Walmart CEO Retires, US Head to Lead Retailer Into AI Age

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.

0:37So 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.

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. All right. There's been a lot of CEO changes in the telecom space lately, Paul. But now we're getting one in the retail space. The biggest retailer, Walmart, announcing CEO Doug McMillan will retire in February and he will be replaced by the current head of Walmart U.S. Jen Bartasch has covers retail staples and package hoots for us here at Bloomberg Intelligence.

1:46Jen, was this a surprise or was this a finely planned succession plan? Good morning. So the surprise is really only in the timing, not in the selection of who is actually going to succeed Doug McMillan. So John Furner has been in a position for the last six years as CEO of Walmart U.S. Everyone has presumed that he would be the heir apparent to the CEO role. So it's really just a matter of the timing of it that has caught people a little bit by surprise today. I'm looking at this guy, Mr. McMillan. He's only 59 years old. I mean, that's kind of young, right? It is reasonably young. He's been at the helm since 2014.

2:31And I will say to his credit, he's really implemented a cultural change at Walmart. If you think back to the early nots, Walmart had a bit of a reputation as maybe a bully with some of their suppliers and partners. You know, and that culture has really evolved to where it's much more of a technology led company. They're willing to experiment. They try, they fail, they move on. They've tried different strategies and they're not afraid to back away when they're not panning out and delve into something new. So and that cultural shift really is attributed to Doug McMillan. And, you know, as for the timing, you know, it just may be he feels that it's his time to have left his mark on the company and move on.

3:19What does this mean for a company like Target or anyone else that competes with Walmart? Does this present an opportunity or are things just going to go exactly as they were at Walmart, where the strategy remains consistent? And there's no real entry point for someone who has maybe been an also ran to kind of close the gap. I think that's a great question. And when it comes to tactics, we're not expecting any major pivot and strategy by John Furner when he takes over as CEO. But to be fair, I mean, Walmart is firing on all cylinders at the moment and they're gaining market share. They're growing their top line, growing their profit.

3:56So they're doing quite well. um that said you know at target we also had a new ceo announced not long ago um you know and for michael fidelke who's who's moving into the ceo role it's much more about the focus on target's transformation and you know and and a transfer a turnaround plan um now whether that presents an opportunity with a change at walmart as well that's a little hard to a little hard to say because you know i think first target's got to get their house in order before they go after other people's houses as well. All right. So stepping back here, what's the play for Walmart? If you're an investor in Walmart today, why are you an investor in Walmart today?

4:38Well, you know, Walmart has done an admirable job of, you know, increasing the breadth of their business while simultaneously becoming more focused. If you think over the last several years, they've exited some of their international markets where they weren't performing well. They've really focused on technology, the implementation of things like AI to support their business. Their digital sales growth is growing. The marketplace for online sales is growing. So when you look at it from an investor perspective, there are a lot of things that are happening at Walmart that should lead to consistent future growth.

5:20And, you know, that also includes, you know, a lot of the, it includes the efforts that they're making to bring higher income households into their group. And if they're able to successfully retain those households going forward, that just sets up a whole new wave of potential growth for Walmart in the long run with a much more robust core customer. And so those are the kinds of things where you look at them and you look at them relative to competitors and how those peers are valued. And although, you know, from a valuation perspective, you know, Walmart is, you know, more expensive than it had been, there's still a lot of opportunity to grow.

6:08Stay with us. More from Bloomberg Intelligence coming up after this. I'm Carol Masser. And I'm Tim Stenevek, inviting you to join us for the Bloomberg Businessweek 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. That's right, Tim. We're all over global business, finance, tech news, all as it is happening in real time. And we've got complete coverage of the U.S. market close. Gotta say, basically, if it impacts financial markets, if it impacts companies, if it's impacting trends and narratives that are out there, we are on it.

6:43We also have a lot of fun doing it. Bloomberg Business Week also brings you the analysis behind the headlines through conversations with our expert guests. And we are doing this all live each weekday. And then we bring you the best analysis in our daily podcast. Search for Bloomberg Business Week on YouTube, Apple, Spotify, or anywhere else you listen. Check it out on your way home from work to catch up on the conversations that you miss during the business day. And on the weekend, check it out for a complete wrap-up of your business week. That's the Bloomberg Business Week daily podcast. I'm Carol Masser.

7:12And I'm Tim Stanovic. Subscribe today wherever you get your podcasts.

