Morning Brew Daily - The $60B Deal Crowning Exxon US Oil King & Birkenstock IPO Flop

Episode Date: October 12, 2023

Episode 168: Neal and Toby discuss Exxon's $60 billion purchase of Pioneer to become the top oil dog in the US. Plus, why some companies want to blacklist certain college students for hire in the fallout of the Israel-Hamas war and why Birkenstock's stock price tanked after going public. Neal shares his favorite numbers and what brands does Gen Z love the most? And finally, Alaska Airlines is coming out with their own coffee that tastes better in the sky. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning, Brew Daily Show. I'm Neil Fryman. And I'm Toby Howell. On today's pod, Birkenstock waited almost 250 years to go public. And judging by its first trading day, maybe it should have waited a little bit longer. Then the M&A market is finally coming back to life

after the biggest oil deal in 20 years went down yesterday. It's Thursday, October 12th. Let's ride. Neil, yesterday we asked you all to tag us on social media and show us where you listen to the pod for a chance to win a morning brew daily mug. and boy did you all come through. We got literally hundreds of responses across Instagram and Twitter.

One person even emailed us a picture because she's off social media, so shout out to them. MBD listeners do not mess around. No, the thing that stood out to me from seeing all these pictures roll in is that we have so many listeners with dogs, or at least so many listeners with dogs of people who like to take pictures of their dogs. Almost half the shots we were tagged in had little pups. Also, just a quick shout out to our international listeners too. we had responses from Spain, China, Japan, South Africa, and more. So thank you to everyone who snapped a pick for us and gave us a tag.

We will be picking the mug winners on Friday's show. So if you haven't had time to enter yet, send us a picture of where you listen to the show, then tag us at MB Daily Show on both Twitter and Instagram. That's at MB Daily Show. Before we jump into the news, a quick shout out to our sponsor, Yahoo Finance, for making this show possible. Yeah, Yahoo is really the most trust. place to get financial information on the internet today. The best part is you can snag real-time updates on both desktop and mobile so you can stay on

top of what the market is doing on your phone while you're taking your pup for a walk or at your desk. We recommend the pup option. If you want access to trusted news, in-depth analysis, and comprehensive market data, go to finance.yahu.com to learn more or download the Yahoo finance mobile app to get it directly on your phone. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills starting at $179 like the next grill three-burner gas grill or get $50 off the select Weber Spirit grill and bring big flavor to your backyard. Then set the scene with Hampton Bay string lights that bring it all together.

Shop spring backyard days for seven days at the Home Depot. Now through May 6th. Exclusion supplies, see homebiboy.com slash price match for details. Neil, to start off the show today, we have a gigantic deal from the oil world. Exxon Mobil sheld out nearly $60 billion to buy pioneer natural resources in the largest oil and gas deal in over two decades. This deal is Exxon's largest since its $75 billion merger with mobile back in the late 1990s, and is also the biggest corporate transaction of the year so far.

Now, the gem in this deal is West Texas, where Pioneer has more places to drill than nearly all of its rivals. But broader than Texas, it's also a massive bet on U.S. oil production in general. Once the deal closes, around 45% of barrels Exxon produces will now come from the U.S. Exxon CEO Darren Woods made sure to hammer that angle saying that the deal would increase U.S. energy security and that it's a win-win for the country. But it's also a bit of a curious bet when you consider the role, energy will play in the coming decades. So not only is Exxon going all in on the U.S., it's also going all in on fossil fuels, despite promising to reach net zero carbon emissions from operations by 2050. Neil, two bold bets, to say the least. Yeah, I think what the tension here is that

Darren Woods, the CEO of ExxonMobil, thinks that we're going to still be using fossil fuels for many decades. He doesn't think we have hit peak oil yet at all. He's betting $60 billion on it. Meanwhile, the International Energy Agency comes out with estimates about when they think we've hit peak oil. They think it's going to happen within the decade. So Woods is saying, I think they're completely wrong. And he's putting a ton of money behind that prediction. Yeah, I think that part of this deal might have been because 2022 was such a banner year for oil companies with the Ukraine war breaking out and energy prices soaring that they just have all this cash kind of burning a hole in their pocket. So it feels like maybe this is Woods reaching a little bit to do something with all that cash.

And then also, Exxon hasn't necessarily done great under Woods's leadership. Remember, in 2020, it was just an awful year for oil as the pandemic hit. And then it lost a proxy battle as well. So whenever you're kind of reaching for maybe this legacy defining deal, sometimes in 10 years, it doesn't look as good. You always take the personal angle. I know. I'm just wondering. People are emotional and people are people.

