Estée Lauder and Puig End Merger Talks

0:00Scarlet Fu:Is your multi-entity management creating more confusion than clarity? You need the Intuit ERP. Intuit Enterprise Suite. It's the AI-native ERP solution that's powerful, painless, and proven. Learn more at intuit.com slash ERP. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business.

0:41Let's create smarter business. IBM.

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1:34Scarlet Fu: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. All right. Let's go to one of the deals stories that had been, you know, really supporting this idea that deal-making is back with a vengeance. Estee Lauder and Pooj, it's a Spanish cosmetics company, luxury brands company, really, in talks to merge. Those merger talks seem to have fallen apart. Deb Aiken is our luxury goods analyst, joining us right now from London. Deb, what can you tell us about why these discussions collapsed? Hi. Okay. The rumors in the market, the comments in the market are around the brand, which is 78%, 79 % owned by Pooh's Charlotte Tilbury.

2:25And that there is, you know, there's a put call option in place till 2031 with a view that perhaps more was expected in terms of valuation from the original owner. but really we don't know that it is that and there was a lot riding on this deal coming together really given that Estee Lauder was amid a big strategic overhaul under its CEO Stefan de la Fevri so you know that there are a lot of things going on also the the added risks in the market too with what's happening in Iran the knock-on impact onto travel retail which has been with us since the middle of March. So many different things, really.

3:08Where does Estee Lauder go from here on out then? Because they're left to focus on reviving their company and they've reported three years of annual sales drop. They did. I think if I look at both companies, the reason for them coming together was because if I think about Estee Lauder and where the market's been the last couple of years, Estee Lauder only has about 19 % of its business in fragrance, whereas the majority of the business of Pooge although it's built in in makeup and skincare its history is in fragrances with Jean-Paul Gaultier and then also Carolina Herrera Paco Rabanne and others so it was a combination of the two of those coming together that if there was some excitement that was it but overall if we think about Estee Lauder they are doing more in innovation they are doing more in shifting online they are doing more in cost savings they have a huge strategy running at the moment the profit profit growth program PRGP where they're looking actually to for the savings of one to 1.2 billion to start to come through from next fiscal year so fiscal 27 it's been a big upfront cost and so a lot of the maybe risk and analysis and the questions on these two companies coming together were just when the growth and the profits are supposed to come through, would Pooja have inhibited that and that it would have taken them longer to turn around?

4:41So certainly today, Pooja's share price is down and Estee Lauder's is up. And that's contrary to how it was on the day when it was announced two months ago.

4:50Scarlet Fu:Very quickly, Deb, before we let you go, is Pooj still on the lookout for a merger partner? The issue is going to be that if Charlotte Tilbury is a part of the contested deal, that carries forward and so could be a bit of a poison pill potentially. I would imagine that both of these companies are looking for acquisitions, that it could make sense for both of them, you know, Pooj could find more of a global platform and Estee Lauder needs, for me, more in fragrances. I've said that for several years. So I think there were ways forward for both of them within the M &A field. Stay with us. More from Bloomberg Intelligence coming up after this.

5:35Scarlet Fu:If your finance team spends more time finding data than using it, if there's one entity here and one here and one here and one here. If scaling your business feels like starting over, you need the Intuit ERP. Intuit Enterprise Suite is the AI-native ERP solution that's powerful, painless, and proven. Learn more at intuit.com slash ERP. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions.

6:17Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off. Deep in the work that moves the business. Let's create smarter business. IBM.

6:28Scarlet Fu:Running a small business takes everything you've got. But with Chase for Business, you're not alone. They bring together local support and a broad range of resources to more than 7 million customers. With a deep understanding of your day-to-day needs, they provide products and guidance built to help you thrive. Right now, earn$500 when you open a new Chase Business Complete Checking account for new business checking customers with qualifying activities. Offer expires June 18, 2026. Chase Business Complete Checking has the flexible tools you need to accept payments, make deposits, and manage your finances with confidence.

