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Warner Brothers investors approved one hundred and ten billion dollars sale to Paramount. I also note, since I know David saslof that investors reject CEO compensation package.
That's interesting.
I know, is that binding?
I don't know.
I don't know how lot works. But our next guest, I think probably has some good reporting there, Chris Pomary. He covers all the entertainment companies out there in Los Angeles for Bloomberg News. Chris, what are you making the news here today? I guess it's fairly well expected that the shareholders would approve this sale to Paramount Sky Sky Dance. Paramount.
Yeah, they showed them the money and they said yes, thirty one dollars this year, one hundred and ten billion dollars total. The pay package vote is not binding, you know. It's one of those say on paced things that companies are required to do. If this company were continuing as a public company, then you know, the board would take the you know that into consideration and next year's pay. But this this go round doesn't matter. They'll be gone and David Satisov will have his money.
Right, We're looking at accelerating equity awards valued at more than five hundred million and three hundred and thirty five million dollars in potential tax reimbursements.
So he makes out pretty well, so he always does.
Chris, what does this mean for the thousands of Hollywood actors, screenwriters, directors, and other workers in the industry who have come together to oppose this merger? They were appealing to regulators, to policymakers. I mean, do they still continue to try to press state attorneys general to do something about this?
They can, and they will. It's you know, it's not a done deal overall. Certainly it is from the shareholders standpoint. It's a milestone in that regard, but there's still regulatory approvals that have to be done, and everyone's sort of anticipating lawsuits similar to what we've seen in a live nation and other cases sort of opposing this deal. So yeah, quite still.
Now on the federal government level, right.
It doesn't appear that that's the case. I mean, there's been no official sign off. You know, the Paramount will say that they've gotten clear into essentially from the DJ, but there's really been no official sign off in Washington.
You know, the deal price is thirty one dollars a share. Stocks trading at twenty seven dollars and thirty cents here. That feels like a big discount to me from an arbitrage perspective, given this deal is going to presumably closed in a couple of months. So I guess what do you think that uncertainty might be out there.
In the marketplace?
Chris? Is it regulatory? We need to get a sign off from President Trump and that can always be a risk. Is it some legal maybe lawsuits or something.
What do you think is there und?
I think all of above. I mean, really when we've really just seen a steady drum beat. I mean, the Hollywood community has sort of been against it, but you know, they had to shift, they had to go. They were posted to Netflix and then they sort of regather and now now they're opposed to Paramount. And so but we've seen, you know, the list of celebrities signing a petition against this, growing the number of events, people like Corey Booker, the Senator from New Jersey, of hell to sort of examine
this deal and criticize this deal. So whether all enough mounts to something that will stop the deal still big question mark there, but they're certainly sort of growing opposition.
So when does the companies Paramount, Warner Brothers Discovery, When do they start doing some of the hard work of integrating or is that something they cannot do until the regulators have made clear that they're not opposing.
Yeah, they really have to wait to close. We saw in that next Star Techner deal where they jumped as soon as they got a clearance in Washington, and then the lawsuit happens and now they're actually barred from integrating. So very awkward situation. I imagine the Warner by the Paramount folks are looking at that and saying, all right, well, we should probably make sure we're in the clear before we actually close this.
Chris, you're based in LA I'm sure you know a lot of these folks that work at these entertainment companies. How concerned are they just about La as a creative community, as a Hollywood community? Because here in New Jersey, Netflix is building a huge production complex in down A Fort Mammoth, the old army base. Tore down everything at this huge army base and are building this is a gajillion dollar production facility. I mean, there's Vancouver, there's South Carolina. There's
lots of places that are taking business away. What's the mood in LA.
Creatively, particularly gloomy.
Yeah, and you know it's been that way. We've written about this for a couple of years now. You've had, you know, the flight to other locations to shoot. There's a big part of it. There's overall cutbacks and spend among big companies, and the globalization of the business has really changed things. And then you know we've got AI as a threat. So jobs are definitely weak, particularly here in the capital of entertainment. And so the idea of
this big merger. While David Ellison, the CEO of Paramount, promises they'll be growth, everyone anticipates that it's going to be very difficult in.
The labor market.
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Talk about the railroad stocks, one of my favorite sectors. I used to cover this group back in the eighties. I have all my earnings and models for the railroad and trucking companies, but they're on floppy disc so I don't think I can really access them anymore. But I'm sure they're still killer. Lee Classical Senior Transport, Logistics and Shipping analys fro Bloomberg Intelligence. He's got some pretty good earnings models to here. So Union Pacific stocks up about
seven percent here today, up fifteen percent year today. How are their earnings lead?
Yeah, their earnings were pretty good. They beat this morning on the first quarter, and it really was driven on productivity gains and pricing. The company was able to show that it's able to operate a better network, a more efficient network, despite the fact that volumes were slightly softer than most expected.
They were down about one percent.