Right. But I want to talk about the Permian Basin because this thing is a behemoth. I mean, this is the most productive oil field we have in the United States. It's the most productive oil field in all of North America. And Pioneer has the best assets, the best inventory in the region. Exxon now becomes the leader over there in West Texas. I mean, just imagine West Texas. You know, it is just an oil paradise.

You can also make money at just when oil is at $35 a barrel there. That's how efficient getting oil is. there. So, I mean, we know what oil prices are right now at like $80 a barrel, but as you mentioned during the pandemic, they can fluctuate a lot. So this is a play for West Texas and part of New Mexico. And then also just I mentioned the M&A aspect of this. Global M&A volume stands at just around $2 trillion, which is down 30% from the same period last year. And so it does look like that some of these higher interest rates, the economic uncertainty has kind of put a kibosh on some of these giant mergers. So it is interesting to see if this deal kind of pre-sets another

wave of M&A deals. But also there is a little bit of an antitrust angle to this. Obviously, the Biden administration has more been focused on tech and cracking down on those antitrust regulations. But it does, there are some rumors that maybe the Biden administration could take a look at this one as well. So it's not just popping corks and champagne for the M&A industry. Like we're back maybe. But this is still a very very. very, very big deal. My takeaway here is Exxon is not totally bought into renewables yet, and it thinks that there's a lot of oil and gas demand for decades to come. Okay, let's catch you up on the latest in the Israel-Hamas war yesterday. Israeli Prime Minister Benjamin Netanyahu linked up with the opposition

party to create an emergency unity government that will be in place until at least the end of the war. This government won't consider any policy that doesn't relate to the conflict, and it shows how Israel is kind of moving past its fractured politics, at least for now, to show a united front as it aims to wipe out Hamas. Meanwhile, Israel continued to bombard Gaza with airstrikes ahead of a likely ground operation. The humanitarian situation in Gaza is getting pretty dire. More than 260,000 people in Gaza have fled their homes to live in hotels and UN schools. Water and other critical supplies are running short after Israel's military cutoff access, and Gaza's only power plant ran out of fuel. The U.S. Israel and Egypt were,

we're talking about allowing Gaza civilians to leave and humanitarian aid to enter, but Egypt rejected a deal that would allow for safe passage. Toby, what I want to talk to you about is how this war is playing out on college campuses and in corporate America. It's been very tense to say the least, highlighted by a letter written by Harvard student groups, the backlash to the letter, and the backlash to the backlash to that letter. So here's what's happening. Following the Hamas massacre of Israeli civilians on Saturday, 34 Harvard students,

student group signed a letter exclusively putting the blame for the violence on Israel, a statement that has drew immense criticism from powerful alumni. Former Harvard president and former Treasury Secretary Larry Summers said he was sickened by the response. Bill Iner hedgeman manager, Bill Ackman and other American CEOs, called for the names of the students linked to the groups that signed the letter to be made public so that they don't accidentally hire them. After that, Summers said Ackman got carried away with his call for a blacklist.

that doxing students is not the right thing to do. That's the stuff of Joe McCarthy, Summers said. But this tension between employers and students who did not criticize Hamas is playing out on other campuses as well. The law from Winston and Straw said it rescinded its offer of employment to the president of the NYU Student Bar Association after they wrote that Israel bears full responsibility for the loss of life. The big picture here is that Israel-Palestine issues have been a growing source of tension on college campuses for years, and this war just ratcheted up the rhetoric by a factor of a million. Yeah, I do hope that cooler heads prevail maybe in the long run

because you did see some of the initial reaction was, yeah, we're never hiring any of these people. We should docks these people. But then doxing people is never really the answer as well because a lot of these student organizations have a lot of members in it and some may have ended up on that list without even knowing that their organization signed it in the first place. So that's what you had Larry Summers doing saying,

please everyone take a deep breath even though he still was against the actual letter that they signed, he doesn't think that we should punish students overly for being a part of something that, yeah, maybe they were young, I mean, they're young and naive, they're literally college students.

