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All right, let's talk a little bit more about this.
Larry Ellison personally backing the paramount bid for Warner Brothers. It's something Warner Brothers was looking for and they appear to have gotten it now. Stephen Flynn is Bloomberg Intelligence Senior credit analyst here and is in studio with us.
Great to see you, Stephen, Thanks good to be here. Break it down for me.
What does it mean when Paramounts Guidance says that Larry Ellison, the chairman of Oracle, is offering a personal financial guarantee of forty point four billion dollars in equity financing.
If something falls apart, what are they going to call upon Larry Ellison.
To do well?
This is an important step because mid last week, Paramount excuse me, the Warner Brothers board recommended shareholders reject the tender offer by Paramount for thirty dollars or share.
And they lift that.
They listed a list of reasons why, and one of them was that there was no personal guarantee from Larry Ellison. And now the company Power Amount has addressed that this morning with a number of amendments to their tender offer.
But that means he's putting his equities up up at stake, right.
And they confirm that they hold one point one six billion Oracle shares And if you look at you know, an Oracle sharre is about one hundred and ninety four dollars or so that's about two hundred and twenty five billion dollars. So that is obviously a large amount of value there, and the fact that he's personally backing it is something that Warner Brothers was looking for.
Still, a pro form of Paramount Warner Brothers, it's gonna be highly levered, isn't it.
Talk about the debt profile there and how do you how do you view it? Yeah, so it gets very complicated.
So a pro former, you know, Paramount Warner Brothers will be highly leverage. You're talking you know, mid four times leverage overall, and that's accounting for a significant number of synergies that we're giving them credit for. So if you look at expected EVATAH or paramount expected EVATAH for Warner Brothers, and then you add on top of that, what they're targeting is six billion dollars of the annual run rate cost savings. It'll take them a few years to get there.
But if you say pro formal, we'll give them credit. The company is still highly leverage at about mid four times and x.
That it's above five times.
Oh clearly, yes, come on, yeah, And well you're asport credit guy.
You're not giving them credit for the synergies are well, you have.
To give them some credit, but you know, you really want to see a dummy and.
That could a guy. I'm like, I'm all in on this. Synergies we usually are less bit more negative. Well, what's important too is how they break it up.
So part of the commitment they have on the credit side, right, so you talked about Larry Elison some other equity providers providing forty over forty billion dollars.
Of equity capital.
They also have a fifty four billion dollars secured bridge commitment. And now that's secured. So if we assume that that debt is ahead of all the existing debt that's at both Warner Brothers and Paramount Skuidance, and again you give them credit for sinders. You're talking about pro former leverage through the secure debt of about three times. Now, there's a possibility that you could get that investment grade rated
using Charter as an comparable. So if we look at Charter, which is one of the biggest cable companies out there, they owe almost one hundred billion dollars. Of that, about seventy billion dollars or so of it is secured bonds and loans that are ig rated, and they're about three
times levered. So if we use that at a compt maybe you could get to investment grade ratings from at least two of the three agencies to qualify for investment grade for that fifty four billion dollars, which would be very key to financing.
All right, I know we're talking about paramounts Guidance and Warner Brothers as the principal players here and Netflix if you want to get into that side of the bid too. But I'm curious, and this might be a dumb question. Larry Ellison, now personally guaranteeing the equity financing, there's a lot of questions about Oracle and its debt. Overall, we've seen the credit default swaps on its debt rise. That's
the cost to ensure against a possible default. Does the fact that Larry Ellison is committing to backing a large portion of the money needed for the deal, does that affect Oracle's credit rating at all? Would a credit investor and analysts look at that and think, hmm, Now.
Well, I don't forget Oracle still has a massive equity market cap, right, and the stock is traded every day, so the market is telling you every day what they think the value of Oracle equity is worth. Right, And he has again the one point one six billion dollars one point one six billion of shares worth about two hundred and twenty five billion dollars, and that's what the
market's saying it's worth. So that's what a credit investor would look for that comfort or I'm sorry, an equity investor at Warner Brothers Discovery saying that that is backing up his forty point four billion dollars.
And a credit investor wouldn't worry about that part of it.
I don't think indirectly you could have some concern about it, But I don't think directly you would.
