Latest / Bloomberg Intelligence / McCormick-Reckitt Could Be Kraft-Heinz's Worst Nightmare, Flickinger Says

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McCormick-Reckitt Could Be Kraft-Heinz's Worst Nightmare, Flickinger Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim
• 0:08
  Speaker 1: Fox along with my co host Lisa Abramowitz. Each day
• 0:11
  Speaker 1: we bring you the most important, noteworthy, and useful interviews
• 0:15
  Speaker 1: for you and your money, whether you're at the grocery
• 0:17
  Speaker 1: store or the trading floor. Find the Bloomberg P and
• 0:20
  Speaker 1: L Podcast on Apple Podcasts, SoundCloud and Bloomberg dot Com. Well,
• 0:32
  Speaker 1: we want to talk about one of the biggest deals
• 0:34
  Speaker 1: in the food service and the food industry because there's
• 0:37
  Speaker 1: distribution that may be involved, and to help us understand
• 0:40
  Speaker 1: what's going on, We've got Bert Flickinger. And Bert, of
• 0:43
  Speaker 1: course is an expert when it comes to retail. He's
• 0:46
  Speaker 1: the managing director at Strategic Resource Group. Bert tell us
• 0:50
  Speaker 1: about the companies involved, admonished me for how poorly I
• 0:54
  Speaker 1: pronounced their names, and uh tell us about who the
• 0:58
  Speaker 1: protagonists are Uhi. This this will be If McCormick is
• 1:04
  Speaker 1: able to buy Record Record ben Kaiser Food division, which
• 1:07
  Speaker 1: the crown jewels are French As Mustard and Frank's Hot Sauce,
• 1:12
  Speaker 1: there will be one of the great acquisitions in the
• 1:14
  Speaker 1: last fifteen years. Fast footnote. I've worked with mccormicks CEO
• 1:19
  Speaker 1: Frank Curzy is since I started at zat Iran sleepy
• 1:23
  Speaker 1: little New Orleans brand for years with Steve's eighties Millenn
• 1:27
  Speaker 1: Pollock and colleagues at IPG. Lawrence and his team takes
• 1:31
  Speaker 1: at Iran's from multi regional to national to international, and
• 1:36
  Speaker 1: McCormick has done a lot of great things with with
• 1:39
  Speaker 1: mayonnaise obviously spices, but with what they can do with
• 1:44
  Speaker 1: Frank's hot sauce and UH taking French as mustard from
• 1:49
  Speaker 1: UH distant almost non entity in major markets to a powerhouse.
• 1:55
  Speaker 1: It's gonna be Kraft Heinz's worst nightmare. And it's people
• 1:59
  Speaker 1: say it's overpaying, their underpaying that that's that's bold. And
• 2:03
  Speaker 1: you say the people say that they're overpaying, I want
• 2:05
  Speaker 1: to home in on that because they are paying four
• 2:08
  Speaker 1: point two billion dollars for record UH Right now, McCormick
• 2:12
  Speaker 1: shares down about five and a half percent, So indeed,
• 2:15
  Speaker 1: shareholders do not think UH that they're going to UH
• 2:19
  Speaker 1: compete with Kraft Heinz perhaps in the same level that
• 2:22
  Speaker 1: you do. What gives you faith that you're right in
• 2:24
  Speaker 1: the market's wrong. Because Laurence Lawrence Curzy has has been
• 2:29
  Speaker 1: a brilliant brand builder and marketers his whole life. Lisa,
• 2:33
  Speaker 1: see you look at French as um, you know, good
• 2:36
  Speaker 1: good brand in Rochester where Wegmans is, but really hasn't
• 2:40
  Speaker 1: achieved size and scale anywhere else. Lawrence Uh and other
• 2:45
  Speaker 1: than the northeast, and Lawrence Curzy is will will make
• 2:48
  Speaker 1: French as a power brand. All right, hang on, hang
• 2:50
  Speaker 1: on Bird, hang on, that's all in the future. Can
• 2:53
  Speaker 1: you just explain to me a little bit about the
• 2:56
  Speaker 1: stock because at one time, I mean, this was just
• 3:00
  Speaker 1: you know, a hundred and five bucks of share and
• 3:04
  Speaker 1: the McCormick I mean, and unless I'm reading it wrong,
• 3:07
  Speaker 1: I mean it has not been a pretty ride down
• 3:10
  Speaker 1: to nine. Full disclosure, Pim. I've I've been a McCormick
• 3:15
  Speaker 1: shareholder halfway to forever and I'm ecstatic about the deal.
