Tax Plan Likely to Spur More M&A: Evercore's Schlosstein

I am so excited about our upcoming guest, Ralph Schlastein, President and chief executive officer of ever Core, because he has such broad perspective on everything that's going on right now with respect to tax changes and how it affects CEOs and their companies. He joins us now. Ever Court was the number one boutique investment bank in mergers and acquisitions last year. Ralph also Mr schlast and it was also the co founder of black Rock. Thank you so

much for joining us. I wanted to start with getting your sense of what the tax bill that is about to be passed by the Congress, what effect it will have on mergers and acquisitions activity. Well, I think as

a general matter, there are a number of effects. First of all, the passage of the bill itself h takes away a major uncertainty about UH taxation and organizations of businesses, so things, you know, transactions that made strategic sense, but we're held up by uh, you know, deep uncertainty about how the world in eighteen would look versus UH. That issue has been resolved, and uncertainty as always the enemy

of M and A activity. UH. The second thing that will happen is UH, with the repatriation of you know, two plus trillion dollars of cash that's held off shore right now by US companies. UH, some amount of that unquestionably will go into uh you know, strategic investments UH, you know, which you know will be done through M and A activity. The third thing that also I believe will happen is uh, you know, the strategic repositioning of

business portfolios at large and particularly diversified companies. So in the seventeen world, UH, if a company wanted to sell a division that they had a very low tax basis in, they had, you know, uh to pay thirty five percent of the proceeds plus whatever the state tax was. UH. And you know, the hurdle for disposing of businesses, particularly low basis businesses, UH is you know a lot lower today and then finally the effect on uh you know,

the general M and A environment. M and A thrives when we have uh strong equity evaluations, readily available credit, uh you know, good visibility as to the direction of the economy. UH and CEO confidence and uh you know, the first uh three have been present, and I think this bill reinforces CEO confidence and makes you know, it's somewhat more probable that M and A activity will continue.

Mr Slawson, could next year be a record year for M and A. Uh you know, it's it's possible to predict uh, you know, the level of activity you know, in the next quarter, much less the next year. Uh. He's certainly true that all of the conditions are in place, uh for a very strong year in M and A activity, but was an extremely strong year four point two trillion dollars of announced transactions last year was about three point

five This year. It looks to be tracking around that. Uh. So, you know, do I think it could possibly uh be positive versus the last two years? I would say yes, Uh, you know, is it going to go back to the level of uh you know, I'm not smart enough to really know that. Dan Donovan, who is a Republican congressman serving uh Staten Island and Brooklyn some areas of Brooklyn, said that he's worried about quote mobility of taxpayers in

the hop income brackets. He says losing even a small percentage of those households will decimate the state and city tax base. Do you agree with him? I think the biggest risk to New York City and New York State is precisely that, uh, you know, I honestly don't believe uh that you know, this bill will have that much of an effect on uh New York being the financial

capital of the world. Uh. The only competitor to us, you know, of real concentration is London, and they have a heck of a lot more uncertainty than we do.

And you know, financial businesses will aggregate and agglomerate in places where there are other financial businesses and where they can attract uh, you know, super talented young people, and the most talented young people are you know, opting with their feet to be in the places like New York City and this bill because they tend to be you know, entry level workers who aren't affected by the size of the state and local deduction or the mortgage interest deduction.

Uh you know, they you know, they will continue to come in in in droves, I believe to New York City. What I do worry about, uh is people who are not uh attached by employment, uh you know, to the city. So those who are well off uh and you know, have significant net worths and incomes, but are uh you know long no longer working full time or retired. And you know, for those people, uh, this is a quite substantial tax increase and uh you know, they have complete

discretion as to where they live. And you know, I think somewhere on the order of the tax receipts of New York State and New York City come from one of the population, which is overwhelmingly concentrated in New York

and the surrounding uh suburbs. So uh, you know, it remains to be seen the effect that this will have on you know, what is already a you know, somewhat of a movement of you know, people who have you know, real discretion as to where they live, uh, you know, away from high tech states to lower no tech states. Thank you very much for being with us. Ralph slow Stein, all right, I want to bring in Shira every Day,

