Breaking Down The AT&T-Discovery Merger

would say, this is the discussion of the morning. In his merger Monday, A T T spinning off its media assets and discovery, you're gonna merge with those, creating a pretty pretty big media company. Uh. Fortunately, we have two of the absolute top analysts on Wall Street to chat about this, and fortunate for us, they work at the same firm, so it's easy to get them on together, Michael Nathanson and Craig Moffat. They are founding partners at

Moffatt Nathanson. Craig, let me start with you, boy, what does this say about A T and T strategy over the last several years to transform itself into I guess a media company. It's a big about face, isn't it? Boy? It sure is. Um. This is a thank you for having us on this is this is a complete capitulation strategically. Um. But but in some ways you have to give them some credit. It is rare that a management team is willing to admit so openly that they made a mistake

and they've got to retrench. Usually, you you require a changeover in the management team. And while it was Randall Stevenson that that was at the helm when these deals were made, John Stanky was very much in the co pilot seat and advocated for both of these deals, and so to see him changing his mind, it's an enormous loss of value for a T and T shareholders, to

the tune of more than a hundred billion dollars low. Um. But but I guess you do have to give them some credit for at least acknowledging they made a mistake in reversing. So how are I mean, that's amazing. Let's just go through those deals if we could. Michael, can you can you sound it up for us? What did Stanky and Stevenson by and um, what are they able

to salvage? Now? Well, well, they bought and thanks for having us on and they bought was Turner Cable Networks and Craig and I would always say to you the businesses at Turner with TVs and t N T, well, the well the most at risks from Netflix, right, those are entertainment networks, a lot of repeat content that was easily replaced by on demand spot. So Turner got a lot worse more quickly. And then HBO. You know, I

don't blame them on HBO. They've done the right thing, but HBO really never aggressively expanded into the engine non US markets. So the guys that A T T had to basically reinvestigate in HBO change the way the company went to market. UM. So to me, it really comes down to the basic cable bundle and also time warners. Really, I would say starving of HBO to get the to get the asset in the competitive position. And now that's what they're doing, but it's gonna be expensive, by the way,

I was including Direct TV and that as well. Exactly they bought direct TV for sixty seven billion dollars two years earlier, UM, and they just sold that for about fifteen or eighteen. Yeah, just an extraordinary you know, the value destruction there from this management team. Uh, Michael, can the new company really compete against Netflix and Disney. Can they be a global leader? You know, I think they can. Um, I think they'll be three or four global companies. HBO's

content is as good as anyone's. UM. The weakness they've had is is not being able to move into international markets. That's going to change. Who they've had is the under the inability to invest in. Now they're investing. So I don't think it's crazy. I don't think it's crazy. They could be a top three global aspot powerhouse. I really do believe that. And then what about the telecom Yeah? Sorry,

question is is that a good business or not? Like you know, our debates with us over the years have been, well, they could be a top three company, but what's the cash flow profile in that spot? It's a lower cast sharing business, right, just not as attractive as a business as they want had. So that was gonna be my second part of the answer. The media business they once had, you mean, yeah, like where they're moving from is not going to be you know, where they're going is not

as good as where they start. Their problem. I wonder about the telecom business because investors are voting the shares up today, and I guess that's because what they're going to have more money to spend. In the five G rollout, they're gonna be able to pay down some of their monstrous pile of debt. Um. You know, why, why do

you think the market likes this? You know? UM? I think partly the market likes because it likes it because they're getting back a sexy asset, assuming that the shareholders directly get back shares in the new CO or the new discovery. But you do have to scratch your head a little bit because you know, remember before this, a T and T was a company that paid a six point seven percent dividend yield and had a growth kicker

in HBO or HBO Max. Now it's going to be a company that has about a four and a half percent dividend yield and doesn't have a growth kicker. The business stub that's left behind in wireless and wire line. Let's remember that that is a business with negative service revenue growth and falling IBADA. So it's not exactly like you're getting a growth company. You're just getting a declining

company that now has a much lower dividend yield. I'm not sure that's going to work for investors as they sort of go through all the mad Craig, do you expect a T and T. I mean it's got to be really gunshot here, given what's happened over the last several years. Is their strategy just to hunker down with the assets that they have? Do you think they don't

have any choice? Um? They they have no money, right, I mean they're levered at four times IBADA and and the rating agencies have said the downgrade threshold is three seven. So um, so they're hanging on for dear life. And and while this will help them pay down forty three billion dollars of debt, um, it will also offload cash flows that supported more than forty three billion dollars of debt. So this doesn't help them delever at all. What about

