Paramount Extends Tender Offer for Warner Bros. Shares

0:00Donald Trump is rewriting the Washington rulebook and reshaping the global economy. If you're trying to connect the dots behind the headlines, Bloomberg's Trumponomics podcast is here to help. I'm Stephanie Flanders, head of government and economics at Bloomberg. Every week, I'll bring you a smart, focused conversation with reporters and experts from Washington, Wall Street and beyond. Listen to new episodes every Wednesday and follow Trumponomics wherever you listen. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy.

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1:14All investing is subject to risk Vanguard Marketing Corporation Distributor. Bloomberg Audio Studios. Podcasts. Radio. News. 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. You know, I had some more news today on this Warner Brothers Discovery transaction. Again, Netflix is bidding here. They've got their bid in there. They just amended that to make it an all-cash bid. And Paramount Skydance is also there.

1:52And they just kind of extended their deadline today for trying to get some shares tendered. I don't know what's going on. Yeah, but so far it's not been good for them. I don't know. I don't know what's going on there. But let's talk to Seema Shaw. She's a pro at this stuff. Vice President, Research and Insights at Sensor Tower. Seema, are you surprised that, I don't know, either Netflix or Paramount Skydance hasn't raised their offer? We kind of just seem to be waiting here. Yeah, well, I'm more surprised that Paramount hasn't simply because I think they need the merger more based on their performance.

2:22are significantly smaller, like 4 % of monthly actor users share on a global basis compared to 48 % for Netflix and 10 % for HBO Max. Very small percentage of OTT ad revenue, 4 % again versus 8 % for Netflix and like 30, 35 % for Hulu. So for them, this deal would be much more transformative, right? And HBO has those tentpole shows like White Lotus and now like Heated Robbery that are in the zeitgeist and make people continue to remain subscribers, right? Netflix already has the highest retention rate. For them, the HBO acquisition is an opportunity to extend their growth rapidly, like internationally, where HBO is growing at a much faster rate than anyone else.

3:10So I'm actually more surprised that Paramount has it. But from what I've read, also, the Warner Brothers shareholders do not want that deal. So it would have to probably be a substantial jump in price to get over 90 % of the shareholders to change their mind. So Paramount Skydance today extending its tender offer for those Warner Brothers shares. The new offer expires February 20th. Does this change anything? I mean, roughly, I mean, about 168.5 million shares have been tendered as of yesterday. That's only 7 % of Warner Brothers shares outstanding. So does pushing out the deadline actually mean it's going to get more support?

3:51I don't think so. I don't think the delay is simply because people haven't had a chance to tender their shares. I just don't think that they find the offer as compelling. And also Warner Brothers management is sided with Netflix, right? It's a well-capitalized business, highest retention rate, you know, content creation machine, especially on a global basis, you know, non-English language content. And so I think it's just really hard for Paramount that's so much smaller to compete with it. Like, what does it bring to the table for Warner Brothers? And I think that's the question. And Seema, if Paramount does not get it and you suggest that, you know, they probably need it.

4:30It's a must have versus maybe a nice to have for Netflix. What happens, you think, to Paramount if they don't get this deal, then what do they do? Well, I mean, I think it just pushes them further to the margin, right? As I said, they only have like 4 % of active user share on a global basis. Just to put that in perspective, obviously, Netflix is the behemoth at 48%. Amazon and Disney Plus are at about 15%. So I'm not sure how they continue to really grow. They would have to really change their model. How are they going to grow internationally? Are they going to try to get more sports? Are they going to have local language content?

5:03All of those endeavors to grow and become larger require a lot of funding for sports, right? It's content creation. So I feel like they'll sort of still be on the periphery in many cases compared to the larger streamers. And as a whole, by the way, the entire space is all still competing with short form video and just simply people's attention being pulled in other directions. Right. So I think that's kind of where that leaves them if they don't get the deal. So, Seema, Sensor Tower is a digital market intelligence platform. You provide data, analytics, insights into the mobile app ecosystem. What does your research, what does your data show about people's engagement with Warner Brothers properties?

