Paramount Sweetens Warner Bros. Bid Terms to Woo Investors

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with 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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1:02Bloomberg 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. Let's turn our attention to the media space. Lots going on out there. Spotify reported some earnings, but we want to lead with Warner Brothers Discovery, that M &A saga continues to play out today. Paramount kind of amended its bid, add some more cash funding for a termination fee, instituting a ticking option here for this thing.

1:44Geetha Ranganathan, she follows this as the media analyst for Bloomberg Intelligence. Geetha, let's start with the Warner Brothers discovery here. I'm still surprised that Paramount has not raised its bid from$30. They're making changes and maybe some enhancements to their offer. but not raising the bid in general. What do you make of it? Yeah, still playing the cat and mouse game here, Paul. They did stop short of actually raising the offer. But yes, you're right. They are offering now this almost$1.80 per share to cover the termination fee with the Netflix deal, as well as some of the financing costs.

2:20And then, of course, as you just mentioned, the ticking fee. I don't know, though, if this will necessarily fly with the Warner Brothers Discovery Board. I think this is just Paramount exhausting all of its options before they actually raised the bid. But in my mind, what this signals is, yes, they did stop short of actually raising that$30 bid, but I do think that this signals that they are willing to kind of go back to the table and probably raise that bid as this thing keeps dragging on. Yeah, it does feel a little bit silly given that David Ellison had said that$30 a share was not their best and final offer.

2:54So let's kind of get to it. That begs the question, Geetan, this is a dumb question. do they have the money to raise their bid? They do. But the question is really going to be what happens after Scarlett. So, you know, right now we're looking at a company with the$30 per share bid. We're looking at a company that's going to be levered about six and a half times. They raise that bid to, let's say, 32, 33, 34, whatever the number is. You're going to look at a company that's going to be levered at about seven to maybe 7.3 times. What happens with those dangerous levels of debt is, you know, it just becomes a distraction.

3:32You're not going to be able to invest in growth. You're just going to be focused on deleveraging. This is exactly what we've seen, you know, happen many a time in the media world. It's happened actually to Warner Brothers Discovery itself. You know, they had over$50 billion in debt. And the only thing that they were hyper-focused on is, OK, how do we keep, you know, reducing that debt pile? And so the biggest worry is that's what's going to happen to Paramount. So, yes, they could get their hands on this absolutely world-class asset. But, yes, leverage becomes this huge, huge headache for them.

4:02Keith, any sense of timing? It doesn't seem like either side feels the need to, I don't know, be aggressive here. So February 20th, that's the date that Paramount's proxy bid actually expires. It was initially Jan 20th. They extended it to February 20th. So that's the$30 hostile bid. That's the date of expiry. Remember, Paul and Scarlett, only about 7 % of Warner Brothers shares to date have been tendered at that$30 bid. So everybody's still kind of holding out for that higher per share offer. I think that tells you everything you need to know right now, then. February 20th is the day we'll watch for.

4:40Geetha, let's also talk about Spotify here. It added a record number of users, 38 million users, to 751 million, topping analyst estimates. How much more room is there to raise prices? Because increased prices in the U.S. was certainly part of that story. And it looks like consumers continue to sign up. Consumers continue to sign up, yes. We're seeing Spotify. And if you just look at their subscriber trajectory, Scarlett, over the past few years, they've added about 28 to 30 million subscribers every year. And there's just no signs of slowing down. They keep adding record number of subscribers, record number of active users, quarter after quarter.

5:15So there's just so much of appetite for this platform, for music in general, for audio in general. So that is definitely good news. You talked about pricing power. I think, you know, just with kind of the user interface that Spotify offers, with all of the content that it offers in terms of breadth and depth of content. And as they keep adding more enhancements, they do have a lot more leverage to keep raising those prices. So, you know, they've made a pretty bold move by raising their prices a little bit earlier this year. So now it's$13 for an individual plan in the U.S. That was a little bit above the rest of their competitors.

