Warner Bros. Investors Approve $110 Billion Paramount Deal

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1:28Scarlet Fu: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. Warner Brothers investors approve$110 billion sale to Paramount. I also note, since I know David Zasloff, that investors reject CEO compensation package. That's interesting. I know. Is that binding? I don't know. I don't know how that works. But our next guest, I think he probably has some good reporting there.

2:06Chris Palmieri, he covers all the entertainment companies out there in Los Angeles for Bloomberg News. Chris, what do you make of the news here today? I guess it's fairly well expected that the shareholders would approve this sale to Paramount, Skydance Paramount. Yeah, they showed them the money and they said yes. $31 a share,$110 billion total. The pay package vote is not binding. It's one of those, say, unpaid things that companies are required to do. If this company were continuing as a public company, then the board would take that into consideration and next year's pay. But this go-round doesn't matter.

2:45They'll be gone, and David Sadsdorf will have his money.

2:48Scarlet Fu:Right. We're looking at accelerating equity awards valued at more than 500 million and 335 million dollars in potential tax reimbursements. Oh, nice. So he makes out pretty well. He always does. He always does. Chris, what does this mean for the thousands of Hollywood actors, screenwriters, directors and other workers in the industry who have come together to oppose this merger? They were appealing to regulators, to policymakers. I mean, do they still continue to try to press state attorneys general to do something about this? They can and they will. It's, you know, it's not a done deal overall.

3:28Certainly it is from the shareholder standpoint. It's a milestone in that regard. But there's still regulatory approvals that have to be done. And everyone's sort of anticipating lawsuits similar to what we've seen in Live Nation and other cases sort of opposing this deal. So, yeah, quite still a lot of opposition. But not from the federal government level, right? It doesn't appear that that's the case. I mean, there's been no official sign-off. You know, Paramount will say that they've gotten clearance, essentially, from the DOJ, but there's really been no official sign-off in Washington. You know, the deal price is$31 a share.

4:02Stocks trading at$27.30 here. That feels like a big discount to me from an arbitrage perspective, given this deal is going to presumably close in a couple of months. So I guess, what do you think the uncertainty might be out there in the marketplace, Chris? Is it regulatory? We need to get a sign off from President Trump and that can always be a risk. Is it some legal maybe lawsuits or something? What do you think? Is there an uncertainty? Yeah, I think all of the above. I mean, really, and we've really just seen a steady drumbeat. I mean, the Hollywood community has sort of been against it, but, you know, they had to shift.

4:34They had to go. They were opposed to Netflix and then they sort of had to regather. And now now they're opposed to Paramount. And so but we've seen, you know, the list of celebrities signing a petition against is growing. The number of events people like Cory Booker, the senator from New Jersey, have held to sort of examine this deal and criticize this deal. So whether all enough amounts to something that will stop the deal, still big question mark there. But there's certainly sort of growing opposition.

5:02Scarlet Fu:So when does the company's Paramount Warner Brothers Discovery, when do they start doing some of the hard work of integrating? Or is that something they cannot do until the regulators have made clear that they're not opposing? Yeah, they really have to wait to close. We saw in that Nextstar-Techner deal where they jumped as soon as they got a clearance in Washington and then the lawsuit happens and now they're actually barred from integrating. So very awkward situation. I imagine the Warner Brothers Fair amount folks are looking at that and saying, all right, well, we should probably make sure we're in the clear before we actually close this.

5:40Chris, you're based in L.A. I'm sure you know a lot of these folks that work at these entertainment companies. How concerned are they just about L.A. as a creative community, as a Hollywood community? Because here in New Jersey, Netflix is building a huge production complex. Where? Down at Fort Monmouth, the old Army base, tore down everything at this huge Army base, and are building this gajillion-dollar production facility. I mean, there's Vancouver, there's South Carolina, there's lots of places that are taking business away. What's the mood in L.A. creatively? Particularly gloomy, yeah. And, you know, it's been that way.