5:47I mean, beyond HBO, the other stuff. And I guess that includes the cable networks that Warner Brothers wants to spin off, that Paramount wants to buy and that Netflix doesn't. And, you know, how does that compare to, say, what Netflix offers people? Well, Netflix has the highest retention rate across the space, right? Seventy four percent of its users are retained users. People spend about 91 minutes per week, 11 sessions per week on Netflix. Because in comparison, it's about 6.4 sessions per week on Paramount. And HBO is sort of in the middle. Our data is really focused on the digital side of the business versus any linear TV and then also our advertising data.

6:35So I think what is also very attractive about HBO is its advertising and the space, the categories that it's in, where it has decent share, about 5%, 4%. It's like in healthcare, which is the largest category, where OTT is the largest channel for healthcare. And Netflix doesn't have that much exposure there. So I think that is a plus for them. As far as like Warner, sorry, Paramount wanting the other assets, I think it goes kind of goes back with like they want to get what they can get so they can see how they can manage, figure out how to grow their own business. Right. So I think that's why they're willing to take everything rather than sort of curate what like the way Netflix is.

7:19You know, the Netflix stock is down 10 percent this year and 12 percent over the trailing 12 months. Is that kind of the market saying, hey, you know, I'm not sure we want you guys to buy this thing. well it also has done very well uh in the past it might be or maybe it's just simply the uncertainty of whether even if they get the deal if they'll be able to get through uh antitrust you know the ftc will there be any issues getting the deal through so i feel like it's more about that and maybe just the general idea that across streaming time spent is down and it goes back to what I said about distractions for the consumer from short form video and other types of technology that's taking time.

8:00So I think it might be that sort of the deal with regulation and then just sort of what's happening in streaming and the cost of streaming to get the content that gets the most, the highest audience costs a lot of money. Right. And they have a lot of competitors, including the micro dramas that, you know, have been growing very rapidly. Stay with us. More from Bloomberg Intelligence coming up after this. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real.

8:37Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing is subject to risk, Vanguard Marketing Corporation Distributor.

9:14Hello, 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 So whether it's geopolitics, energy, tech or markets you're hearing it while it happens It's smart, calm and to the point And it fits into your morning You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris On Apple, Spotify, YouTube or wherever you get your podcasts

10:15you'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 lots of earnings kind of getting you know overshadowed a little bit by the all the news flow coming out of davos but you know one of the big american companies i'd like to follow general electric reported some numbers a little bit disappointing. I thought they were pretty good, but the stock's down about 5.5 % today. The stock is up over the past 12 months, up about 60%, 6-0.

10:48So maybe give it back a little bit there. But let's break it down here, what's going on with our friends at GE. Sid Phillip, Bloomberg Chief Correspondent, covers global aviation for Bloomberg News. Sid, talk to us about GE. What's going on with that story? They reported some earnings. Yeah, so GE is actually, they reported better than expected results in the fourth quarter. But unfortunately for the company, the shareholders and the investors were expecting a much higher expectation for their full year next year, this year. And so the full year outlook has underwhelmed investors, which is why the share stumbled.

11:19And so they said that earnings will be 7.10 to 7.40 a share. And that sort of compares with about 7.10, which is what the analysts expected. But that's still sort of, they're talking about how there's going to be lower double digit percentage of revenue growth. And that's sort of after the sort of daring performance that they've had over the last year or year and a half that that sort of comes up as a break for the stock what i like about ge or just fascinating watching the ge story over the past 20 years they've dramatically slimmed down the company they were just gajillions of different businesses including one of the biggest financial services companies in the world they've slimmed that down to really a couple of sectors here commercial engines and services number one and then defense and propulsion number two um what's the play here what's where's the growth for this company yeah so So Larry Kulph has sort of focused the company on its core aerospace business, and aerospace has sort of become what GE is.

