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Baillie Gifford Representative
What is actual investing? We believe that it's a real world task to deliver thoughtful capital deployment. It's not about speculating over the short term. It's about understanding the long term opportunities for companies through technological progress or new business models. So we seek out those exploring big new ideas that will change the world. Then we back them to give those ideas time to flourish. Bailey Gifford Actual Investors Find out more@bailliegiford.com.
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John Butler
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Baillie Gifford Representative
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Bloomberg Host
Bloomberg.
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Podcast Announcer
Audio Studios Podcasts Radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app Listen on demand wherever you get your podcasts or watch us live on YouTube.
- [01:49]
Bloomberg Host
All right. There's been a lot of CEO changes in the telecom space lately, Paul, but Now we're getting one in the retail space. The biggest retailer. Walmart announcing CEO Doug McMillan will retire in February and he will be replaced by the current head of Walmart us. Jen Bartash has covers retail staples and packaged foods for us here at Bloomberg Intelligence. Jen, was this a surprise or was this a finely planned succession plan?
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Jen Bartash
Good morning. So it's the surprise is really only in the timing, not in the selection of who is actually going to succeed Doug McMillan. So you know John Furnier has been in a in a position for the last six years as CEO of Walmart us. Everyone has presumed that he would be the heir apparent to the CEO role. So it's really just a matter of the timing of it, that has caught people a little bit by surprise. Today.
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Podcast Host
I'm looking at this guy, the Mr. McMillan, he's only 59 years old now. What I mean is this, this isn't, that's kind of young, right?
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Jen Bartash
It is reasonably young. He's been at the helm since 2014, you know, and I will say to credit, you know, he's, he's really implemented a cultural change at Walmart. If you think back to, you know, the, the, the early knots, you know, Walmart had a bit of a reputation as maybe a bully with some of their suppliers and partners, you know, and that culture has really evolved to where it's much more of a technology led company. They're willing to experiment, they try, they fail, they move on. They've, they've tried different strategies and they're not afraid to back away when they're not panning out and delve into something new. And that cultural shift really is attributed to, to Doug McMillan. And you know, as for the timing, you know, it just may be he feels that it's his time to, to, to have left his mark on the company and move on.
- [03:45]
Bloomberg Host
What does this mean for a company like Target or anyone else that competes with Wal Mart? Does this present an opportunity or are things just going to go exactly as they were at Walmart where the strategy remains consistent and there's no real entry point for someone who has maybe been in also ran to close the gap?
- [04:04]
Jen Bartash
I think that's a great question. And when it comes to tactics, we're not expecting any major pivot in strategy by John Furner when he takes over as CEO. But to be fair, I mean, Wal Mart is firing on all cylinders at the moment and they're gaining market share, they're growing their top line, growing their profit. So they're doing quite well. That said, you know, at Target, we also had a new CEO announced not long ago, you know, and for Michael Fidelke, who's, who's moving into the CEO role, it's much more about the focus on Target's transformation and you know, and, and transfer a turnaround plan. Now whether that presents an opportunity with a change at Walmart as well, that's a little hard to, a little hard to say because, you know, I think first Target's got to get their house in order before they go after other people's, other people's houses as well.
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Podcast Host
All right, so stepping back here, what's the play for Walmart? If you're an investor in Walmart today, why are you an investor in Walmart? Today.
- [05:03]
Jen Bartash
Well, you know, Walmart has done an admirable job of, you know, increasing the breadth of their business while simultaneously becoming more focused. If you think over the last several years they've exited some of their international markets where they weren't performing well. They've really focused on technology, the implementation of things like AI to support their business. Their digital sales growth is growing. The marketplace for, for, for online sales is growing. So you know, when you look at it from an investor perspective, there are a lot of things that are happening at Wal Mart that should lead to consistent future growth. And you know, that also includes, you know, a lot of the, it includes the efforts that they're making to bring higher income households into their, into their, into their group. And, and if they're able to successfully retain those households going forward, that just sets up a whole new wave of potential growth for, for, for Walmart in the long run with a much more robust core customer. And so those, those are the kinds of things where you look at them and you look at them relative to competitors and how those, those peers are valued. And although, you know, from a valuation perspective, you know, Walmart is, you know, more expensive than it had been, there's still a lot of opportunity to grow.
- [06:33]
Podcast Host
Stay with us. More from Bloomberg Intelligence coming up after this.
- [06:39]
Baillie Gifford Representative
What is actual investing? We believe that it's a real world task to deliver thoughtful capital deployment. It's not about speculating over the short term. It's about understanding the long term opportunities for companies through technological progress or new business models. So we seek out those exploring big new ideas that will change the world. Then we back them to give those ideas time to flourish. Baillie Gifford Actual investors find out more@baileygifford.com.
- [07:09]
Podcast Host
Support for the show comes from public.com youm're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic option plays on the side. The point is you're engaged with your investments and public gets that. That's why they built an investing platform for those who take it seriously. On public you can put together a multi asset portfolio for the long haul. Stocks, bonds, options, crypto, it's all there. Plus an industry leading 3.6% APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market paid for by public investing. All investing involves the risk of loss.
- [07:53]
Baillie Gifford Representative
Including loss of principal brokerage services for.
- [07:55]
Podcast Host
U.S. listed registered securities options and bonds in a self directed account are offered by Public Investing Inc. Member FINRA and SIPC.
- [08:02]
Baillie Gifford Representative
Crypto trading provided by Zerohash. Complete disclosures available@public.com Disclosures.
- [08:09]
Commercial Narrator
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- [09:10]
Podcast Announcer
You'Re listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
- [09:24]
Bloomberg Host
Let's move now to the pharmaceutical sector with a big purchase here by Merck, a $9.2 billion purchase of Sadara Therapeutics for 21, excuse me, 22150 a share in cash. Madison Mueller is our Bloomberg News health care reporter and she joins us now. And Madison, this is all about filling the pipeline because Merck is losing patent protection on one of its blockbuster drugs.
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Madison Mueller
Exactly. And this is sort of the perpetual problem for pharmaceutical companies is that they face these patents for huge blockbusters that end up accounting for a large majority of their of their sales. I mean, in Merck's case, almost half the company's revenue last year came from Keytruda, which is facing a patent expiration in 2028. This is a cancer drug, one of the best selling pharmaceutical products of all time. And so Merck has been looking for other products to replenish its pipeline. Like you said, this is one of them. They did another deal earlier this year and so looking to flu treatments, which flu even though we have vaccines, antivirals for the vaccines are effective. But for a long time, scientists, researchers, drug makers have been hunting for more effective and different products to help prevent the flu, which lots of Americans die from still each year.
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Podcast Host
So where would Merck like to be in terms of, I mean I guess when you're thinking back having half your sales tied to one drug, while it's a great drug and it's all good, that's probably not what you want From a diversification standpoint. What does Merck say about what they'd like to.
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Commercial Narrator
To be?
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Madison Mueller
Yeah, I mean, it's interesting because a lot of pharma companies end up facing this problem. I mean, we look at Novo Nordisk and they have, they're facing a similar issue. I mean, they're not necessarily looking at patent expirations, but they're looking at government price negotiations and cuts for their bestselling Drugs, Ozempic and WeGovy. The majority of their sales come from those products. And so a lot of times pharmaceutical companies end up in this situation where they have one product accounting for the majority of sales. And so, you know, Merck is not taking this approach to like looking to just one company, you know, big deal, one company to get another Blockbuster to replace Keytruda. They're looking to have sort of one analyst, which we have in the story called it a string of pearls M and a approach, you know, looking to more like bite sized deals to sort of diversify its pipeline and look to a couple different products to hopefully you know, replenish that. Abbvie was in a similar situation, which with its bestselling drug Humira, and they now have, and that was an arthritis drug. They now have two arthritis treatments that are sort of accounting for like half and half of what Humira was bringing in. So it's interesting and all the pharmaceutical companies are sort of taking different approaches to how they're doing, but how they're doing it. But it seems like sort of doing this string of pearls approach, having a couple of different products is the way that they're thinking about it right now.
- [12:18]
Bloomberg Host
I feel like I remember that once upon a time a lot of these companies that were losing patent protection on their drugs would come out with like a tweak to the drug. You know, maybe it's in gel capsule form as opposed to tablet form and that would, you know, extend the patent for a little bit longer. Is that something that they still do?
- [12:34]
Madison Mueller
Yeah, I mean, it is. It's definitely something that they still do. There are lots of ways to extend a patent, you know, getting a new indication for pediatrics or different formulations or combinations. But again, it sort of only gives you a couple more years. It doesn't extend the product's lifeline by like another 10 years, which that's what we're looking at. These companies have to think, think decades, you know, maybe a decade or more in advance about what's happening in terms of their pipeline. So while that's somewhat of a temporary solution or something that can be done earlier in a product's lifeline, it's like once you get to this point where it's sort of crunch time, they need to be thinking about what more can we bring in to make up for this?
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Podcast Host
Is the Trump administration and the regulators, are they okay with these deals? I mean, do they ever challenge any of these deals or are they kind of under the radar?
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Madison Mueller
So far it's sort of under the radar. I mean, this one's interesting. Actually. There was another analyst note this morning about how they don't think that the FTC per se will have a problem with this deal, but it's interesting to do a deal in the infectious disease space given the Department of Health and Human Services stance on vaccines. Infectious disease right now. And while this isn't a vaccine, it's just an interesting time in that space in general. So while there might not be additional FTC scrutiny, it might be something and you know, again, this is sort of hypothetical, but just like given the climate right now is something that HHS could potentially keep an eye on or look at.
- [14:03]
Podcast Host
Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from public.com you're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic option plays on the side. The point is you're engaged with your investments and Public gets that. That's why they built an investing platform for those who take it seriously. On public you can put together a multi asset portfolio for the long haul. Stocks, bonds, options, crypto. It's all there plus an industry leading 3.6% APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market paid for by Public Investing. All investing involves the risk of loss.
- [14:53]
Baillie Gifford Representative
Including loss of principal.
- [14:54]
Podcast Host
Brokerage services for U.S. listed registered securities options and bonds in a self directed account are offered by Public Investing Inc. Member FINRA and SIPC.
- [15:02]
Baillie Gifford Representative
Crypto trading provided by ZeroHash complete disclosures available at public.com disclosures.
- [15:09]
Commercial Narrator
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- [16:09]
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- [17:24]
Podcast Host
A lot of news in the telecom space today. We had a lot of change in the CEO suite. We've got a lot of stuff happening here. Verizon's out with a big story I want to get to about cutting costs there. John Butler joins us. He covers all the telecom stuff for Bloomberg Intelligence. Let's start with Verizon here. Planning to cut about 15,000 jobs. That's about 15% of the workforce. I mean this is big. What's going on?
- [17:49]
John Butler
That is a lot. So they have a new CEO, Dan Schulman. He's been on the board for a long time. So he's had a front row seat to what Hans Vesper was doing. And his feeling was that Vesperg, who was leaning into a Network first strategy. So he was out there telling everyone, Verizon has the best network. It's the only reason to be with us. It's the best reason to be with us. And it just wasn't resonating. I think Shulman saw it and said we need to be consumer first, not network first. So he took over. I think it was October 3rd, at the beginning of October. He's new at the company, but again, I'm sorry, he's new in the role, but he's not new at the company. And so I think my hope is at least that these cuts are carefully considered because just as you say, with cutting 15 to 20% of the workforce at a telecom risk, cutting into bone. Not just, not just fat.
