Larry Ellison’s Guarantee Ups Warner Bros. Stakes to a New Level

13:11Ira Jersey:Yeah, exactly. A couple board seats, a couple speaking things. That's the way to go. I mean, who needs it? Ira, thanks so much for joining us. Appreciate it. Ira Jersey, Chief U.S. Interest Rate Strategist for Bloomberg Intelligence, joining us there. Stay with us. More from Bloomberg Intelligence coming up after this.

13:28Paul Sweeney:Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London. We're the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday, keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled, and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break.

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14:29Scarlet 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.

14:43Ira Jersey:I like the analysts who covered the travel industry, like cruise ships, theme parks. And you're going on your first cruise ship. Going on my first cruise next fall to France. So that'll be interesting. Jodi Lurie actually does this. Lurie, she actually does this for a living. She's a credit analyst for Bloomberg Intelligence. She follows a lot of the leisure sectors of the economy. Think theme parks and cruise lines, that type of stuff. Hotels, casinos, that type of stuff. From the credit perspective, because remember, equity is soft. Debt is hard, right? There you go. Jodi, let's talk just about the cruise lines here.

15:19Ira Jersey:It seems like the cruise, people are cruising back in. I mean, if Charlie Pellett's any sign of that, how are they performing?

15:27Stephen Flynn:So the cruise lines always have a dedicated base. But cruising is sort of interesting because it's only 2 % of the travel industry. It really is such a small portion of it. Where we've been watching is for those new-to cruisers, which I don't know if I'm necessarily convinced that they're going as often or they're attracting the new-to cruisers. but the cruisers are still very much cruising and they're spending more than the average consumer.

15:51Scarlet Fu:They're also spending more than the people who go to theme parks, according to your research. And partly that might be because the cruise line industry attracts a different kind of customer than the theme park industry. Theme parks skews younger, cruises skew older.

16:07Ira Jersey:Easy.

16:08Scarlet Fu:Which would you prefer if you are an operator? Which would you prefer if you're an investor?

16:13Stephen Flynn:So we don't make full recommendations, but I will tell you a couple of things based on our research findings. So first of all, you have to think about how people book cruising versus how they book theme parks. So when you're talking about cruises, they book far in advance. They book a year or two well in advance. And what the cruise lines have been doing, particularly post-pandemic, is they've been locking people in on the drink packages, on the experiences. They've been giving these steal of deals, excursion ideas. And when you get on the boat, it's more expensive. So people say, OK, I'm going to book my cruise, but I'm also going to book this, you know, the snorkeling and I'm going to book this.

16:49Stephen Flynn:I'm going to book that the ones that I definitely want to do. They also book the drink packages, which, you know, I think you can go either way on that personally, because I don't think I drink enough, but maybe other people do. And and it really sort of just helps their cash flows. Now, theme parks, people book much later. They are younger. They are lower income than the U.S. median household. And the key for them is they can get people in the door. They can get them with season passes or they can just get them for the one day pass. But they're not necessarily convincing them to spend in park the same way.

17:21Stephen Flynn:But there's higher volume in theme park, right? There's pretty high volume in theme parks. But if they're just paying for the admission, it might not necessarily cover the cost per se. They'll get in the door, but they have high capex. They have high cost in general. and they have all the employees that they're paying for.

17:38Ira Jersey:Six Flags, that's a theme park that got some local Jersey flavor here. Six Flags, great adventure. How's the capital structure for these theme parks?

17:47Stephen Flynn:They are high capital intensive companies. They have high lever. Right, exactly. And similar to cruise lines. So where we sort of see it interesting is theme parks and cruise lines are constantly, they have to get the new experience in, right? So they have to spend not just on maintaining their products, so not just maintaining the ship or maintaining the ride. They also have to get new ones in. So people say, I want to go to Great Adventure because I want to ride Superman. So they do this to get people excited, draw them in so that they're going. I mean, the biggest example that we don't cover, I don't cover Universal or Comcast, but Universal's new theme park this year was a big driver to Florida.

18:28Stephen Flynn:It wasn't as big as expected necessarily, but it was still pretty big. Now, if you're talking about the regional theme parks, it's a little bit more difficult because people aren't necessarily planning these long-term vacations around great adventure.

18:41Scarlet Fu:Do the theme parks attract more domestic consumers than the cruises? I mean, I'm just curious in terms of the sustainability and the stability of your customer base.

18:51Stephen Flynn:So it depends on the brand, because if you look pre-pandemic and now going into a few years post-pandemic, the cruise lines, they segment. So Norwegian, most of their customer base is U.S., their U.S. customers. When you get to Royal Caribbean, it's a little bit less. So I think it's about 80 % for Norwegian. I'm doing this off the top of my head, memory. But 80 % Norwegian, you get to about, it's like 70 or 65 for Royal. And then you get to Carnival, and it's even less than that. It's closer to half. It's not quite half that are U.S. versus international. They have a much larger international presence.