7:20you'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 move now to the pharmaceutical sector with a big purchase here by merc a 9.2 billion dollar purchase of sadara therapeutics for $21.50 a share in cash. Madison Muller is our Bloomberg News healthcare reporter, and she joins us now. And Madison, this is all about filling the pipeline because Merck is losing patent protection on one of its blockbuster drugs.

7:58Exactly. And this is sort of the perpetual problem for pharmaceutical companies is that they face these patents for huge blockbusters that end up accounting for a large majority of their sales. I mean, in Merck's case, almost half the The company's revenue last year came from Keytruda, which is facing a patent expiration in 2028. This is a cancer drug, one of the best selling pharmaceutical products of all time. And so Merck has been looking for other products to replenish its pipeline. Like you said, this is one of them. They did another deal earlier this year. And so looking to flu treatments, which flu, even though we have vaccines, antivirals for the vaccines are effective.

8:39But for a long time, scientists, researchers, drug makers have been hunting for more effective and different products to help prevent the flu, which lots of Americans die from still each year. So where would Merck like to be in terms of, I mean, I guess when you're thinking back, having half your sales tied to one drug, well, it's a great drug and it's all good. That's probably not what you want from a diversification standpoint. What does Merck say about what they'd like to be? Yeah, I mean, it's interesting because a lot of pharma companies end up facing this problem. I mean, we look at Novo Nordisk and they have they're facing a similar issue.

9:15I mean, they're not necessarily looking at patent expirations, but they're looking at government price negotiations and cuts for their best selling drugs, Ozempic and Wagovi. The majority of their sales come from those products. And so a lot of times pharmaceutical companies end up in this situation where they have one product accounting for the majority of sales. And so, you know, Merck is not taking this approach to like looking to just one company, you know, big deal, one company to get another blockbuster to replace Keytruda. They're looking to have sort of one analyst, which we have in the story, called it a string of pearls M &A approach, you know, looking to more like bite sized deals to sort of diversify its pipeline and look to a couple of different products to hopefully, you know, replenish that.

10:00AbbVie was in a similar situation with its best-selling drug Humira. And that was an arthritis drug. They now have two arthritis treatments that are sort of accounting for like half and half of what Humira was bringing in. So it's interesting. And all the pharmaceutical companies are sort of taking different approaches to how they're doing it. But it seems like sort of doing this string of pearls approach, having a couple of different products is the way that they're thinking about it right now. I feel like I remember that once upon a time, a lot of these companies that were losing patent protection on their drugs would come out with like a tweak to the drug.

10:36You know, maybe it's in gel capsule form as opposed to tablet form. And that would, you know, extend the patent for a little bit longer. Is that something that they still do? Yeah, I mean, it is. It's definitely something that they still do. There are lots of ways to extend a patent, you know, getting a new indication for pediatrics or different formulations or combinations. But again, it sort of only gives you a couple more years. It doesn't extend the product's lifeline by like another 10 years, which that's what we're looking at. These companies have to think decades, you know, maybe a decade or more in advance about what's happening in terms of their pipeline.

11:13So while that's somewhat of a temporary solution or something that can be done earlier in a product's lifeline, it's like once you get to this point where it's sort of crunch time, they need to be thinking about what more can we bring in to make up for this. Is the Trump administration and the regulators, are they OK with these deals? I mean, do they ever challenge any of these deals or are they kind of under the radar? So far, it's sort of under the radar. I mean, this one's interesting. Actually, there was another analyst note this morning about how they don't think that the FTC per se will have a problem with this deal.

11:44But it's interesting to do a deal in the infectious disease space, given the Department of Health and Human Services stance on vaccines, infectious disease right now. And while this isn't a vaccine, it's just an interesting time in that space in general. So while there might not be additional FTC scrutiny, it might be something. And, you know, again, this is sort of hypothetical, but just like given the climate right now is something that HHS could potentially keep an eye on or look at. Stay with us. More from Bloomberg Intelligence coming up after this.

12:42through conversations with the smartest names in economics, finance, investment, and international relations. We do all this live each and every weekday that bring you the best analysis in our daily podcast. Search for Bloomberg Surveillance on Apple, Spotify, YouTube, or anywhere else you listen. On the East Coast, listen at lunch. And on the West Coast, listen as soon as you wake up. That's the Bloomberg Surveillance Podcast with Tom Keene, Paul Sweeney, and me, Alexis Christophorus. Subscribe today wherever you get your podcasts. Bloomberg Surveillance, essential listening each and every business day.

