Latest / Bloomberg Intelligence / Capital One, Amex Shares Sink on Trump’s Credit-Card Threat

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Capital One, Amex Shares Sink on Trump’s Credit-Card Threat · 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: or watch us live on YouTube.
• 0:24
  Speaker 2: I look at the Bloomberg terminal and the top story
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  Speaker 2: all morning long has been about shares of Capital One
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  Speaker 2: AMEX tumbling, along with some other banks that issue credit cards,
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  Speaker 2: following President Trump's announcement that he is calling on these
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  Speaker 2: companies to cap interest rates at ten percent a year,
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  Speaker 2: which could threaten their profits billions in profits for the industry.
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  Speaker 3: Let's bring in now, Nathan Dean.
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  Speaker 2: Nathan is our senior policy analyst at Bloomberg Intelligence, and Nathan,
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  Speaker 2: one thing that we need to make clear, President Trump
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  Speaker 2: calling for this is not the same as him actually
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  Speaker 2: having authority to do this. Is this something in which
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  Speaker 2: he has the authority to call for a cap on
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  Speaker 2: interest rates for credit card companies?
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  Speaker 4: No, it's not, And that should be the first question
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  Speaker 4: that these investors look at is how would President Trump
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  Speaker 4: implement this? Because look, he said that in effective January twentieth,
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  Speaker 4: that there would be a one year cap at ten percent,
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  Speaker 4: but really there's no way that he can implement this.
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  Speaker 4: There has been legislation from Senators Bernie Sanders the Independent,
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  Speaker 4: and obviously Josh Holly the Republican to actually put in
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  Speaker 4: a cap for five years, but that legislation really hasn't
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  Speaker 4: gone anywhere. Now, the industry averages around twenty one percent.
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  Speaker 4: Going down to ten percent, obviously you're going to see
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  Speaker 4: a significant decline in what the interest would be to
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  Speaker 4: these banks, and obviously that we're starting to see what
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  Speaker 4: the potential of that would be in the stock market.
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  Speaker 4: But you know our note that we put out the
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  Speaker 4: clients this morning, he said, look, we only see a
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  Speaker 4: thirty percent chance of this happening in twenty twenty six.
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  Speaker 4: The more likely scenario is that President Trump uses the regulators. Ironically,
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  Speaker 4: it would be one of the consumer the Consumer Financial
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  Speaker 4: Protection Bureau, the regulator that they've been moving to get
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  Speaker 4: rid of. But they would use the regulators in the
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  Speaker 4: bully pulpit to pressure these firms to actually lower interest
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  Speaker 4: rates on their own. But after that, you know, these
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  Speaker 4: credit card company banks, they can continue to operate as is.
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  Speaker 5: Let's say this policy actually did go into fact in
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  Speaker 5: terms of timeline, how long would it take for some
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  Speaker 5: of these companies to actually cap their rates.
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  Speaker 6: So it'd be fairly quickly.
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  Speaker 4: I mean, obviously it wouldn't be so much an operational
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  Speaker 4: standpoint of capping the rate at ten percent, But the
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  Speaker 4: question would be what are you going to do with
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  Speaker 4: the credit risk that comes out of that, because you
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  Speaker 4: know a lot of these reward programs think of those
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  Speaker 4: you know, those fancy lounges at JFK and at DCA
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  Speaker 4: and Reagan. You know, a lot of that is paid
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  Speaker 4: for by the fact that you have high quality credit
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  Speaker 4: and you have low quality credit consumers as part of this,
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  Speaker 4: and so one of the note that we put on
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  Speaker 4: in the morning this morning showed that if you were
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  Speaker 4: to curred the tail this down to ten percent, banks
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  Speaker 4: would be a little bit more choosy about who they
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  Speaker 4: are offering credit to. You would actually see a decline
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  Speaker 4: in terms of the number of users or credit cards,
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  Speaker 4: which ultimately could have a small impact on Visa, MasterCard
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  Speaker 4: and so forth. But a lot of those reward programs
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  Speaker 4: that people enjoy would likely dry up as well, which
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  Speaker 4: is not something that I think a lot of the
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  Speaker 4: American populace would want to see, especially during an election year.