The average credit investors that you talk to about Warner Brothers, which daily they.
Prefer, Well, it's complicated, you would argue that. You know, it's interesting is that Warner Brothers bonds or investment grade rated right throughout most of the through half of last year or half of this year excuse me, twenty twenty five, and then they were by far the worst performing, huge negative total return. They went into junk, they were fallen angel in July, and now they've bounced back and one of the better performing high eel names. Was all this
speculation of some sort of takeout. In either case, the bonds are probably better off than they would be without it, but there's still some concerns. So if they go with the powamount skuiddance deal, there's a chance they could be behind all that secure debt that we talked about, that fifty four billion dollars of secure debt. But you have all that equity capital coming in that's supporting the overall company,
which would give you support as a bondholder for Warner Brothers. Now, the problem with the Netflix deal is that if you're a bondholder, you're probably left with the Global networks, which is going to be spun out before Netflix comes in and buys the studios and streaming operations, and that company will be relatively highly levered with a declining business. So I'd say it's pretty close, but maybe you lean a little bit towards the powamount s guidance.
Really, all right, I wouldn't have thought that you guys are getting soft in early age back in my day.
All Right, Steven Flinn, thanks so much, appreciate it.
Steven Flynn, seeing your credit analysts Bloomberg Intelligence with us.
More from Bloomberg Intelligence coming up after this.
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All right, we got some economic data last week that the markets were looking for in terms of the labor market and inflation. We've got some more coming up here. The question is how how are our good friends down at the Federal Reserve kind of digesting all this. For that, we go to mister Ira Jersey and we're going to get a sense of what his thoughts are there, Ira Jersey, Chief US Interest.
Rate Strategies in Bloomberg Intelligence.
I remember, where do you think the FED is these days and they're thinking about this economy and where they need to go.
Yeah, they were all over the place.
So what you didn't mention, Paul, was that we had a ton of FED speak last week too, and we actually had even more this morning. So you definitely have two camps that have been built in here, and one is the more dubsh side of the of the isle who think that, hey, we should be cutting interest rates at least a little bit. You even had Williams, the president of the New York FED, who's the vice chair of the FOMC so presumably has a little bit more weight than the rank and file members. So he said
that like, hey, we can go. We don't have to go quickly, but we're going to ease. So that suggests to me that maybe January skip is perhaps the base case for now, but then more easing later, so March April, you know, once we have a little bit more data and we can see have the rate cuts that we've already had actually work to stimulate the economy.
Or not.
So the division inside the FOMC is not new. This is something we've seen over the last couple of rate decisions. But we do know we're going to get a new FED chair starting in late May, because that is when Jerome Powell's term as FED chair ends. Put together the division within the FED and this timetable for new personnel at the FOMC, and whether we should be paying attention to all this FED speak.
Well, I think you have to listen to all the FED speak, but you have to take it holistically, right. You can't just take one member and say, oh, that's exactly what they're going to do, because it is a committee and that's what we have to remember. You know. Then the new chair comes in. President Trump has said
he's going to announce a new chair in January. Presumably that person is going to take Stephen Myron's seat, and if that's the case, then the FED Chair elect will be in it for both the March and the April meetings. And so therefore we'll have some time around the table, but we'll make a few speeches as the FED Chair and we'll be able to see or as a FED governor, I should say, And so we'll be able to see is this person really very duvish? Are they not very dubvish?
Presumably they'll be more dubvish than j Powell has been. But at the same time, you know, again that person is only one one of the twelve members who actually votes on the policy decisions.
Well, if Steven Myron is going to be replaced, we need to pay attention to what he says. We already know what side of the dubbish or hawkish campion lands on.
Well, yeah, I mean he just you know, the most stubbish person on the committee, and you usually get those extremes, right, you get one or two really dubbish or relatively hawkish members. But it's that middle ground that you have to look at. So that's why someone like a Williams, for example, is important to listen to because you know he's voted, he
hasn't yet dissented one way or the other. But you know, if that if he's saying that, hey, we're not going to necessarily cut in January, you have to take that seriously.
I do we know what Jerome Palell is going to do once he steps down from the chairnship.
