SpaceX Wants Fee Cut From Bankers Chasing $500 Million Windfall

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1:52Bloomberg 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. And a lot of the outlook on the markets will depend on how this SpaceX mammoth IPO proceeds. Pricing could take place next week, and then the stock could begin trading potentially the day after. Srinath Rajan is our chief Wall Street correspondent here at Bloomberg News, and he's looking at Paul's favorite angle of IPOs, which is banks and banks getting paid to take this company public.

2:36And Sri, your reporting has found that Elon Musk is negotiating to cut down the fees that bankers normally get paid. What do bankers normally get paid and what does Elon Musk want to pay them? Look, if you think about it realistically, in some ways, SpaceX is the Walmart of IPOs, right? It has all the pricing power here. It is raising$75 billion. So you shouldn't expect a typical IPO fee. And to your question, what a typical IPO fee is, most IPOs generally tend to raise less than a billion dollars, a few hundred million dollars. and the banks would usually charge between 4 % to 7%. But even when we talk about the league of mega IPOs, that fee does get reduced drastically.

3:15But even in most of those cases, almost all of those cases are usually above 1%. That was the case with Facebook, Uber, Alibaba. You have to go back perhaps to 2020 and 2010 and a very unusual public listing of General Motors back in 2010, when the banks agreed to a 0.75 % fee on that IPO, largely because the owner of GM at the time was the United States government. This is very different. But also look at the quantum of money that SpaceX is trying to raise,$75 billion. So even if they charge one of the lowest or offer one of the lowest IPO fees on record, less than 75 bips, less than 0.75%, that would still amount to somewhere in the ballpark of$500 million.

3:59dollars. And Paul will tell you that is a pretty good payday for banks. And this is how the road show is going to go. It's like, I just want to hear Elon. Give me the vision. Give me the pitch. I don't need the CFO. I need the bankers talking about that. I don't need to talk about valuation. None of that's relevant. It's the buy Elon's vision. And if I'm Elon, I'm like, what am I paying you that for? Paying you anything for that. So any pushback on the banks by the banks on this or are they just looking at the long game and saying, this is Elon Musk and there's a lot of business here? The latter, yes, yes, and yes.

4:33I cannot imagine a scenario where the banks have a lot of position to push back. You already have 23 banks signed up for this. And again,$500 million. You're talking about the lead banks getting probably roughly$100 million a year. That's my guess. And it trickles down from there. But there's everyone who's anyone who signed up for this because you don't want to miss out on the biggest IPO that matters. Okay, 23 banks signed up for this. Why does SpaceX need 23 different banks to help it sell this IPO? Scour every corner of possible investors and make sure you can get to your 1.8, perhaps even the 2,$2.2 trillion valuation.

5:06Of course, our reporting shows that the bankers have been dialing it back on what the potential valuation could be for SpaceX. But all of these banks will serve a different purpose. You can see someone like Citigroup perhaps tap to go after retail investors overseas because of their strength in those markets. or Bank of America looking at retail investors in the United States, Goldman Sachs, Morgan Stanley, JP Morgan. These are the banks that will be really strong with the big institutional investors, investors like, say, BlackRock in the United States or the Saudi Sovereign Fund, PIF. These are some of the names that are already out there, but these are the names that these big banks have to arrange and make sure that they're able to line up.

5:46Because even if it's Elon Musk and even if you believe in this multi-planetary grand vision, $75 billion is$75 billion on the back of the surprise stealth$80 billion raised by Google. There's only so much money going around. So it's kind of extraordinary what's happening in this market. In a span of 10 days, if everything goes right, Goldman, Morgan Stanley and the others would have raised over$100 billion in new equity. I can't think of a quarter where they would have raised that much or even a six-month span. We haven't even gotten to Anthropic or OpenAI yet. We haven't even. So you've got to get ready.