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  Speaker 2: Yeah, especially since they already paid the eight hundred and
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  Speaker 2: ninety five dollars and ho fee and want to get
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  Speaker 2: something for it. Nathan, you mentioned that there has been
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  Speaker 2: legislation proposed to target these interesst rate levels at these
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  Speaker 2: credit card issuers. Now that President Trump has made this
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  Speaker 2: something of a rallying cry, do you think that that
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  Speaker 2: legislation will have more of a chance of getting anywhere?
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  Speaker 7: So?
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  Speaker 4: You know, normally I would say more so in twenty
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  Speaker 4: twenty seven, less so in twenty twenty six. The reason
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  Speaker 4: being is in an election year. And look, when President
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  Speaker 4: Trump proposed there are a lot of Democrats on Capitol
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  Speaker 4: Hill that actually would be in favor of this. You
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  Speaker 4: want to cap credit card interest rates at ten percent,
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  Speaker 4: You could probably get a significant number of Democrats to say, yeah,
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  Speaker 4: we're on board. But the problem here for the president
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  Speaker 4: is that there's probably an unspoken Republican populace. And I'm
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  Speaker 4: specifically looking at the House Financial Services Committee and the
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  Speaker 4: Senate Banking Committe at the moment that have bank allies
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  Speaker 4: that are completely against this move. And so what I
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  Speaker 4: think will happen is is that if President Trump said
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  Speaker 4: that we want to push this legislation. And if the
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  Speaker 4: folks on the Senate side say, look, we want to
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  Speaker 4: work on this legislation, the most step that you would
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  Speaker 4: have is have a hearing to talk about that legislation.
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  Speaker 4: So hearing plus debate, plus negotiations plus an election year,
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  Speaker 4: that just is in a timeline to get it done
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  Speaker 4: before November twenty twenty six. I think the real risk
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  Speaker 4: is if you see this in twenty twenty seven, but
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  Speaker 4: by then, you know this issue may be moot and
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  Speaker 4: off the President's mindset.
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  Speaker 5: Nathan, I'm just looking at the market reaction here from
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  Speaker 5: some of these credit card issuers, Capital One, American Express,
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  Speaker 5: just their share prices falling more substantially than some of
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  Speaker 5: the banks like JP Morgan. How much more significant would
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  Speaker 5: the impact be on these credit card issuers versus say,
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  Speaker 5: the big banks that are also issuing credit cards.
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  Speaker 4: Well, it's a story of diversification in revenue. I mean
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  Speaker 4: the Capital One, the American Express, you know, the credit
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  Speaker 4: card issuers. You know, it certainly drives higher bulk of
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  Speaker 4: their revenue than it thinks of like the JP Morgans
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  Speaker 4: and Bank Americas which have investment banking, commercial banking and
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  Speaker 4: other types of operations. And that's part of the reason
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  Speaker 4: why policy risks is hitting these companies more so than
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  Speaker 4: others is because you know, if you look at Capital
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  Speaker 4: one in an American Express in particular, you know there's less
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  Speaker 4: of a deregulatory story to tell than what you're seeing
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  Speaker 4: in the big banks at the moment. You know, when
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  Speaker 4: they say that deregulation for the banking industry is coming,
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  Speaker 4: they're most likely saying deregulation is coming for those big
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  Speaker 4: banks in terms of capital requirements of returning towards those banks.
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  Speaker 4: You know, Capital One in Americans Express have a different
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  Speaker 4: type of operating model and as a result, this issue
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  Speaker 4: in particular is more exposed. But I would just say,
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  Speaker 4: is that risk for these companies continue because it's a
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  Speaker 4: Republican issue, it's a democratic issue, and as a result,
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  Speaker 4: this bipartisan issue is going to continue. In the headlines, Nathan.
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  Speaker 2: Before we let you go just very quickly here, Senator
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  Speaker 2: Tom tillis pushing back against this idea of the President
• 5:44
  Speaker 2: targeting J.
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  Speaker 3: Powell and the Federal Reserve.
• 5:46
  Speaker 2: He says he will oppose any off Trump's FED nominees,
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  Speaker 2: including the chair until this issue is resolved with regards
• 5:53
  Speaker 2: to the criminal indictment that's been threatened against the Fed.
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  Speaker 2: You think that will have an impact on the President
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  Speaker 2: on the White House.
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  Speaker 4: It will if Senator Thomas falls through with it, and
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  Speaker 4: it will depending on what his definition resolved is because
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  Speaker 4: the Senate Banking Committee is thirteen to eleven and he
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  Speaker 4: can effectively jam that nomination up.
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  Speaker 2: Stay with us. More from Bloomberg Intelligence coming up after this.
• 6:18
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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• 6:25
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• 6:28
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 6:33
  Speaker 5: Scarlett, it looks like we have Lululemon rising as holiday
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  Speaker 5: sales show signs of a rebound. To explain that we
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  Speaker 5: have Punam Goyle. She is senior US Commerce and Retail
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  Speaker 5: analyst at Bloomberg Intelligence Poonham. I'm not a big Lululemon shopper,
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  Speaker 5: so it was only recently that I discovered that they
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  Speaker 5: actually have a membership, which is really interesting. I can't
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  Speaker 5: help but wonder what is this loyalty program? How does
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  Speaker 5: it influence repeat purchase behavior and margins for the company.
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  Speaker 8: Yeah, so the loyalty program is not something that Lulu
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  Speaker 8: Lemon has had for a long long time, but it
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  Speaker 8: does help, just like with any other loyalty program. You know,
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  Speaker 8: it gives you perks, You have access to lul Lemon merchandise,
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  Speaker 8: you have access to Little Lemon events, et cetera. And
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  Speaker 8: it does bring the member who enjoys the Little Lemon
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  Speaker 8: experience to keep coming back. It's an added reward for
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  Speaker 8: those who have been loyal to the company. But make
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  Speaker 8: no mistakes, that is not what's going to drive the turnaround.
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  Speaker 8: Their turnaround needs a lot more than that.
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  Speaker 2: Yeah, I mean, loyalty programs are something that most brands
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  Speaker 2: have and Lulua Lemon has some more structural issues. Let
• 7:42
  Speaker 2: me just jump in here because we have a headline
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  Speaker 2: showing than Alphabet when it rose as much as one
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  Speaker 2: point seven percent, it actually surpass four trillion dollars in
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  Speaker 2: market value. This comes after Apple reportedly has chosen Alphabet's
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  Speaker 2: Gemini to run its aipowered.
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  Speaker 3: Sery this year. That's according to CNBC. Put On, let
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  Speaker 3: me get back to you here.
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  Speaker 2: When it comes to Lululemon, separate from the loyalty program,
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  Speaker 2: Lulu has pre announced fourth quarter sales and it comes
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  Speaker 2: in at the higher end of its guidance. This is
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  Speaker 2: kind of surprising because Lulu Lemon has struggled to connect
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  Speaker 2: with choppers the last couple of quarters.
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  Speaker 8: Yes, you can say that it's surprising, but at the
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  Speaker 8: end of the day, the sales are still down. The
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  Speaker 8: estimate was for sales to be down negative one to
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  Speaker 8: three percent, so maybe you're close to minus one. That's
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  Speaker 8: still now where we expect Lemon to be. This doesn't
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  Speaker 8: tell me that the turnaround is you know, has started
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  Speaker 8: and is underway and things wil begin to improve quarter
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  Speaker 8: after quarter. I think it's good, but I need a
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  Speaker 8: lot more to be confident that the turnaround will begin
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  Speaker 8: to take place.
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  Speaker 5: What are some of the macroeconomic trend trends that are
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  Speaker 5: driving Lululemon's customer base.
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  Speaker 3: Is it inflation?
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  Speaker 5: Is it just an overall change in discretionary spending patterns?
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  Speaker 6: What is it?
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  Speaker 8: Yeah, so the macro economy has been you know, good
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  Speaker 8: and bad. Consumer has been doing well. Little Lemon, you
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  Speaker 8: could argue sits in the affluent space of activewear. But
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  Speaker 8: that said, it's not that the customer is pressured and
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  Speaker 8: that's why their sales have fallen. It is that they
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  Speaker 8: have lacked innovation and execution has been weak. So the
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  Speaker 8: key here is a company specific issue that they need
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  Speaker 8: to resolve, and they are working towards it. We will
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  Speaker 8: be getting a new CEO, hopefully at some point in
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  Speaker 8: twenty twenty six, and it'll really be then where we
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  Speaker 8: can see who comes in, what's the strategy, and how
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  Speaker 8: does lulle Lemon re engage. It's for a customer that
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  Speaker 8: probably still loves the brand but just hasn't found enough
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  Speaker 8: new to keep going back and back.
