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We need to talk about the M and A deal that has come out in New York this morning. MRK to buy Turns Pharmaceuticals for six point seven billion dollars to grow in the blood cancer space. Michelle Davis is our senior deals reporter here in New York and is covering.
This story for us.
Feel like we should call it M and A Wednesday now because the deals no longer happen on Monday anymore.
You know.
It's because we have a deal show now, so of course that's why they're happening on Wednesday. But yeah, big deal for Merk today. It makes a lot of sense that they're doing this because they they're best selling drug, kay Truda, which contributed half of their last year thirty one billion dollars, is also the world's best selling drug is going off patent, so they really need to do M and A to replenish their pipeline turns is not.
Its drug is not yet approved, but analysts are saying that in a few years, assuming it does get approval, it could have peak sales of several billion dollars. And so Mark, for Merk, it's a bet that at the end of the decade, around the same time that k Trude is going off patent, they will have this drug, you know, coming in to kind of help fill some of that hole.
Mark.
What are they saying about their M and A appetite? I guess because we you know, we joke that the pharmaceutical industry is such a deal heavy industry, pharm of biotech, that kind of thing.
What's Merk saying? Because they do have that key true to risk exactly.
So Mark has been one of the most aggressive when it comes to M and A. Earlier this year at the JPMorgan Healthcare Conference, the CEO Rob Davis said that he wants to do several deals in the tens of billion dollar range, and so that means we'll probably see
more from them. Also interesting to note that Merk's stock is up today on the news, and normally in M and A the buyer's stock tends to go down on an announcement, but the fact that you know, shares their up means investors are applauding this and they you know, want merk To to keep doing stuff like this.
So the deals worth six point seven billion dollars. It's a fifty three dollars a share in cash, which is a six percent premium to turns last clothes. There are some analysts out there who say that maybe Mark is not spending enough here and this invites other companies to come in and make their own bid for turn pharmaceuticals as well.
You know, we will see if that happens. There were some bidding wars in pharma last year, with the Metzera deal being you know, one of the most notable ones that said the stock turns. The stock has increased like fifty percent since January on basically no news. So there could be an argument that maybe there was some built in you know, m and a speculation already into the
already built baked into the price. But you know, you know, no, there are other pharma companies out there who are also trying to replenish their pipeline, so it wouldn't be unprecedented.
Of course, which bankers were on this deal they don't have. They didn't list the Acquirer Advisor, but the financial target, Centerview Partners and Jefferies, so unusual or not unusual, which is.
More boutiqui more boutiqui.
Yeah, Centerview has I mean, they're generally on most of these on the cell side, and Jeffries has been doing a lot more on the sell side too.
Yeah. The boutiques, like we used to call them boutiques, but in M and A they're not really boutiques anymore, are they?
Exactly?
They think they've really made a commitment doing real pgat and all those guys. Is there any regulatory risk when these healthcare deals get done? Or is it just a big mark buying a little biotech thing and nobody really cares?
How's that work? Not as much.
I mean, the last time we saw something kind of splashy get attention was when Amjen tried to buy Horizon and that FDC tried to block that deal. They ended up settling and the deal went through anyway. But in something like this where you know, turns of drug isn't even approved and it's biggest competitor is owned by Novardes, you know, the competing kind of compound. It seems unlikely.
So given what Mark has done, in the fact that investors like the deals that it's made so far, I'm guessing we're going to expect to see more acquisitions from Mark in the coming weeks and months.
That's probably yeah. Definitely stay with us.
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Let's talk a little media here. Interesting story on the Bloomberg terminal. Walt Disney Chief executive officer Josh Tomorrow has seen two billion dollar technology bets, Falter one of them and raveling entirely just days into his new job. Let's see what this means for the Walt Disney Company. We've got some other media stuff to talk about, and we turned to Keitha Rugana, and she is the media analyst for Bloomberg Intelligence.
Keitha, there's news out regarding Disney.
Can you talk to us about a couple of these deals that seemingly are falling apart here.
Yeah, this is a big deal, Paul.
I mean, you know, Josh Tomorrow obviously took the helm at Disney just a week ago, and we're seeing this Open Ai Sora deal that you know, Disney had kind
of inked about three months ago. And basically the deal here was that this would be a three year licensing agreement where Disney would make a one billion dollar equity investment into Open Ai and Sora would be allowed to use about two hundred of Disney's characters to kind of create all of these short form videos which you know, users could basically engage with on the Disney Plus platform.
