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- [00:00]
A
I feel like you've become the ax on. On what could be, like, one of the biggest mergers of all time. I know there's a lot of people at Puck covering this story from different angles, but, like, you're. You're all over this thing. How does it feel? Is it exciting?
- [00:15]
B
Well, you know, first of all, Josh, as you probably remember, I mean, I was an M and a banker for, you know, 20 years and worked on, you know, the first, you know, Viacom Paramount deal when I was at Lazard. So this is a little bit of history repeating itself and putting back on my M. A, you know, headphones or whatever they are to. To look at this. And so, you know, we've been writing about this deal originally, you know, for years now since. Since Zaz, you know, decided to buy Warner Brothers Discovery and figured that this day was inevitable. And now that it's here, yeah, it's great fun, and you're back in your wheelhouse. Back in my wheelhouse. If only I were getting, you know, paid like a Wall street research analyst who was the ax in his stock, her stock. That. That would be great. But that's okay. Money is not that important.
- [01:13]
A
All right, well, listen, you're getting. You're getting. You're certainly getting attention, and you're making noise, so that's worth something, right?
- [01:22]
B
Absolutely.
- [01:23]
C
Well, the Puck is my go to for this stuff, and not just the stuff like we've been. Josh and I had had a bellamy on our podcast in Los Angeles a year or two ago. Actually, we're talking about Paris, Paramount, before the Ellisons came and swooped it in. So you guys. You guys do incredible work.
- [01:37]
A
Bellany was a never. Bellany was a never Netflix guy early on. They would never do this.
- [01:44]
C
I never thought they would do this.
- [01:46]
B
I think most people never thought they would do it. They haven't done a deal bigger than $700 million in their history, so now they're doing a deal for 90 billion.
- [01:54]
C
Okay, what was that deal that they. That they even did?
- [01:59]
B
I. I believe it was content. Somebody, a producer of content that they wanted. I can't remember exactly what it was. I. I did write about it, but I can't remember at the moment.
- [02:12]
A
It wasn't this for sure. All right.
- [02:14]
B
Definitely wasn't this.
- [02:15]
A
All right, guys, I got my sounds. All right.
- [02:23]
C
He has covered.
- [02:24]
B
Take it.
- [02:24]
A
All right. Nope. All right. Did I just press something? You didn't hear anything.
- [02:32]
C
And if you're listening to this, by the time you see Bill out in the wild, he will be Covid free. So don't worry. He's, he's getting over it.
- [02:42]
A
All right, we're ready to go. Give me, give me a countdown so it feels normal. There we go. All right.
- [02:48]
C
Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. Today's show is sponsored by Public, the investing platform for those who take it seriously. On Public, you can build a multi asset portfolio of stocks, bonds, options and crypto and now generated assets which allow you to turn any idea into an investable index with AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500. Then you can invest in a few clicks. Generated assets are like ETFs with infinite possibilities, completely customizable and based on your thesis, not someone else's. Go to public.com compound and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com compound paid for by Public Investing. Full Disclosure in Podcast Description.
- [04:05]
A
Welcome to the Compound and Friends. All opinions expressed by Josh Brown, Michael.
- [04:09]
C
Batnik and their castmates are solely their.
- [04:11]
A
Own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to the final Compound and Friends of the Year. It's the last one. Yes. This is the last one we're doing. It is. We got a great show today. I'm super excited about today's show. We have here legendary former investment banker, current journalist Bill Cohen. Bill is the founding partner of Puck, a best selling author, most recently of the book Power Failure. Bill is also a contributor to the New York Times, Airmail, Financial Times, Town and Country, so many other publications. And if you're a reader of Puck, you probably are reading something that Bill has found out every single day of the week. At this point it feels like Bill, thank you so much for joining us.
- [05:14]
B
We appreciate it. Thank you Josh.
- [05:16]
A
Thank you, Hunter.
- [05:17]
B
Thank you for having me.
- [05:18]
A
It's great to be back here, of course. And you're remote and just to let the viewers and listeners know that is because you don't like us that much. You like us enough to pop on Streamyard. You don't love us, but Also, there might be a Covid situation. So.
- [05:34]
B
Yeah, I really would have thought we were done with COVID but my. My wife got it the other day, of course. Surprise, surprise, she gave it to me. And we both had vaccines in September, but mine's a mild case. I'm on tax. Love it. This is too much information. I know. Yeah. And I don't even real. I didn't want to really feel it, but I. I did not want to share it with you guys.
- [05:55]
A
Covid is like the. The Avatar movies will never actually be done with them. Michael Myers will never be finished. All right, Netflix versus Paramount to acquire Warner Brothers. If and when this thing happens, it will be one of the largest, not just media mergers of all time. It's up there on the list. It's a very big dollar amount, and there's a lot at stake here for the future of not just the companies themselves, but for the consumers, for pro sports, for Hollywood, for box office versus streaming, for. For pretty much every aspect of entertainment is in play here. Do you. Do you view it that way? It's as big a story as I'm building it up to be.
- [06:38]
B
Well, I mean, look, it's a big M and A deal. So from my perspective, from a Wall street perspective, it's a. It's a big deal. You know, my partners like Matt Bellamy or Julia Alexander or Dylan Byers probably are better at assessing sort of the Hollywood impact of this or the impact it's going to have on consumers. You know, I don't know whether, you know, they might say, oh, you know, Netflix costs you, you know, $15 a month, and HBO cost you $20 a month. So we'll give you both for 30, you know, for $30 a month instead of 35. I mean, they might do that, or they might say, oh, we'll give them both to you for $40 a month. I don't know what they're going to do, but, you know, I'll let them think about that. I am just, like, laser focused on this deal and the aspects of the deal and, you know, who. Who might win and where we are now and where it's going. And, you know, to me, it's riveting. I'm just. I'm loving it.
- [07:35]
C
Me, too. There are the personalities that. That are at the center of this. Of course, Zaz being a big part of this and the fortune that he's going to make, whichever deal happens, he's going to do very well for himself. Could. Could Warner the studio streamer and the linear network Survive like was this, was the debt too much for them that they had to get a lifeline that they are now going to get from either Netflix or Paramount?
