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Warner Bros Reopens Talks as Paramount Signals Higher Bid · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
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  Speaker 2: It is Tuesday, but there's still a lot of mmah
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  Speaker 2: to talk about Tuesday. Yeah, murder Tuesday. Although this one's
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  Speaker 2: been like in the works for so long. Now Warner
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  Speaker 2: Brothers Paramount Netflix looks like Warner Brothers is now open
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  Speaker 2: to a paramount bid, a little bit more open than
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  Speaker 2: it was before. It is reopening talks with Paramount as
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  Speaker 2: Paramount signals a higher bid, but has not actually raised.
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  Speaker 3: I'm glad you've been You reported it correctly because they
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  Speaker 3: haven't raised their summit yet.
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  Speaker 2: They said, you know, we could, so I guess that's
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  Speaker 2: good enough for them to reopen discussion. Stephen Flynn is
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  Speaker 2: our senior credit end list on this developing story. So Stephen,
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  Speaker 2: how are you looking at this development?
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  Speaker 4: Yeah?
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  Speaker 5: So you think a couple of weeks ago, on February tenth,
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  Speaker 5: Paramount actually came out. They reiterated a thirty dollars per
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  Speaker 5: share cash offer for the entire Warner Brothers Discovery, but
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  Speaker 5: they did add in a few other things. Number One,
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  Speaker 5: they said that they would pay the two point eight
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  Speaker 5: billion dollar termination fee that Warner Brothers would owe Netflix
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  Speaker 5: for breaking that deal. They'd said that they would help
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  Speaker 5: with the fifteen billion dollars of bridge loan that Warner
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  Speaker 5: Brothers has outstanding from a bond tendor.
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  Speaker 4: Deal that they did mid last year.
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  Speaker 5: They'd also fully reimburse Warner Brother's Discovery for a potential
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  Speaker 5: one point five billion dollar fee that Warner Brothers could
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  Speaker 5: owe certain bond holders if they do not do a
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  Speaker 5: debt exchange by the end of this year. So this
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  Speaker 5: is a complicated story that keeps getting more and more
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  Speaker 5: layers of complexity on top of it.
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  Speaker 3: Remind us, Steve, if Paramount were to win this deal
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  Speaker 3: for Warner brother this would be a very highly indebted company.
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  Speaker 6: You guys don't like that.
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  Speaker 5: Correct, Yes, So, Warner Brothers Discovery would have about eighty
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  Speaker 5: five billion dollars of total debt pro form for this deal,
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  Speaker 5: a combination of Paramount and Warner Brothers. Right, So, Warner
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  Speaker 5: Brothers has about thirty one billion dollars a debt Paramount
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  Speaker 5: has about fifteen. This deal would add about thirty nine,
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  Speaker 5: so you're talking about eighty five billion. If you just
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  Speaker 5: look at the combined EBITDAT for both Warner Brothers and
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  Speaker 5: Paramount for twenty twenty six combined, they're about twelve billion dollars,
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  Speaker 5: you know, just just space math, you're talking seven times levers.
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  Speaker 4: That's obviously huge.
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  Speaker 5: But Warner Brothers Paramount expect about six billion dollars of
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  Speaker 5: cost synergies. So if you give them credit for that,
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  Speaker 5: that turns it gives you about eighteen billion dollars.
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  Speaker 4: VIPA DOT still get you credit well over four times
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  Speaker 4: synergy credit.
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  Speaker 6: You guys are pretty stinchy.
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  Speaker 5: Well, yeah, we can give it, but we give you
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  Speaker 5: a certain amount of time to actually show it.
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  Speaker 4: Right.
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  Speaker 5: So, and this is really important because what will the
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  Speaker 5: rating agencies do and for the fifty four billion dollars
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  Speaker 5: of debt financing that they have in place to support
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  Speaker 5: this deal, to what extent will it be ahead of
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  Speaker 5: the other debt through either guarantees and or security. So
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  Speaker 5: if you could argue that it is ahead of all
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  Speaker 5: the other debt and you give them pro former credit
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  Speaker 5: for the synergies, you're talking about three times leverage through
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  Speaker 5: that fifty four billion dollars, which could potentially get you
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  Speaker 5: IG credit ratings. Right, So if we look at Charter
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  Speaker 5: as a comparable, So Charter for many years had a
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  Speaker 5: total net leverage target of four to four and a
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  Speaker 5: half times, but they had.
