Will Paramount & Skydance Merge? + A Visit with Sam Bankman Fried in Prison — ft. William Cohan

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0:54Today's number five. Rupert Murnick just had his fifth wedding at 93 years of age. His wife was asked what it was like to have sex with Rupert, and she said it's like playing pool with a rope, Ed. Like playing pool with a rope.

1:17Welcome to Prop G Markets. Today we're speaking with William Cohen about the Paramount Skydance merger and his visit with Sam Bankman-Freed in prison. But first, here with the news is Prop G media analyst, Ed Elson. Ed, what is the good word? Not much. I'm doing very well. How's it being back in London? I went to the UEFA final. I saw Dortmund lose to Real Madrid. No way. That's incredible. It was great. And we'll talk about this, but I didn't like it. But a few people came up to me and asked me about you and specifically a subject you brought up, and we'll revisit that. But it was great i took my two boys and a friend of theirs uh santi from florida my my kind of older brother's close friend it was fantastic the game was great are you rooting for dortmund or real madrid oh totally dortmund you got to think that dortmund fans wanted it more um and uh i just love the fan base there i think it's fantastic i'm actually really excited i'm going to dortmund for the euros so i'm excited about that but yeah i'm excited i i really wanted uh dortmund to to win they came close they had a couple fantastic shots on goal but it wasn't to be we just start a football podcast maybe i feel like we're talking football every pod now yeah but we we we come at it we seem like we know what we're talking about as soon as people who understand football started listening it'd be pretty it'd be pretty clear that we are tourists actually that happened a few weeks ago i i i had a take on on uh i forgot we were talking i think we talked about the new club world Cup and I just got absolutely harassed by these football fans saying that I didn't know what I was talking about.

2:53It's unforgivable when a Brit doesn't know. With American, they kind of expect it. Whatever, he's American. Of course, he doesn't know what he's talking about. Get on to the headlines. Let's do it. Now is the time to fly. I hope you have plenty of the wherewithal. Shares of GameStop surged as much as 75 % after Keith Gill, also known as Roaring Kitty, posted a picture of a portfolio that contained a$116 million position in the meme stock. Dell reported first quarter earnings that beat expectations with sales up 6%. Despite that, the stock fell 18%, its largest drop in six years due to concerns over its AI server business.

3:37And finally, Bill Ackman is preparing to take his investment firm Pershing Square USA public as soon as next year. He also sold a 10 % stake in Pershing Square Capital Management at a$10.5 billion valuation earlier this week. Around half of the proceeds will be reinvested in Pershing Square USA at its IPO. Scott, your thoughts? So the GameStop thing is really, I mean, I love what Josh Brown said, that the sequel is never as good as the original. and the first time it was just a it was a movement right or a movement it was pretty it was the most interesting business story of that moment and then a few weeks ago when it happened the stock popped i forget it was i think it doubled or even more this time it was up 70 now it's down now it's i think about 30 it just feels like the sequels are getting more and more tired if you will well yeah let's i let's just go over what he has because i think it is kind of remarkable i mean According to the screenshot, he has 5 million GameStop shares, which he bought for an average of$21.

4:36And right now it's trading at 30. And in addition, he has 120 ,000 call options that allow him to buy the stock at$20 per share. So if he exercises those options, he's going to add another 12 million shares to his position, which would make him the fourth largest shareholder in the company. And so if you total all that up as of Monday morning and assuming he exercises those options, his stake is worth$700 million. You know, last time we discussed this, after he had posted on Twitter and then GameStop ripped, I posed a hypothetical to you where I said, you know, imagine if he had bought all of these call options before he posted on Twitter and started this rally and then he sold them.

5:20your view was you know that's okay it's within his rights it's free speech that situation no longer looks hypothetical i mean he did buy call options and if gamestop rises further he could become a billionaire and he could dump the whole thing so i'm just wondering if your view has changed now that we know that the hypothetical is actually true no it's so he's got some quote don't quote paper games right now, but here's the problem. I think if he lies, if he tries to give the indication, this is where we should have a legal expert, or he tries to head fake people into believing that he's buying when he's selling, he might raise the antennae of the SEC or a prosecutor.