6:17We've written about this for a couple years now. You've had, you know, the flight to other locations to shoot. There's a big part of it, this overall cutbacks in spending among big companies. And the globalization of the business has really changed things. And then, you know, we've got AI as a threat. So jobs are definitely weak, particularly here in the capital of entertainment. And so the idea of this big merger, while David Ellison, the CEO of Paramount, promises there'll be growth, everyone anticipates that it's going to be very difficult in the labor market.

6:52Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this.

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7:55Scarlet 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. Let's talk about the railroad stocks, one of my favorite sectors. I used to cover this group back in the 80s. I have all my earnings and models for the railroad and trucking companies, but they're on floppy disk, so I don't think I can really access them anymore. But I'm sure they're still killer. Lee Claskow, senior transport logistics and shipping analyst from Bloomberg Intelligence.

8:27He's got some pretty good earnings models, too, here. So Union Pacific, the stock's up about 7 % here today, up 15 % year-to-date. How are their earnings, Lee? Yeah, their earnings were pretty good. They beat this morning on the first quarter, and it really was driven on productivity gains and pricing. The company was able to show that it's able to operate a better network, a more efficient network, despite the fact that volumes were slightly softer than most expected. They were down about 1%. The company really does appear focused that it can continue to get that productivity. Productivity could be more difficult if volumes do increase.

9:06Their outlook on the volumes, I would say, was cautiously optimistic. There were some pluses and minuses. They were positive on their bulk commodities like coal and green and also some domestic intermodal, while a little negative on their outlook as it relates to housing, like forest products that go into housing, automotives or international intermodal. So I think the outlook was a mixed bag, but the company is definitely executing on its plan. And it used the earnings call as an opportunity to kind of plug the merits of its proposed merger with Norfolk Southern. And folks, just for rail geeks like Lee and I, this is a seismic transaction.

9:47The railroad business would create the first truly coast-to-coast east-west rail system in the U.S. Lee, but of course the big, big, big issue is will the regulators allow it? What's the feeling here? you know the feeling is really mixed amongst participants obviously if you're union pacific northern southern you really think the deal is going to get done if you're the other railroads or maybe some trucking companies you might be you know hoping that that it doesn't it is a high regulatory hurdle that it has to meet it has to meet that it enhances competition and it's in the public interest a long time ago i think it was 2001 they changed the rules for mergers at the STB, and they wanted to kind of stop the consolidation that was happening in the marketplace.

10:31And it was kind of designed to stop a deal like this. The reality is that if it does happen, it will create a truly transcontinental network that will mean that rail cars will be touchless. And if they're touchless, you would assume that hopefully they can get better service and that could benefit from the customers that are on it. They are full press lobbying to try to get the deal done. They recently announced a new locomotive that commemorates the 250-year anniversary of the U.S. And it also has Donald Trump's name on the side. So it looks like they're looking everywhere they can to get some help from the administration.

11:15That's a good move. How about if I'm CSX here, I noticed CSX stock is at an all-time high. If I'm CSX, do I feel the need to maybe reach out to, I don't know, Union Pacific or maybe the other Western Railroad there and figure out that we need to do a deal as well? Yeah. So if the deal does happen, you would assume that, you know, more mergers will come, whether that's a Burlington Northern merger with CSX. Burlington Northern is owned by Berkshire Hathaway. And so obviously Berkshire Hathaway has some deep pockets to pay for CSX if it wanted to. Also, it could make sense if CSX with one of the Canadian competitors, like a Canadian Pacific Kansas City, that could be an option as well.

11:59So if it does happen, and again, it's a high regulatory hurdle, and we probably won't find out until late next year, early 2028, whether the deal gets done. Yeah, it's going to take some time. They have to refile with the STB because their initial filing did not cut the mustard with the regulators. So they wanted them to refile. And that should happen probably in the next 30 to 60 days. And so it just takes time because this is a huge transaction that the STB has to mull over. But, yeah, I mean, to answer your question, yes, it could. You know, the announcement of the deal, because the two companies, Union Pacific, Norfolk, Southern, really can't do anything together until they get approval.

