Latest / Bloomberg Intelligence / Hold On To Tesla, As Management Tackles Balance Sheet: Houchois

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Hold On To Tesla, As Management Tackles Balance Sheet: Houchois · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim
• 0:08
  Speaker 1: Fox along with my co host Lisa A. Brahmowitz. Each
• 0:11
  Speaker 1: day we bring you the most important, noteworthy, and useful
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• 0:17
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• 0:20
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• 0:27
  Speaker 1: There is a lot of pessimism around Tesla these days,
• 0:30
  Speaker 1: so much so that Ellen Musk decided to joke about
• 0:33
  Speaker 1: the fact that the company was filing for bankruptcy as
• 0:35
  Speaker 1: an April Fool's joke. Here to talk about the bull
• 0:39
  Speaker 1: case for Tesla is Philippe h equity analyst at Jeffrey's
• 0:43
  Speaker 1: coming to us from London. Philip, there is so much
• 0:47
  Speaker 1: negativity around Tesla right now as people ratchet down their
• 0:51
  Speaker 1: production estimates. H, I'm wondering, what's the bull case here?
• 0:55
  Speaker 1: Very morning, I'll qualify your coming. Um. We we upgrade
• 0:58
  Speaker 1: from on the performed to hold day. Talking about the
• 1:01
  Speaker 1: world case is probably a bit premature. Um. Although we
• 1:04
  Speaker 1: have some some admiration and sympathy for what Tesla has
• 1:07
  Speaker 1: achieved so far, our view is mostly that a lot
• 1:11
  Speaker 1: of that news have been crystallized in the shower price
• 1:13
  Speaker 1: last week and apparently today as well, and we think
• 1:16
  Speaker 1: at this stage the probability of management getting a bit
• 1:19
  Speaker 1: more curious about capital, structure, funding and guidance is likely
• 1:24
  Speaker 1: to stick as a show price. Well, just to just
• 1:26
  Speaker 1: to push back a little bit, I think that a
• 1:28
  Speaker 1: lot of people are watching the bonds right now and
• 1:30
  Speaker 1: watching the prices sink, basically locking Tesla out of the
• 1:34
  Speaker 1: unsecured bond market. A lot of people believe that Tesla
• 1:37
  Speaker 1: will have to raise equity and I'm just wondering, you know,
• 1:40
  Speaker 1: if they can't raise four billion dollars by the first
• 1:44
  Speaker 1: quarter next year, uh, They're debt could easily come under
• 1:48
  Speaker 1: more pressure. At what point, you know, does this become
• 1:50
  Speaker 1: a spiral? You know? Absolutely? I mean we were factored
• 1:55
  Speaker 1: in the two point five to three billion capital race
• 1:57
  Speaker 1: for some time um with a view that it might
• 1:59
  Speaker 1: be mix of equity and debt. At this stage it
• 2:02
  Speaker 1: seems like it would be higher than what we have
• 2:04
  Speaker 1: in our estimates and also very much no weighted those
• 2:08
  Speaker 1: kew towards the equity, so the dilution impact, of course
• 2:13
  Speaker 1: is more severe, and raising capital in those circumstances with
• 2:16
  Speaker 1: what happening in the bond side isn't easy. At the
• 2:19
  Speaker 1: same time, we've seen before is if you raise capital
• 2:23
  Speaker 1: in a what we call it professional manner, that you
• 2:25
  Speaker 1: reassure investors that you have desition of something, you have
• 2:28
  Speaker 1: a plan um, then you de risk the profile investment
• 2:32
  Speaker 1: profiles the company, and I think that's possibly an opportune
• 2:35
  Speaker 1: It isn't able to Testla today, so we need to
• 2:38
  Speaker 1: be aware of the risk of more capital needed to
• 2:40
  Speaker 1: be raised. At the same time, the benefit of stabilizing
• 2:43
  Speaker 1: the story in the balance sheet is not to be
• 2:45
  Speaker 1: to be neglected either. At what point do you believe
• 2:49
  Speaker 1: investors will step back and lenders will not want to
• 2:52
  Speaker 1: lend the company any more money. Is there a specific
• 2:55
  Speaker 1: challenge that Tesla has and is there a time frame? Well,
• 3:00
  Speaker 1: as we said before, I know a lot of the
• 3:01
  Speaker 1: issues around Tesla are self inflicted. UM I think the
• 3:05
  Speaker 1: market will probably welcome a slight pause in this aggressive
• 3:10
  Speaker 1: guidance better visibility on how reasonably productively ramped up. So
• 3:14
  Speaker 1: it's a combination of how the company is willing to
• 3:17
  Speaker 1: package your message um allebal credibility on what can be achieving,
• 3:21
  Speaker 1: What is too optimistic, and of course the amounts involved,
• 3:26
  Speaker 1: and I think it's it's it's a difficult balance, um,
• 3:28
  Speaker 1: but I think now is the right that is the
• 3:30
  Speaker 1: right time to do it. Because of what seemed that
• 3:33
  Speaker 1: it might have been a short term issue. It has
• 3:35
  Speaker 1: been a short term issue for three quarters now, so
• 3:38
  Speaker 1: it no longer qualifies and they need to do something
• 3:40
  Speaker 1: a bit more um drastic, I think, to stimilize the
• 3:44
  Speaker 1: equity story and something, you know, Philippe. One thing that
• 3:47
  Speaker 1: I'm struggling to get my mind around is what is
• 3:50
  Speaker 1: the main problem that that the Tesla faces right now?