Bloomberg Gadfly columnist. When it comes to technology and the topic today happens to be Uber, and they lost, didn't they? They lost their fight in the European Union. Tell us what this loss means for Uber and what it means for the taxi and transport companies that have been fighting this up start. So there's a there was a case pending before the European Court of Justice and the legal question was basically is Uber a digital company, a tech

company or is it a transportation company? And the court ruled that that Uber is basically a transportation company and it's a matter of law. Practically speaking, not much is going to change for Uber. So the way that Uber operates in most countries in Europe already complies with the idea that they are a transportation company, which means that their drivers need to be licensed UM in a way that similar to how taxi drivers are licensed. So practically speaking,

not much changes. The interesting thing for me is kind of thinking beyond today's court ruling, UH two broader questions about Uber, which is one um will this have implications for the idea that Uber drivers are not employees, which is another legal matter that's pending in a separate court

case in Europe. And two, does this mean that local transportation regulators will feel more empowered to kind of metal in Uber Uber's business in every conceivable country, which, to be honest, they've been doing everything they can to do that because the Uber drivers are paid a lot less than they make, they charge much lower rates, and they have gained a lot of market share very quickly. I'm just wondering how much cross border influence does this have.

In other words, are US regulators looking at to what the European Union is doing and thinking of doing something similar. That's a good question. I I doubt it, at least in the US, because you know, the US does not really have this kind of the national transportation regulator regulation that's much more on a city by city basis. So while this ruling in Europe maybe it will empower some local transportation regulators in you know, New York or Seattle, I don't know that it will have kind of broad

national implications in the US. So we'll see. I mean, it's it's fair to say that in every market in which Uber operates, it is already under intense um regulatory scrutiny. So it's hard to imagine that it will get any worse. They've got a new chief operating officer, Barty Hartford. Right here is the former chief executive officer of Orbits, that's right. And notably, the new number two at Uber used to

work with Uber's new CEO who came from Expedia. So um, the two presumably know each other and like each other, otherwise they wouldn't agree to work together. And look, this is an important higher because Uper Uber's leadership bench has been decimated over the last year. So they lost their previous number two chief executive in March who left under unamicable conditions. Um, they lost chief legal officers now been replaced.

They're looking for a new board chairman. They lost the one and a half billion dollars in the third quarter of the year. Yes, they have financial losses as well as leadership losses. So it's it's clearly been important to the new CEO at Uber to restock the leadership bench and preferably restock the leadership bench with people he knows

or trusts well. Talking about trust, Uber has had some issues on that front as certainly with regulators and lawmakers, and part of Uber's reputation has been that they do kind of, I don't know, test the edges a little bit. And how much does the new leadership try to demonstrate that it's turning a page with a cultural shift. Look, I think that has been Job one for Uber's new

CEO is basically to change Uber's reputation. He said something, Uber got this unfavorable ruling in London that may, at least in the future, prohibit Uber from operating in London, which is one of the company's largest markets. And the Uber CEO basically said, look, this is a sign that there is a high cost to a bad reputation. And that's what Uber has in almost every market in which it operates, at least with regulators and and including with

drivers too in many cases. And the new CEO's job is to basically repair those relationships with regulators, with drivers, with customers in some cases, with with you know, writers. Sure just quickly Harvard coming in, He's going to oversee the regional general managers along with the gentleman who heads the food delivery business at Uber. Are they going to change the way the companies actually run? Are they going

to keep the stream structure? I mean, I think it remains to be seen that it was interesting that when Uber's CEO came in, initially didn't think he needed a number two, and then once probably he saw how much repair work he was going to have to do with regulators, changed his mind and lift. Meanwhile, I was gaining share, so let me still see with that right. Shara Ovid, technology columnist with Bloomberg gad Fly, thank you so much for joining us. She joins us here in our eleven

three oh studios. It's important to get some perspective on bitcoin and get a sense of just how many accounts are involved, just how much real money, and just how much more institutional interest we have seen as the futures contracts start trading. Here to join us and give us that insight is Bobby Show, who is head of trading at Cumberland in Chicago. Cumberland is DRW Holdings Digital Currency unit is one of the world's largest bitcoin trading desks

and liquidity providers in cryptocurrencies. Bobby, thank you so much for joining us. I want to start with just how much more money are you seeing come into this market? Are you seeing a lot of new accounts being created, an institution starting to come in thanks for having me um. So, yeah, I mean, well, we've kind of experienced over the last let's call it twelve to sixteen months, really a shift of the profile of the counterparty that we face here