So there does seem to be, again, the backlash of the backlash. Now people are calling for cooler heads in this scenario. Yeah, five of the student groups, at least by two days ago, had withdrawn their support of the letter. A bunch of the college administrators

said we, you know, we disagree at NYU and at Harvard say we disagree with the letter, but we protect our students' right to say what they want. Meanwhile, the corporate America response, there have been a bunch of CEOs that have come out in support of Israel. Jamie Diamond, I can't, is one that comes off the top of my head, Larry Fink of BlackRock as well. But the Anti-Defamation League CEO, Jonathan Greenblatt, went on CNN yesterday and kind of bashed corporate America for talking about things like anti-Asian hate and Black Lives

matter without, you know, supporting their Jewish employees and clients and things like that over this, over this particular issue. So he is, he's one person who speaks for the Jewish community and he is disappointed with corporate America's response. Yeah, it's, you can't separate the two on some level right now. So it is interesting to see how, yeah, basically this is going to play out. It's also affecting the startup community in Israel as well. So you can't un-intertine these two now that like this war has broken out. All right, Neil, let's move on to a buzzy IPO we've had our eyes on recently. Birkenstock finally went public yesterday, and it fell flatter than my arches. Shares opened 11%

below their IPO price and didn't make up any ground, eventually closing down 12% for the day. It was a sharp departure from the other public debuts we've had so far this year. 24 IPOs that raised at least $100 million, saw average first day returns of 20%. And just to put in historical perspective, Birkenstock had the 13th worst IPO of at least one billion over the last 100 years. But it's not all bad. Its closing valuation is still around double what L. Cateron,

the family office of LVMHs, Bernard Arnaud, paid for a majority stake in the brand back in 2021. Still, Neil, the mixed bag of IPOs we've seen this year, just got shaken up again by a 250-year-old shoe brand. Not a great day for the markets or Birkenstown. Not a great day. I would caution that this is just the first day, and it could reflect maybe the valuation that it wanted versus the valuation that investors pegged to it. And this is maybe a reflection of its CEO and its executives maybe mispricing its company during its roadshow. You know, I think by all accounts, Birkenstock is a very solid company.

It is profitable, unlike a lot of other companies that went public. Like the average Birkenstock shopper in the U.S. owns 3.6 pairs of Birkenstock, which is a stat, I don't know if I believe, but it is a stat. So it does seem like they have a lot of loyal customers. There just is a lot of pressure on the American consumer right now. And we can talk about other luxury companies later that have kind of fell flat over the last quarter. So maybe this reflects a little investor anxiety over the luxury apparel because, you know, it is kind of funny saying Birkenstock and luxury in the same. in the same sentence, but that's where Birkenstock has headed, and it's why

it has such a valuation of over $7 billion. Right. I mean, you mentioned other shoe brands, too, that went public in kind of the last few years. On running, which didn't become profitable until last year, has gained only about 2.8% since it went public. And then

Allbirds, which is just a name, you don't even want to utter these days. It shares originally debuted for $15 at its IPO, and now they're training for $0.94. And it's losses are forecast to keep growing as well. So it is a little nerve-wracking if you're Birkenstock and you see these other two buzzy shoe companies go public. Again, the difference is that the Birkenstock is profitable. It's been profitable. It's a very solid. I mean, it's 250 years old.

So it is in a bit of a different market segment, especially with its turn to luxury. I mean, were there any Allbirds in the Barbie movie? Right. Absolutely. I mean, let's talk about the Barbie movie. It really did boost Birkenstock sales. Millennials and have accounted for 31% of its sales, and the opening scene of the Barbie movie involves these pink Birkenstock. So it did jump after that. So I mean, Barbenheimer, we're talking about it again. It's now Berkenheimer, I guess, in a certain way. I'm going to stop us right there before we get too far down a Barbenheimer rabbit hole again because we have to take a break. But stick around because we have Neal's numbers coming up next.

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Find your perfect product at Bose.com. Welcome to Neal's Numbers, the segment where I reveal three stats from the week's news that should give you plenty of fodder for the awkward first five minutes of a Zoom call. For the first number, we are turning into a nation of early birds. 5 p.m. dinner reservations are now more popular than they've been in the last five years, according to Rezi data shared with Axios. This year, over 15% of all Rezi reservations were made in the 5 o'clock hour, a jump of 2% from 2019, while reservations in the 8th and 9 o'clock hour fell 2%. Here at Morning Brew Daily, we always ask for a second or third opinion, so we look to

other data, and it backs us up, too. Uber trips to restaurants in the 4 p.m. hour jumped nearly 10% over 2019, while rides to restaurants after 8 p.m. are down 9%. Restaurants are now seating 10% of diners between 2 p.m. and 5 p.m. up from 5% in 2019, according to Yelp. Health experts say this trend is a good thing because eating three to four hours before you go to bed can help with blood sugar control, weight management, and is overall just better for your health. Toby, are you part of this shift eating dinner earlier? I'm trying to think that if I went on a resi and I saw a 5 p.m. reservation or a 10 p.m. reservation, which one I would go for. Because that is often a situation I find myself in New York.