As far as I know, he hasn't said what he's going to do. You know a lot of former FED chairs either take a role at one of the think tanks in Washington or go into academia. That those are two of the typical paths. I wouldn't be surprised if Jerome Powell maybe even just retired and wound up being on a lecture circuit or something like that instead of instead of doing having a day to day type of job.
Yeah, commanding six figure paying fees for.
Yeah, exactly, a couple board seats, couple of speaking things.
That's the way to go. I mean, who needs it?
Ira, Thanks so much, journeyers appreciate it. Ira Jersey, chief US interest rate strategist for Bloomberg Intelligence. Joining us there, stay with us. More from Bloomberg Intelligence coming up after this.
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I like the analysts who covered like the travel industry, like cruise ships, theme.
Parks, and you're going on your first cruise strong.
On my first cruise next fall in France, so that'll be interesting. Jody Lourie actually does this, Lori. She actually does this for a living. She's a credit analyst for Bloomberg Intelligence. She follows a lot of the leisure sectors of the economy, think theme parks and cruise lines, that type of stuff, hotels, casinos, that type of stuff from the credit perspective, because remember that saw, I mean, equity of soft debt is hard.
Right there you go, Jody, let's to spend the cruise lines here.
It seems like the cruise people are cruising back in I mean, Charlie Pellot's any you know, sign of that.
How are they performing?
So the cruise lines always have a dedicated base. But cruising is sort of interesting because it's only two percent of the travel industry. It really is such a small portion of it. Where we've been watching is for those new Dowo cruisers, which I don't know if I'm necessarily convinced that they're going as often or they're attracting the new to cruisers, but the cruisers are still very much cruising, and they're spending more than the average consumer.
They're also spending more than the people who go to theme parks, according to your research, And partly that might be because the cruise line industry attracts a different kind of customer than the theme park industry. Theme park skews younger, cruises skew older easy, Which would you prefer if you are an operator? Which would you prefer if you're an investor.
So we don't make full recommendations, but I will tell you a couple of things based on our research findings. So first of all, you have to think about how people book cruising versus how they book theme parks. So when you're talking about cruises, they book far in advance, they book a year or two well in advance. And what the cruise lines have been doing, particularly post pandemic, is they've been locking people in on the drink packages,
on the experiences. They've been giving these steal of deals excursion ideas, and when you get on the boat, it's more expensive. So people say, Okay, I'm going to book my cruise, but I'm also going to book the snorkeling, and I'm going to book this. I'm going to book that the ones that I definitely want to do, they also book the drink packages which you know, I think you can go either way on that personally, because I don't think I drink enough, but maybe other people do,
and and it really sort of just helps their cash flows. Now, theme parks people book much later, they are younger, they are lower income than the US median household. And the key for them is they.
Can get people in the door.
They can get them with season passes, or they can just get them for the one day pass, but they're not necessarily convincing them to spend in park the same way.
But there's higher volume in theme park.
Right, there's pretty highvlume in theme parks, but if they're just paying for the admission, it might not necessarily cover the costs per se. Right, they'll get in the door, but they have high capex, they have high just high costs in general, and they have all the employees that they're paying for.
Six Flags, that's a theme park that got some local Jersey flavor here, six Flags Great Adventure.
How's the capital structure for these theme parks?
They are high capex, so high capital intensive companies.
They have high level rides.
Right exactly, and similar to cruise lines. So where we sort of see it interesting is theme parks and cruise lines are constantly they have to get the new experience in, right, So they have to spend not just on maintaining their products, so not just maintaining the ship or maintaining the ride, they also have to get new ones in. So people say, I want to go to a Great Adventure because I want to ride Superman, right, So they do this to get people excited, draw them in so that they're going.
I mean, you know, the biggest example that we don't cover. I don't cover Universal or Comcast, but you know, Universal's new theme park this year was a big driver to Florida. It wasn't as big as expected necessarily, but it's still pretty big. Now, if you're talking about the regional theme parks is a little bit more difficult because people aren't necessarily planning these long term vacations around Great Adventure.
Do the theme parks attract more domestic consumers than the cruises? I mean, I'm just curious in terms of the sustainability and the stability of your customer base.
So it depends on the brand.