6:00We should get a securities lawyer on. But if he just says, I like this, I think it's undervalued, I think I can move it by virtue of the fact I've chosen to gone into it. You see stocks pop every time an activist says, I'm here, or indicate or have a filing indicating they've taking a position, the stock pops. The fact that this stock popped more doesn't mean he's guilty of anything. Now, if he makes several hundred million dollars, if this thing, you know, this thing is very volatile right now. And if he starts to sell that position, I'd be curious what percentage of total outstanding shares that position represents, he might have the same volatility on the way down.

6:33So yeah, on paper, he has gains, but no one's going to probably loan him money against those gains. This is an incredibly volatile stock. I was looking at the options this morning. The stock was trading at 30 bucks. You could sell call options with a strike price of 35 expiring on Friday for five bucks, meaning that if it doesn't go up another 33 percent by Friday, you make money. And I'm not suggesting anyone write options. It's very risky. But this is what's interesting is per Josh Brown's comments, it looks like every time this happens, the pop gets smaller and smaller and smaller. It'll be really interesting to see what happens when he finally liquidates to see if he made money, because he's going to have to rush out of the same crowded door that took the stock up.

7:19Yep. Thoughts on Dell? I think this is so interesting. I think we have income inequality gone berserk in the markets, and that is NVIDIA shares have accounted for, get this, Ed, 34 % of the S &P 500's gains so far this year. Get one stock, one. It's the S &P one. One stock is responsible for a third of the gains. And what's happening is there's income inequality amongst the most fortunate. So SaaS companies trade at a multiple of six times revenues, which is huge. Consumer companies trade at 0.2 to, you know, Ford probably trades at 0.1 or 0.2 times revenues. SaaS software companies trade at six times.

7:56And even that is nothing compared to AI, which are trading at anywhere, you know, between kind of 10 and 20 times revenues to 150 times revenues for some of these private companies. What I think is happening is the kind of investors who are in Salesforce and Dell are saying, we're just piling into NVIDIA. Because if NVIDIA's stock is up, I think it added seven or three quarters of a trillion dollars just in May. That's got to be a lot of money coming in and so much money coming in. It's not new money into the market. That money is coming out of other shares. And I would imagine the kind of people that are going into NVIDIA right now are probably the kind of people that might have been invested in Dell or Salesforce who are disappointed and want to ride this momentum.

8:36I think the context here is that Dell is basically now considered an AI company. I mean, before this earnings report, Dell has been on a tear up 90 % year to date, up around 200 % in the past 12 months. And the reason is because it now sells these servers that are designed specifically for AI. Now, in this most recent quarter, that AI server shipment revenue doubled to$1.7 billion. So that's, you know, big growth. What's interesting, as you point out, is that number wasn't good enough for Wall Street. As you say, I think this is the same thing we saw last week with Salesforce, and that is investors, they're not looking for good growth or even great growth.

9:20They're looking for crazy astronomical growth. And I think they look at this report and they see, okay, you know, doubling in revenue. But then they look over at NVIDIA's earnings from the same quarter and they see a 450 % increase in the data center revenue. And then suddenly, triple digit growth just feels a little underwhelming. My God, Jensen Huang is like Brad Pitt in high school. Everybody wants to hang out with Jensen. Everyone's like, hey, what are you doing this weekend? Except for you, who doesn't know who he is. You're too cool to know. He comes up, love your videos. Great, boss. I got a big line here.

9:55You want to take a pic? Sure. That was Jensen Huang. Who's Jensen Huang? The guy who wants some video. Oh, really? Jensen! Jensen, come back. My good friend. My good friend. Yeah. Thoughts on Bill Ackman and taking Pershing public? I don't like this stuff. I think it's better. My viewpoint is the only reason you would go to the public markets is that you think retail investors won't demand the same returns or won't have the same corporate governance as a sovereign wealth fund. Because if you're Bill Ackman, you should be able to raise all the capital you want in the private markets. So he sees an opportunity to, quite frankly, are.

10:32But I've been watching, I don't know if you've seen this, WME, William Morris Endeavor went private or was saying private by Silver Lake. And I saw some of the numbers and the top two or three executives got, you know, just this ridiculous pay day when the company went public and they're getting an even bigger payday taking it private. I feel like a lot of this is just these guys figuring out ways to come up with cloud cover for an extraordinary one-time kind of ketamine hit. Like, wow, this is great. I can under the cover of this up my ownership or what have you. But generally speaking, these funds or these publicly traded investment vehicles don't do well.

11:08What are your thoughts? He's pretty famous now. He's been in the news for the past 12 months with his crusades against universities. Do you think maybe the fact that he's so famous and probably so famous among retail investors is playing into this at all? It might be. We live in a kind of attention capital or attention economy where you just want to be known. And so this will be a mid-cap company that will get a lot of attention. And a lot of people might say, oh, he's a brilliant investor. I'll buy some shares for my kid or I'll put some money in. And, you know, he might be just capitalizing on his brand equity.

11:42and I don't know if this, but this is true of everyone that's registered a little bit of success. So it's not a criticism of Bill. You generally hear from the people who just think you're fucking awesome, unless you're on social media. And I would imagine that a lot of people have said to him, including the bankers who want to take this public, your public profile is so positive that it'll trade up. People want an opportunity to invest alongside Bill Ackman. I wouldn't do this if I were him. The guy's already a billionaire. Why would he want to subject himself to the kind of full body cavity search that you have to subject yourself to on earnings calls with the SEC.

12:16And if the stock gets cut in half, it's one thing to call PIF or Ottawa Teachers Fund that you've made a bunch of money for and funds five, six, and seven and say aid stocks. It's another thing when you start losing, you know, orphans and widows money and CNBC starts reporting on it. So I don't understand why personally he would do this. Yeah. I mean, it feels like the main upside with him and for a lot of these guys is fame. I think they just love being in the news. He's been accused of being an attention monster, and I don't think that's not accurate. And a lot of us are like that. A lot of us— Like who?

12:48Oh, like the guy you owe your living to. So I'm at— You? I'm at the match. And all these people kept coming up to me and saying, hey, how are you? And anyone with a British accent—this happened to me three times—came up, and they were fascinated with what Ed Elson said last week on this pod about how you said that— there is a dangerous zeitgeist in the UK of being accidentally successful. And I have gotten, I have received emails. I've gotten to dinner parties here. And right after you said that, I saw Boris Johnson interviewed on the BBC or something talking and someone said, someone said, you know, Brexit has been a failure.

13:30And he's like, oh, rubbish. And then everyone laughed. And first off, he didn't offer any data. It's clearly been a fucking disaster. And the fact that he can't even admit that at this point shows that he has absolutely no integrity. And also, he looked like such a hot mess. He looked so ridiculously out of shape and his hair was ridiculous and he was so blotchy and I'm being very looksist right now, but for God's sakes, you represent London and the United Kingdom, get your shit together. And it was obvious that he has fully embraced, he's gone full accidental success. Like it's clearly catered.

14:08you've touched a nerve, Ed. You've touched a nerve. This is what I call your first viral moment. I'm glad I'm providing value. Yeah, no, I think that's exactly right. I think Boris is a really good example. I think another great example is this interview with Kwasi Kwarteng, where he's in conversation with Rory Stewart and Alistair Campbell, and he's talking about basically why nothing gets done in Parliament. Nobody actually talks about politics in Westminster. It's terrible. They talk about... No, they talk about politics, but not politics. They talk about gossip. Yeah, you're right. You're right.

14:39They talk a bit about gossip or they talk about very particular issues, but they don't talk about policy. No one. I've never had really a conversation. Why not? I don't know. I think it's... Why not talk about policy all the time? I know, but I think there's something. I think it's a very British thing where you don't want to be seen to be talking shop. I think it's a cultural thing, actually. So, you know, it's like, you know, if you're bringing up some tax issue in the tea room, it's kind of bad manners. And he is a flashing red example of what's wrong with politicians in the UK. And I mean, he was a massive failure and he just nails precisely what was wrong with Liz Truss's administration and what is wrong with him as a politician.

15:22We'll be right back with our conversation with William Cohen. Stay with us.

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16:47Welcome back. Here's our conversation with William Cohen, New York Times bestselling author and founding partner of Puck. Bill, thank you for coming on. I just want to say I'm one of your biggest fans, so we're very excited to have you. Thank you. It's great to be here, Ed. Appreciate it. Let's start with the big news in streaming today, which is that the saga with Paramount Global is finally coming to an end. Paramount agreed to merge with Skydance Media this week, pending approval from Shari Redstone. As we've discussed before, Paramount was previously in talks with Apollo, as well as at one point Warner Brothers Discovery.

17:26But in the end, they went with Skydance. Skydance is owned by David Ellison, who is the son of Larry Ellison, the billionaire founder of Oracle. If you've been listening to the podcast, you know the story. The deal is valued at$8 billion, but the terms of the deal are a little confusing to me. I mean, there's this injection of cash under the balance sheet. They're buying out the non-voting shares, but not all of them. It's all a little messy, and I don't fully understand it. So could you just give a breakdown of what has happened here with Paramount, and what does this deal actually look like?

18:00Sure. I mean, I think the first thing to note, and you sort of said it relatively quickly, but it's really important, which is that while it may seem like this is a done deal, until Sherry Redstone blesses it, it's not a done deal. And one of the things about this deal is it's pretty creative. as far as M &A deals go. If it does happen, Paramount Global will remain a publicly traded company. Along with that, there'll be a lot of new steps. There'll be obviously new ownership. The Redstone family will leave the picture. Sherry may roll over some of her stock, but that this combination of David Ellison, you know, perhaps his father Larry, Redbird Capital, KKR, will first buy Sherry Redstone's holding company, National Amusements, which controls 77 % of the voting stock of Paramount Global, as well as around 10 % of the economics.

19:07They'll probably pay her something around $2 billion for that stake, which is controversy number one, because on an economic basis, her stock is probably, even after stock traded up today, probably worth around$900 million. And so she'd be getting$2 billion for that, which other shareholders won't get, that kind of premium. Then the next step is that Paramount Global buys David Ellison's Hollywood production company, Skydance, for stock. Then the next thing that happens is that, you know, the money guys, Redbird Capital, KKR, and Larry Ellison, inject something like$3 to$4 billion into the company, some of which will be used to pay down Paramount Global's$12.2 billion of net debt, and the rest will be used to, as you alluded to, buying up stock in the public market at$15 a share.

20:16But there's only a finite amount of that cash. So if everybody tenders and wants to get out of this thing, which I gather a lot of people do, then it'll be pro rata and uh you know you know who who knows what uh they'll ultimately get depending on how many people tender their shares into this offering and that money by the way that's coming from redbird and kkr and larry ellison will probably go in as some sort of convertible preferred and then the final step is of course they wipe out the whole management team and bring in a whole new slate of people to run this thing you you mentioned the idea of sherry blessing it, why would she not bless this deal?

20:59So, Ed, what I'm hearing now is that there's a pretty important potential sticking point. You know, Sherry probably is going to want, you know, legal cover here because, as I said, she's getting a big premium for her stock, which, you know, to some extent is justified because she can convey control, owning 77 % of the voting stock. But, you know, her premium is like, you know,$2 billion on$900 million. So that's, what, 150 % or some number like that. Whereas, you know, the public shareholders, it was trading at$12 on Friday. It's offered$15. You know, that's like a 25 % premium. It's up to$13 now.

21:44So she's probably looking for legal cover. and the way she gets legal cover, so she isn't sued and blows up the whole damn thing down the road in Delaware court, is that she sort of demands that the majority of the minority investors, in other words, the non-Redstone holders of the various classes of stock here, vote to approve this deal, the majority of these minority shareholders. I'm told that that's what she is seeking. But I'm also hearing that if she insists on that, that'll be a deal breaker for Ellis and Redbird. And so we may be back to square zero sooner than we think here. Hey, you and I have been around the corporate governance game and investment banking for a while.

22:33This strikes me as just the quintessential example of what dual-class shareholder stocks are just a fucking mess. That, okay, it's one thing if she were to get$1.1 billion on our$900 million, it sucks to be a grownup. But I didn't know this until you told us this a few minutes ago. She's demanding a 122 % premium on her super vote. I mean, it strikes me, I immediately started thinking we should go raise money, buy a bunch of common, and just raise hell and say, okay, okay, we're comfortable with a 20 % premium, but we want 700 of that 1.1 billion to go to the common. I mean, it strikes me this is a pretty good suit if the common bring a suit against the board and Sherry or just try and block the deal on the notion that, okay, let me get this.

23:23That 1.1 billion should be distributed equally to the shareholders. Maybe we'll give you a small premium here. I thought this was going to go through, and now after speaking to you for two or three minutes, I'm wondering if this thing gets queered at the finish line. What my M &A legal friends tell me, Scott, is that, you know, caveat emptor, in effect, that you knew that Sherry Redstone and the Redstone family controlled the voting shares of this company. when you bought, whether you bought the voting shares, like say a Mario Gabelli, who's owned them for a long time, or just the non-voting shares, which a bunch of hedge funds now own, you knew that going in.

24:07So, you know, it's your own damn fault for buying into a company, the stock of a company, where you knew that there was a controlling shareholder and that she could exercise her controlling shareholder rights and not even give you a reason for doing that. See, what Redbird and Ellison are counting on is that she's just going to say, OK, and that's going to be the end of it. There's not going to be like a proxy statement filed. There's not going to be a vote. There's going to be nothing. But if she insists on and demands or the special committee demands that there's this majority of the minority vote, then, of course, that gives all these other players who are pissed a vote.

24:50They'll probably vote it down. So if that even gets demanded by Sherry as a part of this deal, that could, you know, I think at that point, Ellison and Redbird walk. So who knows? It's a very dicey leverage dynamic right now between these two sides after all this time. I think it's like, you know, fascinating, riveting from an M &A point of view. But I'm also told that, you know, by these, you know, M &A lawyers that if it goes, you know, into a Delaware court situation, that Sherry's going to win because, you know, people just knew going in. It's like, you know, your friends, Scott the Salzburgers or the Murdochs or, you know, Google or any of these other situations or Meta where there's, you know, dual class stock.

25:38You knew that going in. And so most of the time it doesn't matter. But when it comes to important things like selling the company or change of control and votes and things like that, you know, it's Sherry's way. I mean, she's she's fired her CEO in the middle of this a month ago. Four board members left. I mean, she's I mean, she can just do whatever she wants and has been doing whatever she wants for years now. And this is just another example of her doing whatever she wants. We'll see what she does. But, you know, you don't really have much leverage as a non-Redstone shareholder in this situation.

26:11If you follow that logic, then she could say the non-voting shares get a buck and I get three billion. There's got to be a breaking point in which a judge would say, this is not fair play or it's so onerous. Or is it that the non-voting shareholders just don't have to tender, and if a majority of them don't tender, the deal is off? Do they effectively have a voice? No. No, they don't. I mean, unless there's a majority of the minority provision, which we'll have to just sit here and wait and see what happens. The promise here, Scott, is that under this new management, this stock, which is now about$13 a share today and was$10,$9,$8,$12, you know, been floundering for years.

26:58You know, what Redburn and Ellison are promising is that this stock, you just hold on, everybody, and this is going to be a$30 to$40 stock. So you're going to be rewarded for your patience here. I want to put forward a thesis, and you tell me if you agree. these are trophy assets. I think it would be really fun to go to these movie premieres, you know, try and reinvigorate, you know, MTV, whatever it is, try and go to the opening of Yellowstone. I would love to own this company. And you have some really talented people, Jeff Zucker, Jeff Schell, who are looking for something to do. You have an excess of capital.