Latest / Bloomberg Intelligence / Nvidia Boosts Share Buyback Program by $150 Billion

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Nvidia Boosts Share Buyback Program by $150 Billion · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios.
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  Speaker 2: Podcasts.
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  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 3: Paul, I'm looking at all the headlines, and of course
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  Speaker 3: it's all the Iran war, all oil, all rising bond yields,
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  Speaker 3: and then there's a lot of stories, of course, on
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  Speaker 3: what's going on in big tech, Nvidia with this massive
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  Speaker 3: $ 150 share buyback. I can't even imagine how much cash
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  Speaker 3: flow it throws off that it can just buy $ 150
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  Speaker 3: billion of its own shares.
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  Speaker 2: I'd like to be the trader on Wall Street that
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  Speaker 2: gets this buyback. I'm just out there buying stock with
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  Speaker 2: no risk. How cool is that?
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  Speaker 3: All right, let's bring in Jonathan Bloxham. He's with us
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  Speaker 3: right now. Matthew Bloxham. Excuse me, Matthew.
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  Speaker 1: No problem.
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  Speaker 3: He's with us right now. He's our senior media and
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  Speaker 3: tech analyst, normally in London.
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  Speaker 2: Yes.
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  Speaker 3: But here in New.
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  Speaker 1: York with us for the week.
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  Speaker 6: Especially for you, right?
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  Speaker 3: Great to see you here in office, in studio. Really,
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  Speaker 3: really appreciate your joining us today. NVIDIA buying its shares back.
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  Speaker 3: Is that a sign that the shares are undervalued? Because
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  Speaker 3: that's what typically people say when you embark on a
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  Speaker 3: massive buyback. And this is a massive buyback.
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  Speaker 6: Yeah, that's certainly one interpretation. The other is that maybe
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  Speaker 6: they're running out of things to invest the money in.
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  Speaker 6: And I think it's probably a mixture of the two.
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  Speaker 6: I mean, given the trillions of dollars going into AI
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  Speaker 6: right now, I don't think there's so much of a
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  Speaker 6: constraint on what they can invest in. But they are
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  Speaker 6: spreading their financial muscle quite broadly across the industry. They've
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  Speaker 6: got lots of investments in in partners. They've obviously kind
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  Speaker 6: of recently spent, what, kind of 18 to 20 billion,
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  Speaker 6: if I remember correctly, on Hugging Face. So, you know,
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  Speaker 6: they're kind of spreading the money around. I think, obviously,
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  Speaker 6: you know, particularly in the U.S. market, buybacks are a
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  Speaker 6: very popular way to return shares, the cash to shareholders.
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  Speaker 6: And so, I think it's not that surprising given, you know,
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  Speaker 6: that they're I think in this financial year, they'll generate
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  Speaker 6: something like $ 200 billion of cash flow. Next year, it's
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  Speaker 6: expected by consensus to go up to about $ 330 billion. So,
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  Speaker 6: I think this is them saying to the market, look,
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  Speaker 6: you know, there's lots of kind of noise around AI
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  Speaker 6: right now. Our forward pipeline for at least the next
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  Speaker 6: one to two years is looking incredibly healthy. No need
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  Speaker 6: to worry about our runway of growth.
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  Speaker 2: Matt, what's the conversation you're having with clients these days,
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  Speaker 2: just broadly about AI?
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  Speaker 1: We kind of had that level of uncertainty kind.
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  Speaker 2: Of get interjected several weeks ago when some of the founders,
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  Speaker 2: Sam Altman, Elon Musk, not founders, but some of the
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  Speaker 2: original executives in this technology, maybe said, let's put the
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  Speaker 2: brakes on this a little bit. And that was a
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  Speaker 2: you know, pause, it's kind of become a little political
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  Speaker 2: by President Trump weighing in as well.
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  Speaker 1: What are investors thinking about that now? Yeah, you know,
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  Speaker 1: I mean, when we.
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  Speaker 6: Look back, actually, the reaction was initially quite positive. And,
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  Speaker 6: you know, there's obviously lots of different ways you can
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  Speaker 6: take this messaging. I think a lot of people took
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  Speaker 6: it as a view that, you know, that these open
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  Speaker 6: AI and Anthropic in particular, looking to strengthen the moat
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  Speaker 6: they have against, for example, the likes of Meta, obviously
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  Speaker 6: news today that they're, uh, taken a new CEO for
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  Speaker 6: their enterprise business. And that, you know, actually, as much
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  Speaker 6: as there may be some concerns about the pace at
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  Speaker 6: which AI is developing and our control over it, that
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  Speaker 6: actually this could be a good mechanism for them to
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  Speaker 6: kind of protect the moat they have, because it would
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  Speaker 6: constrain the whole industry in terms of the pace of development.