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  Speaker 4: A split capital structure.
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  Speaker 5: The secure bond debt was IG, the unsecured debt was
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  Speaker 5: high yield, and the secure debt they kept that a
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  Speaker 5: little bit over three times. And so if you use
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  Speaker 5: that as a comp and give them credit for the synergies,
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  Speaker 5: you know, you could say that.
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  Speaker 4: There's a lot of ifs there. Yes, there is, there's
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  Speaker 4: a lot of ifs there.
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  Speaker 6: That Starter's cash a little better and I like that.
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  Speaker 5: Yeah, but you know, pro form powermount Warner Brothers should
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  Speaker 5: generate a lot of free cash flow, and they, you know,
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  Speaker 5: they should.
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  Speaker 4: I assume they will commit to use all that to
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  Speaker 4: reduce the debt.
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  Speaker 5: And typically grating agencies will give the company a few
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  Speaker 5: years to kind of hit their targets and show the delaveraging.
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  Speaker 2: So Warner Brothers when it merged with Discovery also took
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  Speaker 2: on a lot of debt. How does this potential Warner
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  Speaker 2: Brothers and paramount debt profile look compared to what Warner
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  Speaker 2: Brothers look like after emerging.
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  Speaker 5: You know, it's total in thinking about the leverage, it's
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  Speaker 5: not too different.
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  Speaker 4: But let's hope that this works better, right, So, because
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  Speaker 4: it didn't.
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  Speaker 2: Work so well and Zoslov was kind of just preoccupied
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  Speaker 2: with bringing down the debt for years.
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  Speaker 5: Correct, correct, So when they emerged Discovery with Warner Brothers,
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  Speaker 5: they purchased it from AT and T effectively and it
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  Speaker 5: had a high leverage and they promised to d lever
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  Speaker 5: and it did not deliver as quickly as anticipated. So
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  Speaker 5: then that's when last summer you had the whole announcement
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  Speaker 5: of the split and they decided to launch a tenor
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  Speaker 5: off or where they got some new financing in place
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  Speaker 5: and told the existing bond holders will buy the bonds
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  Speaker 5: back from you. But you know, you're taking some pretty
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  Speaker 5: big haircuts to the mount that you're owed, and they
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  Speaker 5: still had very good participation.
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  Speaker 4: Stay with us.
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  Speaker 6: More from Bloomberg Intelligence coming up after this.
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  Speaker 3: Anthropics PPC talks about extending and contract with the Pentagon
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  Speaker 3: are being held up over additional protections to the artificial
• 5:20
  Speaker 3: intelligence company wants to put on its clawed tool.
• 5:24
  Speaker 6: Absolutely no idea what that means.
• 5:26
  Speaker 3: Mandeep Seeing does mandep Seeing, Global Tech research head for
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  Speaker 3: Bloomberg Intelligence, what's going on with our friends at Anthropic
• 5:32
  Speaker 3: because I know they do a lot of work with
• 5:33
  Speaker 3: the US government.
• 5:34
  Speaker 7: Yeah, and look, I think Palenteer is the company that
• 5:38
  Speaker 7: really made a name for themselves in the kind of
• 5:41
  Speaker 7: work that all these LLM companies are being tasked to
• 5:44
  Speaker 7: do for the Department of War. And look, it's going
• 5:50
  Speaker 7: beyond analytics now. So what Palenteer did was you could
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  Speaker 7: look at unstructured data like the GPS coordinates tie intelligence
• 6:00
  Speaker 7: in terms of you know, finding about some source or
• 6:04
  Speaker 7: some entity, and that was heavily used in a variety
• 6:08
  Speaker 7: of use cases. Now, I think these llms are trained
• 6:11
  Speaker 7: on we know, fifteen trillion tokens and they can ingest
• 6:16
  Speaker 7: large amounts of data and do analytics at a level.
• 6:20
  Speaker 4: That you know, we have not seen.