• 3:53
  Speaker 1: Is it? Is it a financing problem? Is it the
• 3:56
  Speaker 1: fact that they have overpromised and underlivered quarter after quarter
• 4:00
  Speaker 1: with the Model three delivery expected to also underwhelm people,
• 4:04
  Speaker 1: or is it a management issue? And what we saw
• 4:06
  Speaker 1: with Elon Musk and the April Falls tweet that didn't
• 4:09
  Speaker 1: go over very well. I think at this stage the
• 4:13
  Speaker 1: main issue is probably um the industrial approach. Now they
• 4:17
  Speaker 1: have chosen a manufacturing process that is highly automated. Um.
• 4:21
  Speaker 1: It is well known that in manufacturing there is a
• 4:23
  Speaker 1: trade off between automation and and flexibility, and so that's
• 4:27
  Speaker 1: one of one of the issues and if you're not
• 4:29
  Speaker 1: running a full capacity, then your your your running costs
• 4:32
  Speaker 1: are very high. And then there's another question mark, but
• 4:35
  Speaker 1: it's very much a question mark is whether some of
• 4:37
  Speaker 1: the proud development has lacked the invalidation, in which case
• 4:41
  Speaker 1: some of the components may not be totally validated, and
• 4:44
  Speaker 1: that might have be some of the reasons behind continue
• 4:48
  Speaker 1: issues of fit and finish that some consumers have reported.
• 4:51
  Speaker 1: Um So there's uncertainty there, but certainly it seems like
• 4:53
  Speaker 1: very much the consequence of excessively aggressive manufacturing decisions made
• 4:59
  Speaker 1: by the current management. But Philippe, it's not even just
• 5:02
  Speaker 1: the current management. A recent review by Car and Driver
• 5:05
  Speaker 1: magazine about the Tesla Model three said, quote, it's difficult
• 5:08
  Speaker 1: to gauge exactly how disappointing the Model three's result is
• 5:13
  Speaker 1: in that real world seventy five mile power highway fuel
• 5:16
  Speaker 1: economy test. Indeed, they say that if it's a little
• 5:19
  Speaker 1: cold outside lop off about a third of the range.
• 5:22
  Speaker 1: If it gets even colder, the range will be even worse.
• 5:25
  Speaker 1: That's not a management issue, that's a technical issue. That
• 5:29
  Speaker 1: is a product concept issue, and it's something that has
• 5:32
  Speaker 1: been has been part of the development of electric cars,
• 5:35
  Speaker 1: and it seems to be maybe a perception among investors
• 5:39
  Speaker 1: or customers that they can be a seamless transition away
• 5:43
  Speaker 1: from unbush engine cars into electric cars. And the reality
• 5:46
  Speaker 1: is still very much technology that is underdevelopment, underdevelopment um
• 5:51
  Speaker 1: with no disappointments on the way as well as excacting
• 5:54
  Speaker 1: no development in terms of no driving agreement. And so
• 5:58
  Speaker 1: I think it's it's I think there has been a
• 6:01
  Speaker 1: lot of different opinions, some negative in some sources more positive.