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  Speaker 6: You know, I think broadly speaking, obviously, there are still
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  Speaker 6: concerns about the kind of three to five year outlook
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  Speaker 6: for AI, but certainly in the near term, and again,
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  Speaker 6: reflected in what NVIDIA has done today, the market is
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  Speaker 6: pretty confident that there's enough momentum to sustain the next
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  Speaker 6: one to two years. And enterprises are still at an
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  Speaker 6: early stage of deploying AI into their businesses. And even
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  Speaker 6: if you didn't have any further evolution of the frontier
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  Speaker 6: models from where they are today, there's still lots of
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  Speaker 6: technology capability there for enterprises to play with and really
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  Speaker 6: shift the way their business.
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  Speaker 3: Is So we're approaching the end of the third quarter.
• 4:12
  Speaker 3: The fourth quarter will begin soon on October 1st, and
• 4:15
  Speaker 3: that means earnings season is kind of around the corner.
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  Speaker 3: The big tech names report at the end of October.
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  Speaker 3: What are we likely to hear from them when it
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  Speaker 3: comes to CapEx? I mean, are they going to continue
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  Speaker 3: to increase CapEx at the rate that they've been increasing
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  Speaker 3: in thus far? Or will all the political discussion over
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  Speaker 3: AI and whether we should slow development mean that some
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  Speaker 3: of the hyperscalers will start to see the numbers reflect
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  Speaker 3: that slowdown?
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  Speaker 1: Great question.
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  Speaker 6: My sense would be that the market is still anticipating
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  Speaker 6: growth in spending next year. Obviously, nowhere near the pace
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  Speaker 6: we've seen before. But I think we're still expecting to
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  Speaker 6: see it increase. And as much as there's been a
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  Speaker 6: lot of fanfare around slowing the pace of model development,
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  Speaker 6: there's still a huge amount of implementation spend to come through.
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  Speaker 6: Probably right now the biggest constraint on implementation. the pace
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  Speaker 6: of capital spending growth is the supply side, all the
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  Speaker 6: way from the kind of fab units to the chips,
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  Speaker 6: to the capacity to make the chips, and then also
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  Speaker 6: all the way through to energy and space and how
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  Speaker 6: quickly can you actually deploy data centers, which is where
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  Speaker 6: ultimately a lot of this capex ends up. So that's
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  Speaker 6: probably the biggest natural constraint, I'd say, on spending.
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  Speaker 2: Matt, it probably doesn't surprise you, but I am way
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  Speaker 2: ahead of both John and Scarlett on AI.
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  Speaker 1: I'm way out there. I've got the window on my
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  Speaker 1: phone that's got the apps. I've got ChatGPT. I've got Gemini.
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  Speaker 1: I've got Claude. He added Muse. I added Muse. But
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  Speaker 1: I'm guessing.
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  Speaker 2: I'm not the monetization that these gajillion-dollar CapEx are being
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  Speaker 2: spent for. Talk to us about enterprise integration of AI.
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  Speaker 1: Is that happening? Because it's not cheap. to deploy AI
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  Speaker 1: and use AI in an enterprise?
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  Speaker 6: It certainly isn't. I mean, it's definitely happening, you know,
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  Speaker 6: across every sector. And if anything, you know, this year,
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  Speaker 6: enterprises are kind of running into some spending, you know,
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  Speaker 6: kind of constraints or kind of obstacles they probably hadn't
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  Speaker 6: anticipated because, you know, they've kind of largely let their
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  Speaker 6: engineers run loose with, you know, playing around with this stuff.
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  Speaker 6: And then they suddenly realized that the consumption is ahead
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  Speaker 6: of the budget they put in there. And they're now
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  Speaker 6: having to scratch their heads and go, okay, Do we
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  Speaker 6: increase our dollar budgets to continue with the pace of development?
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  Speaker 6: Or do we have to start to kind of find
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  Speaker 6: ways to kind of moderate or change the way our
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  Speaker 6: engineers are? uh, are using AI tokens to kind of
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  Speaker 6: develop things. And, you know, the answer is so far
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  Speaker 6: being a bit of a mixture of the two. Uh,
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  Speaker 6: but yeah, the enterprise market's huge and it's a massive, massive,
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  Speaker 6: massive multi-trillion dollar market. Uh, when you look at technology
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  Speaker 6: as a whole, um, and I think it's, it's, it's
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  Speaker 6: becoming the new, you know, kind of theater of competition,
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  Speaker 6: if you like, between the big players. And, you know,
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  Speaker 6: this is where Meta's coming in with its enterprise strategy
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  Speaker 6: and historically Meta, very much a consumer focused ad funded
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  Speaker 6: business and looking to kind of, uh, compete with OpenAI
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  Speaker 6: and Anthropic in that space. I think it's going to
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  Speaker 6: be a really interesting space over the next 12 to
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  Speaker 6: 24 months to see how that competition evolves, but it's
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  Speaker 6: kind of really a huge opportunity for all of them.
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  Speaker 3: Yeah, and Meta's doing that, as we mentioned, by tapping
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  Speaker 3: MongoDB's president and CEO to lead this new AI platform
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  Speaker 3: for enterprise customers. Has Meta ever done anything at an
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  Speaker 3: enterprise level targeting enterprise customers?
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  Speaker 1: I mean, is this the first? I think it....
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  Speaker 6: If it isn't the first, then it's kind of close
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  Speaker 6: to a first. Certainly, I think their kind of biggest
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  Speaker 6: and most significant push into this. I mean, they've been,
• 7:50
  Speaker 6: you know, working and engaging with corporates indirectly, I'd say,
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  Speaker 6: in the AI space so far because, you know, their
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  Speaker 6: models are open source and so a lot of companies
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  Speaker 6: do use them. But I guess that's kind of a
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  Speaker 6: bit of an arm's length interaction because there's not so
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  Speaker 6: much direct involvement. This is, you know, much more significant,
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  Speaker 6: almost like kind of consulting evolution of, you know, I guess,
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  Speaker 6: kind of forward deployed engineers. That's the kind of phrase
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  Speaker 6: that we never used to talk about, you know, kind
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  Speaker 6: of helping organizations to kind of figure out how they
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  Speaker 6: can use AI in their specific enterprise use cases to
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  Speaker 6: kind of improve efficiency or create new opportunities.
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  Speaker 1: Matthew, you're based in London.
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  Speaker 2: You spend a lot of time with companies all across Europe.
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  Speaker 2: Is AI, is there going to be any AI created
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  Speaker 2: in Europe? Because there's not a lot of technology companies
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  Speaker 2: in Europe. Is it going to be left to China
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  Speaker 2: and the U.S. to drive this bus? Because, boy, it'd
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  Speaker 2: be amazing if European companies did not get involved.
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  Speaker 6: Yeah, it's, yeah. I mean, I guess, you know, the
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  Speaker 6: poster child still is Mistral AI, which is, you know,
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  Speaker 6: the kind of closest we've got to, like, a frontier
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  Speaker 6: model company. Very small, and, you know, I think, whereas
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  Speaker 6: you used to hear a lot about them a year
• 9:05
  Speaker 6: or two back, you know, they've kind of gone into
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  Speaker 6: the shadows a little bit, you know, given everything that's
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  Speaker 6: going on with the U.S. and the Chinese frontier models.
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  Speaker 6: So I think something like that is kind of one
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  Speaker 6: of Europe's biggest opportunities. There are some initiatives underway across
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  Speaker 6: a number of European markets to try to shift people
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  Speaker 6: away from using U.S. tools to European tools. But when
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  Speaker 6: those tools either don't exist or they're kind of significantly inferior,
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  Speaker 6: that's a kind of really hard thing to kind of
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  Speaker 6: ask people to do. So my sense would be that,
• 9:35
  Speaker 6: you know, like with a lot of technology in the past,
• 9:38
  Speaker 6: Europe's going to be a taker of another region's technology.
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  Speaker 6: And so the opportunity, if there is one, is for
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  Speaker 6: European businesses to excel at leveraging the use of that technology,
• 9:50
  Speaker 6: almost kind of the kind of second derivative of the
• 9:53
  Speaker 6: services that sit on top of that. And also, you know,
• 9:57
  Speaker 6: one of the big issues for Europe is how they
• 9:59
  Speaker 6: support deploy this technology infrastructure into the region. You know,
• 10:03
  Speaker 6: we've got this kind of back and forth debate about,
• 10:06
  Speaker 6: you know, where does the data reside? If it has
• 10:09
  Speaker 6: to be in Europe, then that's a massive investment in infrastructure.
• 10:13
  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
• 10:20
  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
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  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
• 10:30
  Speaker 5: you get your podcasts or watch us live on YouTube.
• 10:35
  Speaker 7: All right.
• 10:35
  Speaker 1: Meta, Muse, big news last week. Meta stock jumped big time.
• 10:40
  Speaker 2: Some people are questioning, all right, what's the risk here
• 10:43
  Speaker 2: from AI, Muse and all this kind of stuff, particularly
• 10:47
  Speaker 2: in creating content? And that's one of the areas that
• 10:51
  Speaker 2: the BITMT team, Tech Media Telecom team, took a look
• 10:54
  Speaker 2: at here. Geetha Ranganathan leads it up there. So, Geetha,
• 10:58
  Speaker 2: talk to us about, you know, Muse. You guys are
• 11:02
  Speaker 2: suggesting maybe a target telecom and some of the moats
• 11:06
  Speaker 2: from telecom companies and media.
• 11:08
  Speaker 1: Talk to us about that.
• 11:10
  Speaker 3: Yeah, absolutely.