- [08:02]
B
Look, I mean, we can talk about whether or not Zaz should have done the deal in the first place and the terms under which he had to do the deal which was the. Had to take on $55 billion of debt, most of which came from AT T. That's A, oh man, that is a lot of debt. And, but you know, Zaz's incentive, one of the reasons he's gotten paid so much and will continue to get paid a ton if this gets completed, which clearly looks like somebody's gonna buy it. So, you know, know, he, he was, his incentives, he was, his reward was to pay down this debt. So I always viewed this as sort of a publicly traded LBO that as soon as this debt got paid down sufficiently and, and you know, he's gotten it down to net debt of $30 billion from 55. I mean, that's pretty nothing significant. That's not nothing. I always figured that the equity would pop just like, you know, even after being stagnant forever. Forever. And all the other research analysts saying forget it, it's, it's dead money and it's never going to work. And every, I know everybody has sort of running away from this thing. I figured that as soon as that debt got paid down, maybe as soon as that, you know, if they got a, a credit upgrade, this thing would zoom. I think they did pay down a lot of the debt. But then this, this process took over and literally since then, the stock has gone from like, you know, the summer from seven and a quarter to 30 bucks a share. So it's definitely been one of the better performing stocks of the year, mostly probably because of this takeover process. But you know, Zaz did get this in a position to where it's quite desirable and that's why there are two serious suitors want to acquire it.
- [09:53]
A
When this was a single digit stock and it was still high 40s billion dollars in debt. I remember the narrative. So let's say this is like late 2023. The narrative was that there was some regulatory reason why they couldn't do a deal and then that was going to come off roughly around the same time that potentially we would have a change in the White House. Lina Khan would be gone at the FTC and there would be a higher likelihood that a deal could actually happen. So that sort of took the stock from the single digits to, let's say the Low teens. And then a lot of dominoes fell the right way. And then all of a sudden Trump comes in and he's not a huge fan, obviously, of all of the things that are happening on these news networks. So it's not a slam dunk that he's going to approve a deal unless the suitor is somebody that is Trump friendly or, or MAGA World adjacent or something. And then Ellison compliments David Ellison consummates his deal. They now control Paramount, the most likely merger candidate. And it just all seems like it's going to go according to this script. And everybody understands that the Ellisons are friendly with the Trumps and they're willing to play ball. Look at what they had to do to get the CBS Viacom thing done. But then all of a sudden there was like a monkey wrench and it looks like it turns out there's another suitor. Was that like a bolt from the blue when, when you saw that happen, did you have any heads up whatsoever that that could happen? What was your reaction to the Netflix proposition or the news that they were even talking?
- [11:34]
B
Well, I mean, I'd been hearing from my sources that, that it was more than just Paramount. Yeah. That was interested in this. I don't think many people believe that. I'm not sure Paramount believed it, but I was hearing absolutely that the Comcast was interested. I mean, I've been talking about Comcat, NBCU merging with wbd, you know, for a year and a half now.
- [11:58]
A
Yeah.
- [11:58]
B
Picking up on what Tom Rogers was, you know, first started talking about, I'd heard. So my sources were telling me Comcast, Netflix, maybe even Amazon, to a lesser extent, potentially Apple. So, I mean, I was certainly expecting there to be more than just Paramount. I am, you know, and, and I figured, look, you got to remember, Josh, this started back in June. Essentially, Zaz put this into play into after, after, after April. You referenced this technical issue after. The technical issue was that you had to wait two years after reverse Morse Trust deal for there to be no tax implications of a subsequent sale.
- [12:47]
A
So that was April. Okay.
- [12:49]
B
Right. So that was April, you know, of this year. And so that, you know, and then in June, they decided they were going to split the company up into two pieces and that essentially put, put the company into play. Zaz recut his options at that point to, you know, give him some incentive to get a deal done. And then the Paramount deal closed in August. Literally two weeks later, they reach out to Zaz and say, you know, we're interested in acquiring wbd. So you Know, I began them beginning hearing, well, you know, it's more than just Paramount here. I know they don't necessarily want to believe it, but it's true. And then it came out to be that in fact there was Netflix in a serious way. Comcast less so because they've got, you know, more problems than they usually have when there's a big deal, you know, floating around to be done. So they made a bid, but it was, they dropped out relatively quickly. So now we're basically at this two horse race with Netflix definitely leading, but it's not over yet.
- [13:53]
C
Is the shareholder vote okay?
- [13:56]
B
They haven't said a shareholder vote yet and it's going to be after WDB produces the proxy statement for the Netflix deal, which is, you know, signed merger agreement. And that's not going to be, according to the chairman of WBD speaking on CNBC yesterday, that's not going to be until, quote, late spring, early summer. Yeah, so this is. What, what do you mean? That doesn't mean, look, it could, that whole timeline could get completely disrupted if, if Paramount raises its $30 a share bid.
- [14:33]
C
So other than, other than the index funds, Vanguard BlackRock, so the world, which are the end investors, who are the big parties at play that are going to be influential in determining what the shareholders ultimately end up doing at Warner Brothers?
- [14:45]
B
Well, clear, clearly the Warner, I mean, there are a lot of arbitrageurs now in the, in the WBD stock and it's not even clear whether those index funds are still in it anymore. You know, we haven't seen a recent filing about who owns the stock. So. But clearly it's moved into the hands of the arbs. And the arbs are short term. You know, we haven't had a good M and A arbitrage opportunity in years like this.
- [15:10]
A
And with a hostile suitor, it almost never happens anymore.
- [15:13]
B
It's got it all. I look back and it seemed like it was not since 2000 when American home Products and Warner Lambert had a deal that was broken up by Pfizer. So I mean, you know, that's 25 years ago. So this is, this is a, this is a great one. This one has it all and I'm loving it and the arbs are loving it because, you know, the stock is basically only going to go one direction from here.
- [15:37]
C
Who makes the movie Bill about. This is a peacock.
- [15:41]
A
It's got to be a third party.
- [15:42]
B
Yeah, got to be. Or maybe they have like a roller coaster ride at, at the, at the wb, at the Comcast, whatever. It Is their universal theme park that they have Universal theme park, right.