We're like, well, there's no good reservation. So we're either really early or really late. And I guess I am on team turning early bird because I do also wonder if you know this Huberman Labs turn that a lot of people have taken, which we care about our sleep more. We care about the hours before we go to sleep. I wonder if this is affecting kind of the global restaurant industry as well. So we'll have to get Andrew Huberman. restaurants, but also a bunch of other aspects of cultural life. Broadway is just one example. Most shows used to start at 8, but now a third of all shows running on Broadway start at 7 p.m. now. And in terms of workouts, the most popular time for a workout now, according to future fitness app

data, is 5 p.m. as opposed to really early in the morning before 7 a.m. So people are knocking out their stuff like really early in the evening and kind of tucking in at 9 p.m. They're going to bed before we are. I know. I appreciate this. We should be going to better. The problem with a 5 p.m. dinner for me is it means a 10 p.m. dinner. Oh, how's that? Oh, could you're hungry again? Yeah. Okay, moving on to my second number. I've got some more alarming news from the U.S. education system. ACT scores for the class of 2023 fell to their lowest in three decades this year with an average score of 19.5 out of 36. That means more than four in 10 high school seniors don't meet any of the ACT's college readiness benchmarks, which are the minimum scores you need to have predicted success in

college courses. ATT scores have been falling for six years now, but they began to plunge during COVID like so many other educational measures. Test scores across all ages have fell to rock bottom during the pandemic. Math scores have fallen in every state. Now only 26% of eighth graders were proficient in math, down from 34% in 2019. And U.S. history scores among the country's eighth graders dropped last year to the lowest levels since they started keeping track in 1994. All this is clear evidence that COVID disruptions to schools have set American kids back dramatically when it comes to learning. What was another interesting angle to looking at all this school data is that Defense Department

schools outscored every other jurisdiction in math and reading. So it was interesting that some schools have kind of fared well, but it's this very, very small niche of schools funded by the Department of Defense because they are, very, very centralized decision-making. They don't have kind of these board of directors who is subject to the whim of school boards and whatnot. So that was an interesting data point to me that stood out is that some sector of the schooling system and it's funded by the Department of Defense do have test scores that are still

at the correct levels. They pay teachers a lot. Right. And that's another big factor. Okay, my final stat is dedicated to our associate producer Ray, a Bay Area native, because it is about Brock Purdy. The San Francisco 49ers phenom quarterback is putting up electric number so far this season, leading the league and passer rating extending his regular season record to 10 in 0 as a starter

and making a strong case for MVP. But here's the catch. He's barely getting paid for his tremendous work by NFL standards. Whereas the best NFL quarterbacks get paid more than $50 million each year, Purdy makes an average of $930,000 per season. To put that in perspective, Joe Burrow of the Cincinnati Bengals makes as much for a quarter of a single game as Purdy makes all season. Almost every kicker and punter earns more than Purdy. And the team's neighbor in the Bay Area, Netflix, offers twice as much as Purdy makes for an engineering director.

So why is Purdy's contract so cheap? So if you don't follow football, Purdy is known as Mr. Irrelevant. He was the last pick of the NFL draft in 2021. and rookie contracts are structured so that each one has a slotted value based on draft order. Because of injuries and poor performance from other quarterbacks, Purdy went on this improbable journey from the backup to the backup to an elite starter. And the good news for the Niners is his contract can't be renegotiated for three years. So for now, they are getting the deal of a century.

It is the deal of a century. NFL kickers make an average annual salary of $2.5 million. So he's not even halfway to what the average kicker makes. and he just keeps winning. So shout out to all. Okay, but kickers are so kind of dirty these days. They're nailing 60-yarders. Like, it's nothing.

They are solid. And, I mean, again, I'm a soccer player, so no disrespect to kickers. I can't wait for the Niners to lose to the Eagles in the NFC championship game. I can't wait for an NFL team to call me up and say they need a kicker. All right, now let's move on. There is this survey that comes out twice a year from Investment Bank, Piper Sandler, that asks the youth a variety of questions about their spending habits and the brands they love.

love this survey. We've been monitoring it for years because it's great for content, Neil. So let's see what the U's are into. And they're going to say it's good for businesses to keep an eye on their consumer. Nope, great for content, Neil. One thing is for sure, the youths love Nike, Apple, and Chick Filet. Nike was the favorite clothing and footwear brand among both males and females in all income brackets as it was last year and the year before. Chick-fil-A is their favorite restaurant garnering 16% of the votes, but it's Apple that has an absolute chokehold on the team. Of the 9,193 teens surveyed, 87% of them had iPhones, and 88% said their next phone would also be an iPhone. We'll get into more Apple details later, but one final thing I want to call out is their energy drinking habits.