You know, this was kind of I think Disney's way of playing offense defense with you know, the whole rise in Ai and kind of if you can't beat them, join them, kind of really joining the bandwagon and saying, yes, we have a stake here with AI. So this falling apart definitely kind of leaves Disney definitely they were blindsided.
Uh.
They they've they've been kind of trying to do different things in terms of really monetizing their ip creating like this really uh this this franchise fandom if you will, right, really digging deep into it. That's what Josh Tomorrow has spoken both with this opening ideal as well as the Epic Games deal that was a deal that actually Josh
Tomorrow had kind of broken. And just over the past few days we've kind of seen you know, a lot of news with Epic Games too, and so this really kind of now raises the stakes for them to kind of find out, you know, hoom else they can partner with to kind of deepen that that fan engagement.
Okay, so he's got his work cut out for him. Certainly makes for a busy first week on the job. Gita. We also want to talk to you about what's going on with Netflix. It's bolstering its live streaming, live streaming mega events. There was the BTS Comeback Show, which I guess the live show didn't attract as many people as people as thought, you know, actually attending the net, but the actual streaming of it was a monster hit, wasn't it.
It was a monster hits. Carlor, You're absolutely right, over eighteen million viewers worldwide. And this is again we come back to the basic buzzword with in media right now, which is engagement. What are all the different ways that you can build engagement and you know, again the open AI saw a deal with Disney was again a way
for Disney to build that engagement with their fans. Netflix kind of chasing all of these different types of content, you know, whether it is sports, whether it is this live event the bts come back to, or again trying to deepen that engagement, trying to deepen their connection with fans as you have more and more sources of you know,
video basically competing for time spent. Again, huge, You're absolutely right, huge event for Netflix really shows how they can kind of go after all of these different genres and build that scale, build that appointment television kind of buzz and and you know, really get a good ROI on their investment there by the way, they're increasing their content spending four events like this this year by two billion dollars.
That's a pretty sizable step up. So we're looking at them, you know, spending about twenty billion dollars scarlet this year on content.
Wow.
All right, Githa, it's opening day for my New York Yankees. They'll be opening up out in San Francisco this evening eight pm Eastern.
First pitch. I'm not going to be a good game.
Yep. I'm not going to ESPN and watch this I'm not even going to the Yankees' own network. Yes, I'm going to Netflix to watch this game tonight.
Where are we in this world?
Where are we in this world? Talk to us about you know, Netflix has set out we're never getting into sports. Well that's gone by the wayside. What do you think There's sports strategy is?
So their sports strategy, Paul, I mean, this is a really important point. The sports strategy has been very very calculated, very very measured. At a time when we've seen other media companies like you know, Disney and Amazon and YouTube kind of spend billions and billions of dollars on sports rights, Netflix has taken a far more cautious approach, but an approach that has really served them well. So they started out with this five hundred million dollar deal for you know,
WWE content. They went out after some NFL Christmas Day games. But this World Baseball Classic was actually their first big foray into world live sports, you know, an event in Japan, and it has really served them well. So you just look at the ROI on that event. They spent about one hundred million dollars for you know, forty seven games and they got something like thirty one million global viewers.
Really a huge, huge viewing record for them, and again just shows how you know, by making really calculated bets again you can kind of build that buzz and for them, really build that critical engagement metric.
Yeah, that is pretty incredible, and I guess part of it is also to build up the Netflix brand outside of the US, where sports rights have gotten to the point where it's prohibitive, but you look at the rest of the world and it's it's a little bit more doable.
Absolutely So if you're just looking this year at sports right, scarlet companies are spending about over forty billion dollars just this year across the board for US sports rights, and we're only looking at that going up further and further. As you know, the NFL looks to high, high kits fees, the NBA looks to highkits fees.
So yes, they do.
They are making this really smart move by diversifying going across the board, and it's paying off. That's what's so great about it.
To me.
The defining moment will be when Netflix takes a Sunday package from the NFL, the NFL and Githa. I think that's that day is coming. What do you think?
