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Hershey's Main Owner Rejects Mondelez Offer · Bloomberg Intelligence

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0:23
Speaker 3: Let's go to another deal that we've been talking about
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Speaker 3: throughout the morning, and that's Hers. She's in Mondaliz. Mondales
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Speaker 3: makes a bit for her, She's Hershe's comes back today
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Speaker 3: and says, Nah, she's not high enough. Want to get
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Speaker 3: more on this with Diana Rosea Pina, Bloomberg Intelligence Consumer
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Speaker 3: Staples analyst. Is there a number you think that Hershe's
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Speaker 3: would be like?
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Speaker 4: Yep, Well, it really depends. Last time Mondales tried, which
0:45
Speaker 4: was in twenty sixteen, they went up to twenty five
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Speaker 4: billion dollars with a multiple of twenty times EBITDA. Currently
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Speaker 4: Hershe's at sixteen and he was still denied. There's a
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Speaker 4: lot of hurt that Mondaliese will have to go through.
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Speaker 4: Not only the trust that owns pretty much controls eighty
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Speaker 4: percent of Hershey, but there's also the age for Pennsylvania
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Speaker 4: that has to say on it and it's likely that they.
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Speaker 3: Will deny it.
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Speaker 5: Interesting, So, have we heard anything from the trust either
1:20
Speaker 5: now or in the past about kind of their willingness
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Speaker 5: to sell because this is a family situation.
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Speaker 4: Yeah, it's unlikely that they will want to sell. Her
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Speaker 4: reports that because cocoa is at you know, such high levels,
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Speaker 4: they might be more willing to sell. It is unlikely.
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Speaker 4: You know, ten percent of the revenue for Hershey is
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Speaker 4: in salty snacks. There's expanding into it, There's a lot
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Speaker 4: of things that they're trying to do. I don't think
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Speaker 4: necessarily that you know, a commodity is going to make
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Speaker 4: them sell. It's unlikely.
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Speaker 3: So you mentioned that Monley's made a bid bad with
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Speaker 3: twenty sixteen. Is that what you've said? Yes, So what's
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Speaker 3: the environment from twenty sixteen where you were looking at
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Speaker 3: twenty five billion dollars bid twenty five times even da right,
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Speaker 3: that's what it was valued at that versus today within
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Speaker 3: this kind of snack foods market.
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Speaker 4: Well, you know, obviously there's been a lot more acquisitions
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Speaker 4: compared to twenty sixteen. Rates might be going down in
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Speaker 4: terms of that will make it permissible. Another thing that
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Speaker 4: we think it's going to be difficult for Mandalize is
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Speaker 4: actually to finance the deal. So currently they will probably
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Speaker 4: go extending beyond six times abidad to be able to
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Speaker 4: even get closer. And last time they actually did a
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Speaker 4: fifty stock fifty percent cash. We're thinking that they're probably
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Speaker 4: came back to the same with the same proposal and
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Speaker 4: it was pretty much nigh.
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Speaker 5: What's your sense of how aggressive Mondalies may be, both
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Speaker 5: in terms of price and I don't know, maybe structure
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Speaker 5: giving the family some kind of special value or something.
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Speaker 4: Yeah, I mean it seems like they were going, uh,
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Speaker 4: they're going in a I don't want to say a
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Speaker 4: fishing expedition, but it's kinda I think they want to
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Speaker 4: be friendly. I don't think they want to be extremely aggressive.
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Speaker 4: You know, obviously they they have a relatively new CEO
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Speaker 4: compared to what they had last time, so maybe he
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Speaker 4: sees things a little bit different. Uh, the industry has
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Speaker 4: gone beyond strategic m and A and more of like
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Speaker 4: bolt on acquisitions. They do better with that because it's
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Speaker 4: easier to assimilate, it's cheaper, uh, and it's easier on
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Speaker 4: the balance sheet. So I think they're more there. I
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Speaker 4: think they will be happy if it happens, but I
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Speaker 4: don't I don't think it's going to be something that
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Speaker 4: they're gonna be pressing on.
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Speaker 3: How uh, how fractured is the snack group right now,
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Speaker 3: like how many players are in it and sort of
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Speaker 3: what's the growth rate for these guys right now.
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Speaker 4: So for confectionery, you know, if if Mandalize is successful,
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Speaker 4: then and the combined global market for the global share
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Speaker 4: for Mandalize Hershey will be about sixteen percent and twenty
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Speaker 4: seven percent in North America, So it is it is
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Speaker 4: not as fragmented as you know other other situations. You
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Speaker 4: have the snack Salty Snacks, which is sixty percent going
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Speaker 4: to PepsiCo, So it's it's it's very concentrated. I would say, all.
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Speaker 5: Right, you put in Mandales md l Z is the ticker,
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Speaker 5: and you go equity comp comp This is one of
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Speaker 5: Matt Miller's favorite functions, SHUZI that compares the stock price
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Speaker 5: of Mandaliese over the last five years average annual return
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Speaker 5: five point seven percent, the Consumer Staples Index nine point
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Speaker 5: eight percent, and the S and P five hundred over
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Speaker 5: the last five years up almost sixteen percent. So Mandalize
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Speaker 5: has been an underperformer are they just too big? Do
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Speaker 5: you think what's the bare case on Mandalize?
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Speaker 4: I think I think it has to do with how
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Speaker 4: snacks have have performed in the past a couple of years.
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Speaker 4: Also because of you know, chocolate being high. They are
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Speaker 4: actually exposed to chocolate. Obviously they have half of their
5:14
Speaker 4: revenue comes from Oreo, which is obviously.
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Speaker 5: The revenue Mondolize comes from Oreos. Yes, wow, see there
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Speaker 5: the problem here. First, for these snack good companies, there's
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Speaker 5: more and more people like Lisa Mittelo out there. You know,
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Speaker 5: healthy food, always exercise.
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Speaker 3: Excuse me, am, I insulted. I was not included in
5:32
Speaker 3: this list sitting right next to you. Yeah. Mostly that's
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Speaker 3: no good. But that's the point. And then you also
5:41
Speaker 3: have the GLP one drugs numbers, all the worries that like,
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Speaker 3: oh that was going to tank food, et cetera, but
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Speaker 3: that we haven't really seen that. But if you talk
5:49
Speaker 3: to the CEO of say Novdes like a year and
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Speaker 3: a half ago, who had been like, oh, yeah, I'm
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Speaker 3: getting calls from the snack guys for sure.
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Speaker 1: Yeah.
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Speaker 4: I mean it's it's these companies have been around for
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Speaker 4: a hundred years. They have seeing everything and last time
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Speaker 4: there was another wave of like healthy snacking. They responded
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Speaker 4: by doing what they call permissible snacking, which.
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Speaker 3: Was basically their Oreos.
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Speaker 4: Cookies in like a smaller package, which was more profitable
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Speaker 4: for them, and they will like market it as you know,
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Speaker 4: it's only one hundred calories. You can actually eat this
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Speaker 4: as a snack.
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Speaker 3: So you know the ylp.
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Speaker 4: Thread, it's it's of our vlona.
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Speaker 5: I think Eric from the back row rights and Oreos
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Speaker 5: are vegan.
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Speaker 1: Oh that I.
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Speaker 3: No, No, the cookie parts not vegan. The's no way.
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Speaker 2: I don't know.
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Speaker 5: Maybe they have a vegan version.
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Speaker 3: You're gonna have milk and eggs in there in some capacity,
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Speaker 3: you know, or unless it's you ate one like I've
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Speaker 3: eaten them. I just don't eat them. Although I did
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Speaker 3: make an Oreo pavlova for Thanksgiving that was really good,
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Speaker 3: and uh oreo with cream. It's basically it's like a
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Speaker 3: big Moraine cake with Oreos in it. Okay, and nobody
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Speaker 3: ate it. Everybody ate it. My mom and wanted to bulky.
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Speaker 3: There's like four of us, but still all right, enough
7:08
Speaker 3: of that, Thank you very much. We appreciated Diana Dana
7:11
Speaker 3: Pena Roseero Penya Bloomberg Intelligence.
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7:33
Speaker 3: All right, back to the economic data of the day,
7:35
Speaker 3: You're going to take a look at CPI. So it
7:37
Speaker 3: felt like a pretty benign read on inflation. That was
7:40
Speaker 3: sort of the zeitgeist. After the number broke, However, the
7:43
Speaker 3: question really becomes, then where else will we see disinflation?
7:48
Speaker 3: Or is the stickiness of higher prices going to change
7:50
Speaker 3: the neutral rate in that terminal rate for the Fed?
7:53
Speaker 3: While Bill Lee is joining us one of the best
7:56
Speaker 3: in the industry, Bill Lee, chief economists at the Milken Institute,
8:00
Speaker 3: Hey Bill, do you think that the disinflation trend is
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Speaker 3: over for now?
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Speaker 6: Hy Alex, Well, we see the disinflation trend mainly in
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Speaker 6: goods and that seems to be continuing until perhaps we
8:11
Speaker 6: see the tabs come in. But the key to the
8:15
Speaker 6: inflation picture is going to be services, as you know, and.
8:17
Speaker 7: I think most people have not realized.
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Speaker 6: That they've concentrated so much on services and housing services
8:24
Speaker 6: they forget that services X energy X housing has been
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Speaker 6: running somewhere three and a half to three to three
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Speaker 6: quarter percent for the longest time, and that doesn't show
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Speaker 6: any sign of coming down.
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Speaker 7: And I think that's one of.
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Speaker 6: The reasons why perhaps the discontent elected President Trump, because
8:40
Speaker 6: people are saying, I just can't make ends meet, I
8:43
Speaker 6: might cost a living just doesn't show any signs of recovering.
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Speaker 6: And I think the reason there is because launch things
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Speaker 6: like personal services, haircuts, medical services, car insurance, use, car prices.
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Speaker 6: These are things that are still showing a lot of momentum,
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Speaker 6: and there's no sign that those are ebating. And I
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Speaker 6: think that's what the FED worried enough to say, Look,
9:05
Speaker 6: we need to normalize, but we're going to be normalizing
9:09
Speaker 6: at our own pace, and it's going to be determined
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Speaker 6: by what's happening the services, X housing, eccentergy, eccentergy.
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Speaker 5: So how do you think the FED will interpret today's
9:18
Speaker 5: data as it thinks about it's December eighteenth meeting.
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Speaker 7: I think they think it's on track.
9:22
Speaker 6: They really see that downward momentum in the in the
9:26
Speaker 6: overall numbers and especially on the PC the flavor where
9:29
Speaker 6: people's behavior can really adjust to relatively cheaper stuff. But
9:34
Speaker 6: I think what they're going to say, come come January
9:37
Speaker 6: is let's see more momentum going down. We've seen the
9:40
Speaker 6: bulk of that from that surprising sharp rise that we
9:44
Speaker 6: saw in February March down to the lows in July.
9:48
Speaker 6: But since July and even financial markets have reacted that
9:51
Speaker 6: the long term expectations, the five year breaking inflation rates
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Speaker 6: have risen from the low of like one point nine
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Speaker 6: percent up to about two and a quarter. We're realizing
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Speaker 6: that when inflation is not over yet, that this inflation
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Speaker 6: services has yet to start really significantly. And until we
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Speaker 6: start to see that, I think the FED is going
10:09
Speaker 6: to start to slow down its normalization and kind of
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Speaker 6: recalibrate where normal.
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Speaker 3: Where normal is, So is that a cut in December,
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Speaker 3: pause in January.
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Speaker 7: January pause can be in the cards.
10:20
Speaker 6: But the thing that's driving the FED to really lower
10:23
Speaker 6: rates is that they're well above neutral, and neutral is
10:26
Speaker 6: somewhere between what three and a half four percent, So
10:28
Speaker 6: unless you see a four handle on the short term rate,
10:31
Speaker 6: we're nowhere near that neighborhood. Are normal now maybe you
10:34
Speaker 6: can say we don't need to get to normal that quickly,
10:36
Speaker 6: and that's exactly what the FED is going to be
10:37
Speaker 6: debating between now and January.
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Speaker 5: So, but when you see inflation prints like this and
10:43
Speaker 5: kind of what we know about elevated prices for you know,
10:46
Speaker 5: a lot of folks out there in the supermarket and
10:48
Speaker 5: other places. What's your call on the US consumer these days?
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Speaker 6: You know, Paul, that's a great question. I strongly believe
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Speaker 6: for the longest time, even when I was back at City,
11:00
Speaker 6: that we live in a bifurcated economy. The consumer spending
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Speaker 6: has been very strong because so many people are dipping
11:07
Speaker 6: into savings. And where's the savings coming from is for
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Speaker 6: the asset owners, the people who own the NVIDIAs and
11:13
Speaker 6: all the tech stocks. Well, that's only twenty percent of
11:15
Speaker 6: the population. So what we see is that forty percent
11:18
Speaker 6: of the bump in consumption, the growth of consumption is
11:22
Speaker 6: accounted for it by about twenty percent of the population.
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Speaker 6: Well over sixty percent of the population is hand to
11:27
Speaker 6: mouth and they depend upon wage income. And that's just
11:31
Speaker 6: not high enough because even though we've had a lot
11:33
Speaker 6: of job creation, it's in payrolls, which means people are
11:37
Speaker 6: getting second and third jobs. We don't see it in
11:39
Speaker 6: household surveys, which have averaged about thirty five thousand per
11:42
Speaker 6: month over the last year. So we're not seeing a
11:45
Speaker 6: lot of people more people being employed. We're seeing a
11:48
Speaker 6: lot of more jobs being created. And that to me
11:49
Speaker 6: sounds like a lot of second and third jobs just
11:52
Speaker 6: to make ends meet. And the jobs are in the
11:54
Speaker 6: low wage paying sectors of hospitality and healthcare and that
11:58
Speaker 6: kind of stuff.
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Speaker 3: Some breaking news for everybody right now. Hershey's main owner
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Speaker 3: has said to reject Mandalese's offer as too low. Now,
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Speaker 3: this comes after Mondalese made a preliminary approach to acquire
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Speaker 3: Hershey that could create a food a giant of combined
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Speaker 3: sales worth almost fifty billion dollars. The deal would help
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Speaker 3: Mondalze compete with Mars. But nonetheless, it looks like Hershey's
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Speaker 3: main owner is said to reject Mondalese's offer as too low.