12:14And that's actually a really good business for the company. I mean, they have a large share of the narrowbody marketplace. I mean, they make engines with CFM, which is the biggest narrowbody engine provider. They also make all the engines for Boeing's widebody aircraft. So they've got a big aerospace division, And that's sort of a business that continues to generate revenue as you get those aircraft, those engines come in for servicing and they come in for sort of overhauls. That sort of keeps the revenue going. And so that's where Kalf was focused on. He sort of focused on cutting costs and as well as ramping up their aftermarket business as well as their maintenance and repair operation.

12:53And that's been one of the key businesses that they've been growing. They've also been growing their defense business. And, I mean, they're sort of getting a big share of the overall defense by it. I mean, that business may come up against some investor resistance because of Trump's recent announcements about capping dividends and capping share buybacks. Right. Yeah, because I don't think of GE as a defense contractor like a Lockheed Martin or something like that. They're not a defense prime, but they are a major supplier to the defense industry. On the engine side, on the jet engine side, do they sell to both Boeing and Airbus?

13:24They sell to Airbus through CFM, which is their joint venture with Safran. And so they're about 75 % of the overall narrow body market. So that's a big percentage of the market. That's awesome. So, I mean, I always feel good seeing a GE engine hanging on a wing. You know, you feel like you're in good shape there. Talk to us about just, you know, we follow Boeing very closely and they've had their problems with production, as has Airbus. I mean, the whole supply chain for aerospace and building these big jet engines, it's kind of been tough on a global scale. What does GE say about that? So, I mean, that's been one of the, I mean, Airbus famously called out GE a couple of months ago saying that they weren't producing engines, CFM wasn't producing engines fast enough.

14:04And that's been a major sort of bottleneck for the aviation industry as they come out of the pandemic. I mean, they've been struggling since the pandemic to actually ramp up production. I mean, Airbus had to cut its annual outlook in December and they just about made that target. And so we've seen the aerospace businesses talking about sort of growth and then having to come up against the reality of the supply chain and the supply chain being severely constrained. At the same time, all the suppliers, especially GE, RTX and others, have been focusing on maximizing their profitability and making sure that while they grow and while they scale up their businesses, they don't do that at the cost of profitability.

14:46And that sort of runs into the airframers, their ambition of ramping up production. So they want growth at any cost. And the suppliers are saying, hey, we will grow, but it has to be profitable for us. One of the things we've heard from Boeing is it's just hard to find employees. This isn't like making a car. You've got to be really, really skilled. Does GE have that same issue? It does. And that's the same issue. And it's not just GE, but also suppliers of GE. And the problem with the aerospace supply chain is that it's so intertwined that you need every single part to build those parts that you actually supply to Boeing and Airbus.

15:25And so if one part's missing, then you can't actually put together an engine that goes onto a plane. And so for the aerospace industry, hiring has been a major challenge. And that's been something that they've been doing and they've been trying to work on for the last couple of years. But I don't think they're out of the woods yet. Stay with us. More from Bloomberg Intelligence coming up after this.

16:13stocks, 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. 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.

16:50You'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. What a couple of three days in Davos kind of went into the week thinking maybe we talk about big, big items like AI. Well, it all came down to tariffs, Greenland. And boy, we've had a bumpy ride this week as we try to figure out what's going on there. Gautam Mukunda, he does this stuff for a living. He's a lecturer at the Yale School of Management. He's a Bloomberg Opinion contributor.

17:27Gautam, you know, I guess this is a little bit of President Trump starting off the week with some very big rhetoric and then backing off a little bit. That's at least how the markets have been kind of gauging it here. Has there been any long-term impact, positive or negative here, from what's happened the last several days? There's been significant long-term impact, and it's sadly all negative. So let's just break this out. The framework that the Trump administration is saying they have gotten, and to be clear, it's not clear they have actually gotten it, because the Europeans don't seem to be agreeing with that statement.