• 6:05
  Speaker 1: I think it's very much a product that is evolving
• 6:07
  Speaker 1: and that may be a surprise for investor residents. Do
• 6:11
  Speaker 1: you do you drive a Tesla? I do not? Okay, alright,
• 6:15
  Speaker 1: just checking, Thanks very much. Uh. Philippe Husha He is
• 6:19
  Speaker 1: equity analyst for Jefferies joining us from London, talking about
• 6:22
  Speaker 1: Tesla and the company's future. Right now, the company's stock
• 6:26
  Speaker 1: is down nearly seven percent, shares a Tesla lower by
• 6:30
  Speaker 1: more than eighteen dollars a share. Well, China retaliated against
• 6:37
  Speaker 1: the US with three billion dollars worth of goods from
• 6:41
  Speaker 1: the US getting slapped with tariffs. We're talking pork, We're
• 6:45
  Speaker 1: talking other perhaps Jin saying things that are pretty peripheral
• 6:51
  Speaker 1: in in size and in scope. So you know, the
• 6:53
  Speaker 1: question is our markets missing the real show with the
• 6:58
  Speaker 1: China US standoff? It isn't more severe than perhaps some
• 7:02
  Speaker 1: people are counting on with US. I am so pleased
• 7:05
  Speaker 1: to bring in Bill Rhodes, President and Chief Executive of
• 7:07
  Speaker 1: William R. Rhodes Global Advisors, better known as Banker to
• 7:11
  Speaker 1: the World, with his decades of experience at the front
• 7:14
  Speaker 1: seat of international banking negotiations. Bill, thank you so much
• 7:17
  Speaker 1: for being here. So what do you make of the
• 7:19
  Speaker 1: twoford tat US China tariffs? Well, first of all, it's
• 7:23
  Speaker 1: great to be uh here with Hugh Lisa and with
• 7:26
  Speaker 1: Pim as always uh. I think no one should be
• 7:30
  Speaker 1: surprised at this because President Trump ran on doing something
• 7:35
  Speaker 1: with China. The question is are we doing it intelligently
• 7:39
  Speaker 1: or are we not? Because we have to remember that
• 7:41
  Speaker 1: Chi Jinping is now basically Emperor of China, and on
• 7:45
  Speaker 1: this program number of months ago I predicted that he
• 7:48
  Speaker 1: would be able to consolidate his power as core leader
• 7:51
  Speaker 1: and now basically he is the leader almost for life,
• 7:56
  Speaker 1: depending on how long he wants to stay around. So
• 7:59
  Speaker 1: we're dealing with the different situation than we would have
• 8:01
  Speaker 1: been a year ago. And we also need China if
• 8:06
  Speaker 1: we're going to have a successful negotiation with North Korea
• 8:09
  Speaker 1: and Kim Jong Oon. And that was brought I think
• 8:12
  Speaker 1: holmed everyone with a visit of Kim Kim Jong Oon
• 8:15
  Speaker 1: to Beijing. UH So, whether we like it or not,
• 8:19
  Speaker 1: we can't just talk about trade with China. We also
• 8:22
  Speaker 1: have to be very cognizant that without China's support where
• 8:26
  Speaker 1: of their petroleum and uh an energy comes from China,
• 8:31
  Speaker 1: we won't have a happy outcome in in that negotiation.
• 8:33
  Speaker 1: So at the end of the day, we're gonna have
• 8:36
  Speaker 1: to sit down with the Chinese and work things out. Uh.
• 8:40
  Speaker 1: One of the major aspects also that I think needs
• 8:43
  Speaker 1: to be uh worked on has been talked about, but
• 8:46
  Speaker 1: I haven't seen much done about is the intellectual property
• 8:49
  Speaker 1: area because there's no town. China has been very deficient
• 8:52
  Speaker 1: in this area for quite some time, uh, not only
• 8:56
  Speaker 1: the American companies but also with European companies. But but
• 9:00
  Speaker 1: I guess that then I'm wondering, as I listened to you,
• 9:02
  Speaker 1: so far, markets are taking the tariff talk as more bike,
• 9:06
  Speaker 1: more bark than bite. Do you think that they're overly
• 9:09
  Speaker 1: sanguine based on this sort of larger picture issues that
• 9:13
  Speaker 1: the U. S And China are dealing with. Well, I
• 9:16
  Speaker 1: think that you have to take these discussions on trade
• 9:21
  Speaker 1: seriously because, uh, you know, we've been looking, particularly in
• 9:25
  Speaker 1: the high tech area, we've been looking at China as
• 9:27
  Speaker 1: the market of the future. Uh you know, whether it
• 9:31
  Speaker 1: be Apple, Qualcom. I could just run through the names Facebook, etcetera,
• 9:35
  Speaker 1: and uh what the Chinese are doing. And let's let's
• 9:39
  Speaker 1: not forget where Ali Baba has come in ten years
• 9:43
  Speaker 1: and ten cent. I mean nobody heard of Ali Baba
• 9:45
  Speaker 1: ten years ago. So there there's a lot at stake here.
• 9:49
  Speaker 1: The Qualcom situation in particular, they've held up this, uh
• 9:54
  Speaker 1: this merger, uh you know, approval for Qualcom, which is
• 9:58
  Speaker 1: key for them now that the Roadcom deal has fallen apart,
• 10:02
  Speaker 1: and their attitude is, well, we want to take more
• 10:04
  Speaker 1: time to look at it, which is basically saying, uh,
• 10:07
  Speaker 1: if we can work some other deals and some other things,
• 10:10
  Speaker 1: will approve it. So we've got a lot at stake here. Uh.