at Cumberland. So, as you mentioned, Cumberland is one of the largest institutional size liquidity providers in the space. So we make markets for uh an array of different folks in the industry. We're looking to get exposure to different cryptocurrencies. Um you know, heavily dominated in bitcoin and ethereum. So what we've seen when we started the business in was we were catering to many folks who were very specific to the crypto space, payment processors, minors and and other

individuals that were early adopters. Well, that shifted dramatically again in the last year or a year and a half, where you saw a number of cryptocurrency funds starting to pop up, a number of other institutional investors coming into the market. And really what that signals to me is that there was a lot of money and still is a lot of money sitting on the sidelines waiting to get exposure to this asset class. Right, So this class currently is sits around six billion dollars and that's obviously

grown tremendously over the last few years. Bubby, when you talk about the hedge funds or funds that are specifically focused on cryptocurrencies, that triggered my interest because I saw that hedge Hedge Fund Research put out an end X of cryptocurrency hedge fund returns, and I'm trying to get a sense. Do you have a sense of the a U M under cryptocurrency specific funds? You know, Uh, what we've seen is the number of cryptocurrency funds has continued

to increase month over month. So to give you some perspective, right in August that number was right around eighty cryptocurrency funds. This is globally um that number probably sits somewhere around a hundred and fifty. And we don't see that number

stopping um or slowing down anytime soon. Mainly because of this, this ability to access the market continues to be limited, and so what people are doing if if they are looking to get access into these market is they're looking to actually invest in kind of traditional um fund structures or vehicles like those that that we mentioned, crypto funds

or hedge funds. Bobby, can you just tell us a little bit about Cumberland, how many people are working on this, and maybe just tell us where you got the original inventory of bitcoin. Sure so, so Cumberland, as you mentioned, we're one of the largest liquidity providers in the world, um in terms of just our team and our desk,

so we are global. Um. So, Cumberland's headquarters is here in Chicago, we have an office in London and we actually just opened up Singapore a few weeks ago, and so that allows us to kind of service our counterparties on the basis we are looking to open up in the near term um. And so basically, uh, we're we're great in the fifteen now, mainly just because the expansion and we see that number only growing over the next

few months. UM. And so in terms of I guess inventory and things like that, when we had gotten started in the idea really came about in twenty twelve, give or take, when obviously through the walls of d r W and some of the folks here just trying to conceptualize what bitcoin is, how bitcoin is going to change the world, and and fundamentally, how we're gonna look at this thing in the future. But hang on, I understand that you actually, or at least Cumberland bought a lot

of the bitcoins from ross Albrick. That's the founder of Silk Road who's now serving a life sentence right for narcotics trafficking. You bought seventy thousand bitcoins that were auctioned by US and overseas authorities. Is that correct? So we had bought seventy thousand bitcoins from the U. S. Marshal's office at auction. Okay, that's correct, yes, And do you still have those seventy thousand bitcoins or what what form

did they currently take? So we still manage a large portfolio of cryptocurrencies, and that really allows us to do what one of our main kind of responsibility here is and and services that we provide is providing over the

counter trading for large institutional sized positions. So when someone comes in and says, hey, I'd like to buy fifty million dollars a bitcoin, well, we have a portfolio that we managed to be able to supply that from our own inventory and so, um, we still manage a large portfolio of cryptocurrencies and and that obviously helps to support our business in making markets over the counter. Bobby how do you hedge against any downs it swings in your portfolio.

So that's obviously something that is UM super important to us because as much as trading UH that we do during the day, from my perspective, we really take a lens of risk management. That's kind of the first thing that we look at um and so if we try to be aware of everything that's kind of happening in the market, Obviously it's very difficult to do so, mainly because this is a product that's traded seven around the world and can be accessed by a number of different

types of folks in the market. And so with the advent of futures out there in the market, that kind of helps in terms of being able to hedge exposure. Although we'll kind of see what how much traction games in the futures market, but we are just trying to prepare and be aware of kind of everything that's out there. Thanks very much for joining us. Bobby Chow is head of trading for Cumberland and that's d r W holding

digital currency unit. He's a joining us from Chicago and much appreciated for giving us a little bit of a window into the world of trading bitcoin. And other cryptocurrencies. It almost sounds like a joke or a story. The couple that went on a vacation, stayed in a particular location, liked it so much they decided to stay there permanently. Man Deep Singers are technology industry analyst for Bloomberg Intelligence and he's here to tell us about Airbnb launching their

own apartment complexes. Man Deep tell us the story of Airbnb, I guess leveraging their brand and their expertise into a new market. Sure, so when you think about you know, online travel or online logistics, it's really about scale and network effects. These are the two most important things that any company that operates in this space has to have, and airbnbi had the first more vantage in vacation rentals. That space is getting crowded now with price sign and