7:01Scarlet Fu:Learn more at chase.com slash podcast biz offer. Chase, make more of what's yours. These may apply to Chase Business Complete Checking Accounts. The$500 offer is available for new business checking accounts with qualifying activities through June 18th, 2026. Eligibility and qualification requirements must be met. Additional restrictions may apply. Please speak with a business banker for more information. JPMorgan Chase Bank, N.A., member FDIC. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app.

7:38Scarlet Fu:Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's now shift gears a little bit or shift planets, I guess. I was trying to make a smart segue. Solar systems, universes, yeah. Yes, let's now bring in George Ferguson. He's Bloomberg Intelligence Senior Aerospace Defense and Airline Analyst to discuss with us all things SpaceX. I feel like all this week has been all about SpaceX. So George, thank you for joining us. Talk to us about the slow launch revenue gain of SpaceX. We know that they dominate in global spaceflight, but I guess most missions support their own satellite internet business rather than external customers.

8:14Can you please unpack that for us? Yeah, so we, in the filing this week, we got a chance to look at their businesses. And it was pretty remarkable, I thought, the percent of space launch that actually is just supporting their low Earth orbit constellation business. It was like 74, 75 % of all launches. Again, we're supporting their LEO constellation. It's about 9 ,600 satellites up there. And in the first quarter of the new year, even a bit larger, it was up in the 80s. So when you look at the businesses, their launch business actually only comes in around $4 billion-ish a year, much smaller than the connectivity business, which is that low-earth orbit satellite business.

9:11But we think that if they accounted for it correctly, if they did some sort of transfer pricing and showed revenue, because they don't show revenue, they don't show sort of earned revenue for the flights for their low-earth orbit constellation. If they showed revenue for it, we think it'd be a$12 billion business. And there's a lot of technology in that business, interesting business to us.

9:34Scarlet Fu:George, when you looked at the IPO filing, what did you learn about SpaceX's competitors, the rest of the space economy, those companies that also purport to be at the cutting edge of this industry? Well, I think we learned and it confirmed for us that their competitors are really far behind. Now, I think one of the things I took away from the filing was SpaceX did something like 160-some launches last year. Lots of other competitors, most of the competitors aren't over 50. So they're far and away sort of the most repetitive launch company in the world. Again, I was kind of surprised how much it was for their own constellation because we kind of felt like demand was really growing for LEO satellites.

10:27And it is. But the sense I get from the filing is they're growing most of the demand for these low-Earth orbit satellites. I think more folks, more governments, more companies will be launching low-Earth orbit satellites. And this space business will be a really important business. But I think that was one of the bigger takeaways from the filing. And many, and at least some of the people I spoke to, said that the entire base case depends on Starship operating at a cadence by 2027. But if Starship slips materially beyond that timeline, what do you make of that? Does that still support the current valuation of SpaceX?

11:10Yeah, so look, I mean, the valuation is astronomical, I guess, maybe pun intended. You're really buying into a big, glorious vision of the future of data centers and communications on the Earth, right? You're buying into data centers being in space, using the sun's energy solar panels to power them, using space to cool them. Fixes a lot of problems that data centers have here on the Earth. Terrestrially, there's a lot of work to be done to get that to happen. And you're also sort of buying into a world where we're using devices on the surface of the earth to communicate into space and do some of our Internet and telecommunication work.

11:58That's already happening. So you're sort of buying into that big, glorious future. Starship is all about lifting more of that equipment into orbit. You need sort of Starship's 100 to 150, sorry, ton capacity to get into orbit. You need them to drive down those costs of getting things into orbit. So, look, I don't think Starship not working by 2027 crushes this sort of view of the future. if you're buying into the IPO and it becomes a$1.75 trillion IPO and you've bought in it 90 times revenue, there may be disappointment in the marketplace. I mean, honestly, again, those valuations are crazy to me.