• 6:22
  Speaker 7: So in this case, the company Inthropic has talked about
• 6:26
  Speaker 7: their AI constitution or in other words, putting guardrails around
• 6:30
  Speaker 7: the kind of surveillance activities they want the llms to do.
• 6:34
  Speaker 7: And obviously from a government perspective, they want to do
• 6:39
  Speaker 7: whatever it takes from a national security perspective. So I
• 6:42
  Speaker 7: think that's where there is a discussion going around the
• 6:47
  Speaker 7: kind of guardrails that they want to see and the
• 6:50
  Speaker 7: level of I guess work that the government wants them
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  Speaker 7: to do.
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  Speaker 2: Okay, So the Department of Defense or a Department of
• 6:55
  Speaker 2: War as it's now known, this relationship with Anthropic, it's
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  Speaker 2: not limited to just using anthropics models, is it, Because
• 7:03
  Speaker 2: it wants to make sure that it's got kind of
• 7:05
  Speaker 2: a wide source of AI large language models to draw from.
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  Speaker 2: So what is that relationship like with I don't know, chat,
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  Speaker 2: GPT or Gemini or even Grock.
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  Speaker 7: Yeah, all of these companies have a contract with the
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  Speaker 7: Department of War and like for example XAI is Grock
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  Speaker 7: has a two hundred million dollar contract. So you know,
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  Speaker 7: the department is using all the possible tools that are available,
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  Speaker 7: and from that perspective, Enthropic is one of them, but
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  Speaker 7: no one else like chatchipt hasn't talked about you know,
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  Speaker 7: guardrails in such a big way as Entthropic has, So
• 7:40
  Speaker 7: that's the big distinction. And obviously SpaceX is a defense
• 7:44
  Speaker 7: contractor for the Department, and now with Xai merger, I
• 7:49
  Speaker 7: think they can do more work around the drone side.
• 7:52
  Speaker 7: So at the end of the day, I think you
• 7:56
  Speaker 7: have to think of it from a geopolitical standpoint. What
• 7:59
  Speaker 7: China is doing, you know, with that infrastructure and similar concepts,
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  Speaker 7: and what I think the US defense is looking to
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  Speaker 7: do in terms of surveillance and national security interests. And
• 8:10
  Speaker 7: these llms will play a pivotal role because, as I said,
• 8:13
  Speaker 7: they can help you find that needle in the haystack
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  Speaker 7: that the current technology wasn't able to do.
• 8:20
  Speaker 6: Who Isntropic? Who are these people?
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  Speaker 7: Well, they just raised thirty billion dollars in their latest
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  Speaker 7: funding round sound fundraiser, and they'll most likely go public
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  Speaker 7: this year. There is a very high likelihood of both
• 8:33
  Speaker 7: and Tropic and open Ai going public. And that's why
• 8:37
  Speaker 7: you know they're out there in terms of establishing the
• 8:40
  Speaker 7: use cases and the utility is not just a coding agent.
• 8:44
  Speaker 7: They want to show you know that they are addressing
• 8:47
  Speaker 7: a lot more areas in terms of you know, where
• 8:50
  Speaker 7: these models are touching and the companies that they are
• 8:53
  Speaker 7: interfacing with, So there is a very high chance that
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  Speaker 7: we'll see IPOs.
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  Speaker 4: Stay with us.
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  Speaker 6: 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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• 9:19
  Speaker 3: I' let's switch gears to the healthcare space, and to
• 9:21
  Speaker 3: do that on a Tuesday morning, we check in with
• 9:24
  Speaker 3: Sam Fazelli, director of Research for Global Industries and a
• 9:26
  Speaker 3: senior pharmaceuticals analyst for Bloomberg Intelligence.
• 9:29
  Speaker 6: He's based over there in London.
• 9:31
  Speaker 3: So Sam, I see that Moderna and Merk they're working
• 9:34
  Speaker 3: together on a melanoma drug.
• 9:36
  Speaker 6: Here, cancer drug. What's the status there?
• 9:40
  Speaker 8: Yeah, so Paul, thanks for having me back on. Look,
• 9:44
  Speaker 8: they have a trial coming up which is a very
• 9:46
  Speaker 8: innovative approach to trying to treat cancer. I e. I'm
• 9:50
  Speaker 8: going to take miss a drug that releases your immune
• 9:53
  Speaker 8: system and at the same time I'm going to give
• 9:55
  Speaker 8: it stuff from your tumors so that you can recognize
• 9:58
  Speaker 8: the tumors. So you got vaccine, that's what a vaccine is, right,
• 10:02
  Speaker 8: and the immunotherapy drug y true that everybody's used to.
• 10:05
  Speaker 8: And they've had some really strong Phase two data that's
• 10:08
  Speaker 8: come out. So what we've done here is that we've
• 10:10
  Speaker 8: gone and have a look. That's one of the key
• 10:12
  Speaker 8: catalysts for twenty twenty six and everyone's waiting for this
• 10:15
  Speaker 8: trial to read that as to what are the chances
• 10:18
  Speaker 8: of what are the issues that this trial might face?
• 10:20
  Speaker 8: You know, that's our job, right We look for problems,
• 10:23
  Speaker 8: look for trying to measure up if there's any risk here,
• 10:26
  Speaker 8: and we've identified three. One is that the phase two
• 10:30
  Speaker 8: data wasn't as easy to interpret because the control army
• 10:33
  Speaker 8: in it. That initial data that looked great didn't behave
• 10:37
  Speaker 8: as we thought it should have done. The second issue
• 10:40
  Speaker 8: is that in the Phase three they're unrolling some healthier patients.
• 10:44
  Speaker 8: What is that going to? Can you therefore use the
• 10:46
  Speaker 8: phase two to bridge your thoughts to the phase three?
• 10:50
  Speaker 8: And on top of that, here's an interesting part. Who
• 10:53
  Speaker 8: makes COVID shots well, Fizer, BioNTech, and Moderna. Another study
• 10:58
  Speaker 8: showed that if you use COVID shots within one hundred days,
• 11:01
  Speaker 8: of one of these immadiotherapy drives in cancer patients, they
• 11:05
  Speaker 8: survive longer, they have better survival rates. What if that
• 11:09
  Speaker 8: happened in the MODERNA trial the control arm has COVID
• 11:14
  Speaker 8: shots in it, and that lifts up the survival if
• 11:16
  Speaker 8: that data was correct. So all these things makes us
• 11:19
  Speaker 8: a little bit worried about this data coming. And of
• 11:21
  Speaker 8: course WADERNA has other issues to deal with, which I'm
• 11:23
  Speaker 8: sure you're going to come up to, which is that
• 11:25
  Speaker 8: i FDA rejection to accepting their file for the flu vaccine,
• 11:29
  Speaker 8: which is blew my mind.
• 11:32
  Speaker 3: I have to.
• 11:32
  Speaker 2: Say, well, this administration doesn't like vaccines period. So and
• 11:36
  Speaker 2: it's been a brutal flu season, right Sam, I mean
• 11:39
  Speaker 2: it's nothing kind. I mean I think something like twenty
• 11:42
  Speaker 2: two million Americans have fallen ill to the flu.
• 11:44
  Speaker 8: Yeah, they have, and to be just called it. The
• 11:47
  Speaker 8: issue is now they're deciding what flu vaccine to give
• 11:50
  Speaker 8: us in the US and Europe in a couple of
• 11:53
  Speaker 8: months of bicht in nine months time, as nonsense. This
• 11:57
  Speaker 8: is the flu. These are viruses. They change all the time.
• 12:00
  Speaker 2: We've learned that.
• 12:00
  Speaker 8: Right, here's a technology that could have potentially enabled you
• 12:04
  Speaker 8: M R and A vaccines to react much quicker, nearer
• 12:08
  Speaker 8: the time, when you know what training need to target.
• 12:11
  Speaker 8: This could have been the approval that the world needs.
• 12:14
  Speaker 8: I mean, in this world we need to be able
• 12:16
  Speaker 8: to deal with these infectious is that we've learned our lessons,
• 12:19
  Speaker 8: haven't we. Unfortunately, the person at the head of the
• 12:24
  Speaker 8: division of the of the FDA called Sieber, made a
• 12:28
  Speaker 8: decision unilaterally by the look of it, based on what
• 12:32
  Speaker 8: people have reported, that he doesn't want to review this
• 12:37
  Speaker 8: file having they Mona had all the right things in place,
• 12:41
  Speaker 8: they had discussed with the FDA, they had the allowance
• 12:46
  Speaker 8: to go ahead, They did the trial that's in line
• 12:48
  Speaker 8: with other people's trials. It just doesn't make any sense.
• 12:50
  Speaker 8: And I tell you what that really worries me about
• 12:54
  Speaker 8: any company interacting with the FDA. How can you know
• 12:57
  Speaker 8: that you're not going to get a next week or
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  Speaker 8: six months, or ten months or twelve months down the road,
• 13:02
  Speaker 8: a random rejection despite the discussions you've had.
• 13:06
  Speaker 3: So how are these big healthcare companies, pharmaceutical companies, biotech companies,
• 13:12
  Speaker 3: how are they dealing with the FDA? Because it seems
• 13:14
  Speaker 3: to be a very difficult relationship at the moment.
• 13:18
  Speaker 8: Paul only a week before we were talking about the
• 13:20
  Speaker 8: FDA showing its teeth when he came out and said,
• 13:22
  Speaker 8: HYMN says to stop selling copycat drugs, which it had
• 13:25
  Speaker 8: no right to sell. And now we have this this
• 13:28
  Speaker 8: uncertainty is a problem, and they're all trying to manage it.
• 13:33
  Speaker 8: The larger companies can manage it because they have teams
• 13:35
  Speaker 8: of people, et cetera. But it's the biotechs that suffer
• 13:39
  Speaker 8: because they have limited amounts of cash on a relative basis,
• 13:43
  Speaker 8: and we've had several of these things that have hit
• 13:45
  Speaker 8: the block with regards to irregulatory pushback, which you didn't
• 13:50
  Speaker 8: expect to have. So it is a problem for the
• 13:52
  Speaker 8: biotech sector're more than the pharmacy.
• 13:55
  Speaker 4: Stay with us.
• 13:56
  Speaker 6: More from Bloomberg Intelligence coming up.
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  Speaker 1: get your podcasts, or watch us live on YouTube.
• 14:16
  Speaker 3: Let's switch gears here talk about the real estate business
• 14:18
  Speaker 3: here in the United States. We can do that with
• 14:19
  Speaker 3: Jeff Langboun. He's to read analyst for the US Is
• 14:23
  Speaker 3: it all just data.
• 14:24
  Speaker 6: Centers today, Jeff?
• 14:25
  Speaker 3: Is that all people want to talk to you about
• 14:27
  Speaker 3: because it seems like that's the AI play in real estate.
• 14:31
  Speaker 9: Well, that's that's one way to play AI from a
• 14:34
  Speaker 9: positive perspective, okay, But right now what people are thinking
• 14:37
  Speaker 9: about is what the impact is going to be on
• 14:39
  Speaker 9: office space If AI makes all of these industries that
• 14:43
  Speaker 9: lease office space irrelevant, Okay, what does that mean for
• 14:47
  Speaker 9: demand for space? And you know, we saw last week
• 14:52
  Speaker 9: that you know, that started with software and then it
• 14:54
  Speaker 9: went to you know, industry after industry and ended up
• 14:57
  Speaker 9: with the real estate brokers and eventually the office roads
• 15:00
  Speaker 9: getting hit hard.
• 15:01
  Speaker 2: So so far, this is just kind of fear that's
• 15:03
  Speaker 2: wafting across the market. Have we actually seen any evidence
• 15:06
  Speaker 2: of this happening.
• 15:07
  Speaker 9: Not yet, And in fact, we've seen some of the opposite.
• 15:11
  Speaker 9: Leasing velocity has been at the highest level since before
• 15:16
  Speaker 9: the pandemic in markets like New York and San Francisco.
• 15:19
  Speaker 9: The reats that we follow, names like sl Green Bornado,
• 15:23
  Speaker 9: Boston properties are now BXP. These guys are reporting very
• 15:27
  Speaker 9: strong leasing volumes. We're starting to see occupancies tick up
• 15:30
  Speaker 9: off the bottom in their portfolios, and you know, one
• 15:33
  Speaker 9: of the one of the dynamics at play is that
• 15:35
  Speaker 9: AI firms are leasing space as they grow, and to
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  Speaker 9: the extent that companies being impacted by AI start to
• 15:45
  Speaker 9: receive a little bit, there's an offset there.