the discovery Uh, the discovery side discovery? What's right? That's right? Yeah? What are they going to be able to do? I mean they they to me, it looks like they come here with an inferior like who cares about Home and Garden TV? You're getting hbo Um, what is thats not going to be able to do with this business? Well, it's funny you say that because that is a point of view of h G, t V and food of a coastal, a coastal elite. You know. I've always had

that point of view too. It's like, who's watching those networks, But they're watched by a ton of young women or women in this country. So what Jobs is going to try to do is protect his basic cable network businesses and create, you know, an alternative bundle with TBS, T and T CNN or all those discovery channels. Right, So that's one thing, and he's gonna try to create an add on bundle with Hrio Max. Think what Disney has done with Hulu, ESPN and Disney plus, same kind of idea.

Assets are not the same, but I think the idea is like we can replicate parts of the bundle with our own mini bundles. Here. Very interesting and I'm I'm so glad that Paul got you guys to come in today because it's a come on today, I should say, not in obviously, but because it's such a fascinating discussion, because you are the experts from whom we really can learn all of this um stuff. Pleasure having you on

the program. Thanks very much, Michael Nathanson and Craig Moffatt founding partners at Moffatt Nathanson on the A T and T Discovery merger. Hate the word merger. It's always one buying the other. This is Bloomberg. Let's get over to Aaron Callenberg right now, CEO of the Wild Alaskan Company, as we talk about E. S G and UM. As so many people have seen the Netscape movie documentary c spirc Um. You gotta wonder about um wild caught fish.

It's delicious, it's the best obviously, but um is it sustainable? Aaron Callenberg, as I said, joins us, Um, how do you make that sustainable? Aaron? You know, wherever we see UM, big industrial fishing it it always just seems to decimate the ecosystem. Yeah, happy day everybody. This is Aaron. Um. Just a little background wild last and you know we are a monthly seafood membership service. We should curated box

of wildcot seafood, sustainable seafood to members across the country. Um, you know, and the sustainability UM topic, you know, especially around you know, the documentary you mentioned is one that's near and dear to my heart and the Callenberg family. UM, you know you how do you do? How do you do it air and sustainably. I mean, um, you know, you know it's obviously it's it's the best for eating and I want fish, crabs, prawn, that's wild caught salmon especially,

but I'm worried about the ecosystem. Yeah. The way you do it is you do it the way Alaska has done it with a constitutional mandate that was written into the state constitution that mandates the sustainable yield. You do that with the subsequent enforcement of that mandate across the entire industry. Um. The thing about Alaska, it's the largest um sustainably managed fishery in the world. It's quite different

than the rest of the world. And in fact, um notably absent from the documentary that you mentioned, there was any mention of Alaska or sustainable management practices, the governance, the enforcement, and the culture. Um. The re in the Alaska wrote that into their constitution is prior to statehood, the fisheries were essentially being mismanaged, um, you know, by the federal management and the state of Alaska understood that in order to maintain or increase the economic viabilities of

the fisheries, they needed to protect the fish. If you take care of the fish official take care of you economically. So they put in the strongest standards for sustainable fisheries management and they're now are what considered the global gold standard for sustainable fisheries management. UM. And so, you know, contrary to popular belief, Alaska is not estimating the environment

or the fish populations. And there's plenty of evidence to suggest that if global fisheries were to adopt these practices, which are codified into law in Alaska, you have a quite different global fishery. Aaron talked to us about how your business changed during the pandemic. It seems like we hear from a lot of retailers that their online sales went through the roof and we're seeing boxes on everybody's doorstep.

How did you impact your business? Yeah, there's no doubt, you know, as a pandemic has been a global tragedy, but for a while to lask and um, you know, specifically, there's no doubt. You know, our business has increased by five acts. You know. UM, we're seeing it on two fronts. We're seeing consumer demand for uh, you know, healthy eating,

you know, especially in the post pandemic increase. But in addition, you know, so many other e commerce companies actually had supplied to chain disruptions, you know, importing um, you know, food from outside the United States. One of the great things about Wild Alaskan is we're a fully US based supply chain, so we didn't have those disruptions, so we were able to actually continue disservice the domestic market. UM. And you know that in addition to that, the man

allowed us to really pull ahead. Aaron, thanks so much for joining us. UM, super cool business idea there. I think it's like a hundred and thirty hours a month and then you get fresh caught, sustainably caught probably the most important part, but I'm sure also incredibly juicy and delicious fish, crabs, prawn, et cetera. And Wild Alaskan company. Aaron Callenberg is the CEO and talking to us about you know why how they do it in Alaska, Paul is different from um, how you see it in other

parts of the world. Yeah, I didn't know that that it was, you know, codified into that state law. But you know that's a really interesting aspect to their business. Absolutely and and important, right because especially if you spend any time on the see UM, you want these cultures to thrive. This is Bloomberg. Now let's bring in Greg Han. He is president and chief investment officer Winthrop Capital Management.