13:20You'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. A lot of news in the telecom space. We had a lot of change in the CEO suite. We've got a lot of stuff happening here. Verizon's out with a big story I want to get to about cutting costs there. John Butler joins us. He covers all the telecom stuff for Bloomberg Intelligence. Let's start with Verizon here. Planning to cut about 15 ,000 jobs. That's about 15 % of the workforce.

13:58I mean, this is big. What's going on there? That is a lot. So they have a new CEO, Dan Schulman. He's been on the board for a long time. So he's had a front row seat to what Hans Vesberg was doing. And his feeling was that Vesberg, who was leaning into a network first strategy. So he was out there telling everyone Verizon has the best network. It's the only reason to be with us. It's the best reason to be with us. And it just wasn't resonating. I think Shulman saw it and said, we need to be consumer first, not network first. So he took over, I think it was October 3rd at the beginning of October.

14:38He's new at the company, but again, I'm sorry, he's new in the role, but he's not new at the company. And so I think my hope is at least that these cuts are carefully considered because just as you say, with cutting 15 to 20 percent of the workforce at a telecom, risk cutting into bone, not just fat. And he was at AT &T before. This is a telecom guy, right? He was at Virgin Mobile, too. He has telecom experience. And he also helped to sort of pull PayPal out of the dredges. I think they headed back there during his tenure as well. So it was a little bit of a controversial ride for him there. But I think he has the kind of telecom experience and board experience at Verizon to bring some changes to the organization.

15:31When I talked to the company about his naming as CEO, the answer was we're bringing him in as a change agent. We really need shake up here. And that's an industry that could probably use it a little bit. I mean, John Ledger at T-Mobile did such a great job as a change agent. He did. So what he recognized is that consumer wireless is a consumer retail business, right? They have brand spokespeople. They advertise on the Super Bowl. They have free Tuesday, you know, T-Mobile Tuesday giveaways. And Verizon just seems off base there. I don't think they really hit the ball well when it comes to being in the consumer retail business.

16:15They think they think I my thing is they always they're an old Bell company. So they have some of that legacy. Yeah, it's in the culture there. And hopefully Shulman can sort of instill that excitement in the consumer. That's his big challenge. I mean, that's a business, the wireless business. That's a tough business. It's very competitive. Top line growth, really not there for an enlarge. So maybe cutting costs is a way to deliver cash and earnings. It's part of it. I think they also need to move into adjacencies. So if you look in Canada at the carriers there, like Rogers owns the Toronto Blue Jays and Rogers Center Stadium.

16:51They're in media. You know, they're they're tapping a lot of different adjacencies to make up for that slow growth and wireless. All right. Another story that is really front and center for me and for a lot of it, kind of telecom equity investors and bond investors is Satellite. Sats, Echo Star. Yeah. And finally, Charlie Ergen, the CEO and founder of Echo Star, finally selling the Spectrum. Is that what's going on? Because he bought a lot of Spectrum. It has been a crazy ride. So Echo Star, as you know, their roots were in satellite delivered pay TV. That market is dying with a capital D. And his decision was, let me take the capital I have and get into the consumer wireless business and compete with AT &T, Verizon, and T-Mobile.

17:41And I think every analyst, including myself, asked, what are you doing? And he bought a treasure trove of Spectrum. And he was sitting on it. He was beginning to deploy it. He was building his own wireless network. But they weren't getting any subscribers. And I think the FCC looked at it and said, we need more Spectrum in the hands of people that can really fill the airwaves. And so they started to get pressured a lot by the FCC, and that prompted the sale of Spectrum to Starlink and AT &T. I guess the good news is he is selling the Spectrum for a lot of money. The stock's up. It's tripled this year.

18:23That's the good news. The bad news, it took him about 15 years, it seems like, to do what we all knew almost 15 years ago, which is you either build a network or you flip the Spectrum and we make money either way. But it took a long time for him. Well, not only that, I always thought they were DISH as a pay TV provider. It's a strong brand name. You become what's called the mobile virtual network operator, MVNO, where you basically have AT &T and Verizon run the network for you. You do the billing, customer care, most importantly, the marketing. And so you're out there with a DISH wireless brand.

19:00You don't have to worry about spectrum or network operations. And they just decided to do the network themselves. 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.

19:36I'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.

20:21Regardless 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.