• 3:18
  Speaker 1: I've seen the stock drop in recent years as low
• 3:21
  Speaker 1: as sixty eight. But mc McCormick needs more size and
• 3:26
  Speaker 1: scale record Ben Kaiser never had. At the combination of
• 3:29
  Speaker 1: the two companies gives it. Uh provides that size and scale,
• 3:34
  Speaker 1: and they'll help the retailers profitably grow the sales in
• 3:38
  Speaker 1: the departments and with the consumers, particularly millennials there in
• 3:44
  Speaker 1: the sweet spot of categories that will take it from
• 3:47
  Speaker 1: a routine category to a growth what the f Stein
• 3:50
  Speaker 1: calls expandable consumption that the more people buy, they'll quickly
• 3:54
  Speaker 1: consume it and and buy more. So you're you're portraying
• 3:58
  Speaker 1: a world where just a wash in mustard and hot sauce,
• 4:03
  Speaker 1: as well as perhaps some allspice. You know, I have
• 4:05
  Speaker 1: to wonder given the fact that grocery chains have had
• 4:08
  Speaker 1: quite a bit of trouble, given the depressed pricing on
• 4:12
  Speaker 1: commodities on different food staples, as well as distribution challenges,
• 4:17
  Speaker 1: right because we have Amazon buying whole foods, you know,
• 4:21
  Speaker 1: how does this play into that and what challenges do
• 4:23
  Speaker 1: they face that may uh you know, be a little
• 4:26
  Speaker 1: bit more complicated than past challenges. Lisa, to your present points,
• 4:31
  Speaker 1: let the key retailers in Texas or the fastest growing
• 4:35
  Speaker 1: selling the Latino, African, American and Caucasian and Asian communities
• 4:39
  Speaker 1: answer your question. McCormick's Mayonnaise is one of the fastest
• 4:43
  Speaker 1: growing mayonnaisees uh craft both for miracle whip and craft
• 4:47
  Speaker 1: mayonnaisees uh cut quality and being able to do a
• 4:50
  Speaker 1: combination of mayo in In addition to spice product all
• 4:56
  Speaker 1: the way across salet, snacks, condiments, uh, pickles, a lot
• 5:00
  Speaker 1: of other things that McCormick can move quickly on. Retailers
• 5:05
  Speaker 1: want this, They're excited about it. Consumer consumers will be
• 5:09
  Speaker 1: very all right, hang on, hang on, hang on, let
• 5:10
  Speaker 1: me ask, let me just let let let's just get
• 5:12
  Speaker 1: your your detail. On another topic, I happen to do
• 5:15
  Speaker 1: with Lawrence Curtis, right, he is the chief executive of McCormick.
• 5:20
  Speaker 1: But he hasn't been in that role for very long,
• 5:23
  Speaker 1: or has he. He's he's been for a few fist goals,
• 5:29
  Speaker 1: and but Lawrence was in charge of marketing, uh, president
• 5:33
  Speaker 1: and CEO for a long time. Okay, So this is
• 5:36
  Speaker 1: something that that that a veteran because if he is
• 5:39
  Speaker 1: a veteran of McCormick, I mean he's spent many many
• 5:42
  Speaker 1: years there. Uh yeah, PIM and LI. So you could,
• 5:45
  Speaker 1: you could, You can take any CpG company nationally internationally.
• 5:49
  Speaker 1: Lawrence is one of the best marketers, executive leaders, and
• 5:54
  Speaker 1: business builders anywhere any country. He can make this work.
• 5:59
  Speaker 1: I sorry, can he make this deal work? Because I mean,
• 6:03
  Speaker 1: right now you have a situation where their stock is
• 6:06
  Speaker 1: down five and a McCormick stock is down five and
• 6:09
  Speaker 1: a half percent. The record stock is up about one uh.
• 6:14
  Speaker 1: And you know, you look at that chart of McCormick,
• 6:17
  Speaker 1: it's not good by one. Courtys should make it. Make
• 6:21
  Speaker 1: it work too. This will be this will be a
• 6:24
  Speaker 1: stock even in an overvalued market. Uh. There will be
• 6:28
  Speaker 1: up in two years. And it's an individual investor, I'd
• 6:32
  Speaker 1: be buying more. And I don't say that lightly because
• 6:34
  Speaker 1: there are very few stocks that that I'd recommend at
• 6:37
  Speaker 1: this point. All right, Bert Flickinger is absolutely bullish on
• 6:43
  Speaker 1: McCormack after this acquisition. Shareholders not so much right now,
• 6:47
  Speaker 1: but we'll see if they joined Burnt in his enthusiasm
• 6:50
  Speaker 1: for hot sauce and Mannise. Bert flickinjer managing director at
• 6:54
  Speaker 1: Strategic Resource Group, coming to us on the phone. This
• 7:10
  Speaker 1: is the era of data that just is more and
• 7:13
  Speaker 1: more of it being churned out by huge companies. You're
• 7:16
  Speaker 1: talking from Amazon to Google to IBM uh and it's
• 7:20
  Speaker 1: getting more tricky to stored. All enter company called Looker,
• 7:25
  Speaker 1: which is trying to assemble data from the variety of
• 7:29
  Speaker 1: different places that companies have stored uh stored it without
• 7:33
  Speaker 1: having to extract it from those platforms to give us
• 7:35
  Speaker 1: more of a sense of what really this means, because
• 7:37
  Speaker 1: I'm sure I butchered it. Frank b. N He is
• 7:39
  Speaker 1: chief executive officer of Looker, which is based in Santa Cruz, California,
• 7:44
  Speaker 1: and also joining us as man Deep Singh industry analysts
• 7:47
  Speaker 1: at Bloomberg Intelligence, who's based Who's in Chicago today? Frank,
• 7:51
  Speaker 1: did I totally butcher that? Can you explain a little
• 7:54
  Speaker 1: bit better what it is that Looker is seeking to accomplish? Sure?
• 7:59
  Speaker 1: Thanks a lot, I appreciate you having me on this morning. Um. Yeah,
• 8:02
  Speaker 1: you know, look, there's a software product, I mean where
• 8:04
  Speaker 1: a software as a service cloud product that helps companies.