The company really does appear focused that it can continue to get that productivity. Productivity could be more difficult if volumes do increase. Their outlook on the volumes, I would say was cautiously optimistic. There are some pluses and minuses. They were positive on their bulk commodities like coal and grain and also some domestic intermodal, while a little negative on their outlook as it relates to housing for as products that go into housing, automotives or international intermodals. So
I think the outlook was a mixed bag. But the company is definitely executing on its plan, and it used the earnings call it's an opportunity to kind of plug the merits of its proposed merger with Norfolk Southern and folks.
Just for rail geeks like Lee and I, this is a seismic transaction.
The railroad business would.
Create the first truly coast to coast to east west rail system in the US.
LEE.
But of course, the big, big, big issue is will the regulators allow. What's the feeling here?
You know, the feeling is really mixed amongst participants, obviously Union Pacific and Northern Southern.
You really think the deal is going to get done.
If you're the other railroads or maybe some trucking companies, you might be hoping that it doesn't. It is a high regulatory hurdle that it has to meet. It has to meet that it enhances competition, it's in the public interest. Along time time ago, I think it was two thousand and one, they changed the rules for mergers at the STB and they wanted to kind of stop the consolidation that was happening in the marketplace, and it was kind of designed to stop a deal like this.
The reality is that if.
It does happen, it will create a truly transcontinental network. That will mean that railcars will be touched less. And if they're touched less, you would assume that hopefully they can get better service and that could benefit from the customers that are on it. They are, you know, full
press lobbying to try to get the deal done. They recently announced a new locomotive, a new locomotive that commences that commemorates, excuse me, the two hundred and fifty year anniversary of the US And it also has Donald Trump's name on the side. So it looks like they're they're looking everywhere they can to get some help from the administration.
That's a good move.
How about if i'm CSX here, I noticed CSX stock is at.
An all time high. I pump CSX.
Do I feel the need to maybe reach out to Union Pacific or maybe the other Western railroad there and figure out that we need to do a deal as well.
Yeah, so if the deal does happen, you would assume that, you know, more mergers will come, whether that's a Burlington Northern merger with CSX. Burlington Northern is owned by Berkshire Hathaway and so obviously Berkshire Hathway has some deep pockets to pay for CSX if it wanted to. Also could make sense of CSX one with one of the Canadian competitors, like a Canadian Pacific Kansas City, that could be an option as well.
So if it does happen, and again it's a high.
Regulatory hurdle and we probably won't find out until late next year, early twenty twenty eight whether the deal gets done.
Yeah, it's going to take some time.
They have to refile with the STB because their initial filing did not cut the mustard with the regulators, so they wanted them to refile and that should happen probably in the next thirty to sixty days. And so it just takes time because this is a huge transaction that the STB has Tom all over But yeah, I.
Mean just answer your question.
Yes, it could, you know, the announcement of the deal because the two companies, N Pacific Norfolk Southern really can't do anything together until they get approval. So it's been an opportunity for other rails to work together.
And create new services.
And you've seen some share shift away from Norfolk Southern to CSX on the intermodal side, which has been pretty interesting to watch.
Lee.
What are your transport that you cover everything in the trucks, the rails, the air freight, all that kind of stuff. The big ocean shipping companies. What's been the collective I don't know response to this war in Iran. Is it localized just to that part of the world or is it having wider ripple effects.
Yeah, obviously it's impacting, you know, the shipping industry. It's keeping container rates artificially high just because it's tying up capacity and also assuming if there's a lasting piece, a sus canal can open up and that would make shipping rates come down considerably.
You know.
The biggest thing is it's pushing energy prices higher, diesel prices higher. That's a huge input for trucking rails. You know, they do have mechanics to offset that through fuel search charges, you know, just to pivot a little bit on the truckload side. Night Swift reported earnings last night. Their reportings, they pre announced and we knew it was gonna be a great quarter, which it wasn't, but their outlook really improved.
So they expect rates to increase by high single digits, to load double digits, and that's up from low to mid single digits. So they're really seeing their rate recovery happening, and that's really being driven on the supply side, supply coming out of the market.
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Well, Blackstone, the world's largest alternative asset manager, reported a larger than expect to jump in distributable earnings in the first quarter, boosted by a robust start to the year for deal making.
Let's break down further.
We're joined by Paul Goldberg, senior equity analysts for Bloomberg Intelligence. Paul talks us about Blackstone. What did you learn from their earnings and their call about their business?
I think the biggest thing for Blackstone is their size and diversification. As they did see some outflows from the retail fund the B credit in particular, they did get a lot of inflows across the company, so almost seventy billion dollars worth of inflows. So a lot of the fundraising and a lot of the activity is still holding up despite some of the pressure and the software pocket and the retail and the credit side.
John Gray talked about AI infrastructure is driving Blackstone's performance.
What does that mean?
So they're invested in data centers, they invested in infrastructure that supports the AI expansion. They talked about one hundred and fifty billion dollars of assets across that kind of size that of businesses. That's over ten percent of their overall assets under management. And they also talked about even slightly larger amount of the similar kind of deals in the pipeline to expand in that space. So they're really supporting that growth.
Paul, what's the story for black Zone and raising capital. Do they have all the capital they need or is this one of those Are they always in the market raising capital.