19:26Stephen Flynn:Brian Egger and I, my equity counterpart, we were on the AIDA, which is one of their brands that they market to international customers, specifically in Germany. And it was a 133 round-the-world cruise.

19:42Paul Sweeney:Nice.

19:42Stephen Flynn:They were stopping in New York for the day, and they brought a bunch of us on, a bunch of us equity and credit nerds, and took us around the ship, and everything was in German, as expected, because most of their customers were German. So Carnival has a much more diversified customer base. If you talk about theme parks, SeaWorld or United Parks, as they go by now, their Florida parks, which make up about half their revenue, is international about 10, 20 percent. But when you get to Six Flags, it's much more domestic.

20:12Ira Jersey:We were off the Amalfi Coast last fall.

20:15Stephen Flynn:Whoa, fancy.

20:16Ira Jersey:And I saw this big yacht that was like either navy blue or black. And I said, what is it? Who owns that? He said, it's the Ritz-Carlton.

20:23Stephen Flynn:The Ritz-Carlton, yes. I actually know somebody who went on it.

20:26Ira Jersey:Just parked it.

20:27Stephen Flynn:Those are small, though. I mean, in terms of the number, it's like 500 people. Yeah.

20:31Ira Jersey:I mean, that looked pretty cool.

20:32Stephen Flynn:Yeah. That's for the people who want to be on a luxury yacht, but don't want to actually own a luxury yacht, right? The joke about boats is bring on another thousand, right? My mother-in-law likes to always say that. And that's why it's called boat. But the thing about cruising is that there's a perception about who the typical cruiser is, right? It's the, you know, older people who are retired, who like to bring basically the cat skills on the water. But really, I mean, it's changed over time. And what's interesting about our credit research and our travel survey that we do every half a year is we're seeing that it's actually really, really spread out.

21:14Stephen Flynn:If you look into the buckets that we've segmented, it's really, you know, it's one third of each. So it's one third, 18 to 34 year olds, one third that like middle age group and 55 and older, one third. So it's really not specifically the older.

21:27Ira Jersey:All right. Very good. Jody, thank you so much. We appreciate that. Jody Laurie, she is senior credit analyst for Bloomberg Intelligence following the leisure part of the economy. Stay with us. More from Bloomberg Intelligence coming up after this.

21:43Paul Sweeney:I'm Barry Ritholtz, inviting you to join me for the Masters in Business podcast. Every week, we bring you fascinating conversations with the people who shape markets, investing, and business. CEOs, fund managers, billionaires, Nobel laureates, traders, analysts, economists, everybody that affects what's going on in the market. Whether you own stocks, bonds, real estate, commodities, crypto, you really need to hear these conversations. Sometimes it's behaviorists like Dick Thaler or Bob Schiller. Sometimes it's fund managers like Peter Lynch, Bill Miller, Ray Dalio. Sometimes it's authors, Michael Lewis, author of The Big Short, and Moneyball.

22:28Paul Sweeney:Regardless of the conversation, these are the folks that move markets each week. That's the Masters in Business podcast with me, Barry Ritholtz. Listen on Apple, Spotify, or wherever you get your podcasts.

22:45Scarlet 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.

22:59Ira Jersey:Well, it is a crazy time to be a CEO. New research from the conference board provides insights onto two big trends. Number one, CEO turnover. I think it's going up. CEO and number two, CEO targeted shareholder activism. And again, we just had that try on acquisition of Janice Henderson. They were shareholders. So they said, we're going to buy this whole thing out. Right. So it's happening out there. Brian Campbell joins us. U.S. Center Leader for Governance and Sustainability at the Commerce Board. Brian, talk to us about CEO turnover. Is it rising?

23:29Paul Sweeney:And if so, why? Sure. I think, Paul, thank you for having me. I think the trend is that it is up and we are seeing definitely more CEO transition, transition, partially driven by what may have been longer delayed CEO transitions. When you think back to the pandemic and the volatility since then, you know, companies kept people in positions for longer. And I think that coupled with regular transition is showing a spike.

23:57Scarlet Fu:So making up for some lost time, which makes sense. Where do we see this happening the most? Are they big companies, smaller companies, companies that are lagging behind in terms of performance? And if so, by what metrics are we looking at performance?

24:10Paul Sweeney:Sure. Thank you, Squalid. I think what we're noticing is a trend that's across the board and, in fact, higher, a spike in well-performing companies as opposed to just poor-performing companies. So I think that's the news part of this, the takeaway. And then I think what you're also seeing is we would view this as a shift in corporate governance, more of a proactive approach at the board level.

24:32Ira Jersey:Female CEOs are twice more likely to be targeted by activists. Wow. What's the data show there?

24:38Paul Sweeney:Well, I think what we're seeing is that twice as likely to be targeted would be reflective of what the data shows. And then from the market's perspective, it's possible that activists are targeting women CEOs because they're more likely to cooperate, may play into other stereotypes. But definitely the trend so high that it is notable.

25:01Scarlet Fu:Well, I guess one exception to that is what's happening over at Lululemon, right? Because Elliott has a stake in Lululemon and it has now become the biggest shareholder in that company. Calvin McDonald, the male CEO, is on his way out at the end of January and they're eyeing the former CFO, Ralph Lauren, who is a woman.