• 8:08
  Speaker 1: Think of it as putting data into the hands of
• 8:10
  Speaker 1: everyone to make better decisions. You know, in the past,
• 8:14
  Speaker 1: I think we served the c suite, or we we
• 8:16
  Speaker 1: gave data to the CFO, or we gave data to
• 8:19
  Speaker 1: the important people. And now what we're seeing is we're
• 8:21
  Speaker 1: seeing companies who are who are disrupting their industries really
• 8:25
  Speaker 1: put data into the hands of everyone so they can
• 8:28
  Speaker 1: make better decisions. And and I mean we're doing like
• 8:30
  Speaker 1: you said, we're doing it at interesting companies, you know,
• 8:32
  Speaker 1: places like Amazon or the Economist or Sony Gaming, you know,
• 8:37
  Speaker 1: Blue Apron, Twilio. So so it's the companies who are
• 8:40
  Speaker 1: disrupting on data or finding if they if they give,
• 8:42
  Speaker 1: if they give better information to the people in their
• 8:44
  Speaker 1: organizations to make better decisions that they can they can
• 8:47
  Speaker 1: actually you know, work more on on you know, fact
• 8:50
  Speaker 1: rather than just intuition. Man Deep maybe just explained to
• 8:55
  Speaker 1: us exactly where this fits in and what kind of
• 8:57
  Speaker 1: growth the industry is seeing. We think bi analytics is
• 9:01
  Speaker 1: about a fifteen to twenty billion dollar market growing at
• 9:05
  Speaker 1: ten percent, and part of the growth, like Frank said,
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  Speaker 1: is coming from this wave around a self service analytics
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  Speaker 1: where companies are now letting their line of business users
• 9:18
  Speaker 1: to leverage analytics and really do it on their own
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  Speaker 1: raw than giving it to an I T. Department to
• 9:25
  Speaker 1: crank out reports. So that has really driven the market
• 9:30
  Speaker 1: and I think it's it's there's a lot of upside
• 9:32
  Speaker 1: to you know, just the growth Outlook, Frank, I'm trying
• 9:36
  Speaker 1: to wrap my head around what exactly it means to
• 9:40
  Speaker 1: give the consumer, the little guy, uh, the access to
• 9:43
  Speaker 1: leverage data. Does that mean when somebody is looking up
• 9:47
  Speaker 1: their Twitter statistics to find out how many of their
• 9:49
  Speaker 1: users are fake or does it mean, uh, they can
• 9:52
  Speaker 1: use Amazon data that they've accumulated to give them a
• 9:56
  Speaker 1: personality profile of themselves. Yeah. It. You know, it doesn't
• 10:00
  Speaker 1: even have to be that complex. You know, companies you
• 10:03
  Speaker 1: know are operating, you know, with lots of systems. You know,
• 10:07
  Speaker 1: they have customer support systems, and they have finance systems,
• 10:10
  Speaker 1: and they have all of these things. But think think
• 10:12
  Speaker 1: if I'm just a customer support person on the phone
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  Speaker 1: and I'm helping I'm helping people every day, I want
• 10:17
  Speaker 1: to have access to exactly what's happening. I want to
• 10:20
  Speaker 1: have access is the person I'm talking to? Are they
• 10:23
  Speaker 1: not paying their bills? Are they behind? Are they you know,
• 10:26
  Speaker 1: have they filed a lot of customer support tickets? What's
• 10:29
  Speaker 1: their overall health? How should I be you know, kind
• 10:32
  Speaker 1: of thinking about it when I'm talking to them in
• 10:34
  Speaker 1: real time, you know, at that moment. And I think,
• 10:37
  Speaker 1: you know, data has done well to serve the big
• 10:39
  Speaker 1: science projects that you mentioned, you know, like what's happening
• 10:41
  Speaker 1: on Twitter things like that, but it hasn't really been democratized, right,
• 10:46
  Speaker 1: It hasn't really been put into the hands of everybody,
• 10:48
  Speaker 1: and what we're trying to do a looker is put
• 10:50
  Speaker 1: it into the hands of everybody, like those customer support
• 10:52
  Speaker 1: people or or people on the warehouse floor taking pictures
• 10:55
  Speaker 1: of merchandise. How are those pictures, you know, performing on
• 10:58
  Speaker 1: the web really put it in the hands of everyone
• 11:00
  Speaker 1: so they can they can you know, make better decisions
• 11:03
  Speaker 1: every day. Frank, there's a tension here because on one level,
• 11:06
  Speaker 1: it's important to have a certain democratization of information, and
• 11:09
  Speaker 1: on the other hand there's some pretty big privacy concerns
• 11:12
  Speaker 1: that this race is as well. How do you address that? Yeah,
• 11:15
  Speaker 1: that's an interesting question. So data has been really decentralized,
• 11:19
  Speaker 1: and there's been this proliferation of lots of like spreadsheet
• 11:22
  Speaker 1: tools and workbook tools and and things that people carry
• 11:25
  Speaker 1: around on their on their laptops. And that's a big
• 11:27
  Speaker 1: security problem because you know, people go around with patient, private,
• 11:32
  Speaker 1: private information on their laptops or things like that because
• 11:34
  Speaker 1: they're downloading these spreadsheets. And what we're trying to do
• 11:37
  Speaker 1: and look or is sort of bring control over all
• 11:39
