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Let's get to a little m and a in the media space. That Warner Brothers Discovery deal, the never ending deal seems like it's moving a little bit forward.
Here.
We got a higher bid from Paramount.
We want to check in Withkeetha rong Anath and she covers all the media stocks for Bloomberg Intelligence. So Keitha talk, give us the latest on this Warner Brothers Discovery sale process.
Where are we right now?
Yeah, so, Paul, we got the higher number from Paramount. It's thirty one dollars. So they upted from thirty dollars per share for the entire company. Now, what that has forced the Warner Brothers Discovery board to do is to go back to the drawing board kind of re gauge with Paramount see exactly what number they can come up with. But ultimately they have to deem whether this is a
superior proposal or not. So far, they have two offers on the table, this one from Paramount and the twenty seven dollars and seventy five cents per share from Netflix, but that is only for part of the business. That's only for the studio and the streaming acids. So they're still in the process of making a determination about which offer is superior. But the minute that they you know, that they make that determination and they call the Paramount
offers superior, then the clock starts sticking. For Netflix, they have four days to come up with their own enhanced offer so to match the Paramount offer, and then you know, we'll kind of see where the chips fall after that.
Yeah, well, Gika, you know, I recall the word Brother's board really did not like some of the financing terms for the Paramount bid initially, right, So does this new improved offer improve upon some of those sticking points in the earlier deal in does that really de risk the transit action? And now that they've come up with another offer here.
They have all of the points that Warner Brothers had initially raised. They have the Paramount management team has proposed remedies. So one of the big things that they have kind of come up with is that they're going to cover the financing costs and the termination fee if Netflix exits this process. They actually upped their own termination free from
five point nine billion to seven billion dollars. They are going to pay something called a ticking fee, which is twenty five cents per share per quarter for every quarter that the transaction does not close beyond September. So they've offered a lot of different things, including kind of backstopping the whole equity portion of the deal as well as providing guarantees for the debt financing. So a lot of the points that Warner Brothers had initially raised. Your absolutely right, Christine.
You know, Paramount has kind of come out and addressed that so definitely provide a lot more comfort to the Warner Brothers Discovery board.
Yeah, Githa, you're right.
It seems like Paramount's really stepped up and really said we're going to be really credible here. Meanwhile, Netflix has been quietly waiting on the sidelines, not really doing anything, but it now seems like now's the time for them to, you know, really make a decision, step up with a bigger, better offer, different offer. I'm not sure, what do you think the options are for Netflix.
The best option in my view of Paul, for Netflix, and I think majority of you know It's investors would also agree to just walk away pocket the two point eight billion that you get in termination fees, just walk away and just focus on just focus on your core business, because they do have a very strong core business. You know, as we've said many times, Paul and you agree that this, you know, Warner Brothers is a great asset, There's absolutely no doubt about it. But it is really just a
nice to have, not a must have for Netflix. So it could end up actually becoming a distraction. So you know, in many cases. I mean, I think the way that you know, the street almost perceives it is that Netflix is a winner if they lose this whole bidding process. But that said, I mean, they do have a lot of financial firepower. If they did have to increase their bid up it by about one two dollars, they absolutely
can do that. The only thing is once they go beyond that, then they kind of risk over paying for the asset. They risk their leverage profile really kind of getting a little bit dangerous. I would say, I mean, the gross stut is going to be well above one hundred billion dollars, leverage could be at four times. They're at zero points six times right now, so you know, all of those things start kind of coming into question. But of course they have a great free cash flow profile,
so deleveraging wouldn't be an issue. That said, there still are you know, integration and execution risks always with any MNA deal.
Yeah.
Well, so if Paramount does indeed win the deal, does that present stronger competition for Netflix at least in the streaming space.
I mean, it definitely will to some extent, But I think what Netflix and everybody else is banking on is that average is just going to be so high for the combined Paramount Warner Brothers Discovery that you know, at least for the first couple of years. I think they're just going to be really focused on kind of driving costs down, hitting their synergy targets, not really being able to invest in the business. But again, it's you know, it all comes down to exactly what the number is
going to be. But you're right, they definitely will be a stronger competitor, although I don't think it's going to be a make or break for Netflix at all.
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All right, let's move on there to John Tucker. What are John Talker's favorite stocks? And that is low reporting results, and I'll say.
The difference between Low's and Home Depot. I find more women at Low's than Home Depot. Used to know. Yeah, I wasn't saying that. I'm just like saying just my observation.
Okay, why is it? I wonder it's more like.
Non professional Yeah, yeah, I guess we're d y. But apparently Paul is going there to pick people up.
So can I just say that the demographic demographic of women might not be interested in you, Paul?
Okay, yeah, no surprise.
And John Tucker, speaking of do it yourself, he just fixed our microphone here in our studio.
Folks, we had a professional commenter, Johnson. Now I got it. Yeah, that's okay.
We do it all year.
Don't worry, Anthony. We got it very much.
A product of Low's e y. But all right, well, so let's get to Lowe's. What is the preview there? And with that, let's bring in Drew Redding, who is the Boomer intelligence US home a building analyst, Drew, what is going to be the takeaway?
So Low's reporter earlier this morning, and overall it was, you know, a solid quarter. They had a nice beat on on same store sales really due to the strength of their professional customers and their e commerce channel. They had about a fifty basis point lift from recent storms. You know, you see the stock is down about four to five percent. There's a couple of things going on there. They guided the same store sales for twenty twenty six
being about flat to up two percent. While that's exactly you know, in line with what we heard from home depot consensus was on the higher end of that. We think there could be a little bit of conservatism in there, which rightfully so, given where we are with housing. Also,
there's a modest earnings reset for the company. You know, the midport of their guidance was about four percent below the street and really that's a reflection of weaker that expected operating margins and that's largely due to some of the acquisitions they've made over the last couple of years. So there's a little bit of company specific noise in there.
The other thing that's going on with the stock and really, if you look across the housing space as a whole, whether you're talking about the builders, that building product, manufacturers, developers, really anyone, they're all read across the board. And I think that has to do with the lack of dialogue
around housing policy. During the State of the Union address last night, you know, we heard a victory lap on mortgage rates, which has certainly come down, but it was really just a reiteration of the administration's planned to ban institutional parts is So, I think a lot of investors, you know, across the housing landscape, including home improvement retailer, we're hoping for some policy that could really stoke the housing market.
So I'm looking at the Mortgage Bankers Association thirty year fixed mortgage six point zero nine percent.
That's as low as it's been in a long time.
Is it low enough to get folks out of their homes, you know, and free up the existing home buyer market.
Yeah, you're right, we're about one hundred basis points below where we were just a year ago, and certainly every you know, every tike lower and mortgage rates is going to help bring that incremental buyer off the fence. Typically, what we hear is that's something in that five and a half percent range is kind of that magic number. Now that being said, you know, as we've as we've said for a long time, it's not just about mortgage rates.
They've certainly helped affordability. They've brought monthly payments down, but home prices continue to rise through up more than fifty percent since twenty nineteen. So when you look at, you know, a more holistic view of housing affordability, it's still really constrained. You know. The other thing that we continue to hear, whether it's from the retailers or from the builders, is that, you know, buyers are increasingly concerned about the economy. They're
increasingly concerned about the outlook for the labor market. So there's a lack of urgency out there. You know, you also have a lot of people maybe sitting on the fence because you know, they're saying to themselves, look, maybe home prices are going to come down, maybe rates are going to come down further and maybe I should wait before making such a big purchasing decision.
Yeah.
Well, so if that sort of turned over a new housing buyers, that's still going to be stalled given the uncertainty in the macro environment with something like repair and remodels spending, that segment of lowest customers, is that something that's going to be enough to carry them through? And I suppose for the rest of the house building sector.