25:18Ira Jersey:Yeah. All right. We'll see. So CEOs, when I look for a CEO, if I'm the board, do I prefer an internal candidate or an external candidate? And is that changing?

25:30Paul Sweeney:Historically, it was an internal focus. We are seeing a shift toward external. And I think that just layers into where we are from a volatility standpoint in the markets generally and what companies are facing between the economy, inflation and activist activity.

25:47Scarlet Fu:Brian, what skill set is most valuable for a board right now when they're looking at a new CEO? I would imagine that during the pandemic, you wanted someone who is very familiar with supply chain logistics. And even so, in the era of tariffs under Trump 2.0, that would be something that's really, really important. But have we seen certain skill sets become kind of paramount and then others become less important?

26:09Paul Sweeney:Sure. I think the skills matrix that a board focuses on when looking at potential candidates has certainly shifted. Crisis management is a key skill set that has to be present in the current environment. the ability to adapt and be flexible in spite of moving targets. And that was not necessarily the case a decade or so ago.

26:29Scarlet Fu:And DEI, that no longer matters? Or is it still there in the background?

26:33Paul Sweeney:We would say it's definitely relevant, but not as prominent as it was. And companies are not speaking about it quite as affirmatively as they were in the last few years. That didn't last very long.

26:44Scarlet Fu:How long did it last for, like a year or two?

26:46Ira Jersey:I don't know. It didn't seem like a flash. There you go. So talk to us about compensation. What's the latest on CEO compensation? Because a lot of folks feel like the stock-based compensation wall of the lines, the CEO with the longer-term growth, they tend to set targets that are kind of short-term. If you meet this earnings or this cash flow, this revenue, boom, you get this monster stock award. But that's always been the case, I guess.

27:07Paul Sweeney:Sure. I think what you're seeing there are boards focused on their own accountability. They're under pressure to drive performance, and they need the CEO tied into that. So certainly when you talk about the activist side of it, you've got the Lululemon piece. But then when you think about traditional board orchestrations of CEO roles, you know, recently Coca-Cola announced that in March they're going to have a new CEO, Henrik Braun, who's coming in with 30 years of experience. This is part of an orchestrated change. So definitely new opportunities within structuring and governance. And then I think the compensation package there is more tuned into the longer term performance at the company versus maybe an external candidate where there's a comp package that lures them to the company.

27:51Scarlet Fu:Brian, I'm sure you guys have done this CEO's report, this research report a couple of times now. What surprises you the most in this latest edition? What did you not anticipate?

28:02Paul Sweeney:I think what we're seeing in the background, and we're certainly hearing it from the members of the conference board anecdotally, is the shift in corporate governance to a strategic orchestrated CEO succession plan. So that's new. I think the CEO seat has always been a, quote unquote, potential hot seat, but definitely more so orchestrated planning, boards being accountable and trying to plan that succession. And then also including CEOs on the exit, keeping them on the board to continue that institutional knowledge. So opportunity there as well.

28:35Scarlet Fu:So it used to be they would, when they were out as CEO, they were just gone from the board completely and persona non grata.

28:41Paul Sweeney:Right. And I think it's part of that strategic building of a continuity plan that will continue to perpetuate the institutional knowledge and keep some help for the new CEO transitioning into the role.

28:54Ira Jersey:How about succession planning for a CEO these days? Because, you know, I followed for a long time the Walt Disney Company and they had a great succession plan in place until the CEO blew it up at the last moment. And now it's been 10 years and kind of screwing around with Mr.

29:08Paul Sweeney:Iger. How important is succession planning? It's critical these days. And I think what happens now is you've got pipelines of potential candidates, internal and external, which is new. And then also being able to transition in case somebody who is in the wings waiting for an opportunity decides that they're going to leave and take an opportunity elsewhere. Companies need to be flexible. Boards need to be adaptable.

29:32Scarlet Fu:Well, Paul, to your point, now they have James Gorman, the former CEO and chairman of Morgan Stanley, leading the succession planning over at Disney because he himself had done such a good job planning for his succession at Morgan Stanley.

29:44Ira Jersey:Yeah. Unfortunately, they lost two, at least two, maybe three serious outstanding executives. And some time. A lot of time, yeah. But I guess if you poll Disney shareholders, they'll be like, hey, Bob can stay in his office as long as he wants. That's how good he is, how good we believe him to be. What's the big thing that CEOs need to be focusing on these days? Is it simply shareholder, maximizing shareholder value or stakeholder value?

30:07Paul Sweeney:I think that's a critical aspect of it. That will always be there. At the end of the day, though, I think it is building out that more robust skill set toward flexibility, adaptability, crisis management. The current volatility that we're seeing out there, I think, is the new normal. So CEOs need to adapt. All right. Very good. Brian Campbell, U.S.

30:25Ira Jersey:Center Leader for Governor and Census Sustainability at the conference board here.

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