I also think it is coming. So they've already kind of dabbled with that, Paul. You know, they've done the Christmas Day Games again. They had some of the highest viewerships ever for the Christmas Day Games, something like thirty five million viewers.
Yeah.
Anyway, So I also think that they are definitely, you know, probably going to go for a digital package. I mean, I mean, the NFL wants to go there. They know that majority of the viewership is migrating to streaming and it would be stupid for them not to kind of sell a digital package. So I definitely think it's going to happen sooner rather than later.
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Chewey forecast is sales for the year that beat analyst expectations, stocks a pretty bigger ten twelve percent. Here today that's good news. Here, let's break it down with Diana prost Opine, Consumer staples analyst Bloomberg Intelligence. She joins us live here in our Bloomberg Interactive Broker studio. So, Chewy, what did you learn on their earnings call?
Yeah, I mean they have been doing pretty well both on the top line and profitability. There's no complaints from investors, or at least they shouldn't be for eat quarter.
So I'm just looking at the stock here.
The stock's up again about twelve percent today, but it is down twenty percent year to date and then about twenty percent over the trailing twelve months. What's the investment call here for Chewy? What are the growth drivers top line for this company?
Yes, so it's their ability to grab consumers. Once you enter I guess the Chewy you know environment, it's difficult for you to leave. They have about eighty eighty four percent of their revenue comes from authorship, so it's pretty much you set it up.
It's subscription based pretty much.
So you set it up and every so often you get your goodies at your doorsteps.
So did they compete against the Amazons of the world, the Walmarts of the world, the pets dot com they do.
Yeah, so you know, they have about a third of the e commerce you know, market share in the United States. They compete with Amazon as around the same.
Well, there are not many companies out there that can say they have a third of a market where you compete against an Amazon and a Walmart and things.
Like that exactly.
And the thing with Chew is that they have expanded beyond merchandise, beyond food and now you can get your you know, your pharmacy, you can get you know, your vet needs. They actually have vet locations, eighteen vet locations.
They're starting to do that.
They see that that engages customers more.
So that is, you know, an upside for them.
So how is that business?
I have no idea because it's all kinds of pet food in general, then stuff like toys and all that kind of stuff.
What's the terriff situation for those that kind of stuff.
So it seems that they have been able to navigate that obviously, you know, some of the pressure they pass that through consumers. They're seeing a net sales per active consumer, which is kind of like you know, they're pricing grow in the low single digits.
So they are comfortable with that.
You know, the scale and the price on the product mix that they have allows them to kind of like get the hit on the margin without you know, showing it to us.
This was a obviously a COVID stock that just like like a peloton a little bit. But this has obviously done much better post How do people view this? Is this a kind of a consumer staple kind of name? How do you think about that?
I would say it's a it's a you know, it's a retailer, you know, the way that I will see it. You know, going back to the you know, pandemic and COVID they actually had obviously this was a very favorite stock because everybody was at home. And then you know, the cohorts that were acquired during the pandemic they kind of reduced and that was kind of like a story
of twenty twenty four. It was difficult for them to grow consumers because you know, the cohort was so massive that it was pretty much the you know, they couldn't keep up with you know, they couldn't keep a lot of those consumers. But that has turned around and they are seeing you know, significant growth. We actually expect that most of the growth in sales is probably going to come from active consumers rather than pricing.
I mean, I look at you know, I know nothing about this business, but I look at the first place I look for when I look at p and LS at free cash flow. Great free cash flow here, I mek got seven hundred million dollars in for calendar or twenty six, maybe eight to fifty projected for calendar or twenty seven.
What do they do with the free cash flow they invested in the business.
They're growing scale, obviously, they're opening vets. That is something that they haven't pretty much experienced. They're actually in, you know, investing outside of the United States. You know, they're trying to get into Canada. They're given some of that back and share repurchases, but we don't necessarily expect it to be significant.
You know, in twenty twenty six, what's.
The big what's the margin analysis you guys do as analysts and investors, where's the leverage in the income statement that maybe improve margins because there's a retailer type margins.
Yeah, what can they do? Really?