• 10:14
  Speaker 1: And instead of having a talk with Mr Putin, I
• 10:17
  Speaker 1: think maybe our president ought to be sitting down with
• 10:19
  Speaker 1: Shi Jinping on all of these issues because I think
• 10:22
  Speaker 1: that's much more important for the United States and sitting
• 10:25
  Speaker 1: down with Putin at the stage of the game. Although
• 10:28
  Speaker 1: I'm sure Mr Putin is very happy that that the
• 10:31
  Speaker 1: President called him and said let's talk, I think our
• 10:34
  Speaker 1: major concern should be China in all of these areas.
• 10:38
  Speaker 1: Bill Rhodes, in January, you penned an op ed piece,
• 10:44
  Speaker 1: and you've put your pen to paper many times the
• 10:48
  Speaker 1: book Banker to the world. What did you say in
• 10:51
  Speaker 1: that op ed piece? And maybe you could just reiterate
• 10:53
  Speaker 1: it for people. Thank you for mentioning that pim I
• 10:57
  Speaker 1: basically predicted um that we would have a correction of ten.
• 11:03
  Speaker 1: I guess the low point was twelve. And we have
• 11:05
  Speaker 1: a lot of volatility, which certainly is happening because there
• 11:09
  Speaker 1: are so many uncertainties, including the ones that Leaves and
• 11:11
  Speaker 1: I have just been talking about. And I think we
• 11:14
  Speaker 1: also one of the things that a lot of people
• 11:18
  Speaker 1: have not taken seriously is we've had so much liquidity
• 11:21
  Speaker 1: pumped in the markets by the major central banks of
• 11:23
  Speaker 1: the world. Uh, and we've had this trying to reach
• 11:27
  Speaker 1: and search for yield, and eventually it's come that's gonna
• 11:30
  Speaker 1: come home and bite you. And because people think it
• 11:33
  Speaker 1: will go on forever, and of course the FEDS taking
• 11:35
  Speaker 1: the lead and ratcheting back with their balance sheet. Uh,
• 11:40
  Speaker 1: it's not just raising interest rates, which everyone seems to
• 11:43
  Speaker 1: you know, I think as a major preoccupation, uh for
• 11:47
  Speaker 1: the future, which is important, But I gotta tell you
• 11:50
  Speaker 1: maybe just as important and more important is we're reducing
• 11:53
  Speaker 1: that balance sheet, the quantitative easing, and as that money
• 11:56
  Speaker 1: gets taken out, interest rates go up, and I think
• 12:00
  Speaker 1: you'll start to see movement in the e c B,
• 12:03
  Speaker 1: the Bank Bank of England also, so stocks stocks are
• 12:07
  Speaker 1: down two percent this year, okay, by the SMP five,
• 12:11
  Speaker 1: you think they have another eight percent at least to go. No,
• 12:14
  Speaker 1: what I was saying is, at the time I penned this,
• 12:16
  Speaker 1: which is of January, Uh, when the hit came three
• 12:22
  Speaker 1: months later, it dropped to be exact eleven and a
• 12:24
  Speaker 1: half percent. So I was just calling for that correction.
• 12:29
  Speaker 1: But I'm just saying the same points that are there.
• 12:32
  Speaker 1: I think are going to come back to buy this
• 12:34
  Speaker 1: later on in the year. Uh. And I think at
• 12:37
  Speaker 1: at the very you know wordst we we might have
• 12:40
  Speaker 1: a total adjustment of some but at least the ten
• 12:43
  Speaker 1: percent we've already seen that correction, but I think we
• 12:46
  Speaker 1: have further corrections to come. Which sector of US equities
• 12:50
  Speaker 1: were just in general, which as a class do you
• 12:52
  Speaker 1: think will be hardest hit? I think the tech side
• 12:54
  Speaker 1: is the most vulnerable frame, even now, even with the
• 12:56
  Speaker 1: sell off that we've seen recently. Yeah, I think so.