I think they're always in the market. It really depends on what kind of vehicles. Sometimes there's a flegship fond, sometimes there's a new products, but given their size, they're really usually in the market with both types of products. So, for example, if you look at the b CRAD, it did get some inflows, but obviously because of the redemption, they got some outflows, but credit was credited. Insurance was still the biggest segment of their growth in terms of
the inflows. They raised a ten billion dollar opportunistic credit fond during the quarter they closed it, So there's a lot of activity going on outside of the risk back pockets that we hear about.
Is there a weakling here in these results? I know you mentioned the credit and insurance arm and how that still drew inflows, but earnings in that business dropped twenty six percent.
They did, but I don't think necessarily it's a weakling. So there's still some of that is driven by performance piece they did have to and they didn't. We're very explicit about it because people are always concerned about valuations. They did mention that they were lowered the valuations in some liquid credit that had a negative return during the quarter. So that's more normal in terms of what we see
in the public markets, and they're responding to it. Probably not at that scale that we've see in the public markets, but it's there. So there is some pressure, but overall there's still a reasonable growth.
Stockdown four percent today, down about twenty percent year to date. Is Blackstone getting caught up in just the overall market concern as it relates to private credit?
I think so.
I think it's a matter of convincing the investors about the breadth and all the other businesses that are working, and the fact that the credit quality generally is holding up reasonably well. The companies that they're invested in and including the software partner businesses, they do it okay, So it will take a few quarters to convince the market to come around. So if we'll look at the be Read, there are the retail funds that they manage, a large
fund going back several years. It took them a few quarters to work through those concerns. So we might see some more pressure coming into view even later on possibly, but the investors will come to realize the bigger picture.
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Jet fuel prices have been rising and it's been really bad for these airlines, which as far as I know, don't hedge.
There are oil costs at all.
They used to, right, but they don't anymore unless you have a refinery, right.
Delta has that, right.
That's pretty cool.
All right, Let's bring in George Ferguson.
He is our senior aerospace defense and an airlines analyst, and George American Airlines just reported. But I mean, for all these airlines, the story is the fuel bill. The fuel bill is surging.
For them and it is having an impact on their bottom line.
Yeah, definitely. Right.
The name of the game right now in airline land is I need to increase fares. I think it's you know, they're roughly going to have to get up into the high teens to twenty percent rise in order to cover my increased fuel prices. Is one of the big challenges too, is as they you know, they need fares to rise, so they have to start to cut some capacity so they can they can get supply and demand back in balance.
As they cut capacity, their costs go up, right, because there's a there's economies to scale, and so they start to get mid single digit and higher increases in cost per available seat mile as they trim their capacity growth. So it's a it's a real push pull kind of challenge here, and American came out and they hit it squarely with hey, we're not really going to adjust capacity very much in two Q, and we think we can get fair increases to compensate for a lot of it, but not all of it.
What are the airlines saying about demand here? I mean, because I think airlines have some pretty good visibility people booking trips into the summer, maybe even longer, more longer term than that. How are they seen demand?
Yeah, so, I mean I would say that across the board, you know, they've all sort of said demand was was very strong going into.
You know, sort of the end of one Q into the summer travel season this year. So it sounds like the setup had been pretty good.
And again now it's a function of the demand looks like it's still largely there, although they clearly wouldn't be cutting capacity if it was there and just would take a big price increase in fares. So a lot of them are and I shouldn't say cutting capacity, they're trimming growth plans, especially the big full service carriers, because I mean, to me, that tells me that they can't get they
can't push through the full price increase they need. And a lot of them are talking about the cadence of getting that full recovery in fares to compensate for higher fuel prices, and they're kind of telling us that. You know, we heard from United that by the end of the year, by four Q they thought they'd be fully compensated. American told us they thought they would almost be fully competent stated by the end of four Q.
So you can see a cadence here.
Where's going to take them a bunch of the year to really drive through that those higher ticket prices and get back the increased fuel prices if they stay here. If fuel prices stay here.
Well, we know demand also looks very good because consumers are booking their flights for this summer and maybe for the holidays that they know they're going to be going away, knowing full well that fares are going up, up, up. I mean, that's been kind of a steady drumbeat of the newsflow for companies sending employees to go do business in other parts of the world and country that kind of ends up being something you book maybe a month out.
What does corporate travel look like? What do we learn from the airlines about that?
Again, the commentary we're hearing right now is that corporate travel is continuing to recover, it was doing well, is doing well, you know, and so from a demand perspective, we're hearing good things. But agree with you on that, Scarlett that I think that you know you're going to have to some degree that people that absolutely want to go or have to go, rushing to book here. Right, we know the airlines haven't booked out their entire schedule
for the summer and into the fall. Against summer, we're coming into vacation season. It's traditionally a very leisure focused season and again one of their strongest. So this fuel spike comes at a good time for them to pass through some of those increases It's going to be more interesting to see what happens as we get into four Q and one queue of next year if these fuel
prices remain high. And yeah, I don't think we have the full story of corporate, but they're telling us in earnings corporate looks good, but like you said, it's a shorter booking window on corporate.
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