12:23
Speaker 3: So we'll see there's a potential counter that comes back.
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Speaker 3: Bill when you look at your models for next year
12:30
Speaker 3: and sort of game out, how do you think about
12:32
Speaker 3: US policy? Right, there's there's one side and one and
12:35
Speaker 3: one positive one negative in that you have immigration, and
12:38
Speaker 3: you have taxes and deregulation. Where do you think sequencing
12:44
Speaker 3: is going to be and how does that affect your
12:45
Speaker 3: growth forecast.
12:47
Speaker 6: That's a really interesting question because in order for the
12:50
Speaker 6: policies that really matter for growth to take effect, and
12:54
Speaker 6: to me, those are deregulation, a lowering energy prices, and
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Speaker 6: these pro growth agenda that present Trump is talking about
13:01
Speaker 6: that can can take place fairly quickly in the sense
13:04
Speaker 6: that people can be reassured that that the the the
13:09
Speaker 6: the government is going to be very supportive of whatever
13:12
Speaker 6: promotes growth, which means technology uh and and the mega
13:16
Speaker 6: agenda is to create more jobs.
13:18
Speaker 7: So even with the tariff policies.
13:19
Speaker 6: Being announced, we know that they're going to be used
13:22
Speaker 6: as a bargaining tool to get foreigners to invest more
13:25
Speaker 6: capital the United States. So we expect to see capital
13:29
Speaker 6: flows coming in, more domestic investment, more domestic job creation.
13:32
Speaker 6: But where you're going to hire people, and you need
13:35
Speaker 6: skilled people in order to fulfil fill these high paying jobs.
13:39
Speaker 6: If you're going to suck in a lot of labor
13:41
Speaker 6: into these high paying sectors, where you're going to find
13:43
Speaker 6: people in the services sectors that are lower paying, you
13:46
Speaker 6: need immigration for that, and I think it's going to
13:48
Speaker 6: be tricky how the Trump administration arranges the immigration laws
13:52
Speaker 6: in the way that allows legal low skilled workers to
13:56
Speaker 6: stay in the United States, And that's really the key
13:59
Speaker 6: to staining growth going forward. Will the low skilled labor
14:03
Speaker 6: be legalized in a way that that doesn't interrupt the
14:06
Speaker 6: flow that goes into construction and and a lot of
14:09
Speaker 6: the entertainment and restaurant businesses that are are absorbing these
14:14
Speaker 6: lower cost labor. So so this a long witted way
14:16
Speaker 6: of saying the first half of the year, I expect.
14:19
Speaker 7: To see a lot of uh.
14:22
Speaker 6: Pent up demand for domestic investment and a lot of
14:24
Speaker 6: investment in high tech industries. But later on in the year,
14:29
Speaker 6: unless we see the low wage workers staying in the
14:33
Speaker 6: United States in legal fashion, that's what we're going to
14:36
Speaker 6: see the bottlenecks.
14:37
Speaker 5: Hey, Bill, people come up to your cocktail parties and say,
14:40
Speaker 5: should I be worried about deficits and the debt of
14:43
Speaker 5: this country?
14:45
Speaker 7: What do you say? All? You know, that's the mantra
14:48
Speaker 7: of every economist that.
14:50
Speaker 3: Well, first he says, why am I at this cocktail party?
14:52
Speaker 2: Yeah?
14:52
Speaker 3: And then the second question is.
14:56
Speaker 6: Well, I think I think the bond market vigilantes. I
15:00
Speaker 6: have really not been at work yet, otherwise we'd be
15:02
Speaker 6: seeing that bear Steepener really go crazy and long end
15:06
Speaker 6: start to rise. So, as as Cheff Paul says, we're
15:10
Speaker 6: not at an unsustainables position right now, but surely the
15:14
Speaker 6: path is completely unsustainable and has been unsustainable for the
15:17
Speaker 6: last ten years.
15:18
Speaker 7: Now.
15:19
Speaker 6: Because it's been unsustainable for the last ten years, people say, hey, well,
15:22
Speaker 6: I don't need to worry about it right now. And
15:24
Speaker 6: I think until something really hits, like a default in
15:27
Speaker 6: the US Treasury or something that gets people excited about
15:31
Speaker 6: about what's going on in the future and future deficits
15:34
Speaker 6: in future crying out, we're not going to see much
15:36
Speaker 6: reaction in the bob markets.
15:39
Speaker 7: That's it. I don't think.
15:40
Speaker 5: I just I don't see the political will on either side.
15:42
Speaker 3: I thing is, I think I've heard this the whole
15:44
Speaker 3: time I've ever been in this man syet right, and
15:46
Speaker 3: it's like it doesn't matter until it matters at the
15:49
Speaker 3: end of the day. So can the US exceptionalism theme continue?
15:52
Speaker 8: Then?