• 12:58
  Speaker 1: And then the other thing which a surprise people, UH
• 13:02
  Speaker 1: is everyone expected the bank's stocks to be soaring and
• 13:05
  Speaker 1: they haven't. And this is UH, this has been a
• 13:08
  Speaker 1: big surprise to UH a lot of fund managers, and
• 13:12
  Speaker 1: some of these fund managers aren't doing too well, as
• 13:14
  Speaker 1: you've seen by some of the announcements over the last
• 13:18
  Speaker 1: couple of days. UH. This market is one that is
• 13:23
  Speaker 1: going to be a rough ride with high volatility and
• 13:28
  Speaker 1: the possibility that you can get some more major adjustments
• 13:32
  Speaker 1: before you have flattening out, and then you have the
• 13:34
  Speaker 1: whole point is if it's going to raise three or
• 13:37
  Speaker 1: four times, UH, there's no doubt that unemployment's going to
• 13:40
  Speaker 1: drop below four percent. And notwithstanding UH what I think
• 13:45
  Speaker 1: is not going to be as stronger first quarter as
• 13:47
  Speaker 1: people thought, I still think you have to take a
• 13:51
  Speaker 1: look at the growth may not be as high as
• 13:54
  Speaker 1: people UH. As people think. And so you have a
• 13:57
  Speaker 1: lot of a lot of these things floating around. Can
• 14:01
  Speaker 1: can you do thirty seconds on Mexico? The election began
• 14:05
  Speaker 1: officially yesterday. Well, I think that that is a big unknown,
• 14:10
  Speaker 1: uh for the n after talks, because they have elections
• 14:13
  Speaker 1: in July. And so running ahead now is Lopez Overlord,
• 14:19
  Speaker 1: who is a wild card. He's to the sort of
• 14:23
  Speaker 1: extreme left in Mexico, and we're not clear how he
• 14:27
  Speaker 1: would move ahead on after if we don't get the
• 14:29
  Speaker 1: talks done. So really, uh, there's a date here where
• 14:33
  Speaker 1: if we can't get these enough to talks done before
• 14:36
  Speaker 1: the elections in in Mexico, then that's a whole new ballgame.
• 14:40
  Speaker 1: Thank you very much for being with us, Bill Rhodes.
• 14:42
  Speaker 1: He is the author of Bankers to the World, Leadership
• 14:45
  Speaker 1: Lessons from the front Lines of Global Finance. This is Bloomberg,
• 14:53
  Speaker 1: Humana and Walmart, a marriage made in heaven. Well, perhaps
• 14:58
  Speaker 1: here to join us and discuss this po nil tie
• 15:00
  Speaker 1: up is Max Neeson, biotech, pharma and healthcare columnist and
• 15:03
  Speaker 1: Tara La Chapelle, deal's columnist, both of Bloomberg gad Fly.
• 15:07
  Speaker 1: They both write fabulous columns. Read them. Uh, Tara. I
• 15:11
  Speaker 1: want to start with you because you cover the M
• 15:13
  Speaker 1: and A market on a more broad level, and I'm
• 15:16
  Speaker 1: wondering how concentrated has the healthcare specific deals been. I mean,
• 15:21
  Speaker 1: in other words, how massive has the wave been this year?
• 15:24
  Speaker 1: I want to set this up that way. Yeah, I
• 15:25
  Speaker 1: mean it started with CVS Etna back in December. Really
• 15:29
  Speaker 1: surprising deal, um, And it makes sense for strategic reasons
• 15:33
  Speaker 1: which we've been writing. But the finances are what's so jarring.
• 15:36
  Speaker 1: And now that we're seeing other companies explore similar really
• 15:40
  Speaker 1: large mega deals, a lot of debt involved. Um, it's
• 15:43
  Speaker 1: a little bit of cause for concerning you know, you
• 15:45
  Speaker 1: have to question where what is behind this M and
• 15:47
  Speaker 1: A wave and in the end is it going to
• 15:49
  Speaker 1: be better for shareholders and for these companies. So Max,
• 15:53
  Speaker 1: that raises the question of Humana and Walmart, and you
• 15:57
  Speaker 1: know I oppose that to you. Do you think that
• 16:00
  Speaker 1: this deal makes sense? Um? I think it does in
• 16:03
  Speaker 1: in in a number of different ways. For one, Human
• 16:05
  Speaker 1: is pretty heavily concentrated on the medicare market. That's a
• 16:10
  Speaker 1: good overlap with the kind of Walmart's core customer base.
• 16:14
  Speaker 1: They already have a partnership for Medicare, prescription drug programs,
• 16:18
  Speaker 1: so they know how to work to each other with
• 16:19
  Speaker 1: each other, and um, you know, Walmart. Anything they can
• 16:22
  Speaker 1: do to kind of drive store traffic, whether it's by
• 16:26
  Speaker 1: driving human and releas to clinics or making sure they
• 16:28
  Speaker 1: use their pharmacies building their pharmacy business, that's also their benefit. Um.
• 16:34
  Speaker 1: The question is, you know, whether they can actually drive
• 16:38
  Speaker 1: the full amount of that benefit, considering they're kind of
• 16:41
  Speaker 1: relative lack of experience and healthcare and managing and early
• 16:44
  Speaker 1: health um. And also the fact that you know Astarmagine
• 16:47
  Speaker 1: this is you know, the third in a in a
• 16:49
  Speaker 1: line of deals, and these deals themselves come come on
• 16:53
  Speaker 1: the heels of you know, United Health having spent almost
• 16:56
  Speaker 1: a decade kind of following this integrated insurer provider model.
