?
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  Speaker 5: This is an important step because mid last week, Paramount
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  Speaker 5: excuse me, the Warner Brothers board recommended shareholders reject the
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  Speaker 5: tender offer by Paramount for thirty dollars or share.
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  Speaker 4: And they lift that.
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  Speaker 5: They listed a list of reasons why, and one of
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  Speaker 5: them was that there was no personal guarantee from Larry Ellison.
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  Speaker 5: And now the company Power Amount has addressed that this
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  Speaker 5: morning with a number of amendments to their tender offer.
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  Speaker 3: But that means he's putting his equities up up at stake, right.
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  Speaker 5: And they confirm that they hold one point one six
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  Speaker 5: billion Oracle shares And if you look at you know,
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  Speaker 5: an Oracle sharre is about one hundred and ninety four
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  Speaker 5: dollars or so that's about two hundred and twenty five
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  Speaker 5: billion dollars. So that is obviously a large amount of
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  Speaker 5: value there, and the fact that he's personally backing it
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  Speaker 5: is something that Warner Brothers was looking for.
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  Speaker 6: Still, a pro form of Paramount Warner Brothers, it's gonna
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  Speaker 6: be highly levered, isn't it.
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  Speaker 4: Talk about the debt profile there and how do you
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  Speaker 4: how do you view it? Yeah, so it gets very complicated.
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  Speaker 5: So a pro former, you know, Paramount Warner Brothers will
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  Speaker 5: be highly leverage. You're talking you know, mid four times
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  Speaker 5: leverage overall, and that's accounting for a significant number of
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  Speaker 5: synergies that we're giving them credit for. So if you
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  Speaker 5: look at expected EVATAH or paramount expected EVATAH for Warner Brothers,
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  Speaker 5: and then you add on top of that, what they're
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  Speaker 5: targeting is six billion dollars of the annual run rate
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  Speaker 5: cost savings. It'll take them a few years to get there.
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  Speaker 5: But if you say pro formal, we'll give them credit.
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  Speaker 5: The company is still highly leverage at about mid four
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  Speaker 5: times and x.
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  Speaker 4: That it's above five times.
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  Speaker 5: Oh clearly, yes, come on, yeah, And well you're asport
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  Speaker 5: credit guy.
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  Speaker 4: You're not giving them credit for the synergies are well,
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  Speaker 4: you have.
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  Speaker 5: To give them some credit, but you know, you really
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  Speaker 5: want to see a dummy and.
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  Speaker 4: That could a guy. I'm like, I'm all in on this.
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  Speaker 4: Synergies we usually are less bit more negative. Well, what's
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  Speaker 4: important too is how they break it up.
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  Speaker 5: So part of the commitment they have on the credit side, right,
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  Speaker 5: so you talked about Larry Elison some other equity providers
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  Speaker 5: providing forty over forty billion dollars.
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  Speaker 4: Of equity capital.
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  Speaker 5: They also have a fifty four billion dollars secured bridge commitment.
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  Speaker 5: And now that's secured. So if we assume that that
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  Speaker 5: debt is ahead of all the existing debt that's at
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  Speaker 5: both Warner Brothers and Paramount Skuidance, and again you give
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  Speaker 5: them credit for sinders. You're talking about pro former leverage
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  Speaker 5: through the secure debt of about three times. Now, there's
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  Speaker 5: a possibility that you could get that investment grade rated
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  Speaker 5: using Charter as an comparable. So if we look at Charter,
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  Speaker 5: which is one of the biggest cable companies out there,
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  Speaker 5: they owe almost one hundred billion dollars. Of that, about
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  Speaker 5: seventy billion dollars or so of it is secured bonds
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  Speaker 5: and loans that are ig rated, and they're about three
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  Speaker 5: times levered. So if we use that at a compt
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  Speaker 5: maybe you could get to investment grade ratings from at
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  Speaker 5: least two of the three agencies to qualify for investment
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  Speaker 5: grade for that fifty four billion dollars, which would be
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  Speaker 5: very key to financing.
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  Speaker 3: All right, I know we're talking about paramounts Guidance and
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  Speaker 3: Warner Brothers as the principal players here and Netflix if
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  Speaker 3: you want to get into that side of the bid too.
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  Speaker 3: But I'm curious, and this might be a dumb question.
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  Speaker 3: Larry Ellison, now personally guaranteeing the equity financing, there's a
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  Speaker 3: lot of questions about Oracle and its debt. Overall, we've
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  Speaker 3: seen the credit default swaps on its debt rise. That's
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  Speaker 3: the cost to ensure against a possible default. Does the
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  Speaker 3: fact that Larry Ellison is committing to backing a large
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  Speaker 3: portion of the money needed for the deal, does that
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  Speaker 3: affect Oracle's credit rating at all? Would a credit investor
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  Speaker 3: and analysts look at that and think, hmm, Now.
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  Speaker 5: Well, I don't forget Oracle still has a massive equity
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  Speaker 5: market cap, right, and the stock is traded every day,
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  Speaker 5: so the market is telling you every day what they
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  Speaker 5: think the value of Oracle equity is worth. Right, And
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  Speaker 5: he has again the one point one six billion dollars
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  Speaker 5: one point one six billion of shares worth about two
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  Speaker 5: hundred and twenty five billion dollars, and that's what the
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  Speaker 5: market's saying it's worth. So that's what a credit investor
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  Speaker 5: would look for that comfort or I'm sorry, an equity
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  Speaker 5: investor at Warner Brothers Discovery saying that that is backing
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  Speaker 5: up his forty point four billion dollars.
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  Speaker 2: And a credit investor wouldn't worry about that part of it.
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  Speaker 5: I don't think indirectly you could have some concern about it,
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  Speaker 5: But I don't think directly you would.
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  Speaker 6: The average credit investors that you talk to about Warner Brothers,
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  Speaker 6: which daily they.
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  Speaker 5: Prefer, Well, it's complicated, you would argue that. You know,
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  Speaker 5: it's interesting is that Warner Brothers bonds or investment grade
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  Speaker 5: rated right throughout most of the through half of last
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  Speaker 5: year or half of this year excuse me, twenty twenty five,
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  Speaker 5: and then they were by far the worst performing, huge
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  Speaker 5: negative total return. They went into junk, they were fallen
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  Speaker 5: angel in July, and now they've bounced back and one
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  Speaker 5: of the better performing high eel names. Was all this
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  Speaker 5: speculation of some sort of takeout. In either case, the
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  Speaker 5: bonds are probably better off than they would be without it,
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  Speaker 5: but there's still some concerns. So if they go with
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  Speaker 5: the powamount skuiddance deal, there's a chance they could be
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  Speaker 5: behind all that secure debt that we talked about, that
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  Speaker 5: fifty four billion dollars of secure debt. But you have
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  Speaker 5: all that equity capital coming in that's supporting the overall company,
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  Speaker 5: which would give you support as a bondholder for Warner Brothers. Now,
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  Speaker 5: the problem with the Netflix deal is that if you're
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  Speaker 5: a bondholder, you're probably left with the Global networks, which
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  Speaker 5: is going to be spun out before Netflix comes in
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  Speaker 5: and buys the studios and streaming operations, and that company
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  Speaker 5: will be relatively highly levered with a declining business. So
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  Speaker 5: I'd say it's pretty close, but maybe you lean a
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  Speaker 5: little bit towards the powamount s guidance.
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  Speaker 6: Really, all right, I wouldn't have thought that you guys
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  Speaker 6: are getting soft in early age back in my day.
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  Speaker 4: All Right, Steven Flinn, thanks so much, appreciate it.
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  Speaker 6: Steven Flynn, seeing your credit analysts Bloomberg Intelligence with us.
• 6:00
  Speaker 2: More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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• 6:21
  Speaker 6: All right, we got some economic data last week that
• 6:23
  Speaker 6: the markets were looking for in terms of the labor
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  Speaker 6: market and inflation. We've got some more coming up here.
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  Speaker 6: The question is how how are our good friends down
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  Speaker 6: at the Federal Reserve kind of digesting all this. For that,
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  Speaker 6: we go to mister Ira Jersey and we're going to
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  Speaker 6: get a sense of what his thoughts are there, Ira Jersey,
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  Speaker 6: Chief US Interest.
• 6:39
  Speaker 4: Rate Strategies in Bloomberg Intelligence.
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  Speaker 6: I remember, where do you think the FED is these
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  Speaker 6: days and they're thinking about this economy and where they
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  Speaker 6: need to go.
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  Speaker 4: Yeah, they were all over the place.
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  Speaker 7: So what you didn't mention, Paul, was that we had
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  Speaker 7: a ton of FED speak last week too, and we
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  Speaker 7: actually had even more this morning. So you definitely have
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  Speaker 7: two camps that have been built in here, and one
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  Speaker 7: is the more dubsh side of the of the isle
• 6:59
  Speaker 7: who think that, hey, we should be cutting interest rates
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  Speaker 7: at least a little bit. You even had Williams, the
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  Speaker 7: president of the New York FED, who's the vice chair
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  Speaker 7: of the FOMC so presumably has a little bit more
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  Speaker 7: weight than the rank and file members. So he said
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  Speaker 7: that like, hey, we can go. We don't have to
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  Speaker 7: go quickly, but we're going to ease. So that suggests
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  Speaker 7: to me that maybe January skip is perhaps the base
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  Speaker 7: case for now, but then more easing later, so March April,
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  Speaker 7: you know, once we have a little bit more data
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  Speaker 7: and we can see have the rate cuts that we've
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  Speaker 7: already had actually work to stimulate the economy.
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  Speaker 4: Or not.
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  Speaker 3: So the division inside the FOMC is not new. This
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  Speaker 3: is something we've seen over the last couple of rate decisions.
• 7:40
  Speaker 3: But we do know we're going to get a new
• 7:42
  Speaker 3: FED chair starting in late May, because that is when
• 7:46
  Speaker 3: Jerome Powell's term as FED chair ends. Put together the
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  Speaker 3: division within the FED and this timetable for new personnel
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  Speaker 3: at the FOMC, and whether we should be paying attention
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  Speaker 3: to all this FED speak.
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  Speaker 7: Well, I think you have to listen to all the
• 8:02
  Speaker 7: FED speak, but you have to take it holistically, right.
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  Speaker 7: You can't just take one member and say, oh, that's
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  Speaker 7: exactly what they're going to do, because it is a
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  Speaker 7: committee and that's what we have to remember. You know.
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  Speaker 7: Then the new chair comes in. President Trump has said
• 8:14
  Speaker 7: he's going to announce a new chair in January. Presumably
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  Speaker 7: that person is going to take Stephen Myron's seat, and
• 8:20
  Speaker 7: if that's the case, then the FED Chair elect will
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  Speaker 7: be in it for both the March and the April meetings.
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  Speaker 7: And so therefore we'll have some time around the table,
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  Speaker 7: but we'll make a few speeches as the FED Chair
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  Speaker 7: and we'll be able to see or as a FED governor,
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  Speaker 7: I should say, And so we'll be able to see
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  Speaker 7: is this person really very duvish? Are they not very dubvish?
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  Speaker 7: Presumably they'll be more dubvish than j Powell has been.
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  Speaker 7: But at the same time, you know, again that person
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  Speaker 7: is only one one of the twelve members who actually
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  Speaker 7: votes on the policy decisions.
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  Speaker 3: Well, if Steven Myron is going to be replaced, we
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  Speaker 3: need to pay attention to what he says. We already
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  Speaker 3: know what side of the dubbish or hawkish campion lands on.
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  Speaker 7: Well, yeah, I mean he just you know, the most
• 9:02
  Speaker 7: stubbish person on the committee, and you usually get those extremes, right,
• 9:05
  Speaker 7: you get one or two really dubbish or relatively hawkish members.
• 9:08
  Speaker 7: But it's that middle ground that you have to look at.
• 9:11
  Speaker 7: So that's why someone like a Williams, for example, is
• 9:14
  Speaker 7: important to listen to because you know he's voted, he
• 9:16
  Speaker 7: hasn't yet dissented one way or the other. But you know,
• 9:20
  Speaker 7: if that if he's saying that, hey, we're not going
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  Speaker 7: to necessarily cut in January, you have to take that seriously.
• 9:27
  Speaker 6: I do we know what Jerome Palell is going to
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  Speaker 6: do once he steps down from the chairnship.
• 9:31
  Speaker 7: As far as I know, he hasn't said what he's
• 9:33
  Speaker 7: going to do. You know a lot of former FED
• 9:35
  Speaker 7: chairs either take a role at one of the think
• 9:38
  Speaker 7: tanks in Washington or go into academia. That those are
• 9:42
  Speaker 7: two of the typical paths. I wouldn't be surprised if
• 9:45
  Speaker 7: Jerome Powell maybe even just retired and wound up being
• 9:48
  Speaker 7: on a lecture circuit or something like that instead of
• 9:51
  Speaker 7: instead of doing having a day to day type of job.
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  Speaker 2: Yeah, commanding six figure paying fees for.
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  Speaker 6: Yeah, exactly, a couple board seats, couple of speaking things.
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  Speaker 4: That's the way to go. I mean, who needs it?
• 10:02
  Speaker 6: Ira, Thanks so much, journeyers appreciate it. Ira Jersey, chief
• 10:05
  Speaker 6: US interest rate strategist for Bloomberg Intelligence. Joining us there,
• 10:08
  Speaker 6: stay with us. More from Bloomberg Intelligence coming up after this.
• 10:16
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: weekdays at ten am Eastern on Apple Coarclay, and Android
• 10:22
  Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
• 10:26
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 10:30
  Speaker 6: I like the analysts who covered like the travel industry,
• 10:32
  Speaker 6: like cruise ships, theme.
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  Speaker 2: Parks, and you're going on your first cruise strong.
• 10:37
  Speaker 6: On my first cruise next fall in France, so that'll
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  Speaker 6: be interesting. Jody Lourie actually does this, Lori. She actually
• 10:44
  Speaker 6: does this for a living. She's a credit analyst for
• 10:46
  Speaker 6: Bloomberg Intelligence. She follows a lot of the leisure sectors
• 10:50
  Speaker 6: of the economy, think theme parks and cruise lines, that
• 10:52
  Speaker 6: type of stuff, hotels, casinos, that type of stuff from
• 10:55
  Speaker 6: the credit perspective, because remember that saw, I mean, equity
• 10:59
  Speaker 6: of soft debt is hard.
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  Speaker 4: Right there you go, Jody, let's to spend the cruise
• 11:04
  Speaker 4: lines here.
• 11:05
  Speaker 6: It seems like the cruise people are cruising back in
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  Speaker 6: I mean, Charlie Pellot's any you know, sign of that.
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  Speaker 4: How are they performing?
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  Speaker 8: So the cruise lines always have a dedicated base. But
• 11:16
  Speaker 8: cruising is sort of interesting because it's only two percent
• 11:19
  Speaker 8: of the travel industry. It really is such a small
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  Speaker 8: portion of it. Where we've been watching is for those
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  Speaker 8: new Dowo cruisers, which I don't know if I'm necessarily
• 11:27
  Speaker 8: convinced that they're going as often or they're attracting the
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  Speaker 8: new to cruisers, but the cruisers are still very much cruising,
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  Speaker 8: and they're spending more than the average consumer.
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  Speaker 3: They're also spending more than the people who go to
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  Speaker 3: theme parks, according to your research, And partly that might
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  Speaker 3: be because the cruise line industry attracts a different kind
• 11:47
  Speaker 3: of customer than the theme park industry. Theme park skews younger,
• 11:52
  Speaker 3: cruises skew older easy, Which would you prefer if you
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  Speaker 3: are an operator? Which would you prefer if you're an investor.
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  Speaker 8: So we don't make full recommendations, but I will tell
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  Speaker 8: you a couple of things based on our research findings.
• 12:05
  Speaker 8: So first of all, you have to think about how
• 12:08
  Speaker 8: people book cruising versus how they book theme parks. So
• 12:12
  Speaker 8: when you're talking about cruises, they book far in advance,
• 12:14
  Speaker 8: they book a year or two well in advance. And
• 12:16
  Speaker 8: what the cruise lines have been doing, particularly post pandemic,
• 12:19
  Speaker 8: is they've been locking people in on the drink packages,
• 12:22
  Speaker 8: on the experiences. They've been giving these steal of deals
• 12:25
  Speaker 8: excursion ideas, and when you get on the boat, it's
• 12:29
  Speaker 8: more expensive. So people say, Okay, I'm going to book
• 12:31
  Speaker 8: my cruise, but I'm also going to book the snorkeling,
• 12:34
  Speaker 8: and I'm going to book this. I'm going to book
• 12:36
  Speaker 8: that the ones that I definitely want to do, they
• 12:37
  Speaker 8: also book the drink packages which you know, I think
• 12:40
  Speaker 8: you can go either way on that personally, because I
• 12:42
  Speaker 8: don't think I drink enough, but maybe other people do,
• 12:45
  Speaker 8: and and it really sort of just helps their cash flows. Now,
• 12:49
  Speaker 8: theme parks people book much later, they are younger, they
• 12:54
  Speaker 8: are lower income than the US median household. And the
• 12:58
  Speaker 8: key for them is they.
• 12:59
  Speaker 2: Can get people in the door.
• 13:01
  Speaker 8: They can get them with season passes, or they can
• 13:03
  Speaker 8: just get them for the one day pass, but they're
• 13:05
  Speaker 8: not necessarily convincing them to spend in park the same way.
• 13:07
  Speaker 2: But there's higher volume in theme park.
• 13:09
  Speaker 8: Right, there's pretty highvlume in theme parks, but if they're
• 13:12
  Speaker 8: just paying for the admission, it might not necessarily cover
• 13:15
  Speaker 8: the costs per se. Right, they'll get in the door,
• 13:18
  Speaker 8: but they have high capex, they have high just high
• 13:21
  Speaker 8: costs in general, and they have all the employees that
• 13:23
  Speaker 8: they're paying for.
• 13:24
  Speaker 6: Six Flags, that's a theme park that got some local
• 13:27
  Speaker 6: Jersey flavor here, six Flags Great Adventure.
• 13:31
  Speaker 4: How's the capital structure for these theme parks?
• 13:33
  Speaker 8: They are high capex, so high capital intensive companies.
• 13:37
  Speaker 4: They have high level rides.
• 13:39
  Speaker 8: Right exactly, and similar to cruise lines. So where we
• 13:42
  Speaker 8: sort of see it interesting is theme parks and cruise
• 13:45
  Speaker 8: lines are constantly they have to get the new experience in, right,
• 13:49
  Speaker 8: So they have to spend not just on maintaining their products,
• 13:52
  Speaker 8: so not just maintaining the ship or maintaining the ride,
• 13:55
  Speaker 8: they also have to get new ones in. So people say,
• 13:58
  Speaker 8: I want to go to a Great Adventure because I
• 13:59
  Speaker 8: want to ride Superman, right, So they do this to
• 14:02
  Speaker 8: get people excited, draw them in so that they're going.
• 14:05
  Speaker 8: I mean, you know, the biggest example that we don't cover.
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  Speaker 8: I don't cover Universal or Comcast, but you know, Universal's
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  Speaker 8: new theme park this year was a big driver to Florida.
• 14:14
  Speaker 8: It wasn't as big as expected necessarily, but it's still
• 14:16
  Speaker 8: pretty big. Now, if you're talking about the regional theme
• 14:19
  Speaker 8: parks is a little bit more difficult because people aren't
• 14:23
  Speaker 8: necessarily planning these long term vacations around Great Adventure.
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  Speaker 3: Do the theme parks attract more domestic consumers than the cruises?
• 14:32
  Speaker 3: I mean, I'm just curious in terms of the sustainability
• 14:36
  Speaker 3: and the stability of your customer base.
• 14:38
  Speaker 2: So it depends on the brand.
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  Speaker 8: Because if you look pre pandemic and now going into
• 14:43
  Speaker 8: a few years post pandemic, the cruise lines they segment,
• 14:47
  Speaker 8: So Norwegian most of their customer bases US their US customers.
• 14:51
  Speaker 8: When you get to Royal Caribbean, it's a little bit less.
• 14:53
  Speaker 8: It's about so I think it's about eighty percent for Norwegian.
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  Speaker 8: I'm doing this off the top of my head memory,
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  Speaker 8: but eighty percent Norwegian. You get to back, it's like
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  Speaker 8: seventy or sixty five for Royal, And then you get
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  Speaker 8: to Carnival and it's even less than that. It's closer
• 15:05
  Speaker 8: to half, it's not quite half that are US versus international,
• 15:09
  Speaker 8: they have a much larger international presence. Brian Egger and I,
• 15:12
  Speaker 8: my equity counterpart, we were on the Aida, which is
• 15:16
  Speaker 8: one of the one of their brands that they market
• 15:19
  Speaker 8: to international customers, specifically in Germany, and it was a
• 15:23
  Speaker 8: one hundred and thirty three round.
• 15:26
  Speaker 2: The world cruise.
• 15:28
  Speaker 8: Nice They were stopping in New York for the day,
• 15:31
  Speaker 8: and they brought a bunch of us on, a bunch
• 15:33
  Speaker 8: of US equity and credit nerds, and took us around
• 15:36
  Speaker 8: the ship and everything was in German, as expected because
• 15:39
  Speaker 8: most of their customers were German. So that's Carnival has
• 15:42
  Speaker 8: a much more diversified customer base. If you talk about
• 15:45
  Speaker 8: theme parks, SeaWorld or United Parks as they go. Right now,
• 15:49
  Speaker 8: their Florida parks, which make up about half their revenue,
• 15:52
  Speaker 8: is international about ten twenty percent, But when you get
• 15:56
  Speaker 8: to six flags, it's much more domestic.
• 15:58
  Speaker 6: We were off the a Mafia Coast last fall, oh fancy,
• 16:03
  Speaker 6: and I saw this big yacht thats like either navy
• 16:05
  Speaker 6: blue or black, And I said, what who owns that?
• 16:08
  Speaker 2: It's the rich Carlton Ritz Carlton. Yes, I actually have
• 16:10
  Speaker 2: the run on it, just parked in. Those are small, though,
• 16:13
  Speaker 2: I mean in terms of the relative five hundred people.
• 16:16
  Speaker 4: Yeah, I mean that looked pretty cool.
• 16:18
  Speaker 8: Yeah, that's for the people who want to be on
• 16:22
  Speaker 8: a luxury yacht but don't want to actually own a
• 16:25
  Speaker 8: luxury yacht.
• 16:26
  Speaker 6: Right.
• 16:26
  Speaker 2: The joke about boats is.
• 16:28
  Speaker 8: Bring on another thousand, right, My mother in law likes
• 16:30
  Speaker 8: st always say that, and that's why it's called boat.
• 16:33
  Speaker 8: So but the uh, you know, the thing about cruising
• 16:38
  Speaker 8: is that there's a perception about who the typical cruiser is. Right,
• 16:42
  Speaker 8: it's the you know, older people who are retired who
• 16:46
  Speaker 8: likes who like to bring basically the catskills on the water.
• 16:49
  Speaker 8: But really, I mean it's changed over time. And what's
• 16:52
  Speaker 8: interesting about our credit research and our travel survey that
• 16:55
  Speaker 8: we do every half a year is we're seeing that
• 16:58
  Speaker 8: it's actually really really spread out. If you look into
• 17:01
  Speaker 8: the buckets that we've segmented, it's really you know, it's
• 17:04
  Speaker 8: one third of each, so it's one third, eighteen to
• 17:06
  Speaker 8: thirty four year old one third that like middle age group,
• 17:09
  Speaker 8: and fifty five and older one third, so it's really
• 17:11
  Speaker 8: not specifically the older.
• 17:13
  Speaker 4: All right, Very good, Jodi, thank you so much. We
• 17:15
  Speaker 4: appreciate that. Jodi Lourie.
• 17:17
  Speaker 6: She is senior credit analyst for Bloomberg Intelligence. Following the
• 17:21
  Speaker 6: leisure part of the economy, stay with us.
• 17:24
  Speaker 4: More from Bloomberg Intelligence coming up after this.
• 17:30
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 17:34
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• 17:40
  Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
• 17:44
  Speaker 6: Well, it is a crazy time to be a CEO.
• 17:48
  Speaker 6: New research from the Conference Board provides insights onto two
• 17:50
  Speaker 6: big trends. Number one CEO turnover I think it's going
• 17:54
  Speaker 6: up CEO and number two CEO.
• 17:55
  Speaker 4: Targeted shareholder activism and again.
• 17:57
  Speaker 6: We just had that try and acquisition of Janis Henderson
• 18:01
  Speaker 6: and they were shareholders.
• 18:02
  Speaker 4: So they said, we're going to buy this whole thing
• 18:04
  Speaker 4: out right, So it's happening out there.
• 18:05
  Speaker 6: Brian Campbell joins US US Center Leader for Governance and
• 18:08
  Speaker 6: Sustainability at the Commerce Board. Brian talked to us about
• 18:11
  Speaker 6: CEO turnover, Is it rising and soy sure?
• 18:16
  Speaker 9: I think, Paul, thank you for having me. I think
• 18:19
  Speaker 9: the trend is that it is up and we are
• 18:22
  Speaker 9: seeing definitely more CEO transition, partially driven by what may
• 18:26
  Speaker 9: have been longer delayed CEO transitions when you think back
• 18:31
  Speaker 9: to the pandemic and the volatility since then, companies kept
• 18:35
  Speaker 9: people in positions for longer, and I think that coupled
• 18:38
  Speaker 9: with regular transition, is showing a spike.
• 18:42
  Speaker 3: So making up for some lost time, which makes sense.
• 18:45
  Speaker 3: Where do we see this happening the most? Are they
• 18:47
  Speaker 3: big companies, smaller companies, companies that are lagging behind in
• 18:51
  Speaker 3: terms of performance?
• 18:52
  Speaker 2: And if so, by what metrics are we looking at performance?
• 18:55
  Speaker 5: Sure?
• 18:55
  Speaker 9: Thank you, Squally. I think what we're noticing is a
• 18:57
  Speaker 9: trend that's across the board. Fact hire, a spike in
• 19:02
  Speaker 9: well performing companies as opposed to just poor performing companies.
• 19:06
  Speaker 9: So I think that's the news part of this, the takeaway.
• 19:09
  Speaker 9: And then I think what you're also seeing is we
• 19:11
  Speaker 9: would view this as a shift in corporate governance more
• 19:14
  Speaker 9: of a proactive approach at the board level.
• 19:17
  Speaker 6: Female CEOs are twice more likely to be targeted by activists.
• 19:22
  Speaker 4: Wow, what's the data show there?
• 19:24
  Speaker 9: Well, I think what we're seeing is that twice as
• 19:27
  Speaker 9: likely to be targeted would be reflective of what the
• 19:30
  Speaker 9: data shows. And then from the market's perspective, it's possible
• 19:34
  Speaker 9: that activists are targeting women's CEOs because they're more likely
• 19:39
  Speaker 9: to cooperate, may play into other stereotypes, but definitely, the
• 19:44
  Speaker 9: trend so high that it is notable.
• 19:47
  Speaker 3: I guess one exception to that is what's happening over
• 19:49
  Speaker 3: at Lululemon, right because Elliott has a stake in Lululemon
• 19:52
  Speaker 3: and it has now become the biggest shareholder in that company.
• 19:55
  Speaker 3: Calvin McDonald, the male CEOs on his way out at
• 19:58
  Speaker 3: the end of January, and there are eyeing the former CFO,
• 20:01
  Speaker 3: Ralph Lauren, who is a woman.
• 20:02
  Speaker 6: Yeah, all right, we'll see so CEOs when I look
• 20:08
  Speaker 6: for CEO if I'm the board, Do I prefer an
• 20:11
  Speaker 6: internal candidate or an external candidate?
• 20:13
  Speaker 4: And is that changing?
• 20:15
  Speaker 9: Historically it was an internal focus. We are seeing a
• 20:18
  Speaker 9: shift toward external and I think that just layers into
• 20:22
  Speaker 9: where we are from a volatility standpoint in the markets generally,
• 20:25
  Speaker 9: and what companies are facing between the economy, inflation and
• 20:30
  Speaker 9: activist activity.
• 20:32
  Speaker 2: Brian, what skill.
• 20:33
  Speaker 3: Set is most valuable for a board right now when
• 20:35
  Speaker 3: they're looking at a new CEO? I would imagine that
• 20:37
  Speaker 3: during the pandemic you wanted someone who is very familiar
• 20:40
  Speaker 3: with supply chain logistics, and even so in the era
• 20:43
  Speaker 3: of tariffs under Trump two point zero, that would be
• 20:46
  Speaker 3: something that's really really important. But have we seen certain
• 20:50
  Speaker 3: skill sets become kind of paramount and then others become
• 20:53
  Speaker 3: less important?
• 20:54
  Speaker 9: Sure, I think the skills matrix that a board focuses
• 20:57
  Speaker 9: on when looking at potential candidates has certainly shifted. Crisis
• 21:00
  Speaker 9: management is a key skill set that has to be
• 21:03
  Speaker 9: present in the current environment, the ability to adapt and
• 21:07
  Speaker 9: be flexible in spite of moving targets, and that was
• 21:11
  Speaker 9: not necessarily the case a decade or so.
• 21:14
  Speaker 3: Ago, and DEI that no longer matters or is it
• 21:17
  Speaker 3: still there? In the background.
• 21:18
  Speaker 9: We would say it's definitely relevant, but not as prominent
• 21:21
  Speaker 9: as it was, and companies are not speaking about it
• 21:24
  Speaker 9: quite as affirmatively as they were in the last few years.
• 21:28
  Speaker 4: That didn't last very long.
• 21:29
  Speaker 2: How long did it last for? Like a year or two?
• 21:31
  Speaker 4: I do know it didn't seem like a flash. There
• 21:33
  Speaker 4: you go, touch that compensation.
• 21:35
  Speaker 6: What's the latest on CEO compensation because a lot of
• 21:38
  Speaker 6: folks feel like the stock based compensation. While of the
• 21:40
  Speaker 6: lines the CEO with the longer term growth, they tend
• 21:44
  Speaker 6: to set targets that are kind of short term. If
• 21:46
  Speaker 6: you meet this earnings or this cashlow of this revenue boom,
• 21:49
  Speaker 6: you get this monster stock award. But that's always been
• 21:51
  Speaker 6: the case.
• 21:52
  Speaker 4: I guess sure.
• 21:52
  Speaker 9: I think what you're seeing there boards focused on their
• 21:55
  Speaker 9: own accountability. They're under pressure to drive performance and they
• 22:00
  Speaker 9: need the CEO tied into that. So certainly, when you
• 22:03
  Speaker 9: talk about the activist side of it, you've got the
• 22:05
  Speaker 9: Lulu Lemon piece.
• 22:06
  Speaker 4: But then when you.
• 22:07
  Speaker 9: Think about traditional board orchestrations of CEO roles. Recently, Coca
• 22:12
  Speaker 9: Cola announced that in March they're going to have a
• 22:14
  Speaker 9: new CEO, Henry Braun, who's coming in with thirty years
• 22:17
  Speaker 9: of experience. This is part of an orchestrated change, so
• 22:20
  Speaker 9: definitely new new opportunities within structuring and governance. And then
• 22:25
  Speaker 9: I think the compensation package there is more tuned into
• 22:29
  Speaker 9: the longer term performance at the company versus maybe an
• 22:32
  Speaker 9: external candidate where there's a compackage that lures them to
• 22:35
  Speaker 9: the company.
• 22:36
  Speaker 3: Brian, I'm sure you guys have done this CEO's Report,
• 22:39
  Speaker 3: this research report a couple of times. Now what surprises
• 22:43
  Speaker 3: you the most in this latest edition did you not anticipate?
• 22:48
  Speaker 9: I think what we're seeing in the background, and we're
• 22:49
  Speaker 9: certainly hearing it from the members of the conference board anecdotally,
• 22:53
  Speaker 9: is the shift in corporate governance to a strategic orchestrated
• 22:57
  Speaker 9: CEO succession plan.
• 22:59
  Speaker 4: So that's new. I think the CEO seat has.
• 23:02
  Speaker 9: Always been a quote unquote, you know, potential hot seat,
• 23:05
  Speaker 9: but definitely more so orchestrated planning boards being accountable and
• 23:10
  Speaker 9: trying to plan that succession and then also including CEOs
• 23:14
  Speaker 9: on the exit, keeping them on the board to continue
• 23:17
  Speaker 9: continue that institutional knowledge, so opportunity there as well.
• 23:20
  Speaker 6: Well.
• 23:20
  Speaker 3: So it used to be they would when they were
• 23:22
  Speaker 3: out of CEO they were just gone from the board
• 23:24
  Speaker 3: completely and persona non grata.
• 23:26
  Speaker 9: Right, And I think it's part of that strategic building
• 23:29
  Speaker 9: of a continuity plan that will continue to perpetuate the
• 23:33
  Speaker 9: institutional knowledge and keep some help for the new CEO
• 23:37
  Speaker 9: transitioning into the role.
• 23:39
  Speaker 6: How about succession planning for CEO these days, because you know,
• 23:42
  Speaker 6: I followed for a long time the Walt Disney Company
• 23:44
  Speaker 6: and they had a great succession plan in place until
• 23:47
  Speaker 6: the CEO blew it up at the last moment. And
• 23:49
  Speaker 6: now it's been ten years and kind of screwing around
• 23:52
  Speaker 6: with mister Iger. How important is succession planning?
• 23:55
  Speaker 4: It's critical these days.
• 23:57
  Speaker 9: And I think what happens now is you've got pipelines
• 24:00
  Speaker 9: of potential candidates internal and external, which is new, and
• 24:05
  Speaker 9: then also being able to transition in case somebody who
• 24:08
  Speaker 9: is in the wings waiting for an opportunity decides that
• 24:11
  Speaker 9: they're going to leave and take an opportunity elsewhere. Companies
• 24:14
  Speaker 9: need to be flexible, boards need to be adaptable.
• 24:17
  Speaker 2: Well, Paul, to your point.
• 24:19
  Speaker 3: Now they have James Gorman, the former CEO and chairman
• 24:21
  Speaker 3: of Morgan Stanley, leading the succession planning over at Disney,
• 24:25
  Speaker 3: because he himself had done such a good job planning
• 24:28
  Speaker 3: for his succession at Morgan Stanley.
• 24:29
  Speaker 6: Yeah, unfortunately they lost two at least two, maybe a
• 24:32
  Speaker 6: three serious outstanding executives and some time a lot of times. Yeah,
• 24:37
  Speaker 6: but I guess if you hold Disney shareholders, they'll be like, hey,
• 24:40
  Speaker 6: bopken Stain is off as long as he wants. That's
• 24:42
  Speaker 6: how good he is, how good we believe him to be.
• 24:45
  Speaker 4: What's the big thing that.
• 24:46
  Speaker 6: CEOs need to be focusing on these days? It doesn't
• 24:49
  Speaker 6: is it simply shareholder MAXI mentioning shareholder value or stakeholder value.
• 24:53
  Speaker 9: I think that's a critical aspect of it that will
• 24:55
  Speaker 9: always be there at the end of the day, though,
• 24:57
  Speaker 9: I think it is building out that more robust skill
• 24:59
  Speaker 9: set toward FLEs, flexibility, adaptability, crisis management. The current volatility
• 25:04
  Speaker 9: that we're seeing out there, I think is the new normal.
• 25:06
  Speaker 9: So CEOs need to adapt.
• 25:08
  Speaker 6: All right, Very good, Brian Campbell, us Center Leader for
• 25:11
  Speaker 6: Governors and Sustainability at the conference aboard here.
• 25:15
  Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify
• 25:20
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• 25:23
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• 25:27
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