They have almost three billion dollars in assets under management, and Greg, I want to first get your um, your your concerns for this market. I mean, we have heard a lot of inflation concerns over the last few days. Then we saw this you know, bitcoin thing blow up again. It looks like maybe deflation concerns, at least deflation of the speculative bubble. UM maybe first, first and foremost, front

and center here. How do you look at it? So our base case for the economy right now is that the vaccine will be effective in controlling the spread of the virus, the economy will reopen, we'll see the accelerated growth. We still believe that that's the case. It's not a straight line up, UM, and we're seeing that the labor markets causing a little bit of UM anxiousness. UM. Cp I obviously is the is headline news. With inflation picking up. This actually is a scenario that the FED wants. The

FED was looking for accelerated growth and increased inflation. So now we've got it. The question is whether it's going to be sustained inflation or whether this is just a short term hiccup. But right now, I think the real concern is navigating the structural issues that we're dealing with in the capital markets. All right, Greg, So assuming that this inflation is more transitory than perhaps more longer term and problematic, what are some of the sectors that you

guys are looking at right now? So the dance dance with the girl that brought you right to the to the dance, and that's the tech stuff. The large cap tech is Microsoft, Alphabet. Um we we still like those, and I think there's a catalyst behind it is there's these are heavy cash and so there's catalysts for stock buy backs and increased dividends. UM plus we like the fundamentals. UM. On the Chinese side, we still like ten Cent in Ali Baba. Ten Cent we think is just a hidden

gem in this market. And UM we still like the financials, but I'm hesitating a little bit. We have a steep Pheel curve. You're gonna see stock buybacks on the financials including JP, Morgan, Bank America, and Goldman UM. But that that has some legs to it. It's not the same kind of growth that we're going to see in the large cap tech though, So you really see large cap tech then coming back with a vengeance from the lull that we've seen in the end of the second half. Yeah,

these are great and the first half sorry. These are great business models, these huge margins, and these they have global reach. So all the noise around antitrust and and that, I mean, it's it's legitimate, but it's noise. These we we we think that these are companies are sophisticated enough to move through it. Um and some of the products that are coming out Microsoft Products Suite is amazing. Um, there's there's there's still room for growth here. Alright, Greg,

we saw on some of those tech names. Um, you know, the companies report generally really really strong numbers. Get the stock didn't react and you know, cause a lot of investors to say, oh, is this tech trade? Is this growth story trade over? Is Is it really a cyclical driven maybe even a small cap market? How did you view earnings in the stocks responses? So we separate we kind of have to separate the text based into two

different categories. There's large cap and then there's small cap, and that whole small cap tech space has got I mean it's it's over valued, it's there's valuation is the

biggest issue in this this whole space. And then when you when you kind of sort through what's going on in the I p O market, you look at what's happening in the recovery basket as as UM COVID affected industries recover there as an alternative, and that's part of what we saw was a shift moving into some of the cyclicals or value oriented parts of the market in away from tech. That the place we're focused. We're not

focused in that small cap tech space. We're focused really in in the large cap where you've got sustained business models, and you don't think that the valuations are too high. I mean they're not off the charts. If I look at the NYC Fang Index, but I do see forty five you know UM times earnings look there, there's no question by historic standards they're high. UM. However, studies show that in periods of aggressive monetary and fiscal stimulus we

will see extended valuations. Multiples were hanging our ad on at I think there's no other way to look at it other than to say, is is Okay, we've got the stimulus in the market. It's going to support these valuations for the time being. Can these valuations now handle an increase in interest rates? That's I think that's really going to be the question if if we see accelerated inflation, what will happen to the market. You know that this

that all makes sense to me. Greg. The The interesting call I think is large cap Chinese tech because it's such an opaque uh yeah, you know universe, right. I mean, you can't see in you don't know what the Communist Party is going to do, and that's a little bit riskier. It is there's authoritarian capitalism against Western capitalism. And this is a much longer conversation. I won't weigh it down here, but these are companies that do have um audited financial statements.