Because if you look pre pandemic and now going into a few years post pandemic, the cruise lines they segment, So Norwegian most of their customer bases US their US customers. When you get to Royal Caribbean, it's a little bit less. It's about so I think it's about eighty percent for Norwegian. I'm doing this off the top of my head memory, but eighty percent Norwegian. You get to back, it's like seventy or sixty five for Royal, And then you get
to Carnival and it's even less than that. It's closer to half, it's not quite half that are US versus international, they have a much larger international presence. Brian Egger and I, my equity counterpart, we were on the Aida, which is one of the one of their brands that they market to international customers, specifically in Germany, and it was a one hundred and thirty three round.
The world cruise.
Nice They were stopping in New York for the day, and they brought a bunch of us on, a bunch of US equity and credit nerds, and took us around the ship and everything was in German, as expected because most of their customers were German. So that's Carnival has a much more diversified customer base. If you talk about
theme parks, SeaWorld or United Parks as they go. Right now, their Florida parks, which make up about half their revenue, is international about ten twenty percent, But when you get to six flags, it's much more domestic.
We were off the a Mafia Coast last fall, oh fancy, and I saw this big yacht thats like either navy blue or black, And I said, what who owns that?
It's the rich Carlton Ritz Carlton. Yes, I actually have the run on it, just parked in. Those are small, though, I mean in terms of the relative five hundred people.
Yeah, I mean that looked pretty cool.
Yeah, that's for the people who want to be on a luxury yacht but don't want to actually own a luxury yacht.
Right.
The joke about boats is.
Bring on another thousand, right, My mother in law likes st always say that, and that's why it's called boat. So but the uh, you know, the thing about cruising is that there's a perception about who the typical cruiser is. Right, it's the you know, older people who are retired who likes who like to bring basically the catskills on the water.
But really, I mean it's changed over time. And what's interesting about our credit research and our travel survey that we do every half a year is we're seeing that it's actually really really spread out. If you look into the buckets that we've segmented, it's really you know, it's one third of each, so it's one third, eighteen to thirty four year old one third that like middle age group, and fifty five and older one third, so it's really not specifically the older.
All right, Very good, Jodi, thank you so much. We appreciate that. Jodi Lourie.
She is senior credit analyst for Bloomberg Intelligence. Following the leisure part of the economy, stay with us.
More from Bloomberg Intelligence coming up after this.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am. He's done on Apple, Cocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Well, it is a crazy time to be a CEO. New research from the Conference Board provides insights onto two big trends. Number one CEO turnover I think it's going up CEO and number two CEO.
Targeted shareholder activism and again.
We just had that try and acquisition of Janis Henderson and they were shareholders.
So they said, we're going to buy this whole thing out right, So it's happening out there.
Brian Campbell joins US US Center Leader for Governance and Sustainability at the Commerce Board. Brian talked to us about CEO turnover, Is it rising and soy sure?
I think, Paul, thank you for having me. I think the trend is that it is up and we are seeing definitely more CEO transition, partially driven by what may have been longer delayed CEO transitions when you think back to the pandemic and the volatility since then, companies kept people in positions for longer, and I think that coupled with regular transition, is showing a spike.
So making up for some lost time, which makes sense. Where do we see this happening the most? Are they big companies, smaller companies, companies that are lagging behind in terms of performance?
And if so, by what metrics are we looking at performance?
Sure?
Thank you, Squally. I think what we're noticing is a trend that's across the board. Fact hire, a spike in well performing companies as opposed to just poor performing companies. So I think that's the news part of this, the takeaway. And then I think what you're also seeing is we would view this as a shift in corporate governance more of a proactive approach at the board level.
Female CEOs are twice more likely to be targeted by activists.
Wow, what's the data show there?
Well, I think what we're seeing is that twice as likely to be targeted would be reflective of what the data shows. And then from the market's perspective, it's possible that activists are targeting women's CEOs because they're more likely to cooperate, may play into other stereotypes, but definitely, the trend so high that it is notable.
I guess one exception to that is what's happening over at Lululemon, right because Elliott has a stake in Lululemon and it has now become the biggest shareholder in that company. Calvin McDonald, the male CEOs on his way out at the end of January, and there are eyeing the former CFO, Ralph Lauren, who is a woman.
Yeah, all right, we'll see so CEOs when I look for CEO if I'm the board, Do I prefer an internal candidate or an external candidate?