  Speaker 1: of that so that there's this single source of truth,
• 11:42
  Speaker 1: but it's also managed and governed in their security around
• 11:45
  Speaker 1: and I think that is a huge issue because we've
• 11:47
  Speaker 1: really been suffering over the last ten years of a
• 11:49
  Speaker 1: proliferation of small tools that let people walk around with
• 11:53
  Speaker 1: stuff on on their desktops and laptops. Tell us about
• 11:56
  Speaker 1: this language that you've developed, and why people should now
• 12:01
  Speaker 1: go and have to learn another computer language, not more
• 12:05
  Speaker 1: middleware please. Yeah, no, we're not. We're not, you know,
• 12:08
  Speaker 1: saying that that business users would learn any kind of
• 12:11
  Speaker 1: data language. But but you know, people coming out of
• 12:14
  Speaker 1: school today who want to get into tech are often
• 12:16
  Speaker 1: looking at data as a career. And you know, you
• 12:18
  Speaker 1: have a lot of people are majoring in economics or
• 12:21
  Speaker 1: business and and they're doing data stuff. It's one of
• 12:23
  Speaker 1: the fastest growing career paths. Yeah, you end up taking
• 12:27
  Speaker 1: that sequel server course right exactly. And what we want
• 12:30
  Speaker 1: to do is we want to give those people interesting
• 12:33
  Speaker 1: tools so they can better serve their companies. So the
• 12:36
  Speaker 1: people in the company and the support team or the
• 12:38
  Speaker 1: you know, the warehouse, they're not you know, learning a
• 12:40
  Speaker 1: data language by any means. But we're sort of leveraging
• 12:43
  Speaker 1: these people who are coming out of school with a
• 12:45
  Speaker 1: bit of data background and allowing them to curate an experience, right,
• 12:50
  Speaker 1: curate you know, a better application for those for those
• 12:53
  Speaker 1: end business users, Man Deep, what's the barrier to entry here?
• 12:56
  Speaker 1: Why aren't some of the behemoth tech companies coming up
• 12:59
  Speaker 1: with their own analytics systems and UH and using them
• 13:03
  Speaker 1: to democratize their offerings. I think right now, this is
• 13:07
  Speaker 1: coming up bottom up, So you're you're seeing a lot
• 13:10
  Speaker 1: of the startups, I mean a Tableau and Click are
• 13:13
  Speaker 1: not startups anymore. But they really came up with a
• 13:17
  Speaker 1: new way to think outside of the data warehouse realm.
• 13:20
  Speaker 1: So a lot of this kind of functionality was done
• 13:23
  Speaker 1: in a dataware housing platform. What these guys did was
• 13:27
  Speaker 1: came up with this self service analytics platform where, like
• 13:30
  Speaker 1: Frank said, you you can have the users crankout reports,
• 13:35
  Speaker 1: analyzed the data. And this whole proliferation of cloud and
• 13:38
  Speaker 1: AI is actually a tail wind for for this analytics wave.
• 13:43
  Speaker 1: So the large behemoths are still catching up, you know,
• 13:47
  Speaker 1: just integrating the new technologies, and they haven't really focused
• 13:51
  Speaker 1: on the analytics aspect that much. Man Deep, can you
• 13:54
  Speaker 1: just give us a little more detail about artificial intelligence?
• 13:57
  Speaker 1: Give you about thirty seconds here, sure, So AI is
• 14:01
  Speaker 1: really coming together in the sense that the basis of
• 14:06
  Speaker 1: performing AI analytics is data and once you have data
• 14:10
  Speaker 1: aggregated and you can process it in real time through cloud,
• 14:14
  Speaker 1: it enables a lot of things in terms of doing
• 14:17
  Speaker 1: things real time, which can drive our o I for
• 14:20
  Speaker 1: a lot of industries. So that's really the genesis of
• 14:23
  Speaker 1: this wave of self service analytics. Frank, I'm only going
• 14:26
  Speaker 1: to give you ten seconds. Ai. Yeah, No, I think
• 14:30
  Speaker 1: that you know, we're finally starting to see, you know,
• 14:32
  Speaker 1: out of the benefit of the cloud platforms at Amazon
• 14:35
  Speaker 1: and Google and whatnot, the ability for everyone to be
• 14:38
  Speaker 1: like those organizations. And I think you'll see those kind
• 14:40
  Speaker 1: of technologies go into the hands of smaller you know,
• 14:43
  Speaker 1: or smaller companies. Thank you very much, Frank Bien. He
• 14:47
  Speaker 1: is the chief executive of Looker. They are based in
• 14:49
  Speaker 1: Santa Cruz and our thanks to man Deep Singh, industry
• 14:52
  Speaker 1: analysts for Bloomberg Intelligence. One of the biggest movers today
• 15:09
  Speaker 1: in the stock market is Scripts Networks Interactive, with a
• 15:13
  Speaker 1: gain in its shares of about fourteen and a half percent.
• 15:16
  Speaker 1: This comes after Discovery and via commercead to be talking
• 15:20
  Speaker 1: about combining with this network and just for anyone who
• 15:24
  Speaker 1: doesn't know, we're talking HDTV and food network. People want uh,
• 15:28
  Speaker 1: some some food throwdowns and some renovations of their homes.
• 15:31
  Speaker 1: Here to give us a little bit more of a
• 15:33
  Speaker 1: sense of how realistic a deal is is Alex Sherman,
• 15:35
  Speaker 1: Technology Media and Telecom Mergers and Acquisitions reporter for bloom
• 15:39
  Speaker 1: Brick News. Alex, do you think, first of all, who
• 15:43
  Speaker 1: do you think has the upper hand? Discovery or Viacom.
