Slate Money – "The Bad Romance Edition"
Podcast Date: October 29, 2016
Host: Felix Salmon
Guests: Edmund Lee (Managing Editor, Recode), Cathy O'Neill
Episode Overview
This edition, titled "The Bad Romance Edition," dives into the suddenly feverish climate of business mergers and acquisitions, with a special focus on the AT&T–Time Warner deal. The hosts dissect the spate of recent mega-mergers, question whether these marriages of corporate behemoths make sense, and explore broader trends in media, trade agreements, and tech company IPOs. The conversation is lively and sharp, full of skepticism and wit, peppered with real business insight.
Key Discussion Points and Insights
1. Merger Mania: What's Driving This Wave?
- Opening rundown (00:08–01:56): Felix Salmon frames the week as "completely insane" for major business stories, listing off a cascade of enormous deals: GE/Baker Hughes ($30B), British American Tobacco/Reynolds ($47B), Level 3/CenturyLink, Qualcomm/NXP ($39B), and more.
- Money is cheap: Edmund Lee points out that ultra-low interest rates are fueling the rush to strike deals before an expected rate hike (03:32).
- "With basically near zero interest rates, money is cheap. And so you're going to get these deals done before December when the Fed decides, hey, guess what, maybe we should bring that back up." – Edmund Lee (03:32)
2. The AT&T–Time Warner Merger: Logic or Lunacy?
- Why reunite content and distribution?
- Felix highlights the contradiction: Time Warner previously spun off its cable operations because "content and distribution are two entirely different businesses" (05:52). Now, the same CEO flips the justification.
- Edmund Lee is skeptical, calling the rationale "not entirely believable": "What difference does that make to your content? ...Being part of a distribution company doesn't change or should not change your content calculus." (06:39)
- Are there any great mergers?
- Cathy asks for a merger that truly benefited the public (07:43); Edmund can’t think of one. Felix offers Google/YouTube as an example — but concedes that's a very different (horizontal) merger.
- Vertical vs. horizontal mergers:
- Ed explains: AT&T-Time Warner is vertical (content + distribution); it won’t reduce consumer choices like a horizontal merger would (09:14).
3. Is the Rationale for the AT&T–Time Warner Merger Valid?
- Two models for distributors:
- Felix lays out the shift from "dumb pipe" status (just selling access) to "bundling" models where cable companies make money by controlling hot content (11:53).
- The mobile angle:
- Felix and Ed debate whether AT&T is truly buying Time Warner to drive mobile content consumption, with Ed skeptical that purchasing expensive content will drive real growth in a fully saturated mobile market (10:57).
- Young people and the future:
- Cathy wonders if any of this even matters to young people more interested in digital, social, and on-demand content (13:37).
4. Stock Market Response and Regulatory Hurdles
- Why is Time Warner trading below offer price?
- Felix notes a $20/share gap between the buyout offer and market price, asking Ed to explain (19:32).
- Ed describes skepticism that US regulators will approve the "huge" vertical merger, especially in a populist political climate that’s suspicious of further media concentration (20:26).
- "It's politics now potentially playing into it... there is, I think, a growing faction in D.C. that wants to create a new doctrine... just: you're too big." – Edmund Lee (21:48)
5. International Trade: CETA and Wallonia's Stubbornness
- Canada–EU Trade (CETA):
- Discussion of the Comprehensive Economic and Trade Agreement (CETA), an historic deal between Canada and the EU, nearly derailed by Belgium’s Walloon region (22:14–28:37).
- Felix’s take on Belgium: "Belgium is not really a country... all of the power is in the regional governments rather than in the national government..." (24:33).
- "In theory, free trade improves countries overall...It doesn't improve every individual's life. And the point is... it becomes more closer and closer to the individual vote." – Cathy O'Neill (27:21)
- Implications for Brexit and global trade:
- Felix reiterates that Brexit negotiations are now even more daunting, as deals must be approved by all EU members (28:51).