12:52Yeah. But look, you're buying into a big tech company. But if it doesn't happen by 2027, is it the end of this sort of vision of how the future could unfold? I don't think so at all. They're far ahead in launch. SpaceX is. They're thinking about data centers in space and no one else is even thinking about it. If it works, it could be great. And holding them to a tight timeline, I think, is a bit challenging because they are really cutting edge and no one's competing for them on that cutting edge.

13:25Scarlet Fu:The number that really got my attention in this IPO filing was this idea of a total addressable market. Yes. I mean, it was like$29 trillion. $28.5 trillion. $29 trillion. I mean, at this point, what's a half a trillion dollars? Exactly. How do you reverse engineer that? Look, all of the numbers are big. And I guess the beauty about that is, again, how do you reverse engineer it? And my view on it, again, look, is clearly AI and data centers has to be a persistent trend for those numbers to come true, right? And we're seeing the beginning of AI unfold. It looks interesting in some areas. In some areas I use AI, it looks off base.

14:13It does consume a lot of energy. It does have some folks that aren't the happiest with a future that's helping, you know, being driven by AI. So I think you've got to first, you've got to buy into AI is the future. We'll do more of our thinking, more of our processes, you know, take the, I guess, the droll items off all our workplaces. And then you've got to buy into a world where you can put that in space and the communication to space gets faster. So there's no latency. So to be honest with you, we see those big numbers. I find them interesting. Reverse engineering them is really difficult at this point.

14:52Again, I think you really got to buy into this is a cutting edge tech company. You think you know how the future is going to unfold. unfold. Elon Musk looks like the guy that will be steering these enterprises that will help this future unfold. But to sort of round out all of his numbers on what it means, I think it's kind of difficult. I think you're buying into Elon Musk, his vision of the future, and his ability to execute over time. Stay with us. More from Bloomberg Intelligence coming up after this.

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16:02Scarlet Fu:Learn more at chase.com slash podcast biz offer. Chase, make more of what's yours. These may apply to Chase Business Complete Checking accounts. The$500 offer is available for new business checking accounts with qualifying activities through June 18th, 2026. Eligibility and qualification requirements must be met. Additional restrictions may apply. Please speak with a business banker for more information. JPMorgan Chase Bank, N.A., member FDIC. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game.

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18:04Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. 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. There's this weird bifurcation in the markets right now because, as John was telling us, stocks are higher. S &P 500 gaining five tenths of one percent. There's going to be a lot of big IPOs coming out like SpaceX, like OpenAI. And then you look at everything else. Oil prices are higher. bond yields have actually given up some of their losses and are now higher, especially at the short end, because the Federal Reserve Governor Christopher Waller now says he supports making clear that the Fed's next move could be just as much a rate increase as it could be a rate cut.

18:50Scarlet Fu:So where does that leave someone who invests in real assets like real estate? Let's ask Liz Hart. I mean, it's a puzzling question. That is true. Everyone just points to corporate earnings, But yeah, I mean, it's an interesting bifurcation in the markets. Everything AI is great, but you see a lot of concerns when it comes to others. All right. Liz Hart is joining us now. She's president of leasing for North America at Newmark. And Liz, I know you're eager to jump in. So give us your take on how you see things out there. Absolutely. So I think you're right. This is a very selective recovery. We're seeing great demand in places like Manhattan and in San Francisco, where AI is certainly driving the story, as you just commented on.

19:32How much of the sector's outlook in general depends on the path of interest rates? And how are you positioning in lieu of the changing outlook minute by minute? Absolutely. So it does seem that we will be at a higher for longer environment. But what we're seeing right now is the demand is still surging. You still have AI companies leasing more space in Manhattan in the first quarter than they did all of last year. You have San Francisco at record demand right now, mostly driven by those AI companies again. So it does seem as though, even though there may be a hire for longer environment, that companies are really optimizing for productivity and talent and how they can drive their businesses forward right now.