• 17:01
  Speaker 1: So everyone's sort of playing catch up, and it's a
• 17:03
  Speaker 1: question if they'll they'll all be able to do it
• 17:05
  Speaker 1: well and do it profitably. At the same time, Max
• 17:09
  Speaker 1: am I just sort of getting stuck on this idea
• 17:11
  Speaker 1: that this is not a healthcare company. Humanity is an
• 17:14
  Speaker 1: insurance company. They are a healthcare ensure but they do
• 17:18
  Speaker 1: not provide any of the healthcare that we're talking about
• 17:22
  Speaker 1: is that accurate um, they actually have to do some role.
• 17:26
  Speaker 1: I mean pretty much any insure is actively managing the care.
• 17:30
  Speaker 1: No I understand that, but I mean they do not
• 17:32
  Speaker 1: employ the doctors, the nurses, the pharmacists, or they're looking
• 17:36
  Speaker 1: to employ more human as a separate deal with I believe,
• 17:39
  Speaker 1: like a home hospical and and they've been doing some
• 17:42
  Speaker 1: investments that they have a having investment in care coordinators
• 17:45
  Speaker 1: to which kind of actively work to to keep people
• 17:48
  Speaker 1: out of the emergency rooms and things like that. So
• 17:50
  Speaker 1: this would be an opportunity for them to, you know,
• 17:53
  Speaker 1: should this combination go forward to play more of a
• 17:56
  Speaker 1: role in care provision. Well, Walmart's clinic press since being
• 18:00
  Speaker 1: kind of the potential avenue, you'd imagine they'd invest heavily
• 18:03
  Speaker 1: in that if they go through with steal Tara. I'm
• 18:06
  Speaker 1: struck by the fact that Walmart shares are down more
• 18:08
  Speaker 1: than three percent. Well Humanity shares are up more than
• 18:11
  Speaker 1: five percent. Market seems to be judging this is a
• 18:14
  Speaker 1: boon for Humana and a possible bust for Walmart. True,
• 18:18
  Speaker 1: although we've gotten used to seeing a choirer shares rise
• 18:21
  Speaker 1: on emany news, but traditionally the acchoire is supposed to fall.
• 18:24
  Speaker 1: It's the way you know merger are but typically work.
• 18:26
  Speaker 1: So it's not super unusual to see Walmart down, but
• 18:29
  Speaker 1: it is a sign that perhaps UM shareholders a little
• 18:32
  Speaker 1: bit worried about this deal. Again, it's not a super
• 18:35
  Speaker 1: obvious fit, but it does make senses. Max explained for
• 18:37
  Speaker 1: Walmart to do this, and you can see, you know,
• 18:40
  Speaker 1: with the Amazon threat there why they would go this route.
• 18:43
  Speaker 1: But also I would look at if you consider the
• 18:45
  Speaker 1: CVS Etna deal and the signa express script steal in
• 18:48
  Speaker 1: comparison to this possible transaction between Walmart and Humanity, this
• 18:52
  Speaker 1: one would be a lot more financially healthy Walmart starting
• 18:55
  Speaker 1: with a pristine balance sheet, They've got you know, investment
• 18:58
  Speaker 1: greeting that's the tops for the industry. They really have
• 19:01
  Speaker 1: a lot of room to do something this size if
• 19:02
  Speaker 1: they wanted to. It wouldn't be as disconcerting as CBS
• 19:06
  Speaker 1: at now, where you know they're taking on a whole
• 19:08
  Speaker 1: lot of leverage for something that's a little bit outside
• 19:10
  Speaker 1: their wheelhouse. In this case, I mean, the deal would
• 19:13
  Speaker 1: be a creative and it really wouldn't do a whole
• 19:15
  Speaker 1: lot to leverage. But why humanimax. Um, well human. I
• 19:20
  Speaker 1: think it's some combination of the customer overlap and fit
• 19:24
  Speaker 1: the prior relationship and just a size thing here. Um.
• 19:28
  Speaker 1: You know, the the only big ensure left standing, uh,
• 19:33
  Speaker 1: other than Human is is Anthem, which is a much
• 19:35
  Speaker 1: bigger mouthful, and they're much more focused on sort of
• 19:38
  Speaker 1: the corporate market, which would be a little bit trickier
• 19:41
  Speaker 1: for Walmart. Um, this one, you know, it doesn't quite
• 19:44
  Speaker 1: have that kind of potential conflict of interest. And also, um,
• 19:48
  Speaker 1: it's just a more bite sized way of getting into
• 19:50
  Speaker 1: this market. And I think the thing that doesn't get
• 19:52
  Speaker 1: mentioned quite as much is it's also an opportunity for
• 19:55
  Speaker 1: Walmart and more aggressively or more in you know, more
• 19:58
  Speaker 1: in house manner. Man need the healthcare of their one
• 20:01
  Speaker 1: point five million US employees. They already do, um some
• 20:04
  Speaker 1: of some care abirds sing on their own yourself insured,
• 20:07
  Speaker 1: but this would be a way to take that entirely
• 20:09
  Speaker 1: in house. Tara la Chappelle, can you do twenty seconds
• 20:12
  Speaker 1: on CBS viacom just give us an update. Sure, it
• 20:16
  Speaker 1: sounds like those talks are progressing and as expected. I
• 20:20
  Speaker 1: think that that deal we'll see that at sometime next
• 20:22
  Speaker 1: quarter um. It makes a whole lot of sense ZBS
• 20:25
  Speaker 1: and Viacom to TV network operators that need more scale
• 20:29
  Speaker 1: in this environment as all the distributors have emerging, So
• 20:32
  Speaker 1: it makes sense for these guys to get back together potentially.