18:01But let's say the Trump administration got everything they said they got. Everything they said they got, they could have gotten with a phone call six months ago. Right. Like like if we had told the Danes, we want to put more bases in Greenland. We want more mineral rights in Greenland. We want you to do more to keep the Chinese out of Greenland, whatever that means. they would have said, awesome, we love the idea of you doing that. So there's no – so like everything they got was on the table just for the asking. The downside is we have now reached a situation where the prime minister of Canada, the United States' oldest, best, and most important ally, is saying that the United States is a predator that is taking advantage of other countries and that he needs to make allies, alliances with other countries, including China, judging by his actions, to protect himself from the United States.

18:55Like, it's almost impossible to overstate the level of the damage there. If the United States had somehow managed to extract ownership of Greenland from Denmark, that would not have been even close to being worth destroying the trust that the United States has built up with pretty much every other developed country in the world over the course of more than a century. Go ahead. No, no, no. So this trust that the United States has built up, is it the trust that the White House is now putting at risk or this particular White House, I should say, versus the U.S. government overall? Because in three years time, in eight years time, we could have a very different government in charge.

19:43And do we go back to the old ways? Yeah, I think it started with this administration. And if we were just talking about one Trump administration, it would have been just that. And then I think that's exactly what would have happened. We would have reset to the old ways and everybody would have said, look, every country has a hiccup once in a while. These things happen. But now you will hear Europeans say straight up that Trump is a reflection of something deep about what's happening in the United States right now, that it is not just a case that they do not trust the Trump administration. It is they do not trust the American public to not keep electing people like the Trump administration.

20:21And that creates a completely different set of constraints and circumstances. Are you surprised, I guess, going down that thread, Gotham, that we haven't heard really anything from members of Congress over the past week or the last year even? I wish I could say I was, but I'm not. And I think what's really striking is even members of Congress who said that they are who are not running for reelection are still unwilling to criticize the president directly with, you know, like a tiny handful of exceptions, but in the Republican Party. So even Thompilous, who's like, I'm out, right? Like he said, I am not running for reelection because I want to be able to speak truth to Trump.

21:02To President Trump is saying, hey, I don't actually have any criticism of the president. It's all about his advisers. And just be clear, like his advisors are not the people pushing Greenland on this. You know, that appears to be sort of from within the president from within the president's own head. And so I'm not surprised, both because there's, you know, his control over the Republican Party is total and people want to get reelected. But more than that, I think people are scared. Right. Like if you stand up to the president, if you are seen as his enemy, you are deluged by death threats and, you know, things, things that.

21:37that are not a normal part of American politics, in some sense, I guess you could say that January 6th worked because there are quite a few Republicans who are in fear for their lives, not just their seats. So, Gotham, you know, moving forward with all of this, I'm curious, you know, you mentioned Mark Carney and the speech that he gave declaring there's a new world order here, the old world order has ruptured. How does Europe respond to this moment? because they seem as disorganized and, frankly, as weak as ever. And, you know, when President Trump pointed them as weak, it's hard to see how they can come to agreement on how to stand up to him.

22:15So, I mean, I would never underestimate the Europeans' ability to fold under pressure. And I like that. I mean, but I think first is you did see, like, they started to put troops into Greenland, right? Like, that is not a minor signal, right? I mean, so there is a lot of like we are really starting to push back in that way in a way that we hadn't seen before. And I think if it had actually come down to an American use of force, that has a clarifying. Right. You know, as Oscar Wilde said, the prospect of hanging clarifies the mind. Right. That I think would have solidified the Europeans together.

22:50And second, the few gestures they did make. I mean, it's very clear. The Trump administration has backed down. Right. They they made lots of threats. They made lots of bluster. They got nothing and they are declaring victory. That is a back down. So they were backing down from even what little counter push the Europeans did. But I think what you will see is you'll start to see real pushback on American companies, right? Because at this, you know, no European country could seriously look at American defense contractors as a trustworthy purchaser, right? Like Microsoft is already facing pressure from Europeans because of some things that it did.

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