- Bad times for global trade deals: TIPP and TPP likely dead; Doha round has stalled (29:25–29:40).
6. Tech Company IPOs and Struggles
- The end of Vine and Twitter’s woes:
- Twitter shuts down Vine, drawing a wave of nostalgia and sadness online (30:11–31:26).
- Ed and Felix discuss why Twitter’s public market saga isn’t like Amazon’s: lack of clear vision, leadership instability (multiple CEOs), inability to communicate a long-term plan to investors (32:00–34:13).
- Amazon’s "Buy-In" Model:
- Ed describes Amazon's unique relationship with investors as being by design (32:10): "His [Bezos'] job is to make Amazon as big as he can possibly make it...Some quarters might not have profit. I've never seen a public company like this..."
- Competing with Facebook, Snapchat:
- Twitter’s monthly active user growth has stalled at around 317 million, dwarfed by Facebook and Snapchat (34:22–35:32).
- Snap Inc. (Snapchat) is prepping for a $4 billion IPO, aiming to capture Wall Street money eager for "anything but Twitter" (35:13–36:19).
- "If you're an advertiser, that's your biggest conundrum right now. Where are the young people? What are they doing? How do I reach them? ...Snapchat is where I'm supposed to be." – Edmund Lee (35:33)
- Tesla surprises with a profit:
- Brief aside: Tesla, a company known for never making money, posts a surprising profit (36:19–37:37).
7. Numbers Round—Personal Finance Meets Big Business
- Campaign finance:
- Cathy: $798 million spent by the financial sector on the 2016 campaigns—up 35% since 2008; hedge funds alone spent $123 million (41:04).
- Artisanal potato chips:
- Felix: $11 for a five-chip box from a Swedish brewery (41:52).
- Personal telecom bills & AT&T’s massive debt:
- Edmund: Pays $200/month to AT&T for his household, while AT&T’s post-merger debt could reach $200B (43:13).
- "What I buy in terms of media, my household: AT&T is top of the list... The amount of money we spend for digital subscriptions is just going up and up, and the present value of all that money is trillions of dollars. And that's why these mergers are happening." – Felix Salmon (44:46)
Memorable Quotes
- Felix Salmon: "Love is in the air." – on the week’s frenzied M&A activity (01:56)
- Edmund Lee: "I think it makes very, very little sense." – on the logic of the AT&T–Time Warner deal (06:39)
- Kathy O'Neill: "Can we just enjoy what [Twitter] is?" (34:13)
- Felix Salmon: "Belgium is not really a country. It has no reason to exist..." – on the complexities of EU trade deals (24:33)
- Edmund Lee: "You're not investing in Amazon for the profit margin, you're investing in Amazon for the growth." (32:10)
- Kathy O'Neill: "I feel like I'm the only one who loves Twitter, and I'll wait for the price to get right." (39:59)
Timestamps for Key Segments
- All the Recent Mega-Mergers: 00:08–03:44
- Deep Dive: AT&T–Time Warner Merger: 04:31–19:32
- Why Is the Market Skeptical? Regulatory Angle: 19:32–21:57
- CETA, Walloons, Trade Barriers: 22:13–29:40
- Tech IPOs: Twitter, Vine, Amazon, Tesla: 30:11–38:43
- Numbers Round (Fun Facts, Personal Connections): 41:04–45:06
Tone and Style
- Conversational, witty, and at times irreverent.
- Persistent skepticism about "synergy" arguments for mergers.
- Balanced with real financial acumen — cutting through jargon to explain why deals happen (or don’t).
- A sense of exasperated humor about how business, politics, and culture intertwine.
Conclusion
This episode offers an unvarnished look at "bad romance" in business—from uncertain megamergers in traditional media and baffling stock market logic to the death throes of social networks and the hurdles of free trade in the populist era. With candid, thought-provoking discussion, the Slate Money crew questions business orthodoxy, the incentives of modern mergers, and why real value for the public so infrequently appears in the merger math.