6:23When are we going to get the roadshow schedule? Because I want that in my inbox. I'm the first person you're going to forward it to. When are we going to get that, do you think? You will be the first person I'll forward it to when I get it and when I have a better sense of it. Do we have any idea when that's going to be made available? Like, are they going to Boston? Are they going to London? Are they going to do a rubber chicken lunch here in New York? Do we know any of that stuff? I mean, imminent has to be the best answer. They want to try the next week. They're playing it very close to the vest.

6:47Or it could also mean that I just don't know. Could be. I don't know. Well, the timeline here that we've been reporting, according to our understanding, is pricing next Thursday? Correct. Okay. And always, always, always the stock that begins trading the following day? That's the goal. That's the hope. And usually that's what happens. And again, these things can move around a day or two. But when you're talking about$1.8 trillion, when you're talking about colonizing Mars, does the day here or there really matter? Talk to us just 30 seconds on the Google. What's the buzz out there in the marketplace about the Google deal?

7:15And nobody expected that. What a surprise move. We've all been talking about the$75 billion raise, the largest public listing on record. And out of nowhere, Google comes across. And it's hard to compare the data because of the different tranches that are involved in this$80 billion that Google is raising. But if I had to stick my neck out, I would think that this is the largest equity raise ever. You have Berkshire as the anchor investor, a big chunk that gets priced today, another piece that gets priced in a few weeks. $80 billion. Never seen anything like that. Stay with us. More from Bloomberg Intelligence coming up after this.

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10:07You'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. Anthropic is, they filed first. It seems like they beat ChatGPT, whatever that thing is, OpenAI, all that kind of stuff coming to the public markets. I guess it's a little bit of a race to try to get out there. Yeah, and it definitely feels like OpenAI has lost the momentum with the trial, the court case between Elon Musk and Sam Altman. And Anthropic is all that anyone's talking about, right?

10:41Clawed over ChatGPT all day long. Matthew Bloxham joins us here. He's a senior media tech analyst for Bloomberg Intelligence based over there in London. Matthew, what do you expect? I mean, we're going to get SpaceX kicking off Thursday, presumably, the roadshow. But let's talk about Anthropic here. these two big AI IPOs that are coming down the pike here. What do you think investors are going to be looking for? Well, I think with Anthropic, they're just kind of looking for as much detail as they can get about the kind of revenue model, the momentum behind it. Obviously, we've been hearing data points recently that, you know, we're kind of back end of last year, then maybe the annualized revenue run rate was around the kind of$10 billion market It could be close to$50 billion by the end of the year.

11:30And where they are on that pathway and what the economics of the business look like. Yes, it's similar to SpaceX. You just kind of live off breadcrumbs and suddenly you get a big download of data that kind of really helps you to understand the business model more. Matthew, we characterize OpenAI and Anthropic as being in a race. But is it actually like that? if you have Anthropik going public before OpenAI, does that mean there's less demand for OpenAI's IPO? Yeah, you know, I think it's definitely right to characterize this as a race, regardless of what the companies might say. You know, these are huge numbers that companies are raising, and we don't know yet how much either these companies will look to raise.

12:13But, you know, if SpaceX is looking to raise$75 billion and Google's out there looking to raise$80 billion, And it's going to be in the tens of billions of dollars. And there's only so much capital out there. And so, you know, I think it's definitely better to go earlier than later. Because if you go later, you're at risk that either the capital flow has dried up or that those IPOs that went before you didn't go so well. Or the market's taken a bit of a turn. And so you're kind of left, you know, maybe either having to accept a low valuation or a small amount of money. So I think going sooner is always better than going later when you're raising money.

12:53I'm an old EV to EBIT. guy. Maybe I'll go a little price to free cash flow. But I don't know how you're going to value this. These AI stories. The market is going to be valuation sensitive at all. Or is it just you take what you get? I think it's a little bit of both. But I mean, yeah, you know, I mean, what have we got to play with? nothing really more than EV to sales. And they're pretty eye-watering multiples. Even on that kind of forward multiple, a trillion dollars, Anthropik's going to be on about 20 times sales. So you are having to extrapolate many years out to kind of reconcile that with an EBITDA multiple or an earnings multiple.