Expedia also expanding inventory. So what Airbnb is trying to do is essentially kind of grow their scale by getting into this new segment of you know, owning their apartments and really they're trying to offer you know, uh accommodations for business travelers. So that's a new segment they want to cater to. So we're talking about this in part because Brookfields, the big developer, just agreed to invest as much as two hundred million dollars in a joint venture

with Needo. It's a multi family development partner of airbnbs, and this would go toward building a few apartment complexes I believe in Florida. Right. Uh, that would allow residents and owners to rent out their properties through the Airbnb website for up to half the year. Is that correct? Is this a first time type of thing or is

there a model for this? So Airbnb is really the disruptor in this space, and they have helped, you know, for people to share their homes and you know kind of uh basically draw like inventory where it wasn't available before, especially in urban cities or even for that matter, you know in holiday locations. And and the way they're able to do it is provided technology platform that's Airbnb strength. Well, but what's the advantage to somebody who's buying one of

these homes? I mean, what what would what would it takes? It's up to a half a year, so it's not more than that. So is this for basically snowbirds that want to make some income on the property while they're not there? Exactly? Yeah, and and a lot of these

times these properties were vekend. So by allowing these owners to actually you know, put their properties on Airbnb's platform, it's free income and Airbnb knows how to manage these properties, so it's a win win for both of them, you know, man, Deep, I want to go back to something you said earlier, which is the business traveler and how this might be a real game changer when it comes to business travel.

Rather than checking into a hotel where you're overcharged for everything from the coffee to the use of the business center if there is one, and paying for WiFi if you have to. They're going to architecturally design these new properties in order to cater specifically to these kinds of

potential customers, isn't that right? Correct? And and they want to move up markets so till now their core customer base airbnbs core customer base for price conscious customers who are looking for the cheapest price on you know, urban dwellings and and really looking for a price that was cheaper than a hotel. Now, I think the fact that they have scaled, they the fact that they have created a brand name, they want to cater to all the segments and they want to have you know, separate uh,

you know entities which serve these segments. So business travel is a big market it in itself, and are just going to add that they don't necessarily then have all of that inventory that they have to rent out all the time, just as a hotel group would, because that's

stagnant inventory unless you know, you occupy it. Yeah, So the benefit of Airbnb is they are so good with crunching data that's available on their platform, and that's really their advantage that they're able to, you know, assess the supply demand equation much better than a hotel or you know, some of the smaller hotels will be able to do themselves, so they really have a good stock of what the

current supply demand dynamics are. You know. I'm struck by the fact that Uber right now, which will talk about later in the show, is facing some increased regulatory pressure in Europe in part because they are designating them a taxi company, not necessarily a gig company. The way they attach company, the way that they sort of build themselves to investors. I wonder at what point this type of thing it's Airbnb and they start getting treated more like

a hotel company than a tech upstart. I mean, that's very much of a risk. And when I look at all the new sharing economy companies like Uber, like Airbnb, they started off as a technology platform, they picked an area to focus on, and they really you know, leverage technology to mass scale. There is a risk that there's a cost side of the equation that obviously could get

affected once you become regulated. So once you know, Uber gets regulated or n B Airbnb gets regulated, it's gonna have an impact on the cost side, and that's always a risk. But having this investment from Brookfield, that's got to be a stamp of approval, or at least that conditional stamp of approval. Absolutely, and no one is doubting

that Airbnb is a viable business. It's there for the long term just because they have the scale, they have the network effects, and in this business that's what matter. So it's not going over anytime soon. It's just that the margin dynamics may change depending on whether they are regulated entity or not. Thank you so much for joining us.

Definitely something that we will watch to see who wants to buy these, how often they rent them out, and what is airpnths regulatory fate Man Deep saying thank you so much, tech industry analyst for Bloomberg Intelligence, joining us here in our eleven three studios. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at

pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio