Warner Bros. Weighs Sale Amid Interest From Several Parties

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 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

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. Netflix, Comcast said to be interested in Warner Brothers. Who isn't interested in Warner Brothers Discovery? Again, I spent most of my career putting that company together. Now they're taking it apart. Go figure. That's how the bankers and lawyers get paid. That's how it works, folks. Geetha Ranganathan, Bloomberg Intelligence analyst.

1:38She covers all the media stuff. She's been covering media for, gosh, north of 15 years now, one of the best on the street. Geetha, I'm going to put it to you. You've got to get this deal done. I mean, what happens to Warner Brothers' discovery here? Oh, they're going to get sold, Paul, one way or the other, and David Zaslav will make sure of that. So his whole move this morning, yes, we got the red headline on Netflix and Comcast. But before that, basically what Warner Brothers management team did is they kind of launched this whole strategic review of the company, which was basically amounting to just putting on like a for sale sign.

2:12So, you know, we know that they wanted to already split their company into two parts. You have the low growth business, which was TV networks. You have the other high growth streaming and studios. But really, the problem for Warner Brothers Discovery was that they were, you know, I guess the way that people were thinking about it was not everybody was kind of incentivized to put in a bid for the whole company other than Paramount. And this is really the way that they kind of drum up interest from everybody to kind of get that sale process going. So where does Paramount stand? I mean, wasn't their offer too low?

2:44Are they going to come back? What are they doing now? Yeah, so, you know, we had a Bloomberg report suggesting that Paramount made a$20 per share offer, which was rejected. There were multiple reports this morning suggested that Paramount actually made several bids for Warner Brothers Discovery, all higher than that reported$20 price. So probably somewhere even upwards of$25. But again, those were rejected. So this is basically, you know, really kind of forcing Paramount's hand to raise their price pretty significantly. We know it's been reported that, you know, David Zaslav is seeking something like$40 per share for all of the company.

3:28And so this is really his way, you know, kind of putting, you know, basically inviting everybody out there to bid on all of the assets, It's really kind of forcing Paramount to take that price up or the price point up for Warner Brothers pretty, pretty dramatically. All right. Here's my prediction. You heard it here, folks. This will be the biggest M &A ticket, certainly in the TMT space, ever because they have so many companies have to be bought and sold here. So much financing, so much refinancing. Everybody's going to get paid here. The name that kind of came out of nowhere for some people, Geetha, is Comcast.

3:59But we know Brian Roberts. We know the team there. They are very comfortable doing transformational deals here. What do you think Comcast's strategy is? So this actually, Paul, if you just kind of think about it, even more than Netflix, and you know this really well, that Warner Brothers Discovery really makes perfect sense for Comcast. I mean, they have linear TV assets. They have a streaming business with Peacock. They have a fabulous studio with Universal. They could do a lot, a lot with the Warner Brothers Discovery assets. And I think everybody's kind of looking at this as a once in a generation, as a once in a lifetime opportunity.

4:33I mean, you let Warner Brothers Discovery go. There's really nothing else on the market that even compares, that even comes close to these assets. I mean, you have top tier IP here, whether you're thinking about DC Comics or Harry Potter or Game of Thrones. So everybody knows they have to do something. I think it makes a lot of sense for Comcast. The only problem for them is really going to be getting regulatory approval. We know that, you know, Brian Roberts has not exactly been in the good graces of either the FCC or the Trump administration. So that's going to be a difficult hurdle to cross.

5:02And then, of course, financing. I mean, this is going to be, as you just said, it's going to be the biggest deal probably for a long time to come in the media space. So we're looking at, you know, tens of billions of dollars, if not maybe even hundreds. Stay with us. More from Bloomberg Intelligence coming up after this.

5:22You'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 had, you know, all these companies reporting earnings, Lockheed Martin, just Raytheon, some really good numbers. GE Aerospace, RTX, which is your Raytheon, also reported some good numbers. Let's go to the analyst who covers this stuff for Bloomberg Intelligence, George Ferguson. He's been covering these companies for decades, and he is Bloomberg Intelligence Senior Aerospace Defense and Airlines analyst.

5:58George, let's start with GE Aerospace. Here's a company that, you know, we've all grown up with GE putting itself together, then breaking itself apart into smaller companies. I think the market likes this GE aerospace business, doesn't it? Yeah, so I think it's telling, too, that Larry Culp, the CEO of the combined companies, broke them apart and went with the aerospace business, right? That was the crown jewel. They're the largest maker of jet engines globally. I think they have probably the best technology for jet engines globally. and look this was a really nice quarter margins were even stronger than we expected I think they may be close to plateauing though here there's just a heavy heavy demand for aircraft maintenance even higher than sort of the amount of the increase in airline traffic would indicate just a lot of pent-up demand and they're coming out of the pandemic and some of the newer technology The engines just aren't as robust.

6:57So a lot of people fly on the old ones longer. And we heard a lot of good news about supply chain. Supply chain sounded like it was delivering for Larry. It's generally been a challenge. It was delivering, and he had parts to put on airplanes, and those were high-margin parts. And he showed it in the financial statements. Hey, George, you mentioned maintenance and repair. So does that help the company kind of offset those higher costs when you have the rise in the new engine deliveries? Yeah, so like I said, I think we might be seeing a plateau here in the margins we're going to get out of this company.

7:31So the air framers, Boeing and Airbus, have been slow in ramping up deliveries because they're working through their supply chain challenges. So we really see Boeing and Airbus increasing deliveries of new aircraft all the way to the back end of the decade. And that increase in deliveries will come with those new engines from GE and RTX, for that matter, and those are dilutive to margins. So they're kind of in this sweet spot where the original equipment shipments haven't taken off yet because Boeing and Airbus are working on that supply chain. And they're doing a lot of spare parts deliveries, and that's really juicing profitability very strongly.

8:15So next year, I think, becomes more challenging on the whole profitability front. All right, George, RTX, the old Raytheon, that's kind of how I know this company. Tell us, like, what's the business of RTX? What are their specialties and what did they report? So they make jet engines as well, right? Competitor to GE, they make the Pratt Whitney gear turbofan. uh they have the collins business which is uh is all kinds of parts for aircraft you know it could be brakes it could be uh landing gear and then they've got the raytheon business which is the old raytheon that you know the defense contractor from up boston area and they make uh they make radars they make missiles they make air defense kind of equipment and and like all of the you You know, all of those businesses in that portfolio are really clicking right now.

9:11Look, defense is going to grow slower. It takes time. The backlog builds quickly, but it takes a lot longer to build some of those products because they're not, you know, running down a line that are making as many like, you know, 737s or A320s where you're doing 500 or 600 a year. These are a lot slower cadence. but we're seeing a lot of demand from customers around the world for missiles and for air defense and so that backlog continues to build and they're building margin in that business. They're still in kind of 11-ish, 12-ish percent margin that was quite good in that defense business and then at the same time like I just told you for GE, the strength of demand for aircraft maintenance right now and the high margin parts that go into it thoroughly drove that Collins business.

10:00Their Collins business is a 13-ish, 14-percentage operating margin business, really seeing strong growth. Their engine business is not as strong as GE's. GE's returns in the 20-plus percent margins. Pratt & Whitney's kind of an 8 % to 9 % operating margin. They've had problems with their latest narrow body engines so they're managing some of those issues they just don't the volume that ge has but they continue to see margin growth in that business too as they deliver spare parts into some of the older legacy v2500 engines we know them as that power old a320s really did a nice job in that business and they raised guidance even more than ge going into the back into the last quarter of the year i think they had some of that in their back pocket but to look pretty nice.

10:53Hey, George, before you go, about a minute left. They're one of the largest recipients of U.S. federal contract funding. We're talking about RTX. Can you name some of the projects they're working on with the Trump administration? What are they working on? Yeah, so, I mean, they're going to do things like Patriot missile systems. They're going to do a bunch of, sorry, Patriot air defense systems. They're going to do a bunch of missile systems like gen t right you can think of if you know in air defense you use they make radars as well you use a radar you find a target you uh you sort all the targets you got coming at you at it and then you have to shoot a high value interceptor at that target and the reason that interceptor is so high value is it's got to go and hit a missile approaching you know your position your country or whatever, which means you put a lot of value add in that missile so it can go find another one and destroy it.

11:45So that's part of what they're building. They'll also probably be involved in the global dome or whatever, our version of iron dome. So there's just a lot of demand for the products that they're going to build. Stay with us. More from Bloomberg Intelligence coming up after this.

12:09You'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. An automaker, General Motors put out some really good numbers here, and the stocks are reacting up double digits here. Steve Mann joins us, Bloomberg Intelligence Global Autos and Industrials Research Annals. Steve, what are your takeaways from the results from our friends at General Motors? Hey, Paul. I mean, the earnings report was just half of the story.

12:45The call was very, very positive. That's my takeaway. And the biggest takeaway from that call was really the makeshift towards more, you know, selling more bigger SUVs, the pick a trucks that those are usually the highest margin business for them. now um they did get some relief from the trump administration's tariffs on auto parts right wasn't that part of the discussions yeah uh tariffs is one thing but i think for 2026 the stars are really aligning uh for higher profit for for general motors so you got lower tariffs uh but lower tariff costs for general motors and for the industry right you have of actually the elimination of admission penalties.

13:31So a lot of, in the past, automakers in the U.S. had to pay a penalty for selling these gas-guzzling SUVs and pickup trucks. Now they don't have to do that anymore. So that's going to contribute to the bottom line, right? And then they're also not going to sell as many EVs. EVs are basically loss-making for many of the automakers. So you got all these contributors for the 2026 earnings. And Steve, maybe this is just me being a cynical Wall Street guy, but reading between the lines, I took away that message that they were backing up as much as they possibly could from EVs. And if I'm an investor, that's a positive for me from a profitability standpoint.

14:18Is that too much reading between the lines or do you think GM and maybe even Ford and Stellantis are backing away? Absolutely not. they are backing away. GM just took a$1.6 billion charge. Most of it was to rationalize EV production capacity in the U.S. I think everybody's seeing that EV sales in the U.S. in the next quarter, maybe two quarters, will be down quite a bit after the pole hit demand. We'll see what the penetration is beyond that. But they're cutting capacity. They're going to have to revisit their portfolio especially gm they have launched on more vehicles than you know their detroit rivals so they're gonna have to look at that so you know evs for gm you know they call it variable uh profit but at the end of the day the bottom line is still loss making for these vehicles and you know when when when they sell less of them uh the makeshift improves uh you And now they're probably going to even sell more SUVs and pickup trucks.

15:26Those are typically the highest margin business vehicles for them. So what exactly did Mary Ba have to say about the EV adoption? Did she give any specific numbers or dates, extend any dates? No, she wouldn't. She didn't give any dates. But it is still a priority, quote-unquote priority. She called it the North Star. for General Motors. She thinks that long term, and she didn't really define what long term is, is that there's going to be a continued shift into EVs. And I think, you know, when you listen to some of the consumers in the marketplace, you know, a lot of them who switched over to EVs do like them.

16:11I'm not sure if that the EVs are going to be their, you know, their only vehicle. I think it fits, especially in the U.S. marketplace, as a second vehicle, a commuter vehicle. So I think, you know, there will be adoption of EVs. I think even before the$7 ,500 credit was available, there was some, you know, we did see a start of EV adoption. Stay with us. More from Bloomberg Intelligence coming up after this.

16:45You'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. Big, big day for earnings. We had the industrial companies out. We also had General Motors out. Got some consumer companies coming out with earnings today as well. Philip Morris, Coca-Cola. And we go to Ken Shea. He covers all these consumer-facing companies for Bloomberg Intelligence. Hey, Ken, let's start with Coca-Cola. I am a Coca-Cola person, but again, it's been widely reported that if you put a Pepsi in front of me, I'm just as happy.

17:22But talk to us about Coca-Cola, Ken. What did you hear from them? Sure. Hi, Paul. So Coca-Cola today, they reported numbers that were slightly better than expected. The organic growth, probably the biggest metric of all, was up about 6%. Operating margins widened better than expected. EPS came in a little better. So that's probably why the shares are trading a little higher today. So it's good. They reiterated their expectations for the full year. They gave a hint for next year. They said basically they see lots of opportunities in some product innovation. So look out for things like more rollout of the zero Coke and Sprites, zero sugar, I should say, more Fairlife protein drinks, more enhanced and low sugar sports drinks and enhanced waters.

18:11So these are really the franchise full beverage products that they're known for. And so they're going to continue to innovate next year. I should ask one other quick thing, another big news with Coke today is that they were successful in sort of their refranchising. Basically, what that means is they're monetizing a lot of their bottling assets. They were instrumental in selling some 75 % of their Coca-Cola Africa unit today. So anyway, what that does is streamlines and strengthens their global bottling network. And so I think that was another reason for investor encouragement today. Yeah, that was some big news that came out earlier before the earnings came out.

18:52Now, if we talk about earnings, you said that consumers are still buying the drinks, but they're buying them at higher prices too, no? Well, they are for the most part. And that's one of the things Coca-Cola did mention today. He said, you know, I mean, you get a company that's this global, you're going to have pockets of strength and weakness. And so they said, you know, in some areas they're doing well. People are trading up and still favoring the premium products. Affordability, though, is a key issue in other big markets. So Mexico, for instance, is having a tough time. Macroeconomics. and by the way Mexico is also going to pass a big sugar tax beginning of next year so they're a little wary on that and so they're going to be rolling out a lot of affordability universal bottles, returnable bottles, smaller packages sizes so the company it's been doing this a long time though so they've been through some of these ebbs and flows of the markets it's well positioned Philip Mars This is the tobacco company.

19:52They had some numbers out today. Stock trading down a little bit here today. Yeah, Paul, Bill and Morris also hit their numbers. It was a really strong quarter. EPS on a comparable basis of 17%. Strong top line margin improvement. It was hard to find any fault with the actual numbers that came in. But I think what may have gotten some people a little nervous was that they lowered their guidance for organic operating earnings. And a lot of that is just reinvestment in the business. One of the biggest products successes in recent years has been this Zyn oral nicotine product. It's a non-tobacco pouch product.

20:28You put your mouth, you don't have to spit, get your nicotine buzz that way. It's doing wonderful. The company said that now that it has recently added some manufacturing capacity and has some more supplies, it's going to look to expand the market. How do you expand the market? you convince smokers to move to a non-combustible variety, particularly in the U.S. So it's spending quite a bit of money to do that. And so for those with a short-term mind, I guess, they were a little nervous about that lowered guidance for operating earnings. But I think they're doing the smart thing longer term now.

21:03If you're a long-term investor, it's hard to find fault in that strategy. How big is their smoke-free business? it's now about 41 percent of their total business and the way ahead of their competitors when i say smoke free you're talking about a combination of things uh the so-called heat not burn icos family of products that contains actually uh some nicotine in there that heats it and doesn't burn it you have the uh the reviv e-vapor product kind of like an e-cigarette and then you also have the Zin oral nicotine products. So it's combined. You have really three really strong franchises and they're at the point now where on a combined basis, they're more profitable from an operating margin standpoint than their conventional cigarette business.

21:53So the faster this thing grows and it has a bigger proportion of their business, it's all good from a margin standpoint. 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.