15:54
Speaker 6: You know, I've been saying this in all my eighteen
15:57
Speaker 6: years of the IMF, where people said that Bill, you know,
16:00
Speaker 6: such an American. When you go to Paris, it's like
16:02
Speaker 6: John Wayne walking down to the cham Zays. I am
16:05
Speaker 6: so pro American and that always have it because that's
16:08
Speaker 6: where capital is coming to.
16:10
Speaker 8: You know.
16:10
Speaker 6: The famous Lucas paradox means is that says, why is
16:14
Speaker 6: it that advanced economies draw in capital even though they
16:17
Speaker 6: are capital rich. It's because that's where innovation is and
16:19
Speaker 6: the United States is the heart of innovation. So for
16:22
Speaker 6: me going forward, unless the administration somehow screws up and
16:27
Speaker 6: destroys the technological advantages that we have, and that's very
16:31
Speaker 6: unlikely under President Trump, I think we see more of
16:34
Speaker 6: the exceptionalism continuing because we're at the edge of the
16:38
Speaker 6: leading edge of AI, we're at the leading edge of
16:40
Speaker 6: other technologies.
16:41
Speaker 7: The fear I have is that people are ignoring what's
16:45
Speaker 7: going on in China.
16:46
Speaker 6: China is determined to be our biggest competitor in these
16:50
Speaker 6: high value outed fields, and unless we really pay attention
16:53
Speaker 6: to what's going on there, we may lose our edge.
16:56
Speaker 5: All right, Bill, thank you so much for joining us. Billy,
16:58
Speaker 5: he's the chief economist at the Elkin Institute, giving us
17:02
Speaker 5: a few minutes of his time. As we break down
17:03
Speaker 5: this inflation data.
17:05
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 5: Alex Steel Paul Swiney live here in our Bloomberg in
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Speaker 5: Actor Broker Studio or streaming live on YouTube as well
17:26
Speaker 5: to check us out there. As johns is reporting, the
17:28
Speaker 5: economic news of the day was one of inflation. CPI
17:30
Speaker 5: headline zero point three percent, bang in line with expectations,
17:34
Speaker 5: a little bit higher than the prior month ex food
17:37
Speaker 5: and energy. You know, it was also up zero point
17:40
Speaker 5: three percent and that was in line with expectations as well.
17:43
Speaker 5: Let's break it down with Lindsay Piegs, chief economists for Steefel. Lindsay,
17:48
Speaker 5: what are your takeaways from this CPI report we saw
17:51
Speaker 5: this morning?
17:52
Speaker 8: Well, nothing overly alarming. As you mentioned, it did come
17:55
Speaker 8: in write in line with expectations. Excuse me, But at
17:59
Speaker 8: the same time, this does show a further lack of
18:02
Speaker 8: disinflationary progress and this should be pretty alarming for the
18:05
Speaker 8: Fed that had really started to focus on potential labor
18:09
Speaker 8: market weakness as opposed to still focused on getting inflation
18:12
Speaker 8: down to two percent. We've seen inflation not necessarily re
18:16
Speaker 8: accelerate per se, but certainly move sideways for the past
18:20
Speaker 8: several months, and this morning's report is no exception.
18:24
Speaker 3: Does that mean the disinflation narrative continues or just lack
18:28
Speaker 3: of more inflation?
18:30
Speaker 8: Well, I think you're kind of it's two sides of
18:33
Speaker 8: the same coin. We are still in a disinflationary environment,
18:38
Speaker 8: but the progress of disinflation has largely stalled at this point,
18:43
Speaker 8: making that conclusion of getting back to two percent still
18:47
Speaker 8: somewhat of a reach for the FED. Now, again, we've
18:50
Speaker 8: made ample progress coming down from earlier peak levels, but
18:54
Speaker 8: this is not the time for the FED to lose
18:56
Speaker 8: focus on that last mile getting us back to a
19:00
Speaker 8: sustainable two percent level.
19:02
Speaker 5: What do you think is the sticky part of that
19:05
Speaker 5: next one undred and fifty basis points of reduction in inflation?
19:10
Speaker 8: Well, if you look at this morning's report, the games
19:13
Speaker 8: were widespread across a number of different categories. But when
19:17
Speaker 8: we take a step back and we look over the
19:18
Speaker 8: past couple of months, we see that a lot of
19:21
Speaker 8: that sticky pressure is really on the services side. So
19:24
Speaker 8: we see that in terms of consumers shifting their preference
19:28
Speaker 8: away from stuff, away from electronics and goods towards services
19:32
Speaker 8: and experience. But we also see one of the components
19:35
Speaker 8: that remain sticky is housing. That owner's equivalent rent components
19:39
Speaker 8: still on a year over year basis up near five percent,
19:43
Speaker 8: And because it can holds such a sizeable portion, such
19:46
Speaker 8: a sizable weight in the CPI or even the pc
19:49
Speaker 8: for that matter, it's going to be very difficult for
19:52
Speaker 8: the FED to get that headline back to two percent
19:55
Speaker 8: without further reprieve on the shelter costs or on the
19:58
Speaker 8: housing side of things.
20:01
Speaker 3: What do you think the picture is going to look
20:03
Speaker 3: like next year with question marks about tariffs in etc. Directionally,
20:09
Speaker 3: where do you think the CPI the PPA numbers move Well?
20:13
Speaker 8: I think that right now that's part of the motivation
20:15
Speaker 8: of why the FED remains committed to a potential third
20:19
Speaker 8: round reduction in December. The Committee really does want to
20:22
Speaker 8: provide as much relief as possible before we turn the
20:25
Speaker 8: calendar page and face a potentially more aggressive fiscal policy
20:29
Speaker 8: agenda which could bring upside risks to inflation. Now, nothing
20:34
Speaker 8: in the Trump administration is a foregone conclusion in terms
20:36
Speaker 8: of inflationary pressures, but there are upside risks. Large sizable
20:41
Speaker 8: tax cuts could be inflationary if they're not offset with
20:46
Speaker 8: sizeable reductions in other areas of government outlays, tariffs inive themselves,
20:51
Speaker 8: excuse me, not necessarily inflationary. But if we did see
20:56
Speaker 8: the US engage in a back and forth tit for
20:59
Speaker 8: tat retire he military retaliatory cycle with some of our
21:03
Speaker 8: trading partners, that absolutely could be inflationary. So there's a
21:07
Speaker 8: lot of upside risk, not only from international unknowns, with
21:11
Speaker 8: domestic policy initiatives as well.
21:13
Speaker 5: All Right, Lindsay, thank you so much for joining us.
21:15
Speaker 5: Lindsay Pigs, a chief economist at Steve, will break it
21:18
Speaker 5: down the CPI data.
21:19
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Speaker 2: Just Say Alexa Play Bloomberg eleven thirty.
21:38
Speaker 5: Albertson's is Johns reporting Albertson sus Kroger for breach of
21:42
Speaker 5: contract over scuttle deal what's called?
21:43
Speaker 7: Isn't that why they made breakup?
21:45
Speaker 1: Fish don't get it in.
21:47
Speaker 5: Jennifer Ree joins a senior litigation analyst for Bloomberg Intelligence.
21:51
Speaker 3: Jennifer, is it rare?
21:54
Speaker 5: Is it common for two merger partners on a broken
21:57
Speaker 5: deal to suit each other?
22:00
Speaker 1: So it happens once in a while.
22:01
Speaker 9: I'll say it's pretty rare, but it has happened. I mean,
22:05
Speaker 9: think about anthemin Signa. I don't know if you remember
22:07
Speaker 9: that deal from back in twenty fifteen. It fell apart also,
22:10
Speaker 9: and there was litigation for a couple of years after
22:12
Speaker 9: the deal was terminated in Delaware, and you know, they
22:15
Speaker 9: both came out with nothing.
22:16
Speaker 1: Spent a lot of money and both came out with nothing.
22:18
Speaker 3: Is it true that you think that Kroger didn't do
22:20
Speaker 3: enough here?
22:21
Speaker 4: Like?
22:21
Speaker 3: Do they have a leg to stand on Alberson?
22:24
Speaker 9: I think a breach of contract claim based on, you know,
22:27
Speaker 9: failing to abide by sufficiently defending against the antitrust claims
22:30
Speaker 9: is very difficult because you know, this is really very
22:33
Speaker 9: subjective and to some extent, when companies go to court
22:36
Speaker 9: and they have a remedy, they're sort of rolling the dice.
22:38
Speaker 1: They're hoping they'll convince the judge, even though they didn't
22:40
Speaker 1: convince the FTC.
22:41
Speaker 9: And I'm not so sure that you can think of
22:43
Speaker 9: that as a breach in this case, though, having meant
22:46
Speaker 9: a trial, the remedy really was deficient. I mean, it
22:49
Speaker 9: was very difficult to understand how a judge, after the
22:52
Speaker 9: FDC presented their case on how this deal could cause
22:55
Speaker 9: harm in thousands of markets, how a judge could accept
22:58
Speaker 9: the remedy that had been put forward by Kroger, which
23:00
Speaker 9: was really very piecemeal, very complicated and difficult, and didn't
23:03
Speaker 9: really have the best buyer.
23:05
Speaker 1: So you know, we're gonna have to see what happens
23:06
Speaker 1: here with this.
23:07
Speaker 5: I mean, so again, I kind of thought that's kind
23:10
Speaker 5: of what a partially what a breakup fee kind of
23:14
Speaker 5: covers there. I mean, if this deal doesn't go through
23:17
Speaker 5: for whatever reason, you guys wanted to buyas youd initiated
23:20
Speaker 5: the deal, if it doesn't go through.
23:21
Speaker 1: Right, you got to compensate me, right, right, that's exactly right.
23:25
Speaker 9: The seller is really has a difficult time during that
23:27
Speaker 9: interim period, right, they lose employees.
23:29
Speaker 1: They can always enter new supply contracts.
23:31
Speaker 9: So this is really intended to make that seller whole,
23:34
Speaker 9: you know, in this case, I think now Kroger's turned
23:36
Speaker 9: around and said, no, it was it was Albertson's that
23:39
Speaker 9: breached the contract, you know.
23:40
Speaker 1: And of course they're probably doing that to get a
23:42
Speaker 1: little bit of leverage here.
23:43
Speaker 9: Maybe the hopes would be that they could settle for
23:46
Speaker 9: something less than that six hundred million breakup fee in
23:49
Speaker 9: order to make all the litigation go away. Maybe that's
23:52
Speaker 9: what's happening here, just a little bit of leverage. But
23:54
Speaker 9: you know, again, we'll have to see what happens. It
23:56
Speaker 9: would be a shame if they continue to litigate this
23:58
Speaker 9: and spend millions of dollars.
24:00
Speaker 7: Good for the lawyers.
24:01
Speaker 9: A deal.
24:02
Speaker 3: Dumb question, is the deal really done?
24:04
Speaker 7: Oh?
24:05
Speaker 3: Yes, they killed for sure.
24:06
Speaker 1: It's done.
24:07
Speaker 9: So Albertson's is already terminated. They exercised their right under
24:10
Speaker 9: the agreement to terminate, so it is done.
24:12
Speaker 1: The deal.
24:13
Speaker 9: Agreement is no longer good. So if they even wanted
24:16
Speaker 9: to do another deal, they'd have to enter a new agreement.
24:18
Speaker 9: And now obviously there's antagonism between the.
24:21
Speaker 1: Companies, all right.
24:22
Speaker 5: In your world of antitrust, What is the expectation of
24:26
Speaker 5: change given a new administration? Given you a Republican control
24:31
Speaker 5: House and Senate. Is there any expectation that things will
24:34
Speaker 5: get easier?
24:35
Speaker 7: I just saw Paul.
24:35
Speaker 5: Taubman being he was at the Golden Siens conference and
24:39
Speaker 5: he's shaang next year is going to be a huge
24:42
Speaker 5: m and a year and there were hiring bankers in
24:44
Speaker 5: anticipation of that.
24:46
Speaker 1: He knows what he says. I think he does. I
24:48
Speaker 1: think it will get better.
24:49
Speaker 9: I think some of the exuberance on Wall Street is
24:52
Speaker 9: maybe a little overdone. Okay, these huge deals between competitors
24:56
Speaker 9: are still going to get challenged, and we have to
24:58
Speaker 9: remember that the two Republican FDCs commissioners who will still
25:01
Speaker 9: be there on the commission both voted yes to sue
25:04
Speaker 9: the Tapestry could pre deal and to sue the temper
25:06
Speaker 9: se Lely Mattress Firm deal. They both said yes we
25:09
Speaker 9: should sue, so they are aligned in some restrects with
25:12
Speaker 9: suing the deals that could cause harm. I do think
25:14
Speaker 9: what we're going to see though, is an upticking deals
25:16
Speaker 9: that can close with settlements.
25:17
Speaker 1: We didn't have any of that in Biden.
25:19
Speaker 9: The Biden enforcers did not want to settle deals if
25:22
Speaker 9: the deal was bad.
25:22
Speaker 1: They wanted to challenge the deal, and that's what they did.
25:25
Speaker 1: I think in this case, once we have.
25:26
Speaker 9: A majority of the FTC and new people at the DOJ,
25:29
Speaker 9: we're going to see that list of settled deals that
25:31
Speaker 9: then go on to close grow.
25:32
Speaker 3: What do you make of the potential new FTC people
25:35
Speaker 3: coming in.
25:36
Speaker 1: Well, I'll just say this.
25:37
Speaker 9: If Lenacon's mission was to stop consolidation and revitalize antitrust,
25:41
Speaker 9: their mission is going to be to stop with they
25:44
Speaker 9: perceive as censorship of conservative viewpoints by big tech platforms.
25:48
Speaker 9: There has been a lot of talk about that, even
25:50
Speaker 9: suggesting that there could be collusion amongst big tech platforms
25:53
Speaker 9: to censor conservative viewpoints and that the FTC should be
25:57
Speaker 9: going after these companies under the anti trust laws to
25:59
Speaker 9: stop them.
26:00
Speaker 1: And I think that's going to be a big focus.
26:02
Speaker 5: So what's the timing there at the FTC and the DOJ.
26:08
Speaker 5: When are the new sheriffs? If you will kind of
26:10
Speaker 5: get in town, the.
26:11
Speaker 1: FTC could be DOJ will be quick, these people will leave.
26:15
Speaker 9: The appointees by Biden will leave in January, and that
26:18
Speaker 9: is the expectation also that Lena Kon at the FTC
26:21
Speaker 9: will leave in January as soon as Trump is inaugurated
26:24
Speaker 9: January twenty, then Andrew Ferguson will become the chair. If
26:27
Speaker 9: Lena Khan is still there, she'll then just become a commissioner,
26:30
Speaker 9: but she will probably leave. And then at that point
26:32
Speaker 9: he just has to get his new appointment mark meter
26:35
Speaker 9: through the Senate confirmation process.
26:37
Speaker 1: It could take a few months. He has a majority
26:39
Speaker 1: in the Senate.
26:40
Speaker 9: In the House, I don't think it's going to be
26:41
Speaker 9: too difficult, So it'll be a few months, and in
26:43
Speaker 9: the meantime it'll.
26:44
Speaker 1: Be a two to two FTC.
26:45
Speaker 9: Probably the DJ will change over more quickly, probably in January.
26:49
Speaker 3: So if I'm a company and I'm interested in buying
26:52
Speaker 3: another company, do I get on the list now? Do
26:54
Speaker 3: I wait until all the stuff is cleared and then
26:57
Speaker 3: I get on the waiting list to get my deal done?
26:59
Speaker 3: Like what's my strength?
27:00
Speaker 1: I think if you know that it has some issues.
27:03
Speaker 9: Let's say, if we see this big chocolate deal that
27:06
Speaker 9: I've been hearing.
27:06
Speaker 1: About my mom, right, if you know that, uh exactly, Mondali.
27:10
Speaker 9: Is hershey, And if you know you're probably going to
27:12
Speaker 9: get investigated, you can go ahead and file it now
27:14
Speaker 9: because you have eight months ahead of you and the
27:16
Speaker 9: new people will be the decision maker.
27:18
Speaker 1: So if you have a deal you think has no
27:19
Speaker 1: issues and could get through in thirty.
27:21
Speaker 9: Days, maybe you wait right because you have a greater
27:24
Speaker 9: hope of just getting it cleared in thirty days once
27:26
Speaker 9: the new people are in.
27:27
Speaker 5: Do you have any pending on this mand Leze Hershey deal.
27:30
Speaker 9: I know it sounds crazy, but I actually think they
27:32
Speaker 9: have a shot at getting that through. I mean, really,
27:34
Speaker 9: the only overlap is in chocolate, and the FTC has
27:38
Speaker 9: tended to look at food markets very very narrowly, not
27:40
Speaker 9: all chocolate, but certain kinds of chocolate, and if they
27:43
Speaker 9: do that, those overlaps become more limited and perhaps there
27:46
Speaker 9: are more competitors.
27:47
Speaker 1: So I actually think that there's a shot there for
27:49
Speaker 1: that deal, even though.
27:50
Speaker 5: It's huge, and I do I did get some confirmation
27:53
Speaker 5: via the Internet that Oreo cookies are in fact vegan.
27:56
Speaker 3: Yeah, I know I would guess that's wrong, but I
27:58
Speaker 3: know that. I mean it just because they're vegan, It
28:00
Speaker 3: doesn't mean that they're good. It's right on her desk, okay,
28:04
Speaker 3: But like, then, what's in it? Okay? So it's sugar?
28:07
Speaker 3: Oh I see, Okay, it's like palm oil and flour.
28:10
Speaker 7: I got you.
28:10
Speaker 3: Okay, that makes sense. But it's not like, Yay, that's
28:13
Speaker 3: good for you situation.
28:14
Speaker 7: Okay, it's not.
28:15
Speaker 3: I make a really good vegan chocolate cake, by the way,
28:17
Speaker 3: you do really good. Best chocolate cake I've ever had. Okay,
28:20
Speaker 3: super moist.
28:20
Speaker 5: Now you have to clarify that by saying or just
28:23
Speaker 5: qualify by saying, best vegan cake I ever.
28:25
Speaker 3: Had, best talc cake period. But if you're also vegan,
28:27
Speaker 3: you can also eat this cake. Just put it out.
28:30
Speaker 1: I need that recipe.
28:31
Speaker 3: Oh, I'll send it to you. I'm telling you it's
28:32
Speaker 3: really really good. I hate cake and I love me
28:35
Speaker 3: this cake.
28:36
Speaker 5: Everything you want to know about the anti trust, we
28:38
Speaker 5: go to Jennifer and Cake. We got to Jennifer Ee,
28:40
Speaker 5: senior litigation analyst for Bloomberg Intelligence, joining us here in
28:44
Speaker 5: our Bloomberg Interactive Broker studio. So tough day for the
28:47
Speaker 5: supermarket business in terms of getting deals done. But we'll
28:50
Speaker 5: see what happens in the chocolate business.
28:52
Speaker 3: Yeah, we'll see what happens to chocolate business.
28:54
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