- [15:56]
A
Bill, what did the Netflix executives who visited the White House have to say to Trump World in order to. I'm not saying they got like a wink or a green light, but like, clearly they were very comfortable negotiating.
- [16:10]
B
They remain, Josh. Very, very comfortable. And they repeated it again yesterday. They remain very, very comfortable with their, you know, regulatory odds here, how they feel the regulatory process is going to go. Paramount feels like they're very comfortable with their regulatory odds. I mean, why the heck is the President, United States putting his thumb on the scale of either one of these deals? It should be relegated to their agencies or the Justice Department. It should not be in the vicinity of the Oval Office. But, you know, we're dealing with a unique individual here.
- [16:42]
A
The Apprentice M and A. It's literally. That's totally. Yeah.
- [16:47]
B
Where's the side?
- [16:48]
C
I'm sorry, go ahead.
- [16:49]
B
You know, someone's fired, right?
- [16:51]
C
Where does the $5 billion breakup fee that Netflix will owe. Where does that number come from? I'm sure, I'm sure there's some sort of formula like how does that number come about?
- [17:00]
B
So first of all, two different things here. There's a regulatory breakup. In other words, if the Netflix deal falls apart because of it can't get regulatory approval after any number of lawsuits and law and judges rulings, etc, then they owe. Netflix owes Warner Brothers $5.8 billion.
- [17:19]
A
Wow.
- [17:20]
B
Okay. If the same thing happened with Paramount, then Paramount owes Warner Brothers. If they were to go with Paramount $5 billion. In the meantime, there's a 2.8 billion dollar breakup fee that Warner Brothers will owe Netflix. If they change their recommendation, the board changes its recommendation and goes with Paramount.
- [17:46]
C
And Ellison. Ellison would pay for that, right? Like, or whoever the buyer is.
- [17:49]
B
That's. Michael. That's a very interesting point. One of the things that is really pissing off WBD about the Paramount bid is they have not agreed or said they were willing to make that breakup payment, fee payment to. I mean, WBD has to pay that within days of switching. Days of switching the recommendation, not when the deal closes. So days. And then the question is, would Paramount reimburse WBD for that in one way or another through, you know, a higher stock, a higher bid price or whatever. And they have not agreed to do that yet. So that's one of the things that's peeving the WBD board, I think I.
- [18:30]
A
Saw, I forget it was the president or somebody came out from Warner Brothers and kind of like doubled down on like, we're Doing the Netflix deal. The board is. This is what the board is urging shareholders to approve.
- [18:46]
B
That was the chairman of the board.
- [18:48]
A
That was the chairman of the board. Okay.
- [18:49]
B
Yeah.
- [18:50]
A
I'm curious if the timing. This is like, not. It's not a conspiracy theory, and they're definitely. There isn't definitely a connection, but there might be. Oracle, which is the money behind the Ellisons, not maybe not on paper, but just conceptually, in everyone's mind, is one of the richest men on Earth. And, okay, Oracle's share price is an almost a 40% or 40% or worse drawdown from a tie. And that's coincided with these conversations between Paramount and Netflix and Warner. And I'm wondering if that entered the back of anyone's mind, like, maybe there's not as much money there as we thought there was. Or maybe that's not necessarily the safest bet given the fact that the old man now has some turmoil back home with. With his own share price. Or is that just like two things that are not really related but look like they might be? What do you. What do you think?
- [19:47]
B
I think it's. I think it's the latter. I think it's a coincidence. Not a great one, obviously, but it is a coincidence. No, nobody has mentioned it. I haven't heard anybody mention that. I mean, I think that's related to, you know, their AI spending.
- [20:02]
A
It has nothing to do with. Right. It has nothing to do with this.
- [20:04]
B
Right. So, I mean, I think if you look at it, you know, if you look at the Bloomberg Billionaires Index, he's still at like 350 billion, 250 billion of which is his. Oracle is 1.16 billion share shares of Oracle stock.
- [20:21]
A
Right.
- [20:21]
B
I think the. The. So, yes, that has come down, but don't forget, it went way up.
- [20:25]
A
Yes.
- [20:26]
B
So I don't think it's come down as far as it went way up. So I think he's still better off this year. I think his net worth is up like 75 billion plus this year. So, you know, he's doing just fine. Which is, of course, more than, you know, the 40.7 or 41 billion that they've pledged in equity for this deal. I think the bigger problem, as I've been writing about, is that for whatever reason, which I can't quite figure out, you know, the Paramount guys keep saying, you know, Larry Ellison is going to underwrite Larry Ellison's revocable trust is going to backstop this entire $41 billion of equity, so don't worry about it. Guys, it's going to be fine. The equity is there and the WBD board just doesn't seem to believe that in part of like this weird technicality. And this is weird, I got to admit. So the, the Paramount crowd says that the Larry J. Ellison revocable Trust owns the 1.16 billion shares. If you go to the Oracle proxy statement and you look, there is no Larry J. Ellison revocable trust. And then if you look at their 13G filings, there is no Larry J. Ellison revocable trust. So I mean, maybe it's a technicality, but I got a, you know, the WB crowd is saying, hey, what's going on here? Is there an error with the SEC filing? Is that a problem or is you guys got a labeling problem?
- [21:51]
A
So they are looking at Oracle's stock then, like they are paying attention?
- [21:55]
B
Well, they're looking at the proxy.
- [21:56]
C
Well, who owns the stock?
- [21:59]
A
Okay.
- [21:59]
C
No, it's legit. The trust is being managed by Jeffrey Epstein is totally about.
- [22:02]
A
I hope they're not looking at the cds, I guess would be my.
- [22:06]
B
Well, the credit default swaps on Oracle's debt have shot up and that debt is sort of like beginning to look like junk debt, which is, you know, trading like junk debt, which is of course absurd. You know, it probably.
- [22:22]
A
So maybe it is a factor shot up.
- [22:24]
B
Well, I mean, I have. It could be. I mean, it certainly has occurred to me. I haven't heard anybody say anything about that because again, he's still the second richest man in the world and we're only talking about a mere 41 billion out of his $350 billion fortune.
- [22:39]
C
So Bill, do you think that. Do you think that like Oracle, the Ellison Oracle. Excuse me, the Ellison family are playing games. Like, if they wanted it so badly, why don't they just make it? And they're making it clear. But like why play games? Or do you think that they're being straight up and Warner has already decided that Netflix is the buyer.