They do comply with international standards for audits. The issue though, is they won't let auditors in to actually examine the books. That's really what I think. The The issue for the exchanges are for Chinese stocks trade in the United States. But that's why Hong Kong is so important to China in our opinion, and we see um the big banks still acted their golden sacks. Overnight there was a story hiring three people in China and Hong Kong, the biggest

ever hiring spree for the big investment bank there. Um. Greg, thanks so much for joining us. Really fascinating to get your insight, and especially as we see these these markets

bounce around like this. Greg Han as President and Chief investment officer at Winthrop Capital Management talking to us about their um sticking with a large cap tech stocks, the fang stock, so to speak, but also interested um still in large cap Chinese tech holdings including ten Cent and Ali Baba, as well as the financials as the yield curve, steep yield curve is helpful to them. This is Bloomberg. Now let's get over too marked outing. I told you we're gonna have the CEE i Oh at Blue Bay

Asset Management join us. He is here to talk about his outlook for I guess mark. Inflation is probably the biggest front and center concern for investors right now, whether you're worried that it's going to come on quickly or whether you're worried about a popping of the speculative speculative bubble. Um, where do you stand on the inflation concern. Well, good morning, so thanks for the question. I guess I'd firmly be in the camp that markets are being rather complacent around

the nature of inflation here. Obviously, the narrative from the FED has been that inflation is going to be transitory, but the reality is the next month's cp I is likely to be up again as further base effects flop out. We've got a negative from May twenty that will drop out.

The data to here is so inflation will go up again next month, and so I think the inflation signals will continue to flash red for a WHI wouldn't surprise me if the market's complacency around the transitory narrative ends up being tested, and certainly from my perspective, I reckon that you'll end up seeing inflation and this year closer to three more than two percent, which is considerably more than the Fed is callegi discounting. All right, Mark, let's

look within the fixed income markets. One of the areas or just investing in general. One of the areas of real growth is e s G investing environmental social governance, and I've heard that term a lot. We hear it a lot in the equity markets. On the fixed income markets, I guess we're starting to hear more about green bonds. Is that something that factors into your portfolio? Yeah, so, I think we're all hearing a lot more about E s G. And the reason for that, frankly, is our

clients really care. They care about E s G outcomes as stewards of financial assets um and ultimately, I think we're seeing increasingly that those issues that deliver better E s G performance do end up delivering better investment performance. Certainly in the credit world, if you're a better E s G performer, you end up being a bit more

credit worthy ultimately. Speaking that said, on the on the question of green bonds, I think the the this is a bit of a double edged sword actually when we speak about green bonds, because green bonds certainly have got a place where the issuance which occurs wouldn't otherwise have

come about if those green bonds weren't issued. But a lot of the time, what we're actually starting to see is a lot of issuers just cashing in on a trend by tapping into an area where there's hot demand to get a cheaper financing cost, where actually the bonds that they're issuing aren't necessarily changing the actions of the issuers. A lot of the the projects that are being sort of finance would have gone ahead anyway, So actually the

green bond issuant isn't making such a difference. So I think for us at Blue Bay, we we would be saying that the reality of E s G is a fixed income invest It's not really about green bombs. It's really about taking an active approach to E s G analysis, integrating s G considerations into your portfolios, and actually engaging with issuers to try and really drive s G outcomes and the bend issue of behavior. You know, speaking of game changers, you've got the E s G theme over

the last few years that has been so prevalent. I think the other one has to be cryptocurrency, digital finance. Of course it's seen in a darker light. How do you look at um, you know, we just had the European Investment Bank issuing digital bonds on a theoryum. I mean that's going to tell you that it's pretty mainstream now, but people still are concerned in a risk from a risk perspective when they look at it. Yeah, look, look it's it's been a source of interest to all of us,

isn't it. I think that ultimately we would say that blockchain is it's awesome technology. But I do think a lot of the crypto that can't exist today it isn't really an asset class that investors should be trying to allocate too much capital to. I think, frankly, the reality is that a lot of the capital can't be tied up in crypto is there for one reason only, and that's financial speculation. It's really about the fear of missing out and the desire to try and make further strong

speculative gains by chasing these coin prices higher. But I think that as we we almost I was pleased to see that must change his tune last week. What we are starting to see, though, is increasing concern from a lot of investors that actually, if you drive up coin prices, it's actually bad for the planet. Um, if you end up encouraging bitcoin mining and that's driving up electricity to consumption,

it's not a great thing. So it's a bit ironic that some of the the the kids of today who care about the planet the most actually engaging behavior that's actually doing some environmental home. But for me, I think that we can speak about Toto being mainstream, but I just don't get it for now, all right, Mark, thanks so much for joining us and sharing your thoughts there on fix Income, on crypto, and on E s G investing, market Doubting Chief investment Officer blue By Asset Management. Thanks

for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. On Fall Sweeney, I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio