Money Stuff: The Podcast – Episode Summary: "Land Rich: EDR, KKR, SPAX.PVT"

Release Date: March 28, 2025
Host/Author: Matt Levine, Bloomberg
Co-host: Katie Greifeld, Bloomberg News

1. Endeavor's Going-Private Deal and Legal Implications

In this episode, Matt Levine and Katie Greifeld delve into the recent developments surrounding Endeavor's transition from a public to a private entity. The deal, orchestrated by Silver Lake—the company's largest shareholder—was announced about a year prior, with Silver Lake agreeing to acquire Endeavor shares at $27.50 each. The closure of the deal on March 24th saw Endeavor shares finalize at $2,750 per share, strictly adhering to the scheduled price.

Notable Tensions and Market Reactions:
Despite the deal’s closure, anomalies emerged in Endeavor’s stock performance leading up to the finalization. Notably, on the Friday before the closure, the stock price surged to $29.25—$1.75 above the merger price. This spike puzzled market observers, as investors seemingly bet on potential legal actions claiming the deal was undervalued.

Potential Legal Challenges:
Levine explains, “'It's being bought by its controlling shareholder. So there's always a conflict of interest,'” highlighting the contentious nature of the buyout. The elevated stock price suggested market participants anticipated class action lawsuits, either through appraisal claims or allegations that Endeavor's board neglected fiduciary duties.

Carl Icahn's Involvement:
Adding intrigue, activist investor Carl Icahn acquired approximately 8.4% of Endeavor’s shares on the critical Friday, potentially signaling his support for challenging the deal. Levine remarks, “'Carl Icahn was just like, I don't know. I feel possessed to buy 8.4% of these shares on Friday.'” Icahn’s move hints at possible strategic maneuvers to influence the outcome of ensuing legal battles.

2. KKR's Strategic Holdings: A Shift from Traditional Private Equity

The conversation transitions to KKR's innovative shift from its conventional leveraged buyout (LBO) model to establishing Strategic Holdings. Historically, KKR has been synonymous with managing funds, executing leveraged buyouts, enhancing operational efficiencies, and exiting investments within a typical 3-5 year window to realize substantial returns.

Transition to Long-Term Ownership:
Katie Greifeld highlights KKR's ambition to pivot towards owning companies indefinitely, akin to Berkshire Hathaway’s model. Matt Levine adds, “'It's like, we can put more leverage on this company than the public markets can. Right. But this is like, yeah, we like that business. Let's own it forever.'” This strategic realignment aims to generate consistent revenue streams through dividends, projecting $1.1 billion by 2030.

Comparison to Family Offices:
While KKR remains a public company unlike typical family offices, Levine draws parallels: “'And you just own the companies instead of owning the 20% promote on them.'” This move signifies a broader industry trend where established private equity firms leverage their amassed capital to transition from fee-based operations to asset ownership, ensuring sustained growth and revenue beyond traditional management fees.

3. Private Markets Enter the Public Eye: Yahoo Finance's New Listings

Levine and Greifeld explore the evolving landscape where private companies gain visibility akin to publicly traded firms. Yahoo Finance’s recent initiative to display stock-like charts for private entities such as SpaceX, OpenAI, and Stripe marks a significant step towards bridging private and public market dynamics.

Mechanics of Private Market Pricing:
Levine explains the complexity behind these charts: “'These prices […] are not really derived necessarily from those trades. These prices are sort of algorithmically determined from things like funding rounds and tender offers.'” Unlike real-time public market data, these valuations stem from less frequent and less transparent transactions, making them “'fascinatingly imperfect.'”

Psychological Impact and Market Perception:
Despite their inaccuracies, these pseudo-stock prices influence investor perceptions. Greifeld notes, “'It just makes you think, ooh, that's a company whose stock I can buy, by the way.'” This visibility may pressure private companies to consider public listings to align with investor expectations and market dynamics.

ETF Example – ER Shares Private Public Crossover ETF (XOVR):
An illustrative example discussed is the XOVR ETF, which allocates 10% of its portfolio to SpaceX. However, the ETF's performance, being down 7% year-to-date compared to SpaceX’s minor uptick, underscores the challenges in accurately reflecting private company valuations within public investment vehicles.

4. Reflections on Public vs. Private Market Transparency

The hosts reflect on the inherent differences in transparency and regulatory requirements between public and private markets. Matt Levine critiques the lack of rigorous financial disclosures in private markets: “'It's weird that we have 100 years of securities law that is based around we need full disclosure about a company, we need audited financial statements to allow people to make informed investing decisions.'” This absence of stringent reporting standards in private investments contrasts sharply with the public market's emphasis on transparency and regulated disclosures.

Implications for Investors and CEOs:
Greifeld shares insights from her interactions with CEOs, revealing a disconnect between public statements and private concerns about stock performance: “'You ask them on air, do you care about the stock price … and then you get lunch with them, you … ask them in the commercial break … and they say, yeah, I'm constantly watching it.'” This dichotomy highlights the challenges private companies face in managing investor relations and internal expectations without the constant scrutiny of public market trading.

Conclusion

In "Land Rich: EDR, KKR, SPAX.PVT," Matt Levine and Katie Greifeld provide a deep dive into the nuances of private equity maneuvers, legal intricacies of going-private transactions, and the emerging intersection between private and public market dynamics. Through their insightful discussion, listeners gain a comprehensive understanding of the strategic shifts within major financial entities and the evolving landscape of investment transparency.

Notable Quotes:

• Matt Levine [04:37]: “Endeavor's main asset is shares of another publicly traded company. That company traded up a lot. So by now, the deal price for Endeavor looks really low.”

• Katie Greifeld [16:12]: “KKR has this plan to quadruple its earnings per share over the next decade. Strategic holdings would be a strategic part of that.”

• Matt Levine [17:55]: “The fee model is good enough that KKR has made a lot of money. And where they do that money, well, one thing you do is you transition from being a service provider who collects 20% to being just an asset owner and a capitalist.”

• Katie Greifeld [25:57]: “We have been talking for months really the entire existence of this podcast about how private markets are becoming public. Private markets are the new public market and now we have some prices to put to that.”

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