• 20:35
  Speaker 1: Thank you both very much. Tara La Chapelle our deal's
• 20:37
  Speaker 1: columnist for Bloomberg Gadfly, and you can follow Tara on
• 20:41
  Speaker 1: Twitter at Tara la c H. So that's t A
• 20:45
  Speaker 1: r A l A c H. And Max Neisson, our
• 20:49
  Speaker 1: Gadfly columnst for all things biotech, pharmaceutical and healthcare, and
• 20:53
  Speaker 1: you can follow him on Twitter at Max Neson N
• 20:55
  Speaker 1: I S E N. I've already had three cups of
• 21:01
  Speaker 1: coffee today, and I'm a little bit concerned about what
• 21:05
  Speaker 1: that might mean from my body, not only just with
• 21:08
  Speaker 1: respect to being too hyped up, but perhaps what it
• 21:10
  Speaker 1: has to do with cancer. Here to discuss this issue,
• 21:13
  Speaker 1: Jennifer bratashs she covers the US retail sector for with
• 21:18
  Speaker 1: staples and restaurants being her focus for Bloomberg Intelligence. John,
• 21:21
  Speaker 1: thank you so much for being with us. There was
• 21:24
  Speaker 1: a court ruling in California basically forcing Starbucks and some
• 21:29
  Speaker 1: others to reveal some connection between cancer and coffee. Please explain,
• 21:35
  Speaker 1: good morning and thanks thanks for having me so. So, Yes,
• 21:38
  Speaker 1: there was a lawsuit that was filed by a nonprofit
• 21:41
  Speaker 1: organization that counsels for education and research on toxins UM,
• 21:45
  Speaker 1: and our judgment was was given earlier this week, UM
• 21:49
  Speaker 1: from the superior court judge who ruled that UM, these
• 21:52
  Speaker 1: these coffee companies and other retailers that sell coffee in
• 21:55
  Speaker 1: their stores UM may have to show or disclose that
• 22:00
  Speaker 1: there's a potential cancer risk UM from one of the
• 22:03
  Speaker 1: chemicals that is a byproduct of the roasting processing coffee. UM,
• 22:07
  Speaker 1: and that that's the chemical acrylamide. So is this something
• 22:11
  Speaker 1: that would actually have an effect on Starbucks? Is roasting process?
• 22:16
  Speaker 1: I mean, could they switch to something else? Um? Actually,
• 22:19
  Speaker 1: it's a it's a chemical process that happens when beans
• 22:22
  Speaker 1: are roasted. UM. It's not unique to coffee. It also
• 22:25
  Speaker 1: happens UM with other foods when they're cooked at a
• 22:28
  Speaker 1: high temperature. So French fries would be another example, or
• 22:31
  Speaker 1: potato chips. UM. So it's a fairly common byproduct of
• 22:34
  Speaker 1: that process. UM. Within the roasting process, UM, there are variations.
• 22:39
  Speaker 1: So darker roasts actually have less of this chemical in
• 22:43
  Speaker 1: them than the lighter roasts. UM. And certain bean types
• 22:46
  Speaker 1: have less than others. So the Arabica beans actually have
• 22:49
  Speaker 1: slightly less than other varieties. But both of those things
• 22:52
  Speaker 1: are actually probably a little bit better for Starbucks within
• 22:55
  Speaker 1: the context of the situation, Jen, where where where are
• 22:58
  Speaker 1: the studies that have looked into this and sort of
• 23:01
  Speaker 1: how they have they actually drawn links between you know,
• 23:05
  Speaker 1: cancer incidences and coffee drinkage. Yeah, so so you know,
• 23:10
  Speaker 1: there's a there's a lot of of interest in the
• 23:13
  Speaker 1: link between coffee and cancer, and you find results of
• 23:17
  Speaker 1: studies looking at in both directions. UM. But at the moment,
• 23:21
  Speaker 1: the most clarity that we have is that you know,
• 23:23
  Speaker 1: in the dietary guidelines for Americans from the u s
• 23:26
  Speaker 1: d A, if they still say that up to five
• 23:28
  Speaker 1: cups of coffee a day is okay for Americans, UM.