And is that changing?
Historically it was an internal focus. We are seeing a shift toward external and I think that just layers into where we are from a volatility standpoint in the markets generally, and what companies are facing between the economy, inflation and activist activity.
Brian, what skill.
Set is most valuable for a board right now when they're looking at a new CEO? I would imagine that during the pandemic you wanted someone who is very familiar with supply chain logistics, and even so in the era of tariffs under Trump two point zero, that would be something that's really really important. But have we seen certain skill sets become kind of paramount and then others become less important?
Sure, I think the skills matrix that a board focuses on when looking at potential candidates has certainly shifted. Crisis management is a key skill set that has to be present in the current environment, the ability to adapt and be flexible in spite of moving targets, and that was not necessarily the case a decade or so.
Ago, and DEI that no longer matters or is it still there? In the background.
We would say it's definitely relevant, but not as prominent as it was, and companies are not speaking about it quite as affirmatively as they were in the last few years.
That didn't last very long.
How long did it last for? Like a year or two?
I do know it didn't seem like a flash. There you go, touch that compensation.
What's the latest on CEO compensation because a lot of folks feel like the stock based compensation. While of the lines the CEO with the longer term growth, they tend to set targets that are kind of short term. If you meet this earnings or this cashlow of this revenue boom, you get this monster stock award. But that's always been the case.
I guess sure.
I think what you're seeing there boards focused on their own accountability. They're under pressure to drive performance and they need the CEO tied into that. So certainly, when you talk about the activist side of it, you've got the Lulu Lemon piece.
But then when you.
Think about traditional board orchestrations of CEO roles. Recently, Coca Cola announced that in March they're going to have a new CEO, Henry Braun, who's coming in with thirty years of experience. This is part of an orchestrated change, so
definitely new new opportunities within structuring and governance. And then I think the compensation package there is more tuned into the longer term performance at the company versus maybe an external candidate where there's a compackage that lures them to the company.
Brian, I'm sure you guys have done this CEO's Report, this research report a couple of times. Now what surprises you the most in this latest edition did you not anticipate?
I think what we're seeing in the background, and we're certainly hearing it from the members of the conference board anecdotally, is the shift in corporate governance to a strategic orchestrated CEO succession plan.
So that's new. I think the CEO seat has.
Always been a quote unquote, you know, potential hot seat, but definitely more so orchestrated planning boards being accountable and trying to plan that succession and then also including CEOs on the exit, keeping them on the board to continue continue that institutional knowledge, so opportunity there as well.
Well.
So it used to be they would when they were out of CEO they were just gone from the board completely and persona non grata.
Right, And I think it's part of that strategic building of a continuity plan that will continue to perpetuate the institutional knowledge and keep some help for the new CEO transitioning into the role.
How about succession planning for CEO these days, because you know, I followed for a long time the Walt Disney Company and they had a great succession plan in place until the CEO blew it up at the last moment. And now it's been ten years and kind of screwing around with mister Iger. How important is succession planning?
It's critical these days.
And I think what happens now is you've got pipelines of potential candidates internal and external, which is new, and then also being able to transition in case somebody who is in the wings waiting for an opportunity decides that they're going to leave and take an opportunity elsewhere. Companies need to be flexible, boards need to be adaptable.
Well, Paul, to your point.
Now they have James Gorman, the former CEO and chairman of Morgan Stanley, leading the succession planning over at Disney, because he himself had done such a good job planning for his succession at Morgan Stanley.
Yeah, unfortunately they lost two at least two, maybe a three serious outstanding executives and some time a lot of times. Yeah, but I guess if you hold Disney shareholders, they'll be like, hey, bopken Stain is off as long as he wants. That's how good he is, how good we believe him to be.
What's the big thing that.
CEOs need to be focusing on these days? It doesn't is it simply shareholder MAXI mentioning shareholder value or stakeholder value.
I think that's a critical aspect of it that will always be there at the end of the day, though, I think it is building out that more robust skill set toward FLEs, flexibility, adaptability, crisis management. The current volatility that we're seeing out there, I think is the new normal. So CEOs need to adapt.
All right, Very good, Brian Campbell, us Center Leader for Governors and Sustainability at the conference aboard here.
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