• 11:10
  Speaker 8: Thank you so much, Paul. So, you know, any place
• 11:13
  Speaker 8: where you see a lot of consumer inertia, I mean,
• 11:16
  Speaker 8: that is the perfect place for Muse. So, I mean,
• 11:18
  Speaker 8: this is not just comparing prices, right? You think about
• 11:21
  Speaker 8: your internet plan, like your broadband subscription plan that you're
• 11:24
  Speaker 8: paying for, or even, you know, telecom wireless plans. I mean,
• 11:28
  Speaker 8: this is all just perfect comparison. a perfect place for
• 11:31
  Speaker 8: Muse to kind of come in. Because remember, they're not,
• 11:33
  Speaker 8: Muse is not just comparing prices. It is actually helping
• 11:37
  Speaker 8: you to take the next step, compare all of these
• 11:40
  Speaker 8: different plans, and then go shopping. So, you know, traditionally,
• 11:44
  Speaker 8: we've seen telecom companies or cable companies, a lot of
• 11:47
  Speaker 8: consumer inertia there, because people just basically subscribe, they pay
• 11:50
  Speaker 8: their bill, they don't really go back and check and
• 11:52
  Speaker 8: shop around just because of Customer service, right? It's such
• 11:56
  Speaker 8: a painful process. You know that your cable company is
• 11:58
  Speaker 8: the most hated company in America. So nobody wants to
• 12:02
  Speaker 8: be sitting on the line talking to a customer service
• 12:04
  Speaker 8: rep for like five hours and trying to figure out
• 12:06
  Speaker 8: what to do. Muse now kind of takes over that
• 12:09
  Speaker 8: whole process, makes it so simple. And this is really scary,
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  Speaker 8: I would say, for both the cable companies. You think
• 12:16
  Speaker 8: about a Comcast or a Charter and even some of
• 12:18
  Speaker 8: the telecom companies, especially when all of them are fighting
• 12:21
  Speaker 8: off each other in this really, really competitive landscape. And
• 12:26
  Speaker 8: you have the looming threat of a new competitor in Starlink.
• 12:30
  Speaker 1: Yeah, it's amazing.
• 12:31
  Speaker 2: See, I'm going to send this report to Matt Miller
• 12:32
  Speaker 2: because he and I have a running feud. I arbitrage
• 12:35
  Speaker 2: Uber and Lyft, and I save 10%, 20% often.
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  Speaker 1: But it takes effort on your part. It takes another, yeah.
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  Speaker 1: But now Muse can do it for me.
• 12:43
  Speaker 3: Okay, so you have the Muse app on your phone.
• 12:46
  Speaker 3: Are you going to deploy it?
• 12:47
  Speaker 1: I'm going to start doing it. All right, Matt Miller
• 12:49
  Speaker 1: does not do this. No, he just goes to one
• 12:52
  Speaker 1: or the other. Uber, I think. It's a big running
• 12:56
  Speaker 1: feud we have.
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  Speaker 3: That makes a lot of sense, Geetha, what you say
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  Speaker 3: about how muse can do a lot of the heavy
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  Speaker 3: lifting on the kind of work that people don't feel
• 13:03
  Speaker 3: like doing. But after a period of time, even with this...
• 13:09
  Speaker 3: AI agent doing the work for you, people still have
• 13:11
  Speaker 3: to think of it and move forward with it. And
• 13:14
  Speaker 3: that inertia is pretty powerful. I mean, do you have
• 13:18
  Speaker 3: any numbers in terms of what percentage of the population
• 13:21
  Speaker 3: are going to start working on this or moving forward
• 13:24
  Speaker 3: with something like this to compare prices and actually try
• 13:27
  Speaker 3: to pin down these lower prices?
• 13:31
  Speaker 7: Absolutely.
• 13:32
  Speaker 8: I mean, we've run some surveys, some proprietary BI surveys,
• 13:35
  Speaker 8: not specifically for Muse itself, Scarlett, but just in general,
• 13:38
  Speaker 8: kind of looking at the pricing landscape across a lot
• 13:41
  Speaker 8: of these subscription services. And believe it or not, for broadband,
• 13:45
  Speaker 8: you know, it used to be that speed was everything
• 13:48
  Speaker 8: and now price is everything. And in some of the
• 13:51
  Speaker 8: surveys that we ran, we've seen that at least 35%
• 13:53
  Speaker 8: to 40% of the population are willing to switch and
• 13:57
  Speaker 8: make that effort if they have a more competitive price.
• 14:02
  Speaker 8: And now you introduce Mews into the equation, I think
• 14:05
  Speaker 8: it's going to be much, much higher than 40%. If
• 14:07
  Speaker 8: you have somebody who's already doing all of the heavy
• 14:09
  Speaker 8: lifting for you, all of the dirty work, it just
• 14:12
  Speaker 8: makes that whole process, the friction go away and makes
• 14:15
  Speaker 8: the process so much more painless and easier.
• 14:18
  Speaker 2: So is Muse going to argue on the phone for
• 14:21
  Speaker 2: three hours with a Comcast or a T-Mobile rep?
• 14:25
  Speaker 1: It's getting there, Paul.
• 14:26
  Speaker 8: It's first starting off like on the internet, talking with
• 14:29
  Speaker 8: the chatbots.
• 14:31
  Speaker 1: So it did that actually.
• 14:32
  Speaker 8: Yeah, I mean, we've had a couple of examples posted
• 14:34
  Speaker 8: all over the internet of news kind of talking to
• 14:36
  Speaker 8: some of the chatbots, the customer service chatbots, and arguing
• 14:39
  Speaker 8: for a better price. And it managed to even switch
• 14:42
  Speaker 8: for a few customers. So, you know, I mean, if
• 14:44
  Speaker 8: I were a telecom company or a cable company, I
• 14:46
  Speaker 8: would definitely, you know, be pretty concerned at this point.
• 14:50
  Speaker 1: Stay with us.
• 14:51
  Speaker 3: More from Bloomberg Intelligence coming up after this.
• 14:57
  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 15:01
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
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• 15:07
  Speaker 5: you get your podcasts or watch us live on YouTube.
• 15:12
  Speaker 1: Another big mega bond deal hitting the market.
• 15:15
  Speaker 2: Paramount puts $ 44 billion bond sale in the market for
• 15:19
  Speaker 2: to close their Warner Brothers Discovery deal. So that's kicking off.
• 15:22
  Speaker 2: So we want to get the latest on what's happening
• 15:24
  Speaker 2: in that part of the market. Steve Flynn joins us here.
• 15:26
  Speaker 2: He covers all the tech media, telecom credit out there.
• 15:31
  Speaker 2: So $ 44 billion, this is, talk to us about this deal.
• 15:34
  Speaker 1: What's going on here?
• 15:35
  Speaker 3: Hey, Paul.
• 15:35
  Speaker 7: Well, this deal is to help fund Paramount's acquisition of
• 15:38
  Speaker 7: Warner Brothers, which should close relatively soon. There's significant debt
• 15:43
  Speaker 7: financing behind that. But the good thing, there's also significant
• 15:45
  Speaker 7: equity checks coming in from the Ellison family, coming in
• 15:48
  Speaker 7: from Redbird Capital, coming in from some sovereign wealth funds.
• 15:51
  Speaker 7: So you have a lot of equity capital behind it.
• 15:53
  Speaker 7: But It is a big bond deal. They want to
• 15:56
  Speaker 7: raise $ 44. 4 billion. It's a complicated deal because they're hitting
• 16:00
  Speaker 7: two big bond markets, right? They have first lien debt,
• 16:04
  Speaker 7: which is considered an investment grade. They're going to do
• 16:06
  Speaker 7: about $ 32 billion of that, which is going to be,
• 16:09
  Speaker 7: I believe, all dollar denominated debt. But then they're also
• 16:12
  Speaker 7: tapping the high yield markets. They have second lien obligations,
• 16:15
  Speaker 7: which are high yield. There they want to do about
• 16:18
  Speaker 7: $ 12. 4 billion equivalent, hitting both the dollar market and the
• 16:21
  Speaker 7: euro market in high yield.
• 16:23
  Speaker 4: Nice.
• 16:24
  Speaker 2: Bankers are making money, but interest rates are blowing out.
• 16:27
  Speaker 2: I mean, they're paying more in interest that I'm sure
• 16:29
  Speaker 2: they probably thought they would.
• 16:31
  Speaker 5: Yes.
• 16:31
  Speaker 7: So we've had underlying treasury rates moving up, up, up,
• 16:34
  Speaker 7: which is pushing, you know, the spreads were pretty good
• 16:38
  Speaker 7: holding in there, both investment grade and high yield. They've
• 16:39
  Speaker 7: started to bump out over the past couple of weeks.
• 16:41
  Speaker 7: So all in, you know, your investment grade market is
• 16:45
  Speaker 7: probably about 6% right now. I think it was like 5.9%
• 16:48
  Speaker 7: close on Friday. It's definitely probably around 6% now. High
• 16:51
  Speaker 7: yield market overall is over 8%. So, yes, they're going
• 16:56
  Speaker 7: to be paying a lot of interest pro forma for
• 16:58
  Speaker 7: this deal.
• 16:59
  Speaker 1: All right.
• 16:59
  Speaker 2: I'm going to quote you the market back in the
• 17:01
  Speaker 2: early 90s when I was lending to these companies from
• 17:03
  Speaker 2: the Chase Manhattan Bank. I'll lend three, maybe four times EBITDA.
• 17:08
  Speaker 2: You want to put any sub debt on top of that?
• 17:09
  Speaker 2: That's your problem. What's the total leverage.
• 17:12
  Speaker 1: Going to look like on this company pro forma?
• 17:14
  Speaker 2: And I'm going to ask you or tell you pre synergies.
• 17:16
  Speaker 1: Don't give me any of that synergy stuff.
• 17:18
  Speaker 2: What's the leverage on the pro forma Paramount Warner Brothers Discovery?
• 17:22
  Speaker 1: So leverage is high.
• 17:24
  Speaker 7: Leverage all in will probably be about mid six times
• 17:28
  Speaker 7: pro forma this year when you combine the two companies. EBITDA,
• 17:31
  Speaker 7: which is about $ 12 billion combined together for this year.
• 17:36
  Speaker 1: Net debt is expected to be.
• 17:37
  Speaker 7: Around $ 79 billion. So you're like six, four times. But
• 17:42
  Speaker 7: the company sees significant cost synergy. So again, combined, they're
• 17:47
  Speaker 7: about $ 12 billion of EBITDA. They see $ 6 billion of
• 17:49
  Speaker 7: cost savings combined. within three years. So that gives you
• 17:53
  Speaker 7: pro forma, I know you don't want to hear it,
• 17:55
  Speaker 7: but pro forma EBITDA of about $ 18 billion and leverage,
• 17:58
  Speaker 7: which is much lower. The second thing to know here
• 18:02
  Speaker 7: is that They're issuing first and second lien bonds. There
• 18:06
  Speaker 7: is debt securities that are subordinate to that. So there's
• 18:09
  Speaker 7: some leftover unsecured debt from Paramount, some stub pieces from
• 18:14
  Speaker 7: Warner Brothers, and some Paramount subordinated debt. So when you
• 18:17
  Speaker 7: look at those leverage numbers, that's all in the debt
• 18:20
  Speaker 7: that they're selling is higher priority.
• 18:22
  Speaker 1: And these are.
• 18:23
  Speaker 2: Businesses, the core businesses... they're not really growing that well.
• 18:28
  Speaker 2: I mean, so it's not like they can really earn
• 18:30
  Speaker 2: their way out of this leverage. So how are you guys,
• 18:33
  Speaker 2: how's the market, how are the rating agencies viewing this
• 18:35
  Speaker 2: capital structure?
• 18:36
  Speaker 1: Yeah, you know, it's interesting.
• 18:37
  Speaker 7: If you look at combined EBITDA for Warner Brothers and
• 18:40
  Speaker 7: Paramount over the past couple of years and consensus forecast
• 18:43
  Speaker 7: like this year, next year.
• 18:45
  Speaker 1: It's about $ 12 million.
• 18:46
  Speaker 7: It's basically been about flat because The revenue has been challenging.
• 18:50
  Speaker 7: These companies have done a good job of taking out costs,
• 18:52
  Speaker 7: but it's been very challenging to grow revenue because the
• 18:55
  Speaker 7: top line has been under pressure, right? Like traditional linear
• 18:58
  Speaker 7: television under significant pressure. Now they're growing in streaming. Studios
• 19:03
  Speaker 7: has been doing well. But overall, that is a challenge
• 19:07
  Speaker 7: for this company. So the real EBITDA growth is going
• 19:10
  Speaker 7: to come from cost takeout. Again, the $ 6 billion synergy number.
• 19:14
  Speaker 7: There's a fair amount of upfront costs to achieve those
• 19:16
  Speaker 7: synergies within the first year or so. But then after that,
• 19:19
  Speaker 7: you should see significant free cash flow. So as a bondholder,
• 19:23
  Speaker 7: you're really supported by two things. Number one, you love
• 19:25
  Speaker 7: the huge equity checks coming in behind you, supporting the deal.
• 19:28
  Speaker 7: You love the commitment from the Ellison family. And you
• 19:31
  Speaker 7: really do like the significant free cash flow that should
• 19:35
  Speaker 7: be generated a year to two out and going forward.
• 19:38
  Speaker 1: That will help repay your debt.
• 19:40
  Speaker 2: How about the consent decree that the Paramount's guidance signed
• 19:42
  Speaker 2: with the state's attorney general, does that put pressure on
• 19:46
  Speaker 2: their ability to generate those synergies? Like, they can't close
• 19:49
  Speaker 2: down one of the lots, which I thought would have been. Yeah.
• 19:52
  Speaker 7: And I think also the I believe I read that
• 19:54
  Speaker 7: the negotiating with the distributors to carry their television stations
• 20:00
  Speaker 7: or their cable stations.
• 20:01
  Speaker 1: I believe they still have to negotiate that separately.
• 20:03
  Speaker 7: The Paramount channels and the Warner Brothers channels that are
• 20:06
  Speaker 7: eliminate some leverage there.
• 20:07
  Speaker 1: So, yeah.
• 20:10
  Speaker 7: I don't think the consent degree is significantly troubling, and
• 20:13
  Speaker 7: I still think that they have a good chance of
• 20:15
  Speaker 7: getting their synergy target.
• 20:16
  Speaker 2: And do we have, real quick, do we have any
• 20:19
  Speaker 2: pro forma ratings from the agencies yet? Yes.
• 20:21
  Speaker 1: So all the three rating agencies came out.
• 20:23
  Speaker 7: The big key point here is that the Secure will
• 20:26
  Speaker 7: have two investment grade ratings, which puts it in the
• 20:29
  Speaker 7: Bloomberg Investment Grade Index.
• 20:30
  Speaker 2: Okay.
• 20:31
  Speaker 1: And the second liens will have high yield ratings.
• 20:33
  Speaker 2: So that's important because you need to have that in
• 20:36
  Speaker 2: the investment grade index because that.
• 20:37
  Speaker 1: Presumably create more or result in more buyers. It was key.
• 20:41
  Speaker 1: They had to. And the capital structure kind of mimics charter,
• 20:45
  Speaker 1: which I.
• 20:45
  Speaker 7: Know a company you know very well, where you have
• 20:47
  Speaker 7: the investment grade rated high grade, the unsecured rated high yield.
• 20:53
  Speaker 1: And I think ultimately they'd love to mimic... T-Mobile USA.
• 20:58
  Speaker 7: So T-Mobile bought Sprint, had a split-rated capital structure, hit
• 21:03
  Speaker 7: their synergies, de-levered, and moved the whole capital structure to
• 21:05
  Speaker 7: an investment grade.
• 21:07
  Speaker 1: Stay with us.
• 21:08
  Speaker 5: More from Bloomberg Intelligence coming up after this. You're listening
• 21:14
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• 21:18
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• 21:21
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• 21:24
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• 21:28
  Speaker 1: All right.
• 21:29
  Speaker 3: Let's talk about what's going on in something that we
• 21:32
  Speaker 3: all are very familiar with, which is the restaurant industry.
• 21:34
  Speaker 3: Everyone's spending money going out to eat. It costs a
• 21:37
  Speaker 3: lot more to do so these days, and it costs
• 21:39
  Speaker 3: a lot more for those restaurants to operate as well.
• 21:42
  Speaker 3: We talk about rising costs, rising wages, rising diesel prices.
• 21:46
  Speaker 3: That has huge implications for the industry. Let's bring in
• 21:49
  Speaker 3: Michelle Korsmo. She is President and CEO of the National
• 21:52
  Speaker 3: Restaurant Association, and she joins us from Washington. Michelle, obviously
• 21:56
  Speaker 3: the industry is grappling with a lot of headwinds. I
• 21:59
  Speaker 3: mentioned higher costs, higher wages, higher food ingredient costs, higher
• 22:04
  Speaker 3: diesel prices, the logistics and everything else. Tell us a
• 22:09
  Speaker 3: little bit about, first of all, just how much more
• 22:11
  Speaker 3: difficult that has made the business environment for restaurants as
• 22:15
  Speaker 3: a whole.
• 22:17
  Speaker 4: Yeah, thanks for bringing this topic up because it's always
• 22:20
  Speaker 4: been a difficult industry in the restaurant business, and it's
• 22:23
  Speaker 4: getting more and more so because of all of those
• 22:26
  Speaker 4: pressure points. And I think the phrase I always think
• 22:28
  Speaker 4: about is continuous volatility. And that continuous volatility is tough
• 22:33
  Speaker 4: to manage in an industry that traditionally has 3% to 5%
• 22:37
  Speaker 4: profit margins and now is hovering in the 2% to 4%
• 22:40
  Speaker 4: profit margin. So every time you're in that environment, whether
• 22:44
  Speaker 4: it's increased protein costs or increased food costs, you've really
• 22:48
  Speaker 4: got to stay on top of how you manage all
• 22:51
  Speaker 4: of that to deliver at scale and stay profitable.
• 22:54
  Speaker 2: I didn't know this, but restaurants are the second largest
• 22:57
  Speaker 2: private sector employer in the country with 15.7 million workers. Elizabeth,
• 23:03
  Speaker 2: how has the labor market changed just in the last
• 23:05
  Speaker 2: couple of years with changes in immigration policy in this country?
• 23:09
  Speaker 4: Well, immigration policy has definitely been something that's been squeezing
• 23:13
  Speaker 4: the industry. And what we find is it hurts our
• 23:17
  Speaker 4: customer base as much as it hurts our workforce. So
• 23:21
  Speaker 4: we definitely need to add more workers in the restaurant industry.
• 23:25
  Speaker 4: We added 59,000 jobs just last month in August, which
• 23:29
  Speaker 4: is great news. But it means that that competition to
• 23:32
  Speaker 4: find those workers is is really tough. And so we're
• 23:35
  Speaker 4: looking to add more workforce all the time. There's definitely
• 23:40
  Speaker 4: been situations where even the fear of ICE immigration keeps
• 23:45
  Speaker 4: people away. What we find is most of the employees
• 23:50
  Speaker 4: do have legal documentation to work, so they're showing up,
• 23:54
  Speaker 4: but it's often impacting the guests coming into the restaurants.
• 23:59
  Speaker 3: Wait, can you explain that a little more? How does
• 24:01
  Speaker 3: it impact the guests coming into the restaurants?
• 24:04
  Speaker 4: Well, there's a fear of going out. There's a fear
• 24:06
  Speaker 4: of going out and being targeted. There's a fear of
• 24:10
  Speaker 4: what's happening.
• 24:12
  Speaker 1: Yeah.
• 24:12
  Speaker 4: So people tend to, especially if you feel like you
• 24:16
  Speaker 4: may be targeted, people tend to eat at home. So
• 24:19
  Speaker 4: there's just less traffic in our particularly heavily Hispanic demographic neighborhoods.
• 24:25
  Speaker 1: So what's some of the.
• 24:28
  Speaker 2: issues that the restaurant industry is doing to try to
• 24:31
  Speaker 2: drive traffic to their restaurants. How's the restaurant business today
• 24:35
  Speaker 2: different than maybe five or 10 years ago in terms
• 24:37
  Speaker 2: of driving revenue?
• 24:39
  Speaker 1: Lots of competition.
• 24:40
  Speaker 4: Some of the fundamentals remain the same, right? You have
• 24:43
  Speaker 4: to have the best flavor profile you can at the
• 24:46
  Speaker 4: right price point for the customer base that you're seeking
• 24:50
  Speaker 4: to target and serve. And so that value equation is
• 24:54
  Speaker 4: always held true. What's happening now is there's so much
• 24:58
  Speaker 4: more desire for certainty. So as people are making decisions
• 25:02
  Speaker 4: about what they're doing for dinner or what they're doing
• 25:04
  Speaker 4: for lunch, that price certainty is really makes a difference.
• 25:07
  Speaker 4: And you see this showing up in the way restaurants
• 25:10
  Speaker 4: are advertising. You'll see a lot of ads about the
• 25:14
  Speaker 4: main meal or a burger and fries and a drink
• 25:17
  Speaker 4: for a set price point. QuickService has known this for
• 25:20
  Speaker 4: years in their value menus where you set the value
• 25:23
  Speaker 4: menu price and people understand what they're going to pay.
• 25:26
  Speaker 4: And this is something that the full services environment has
• 25:29
  Speaker 4: really discovered is that that certainty on price makes a
• 25:33
  Speaker 4: difference to get those guest counts coming in.
• 25:36
  Speaker 3: Paul had mentioned how restaurants are the second largest private
• 25:39
  Speaker 3: sector employer in the country with 15.7 million workers. A
• 25:43
  Speaker 3: lot of folks get their first jobs in the restaurant industry,
• 25:47
  Speaker 3: but they don't always stay. What do you say to
• 25:49
  Speaker 3: those who want to stay in the industry but worry
• 25:52
  Speaker 3: about the growth prospects, about their career trajectory in the
• 25:55
  Speaker 3: restaurant industry?
• 25:56
  Speaker 4: We love talking about this because it impacts, as you said,
• 26:00
  Speaker 4: so many Americans. One out of two Americans had their
• 26:04
  Speaker 4: first job working in restaurants. And one of the things
• 26:07
  Speaker 4: we love about that is that people understand the skills
• 26:10
  Speaker 4: that you build while you're working in restaurants, right? The communication,
• 26:14
  Speaker 4: thinking on your feet, handling difficult situations, working with a team.
• 26:19
  Speaker 4: All of that happens when you're working in a restaurant.
• 26:21
  Speaker 4: And then they leave because they want to get what
• 26:24
  Speaker 4: they think might be a more professional job or a
• 26:28
  Speaker 4: real career. And what they miss, and we're telling this story,
• 26:32
  Speaker 4: is you can build a wonderful lifelong career working in restaurants.
• 26:36
  Speaker 4: And it's so much more than what you see for
• 26:39
  Speaker 4: the people serving or the people cooking your food. There's accountants,
• 26:42
  Speaker 4: there's IT people, there's marketing teams, there's operation teams, there's
• 26:47
  Speaker 4: finance teams, there's real estate development teams. There's so many
• 26:51
  Speaker 4: things that can be done in the restaurant industry as
• 26:55
  Speaker 4: a career that are really rewarding because at the end
• 26:57
  Speaker 4: of the day, every one of those people at their
• 27:01
  Speaker 4: core is about making the customer happy and serving customers.
• 27:04
  Speaker 4: And it's just a terrific place to give back to people.
• 27:08
  Speaker 4: The other thing that we love about people working in
• 27:11
  Speaker 4: restaurants is the real opportunity, regardless of where you came
• 27:15
  Speaker 4: from or where you started. This is an industry that
• 27:19
  Speaker 4: is about giving everybody the chance to succeed. And there's
• 27:22
  Speaker 4: a lot of training that happens while you're here. So
• 27:25
  Speaker 4: regardless of where you started, you can wind up with
• 27:28
  Speaker 4: a wildly successful career if you build it in the
• 27:31
  Speaker 4: restaurant industry.
• 27:33
  Speaker 5: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
• 27:38
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• 27:41
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• 27:47
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• 27:50
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