5:48But then we just saw a few days ago Amazon Music also kind of raising prices, which then I think just speaks to the audio industry in general. I mean, everybody there has a lot of pricing power, but I think Spotify definitely has the most just kind of, again, given the fact that they are a best in class product. Stay with us. More from Bloomberg Intelligence coming up after this. I'm Carol Masser. And I'm Tim Stenevec, inviting you to join us for the Bloomberg Business Week daily podcast. Now, every day we are bringing you reporting from the magazine that helps global leaders stay ahead. We've got insight on the people, the companies and trends that are shaping today's complex economy.

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7:17You'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. We have markets in the green right now, and the Nasdaq is among them. We've had seen this decoupling between big tech and the rest of the stock market, but big tech is back in the green once again. And the big news really is Alphabet and all the hyperscalers. scalars. It's going to need about$185 billion in terms of capex over this year. And so it has to raise a lot of money in the debt market.

7:56Caroline Hyde is the co-anchor of BTEC. And Caroline, Alphabet has had a banner 24 hours looking to raise almost$32 billion or pretty much set to raise$32 billion in less than 24 hours. I know we've got dollar denominated debt, You've got sterling. You've got Swiss franc. And what's extraordinary is the extent of demand. They could have sold way more than$32 billion. They had extraordinarily more than$100 billion worth of orders for the upsized$20 billion US sale. We're ranging from, you know, three year to 10 is out to as much as 30 year, 32 year. But then you're looking to the UK. They're selling one billion pounds of my great British sterling in 100 year bonds, a century bond.

8:39Now you haven't seen a tech company do that since Motorola since the 90s. And look, this is such a vote of confidence. Yes, you can say, is Google going to be here in 100 years time? A lot of these companies pay off the debt well ahead of 100 years. Disney, they issued back in the 90s. They paid it off in 2020s. But really what this is a resolute, clear signal of is that people believe in Alphabet. They believe in their ability to pay for their AI infrastructure. They believe in that 185 billion of spending in capex is a wise decision and that they are going to be an ai winner more across the board we're seeing a record swiss franc issuance you haven't seen a market being tapped to this extent and again a record amount of demand for it rob shiffman covers the tech from the credit size for bloomberg intelligence he says the windows were wide open for these companies they can keep coming to the market which is amazing for them and they are um we also got a piece of news taiwan semiconductor manufacturing said their january sales were their fastest clip in months so if We needed, I guess, another data point supporting this continuing AI spending.

9:41There you go. Yeah, 37 % increase year on year in terms of, yes, it was probably a bit of a slower year, a slower January previous year because of the way that the vacations and holidays fell in China. But TSMC is the chip manufacturer to the world. NVIDIA, Apple, if you're thinking about consumer electronics, if you're thinking about the AI data center story, this is the company that has been dining out on it. The shares are at a record when you're looking them in Taiwan or indeed on their ADRs trading abroad. And it just signals that the AI bubble that we're so concerned about, the idea that everyone's just passing money amongst themselves, there is real orders going in from a fundamental basis for this particular chip maker.

10:19Yeah. And it's the hardware maker TSMC. Let's talk about other hardware companies because they are paying up for memory chips. And those memory chip makers, some are winning, some maybe are under more pressure. And investors are trying to discern who's best placed. How are you thinking about this? I think a lot of people are trying to understand where is the cost pressure. The cost pressure is for those electronics companies. Apple has more control over its supply chain, its own chips. But still more broadly, if you're looking at an index of electronics makers, like thinking of the Nintendos of this world, they've sold off about 10 % in the beginning of this year.

10:50Meanwhile, the memory makers are up about 160 % or so. We're seeing Samsung being the winner here. You're seeing the likes of Micron, you're seeing, yes, there are turbulence day in, day out, but more broadly, it has been up and to the right for these memory makers, because not only is there necessary to put them in your hardware and your electronics, but really the ferocious demand to put them in AI data centers. Remember, this is high bandwidth memory that everyone's been going on about that HK Hynix has been winning in for SK Hynix, for example, over in Korea. Well, because there's so much demand there, and it's so much more profitable for them, They're having to sort of put their boring bog-standard memory chips that you want in your devices to the back burner, and it's really hurting these companies.

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12:41You'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. Let's get to some more corporate earnings because we are knee deep in earnings season. We're past the big tech companies and now we're really focused on the companies that make up this U.S. economy. Companies like Hasbro, the toy maker. The shares are up more than 7 percent right now. Lindsay Dutch is joining us. She is a consumer hardline senior analyst at Bloomberg Intelligence.