20:10Scarlet Fu:OK, yeah, but New York and San Francisco are not the rest of the country. These are kind of exceptional markets. You are up in Boston right now. And when I say up, it's because we're in New York. So you're up from us. Yes. Yeah. Boston is one of those places where one of those cities where the government funding decreases for universities in Boston has really been felt, especially in the biotech sector. How do things look in places like Boston, which are so tied to universities and government funding? Well, I think what you're seeing really is a recovery that's starting at the trophy end of the segment.

20:40And we've talked about this before, but the trophy segment still appears to be pretty good in all of those major markets right now where you're seeing more of an issue is the bottom of the market where there isn't as much activity or demand. What about how are you seeing AI? In your note, you allude to how AI is not a space reducer. It's a demand generator, but that's kind of hard for some to believe. Well, absolutely. But it really is driving the demand in a lot of those major markets. You're seeing companies that didn't even exist taking over 100 ,000 square feet and often over three or 400 ,000 square feet.

21:14And so that shows us something that's really interesting about this next generation economy is that those people who are on the cutting edge, they're choosing to be in the office. They're really choosing to prioritize how they work. And we think that's a very interesting signal of how other sectors are gonna start to adopt over time and how they can drive their businesses because AI really will impact all of us in all sectors. It's just gonna take some time to have that happen.

21:36Scarlet Fu:So when you see the build-out of some of these AI companies, particularly in San Francisco, the Bay Area, and maybe in places like in New York, where else do you see them going to if the real estate in those cities are too expensive and they want to be able to keep their costs under control but still be able to insist on a physical footprint. Absolutely. So I think there's two things that are happening right now. In those major markets you mentioned, starting at the beginning of last year, we actually saw a little bit of a pop in good quality Class B space as long as it was ready for occupancy right away.

22:10So because there's such a rush on AI right now, people really want to build today. They don't want to wait for tomorrow. So they're looking for stuff that they can get really quick occupancy on. And that's definitely driving different categories in those high talent metric markets. In terms of other markets outside of San Francisco and New York, we're starting to see AI companies go to Bellevue, definitely. A little bit in Boston, London, Singapore are great markets. And even a couple that are starting to look in Los Angeles. You also write that the issue is not that office space is tight. It's that the right space is increasingly tight.

22:45Talk to us about what the right spaces is. I mean, Scarlett made a point that everyone probably wants to be in the major cities like San Francisco, Boston, New York and others I may have missed and many will be offended. But can you talk a little bit more about that? Yeah, no, they certainly want to be in high quality office space and they want to have it as soon as they can so that they can really focus on driving their businesses forward. I mean, look, if you're looking at the quality of space, typically that means having good natural light, good open areas where people can collaborate with each other.

23:12Just high quality space has really been driving the story for quite a long time. And obviously always a bonus if it's creative for the technology sector as well. They tend to like those type of finishes. It sounds like my apartment hunt, Scarlett, because I also want natural light.

23:26Scarlet Fu:Yeah, natural light and creative finishes. That's what we all want, right? Yeah, it's like the holy grail, both for office space and for apartments. Liz, we started off by saying how interest rates, especially in the rates market, are moving higher. They're fairly elevated. you know, not just in the U.S., but in the U.K., and Japan as well. How concerned are you about mortgage rates, about interest rates, and how they will stay at these elevated levels for longer than maybe a lot of people anticipated? It's something that certainly is a factor. But again, I think with what's happening with AI and this big, you know, change that we're having is really the companies we're talking to are most focused on productivity.

24:04How do they position their businesses for growth and moving through this? That's something that those companies don't control, right? So they have to live within the environment and within the moment of opportunity that they have today. And they have to place their bets. Do you think we're near the bottom for commercial real estate evaluations? Or do you think there's going to be more pain ahead? It's certainly bifurcated. I think we're definitely behind. I think, you know, 2025 was the real pivot in the major markets. And we're starting to see other markets pivot over time. So I do think the bottom is behind us.