12:40So it's been an opportunity for other rails to work together and create new services. And you've seen some share shift away from Norfolk Southern to CSX on the intermodal side, which has been pretty interesting to watch. Lee, what are your transport? You cover everything from the trucks, the rails, the air freight, all that kind of stuff, the big ocean shipping companies. What's been the collective, I don't know, response to this war in Iran? Is it localized just to that part of the world or is it having wider ripple effects? Yeah, obviously it's impacting the shipping industry. It's keeping container rates artificially high just because it's tying up capacity.

13:21And also assuming that there's a lasting piece, the Suez Canal can open up and that would make shipping rates come down considerably. The biggest thing is it's pushing energy prices higher, diesel prices higher. That's a huge input for trucking rails. You know, they do have mechanics to offset that through fuel surcharges. You know, just to pivot a little bit on the truckload side, Knight Swift reported earnings last night. Their reportings, they pre-announced and we knew it wasn't going to be a great quarter, which it wasn't. But their outlook really improved. So they expect rates to increase by high single digits to low double digits.

13:55And that's up from low to mid single digits. So they're really seeing the rate recovery happening. And that's really being driven on the supply side, supply coming out of the market. Stay with us. More from Bloomberg Intelligence coming up after this.

14:11Scarlet 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. Well, Blackstone, the world's largest alternative asset manager, reported a larger than expected jump in distributable earnings in the first quarter, boosted by a robust start to the year for dealmaking. Let's break down further. We're joined by Paul Goldberg, a senior equity analyst for Bloomberg Intelligence. Paul, talk to us about Blackstone. What did you learn from their earnings and their call about their business?

14:47I think the biggest thing for Blackstone is their size and diversification. As they did see some outflows from the retail fund, the B-Cred in particular, they did get a lot of inflows across the company. So almost$70 billion worth of inflows. So a lot of the fundraising and a lot of the activity is still holding up despite some of the pressure in the software's pocket and the retail and the credit side.

15:14Scarlet Fu:John Gray talked about how AI infrastructure is driving Blackstone's performance. What does that mean? So they're investing in data centers. They invested in the infrastructure that supports the AI expansion. They talked about$150 billion of assets across that kind of a size type of businesses. That's over 10 % of their overall assets under management. And they also talked about even slightly larger amount of the similar kind of deals in the pipeline to expand in that space. So they're really supporting that growth. Paul, what's a story for Blackstone and raising capital? Do they have all the capital they need?

15:56Or are they always in the market raising capital? I think they're always in the market. It really depends on what kind of vehicle. Sometimes there's a flagship fund. Sometimes those are new products. But given their size, they're really all usually in the market with both types of products. So for example, if you look at the B-Crad, it did get some inflows. But obviously because of the redemption, they got some outflows. But credit was credited. Insurance was still the biggest segment of their growth in terms of the inflows. They raised the$10 billion opportunistic credit fund during the quarter.

16:28They closed that. So there is a lot of activity going on outside of the risk back pockets that we're hearing about.

16:35Scarlet Fu:Is there a weak link here in these results? I know you mentioned the credit and insurance arm and how that still drew inflows, but earnings in that business dropped 26 percent. They did, but I don't think necessarily it's a weak link. So there's still some of that is driven by performance fees. They did have to, and they were very explicit about it because people are always concerned about valuations. They did mention that they lowered the valuations. In some liquid credit, they had a negative return during the quarter. So that's more normal in terms of what we've seen in the public markets and they're responding to it.