I mean there are actually it seems that you know, they're working a lot with leverage, operating leverage. You know, in their distribution centers they seem to be you know, they are automated, so that has been building scale, you know, trying to get consumers to buy more premium brands. They have private label which they wanted to grow it to
like the main teens. That is going to add about five hundred basis points to gross margin and you know, other non merchandise revenue, so that is usually higher profit than merchandise.
Stay with us. More from Bloomberg Intelligence coming up after this.
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All right, let's check in with Justin Priden right now. He is vice president of consulting Services at Revenue Management Solutions, and he's also an attendee at the Bloomberg Intelligence Farm, Food and Fuel conference where they are talking about rising costs, especially fertilizer costs, what that means for agriculture, and what that means down the line for food operators, restaurant trends. Justin,
thank you so much for joining us. Tell me about what you've discussed at this conference and how you think about what that means for restaurant menus and the restaurant industry.
Paul Scarlett, thank you so much for having me, and again, the conference has been wonderful about talking about some of those input pieces that's really fundamental to restaurants and what their costs they're seeing in the bottom line when it
comes to the products on their menus. At Revenue Management Solutions, we're always working to keep our clients ahead of the curve and be proactive when it comes to those cost inputs that they can meet the guests where they're at when it comes to what items are on the menu, their prices and all these pieces, and a lot of the topics that have been really important at this conference is what these what the downstream effects are going to or what the initial effects here are going to cause
for those menus when it comes to costs and what comes to operators are going to be reacting to in that food and beverage industry.
All right, here's the term I dislike slash hate the most in the food business over the last six months, and that is protein. When did they start using protein as opposed to just saying, hey, do you want chicken on your salad?
It sounds better?
I don't know, So talk to us about that, I mean, justin protein.
Tell us why it's become an issue or a topic within the restaurant and food industry and how we should think about it.
Paul, I hear you there, and it's so fun as a restaurant or originally myself, just calling it protein and going there just doesn't sounds good, right. It's not something that you think about when you're on the menu and think about, hey, I really feel like a protein section today. But really it's become a major piece, and it's always been a major piece of menus. I mean we see right now roughly about eighty five percent just of menu items making up that just the core chicken, beef, ork
type of items. So it's always been there. But the real focus on it right now is a is you're starting to see a lot of trends focus on protein rich or a lot of protein within the diet. These
are becoming even more important to consumers. Some of the generational shift too, you're starting to see is that it's even more important to the millennials who are in the market now and really becoming some of the chief spenders from now and moving forward, really looking for protein as a deciding factor and how they're choosing restaurants and how
they're choosing their items. Also, just some trends with gop one and what you're seeing in dietary trends is really focused back on protein being a core of that decision process. For guests on menus, I think a recent survey we saw again three top reasons. It's good for my health, it's satisfying, and it's something that I need as part of my active lifestyle. And that just keeps increasing as we ask guests out there for menus and just what we're seeing as items come to menus.
Justin I want to ask you about some trendy food that has become like kind of the thing that everyone wants. It's certainly showing up all over social media, whether it's Macha out of Japan or Asia overall, Ube out of the Philippines. Do buy chocolate, that's a big thing.
Well, you're way ahead of me on this.
Well, I mean this is.
What's all over Instagram. And these things photograph really well, and they also lead to increased demand from consumers, and restaurants are kind of meeting this demand by incorporating it into their menus. Is this something that restaurants do with an eye to like just do it for a couple of weeks before going back to their normal menu, or is it something that they incorporate permanently.
Well, I think you're seeing more and more of those trendy types of pieces to mendew if you want to call them trendy, but they're also following a lot of that global taste and that unique taste piece to cause buzz around items and a buzzer bus of the menu
to be able to bring folks in again. Right now, as you're starting to see affordability as a total thing for guest visits and transactions being more of a fight for share as guests are coming in not necessarily maybe new occasions utilizing what's there, what's really current, what's good, those short term promotions, the social media aspects and the photographing let the camera eat first type of principle of
being able to take sea food that's really exciting. You're seeing that get leveraged a lot as global cuisine as some of those trends are really there and again resonating with millennials, but again across all folks. As whether it's
a mainstam menus, there's a real balance. I think you're seeing more of that short term type of menu options come in promotions and then whether that has staying power or how that balance is with what you might consider the core of the menu, the things that you're known for, what you come in for. So it's that balance of getting the folks coming in for excitement and for the things that they know and always look.
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