Paramount’s Deal Playbook, Trump Opens Nvidia’s China Door, Saudis Loosen Drinking Laws | Diet TBPN

0:01Just a few days until Christmas. We're so excited. We're live from the TVPan Ultradome. The Temple of Technology. the fortress of finance the capital capital no travel until christmas baby no travel until the new year we're in the ultra dome hanging out we're monitoring the situation we're monitoring always the paramount netflix warner brothers situation because this is one of the most fascinating deals the deal has gone hostile paramount has launched a hostile bid to acquire warner brothers it's an all-cash offer 77.9 billion really really and it's a fun one because uh i feel like it's It's obviously tech adjacent, but it's not the story that people have been monitoring all year.

0:41We've been talking about foundation models. That whole story has just gotten a little bit stagnant. Legacy Media said they got tired of not getting enough attention. Exactly. Let's spice it up a little bit. Let's spice it up. Here's something new to learn about. So everyone's having fun. Everyone's learning new things. And I could tell because when I came in today, I had a bunch of questions that people were throwing at me about how all of this works. Why isn't Warner Brothers just going with the highest price? Like when I sell a stock, I don't care if Citadel or Jane Street's buying it. Like if I'm selling 80 bucks a stock, just give me the best price.

1:15But when you're selling an$80 billion company, there are other considerations. And it goes beyond just maximizing shareholder value. And so I wanted to break down a few of those. So I did that in today's newsletter. We can run through that and then we can run through some of the news. This question, you know, it seems obvious. The board has a fiduciary duty to maximize shareholder value. that's legal requirement to take the higher offer and yet that's not what's happening like yesterday we saw that that Ellison and Paramount came in with over a hundred billion of course that included the CNN the TV assets but even when you broke it out it seemed like it was very clear that Ellison was willing to pay more money and make a higher offer so under what circumstances can a board whose job it is to maximize shareholder value not take the higher offer they can't just it can't just be whoever we had the better dinner with right which is part of the news of course they they went out to dinner and Paramount CEO David Ellison sent a text to David Zaslav who's running Warner Brothers after they made a hostile bid today to buy Warner Brothers and David text the other David and says David but I guess he misspelled his name even though that's his name which is funny but anyway he says I appreciate your underwater today so I wanted to send you a quick text know that despite the noise of the last 24 hours I have nothing but respect and admiration for you and the company it would be the honor of a lifetime to be your partner and to work and to be the owner of these iconic assets he's talking about fog horn leghorn he's talking about porky pig he's also talking about Batman and Superman obviously and Harry Potter and Lord of the Rings and a million other iconic assets which is true if we have the privilege to work together you will see that my father and I are the people you had dinner with.

3:02Which I like that. I think that's cool. They had dinner. They - It's a fantastic text. Yes, yes, yes. It's a great one. There are two main reasons why you don't just take, why your size might not be size. Directors at a company like Warner Brothers, they have to maximize shareholder value. But maximizing shareholder value is an expected value calculation. So if you come in with a$100 billion offer, and I think there's a 75 % chance that you're going to deliver that, and someone else comes in with an$80 billion offer, and I think there's a 100 % chance that they're going to deliver that. Well, the expected value of your bid is$75 billion.

3:38The expected value of their bid is$80 billion. I go with the$80 billion. Even though it's like a lower headline number, it has a higher expectation. How much of the calculus do you think is just a deal that will actually get done? A deal that doesn't get done could still have value because of a breakup fee. You could, in theory, go into a deal that you know is impossible, And the example that I gave is, what if ByteDance came in? And they were like, hey, you know, we're a$400 billion media company. We'd love to own Porky Pig. We'd love to own these iconic assets. Let's pick up Warner Brothers.

4:10We'd love to own CNN, too. You know? Who knows what we'd put on the TV? We already own TikTok. We already own TikTok. Why not CNN also? Why not Shark Week? But obviously, the government would block that. And we have CFIUS, which is an organization in the U.S. government that determines whether or not an international buyer can take an American company because of intellectual property, all sorts of geopolitical considerations. We don't want another country cornering a market on a really key piece of the supply chain, like the NVIDIA H200, for example. Then there's also just the FTC. So certain deals, like I gave you the example yesterday, like Disney.

4:46Disney would be so blocked, I think, that that deal doesn't even get kicked around. No one even talks about it. because it would get blocked by the FTC. But it would maximize shareholder value if Disney came and said, yeah, we'll give you a$10 billion breakup fee and we wanna try and buy you for 200 billion or a trillion or 200 million. Like you would immediately say yes because you just want the breakup fee. But being in this turmoil and being in this limbo and not being able to sign deals with others, that has an opportunity cost, right? And so you might wanna back off of that. And so basically the - Yeah, you look back at the Figma acquisition.

5:22Adobe paid a billion dollar breakup fee. So that's effectively like non-dilutive financing for Figma. That has a happy ending because they were able to re-accelerate, get out into the public markets. But there was another situation where they went through a rough patch and actually really needed that capital to get through. There's basically two buckets of risk that I think most dealmakers would be considering in this situation. First is financing risk. So will they come through with the money? And what money are they paying with? Because the initial offer, this is the history, there's actually been six offers put forward by Paramount.

6:04David Ellison is putting on a clinic of just not taking no for an answer. Because all the way back on September 14th, he offered$19 a share and 60 % of that was cash. So 60 % cash offer. Then September 30th, two weeks later, he comes back$22 a share and ups the amount of cash to 66.7%. Zaslav is doing a masterclass in making your opponent negotiate against himself. 100%. It's actually great. And so October 3rd,$23.50 a share, 80 % cash. Then November 20th,$25.50 a share, 85 % cash. Then finally December 1st,$26.50 per share, 100 % cash. December 4th,$30 a share, 100 % cash. Now, why does this matter?

6:47Well, it's because you get locked into owning the shares of 40 % of the shares is paramount. And then while it's closing, the stock trades down, you wind up getting less value. And so the$80 billion today might wind up being$70 billion later. And that doesn't maximize shareholder value. There's also just the question of, can you actually marshal the cash? Just like if somebody comes to you and you're about to sell your house to them and they say, yeah, I'm definitely going to get a loan for this. Well, that's a financing risk. Maybe they don't. Maybe they back out of the deal. That's why cash offers oftentimes supersede.

7:18Exactly. If you can just prove that you have the cash, that makes a difference. He's effectively gone and done that because he's teamed up with Jerry Kushner, reportedly, and gone around the world, got a whole bunch of different sovereign funds. Anyone with deep pockets has said, yes, I'm down to come along on this ride and put up a bunch of the capital. The capital has been marshaled. It seems like it's ready to go. And then also you have Larry Ellison, who has three times as much money, I think, than the whole deal value. Something like that,$275 billion to his name. And he's only trying to put together - Assets, not cash.

7:54Assets, not cash. But - He should not just, I know they want it, but do not market sell your Oracle position, please. Yeah, but he's like, I'm actually going all cash now. But he's effectively acted as a backstop. And so everyone who's come in and said, okay, I guess I'm good for 10 billion of that 80 billion, but only if everyone else is in, Larry Ellison reportedly has come in and said, well, you know, if there's one person in the bunch that backs out of their slug at the last second, I'll jump in and get them. He's not saying he's going to put up the whole 80. He's just saying he's backstopping it.

8:29David Ellison feels very, you know, good because he's done what Zaslav wanted him to. He said, hey, they wanted an all-cash offer. I brought them an all-cash offer. I brought them an offer that's higher. And we believe that there's no reason why factor number two should come into play. And factor number two is regulatory approval. And so there's been this question about will Netflix get approved? If there was a different buyer, it would have even more regulatory risk. And so you don't want to, even if the price is higher, you don't want to accept a higher price with a lower chance of actual conversion.

9:04Bobby thinks NLE Choppa might up his offer to 100K of cash and get back in the mix. In that scenario, at least you know that the 100K cash is real. And it's going to be delivered on the day of clothes. Maybe in actual cash. Probably. I think that was the... That is funny because that was the joke of that meme was that he was giving actual cash. When we're saying cash offer here, of course, we are not talking about physical cash. Is Tyler doing money spread? What does he got? Did Christmas come early for you? So I had a question though. What makes the Paramount offer hostile? Is it that it's reacting to the Netflix offer?

9:41Is that the Warner Brothers board went with Netflix and it's hostile because they're saying, screw the board decision, we want to go to the shareholders. Okay, yeah, because it sounded like they had a nice dinner and the techs were kind. Yes, yes, yes. No, no, no. It sounded very hostile. No, no, no. Hostile in the sense of not accepting the final decision there. And then also there is a point where you can appeal directly to the shareholders and you can actually make the legal case that the board is not acting in their fiduciary duty and in the interest of shareholders. But again, these things need to be argued in shareholder lawsuits because it is fuzzy.

10:19Like if I say I'm offering you$100 billion and someone else is offering$80 billion and the board says, yeah, but that$100 billion has only a 75 % chance of going through, you have to discount that. Now, the board says it's worth 75, but whoever made that offer can say, no, we're actually good for it. You should apply a 10 % discount rate and treat our offer as if it's 90 % or 100%. And so all of those arguments, those can be made in the court and the shareholders can react to that. And if the shareholders align and say, yeah, actually, we think we'd be getting more money here with this deal, then they can push back against the board at a certain point.

10:59but yeah friend of the show high-powered media exec says Zaslav has been architecting this situation for the last 12 months sitting pretty and he's a wild wily old fox and has what he has been shooting for two heavy hitters fighting over a deal don't doubt there will be a couple more turns here with the price or even another bidder coming in sideways which is remarkable because because the price is so high already compared to where it was six months ago. Zaslav, it really feels like it's coming together that he will be remembered as like an incredible business executive for this deal. Possible deal guy of the year.

11:39He's in the conversation. He's definitely in the - Sam, Sam was - Sam looked like he was running away with it - Yes, yes. Over the summer. That's true. Early fall. And he lost ball control. He lost ball control, yeah. There is a wrinkle that people haven't really been considering, which is the fact that Warner Brothers Discovery holds a massive, often underrated vault of masculine cinema. And if this falls into the wrong hands, it could be... What is masculine cinema? Masculine cinema would be... Is that just guys being dudes on film? So they own a bunch of Clint Eastwood films, Dirty Harry, Magnum Force, The Enforcer, Heartbreak Ridge American Sniper letters from Iwo Jima unforgiven Gran Torino they also own Rambo the whole service is to loan the Cobra wing Cobra demolition man the specialist Tango and cash bullet to the head get Carter the 2000 remake they also own Mad Max lethal weapons all of the lethal the lethal weapons the matrix blade mortal combat 300 rush hour Pacific Rim and a number of uh dad and military shows band of brothers the pacific generation kill there's a whole host they should release the full dvd set just called guys being dudes yes they also own some jason statham properties the meg franchise where jason statham fights a big shark whoa uh wrath of man um i guess uh most of the guy ritchie films are actually with lions gator mgm but and and i think this could be a uh you know a big political hot button of what happens to the Rambo franchises, the Hollywood hunks.

13:20No one's talking about the Hollywood hunks. Everyone's focused on the Looney Tunes characters. But if the Hollywood hunks fall into the wrong hands, it could swing our entire culture potentially. You're hiding inordinate amounts of Middle Eastern funding sources in your takeover bid. Are you not, says Boring Business. And not hiding it, it's out in the open. Like this is like the playbook for these big deals. It's double that of the amount of equity that the Allisons are putting in, putting in around 12 billion. Yeah, I mean, I think everyone assumes that there'd be a lot of Middle Eastern funding in this.

13:52That has become the standard funding instrument these days. Like EA Games, we just followed that story a little bit. That was obviously a huge amount of Saudi money. And that is part of the modern deal-making playbook these days. A lot of venture funds have raised money over there. A lot of the big AI companies have raised money over there. Like, that seems like a foregone conclusion. If you need money, you go where the money is. Why do bank robbers rob banks? Because that's where the money is, right? Trump says that the United States will allow NVIDIA H200 chip sales to China and get a 25 % cut.

14:27This is a pretty big change. I mean, we were talking about not selling. I mean, I guess it's not Blackwell, right? It's Hopper. So we're still a generation behind. But was this, it was like a pretty nerfed chip before. we're getting less nerfed we seem to move we seem to be moving in a in a more thumbs up direction more uh let's let's actually get the chips over to china at the same time ai is fake so it doesn't matter right that's the take the pro china take is that it's like sass it's sass or it's not it's not like this uh nuclear bomb that's going to destroy everyone so it's harder it's getting harder to make the Manhattan Project argument.

15:12And it feels impossible to make the argument that we're going to get them addicted to the U.S. AI supply chain and they'll never develop their own capabilities. And so we want them. Oh, I disagree with that. I think that that argument actually holds. That argument holds for sure. I mean, I totally disagree. I think China is smart enough to know they don't want to be dependent on any foreign country to produce any critical... Yes, but I still think there's enough of like a market force within China that if we flood the market with cheap NVIDIA chips, it'll just be expensive for them to keep propping up their local industry, even if they are aware of it, even if they know that they have to.

15:52It's a cost, and it's something that a lot of AI researchers over there will just say, you know what? It's so much easier. The NVIDIA ecosystem is so great. I'm just going to stick with that i'm a little bit skeptical that like uh there isn't there there's no advantage to uh to selling nvidia chips there i've become more receptive to that argument particularly even though you have not tyler what were you going to say about this uh yeah i was just going to say i mean we kind of joke about this yeah um but it is kind of crazy the extent to which you can basically bake down all like ai policy questions to like if you are agi-pilled yeah because like if you are if you're dario yeah i mean you shouldn't be giving stuff to china um you also shouldn't you'll like Like if you are AGI-pilled, you should be thinking about safety.

16:34All these things, like we had Keith Raboy on. He doesn't seem super AGI-pilled. He's also like, oh, safety's a hoax, etc. Stuff like this. Well, let's read through this Wall Street Journal article on the details of the new NVIDIA deal. Notable that this seems to have been completely priced in already because NVIDIA is actually down half a point today. Yes, it's been such a dramatic story all year. and yet it's always felt like a complete footnote in the overall financial performance of NVIDIA. They're growing so fast that, you know, I don't know how many, we're going to get into figuring out how many H200s they sell, but they would need to sell a lot to actually move the needle on this behemoth of a business, what is the world's largest company in the world.

17:16President Trump said he would let NVIDIA export its H200 chip to China and that the U.S. would receive a 25 % cut his latest bid to make money for the government in an unusual agreement with a private company. I have informed President Xi Jinping of China that the United States will allow NVIDIA to ship H200 products to approved customers in China and other countries under conditions that allow for strong national security. 25 % will be paid to the U.S. of A. The move is a boon for NVIDIA, which has fought for months to maintain access to the world's second largest economy. The company had agreed earlier this year to give the US 15 % of China's sales from a lower performing chip only for the Chinese to scuttle those plans as part of continuing trade talks between the two sides.

18:03Chips from the world's most valuable company have become a prized geopolitical tool. The H200 has higher performance than the H20 that Nvidia was previously allowed to sell. Even with the US government taking a cut, the decision could be worth billions of dollars in sales to nvidia in the most recent fiscal quarter nvidia reported gross margins of 73.4 percent on 57 billion dollars in sales that is crazy they can totally afford 25 for the big guy yeah right around that time too lutnik was on cnbc uh and this was the quote that originally ticked off the chinese he said we don't sell them our best stuff not our second best stuff not even our third best.

18:45He said, you want to sell the Chinese enough that their developers get addicted to the American technology stack. That's the thinking. CCP basically immediately said, we don't want any of them now. Trump said that the government would take a similar approach to exports from Nvidia competitor AMD as well as Intel, in which the government now has a 10 % stake. We exported a ton of Teslas to China and BYD and Huawei have now - Arguably completely leapfrogged. Completely leapfrogged. They did not become addicted to the American electric car stack. That was the point I was making earlier. Yeah. You can make the art, like, almost with every single product, they've said, we'll work with you to make this thing that you want to make.

19:25We're really good at making things. Yes. And then they ultimately just make a better version of said product and make it for cheaper. And in the case of cars, right now we're obviously not allowing these cars to be imported into the U.S. you know, they can simultaneously say, we're happy to keep making you these things. We're also going to compete with you directly. Yeah, and you don't allow Tesla to export the amazing Model S or Model 3. Does that slow down BYD's development of their car? My understanding is they were able to basically get a paid education making Teslas, and they were able to leverage that into making...

20:05But that's about making the car there. Nvidia has a Shanghai... But that's research. That's not made there. That's not made there. It's very different when you're saying, okay, we're gonna go and produce this product there, and you are gonna get educated there, and the workforce there. I think it's different, but you remember, we've gone through this before, China's five-year plans to create a domestic chip industry. They've been doing five-year plans for 60 years. I know, they're building, that's what I'm saying, and I would argue that it's working. They're not caught up, but they're certainly made, massive amount of progress.

20:37It made more progress than any other country on Earth. I think if you want to think about getting the Chinese addicted to our chips, how addictive are the chips? Because if you can make a comparison between, like you have the NVIDIA chips, and then you have the Chinese, or like TPU, right? Because the TPU is like in some ways it's harder to use, the open source is not as good. But if it's just more economical, like if the actual hardware is just like a little bit cheaper, then it doesn't really matter how worse the software is, people will eventually move to it. So it's like, I don't think there is actually that much like soft power in the kind of general open source stuff like that in regards to like NVIDIA.

21:17It doesn't seem very addictive outside of it just being cheaper. At the same time, like we are, America is very much like addicted to Chinese solar panels right now. Like the Chinese solar panels come here, they're cheap. And so we don't wind up buying or building a domestic solar panel industry because just to get anything off the ground, you have to go in and say, okay, we're going to deal with having no margin forever and no venture capitalist can underwrite it and no private equity firm can underwrite it. And so it just doesn't really happen. Gavin knew we needed a new narrative. He said after the fateful BG2 episode ended the AI trade, we needed a new trade.

22:00And now we're getting the space data center trade. Okay. Let's hear the space data center. I think the most important thing that's going to happen in the world in the next three to four years is data centers in space. If you think about it from first principles, data centers should be in space. What are the fundamental inputs to running a data center? Their power and their cooling. And then there are the chips. The inputs to making the tokens come out of the magic machines. So in space, you can keep a satellite in the sun 24 hours a day. Pretty cool. And the sun is 30 % more intense. And this results in six times more irradiance in outer space than on planet Earth.

22:39So you're getting a lot of solar energy. Point number two, because you're in the sun 24 hours a day, you don't need a battery. This is a giant percentage of the cost. So the lowest cost energy available in our solar system is solar energy and space. Okay. Second, for cooling. In one of these racks, a majority of the mass and the weight is cooling. And the cooling in these data centers is incredibly complicated. You know, I mean, the HVAC, the CDUs, the liquid cooling. In space, cooling is free. You just put a radiator on the dark side of the satellite. It's fucking cold. And it's as close to absolute zero as you can get.

23:19So all that goes away. And that is a vast amount of cost. Where are you going to connect those racks? Well, it's funny. In the data center, the racks are over a certain distance connected with fiber optics. And that just means a laser going through a cable. The only thing faster than a laser going through a fiber optic cable is a laser going through absolute vacuum. So if you can link these satellites in space together using lasers, you actually have a faster and more coherent network than in a data center on Earth. Okay? The user experience. You know, when I asked Grok about you and it gave the nice answer.

23:56This is crazy, though. They've done a podcast together five times. Why is he asking Grok about Patrick? I was like, what is going on? I would like to know how much SpaceX exposure Gavin has. You just put a radiator on the dark side of the satellite. Thermal engineers in absolute shambles right now. Yeah, people are not, I don't know, people are so split. Casey Hammer says, to be fair, this is a big satellite. You need basically a lot of mass in order to dissipate enough heat. There's some massive news from Gulfstream Aerospace. the G400 introduces next-gen Gulfstream tech to its class. How has Mark Burns not been on the show yet?

24:37Here we go. Clearly don't have a no-render policy over here. They're render-raxing.

24:47You think they could just be adding special effects? What do you mean? This is the most rendered video I've ever seen. This looks like it was rendered in 2010. Okay, but here he is. You think this is real, though? bring Gulfstream performance standards this is not a green screen damn fulfilling our customers needs for a product line I knew it was too good to be true look at this you're like this is real this is what it looks like with Gulfstream's signature combination of range speed and cabin comfort the G400 will provide unrivaled efficiency thanks to the combination of the advanced this is going to be a hot Christmas gift this year Absolutely.

25:27People have been wondering. I think this will be under the tree for a lot of people. Mark Benioff says, LLMs are the new disk drives. Commodity infrastructure you hot swap for whoever's cheapest plus best. The fantasy that the model is the moat just expired. Mark Benioff having fun on the timeline. I love that he's having fun. I love that he's taking shots. Don't they have an AI lab, to be clear? They were working on Einstein for a while, but I think that they are very much happy to be a rapper, happy to be a buyer of LLMs at this point. Everyone that knows anything knows this. OpenAI is the next Netscape, doomed and hemorrhaging cash.

26:09Microsoft is still trying to keep it afloat while keeping it off balance sheet and sucking out the IP. So why do they keep getting funded? The whole industry needs a$500 billion IPO ASAP. This post would go super hard if you don't understand the Microsoft OpenAI relationship. The dynamics of the competition here feels like there will still be a lot of value. Even if it is somewhat commodity infrastructure, it's like, you know what else is commodity infrastructure? AWS, GCP, Azure. You get a server with some hard disk on it. That is commodity, and yet they all have 30 % margins. Yeah, it's interesting, too.

26:47I mean, Burry has positioned himself of just hating any company that's overheated. ChatGPT having close to a billion weekly actives. And ultimately, even if they just compete in search, right, at least it's a multi-trillion dollar opportunity. Whether or not they fully execute against that is another thing. A hedge fund was ordered to pay a bonus to a trader who made 97 % of its revenues. This is hilarious because when I read this at first, I thought it was he had made, like his target bonus was, let's say 10 million. And he brought in 9.7 million. And they were like, you didn't hit your bonus, buddy.