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  Speaker 7: Yeah.
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  Speaker 3: Absolutely.
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  Speaker 2: I think about the competitors that Lululemon faces in the space.
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  Speaker 2: It ranges from Jerry to all the other big names
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  Speaker 2: out there, including Nike, which offers perhaps similar at leisure
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  Speaker 2: wear but at a lower price point too. When it
• 9:57
  Speaker 2: comes to this new CEO, Calvin McDonald, the currency is
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  Speaker 2: such as step down at the end of January, and
• 10:02
  Speaker 2: I know Elliott has been a big player in pushing
• 10:04
  Speaker 2: for Jane Nielsen, the former CFO at Ralph Lauren, to
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  Speaker 2: replace him. What's the latest on that. Do we presume
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  Speaker 2: that Jan Nielsen is going to be the next CEO?
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  Speaker 8: I mean we don't know yet right, so it's definitely
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  Speaker 8: one of the contenders and could be. And I think
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  Speaker 8: as long as they get a product led executive, which
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  Speaker 8: he is, Little Lemon could be in good hands to
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  Speaker 8: continue this turnaround.
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  Speaker 2: So founder Chip Wilson is also kind of involved here.
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  Speaker 2: That's another name that we haven't heard from in a while.
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  Speaker 2: He founded the company. He no longer sits on the board,
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  Speaker 2: but he still owns about nine percent of the stock.
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  Speaker 2: How much do you pay attention to what he says?
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  Speaker 8: Who know, we definitely look at it. Look what he
• 10:47
  Speaker 8: said was important. He counted the company, the company was
• 10:50
  Speaker 8: grounded on innovation, on products, and I think he makes
• 10:54
  Speaker 8: fair points that the company needs to kind of really
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  Speaker 8: re engage to the customer and go back to its roots,
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  Speaker 8: which is are you still ahead of the competition? Like
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  Speaker 8: you know you mentioned earlier competition has increased, and it has,
• 11:08
  Speaker 8: but competition was always there. But where is Little Lemon
• 11:12
  Speaker 8: ahead of it? Can you get similar at leisure pants
• 11:14
  Speaker 8: or leggings at Vori or at Aloe or at Leta.
• 11:19
  Speaker 8: How does Little Lemon stand out today? And that's the
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  Speaker 8: big question that they need to answer.
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  Speaker 5: Punam What might be the next drivers of revenue growth
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  Speaker 5: for Lululemon.
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  Speaker 7: It's all product.
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  Speaker 8: I think you know, they are engaging in new product innovation,
• 11:34
  Speaker 8: and as we see that roll out and see that resonate,
• 11:38
  Speaker 8: we think that is what will drive back traffic. Little
• 11:41
  Speaker 8: Lemon was a store in the mall that for me
• 11:44
  Speaker 8: was like Apple right, no matter how dead the mall was,
• 11:47
  Speaker 8: the store had people in it. Today when I walk in,
• 11:51
  Speaker 8: that is not the case. So to see that comeback
• 11:53
  Speaker 8: is going to be driven by two things. In my mind,
• 11:56
  Speaker 8: one is execution and the other is product.
• 11:59
  Speaker 3: Stay with us from Bloomberg Intelligence coming up after this.
• 12:05
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 12:09
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 12:12
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• 12:16
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 12:20
  Speaker 2: I'm Scarlett Foo and we've got some news about the
• 12:23
  Speaker 2: top AI company, kind of the poster child for AI,
• 12:26
  Speaker 2: in Vidia teaming up with the top pharma name Eli Lilly.
• 12:30
  Speaker 2: The two are going to work together within Nvidia investing
• 12:33
  Speaker 2: a billion dollars into an AI drug laboratory. What does
• 12:36
  Speaker 2: that mean? What are they going to use it? For
• 12:38
  Speaker 2: Let's bring in Sam Fizzelli. He has Bloomberg Intelligence's director
• 12:41
  Speaker 2: of Research for Global Industries and senior pharmaceuticals analysts. He
• 12:44
  Speaker 2: always gives us his read on the biotech sector. Sam,
• 12:48
  Speaker 2: good to speak with you. How do you make sense
• 12:50
  Speaker 2: of this headline in Vidia investing a billion dollars in
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  Speaker 2: an AI drug lab with Eli Lilly got it.