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Podcast Host
And he was at AT&T before. He's. This is a telecom guy, right?
- [18:53]
John Butler
He was at Virgin Mobile too. He has telecom experience and he also helped to sort of pull PayPal out of the dredges. I think they headed back there during his tenure as well. So it was a little bit of a controversial ride for him there. But I think he has the kind of telecom experience and board experience at Verizon to bring some changes to the organization. When I talked to the company about his naming as CEO, the answer was we're bringing him in as a change agent. We really need shake up here.
- [19:32]
Podcast Host
And that's an industry that could probably use it a little bit. I mean, like John Leger, AT T Mobile did such a great job as a change agent.
- [19:37]
John Butler
He did. So what he recognized is that consumer wireless is a consumer retail business. Right. They have brand spokespeople, they advertise on the super bowl, they have Free Tuesday, you know, T Mobile Tuesday giveaways. And Verizon just seems off base there. I don't think they really hit the ball well when it comes to being in the consumer retail business.
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Podcast Host
They think my thing was they always. They're old Bell company so they have some of that legacy.
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John Butler
Yeah, it's in the culture there. And hopefully Shulman can sort of instill that excitement in the consumer. That's his big challenge.
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Podcast Host
I mean, that's a business, the wireless business, that's a tough business. It's very competitive, top line growth, really not there for an enlarged. So maybe cutting cost is a way to deliver cash and earnings.
- [20:28]
John Butler
It's part of it. I think they also need to move into adjacency. So if you look in Canada at the carriers there, like Rogers owns the Toronto Blue Jays and Rogers Center Stadium, they're in media, you know, they're tapping a lot of different adjacencies to make up for that slow growth in wireless.
- [20:48]
Podcast Host
All right, another story that is really front and center for me and for a lot of it, kind of telecom equity investors and bond investors is SATS. EchoStar.
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John Butler
Yeah.
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Podcast Host
And finally Charlie Ergin, the CEO and founder of EchoStar, finally selling the spectrum. Is that what's going on? Because he bought a lot of spectrum.
- [21:10]
John Butler
It has been a crazy ride. So EchoStar, as you know, their roots were in satellite delivered pay tv. That market is dying with a capital D. And his decision was, let me take the capital I have and get into the consumer wireless business and compete with AT&T, Verizon and T Mobile. And I think every analyst, including myself, asked, what are you doing? You know? And he bought a treasure trove of spectrum. And he was sitting on it, he was beginning to deploy it, he was building his own wireless network, but they weren't getting any subscribers. And I think the FCC looked at it and said, we need more spectrum in the hands of people that can really fill the airwaves. And so they started to get pressured a lot by the fcc. And that prompted the sale of spectrum to Starlink and AT&T.
- [22:04]
Podcast Host
I guess the, the good news is he is selling the spectrum for a lot of money. The stock's up. It's tripled this year. That's the good news. The bad news, it took them about 15 years, it seems like, to do what we all knew almost 15 years ago, which is either build a network or you flip the spectrum and we make money either way. But it took a long time for him.
- [22:26]
John Butler
Well, not only that, I always thought they were Dish as a pay TV provider. It's a strong brand name. You become what's called a mobile virtual network operator, MVNO, where you basically have AT&T and Verizon run the network for you. You do the billing, customer care, most importantly the marketing. And so you're out there with a Dish Wireless brand. You don't have to worry about spectrum or network operations. And they just decided to. To do the network themselves.
- [22:59]
Podcast Announcer
This is the Bloomberg Intelligence podcast, available on Apple, Spotify and anywhere else you get your podcast. Listen live each weekday 10am to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg terminal. You know what a girl's best friend is not diamonds. Her lawyers.
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Madison Mueller
Make it rig showtime, ladies.
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Bloomberg Host
Stand up straight and breeze into that.
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Podcast Announcer
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Commercial Narrator
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