• 23:31
  Speaker 1: The World Health Organization does not lift coffee on its
• 23:34
  Speaker 1: carcinogen list UM. And so the the the concerns are
• 23:39
  Speaker 1: have been really sighted coming from studies where the levels
• 23:43
  Speaker 1: were higher in animal tests that we're done UM, and
• 23:46
  Speaker 1: that was with acrylomide that was in their drinking water.
• 23:49
  Speaker 1: So it wasn't directly coming out of coffee and it
• 23:51
  Speaker 1: was slightly different. UM. And of course there are on
• 23:54
  Speaker 1: the other side of the equation. You have a lot
• 23:55
  Speaker 1: of studies that say that they're actually benefits UM of
• 23:58
  Speaker 1: drinking coffee because it contains antioxidants which protect the body
• 24:02
  Speaker 1: against free radicals, and that it can actually help prevent
• 24:06
  Speaker 1: um some types of cancer. UM. But there's no clear
• 24:09
  Speaker 1: answer from either side UM on this topic at this
• 24:13
  Speaker 1: point in time. And I would imagine what that because
• 24:16
  Speaker 1: of California's presence in the coffee market in terms of consumers,
• 24:21
  Speaker 1: it would make it difficult to just tailor packaging with
• 24:24
  Speaker 1: warning labels that are just specific to stores in California.
• 24:28
  Speaker 1: That's correct, UM. And so if you if you look
• 24:31
  Speaker 1: at Starbucks is the largest defendant in this case, about
• 24:35
  Speaker 1: of their total store base is located in California. UM.
• 24:39
  Speaker 1: And right now there are ninety different companies. I think
• 24:43
  Speaker 1: part of the suit a handful of them have actually
• 24:45
  Speaker 1: already settled. One of the potential outcomes is that they
• 24:48
  Speaker 1: don't need to actually put the label on the coffee
• 24:51
  Speaker 1: cup itself. UM. You know, like like you would see
• 24:53
  Speaker 1: a cigarette package with the warning label, but rather post
• 24:57
  Speaker 1: warning in stores on a poster or on lineage. UM.
• 25:01
  Speaker 1: And if that's the case, then it becomes a little
• 25:03
  Speaker 1: bit more manageable for these companies than having to have
• 25:06
  Speaker 1: a separate supply of cups that are branded you know
• 25:09
  Speaker 1: or you know, or have this warning label on them.
• 25:11
  Speaker 1: Just in California, I imagine that it could potentially dent sales,
• 25:15
  Speaker 1: though people don't really want to see a skull and
• 25:17
  Speaker 1: crossbones on their coffee, very true. Um, you know, it's
• 25:21
  Speaker 1: it's in all honesty, you know, because because anytime there's
• 25:25
  Speaker 1: something between coffee and cancer and the news, I think
• 25:27
  Speaker 1: most people have some kind of of sense that you
• 25:30
  Speaker 1: know that it may not be the best for you.
• 25:32
  Speaker 1: It's probably not the worst thing that most people put
• 25:34
  Speaker 1: in their bodies. Um. So my guess is that it
• 25:37
  Speaker 1: is unlikely to have a major impact on that first
• 25:40
  Speaker 1: morning cup of coffee. But where you could see it
• 25:42
  Speaker 1: show up is in other parts of the day. People
• 25:45
  Speaker 1: may decide to forego a second cup in the afternoon
• 25:47
  Speaker 1: or or you know, or replace that with something else. Um.
• 25:51
  Speaker 1: And more of a greater concern is that, you know,
• 25:53
  Speaker 1: one of the things with this this lawsuit, they're they're
• 25:56
  Speaker 1: actually asking four fines as much as each person who
• 26:00
  Speaker 1: has been exposed to the chemical since two thousand and
• 26:03
  Speaker 1: two in California, UM. And if that actually happens, then
• 26:07
  Speaker 1: you could be talking about, you know, a potential of
• 26:09
  Speaker 1: hundreds of millions in fines that these companies may have
• 26:12
  Speaker 1: to pay. All the shares of Starbucks they are lower
• 26:15
  Speaker 1: right now by a little bit more than two percent.
• 26:17
  Speaker 1: Our thanks to Jennifer bartashers are a senior analyst for
• 26:21
  Speaker 1: US Retail Staples and Restaurants for all things are related
• 26:25
  Speaker 1: to Bloomberg Intelligence. Much appreciated. Thanks for listening to the
• 26:29
  Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
• 26:32
  Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
• 26:37
  Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
• 26:41
  Speaker 1: I'm on Twitter at Lisa abramoids one. Before the podcast,
• 26:44
  Speaker 1: you can always catch us worldwide on Bloomberg Radio