- [22:57]
B
So, you know, now you're into the land of conspiracy theories, which I hear a lot of. So, I mean, the Ellison crowd, the Paramount crowd, feels like they are being completely transparent about their desire to own it. Their 30. You know how they believe their $30 a share all cash deal has is superior that they've given Warner Brothers everything they want. Now there's ambiguity with their $30 a share bid and how it compares to the Netflix bid because of the value of the global network stub, the CNN at All stub, which you could argue is worth more than Paramount thinks it's worth. And therefore WBD board was right in going with Netflix at this particular moment. Okay. But nevertheless put that to the side for a minute. They, they believe that they have been very transparent about the Ellison's backstopping this equity giving them everything they want. And they don't understand why the Warner Brothers board isn't getting that message or feels like. But maybe it's like this thing, like this technicality with the Oracle proxy. I don't know. But I think there's a sense among the Paramount crowd that maybe the, the deal the fix was in and that, and, and that that Zaz wanted to do the deal with Ted Sarandos at Netflix and it's always been like that. And he can run the, the streaming and studios business for Sarandos and have a real job in Hollywood. And he wasn't going to get a real job working for the Paramount guys even though they did offer him co CEO.
- [24:34]
C
Well, now that ship sailed. Zaz knows that he's not getting it anymore. Like David Olson will definitely fire him. I definitely, I'm making that up. Who knows. But what about the aspect of the.
- [24:42]
A
Fact he also doesn't need a. He's the highest, Is he the highest paid person in Hollywood?
- [24:46]
C
No, but without the job. No, you don't have the juice without the job. Like he wants, he wants the limelight, bill.
- [24:52]
B
He's only 65. You know, he wants to be a player. He's going to make $550 million when this deal goes through.
- [24:59]
A
Yeah.
- [25:00]
C
Bill, what about the three Middle Eastern investments that would be coming in with the Ellisons? To own part of a news network like that is, that is definitely a part of the story.
- [25:10]
B
Yes. But as the first of all, they're, they're, they're supplying 24 billion of the 41. So that's like 60ish percent a lot. Yeah. So that's. And they'll, and I think the three of them together will be the largest shareholder in the, in the combined company. So that's, it was concerned that that would require CFIUS approval or maybe FCC approval because they would own CBS in effect or be the largest shareholder in a CBS CNN combination.
- [25:40]
C
No board suits, but whatever.
- [25:42]
B
Well, but to fix that, to fix that they took, they took away their voting rights and their board seats. So now they've given it all to, you know, the Ellisons and Redbird. So I mean they believe that there won't be a CFIUS or FCC problem as a result of that. But you know, can I.
- [26:01]
A
Can I stop you? Can I just ask, maybe this is a stupid question. Absent board seats and any sort of influence, what is even the point if you're, if you're middle, Middle Eastern billionaires, they're investing not just for the return. I think we all would agree they're investing for influence. That you wouldn't buy a golf tournament, for example, if the goal was roi. So what is, or is it a Trojan horse where they'll get the influence later? The most important thing is get the equity today.
- [26:35]
B
Yeah, I think that they will use some sort of soft ish influence. Yeah, they will obviously have direct access to the Ellison's and Redbird has the relationships to begin with. Jerry Cardinal has those relationships. That's how the money came in in the first place. So they're going to have access to the equity owners, whether they'll be sitting around, you know, the, the boardroom. I guess they won't be. You know, we all know how this sort of soft influence works.
- [27:05]
A
Well, they'll decide on who's the, who's the board member, but it doesn't even matter.
- [27:09]
C
Well, there's that and then there's money. Money is power, whether you're on the board or not, like they say. All right, well we have another $10 billion for that other deal that we're not going to do. How do you like that?
- [27:16]
A
Right?
- [27:17]
B
Yeah, they'll have the influence they want now, whether, you know, it will rise to the level of needing CFIUS or FCC approval. Obviously Paramount is hoping that it won't.
- [27:27]
A
Are you surprised that the White House, at least from the outside looking in, I don't know anything that's going on internally. Are you surprised that the Ellison deal didn't just automatically win because quote unquote, that was the most likely deal to get approved? Does that, does that surprise you or not really?
- [27:48]
B
No, no, no, no. I think the WBD board is number one, well advised, is made up of, you know, a lot of deal guys and you know, if you look at the, the final bid deadline was December 1st. If you look at that final bid deadline, it really, it wasn't even close. Netflix had the better deal on the economics, then told that they were going to lose. That's when Paramount threw in on December 4, their $30 a share all cash bid. Now, even at $30 of share all cash bid, the WBD board deliberated and did their valuations, I mean with their bankers obviously. And they decided that the 2775 Netflix bid plus the value of the global network stub was worth more than $30 a share. And I think, you know, in their business judgment, they could arguably very definitely reach that conclusion. And no one's going to really scratch their head about it because, you know, the global networks business, you know, of course Paramount wants that to be valued as low as possible. So it looks like their $30 bid is the winner. Yeah, but. So they value it at $1 a share. Whereas, you know, Jessica Reef Ehrlich, who, you know, Merrill, who's very reputable, you know, she valued it at $5 and then now at $3. So at $3 a share, that plus the Netflix 2775 for studio and streaming is worth more than 30. So. Bingo. I mean, it's not really an economics alone. I mean, there's no point in wondering about the. The regulatory process, especially when they both say, you know, they're equally confident that they're going to get it approved. You go with the one that's got the better economics. And at the moment, you have to. That is the Netflix deal.
- [29:46]
A
Yeah. You have a fiduciary responsibility to do that, Right?
- [29:49]
B
That's right. And I think that, you know, Paramount's been much better at making more noise about their bid. Netflix is quietly saying, hey, yeah, but ours is pretty good. The other thing is that the Netflix bid was exploding. In other words, they, you know, said to the WBD board, you know, whatever it was, by midnight on.
- [30:08]
A
Yeah, buy or die.