• 15:46
  Speaker 1: So this is a tricky one because I think there
• 15:49
  Speaker 1: are problems with both buyers um and that, and therefore,
• 15:52
  Speaker 1: while the market seems to be pretty confident that a
• 15:55
  Speaker 1: deal is going to happen here, I am less confident.
• 15:58
  Speaker 1: I can look, I reported this story, so I can
• 16:00
  Speaker 1: say that there is a sales process going on. But
• 16:03
  Speaker 1: Scripts has been perennially for sale. Three years ago. Discovery
• 16:07
  Speaker 1: almost bought Scripts and that deal fell apart. So there
• 16:10
  Speaker 1: is some logic there that Discovery is at least interested.
• 16:13
  Speaker 1: And Discovery has a lot of programming that is geared
• 16:15
  Speaker 1: towards men in general, and Scripts has a lot of
• 16:18
  Speaker 1: programming that is geared toward women in general. So there
• 16:21
  Speaker 1: there is sort of a natural fit there. But that
• 16:23
  Speaker 1: deal didn't get done for a reason, in part because
• 16:27
  Speaker 1: there was a bid ask difference. And now if if
• 16:31
  Speaker 1: Scripts is running a sales process, you'd imagine again Discovery
• 16:34
  Speaker 1: would have to pay up. And Discovery is controlled or
• 16:37
  Speaker 1: at least not quite controlled. But let's say thirty of
• 16:39
  Speaker 1: the votes are controlled by John Malone, who is not
• 16:42
  Speaker 1: known to bid up in auctions, So that is a
• 16:45
  Speaker 1: problem with Discovery. Viacom's problem is if you take a
• 16:48
  Speaker 1: look at Viacom shares, you don't You only have to
• 16:52
  Speaker 1: go back until about March or so when Viacom was
• 16:55
  Speaker 1: trading out about forty six dollars a share. They're now
• 16:58
  Speaker 1: trading at thirty six dollars a share. So any deal
• 17:00
  Speaker 1: with Viacom would probably be at least some component of
• 17:03
  Speaker 1: it would be stock, and they sort of missed their
• 17:06
  Speaker 1: chance to use their currency. Well uh, and now their
• 17:10
  Speaker 1: company is about fourteen fourteen and a half billion dollar
• 17:13
  Speaker 1: market cap company. Scripts is about let's say a nine
• 17:17
  Speaker 1: point eight nine point nine is almost ten billion dollar
• 17:21
  Speaker 1: market cap company. It would be a huge deal for Viacom,
• 17:24
  Speaker 1: and they wouldn't be using their stock at its high price,
• 17:28
  Speaker 1: So that's probably the problem with Viacom. They're just from
• 17:31
  Speaker 1: a financial standpoint, this would be an enormous bet. Viacom
• 17:34
  Speaker 1: almost merged with CBS. Is Scripts really the right bet?
• 17:38
  Speaker 1: I don't know. Doesn't this also lead to Sherry Redstone,
• 17:42
  Speaker 1: So there's control issues on both front to your point,
• 17:45
  Speaker 1: because say you need a genealogical assistant here, because there
• 17:49
  Speaker 1: are a lot of tangled right. So Summer Redstone is
• 17:52
  Speaker 1: still alive, but not the only family, right. But ya, exactly,
• 17:55
  Speaker 1: They're all run by families, which is, by the way,
• 17:57
  Speaker 1: a bigger reason, even beyond Viacom, why any of these
• 18:01
  Speaker 1: media deals haven't happened yet. So let me take a
• 18:04
  Speaker 1: step back here. All of these media companies probably should
• 18:07
  Speaker 1: consolidate with each other, and by all I mean a MC, Scripts, Discovery, Viacom.
• 18:12
  Speaker 1: They're all challenged right now because cable providers are offering
• 18:17
  Speaker 1: skinnier bundles where they for years and years and years,
• 18:20
  Speaker 1: these companies have done phenomenally well because when it came
• 18:23
  Speaker 1: time to negotiating contracts with the PayTV providers I mean
• 18:27
  Speaker 1: the Comcast, Direct TV, Dish Network, etcetera of the world,
• 18:30
  Speaker 1: how you get your TV. When it came down to
• 18:33
  Speaker 1: negotiating contracts with them, the deal was you either take
• 18:37
  Speaker 1: all of our channels or none. That is starting to
• 18:40
  Speaker 1: happen less and less these days because the leverage has
• 18:45
  Speaker 1: moved towards the PayTV providers who have basically said, we'll
• 18:48
  Speaker 1: take none and then what are you gonna do about it? Uh?
• 18:51
  Speaker 1: And the reason they're being that you can get a
• 18:53
  Speaker 1: lot of these programming, the taped programming in other ways.
• 18:56
  Speaker 1: You can get some on Netflix, you can get some
• 18:58
  Speaker 1: on Hulu. Uh. You know, I want to just go
• 19:01
  Speaker 1: a little bit broader. And when we're talking about h
• 19:04
  Speaker 1: g TV, we're talking reality television shows, and I'm wondering
• 19:08
  Speaker 1: how much their business model is being challenged by YouTube
• 19:11
  Speaker 1: and the fact that the barrier to entry has just
• 19:13
  Speaker 1: gone down so dramatically, So a lot of the programming
• 19:16
  Speaker 1: has been challenged. The programming that has not been challenged
• 19:19
  Speaker 1: is live programming because you can't get that on YouTube.