• 12:57
  Speaker 9: Very nice to talk to you again today. Look, I
• 13:00
  Speaker 9: think these are the brillion dollar club getting together.
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  Speaker 7: A billion dollars is probably dropping.
• 13:05
  Speaker 9: The ocean for both of them is over five years,
• 13:08
  Speaker 9: and I think the aim of this, at the end
• 13:12
  Speaker 9: of the day is to try and automate and speed
• 13:14
  Speaker 9: up as much of the partly the drudgery of doing
• 13:19
  Speaker 9: lab work, because lab work just like as if you
• 13:21
  Speaker 9: were a doctor in a clinical setting, you need to
• 13:25
  Speaker 9: take a lot of notes, a lot of details. But
• 13:27
  Speaker 9: at the same time, I think they're investing in what
• 13:30
  Speaker 9: appears to be automating twenty four to seven experiments, things
• 13:34
  Speaker 9: that human beings just can't do. And I know, having
• 13:38
  Speaker 9: been a scientist, that sometimes your life is on hold
• 13:41
  Speaker 9: because you have to go back and deal with your experiments, yourselves,
• 13:45
  Speaker 9: or whatever it is that you're running, So a lot
• 13:47
  Speaker 9: of these things I think could speed up and also
• 13:49
  Speaker 9: make the life of the scientists.
• 13:50
  Speaker 7: A little bit easier.
• 13:51
  Speaker 9: At the end of the day, though, I think the
• 13:53
  Speaker 9: aim here is to try and get scientific discoveries translated
• 13:57
  Speaker 9: to drugs quicker and get them to mark quicker.
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  Speaker 5: Sam. What does this mean for ELI Lilly's rivals? Do
• 14:05
  Speaker 5: you expect that we'll see some of its competitors also
• 14:08
  Speaker 5: ramp up their AI endeavors given its partnership with the
• 14:11
  Speaker 5: company like Nvidia.
• 14:13
  Speaker 7: Well a lot of pretty much all pharma companies.
• 14:16
  Speaker 9: Then I just want to point you to a recent
• 14:18
  Speaker 9: survey that EI Bloomberg Intelligence has done that looked at
• 14:22
  Speaker 9: ten different industries, one of which being the pharmaceutical industry,
• 14:27
  Speaker 9: asked executives, what are you doing with this?
• 14:29
  Speaker 7: What are you trying to get to? What is the aim?
• 14:31
  Speaker 7: At the end? Everybody is at this.
• 14:33
  Speaker 9: This is not something specific to Lily and you know Google,
• 14:37
  Speaker 9: for example, has has through Deep Mind, has created an
• 14:41
  Speaker 9: ergentic AI called Google Scientists. Is like I think four
• 14:45
  Speaker 9: agents or five agents who interact with each other and
• 14:47
  Speaker 9: check each other's hypothesis.
• 14:49
  Speaker 7: So a lot of this is going on.
• 14:51
  Speaker 9: In all companies, but of course, here we have Lily,
• 14:54
  Speaker 9: one of the richest farmer companies around in terms of
• 14:56
  Speaker 9: the amount of cash browd that's got really being able
• 14:59
  Speaker 9: to who spend the money with that really impacting it.
• 15:04
  Speaker 7: It's balance sheet and cash flow.
• 15:05
  Speaker 9: And I'm pretty sure everybody's at this, but really this
• 15:08
  Speaker 9: is the Newstjule if you like absolutely.
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  Speaker 2: Like you said, it's a drop in the bucket for
• 15:13
  Speaker 2: both of these companies. But when you have a number
• 15:15
  Speaker 2: like one billion dollars and these big brand names, it
• 15:18
  Speaker 2: gets people's attention. What also gets my attention, Sam, is Maderna.