13:15And Lindsay, this earnings report shows it had a decent fourth quarter revenue and earnings per share beat. But the guidance, the outlook was seen as fairly conservative, yet investors seem to be rewarding the stock. What's the what's the story here for Hasbro? Hi, Scarlett. Thanks for having me. So the story for Hasbro is, you know, the results in 25, including the fourth quarter, is really being driven by their Wizard of the Coast digital gaming segment. That segment has been growing rapidly, 45 percent on the year, 60 percent, I think, for Magic of the Gathering in the quarter. So just tremendous growth coming out of that brand, better than expected.

13:56and that unit is really going to carry the growth in 2026. The outlook for the consumer products with their toy segment is still kind of weak. So it's really coming out of that digital gaming segment. But I think investors are pleased with the outlook there just because they're lapping very difficult comps. So to see solid growth in 26 coming out of that was a good surprise. What's the competitive landscape out there? Hasbro, Mattel, others. How's that playing out? Yeah, so we get Mattel results later today, and we'll have to see how that goes. It was a very challenging 2025, you know, with the tariffs.

14:34We had retailers delaying the holiday orders, and that really threw a wrench into the entire year for these toy makers. Hasbro did report a plus 7 % sales growth in the fourth quarter for consumer products. That was the first quarter of growth in quite some time. They do expect toy growth in 2026, but it could be low single digits. There's a lot of headwinds. We just saw disappointing retailer sales for December. So there's a lot of uncertainty about consumers out there and a rebound in that category. And we should hear more from Mattel. You know, they're the dominant player in dolls. So we'll hear more later today.

15:15Lindsay, what about tariffs? Is this something that Hasbro has figured out and it's no longer something that leaves its earnings to be kind of unreliable and they've kind of smoothed things out? So it definitely affected the year. So about$40 million in the fourth quarter, a headwind for margin there, especially on that consumer products segment. So that margin did decline year over year, which was a disappointment. It's certainly going to be a headwind for profitability, at least in the first half, and comps will get easier in the second half. But Hasbro did note that, you know, much of the cost savings program that they're working on and other supply chain efficiencies, they were able to offset a significant portion of that cost.

16:02So that is a good sign. But there's still a little bit of a headwind for the next two quarters. I'm just looking at the FAA function on the Bloomberg terminal. It gives me all the financial analysis. And boy, the operating income profit for the Wizards of the Coast in the digital segment is huge. whereas the profitability of their regular toy business, not so much. Is a company just throwing all the resources into their digital stuff? Is that the strategy? So they have definitely been pushing for several years now to become a bigger player in that digital world, but also really to become known for that.

16:37So I would say one of Hasbro's big brands, Monopoly, that's what many people know the company for is that traditional Monopoly board game. But they are pushing into this world of digital games. You know, they want to be valued as such. And I will say, you know, they do have a digital version of Monopoly, Monopoly Go. And that has done very, very well over the past couple of years. It continues to surprise, including in the fourth quarter. So they're definitely moving in that direction. But that toy segment, consumer products, you know, still is pretty large. It was still around 50 % of revenue for 25.

17:14I do think that mix will come down over time, but it's still a big piece of their business that they can't ignore. Lindsay, I also noticed that in this latest earnings report, they announced a$1 billion stock buyback authorization. I believe this is the first buyback since 2018. What does that signal to you? You know, I think that Hasbro is still working through their capital allocation priorities. They are still focused on reducing leverage. You know, their dividend has been flat for quite some time. So I think they're looking at different avenues now that they're in a much better financial position than they had been maybe a year or two ago.

17:54So I think it's just a signal that that position is solidly better. And they're looking to redeploy cash in different ways that they maybe couldn't have done a year or so ago. Again, using the PGO function, you can see where the revenue comes from geographically for this company. And the international business, which was about 40 percent of the revenue, has been declining as a percentage of total revenue here. Is there a strategy there to focus on the U.S. or are they pulling back from international? What's that strategy? Yes, so I don't think that they're necessarily pulling back from international toys is a global business.