- [30:10]
B
Yeah, yeah, exactly. And I think they said, okay, this bid is higher, is they've given us, you know, more of what we wanted in terms of the contract. They're as confident about their regulatory approval as Paramount is, and it's exploding even if people don't believe it was going to explode. You know, debate whether exploding bids ever explode, but whatever, they didn't want to lose it. And so I think they did what was absolutely the only thing they could do at that moment.
- [30:39]
C
Bill, I want to zoom out for a second and rewind back to pre Covid days when Netflix was already a behemoth. The streaming war was definitely raging. It was not over at all. And we have a chart showing Netflix's YouCan revenue, so the US and Canada, and it was creeping higher as a percentage of domestic box Office. So in 2017, it was 0.6x and then it was point seven the next year and point nine the next year. And then Covid happened and it just absolutely buried the theater industry. Of course, the movie theater was basically closed the entire year. It shot up to 5.4x and then it has since come down, but it has normalized at around 2x. So Netflix is doing just in the US and Canada 2x the amount of box office revenue. So Netflix already 1. So that's why I and so many others were shocked because we understand why Paramount really needs these assets if Paramount doesn't have it. And we'll talk about that where they land after this deal goes through, ostensibly to Netflix. And again, still up in the air. But I was surprised. Why do you think? And everyone's saying, well, it's, it's, it's YouTube. Like, okay, why did Netflix do this? I'm still scratching my head. They didn't have to do this. And the shareholders don't like it. Why are they doing this?
- [32:03]
B
Yeah, their shareholders clearly don't like it. They have an investment grade balance sheet and after taking on $59 billion of debt, new debt, to do this deal, then their balance sheet is going to be sort of on the edge between junk credit and investment grade credit. So, you know, they're definitely kind of upending their company. And the formula that, you know, that has made them so successful made them a half trillion dollar company. But, you know, if you look at it, they've been upending their formulas for a long time. I wrote a piece in vanity fair in 2012 before you were alive, Michael.
- [32:44]
C
Oh, stop it. I know they split the business.
- [32:45]
B
I remember they split the business. Remember, it was the red envelope business. And then Reed Hastings was talking about the streaming business and he's going to split the company up. That freaked out shareholders. He had to retreat from that. It was a big disaster. Of course, he was absolutely right. Right. Because streaming is obviously very powerful for us.
- [33:05]
A
It was a good bank, bad bank.
- [33:07]
B
It was, but he had to retreat from that. And I did a whole story about how, you know, Reed was in the doghouse and he's, you know, stepping on his, you know, committing hair care, etc. So, you know, and then, you know, they said they weren't going to do sports and now they're into sports. They said they weren't going to have advertising, now they're into advertising. So essentially a lot of things that they said they would never do, you know, they are doing. They said they would never buy.
- [33:34]
A
Never until. Never until it makes sense. Right. Always right.
- [33:38]
B
And, you know, if you can get access to the Warner Brothers library, Max content, you know, and you've got Netflix, you've got this streaming business that, you know, if you put them together, has like 450 million subscribers. I mean, Hello. You know, game over. Which is why Elizabeth Warren and others are like on the warpath, you know, against it, against this deal. And of course, the fact that Elizabeth Warren is against it will probably mean it gets approved just because Trump wants to stick a stick in the eye of Elizabeth Warren. But, you know, so, I mean, but I do think that this is an important point. I do think there is a limit to how far Netflix is, is going to go. I think they're smart guys. I think they are, are near or at their limit. I don't think they want to get into a bidding war with, with the second richest man in the world. So I think there's also a scenario soon, in other words, if, if Paramount raises its bid to say, $34 in cash, as I suggested they should the other day, and that would make, you know, that would be sort of game over. I don't think Netflix would match that because that would mean they'd have to incur even more debt and that would push them into junk territory that would piss off their shareholders even more when what they could do at that point is take their $2.8 billion breakup fee, get some sort of long term supply contract with Paramount Warner Brothers Discovery and be as happy as ever.
- [35:12]
A
But then they also drive their competitor to spend even more.
- [35:15]
C
Exactly. So maybe they thought it's a win.
- [35:18]
B
What Comcast did with Disney in the, in the Fox Hollywood asset.
- [35:24]
C
So maybe it's. They won. We lost. Next.
- [35:26]
B
Right. As Barry Dealer said back on that deal that I worked on, that Paramount Viacom deal back in, in the late 80s, early 90s where, you know, QVC lost and Barry's diller said exactly that day one. We lost next.
- [35:42]
A
Yeah.
- [35:43]
B
And, and I think Netflix is in a position to soon declare victory here. They will have gotten Paramount to pay up. They will have gotten a breakup fee. And if they can get this long term supply agreement with this Paramount, Warner Brothers Discovery, then, you know, they, it's a win, win, win. And their share price goes up because they're not pissing off their shareholders anymore and they go, you know, continue on the Netflix rampage.
- [36:07]
A
Let's, let's imagine, let's imagine you're on Kalshee and you have to make a bet. We'll show you, we'll show you the betting odds.
- [36:16]
B
But yeah, no, that's stale. I saw that.
- [36:19]
A
Oh, okay.
- [36:20]
B
And I just think that's totally wrong, by the way.
- [36:23]
A
What did you, wait, what did you see that you think is totally wrong?
- [36:26]
C
Hold on, Bill. What we have in the doc that's stale. I wanted to show you. Oh, yeah, that's stale. That's not live, but that just shows that Netflix wasn't even in the picture. So I don't know what it is right now. I don't know if Paramount's in the lead or not, but it's pretty close.
- [36:39]
B
Okay. Because that's that, that, that's. That to me, said that Netflix is going to win by 100%, but I don't. That's clearly not.
- [36:47]
A
Where would you put the, the odds or I don't know, what percentage would you ascribe to Paramount being the buyer versus Netflix? What do you think?
- [36:57]
B
What I've been saying, Josh, is 55, 45. I think Paramount. The odds are 55% that Paramount raises their bid and wins.
- [37:06]
C
So I agree with you. I think that you're right. To the extent that we're speculating, I think it's unlikely that Netflix is going to come over the top. They, they're, those are smart guys. They see their share price. They understand the economics of this. But on Kalshi, as of today, Netflix is at 72%. Paramount is only at 25%. And, and it says none before July 2027 at 7%, but Paramount's only 25. So, Bill, if you're a betting man, I'm just kidding. But not bad value there.
- [37:33]
B
Yeah, there's a bet to be made, but it's not going to be by me. Yeah, I think it's harder than that.
- [37:42]
C
So I wish, I wish Matt were here to talk about this, but the, the ramifications for Hollywood. So they're both talking about synergies. Okay. And we know what synergies mean. In the case of Netflix, a lot of the synergies are going to come from layoffs because there is duplicative systems now. They don't have the studio like Paramount does. But a lot of the synergies are going to come from fees that they're. Licensing fees, not.
- [38:08]
A
Not paying for content they now own.
- [38:10]
C
Exactly. Which could be substantial. But I view this like I would prefer this deal doesn't happen. Who cares what I think? I think that this is just. Whatever the outcome, I don't think it's great.
- [38:20]
B
Tim Wu agrees with you.
- [38:21]
C
But. So I'm a movie. I am a movie theater goer. I went to see the Shining at Friday Night in imax. I love going to the movie theater. So Netflix buying the Warner Brothers is not good for people like me that love going to the movie theater. Paramount buying the studio is really Bad for labor in Hollywood because Paramount studios exist and a lot of the duplicitous roles will be eliminated.
- [38:42]
B
So I think they're. Which is more numbers much higher than Netflix.
- [38:46]
A
Yes, it's 6 billion more. More people they can get rid of. Right?
- [38:50]
B
Yeah. And they already have another 2 billion that they're supposed to cut from the, from the first merger. So yeah, it's, it's a new, it's going to be a new. Another new day in Hollywood. And it's already been a rough patch for Hollywood and it's.
- [39:08]
A
One less buyer for content is a really big deal. So if you're putting together a show or a movie, now you have one less person at the table because.
- [39:18]
B
And it's already been tough enough.
- [39:19]
A
And it's already been tough enough. I think one of the problems though is everyone anchors to the all time high for everything, whether it's real estate or banking or whatever. And I just like, I feel like tough relative to what. Because it ain't never going back to 2020. 2021. If you were selling content to the streamers and if you're worried about physical box office in person at a movie theater, it ain't never going back to 2015. So like. But we're all anchored to as good.
- [39:50]
B
As it ever was because yeah, it's not going back because you know what, streaming is a very good product.
- [39:57]
A
I have an 85 inch TV.
- [39:59]
B
Yeah, exactly. You stay on your couch, you turn it on when you want, you go to the bathroom, you go get something to drink. I mean, plus you've already paid for it every month. It's not like an additional look at this chart.
- [40:11]
A
We have a movie, we have a number. What is this total.
- [40:14]
C
So total number of tickets sold by year. So this peaked in 2002 and it was shrinking, I don't know, a couple of percent a year. It was in secular decline. And then of course the bottom fell out in 2020. But even with the rebound and we had a relatively strong year in 2023, it was lower in 24 than it was in 23. It's lower. It's gonna be lower in 25 than it was in 24. And it's about, I don't know, is it two thirds of what it was now? Half maybe. Like the, the Hollywood, Hollywood is upside down.
- [40:41]
B
When I first got to Wall street In the late 1980s, I did a number of movie theater deals. I bought all the movie theaters that Norman lear bought at Act 3 Communications. I did those deals not alone, obviously, but you know, that's when movie theaters were booming. The EBITDA margins were like 65%.
- [41:01]
A
Yeah.
- [41:02]
B
I mean, they're making like 85 EBITDA margins from the popcorn. I mean, 50 EBITDA margins from the ticket sales. It was a great business.
- [41:12]
A
Yeah.
- [41:13]
B
And now not such a great business.
- [41:16]
A
What happens to Paramount if the Netflix deal is, is consummated? Is there another app? I know there's not one other asset that would be a consolation prize, but is there a, like, action of deals?
- [41:29]
C
A 24 Lionsgate? Like, is there a bunch of smaller ones?
- [41:32]
B
Sure. They can, they can do, they can do those things. And Rich Greenfield, that lightshed, you know, smart guy, is starting to say that they should, you know, they should buy nbcu. NBC Universal.
- [41:46]
A
Yeah.
- [41:46]
B
Or do some sort of joint venture with, with, you know, Brian Robertson Comcast, which they were willing to do with, with wbd. So it's clearly that, you know, after spinning off Versant, Brian Roberts is in a mode of thinking he's got to do something. Maybe if Paramount loses, you know, he does that with Paramount. Right. Yeah, there are things that they can do. I mean, you know, the thing that people are forgetting here is that I think the market cap of paramount is like $15 billion. They're trying to buy something, you know, they're trying to buy something for $108 billion and they have a market cap of 15.
- [42:24]
C
Yeah, the fish is trying to eat the whale.
- [42:25]
A
It's not easy to get, you know.
- [42:27]
B
Well, when you've got the second richest guy in the world and you've got the sovereign wealth funds of three countries in the Middle east, you know, you can, you can begin to think like that.
- [42:36]
A
Who does, who does Disney want to see get this deal?
- [42:42]
B
I mean, I think Disney is sort of like in its own insular world. It's going to be a survivor in this no matter what. You know, Disney's, you know, got got to deal with its succession situation, which is, you know, happening supposedly at the beginning, you know, next month where they're going to announce a new CEO and then, you know, hopefully Iger will leave at the end of next year, this time for good. You know, so they must be rooting.
- [43:10]
A
One way or the other. And just to, just to flesh this out, the DC Cinematic Universe is going to go to either Paramount or Netflix, which would Disney least rather see producing the next Batman Superman films. It's head to head with Marvel.
- [43:27]
B
I mean, right. I think they, they cannot like the fact that, that Netflix could have 450 million subscribers yeah, right. I mean, so. And then putting this content through 450 million subscribers is, you know, what Disney have. 200 million.
- [43:46]
A
Yeah.
- [43:46]
B
Or less.
- [43:47]
A
Yeah.
- [43:47]
B
I mean, so, you know, that's. I don't think anybody, you know, none of the competitors are sort of hoping that Netflix wins because they're going to be, you know, so dominant on the streaming side of things.
- [44:02]
C
Bill, if some of the Redstone were still alive and running Paramount, what would he be doing and what would he think about what David is doing?
- [44:08]
B
First of all, he'd be ballistic that his daughter, you know, took it away from him and, you know, merged Viacom and Par and Paramount and, you know, merged Viacom and CBS and created Paramount Global. And he never wanted. He broke them apart. He didn't want them to be together and would probably hate. I mean, it was like a take under. Right. That. That occurred. And I think he'd be. He'd be. He'd be hating every minute of this for sure. You know, he might be happy for his friend David Zaslav. I don't know where they can go to Dantana together and have, you know, lobster tails or something.
- [44:49]
A
The chicken parm there is pretty good.
- [44:51]
B
Yeah.
- [44:52]
A
All right, so before we. Before we put a pin in this, there's like one or two other things we wanted to do with you.
- [44:58]
B
Sure.
- [44:58]
A
But, like, I guess my. My final question would be if you are of the mind that Netflix loses the stock is probably a screaming buy because there's probably a lot of arbitrage pressure on it or maybe just negative sentiment surrounding the debt dynamics that you were describing. So a takeaway. I've recently sold Netflix. I bought Michael recently bought. I guess if that deal were to fall through, because Paramount does do what you suggest and go to $34 a share and Netflix says, you know what? Not worth it. Pay the breakup fee. Figure out a licensing deal where we can walk away with the trophy. If that happens, Netflix could add 50 points a share. You look at. You look at the. The drawdown it's in. So for me, that's like the really, the big takeaway here. It might be the right risk to take.
- [45:50]
B
And. And I do it. If you believe that I do it. Not that this is investment advice, but I would do it sooner rather than later.
- [45:56]
A
Yeah.
- [45:57]
B
Or it's clear to everybody that the odds are in Paramount's favor. You know, I go back to, you know, Bill Ackman buying a big stake in Netflix and then selling it after that one quarter where they lost subscribers, and then the stock exploded.
- [46:13]
C
Nobody's perfect.
- [46:14]
A
Not his best trade.
- [46:16]
B
Not his best trade.
- [46:17]
C
Hold on, hold on. Before we move on here, I, I have one last question about this deal. So this might be a dumb question too. What ultimately happens? Let's just say, let's just assume that Netflix gets the deal. What does happen to the linear networks? Like so the shares, so the shareholders own a different share class. But like what happens?
- [46:31]
A
They'll do what they did with Verant from Comcast. Right. It'll be a, like a, it's spun.
- [46:36]
B
Off like they did with Versant. Now if you listen to the Versant presentations which I did the other day, I mean they're, they've got all these, I mean it's well beyond CNBC and MSNBC or Ms. Now. I mean they've got all sorts of ideas of how to create value and get into new businesses and, and you know Gunner Weidenfels could do the same thing or, or they could merge or somebody could buy them. I mean there was one group that was interested in buying the global networks that surfaced as part of this. It was mentioned in the filing on yesterday without a name I think maybe it was stars, I don't know. But so there would be an M and a takeout opportunity for this spin off.
- [47:22]
A
Versus is coming public with no debt, Almost no debt and a lot of cash.
- [47:27]
B
Yeah. What a billion of debt? I think.
- [47:29]
A
Yeah, right. But relatively speaking they're not being spun out with a lot of debt. Right.
- [47:34]
B
Whereas, whereas the Warner Brothers global networks is going to have 15 billion of debt. Right. So it's got more cash flow but it's going to definitely be more leveraged than Versant.
- [47:47]
A
So I wanted to ask you about Wall street and the banks because one of the, one of the more fun storylines of this year is that you often hear Republicans come into office and talk about deregulation but nothing much changes. We, we had real deal deregulation and not just deregulation but like just a new feeling in the air that more things would be possible, less scrutiny, less ball busting like it would, you could launch products, you could do crypto, you could. Right. So we sort of had like a little bit of a mini banking renaissance. I think Robinhood was one of the top three performing stocks in the S&P 500 this year. JP Morgan, bank of America, Wells Fargo, Citi, all making record highs almost every month on the calendar just in a succession of higher stair step. It feels like it's a pretty good time for Goldman and Morgan. Capital formation is happening. M and A The IPO calendar has sprung to life. Is that sort of the sense that you have as far as like one of the bigger stories of this year?
- [48:54]
B
No, you know, absolutely. I mean, you know the big, the big Wall street banks have been regulated to a relative safety zone. In other words, they've got enough equity capital, they don't have as much leverage, they can't hold risky loans. I mean they're making money hand over fist. It's a real oligopoly. I mean JP Morgan Chase is going to make 60 billion of net income this year. Goldman Sachs's stock price was in nine, nine hundred dollars a share.
- [49:28]
A
Yeah.
- [49:28]
B
A couple weeks ago.
- [49:29]
A
I mean I think it's tripled off its low. Goldman Sachs, you remember, you know, when.
- [49:34]
B
People were talking about David Solomon being on the way out, I was like saying I don't think so guys. And now the stock is, has tripled, you know, I mean yes, it's, it's been a bonanza for what we consider the old Wall street banks now some of the alternative asset managers, you know, like you know, KKR and Blackstone and Apollo and Aries, in other words whose business is also booming. But people are worried about private credit. So their stocks have been hit a little bit. Yeah, not sure whether that's overblown yet. My new book is about Apollo coming out next year. So I don't know whether we're going to see the beginnings of private credit led financial crisis situation or whether it's just more glory days for private credit as well.
- [50:20]
A
Hard to time the launch of that book, right?
- [50:22]
B
Yeah, well hopefully right at the time the book is out, then we'll have this big private credit disaster.
- [50:27]
C
No, no, we don't want that to know why.
- [50:28]
A
Yeah, that'll go great. We're all rooting for that. Sounds good.
- [50:31]
B
Yeah, of course.
- [50:32]
A
Are you surprised that the Jiu Jitsu or not surprised? Are you interested at all in the Jiu Jitsu that the large banks have pulled off where they themselves do not directly make the types of loans that they had been dissuaded from making by regulation, but instead they will invest in Apollo and Aries and the like who will then by extension make those loans. It's a nice layer of fees in the middle but they're kind of, they're getting their way into private credit and these, this type of lending but they're not getting their own hands dirty. And it sort of works for everyone in the ecosystem.
- [51:13]
C
It's better.
- [51:14]
A
What are your thoughts?
- [51:16]
B
Yeah, I mean I think everybody's sort of getting most of what they want here. I mean, the regulators don't want the big banks to be the big depository institutions to be the genesis of another financial crisis, because then depositors get really hurt, as we saw, you know, basically in Silicon Valley bank.
- [51:37]
C
And nobody actually gets hurt.
- [51:39]
A
Nobody really gets hurt.
- [51:40]
B
Yeah, yeah, nobody really gets hurt. Especially, you know, the big depositors. Yeah, don't of course, get hurt. But I think, you know, basically Dodd Frank has, has, has made the traditional banking system safer than it has been. And you know, you see, like with Apollo's deal with Citigroup, you know, Citigroup is, you know, controlling the client, which they want to do. They're originating the loan and then they're immediately selling it to Apollo. Apollo, you know, as they like to say, we want, I think it's 30 now. We want 30, 30% of, of everything and 100 of nothing. So they, they are, they want to hold 30 of these assets. Of course, Citigroup wants to get rid of them, sell them to Apollo. Apollo holds 30 and, and 70, goes syndicated off to other institutional investors. And everybody's apparently happy with this. Now the question is, you know, like at Apollo, which owns a theme which is a, an annuity, you know, they, they have annuitants, insurance company. Yeah, 5, 5% or whatever it is they owe them a year. I mean, that is an obligation that athen owes those annuitants, those retirees. And if there's any problem with them ever paying what they owe them or anybody thinks that they're not going to pay what they owe them, then you're going to have a run on the bank or a walk on the bank or whatever it is, and we could be in, you know, a paying position again.
- [53:09]
C
But Apollo owns the banks, in this case the insurance company, I think, I'm sure you're writing all about this, and this is a different. We don't have to go too deep into this. But the insurance companies that are owned by the sponsors that are buying all this private credit, sponsor driven, and the rating agencies that are not really rating agencies that are underwriting some of the debt and putting ratings on IT companies, you've got rating agencies way outside the big three, probably outside the big 15 that you've never even heard of again, I'm sure you're getting into all of that, but bringing this back to the banks. So our friend Michael Semblas at JP Morgan has a chart. I like Michael, and this is wonderful. He basically breaks down to Josh's point, okay, what are the economics of us making a loan to a middle market company. What's the return on equity versus let's just make the loan to the bdc, the sponsors of the Apollos of the world, the return on equity, the default rates, everything is way better with this. So it's not to suggest that there is no risk in the system, that there isn't leverage, that there aren't bad deals, that sort of always exists. But I do think Genu, generally speaking this is a cleaner structure for everybody.
- [54:13]
B
It's hard to disagree with you. And it's also more regulatory friendly.
- [54:19]
A
Yeah, so, so everyone, so to your point, everyone's getting, everyone's getting what they want out of it.
- [54:25]
B
Everybody's getting what they want. Right. You know, everybody's getting what they want and they're happy, you know, until potentially, you know, something cracks and, and then everybody, you know, runs for the hills again.
- [54:37]
C
But to your point, equity investors in these companies are, are thinking that there's cracks because you look at Blackstone, which I own, you look at Apollo, kkr, Carlyle, whatever, all of the equities of these companies. I guess this is the part that I like. Okay, fine. If Apollo makes bad deals, who gets hurt? The equity investors in Apollo or the credit, whatever it is like I separate.
- [54:54]
A
That from depository and that discounting mechanism is happening in the market every day.
- [54:58]
C
Every day.
- [54:59]
B
Right. And, and, and, and I don't think Apollo really is making bad loans. They're smart guys showing up. Yeah, they're smart guys. So maybe this is a buying opportunity because maybe that all that's oversold.
- [55:10]
C
I think so.
- [55:11]
A
Last thing, are you watching the Federal Reserve Apprentice season, Season nine? What, what are you, what are you hearing from people or what, what is your gut instinct telling you which Kevin will get the job?
- [55:29]
B
I mean I don't know what they're saying on the prediction websites but they don't know anything. Yeah, if I read the tea leaves, I mean Trump likes, Trump likes a better looking guy. So Wash Kevin, Wash Kevin Wash gets it because he's a better looking, he's.
- [55:49]
A
Right at a central casting.
- [55:50]
B
Trump likes that Morgan Stanley central casting. And he's going to give Trump what he wants, lower interest rates. So he's going to go with all things being equal, he can keep the other Kevin at the national economic or advisors, whatever the hell he is now and he's give the better looking Kevin the job.
- [56:08]
A
I think you told us this last time you were on our podcast. I think it was you. Kevin Marsh is married to Ron Lauder's daughter, Ron Lauder is, which is Revlon is, excuse me, Estee Lauder. Duh. But that's, but he's Trump's best friend. Not Ally, but like actual friend. So Kevin Wash is almost de facto like Trump's old son in law.
- [56:37]
B
And then, and then, and then Hasid seemed to like, you know, be the, the leading horse for a while. But now in the stretch.
- [56:43]
A
Yeah.
- [56:44]
B
Down at the wire, he looks like Kevin Wash. Mike, you know, beat him out by a nose.
- [56:50]
A
Okay. All right, listen, Bill, we really appreciate this is your flu game, so we really appreciate you, you, you coming on and doing the show with us.
- [56:59]
B
That's okay. I can do it.
- [57:00]
A
All right now, you did, you did great. And the audience is thrilled to hear from you. You can hear that, right? They are, they are enraptured. All right, Bill Cohen, we really appreciate you coming on. I want to know where we can tell people to go to follow more of your content. I know it's the dry powder newsletter, Puck news. Okay. You're on Twitter, a new book coming. Okay, what's that? Do we know the name of the book yet?
- [57:30]
B
I do, but I'm not at liberty.
- [57:34]
A
Fair enough. I'm sure we'll have you happy to come back. I'm sure we'll have you come back on when the new book is coming out as well. And, and we'll see that. All right, guys, thank you so much for watching. Thanks for listening. Merry Christmas. We'll talk to you all very soon. Thanks again, Bill.
- [57:53]
B
Sa.