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  Speaker 3: So your office rate stocks last week sold off on
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  Speaker 3: this fear.
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  Speaker 9: Yeah, and it's not a new fear. I mean, it's
• 15:56
  Speaker 9: it's been at play for some time now. You know,
• 16:01
  Speaker 9: work from home kind of worked its way through and
• 16:04
  Speaker 9: everyone kind of got comfortable with where hybrid kind of
• 16:08
  Speaker 9: settled in, and then you know, what was the next
• 16:10
  Speaker 9: thing to hit office? And it was this And it's
• 16:12
  Speaker 9: been you know, it's been out there for probably a
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  Speaker 9: couple of quarters. Now, what is the impact going to be?
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  Speaker 9: But last week when when software rolled over, it's just compounded.
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  Speaker 2: Is this something where because of the evidence that companies
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  Speaker 2: are still leased in quite a bit of space, that
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  Speaker 2: we're going to see a just as sharp recovery.
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  Speaker 9: Well, that's possible, but you know, there's also the risk
• 16:38
  Speaker 9: that you know, the equity markets are turbulent and forecasting right,
• 16:43
  Speaker 9: and so there is the possibility that there will be
• 16:46
  Speaker 9: negative leasing news to come. It's certainly not showing up
• 16:50
  Speaker 9: in the numbers now. And we do think and this
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  Speaker 9: is backed up by some survey work that we just
• 16:55
  Speaker 9: did last week of office workers in both New York
• 16:57
  Speaker 9: and San Francisco. We actually think that they're there's still
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  Speaker 9: a period of time to come where firms are actually
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  Speaker 9: leasing more space, they're expanding their headcount to try and
• 17:08
  Speaker 9: figure out how to take advantage of AI and to
• 17:11
  Speaker 9: grow their business. And that could actually, you know, I
• 17:16
  Speaker 9: don't know about a sharp snapback, but it could you know,
• 17:19
  Speaker 9: prolong the positive vibes for some time.
• 17:22
  Speaker 6: What's the sector of the remarket that you like the
• 17:24
  Speaker 6: most right now?
• 17:25
  Speaker 9: Senior housing is I mean, you know, it's it's the
• 17:29
  Speaker 9: one aspect where you cannot refute the demand story at all.
• 17:36
  Speaker 9: And at the same time, where real estate guys typically
• 17:39
  Speaker 9: love to build what to take advantage of those demand stories.
• 17:42
  Speaker 9: There's not a there's not much senior housing coming out
• 17:45
  Speaker 9: of the ground, so there's a huge supply demand imbalance.
• 17:49
  Speaker 2: Okay, but is senior housing more attractive in certain markets
• 17:51
  Speaker 2: over other markets? How do you pick between winners and
• 17:53
  Speaker 2: losers when it comes to senior housing.
• 17:55
  Speaker 9: It's really more about the local operator than it is
• 17:58
  Speaker 9: about the specific market. I mean, obviously if you're in
• 18:02
  Speaker 9: a place where you know, the economics aren't as strong
• 18:06
  Speaker 9: and you don't have this affluent a potential resident base,
• 18:10
  Speaker 9: and that's going to you know, potentially impact but.
• 18:13
  Speaker 4: Local strong, local operators.
• 18:17
  Speaker 9: When there's not a lot of supply coming out of
• 18:19
  Speaker 9: the ground, and you know you basically just have an
• 18:22
  Speaker 9: aging American population that is going to need housing solutions.
• 18:26
  Speaker 9: It's really a play across the board thirty seconds. Why
• 18:29
  Speaker 9: isn't there the supply cost of capital is still a
• 18:33
  Speaker 9: little bit elevated, and it's tough to get It's tough
• 18:37
  Speaker 9: for developers to get capital and and underwrite new deals
• 18:40
  Speaker 9: to make sense. Really, man, you want to you want
• 18:43
  Speaker 9: to start putting capital to work. Yeah, I'm sure there
• 18:46
  Speaker 9: are developers who would who would take your money.
• 18:48
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