Yeah. For the home improvement retailers specifically, I think demand has been pretty stable, if not modestly improving. If you look at compstore sales on a to your basis, there was a little bit of an uptick this quarter, so I think their customer has been pretty resilient. When you think about what's holding back more robust growth in the sector,
it's really that big ticket discretionary spending. These are categories like large scale kitchen and bathroom moodels, maybe a big flooring project, you know, replacing all the doors and windows in your house, and these are things that typically tend to be financed. So with rates at an elevated level, you've seen a pullback in that. And it also goes
back to what we've said on confidence. You know, with less confidence in the home, the direction of home prices, you have people who are maybe waiting to take on those bigger ticket projects.
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We're going to be talking a little bit about retail now and for that, let's bring in maryor Ross Gilbert to Bloomberg Intelligence, senior equity analyst, joining us from a sunny la very different from the weather that we're seeing over here in New York. Mary, thank you so much
for joining us. Let's start with TJ Max because we did get that disappointing outlook from them, and very surprising right because they did have a strong holiday season, but it seems like they're guiding expectations now for the future. What's to take away from that is this whole customer's trading down to more affordable goods. Is that flocks over now for TJ Max?
Thank you, Christine, But actually TGX is known for providing conservative guidance. So even though this guidance is coming in below what analysts expect for the first quarter already, if you look at the first quarter and the company said this, they're off to a great start. When we looked at the Bloomberg second Measure transaction data, we're seeing really robust sales. So it looks like a huge beat right now. The trend that we're seeing, it's very early in the first quarter,
but it's looking very, very strong. And I think when you think about TGX, this company, the management team here executes so seamlessly, and the brands that they have, which include Stuart White Weitzmann's Jeweled sandals for example, you can get rag and Bone attire and.
Consumers love it.
So I mean I am looking at the stock actually is up about nine tens a one percent today at a fifty two week high.
So good news there. Mary.
What's the company saying about the consumer out there? You know, we've got the K shaped economy. I'm not sure how TGX kind of plays within that marketplace, but what are they seeing?
Yeah, so, Paul, you raise a valid point the K shaped economy. The thing about TGX when you think about all of the off price retailers, they're in the best position to appeal to consumers across all income cohorts. So they've got the brands that include Selene, Chloe, Gucci, Brunello, Cucinelli. But then they'll have brands like Theory or Eli Tahari,
so they Nike Puma. So they really cover brands across the spectrum that appeal to consumers across both the high end all the way down to those consumers that are really paycheck to paycheck. And so that's what makes them in a great position and why they're business mind model really works. And when you think about home goods, everybody shops home goods. Whenever you go to a dinner party, what you're seeing there on the table likely came from home goods.
All very interesting us in the retail space. Kind of the developments that we're seeing as a result of that K shaped economy that Paul mentioned, because you know, in contrast, we did have the Sax CEO, of course, on Bloomberg TV yesterday talking about where they are in the chapter eleven process. But they're also saying that, you know, hundreds of luxury brands are shipping again, and then at the same time, you know TJX holding a relatively Well, what
does this tell us about the state of consumers? You know, are you seeing some kind of a bifurcation where these segments, certain segments are doing better than others.
Yeah, So I would say that we're seeing strength across all consumers really, and you see it with the consumer confidence data. But most importantly, I think whenever you have strong employment, which we have had for many years now, and that really keeps the consumer resilience. So even if you're sort of going paycheck to paycheck, when you're employed, you feel really good and you might cut back on some essentials just so that you can get something new
that makes you feel good. So I really see strength across all consumer segments. It really comes down to the retailer and their ability to execute. So when you see companies that are outperforming, it's because they're executing. And that's really the delineation that we see there.
Hey, Mary, the Supreme Court and our president just brought terrrifs right back to the front burner again. I wonder if the good folks a TGX had any thoughts about what seems to be a new round or a renewed interest in tariffs.
Yes, well, so the tariff question is going to be top of mind with the fourth quarter earnings coming in. And TJX though, because they buy primarily closeouts, like less than ten percent, they're sourcing directly, so they're really not that impacted by tariffs. It's so small for them because, like I said, over ninety percent of the inventory that they're sourcing is closeouts and they see tremendous availability of closeouts,
so they're not impacted. But we did have news out today that Steve Madden decided not to provide margin guidance. They did provide sales guidance, which was strong, but they decided not to provide that guidance because they felt that
there was some uncertainty. But when you look at it, we already know the tariffs that went into place prior to the ten percent that went into effect, so you know that you get at least of fifty percent savings for one hundred and fifty days on new shipments, and then once they issue the executive order for fifteen percent,
then you'll have a twenty five percent saving. So that's really the best way to look at what the margin impact could be and most of these companies are passing on those pricing press and then they're also employing other mitigation measures, including sharing with the suppliers.
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Certainly, if you're a tech investor, you've been dealing with the other side of AI, which is to what extent is AI threat to my business? And that's been a real big problem for a lot of sectors out there, including software. Software as a service has certainly been dealing
with that over the last several weeks. We're gonna check in with anurag Ruana and get the latest there on our run as senior tech analyst covers all the tech stuff for Bloomberg Intelligence, Honour, talk to us about the conversations you're having with institutional investors these days, because you know, several weeks ago solved just a big, big sell on your whole software sector.
There where are we tay on that.
It's been okay the last two days, but and things will probably change by the time next week comes around because the you know, the discussion around here is not so much about what's happening to the earnings power or sales growth over the next twelve to twenty four months. The big question is whether these guys will be relevant five years from or not. And when you put a question on somebody's terminal value, then you know there is no argument.
It's a one out or zero.
So there are those that think that some of them will be fine and maybe even grow stronger, and there are certain companies that will be disrupted quite a bit. So I think that's where the dilemma is. At this point, people are just telling the entire index. They're not even looking at some of the bigger ones or the better ones at this point.
Yeah, well, Honuric, let's get into which ones are the bigger ones and the better ones, right, because we've seen so far the most vulnerable vulnerable names seem to be companies in online travel or smaller software first, but then meanwhile cybersecurity it seems to be relatively insulated from the recent baout of caution that we've seen. You know, is that a sector or a segment within this space that could actually benefit from increased spending on security.
Yeah, I mean, we did publish a big report yesterday and we have put out a framework where we have looked at four or five different segments or different factors. So if somebody has a very high market share, are they selling into an enterprise or a smaller business, do they have network effect? And are they a platform or a point product company? So, you know, let's you mentioned cybersecurity.
This is an area that is doing better than the others and in fact could even benefit down the road if a lot of the agents that you know, people will create would need to have their own identity, would need to have their own safeguards around it. But you know, there are certain places where we will see more disruptions.
Online travel is one area you.
Mentioned, and even the smaller software names, whether that's in HR, whether it's since sales automation, I think they are the most at risk of getting disrupted.
What are the companies saying here? Do they acknowledge that AI is a threat to their business? Are they trying to pivot? Are they ignoring it? What are you hearing from the companies these days.
So everybody's pivoting at a very fast pace. I'll name a couple of examples. You know, a company like Workday, which is the de facto leader in HR software, they are creating their own agents and down the road, when you and I will interact with an HR software company, it would be through a chat pok or could be conversational.
There is a company called Figma.
It has added more AI capabilities to its core software. So when you're developing the software, you're actually giving prompts to say this is what I want the design to look like, and then it pops up something you know on the system rather than doing it, you know, bit by bit using the software. So there is a lot
of push by these companies. But you know, that's where the question is whether it's going to lead to lower margins because this is an expensive way to do things, or whether it leads to the AI native company coming and taking their market share.
Yeah, very interesting on that subject. Analog of you know, some companies moving to create their own agents, as you mentioned, because yeah, is that something that could potentially drive a wedge also between these companies that are vulnerable to a disruption We had Sarah Hunt earlier mentioning that if you're a company that owns the tech, that owns the proprietary data, you're fine. But maybe if you're leaning on somebody else to provide that for you, maybe or not would you agree with that?
Yeah, I mean, if you have your own data, that's fine. But at the end of the day, it's customers data. I mean, it's Bank of America's data, it's JP Morgan's data. So if they decide to give access to an m A or an anthropic or an open eye to that data, so you know, it's up to them. Frankly, I understand you can't log into somebody's software and try to get that data out of it. So I understand a lot of these arguments, but frankly speaking, when disruption happens, it happens very fast.
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