• 19:22
  Speaker 1: But Discovery and and viacommon scripts they don't have live programming.
• 19:27
  Speaker 1: So they are really in the crosshairs of how people
• 19:30
  Speaker 1: watch TV changing and and and it's it's not it's
• 19:34
  Speaker 1: it's not good for these companies, which is why theoretically
• 19:38
  Speaker 1: they could merge and then they could sort of have
• 19:43
  Speaker 1: a little bit more leverage because they could be like, well,
• 19:44
  Speaker 1: we have these three channels that are still good, like HDTV,
• 19:48
  Speaker 1: A lot of people still watch that. And you know,
• 19:50
  Speaker 1: Discovery has a few channels that people still watch. And yeah,
• 19:53
  Speaker 1: we have a bunch of these channels that nobody still watches.
• 19:55
  Speaker 1: But if we put our combined forces together, we come
• 19:58
  Speaker 1: up with a company that at least still has some average.
• 20:00
  Speaker 1: Of course, you end up then with a huge company
• 20:03
  Speaker 1: that has a lot of channels that nobody still watches too,
• 20:06
  Speaker 1: So this runs both ways, where yeah, they get a
• 20:09
  Speaker 1: little bit more leverage, But then what are you gonna
• 20:10
  Speaker 1: do with the fourteen channels that no one's watching anymore? Wow?
• 20:14
  Speaker 1: I don't know what I know. That is the challenge,
• 20:17
  Speaker 1: I guess. But but Alex, can you just do a
• 20:19
  Speaker 1: little family feud for us? I was on a family
• 20:21
  Speaker 1: feud by the way, like literally on family. But we
• 20:25
  Speaker 1: got to talk about that, all right, family, I love it, alright.
• 20:29
  Speaker 1: So did you get to meet Richard Dawson. It was
• 20:31
  Speaker 1: not Richard Dawson. It was Louis Anderson. I was not
• 20:35
  Speaker 1: kissed on the cheek by Richard Dawson. All right, So
• 20:39
  Speaker 1: who are the families involved here? So the families are
• 20:41
  Speaker 1: the Redstone family, runs Viacom. Sumner Redstone is still alive.
• 20:45
  Speaker 1: He's very ill. Sherry Redstone has basically been running the
• 20:48
  Speaker 1: company and in his stead for years now. Scripts is
• 20:52
  Speaker 1: also owned by a family, and it's the idea behind
• 20:59
  Speaker 1: whether or not Scripts would sell has always been like, well,
• 21:02
  Speaker 1: the family is on board if the price is right.
• 21:05
  Speaker 1: Discovery is owned by John Malone. A MC is owned
• 21:08
  Speaker 1: by the Dolan family. There are you know. CBS is
• 21:14
  Speaker 1: sort of a free radical. That's the Deaths John Malone's
• 21:17
  Speaker 1: term out there, but but only in the sense that
• 21:19
  Speaker 1: the Redstones of course controls CBS two. They're only a
• 21:22
  Speaker 1: free radical in the sense that less Moonvez maybe has
• 21:25
  Speaker 1: more control than than most CEOs with that company. So
• 21:28
  Speaker 1: some people think that CBS might be able to do
• 21:30
  Speaker 1: something on the pure force of less Moonvez, the CEO
• 21:34
  Speaker 1: of that company, even though he doesn't own it. So
• 21:36
  Speaker 1: each of these families is owned. Each of these companies
• 21:39
  Speaker 1: is owned by family, and yes they're publicly traded companies,
• 21:42
  Speaker 1: but whether or not they actually trade depends really on
• 21:45
  Speaker 1: whether or not the families want to keep owning the
• 21:47
  Speaker 1: company or whether they're game to do a deal. As always,
• 21:50
  Speaker 1: thank you very much, Alex Sherman. He is our mergers
• 21:53
  Speaker 1: and acquisitions reporter for Bloomberg. Well, I want to turn
• 22:08
  Speaker 1: to Ksey Matthews, an economist and the chief investment officer
• 22:11
  Speaker 1: for U m B Bank with the responsibility for over
• 22:15
  Speaker 1: eight billion dollars. They're based in Kansas City, and Casey Matthews,
• 22:20
  Speaker 1: thanks very much for coming into our Bloombrook studio. Good morning,
• 22:23
  Speaker 1: Good to see you. I'm wondering if you could. First
• 22:25
  Speaker 1: of all, I'm outgunned here because I understand that there
• 22:29
  Speaker 1: are two people in the studio who have connections to Wisconsin.
• 22:33
  Speaker 1: That's right, grew up just outside Milwaukee, Wisconsin, all right,
• 22:37
  Speaker 1: and Lisa Abrahmwitz. Come on. My mother's family is from Wiscon, Okay.
• 22:42
  Speaker 1: So that reason I ask is what is the view
• 22:45
  Speaker 1: of what is going on, not only with the politics
• 22:49
  Speaker 1: and song, but with money and people's relationship. What do
• 22:54
  Speaker 1: they think to feel confident that the stock market is
• 22:57
  Speaker 1: going to stay moving higher? Well, yeah, let me let
• 23:00
  Speaker 1: me start with maybe confidence in the business sector. I'm
• 23:02
  Speaker 1: more of a mackerel stage, and we'll get into the micro.
• 23:06
  Speaker 1: But it's interesting that when you look at some of
• 23:08
  Speaker 1: the surveys the n F I b small business optimism. Clearly,
• 23:12
  Speaker 1: business owners and executives feel good about things, but when
• 23:16
  Speaker 1: you ask them, what are you gonna do about it,
• 23:18
  Speaker 1: they're sitting on their hands because they're saying, tell me
• 23:21
  Speaker 1: what my tax rate is going to be, tell me
• 23:23
  Speaker 1: what my regulatory environment is going to be. So they
• 23:25
  Speaker 1: feel good that there's a light at the end of
• 23:28
  Speaker 1: the tunnel, but until they get some concrete evidence that
• 23:32
  Speaker 1: confidence the lack of uncertainty, they're not going to take
• 23:36
  Speaker 1: any action. And that's why you see a mediocre economy. Well,
• 23:39
  Speaker 1: you know, I'm interested in in the fact that you
• 23:41
  Speaker 1: start on this note because we were just talking about frankly,
• 23:44
  Speaker 1: how the bump that we've seen in stocks has been
• 23:47
  Speaker 1: less due to President Trump's election and the expected changes politically,
• 23:54
  Speaker 1: but more due to the earnings growth that we've seen
• 23:57
  Speaker 1: and the boom there. So it's sort of trusts with
• 24:01
  Speaker 1: this sitting on the hands wondering what's going to happen.
• 24:03
  Speaker 1: Mediocrity that you're describing when you're talking about the expected
• 24:07
  Speaker 1: eight percent growth that you are looking for in the
• 24:09
  Speaker 1: second quarter earnings and earnings growth in the second quarter,
• 24:13
  Speaker 1: that's right. Well, if you go you have to go
• 24:15
  Speaker 1: back to end of two thousand and fourteen, where we
• 24:18
  Speaker 1: saw an earnings recession. In corporate America, we had seven
• 24:21
  Speaker 1: quarters of earnings contraction. It's interesting the timing. It wasn't
• 24:26
  Speaker 1: until the third quarter of two thousand and sixteen when
• 24:29
  Speaker 1: we got the data, was middle of October through November.
• 24:32
  Speaker 1: The election, right, all of a sudden, we saw this
• 24:35
  Speaker 1: ray of sunshine. Earnings turned positive at whopping two percent
• 24:39
  Speaker 1: in the fourth quarter they were eight or nine the
• 24:41
  Speaker 1: first quarter of this year eighteen percent, and all of
• 24:44
  Speaker 1: a sudden, stocks moved and a lot of people label
• 24:47
  Speaker 1: at the Trump rally. Well, I call it an earnings rally.
• 24:50
  Speaker 1: So do you think that people are conflating the election
• 24:53
  Speaker 1: with the earnings growth that we saw really accelerate at
• 24:56
  Speaker 1: the beginning of the year. So just translate this into
• 25:01
  Speaker 1: market positioning. Does this mean that you are bullish on
• 25:05
  Speaker 1: US stocks? And if so, which sectors in particular? And
• 25:08
  Speaker 1: how much longer can this rally continue? Yeah, we are
• 25:12
  Speaker 1: bullish on stocks. Were overweight risk based assets for a
• 25:15
  Speaker 1: number of reasons. The macro data points to an improving economy.
• 25:19
  Speaker 1: One thing I look at is the I s M
• 25:21
  Speaker 1: new orders, very leading indicator when business owners and executives
• 25:25
  Speaker 1: tell me they're placing orders, it tells me their business
• 25:28
  Speaker 1: is good. Um, so we're at you know, two year
• 25:31
  Speaker 1: highs on those numbers. The bond market gives us clues
• 25:35
  Speaker 1: when you look at the shape of the yield curve.
• 25:37
  Speaker 1: We have at a ninety basis point a slope between
• 25:40
  Speaker 1: twos and tens. And typically when you start to see
• 25:44
  Speaker 1: the yield curve flatten, which we started to see. Even
• 25:47
  Speaker 1: when it gets flat, you still have twelve to twenty
• 25:50
  Speaker 1: four months before the stock market reacts. So I believe
• 25:55
  Speaker 1: that earnings will continue to support stock prices. That's not
• 25:59
  Speaker 1: to say we won't see a correction. We haven't seen
• 26:01
  Speaker 1: a correction a long time. They're normal and healthy. But
• 26:03
  Speaker 1: longer term, I think stocks will outperform fixed income. In
• 26:07
  Speaker 1: cash sectors, we like you know, you've seen some weakness
• 26:11
  Speaker 1: in the dollar that will help exports those industrials. We
• 26:15
  Speaker 1: do like finance finances sitting here waiting for a steep
• 26:18
  Speaker 1: yield curve, higher interest rates, and regulation reform. So we're
• 26:23
  Speaker 1: pretty broad based as far as our sector allocation. I
• 26:26
  Speaker 1: want to ask you turned back to something you said
• 26:28
  Speaker 1: about the business feels right that was the macro picture. Um,
• 26:34
  Speaker 1: what if the macro picture is about ever increasing uncertainty.
• 26:42
  Speaker 1: In other words, you're waiting for the dust to settle,
• 26:44
  Speaker 1: and the companies that are making new strides and whatever
• 26:48
  Speaker 1: it is, they're not waiting for the dust to settle
• 26:50
  Speaker 1: because they realize that it doesn't settle anymore. You have
• 26:53
  Speaker 1: too many market participants. You have too many uh companies
• 26:56
  Speaker 1: that can come in with a laptop and you know,
• 27:00
  Speaker 1: genius mind and disrupt the entire transportation industry like Uber
• 27:05
  Speaker 1: or hotels like Airbnb. Well, I think what happens is
• 27:09
  Speaker 1: if you don't get clarity on some of these issues,
• 27:12
  Speaker 1: you're stuck in the mud at that two percent GDP growth.
• 27:16
  Speaker 1: So yeah, but they're not going to do it for
• 27:18
  Speaker 1: the health of the GDP grow They're going to do
• 27:20
  Speaker 1: it because they know that they can make more money.
• 27:22
  Speaker 1: That it's good for their business. Right. But so if
• 27:24
  Speaker 1: the competition comes in, you know the guy down the
• 27:26
  Speaker 1: street says, well, no, I'm gonna offer it better, faster, cheaper. Well,
• 27:30
  Speaker 1: those are disruptors that are in the marketplace today. Amazon.
• 27:33
  Speaker 1: Does that need to happen more? I mean, so I'm
• 27:35
  Speaker 1: wondering why you would you be investing in, you know,
• 27:37
  Speaker 1: like healthcare and biotechnology and technology. Is that not an
• 27:42
  Speaker 1: area of where you want to put some of your chicks. Sure? Absolutely.
• 27:45
  Speaker 1: Like I said, we're pretty much diversified across broad sectors
• 27:50
  Speaker 1: because of that situation. But I think that's that healthy
• 27:53
  Speaker 1: competition makes us better, makes corporations better, more efficient. It
• 27:57
  Speaker 1: will increase earnings and of course revenue growth. But you've
• 28:00
  Speaker 1: got the disruptors like Amazon, and you've got some of
• 28:02
  Speaker 1: these other companies that um like Nelson Pelts to try
• 28:06
  Speaker 1: in a blue apron. You know, some of these things
• 28:08
  Speaker 1: show up and almost disappear. Well you know, uh not yet.
• 28:12
  Speaker 1: It hasn't disappeared yet, but but it definitely is track. Yeah,
• 28:16
  Speaker 1: it's on that track, you know. Casey. I want to
• 28:18
  Speaker 1: just talk about how you're saying that the fundamentals look
• 28:20
  Speaker 1: good and so the rally will continue. One problem that
• 28:23
  Speaker 1: people raises that the markets have become broadly public markets anyway,
• 28:27
  Speaker 1: have become broadly detached from fundamentals due to central banks stimulus.
• 28:31
  Speaker 1: And now that the economy is improving, as central banks
• 28:34
  Speaker 1: withdraw the stimulus, it doesn't matter that fundamentals are improving.
• 28:37
  Speaker 1: It's going to cause a sell off that could potentially
• 28:40
  Speaker 1: be more sustained or at least cap any future gains.
• 28:43
  Speaker 1: I mean, are you concerned about that? Does that matter
• 28:45
  Speaker 1: to you? I'm not. It's interesting some things we think
• 28:48
  Speaker 1: about is does the FED really matter? And when you
• 28:51
  Speaker 1: think about it, well, I would assume most CFOs have
• 28:56
  Speaker 1: termed out their debt if they have access to either
• 28:59
  Speaker 1: capital more keats, or if there's a lot of pressure
• 29:01
  Speaker 1: on banks to term out their debt. Same thing with
• 29:04
  Speaker 1: the consumer now today, something like ninety plus percent of
• 29:07
  Speaker 1: mortgages are a fixed rate. Mortgages are not veritable rate
• 29:10
  Speaker 1: like the housing crisis, So I think you're in a
• 29:12
  Speaker 1: different environment. So I'm not sure the FED today with this,
• 29:16
  Speaker 1: with seven years of monetary stimulus, really matters if rates,
• 29:21
  Speaker 1: you know, move up slightly, I don't know if it
• 29:23
  Speaker 1: really matters dramatically to corporate runnings. Really interesting, especially because
• 29:27
  Speaker 1: for so long there was is there is no alternative
• 29:30
  Speaker 1: trade where basically people weren't getting an yield in bonds,
• 29:33
  Speaker 1: you might as well go to stocks. You know, there's
• 29:35
  Speaker 1: a concern that people are going to rotate out of
• 29:36
  Speaker 1: stocks and go back into bonds if yields get high enough.
• 29:39
  Speaker 1: Especially because I mean realistically, if if yields can remain
• 29:41
  Speaker 1: this low, that means that growth will not pick up
• 29:44
  Speaker 1: that much. But you've got a long ways to go
• 29:48
  Speaker 1: before people go out of stocks and into bonds because
• 29:50
  Speaker 1: of the yield. Kasey Matthews, thank you so much for
• 29:53
  Speaker 1: joining us. Truly a pleasure having you in the studio here.
• 29:55
  Speaker 1: Casey Matthews is economist and chief investment officer. You m
• 29:58
  Speaker 1: B Bank, which is based in Kansas City, Missouri, UH
• 30:01
  Speaker 1: and manages over eight billion dollars need joins us here
• 30:04
  Speaker 1: in our Bloomberg eleven three oh studios. Thanks for listening
• 30:11
  Speaker 1: to the Bloomberg P and L podcast. You can subscribe
• 30:14
  Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
• 30:17
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
• 30:21
  Speaker 1: at pim Fox. I'm on Twitter at Lisa abramoids one.
• 30:25
  Speaker 1: Before the podcast, you can always catch us worldwide on
• 30:28
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