17:11Probably not at that scale that we've seen in the public markets, but it's there. So there is some pressure, but overall, there's still a reasonable growth. Stock down 4 % today, down about 20 % year to date. Is Blackstone getting caught up in just the overall market concern as it relates to private credit? I think so. I think it's a matter of convincing the investors about the breadth and all the other businesses that are working. And the fact that the credit quality in generally is holding up reasonably well. The companies that they're invested in, including the software part of businesses, they're doing okay.

17:50So it will take a few quarters to convince the market to come around. So if we look at the BREIT, there are the retail fund that they manage a large fund. Going back several years, it took them a few quarters to work through those concerns. So we might see some more pressure coming into queue even later on, possibly. But the investors will come to realize the bigger picture.

18:15Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. 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. Jet fuel prices have been rising and it's been really bad for these airlines, which, as far as I know, don't hedge their oil costs at all. They used to. Right. But they don't anymore. Unless you have a refinery. Right. Delta has that, right? That's pretty cool. All right. Let's bring in George Ferguson.

18:50Scarlet Fu:He is our senior aerospace defense and airlines analyst. And George, American Airlines just reported. But I mean, for all these airlines, the story is the fuel bill is surging for them and it is having an impact on their bottom line. Yep, definitely. Right. The name of the game right now in airline land is I need to increase fares. I think it's, you know, they're roughly going to have to get up into the high teens to 20 % rise in order to cover my increased fuel prices. One of the big challenges, too, is as they, you know, they need fares to rise, so they have to start to cut some capacity so they can get supply and demand back in balance.

19:33As they cut capacity, their costs go up, right? Because there's economies to scale. And so they start to get mid-single-digit and higher increases in cost per available seat mile as they trim their capacity growth. So it's a real push-pull kind of challenge here. And American came out and they hit it squarely with, hey, we're not really going to adjust capacity very much in 2Q. And we think we can get fair increases to compensate for a lot of it, but not all of it. What are the airlines saying about demand here? I mean, because I think airlines have some pretty good visibility, people booking trips into the summer, maybe even longer, were longer term than that.

20:14How are they seeing demand? Yeah, so I mean, I would say that across the board, you know, they all sort of said demand was very strong going into, you know, sort of the end of 1Q into the summer travel season this year. So it sounds like the setup had been pretty good. And again, now it's a function of the demand looks like it's still largely there, although they clearly wouldn't be cutting capacity if it was there and just would take a big price increase in fares. So a lot of them are, and I shouldn't say cutting capacity, they're trimming growth plans, especially the big full service carriers.

20:55Because, I mean, to me, that tells me that they can't get, they can't push through the full price increase they need. And a lot of them are talking about the cadence of getting that full recovery in fares to compensate for higher fuel prices. And they're kind of telling us that, you know, we heard from United that by the end of the year, by 4Q, they thought they'd be fully compensated. American told us they thought they would almost be fully compensated by the end of 4Q. So you can see a cadence here where it's going to take them a bunch of the year to really drive through those higher ticket prices and get back the increase fuel prices if they stay here, if fuel prices stay here.

21:36Scarlet Fu:Well, we know demand also looks very good because consumers are booking their flights for this summer and maybe for the holidays that they know they're going to be going away, knowing full well that fares are going up, up, up. I mean, that's been kind of a steady drumbeat of the news flow. For companies sending employees to go do business in other parts of the world and country, that kind of ends up being something you book maybe a month out. What does corporate travel look like? What do we learn from the airlines about that? Again, the commentary we're hearing right now is that corporate travel is continuing to recover.

22:10It was doing well, is doing well. And so from a demand perspective, we're hearing good things. But I agree with you on that, Scarlett, that I think that you're going to have to some degree the people that absolutely want to go or have to go rushing to book here We know the airlines haven't booked out their entire schedule for the summer and into the fall. Again, summer, we're coming into vacation season. It's traditionally a very leisure-focused season and, again, one of their strongest. So this fuel spike comes at a good time for them to pass through some of those increases. It's going to be more interesting to see what happens as we get into 4Q and 1Q of next year if these fuel prices remain high.