• 15:22
  Speaker 2: Maderna obviously one of the vaccine makers during the pandemic,
• 15:27
  Speaker 2: but it's had a rough go at it recently because
• 15:30
  Speaker 2: it's so dependent on these vaccines and we have an
• 15:33
  Speaker 2: administration that is kind of anti vaccine right now. Yet
• 15:37
  Speaker 2: madernal pre announced at the JP Morgan Healthcare conference that
• 15:39
  Speaker 2: it's US COVID business did better than expected.
• 15:43
  Speaker 3: Is Maderna starting to stabilize.
• 15:46
  Speaker 7: Well, one would hope.
• 15:48
  Speaker 9: So that's stuck with their aim of growing twenty twenty
• 15:52
  Speaker 9: six point ten percent.
• 15:54
  Speaker 7: But you know, if you look back at the beginning
• 15:56
  Speaker 7: of the year, where.
• 15:57
  Speaker 9: The company in twenty twenty five started with guidance and
• 16:01
  Speaker 9: where we ended up, we're a good five six hundred
• 16:04
  Speaker 9: million dollars short of what the hope was at the
• 16:06
  Speaker 9: beginning of the year. So everybody, I think it knows
• 16:09
  Speaker 9: that this is a very difficult market to call for
• 16:11
  Speaker 9: exactly the reasons you just highlighted. There is a constant
• 16:15
  Speaker 9: change in the way that the administration in the US
• 16:17
  Speaker 9: and not just the US elsewhere is also dealing with vaccination,
• 16:22
  Speaker 9: particularly in the COVID side of things. Other vaccinations are
• 16:25
  Speaker 9: still pretty much well settled and at least outside the US.
• 16:30
  Speaker 9: The problem was so that MODERNA is going to face
• 16:33
  Speaker 9: or has been facing, is that there are lots of
• 16:35
  Speaker 9: people that I think my patent colleagues say there at
• 16:37
  Speaker 9: this twenty various directions of legal cases or trials going
• 16:44
  Speaker 9: on different groups saying you're infringing my patterns, so you
• 16:48
  Speaker 9: in fringe my patterns, and you need.
• 16:49
  Speaker 7: To because there was billions and billions of dollars revenues.
• 16:53
  Speaker 9: So some of that is coming potentially in the March timeframe,
• 16:57
  Speaker 9: pretty lightly against a trial coming up against our breaches
• 17:02
  Speaker 9: another company that's listed in the US. So some of
• 17:04
  Speaker 9: that is I think something that might keep people from
• 17:07
  Speaker 9: getting too excited about modern as guidance today.
• 17:10
  Speaker 3: Sam very quickly.
• 17:11
  Speaker 5: Obviously, the end of the pandemic has made it hard
• 17:13
  Speaker 5: for pharmaceutical companies US officials curbing the people who are
• 17:18
  Speaker 5: eligible for them. What then, are the next growth catalysts
• 17:21
  Speaker 5: for vaccine makers?
• 17:23
  Speaker 9: Oh, well, I think a lot of these companies are
• 17:26
  Speaker 9: trying to use the technology, which is the mRNA technology,
• 17:29
  Speaker 9: those with an mRNA technology to develop cancer therapies.
• 17:33
  Speaker 7: You remember, at the end of the day, what you're
• 17:35
  Speaker 7: trying to do is get an.
• 17:36
  Speaker 9: Immune response, which is what vaccines do against something relatively
• 17:40
  Speaker 9: foreign in infectious diseases Eca virus. In cancer, you're trying
• 17:45
  Speaker 9: to get cancers that's killed and recognized by the immune system.
• 17:48
  Speaker 7: That's where these guys are great.
• 17:50
  Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.
• 17:56
  Speaker 1: You're listening to the Bloomberg Intelligence podcast live weekdays at
• 18:01
  Speaker 1: ten am. He's done on Apple, Cocklay and Android Auto
• 18:03
  Speaker 1: with the Bloomberg Business app. Listen on demand wherever you
• 18:07
  Speaker 1: get your podcasts, or watch us live on YouTube.
• 18:10
  Speaker 6: You know the Bonnie Rate song I Don't I Can't
• 18:13
  Speaker 6: Make You Love Me?
• 18:14
  Speaker 5: You have to sing it for us?