18:29I think a lot of that is reflecting the growth in Wizards of the Coast and the digital gaming. So the digital gaming, it's really picking up very quickly in the U.S. They're seeing a lot of growth there, and that's partly shifting that geographical concentration. That digital gaming business is a global business, so some of that shift might move back the reverse over time. But I think the near-term shift is just part of that growth on the digital gaming side. Stay with us. More from Bloomberg Intelligence coming up after this. This is Caroline Hyde. And I'm Ed Ludlow, inviting you to join us for Bloomberg Tech, a daily podcast focusing exclusively on technology, innovation and the future of business.

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19:47I'm Caroline Hyde in New York. And I'm Ed Ludlow in San Francisco. Subscribe today, wherever you get your podcasts. 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. All right, let's get back to earning season because those are not the only companies that reported. Coca-Cola also came out with its latest results and maybe perhaps a bit underwhelming given the stock price reaction down 2 % at the moment. Ken Shea is our consumer products analyst, our senior consumer products analyst, and he joins us now from Princeton.

20:28So what's the story from Coca-Cola, Ken? What did they tell us? Yeah, hi, Scarlett. Well, Coke, in the fourth quarter, you know, revenues were up two. EPS was up 6%, pretty much in line with expectations. But I think what may be concerning the market a little bit about Coke is that the mix was not as favorable as it had been. Also, the company over the past couple of years had been relying heavily on price mix to boost the top line. is it was a considerable slowing in the quarter. Having said that, there's always some noise in the fourth quarter. It's hard to draw too many conclusions from the fourth quarter.

21:06But I think the market is also being spooked a little bit by the guidance for next year, which came in a little bit light. The company's long-term algorithm is to generate about 4 % to 6 % organic revenue. And from that, it can generate high comparable EPS growth. And it did that in 2025. In 2026, they're saying 4 % to 5 % top line and 4 % to 5 % EPS growth. And so that's EPS growth. Again, that's excluding currency effects. It's not only below their long-term algorithm, but also below consensus expectations going in. What's the – you know, we always talk at a lot of your companies, the consumer products companies, the staples companies, that you think about them as kind of a GDP, maybe a little bit GDP plus kind of growth here.

21:55Is there any secret sauce to the Coca-Cola story, or is that the way we should think about it? Well, there's a lot of truth to that, Paul, because Coke is in like 200 markets around the world. I guess the way for growth is lunar at this point. I mean, they're everywhere. But I think there's going to be a new CEO on March 31st, Henrik Baran. He's a longtime veteran at Coca-Cola. He was the COO, used to head of Latin American operations. I think there's a lot of confidence in his ability to take the reins here. And I think what he's going to spell out in his vision next week at Cagney, that's where they usually do it.

22:32That's where you'll be. Yeah. Well, I think he's going to say that they need to step up their marketing and innovation here to boost that top line growth. And I think they're going to talk a lot about functionality, something that we talked about with PepsiCo. What do I mean by functionality? Well, consumers want more from their beverages than just taste good and hydrate them. They want to not only have zero sugar, but it wants to have more electrolytes in their water. It wants to have more protein in their drinks, particularly the GLP-1 crowd. They want to have fiber, which Coke offers in its prebiotic sodas like Simply Pop.

23:14So these are the kind of things they're going to talk about in terms of product innovation, I believe, next week. And in addition to that, I think the company is going to spend more on marketing, digital marketing, to get the message out to new, young consumers. I guess the idea is to just have your drink replace your food. I guess. Zero Sugar actually was a standout, right, with Coca-Cola Zero Sugar posting double-digit volume growth in the quarter. When you say that they want to focus on the innovation and get the word out, what does that mean in terms of spending on marketing? What does that mean in terms of capital expenses?

23:48Well, I think broadly speaking, more social media advertising. I mean, on a per view basis, that's a lot more cost efficient than traditional ways like television. Paul, you would know that, right? Media analyst days. So it's more of that. It's also working more closely with their bottlers in terms of co-marketing ventures. That could be a wide range of things, not only digital marketing, but perhaps coming out new packaging, whether it's multi-packs to attract an economical consumer to spending more on its fountain dispenser. You see a lot of fast food restaurants where they can make their own sodas and so on.

24:28So spread that out more to have more consumer engagement no matter where they are. Yep. So I see more of that. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.