13:38And there's clearly a huge number of assumptions you're having to put in to get to those kind of forward estimations. So, yeah, it's a kind of a moonshot trade, really, isn't it? You know, you're kind of buying into the fact that in some way, shape or form, these companies that are coming to market are going to be the foundational businesses of the next 30, 40, 50 years of technology. And, you know, it's going to work out eventually for you. Remember peg ratios and eyeballs and all the different metrics that people used to come up with during the dot-com bubble days? It feels like total addressable market is the new one for this era.

14:18So, Matthew, before we say goodbye to you, as people, investors get ready to partake in these IPOs, they're likely going to lighten up in some of their exposure to existing tech holdings because otherwise they have too much concentration risk. What kinds of companies are most at risk then? Yeah, I mean, it's a good question, isn't it? I mean, you know, it could be everything from like, you know, NVIDIA, TSMC, you know, I think you're kind of clearly going to be needing to think about companies where you have had great performance and that perhaps you're kind of prepared to do a bit of profit taking.

14:59maybe taking the view that actually, even if you sell a bit of NVIDIA intrinsically, you're kind of going to get some benefit and some indirect exposure by kind of playing it through one of these other names. So yeah, it's a tricky one, but I think probably a lot of portfolios are already inherently kind of fairly concentrated. So given the numbers we're talking about, you're going to be having to look at these like mega cap names to kind of trim exposure. Stay with us. More from Bloomberg Intelligence coming up after this.

15:53with improving operating margins, or the S &P 500 minus high-debt companies. Chances are there isn't an ETF that fits your exact criteria. But on public, you just type in a prompt and their AI screens thousands of stocks and builds a one-of-a-kind index. You can even backtest it against the S &P 500. Then you can invest in a few clicks. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market. Ad paid for by Public Holdings. Brokered services by Public Investing, member FINRA SIPC. Advisory services by Public Advisors, SEC Registered Advisor.

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17:11Ryan Reynolds here from Mint Mobile. The message for everyone paying big wireless way too much. please for the love of everything good in this world stop with mint you can get premium wireless for just 15 a month of course if you enjoy overpaying no judgments but that's weird okay one judgment anyway give it a try at mintmobile.com slash switch up front payment of 45 for three-month plan equivalent to 15 per month required intro rate first three months only then full price plan options available taxes and fees extra see full terms at mintmobile.com 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 well we've been talking about victoria's secret uh all morning some really really strong numbers beat the street pretty handily uh and we're seeing a stock of 45 here today so that's a good news there mary ross gilbert uh she covers the retailers for Bloomberg Intelligence.

18:12Mary, talk to us about Victoria's Secret. It seems like a huge turnaround there.

18:17Mary Ross Gilbert:Paul, you're absolutely right. Hillary Super is really executing supremely her team, Hillary and her team. So when you look at the results today, their comparable sales were up 13%. Now, remember, they are cycling declines of comp sales in the first quarter for like the past three to four years. So that is helping. Still, this is a big increase seeing a double digit increase in comp sales. But it's not just that. It's also they're selling more at full price. They're attracting a younger cohort. So they saw a lot of strength in 18 to 24 year olds. But they also saw strength in households earning under$50 ,000 and households earning over$200 ,000.

19:05Mary Ross Gilbert:So that's really saying something about what's happening here with the brand. So they have great franchises that they've created. So they have like the Dream Angels. A lot of these are the innovative lines that they've come out with in bras. Their lace collection is hugely popular. Within Pink, the turnaround at Pink has been phenomenal. And it's really resonating there. I mean, they have these totes that are selling out. Victoria Secrets has totes? Well, we're talking about totes specifically within the Pink franchise. But yes, Victoria's Secret also has totes. But Pink does as well. And there were a number of pieces for spring and summer that sold out, including a really cool duffel bag.

19:54Mary Ross Gilbert:So they're really hitting the mark. They have this wonderful fragrance and beauty franchise. That's like a$2 billion business. And they saw strength and double-digit gains across all categories. And the momentum should continue in the second half. So it appears that the guidance, which is really going to be sort of drawn back to more single-digit gains, really looks like they could be beatable. There's going to be some product launches in the second half. They're going to really heat up the campaigns. And all of that is really, I mean, did you know that Victoria's Secret has 77 million Instagram followers?

20:34Mary Ross Gilbert:Okay, that is news. But I'm looking at Paul Sweeney, and he's going to tell me that he's not surprised, given that Victoria's Secret used to be a big, big brand, you know, with the fashion shows and everything. Is that something that the CEO of Hillary Super is going to bring back? I mean, the company now has some momentum. Or has the company effectively moved away from that former profile? Well, let's make it clear. And the reason why their ticker symbol VSXY, very sexy, right? I mean, it's important. That's a big part of the Victoria's Secret brand franchise is sexiness. And so, Scarlett, speaking to the fashion show, the fashion show is already back.

21:16Mary Ross Gilbert:They had a great fashion show last year. That's okay. and this year I'm sure it's going to be great. It's much more inclusive. It's from a woman's point of view on what is sexy and it's really a fantastic show. But they also have a number of other campaigns that they do. They do a lot in New York City just on the street and they post it on social media. All of those things are resonating and you see a lot of strong sales within the stores. The culture there, I think, has always been very positive because employees who work there love their jobs. And you would experience it if you go in there. They're so engaging.

21:59Mary Ross Gilbert:They help you out. They know how to size you. And they show you so much of their product. And so I think they get a lot of conversion with that kind of engagement in the stores. Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from Public. Public is an investing platform that offers access to stocks, options, bonds, and crypto. And they've also integrated AI with tools that can assist investors in building customized portfolios. One of these tools is called Generated Assets. It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific like biotech companies with high R &D spend, small cap stocks with improving operating margins, or the S &P 500 minus high debt companies.

22:47Chances are there isn't an ETF that fits your exact criteria. But on Public, you just type in a prompt and their AI screens thousands of stocks and builds a one-of-a-kind index. You can even backtest it against the S &P 500. Then you can invest in a few clicks. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market.

23:37Mary Ross Gilbert:to work, understanding your life and your ambitions, and designing the precise strategies that build and protect your wealth with confidence across this generation and the next. Put the power of Oppenheimer thinking to work for you. Wealth Management, Capital Markets, Investment Banking. Hey, it's Ryan Seacrest for Jewel Osco. Summer is here and the sun is out. Make sure you take care of your skin this summer, now through June 23rd. Shop for You Save Days and get great savings on all your favorite skincare essentials and earn four times points. Shop in-store or online and save on Sunblock from Neutrogena, Sunbum, Hawaiian Tropic, Banana Boat, and Coppertone and earn four times points to use for future savings on groceries or gas.

24:23Offer ends June 23rd. Restrictions apply. Offers may vary. Visit Jewelosco.com for more details. 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. When I saw the blowout Dell earnings last week, did I run out and buy HPE stock, Hewlett Packard, like a direct competitor? No. And what did HPE do yesterday? Blowout numbers. Stock's up 25 % today. 52-week high. All-time high. So there you go. So the AI story is alive and well in that part of the tech stack.

25:07Woo Jin-ho joins us. He knows what's going on there. He's a senior technology analyst at Bloomberg Intelligence down there on our Princeton campus. Woo, talk to us about HPE. What did you learn from their results last night? Yeah. Hey, Paul. Blowout is an understatement. There's a couple of things going on. I think we're starting to shift from a cyclical upswing to maybe a secular multi-year adoption phase for traditional servers as corporate enterprises start to adopt AI into the workplace, which may be driving better margins as well as a stronger growth for a longer period. Let me ask a dumb question, Woojin.