• 18:15
  Speaker 6: Well, no, I'll spare you that. I feel like that's
• 18:18
  Speaker 6: how Paramounts sky dances. Feeling that dramas is never ending,
• 18:24
  Speaker 6: they made some new moves to try and get Warner
• 18:26
  Speaker 6: Brothers to dump Netflix and choose them. And Keith Ranganathan
• 18:30
  Speaker 6: with Bloomberg Intelligence is here. She's going to try to
• 18:33
  Speaker 6: sort this out for us. Do I sense a desperation
• 18:36
  Speaker 6: on the part of Paramount's sky dance. It seems not
• 18:40
  Speaker 6: the cost of getting Warner Brothers, but the cost of
• 18:43
  Speaker 6: not getting Warner Brothers, that's the big issue.
• 18:46
  Speaker 10: Yeah, absolutely, John, You're absolutely right. And this is the truth.
• 18:50
  Speaker 10: This is the hard hitting truth for really all of
• 18:52
  Speaker 10: these legacy media companies, right, you know, how much are
• 18:56
  Speaker 10: they going to lose out if Netflix actually does go up,
• 19:00
  Speaker 10: you know, end up winning this whole bidding war for
• 19:03
  Speaker 10: Warner Brothers. And that's really what we see today from
• 19:05
  Speaker 10: Paramount basically, you know, uh, the whole letter to shareholders
• 19:11
  Speaker 10: as well as the legal the lawsuit that they've that
• 19:15
  Speaker 10: they just filed basically threatening a proxy fight. So things
• 19:18
  Speaker 10: are kind of getting very very interesting, somewhat I would say,
• 19:22
  Speaker 10: even somewhat ugly.
• 19:23
  Speaker 5: Jifah, I'm just reading this report It says that the
• 19:26
  Speaker 5: lawsuit is aiming to force out into the open more
• 19:29
  Speaker 5: details about Netflix's takeover agreement. What exactly is this lawsuit alleging?
• 19:35
  Speaker 5: What is it supposed to do here? And is it
• 19:37
  Speaker 5: just posturing?
• 19:38
  Speaker 10: Perhaps it's a yeah, I think it's all of the above, Alex.
• 19:43
  Speaker 10: So really, what we're you know, so we have one
• 19:46
  Speaker 10: number which is there for the streaming and the studio assets.
• 19:49
  Speaker 10: Remember the whole Warner Brothers transaction is about two different
• 19:53
  Speaker 10: uh units really, so one is the streaming and the
• 19:56
  Speaker 10: studio assets, and for that we already have a deal
• 19:58
  Speaker 10: from Netflix for about twenty eight dollars a share. Now,
• 20:02
  Speaker 10: what is a shear What is really, so to speak,
• 20:05
  Speaker 10: in the air, so to speak, is the remaining part
• 20:07
  Speaker 10: of the business, which is the TV network business, what
• 20:11
  Speaker 10: is called the global networks or Discovery Global. And here
• 20:14
  Speaker 10: is where, you know, there is a lot of questions
• 20:17
  Speaker 10: about where exactly that should be valued. So Paramount pretty
• 20:19
  Speaker 10: much has come out and said that it should be
• 20:21
  Speaker 10: valued at zero dollars a share. And they base their
• 20:24
  Speaker 10: argument on the recent trading debut of Versunt, which is
• 20:28
  Speaker 10: the cable network spinoff from Comcast, which has fared really
• 20:31
  Speaker 10: really poorly. In its first week, the stock off almost
• 20:35
  Speaker 10: thirty percent, and so that you know, Paramount kind of
• 20:37
  Speaker 10: using that as their defense for valuing these Water Brothers
• 20:40
  Speaker 10: networks next to nothing. Warner Brothers, on the other hand,
• 20:43
  Speaker 10: obviously internally has a number for those networks. They you know,
• 20:48
  Speaker 10: according to reports, I think it's worth about three to
• 20:50
  Speaker 10: four dollars a share. So that's really where a lot
• 20:52
  Speaker 10: of this discrepancy is kind of stemming from. And what
• 20:55
  Speaker 10: Paramount is asking in this lawsuit is to really clarify
• 20:59
  Speaker 10: all of these aspects. What is the stub value, what
• 21:01
  Speaker 10: is you know, what are all the different financial details
• 21:04
  Speaker 10: on the Netflix deal, and what is the risk adjusted
• 21:07
  Speaker 10: uncertainty that you know, Warner Brothers is ascribing to the
• 21:11
  Speaker 10: thirty dollars offer from Paramount, So they say they're really
• 21:13
  Speaker 10: asking WBD to kind of spell it all out and
• 21:17
  Speaker 10: come out in the open.
• 21:18
  Speaker 6: So, I mean, are they doing this on the cheap? Whint?
• 21:21
  Speaker 6: It's just pony up more money? Uh Paramount?
• 21:26
  Speaker 10: Yeah, So you know right now there, you know, offer
• 21:29
  Speaker 10: is obviously thirty dollars a share, which Warner Brothers has
• 21:32
  Speaker 10: called inadequate and inferior to the Netflix deal of course,
• 21:38
  Speaker 10: you know, Paramount keeps arguing that their offer is all
• 21:40
  Speaker 10: cash versus Netflix, which is you know, partly cash and
• 21:43
  Speaker 10: partly stock. And you know, the stock is obviously has
• 21:46
  Speaker 10: been really like it's it's been going down in value,
• 21:51
  Speaker 10: so again that part of it is a little bit
• 21:52
  Speaker 10: of a question mark, but really this is you know,
• 21:55
  Speaker 10: I think ultimately what's going to happen is they are
• 21:57
  Speaker 10: going to have to sweeten the deal. There is no
• 21:59
  Speaker 10: doubt about that because we haven't seen a whole lot
• 22:01
  Speaker 10: of faction in terms of the Warner Brothers shareholders actually
• 22:04
  Speaker 10: tendering their shares, and that's really what it's going to
• 22:07
  Speaker 10: come down to. So only about two percent of the
• 22:09
  Speaker 10: shares have been tendered, which means that the shareholders are
• 22:12
  Speaker 10: really waiting for a higher bid. So Paramount I think
• 22:16
  Speaker 10: has to you know, raise the offer ultimately.
• 22:19
  Speaker 5: Keith, it kind of feels like this bidding war has
• 22:21
  Speaker 5: no end in sight. We get some new escalation every day.
• 22:24
  Speaker 5: From a regulatory perspective, perhaps, is there any limitation for
• 22:29
  Speaker 5: how much longer this can go on? And what does
• 22:32
  Speaker 5: it do for the terms of the deal for you know,
• 22:35
  Speaker 5: if it keeps shrogging on much.
• 22:36
  Speaker 10: Longer, Yeah, it's definitely not good for anybody, right. It
• 22:40
  Speaker 10: just kind of keeps adding to the uncertainty here. But
• 22:43
  Speaker 10: in terms of the dates and what we know so far,
• 22:45
  Speaker 10: January twenty first, so far is the deadline that Paramount
• 22:49
  Speaker 10: has set for the Warner Brothers Discovery shareholders to tender
• 22:53
  Speaker 10: their shares. Now, they can very well come back and
• 22:56
  Speaker 10: extend that deadline, or you know, they may not. They
• 23:00
  Speaker 10: may choose to walk away from the deal, or they
• 23:02
  Speaker 10: may you know, choose to raise the offer. So again,
• 23:04
  Speaker 10: a lot up in the air at this point. Just
• 23:08
  Speaker 10: it's we're kind of playing a waiting game here, Alex.
• 23:10
  Speaker 6: What would they what a proxy fight? What would that
• 23:13
  Speaker 6: look like?
• 23:14
  Speaker 10: That is going to be really ugly, And I don't think,
• 23:18
  Speaker 10: you know, obviously that kind of changes a lot of things,
• 23:21
  Speaker 10: you know. I think the Warner Brothers Discovery shareholders, however,
• 23:26
  Speaker 10: do believe that the board the management is doing the
• 23:30
  Speaker 10: right thing. I think they do believe that the Netflix
• 23:33
  Speaker 10: offer is actually superior, and I think that they do
• 23:35
  Speaker 10: believe that the TV networks are actually worth something, something
• 23:38
  Speaker 10: much more than what Paramount is suggesting. So again, I
• 23:43
  Speaker 10: don't necessarily know that a proxy fight would be productive
• 23:45
  Speaker 10: for Paramount.
• 23:46
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