Monster, Red Bull, and Celsius were the teen's favorite energy drink brands, but Celsius at 16% of the votes came in well above its 10% overall market share. So I know we at Morning Brew Daily love to see that. what were some of the responses that stood out to you? First of all, this survey made me think, hey, Gen Z is pretty basic. Like Nike, Apple. I mean, they don't have any sort of countercultural taste. It's all just the big brands that have been popular for 10 to 20 years have continued their dominance, which I guess speaks to their ability to pivot with the times, especially Nike.

I mean, Nike's been ahead of trends for so many years. They constantly pivot and do cool new things like digital collectibles now and have just constantly, you know, linking up with new athletes that are becoming popular. So, you know, I think Nike's done an incredible job, and obviously Apple, too. What stood out to me was that teens in the U.S. say they watch, for the first time, they watch more YouTube than Netflix. So YouTube has passed Netflix as the top video platform. And I think that's a really important data point to talk about.

For people watching this on YouTube, they're like, yeah, obviously. But the content on YouTube is really good. And I think teens are building a bigger attachment to that than they are with traditional streaming platforms. It's so much cheaper for a company to get user-generated content up. And Netflix here is spending tens of billions of dollars. They're in all these labor negotiations and paying so much for content and maybe not so much for labor, but maybe after these strikes, they will. So, I mean, if I'm YouTube, I'm like, this is great news. And if I'm Netflix or any other streaming company, I'm like, uh-oh.

Yeah. And then getting out of technology for a second, talking about some of the stuff we discussed on our bullish or bearish show, actually, they asked teens about how they thought about plant-based meats and that the amount of teens that consume or are willing to try plant-based meat hit an all-time low of 35%. That's down from 49% back of spring 2021. So we are seeing kind of this turn against plant-bate meats that we're seeing play out of the markets. We're seeing it at the teen level as well. so that's something that we've discussed on the show before. And then the other thing that stood out to me was weekly usage of VR devices declined to 10% from around 14% earlier this year.

But 31% of teens now own a VR device, so that's something Zuck and META are probably keeping an eye on because, again, they've bet their whole future of their company on. Basically, they use embracing this new format, and it doesn't quite look like it's paying off as a right now. Okay, our final story, it's been a big week for Seattle. The Frazier reboot is being released, and Alaska Airlines continued the city's long tradition of innovating in coffee. The airline said it's partnering with Portland-based Stump Town to create a coffee blend that actually tastes good in the air. For a number of reasons, and Toby, I'll probably kick it to you for the science since I know that's your jam. Food and drinks have less taste 35,000 feet in the sky, so Alaska and Stumptown teamed up to create a specific blend for air travel.

This thing has punchy notes of marshmallows, brown butter, and toffee. And it also contains a delicate hint of citrus oils and cherry essence. The goal is to give a more complex taste when consumed in the air. The partnership with Stumtown means Alaska is ditching its previous coffee provider and fellow Seattle company, Starbucks. But something tells me Starbucks is going to be just fine. Toby, do you think having better coffee would actually help Alaska gain more travelers? Or does this get an eye roll from you? I keep going back and forth on it because I'm not sure I trust the science behind it.

Because, okay, so this is why coffee tastes different at altitude. It's because in a pressure-ed cabin, you have lower blood oxygen levels, which actually reduces your ability to smell and taste things because smell and taste are so inextricably linked. And so you're in this dry air, lower humidity levels, and it also is affecting your nose. So, of course, things don't taste good. And so Alaska's answer to this was to just make a vastly more complex flavor profile. So I'm not sure of complexity, though, can paper over these other kind of details of your olfactory senses being suppressed. So maybe it works.

People buy, would go on a particular airline, would choose their airline based on the quality of coffee there? I don't think it's going to expand their market. But what I do think it will do is kind of cement. are very Pacific Northwest-based airline. And so having, appealing to these coffee-obsessed people, saying that we are trying to make a more complex favor, I think it helps with brand loyalty. I don't think that someone who has never flown Alaska is going to suddenly say, oh, they got good coffee. Let me check out Alaska. But I do think it'll help with oil. Do you drink coffee on planes? I have. I've started to because I love busting out my laptop in my

coffee and going while everyone's watching the movies and going, I'm such a businessman over here. I'm prepping for my podcast that maybe some of you listen to. So I'm team coffee. I do not drink coffee on planes. It makes me go to the bathroom too much. Okay, that is our show for today. We're almost there, everyone. 24 hours.

It will be Friday. If you want to vent about anything, hit us up at Morning Brew Daily at MorningBrew.com. Let's roll these credits. Emily Miliron is our editor and producer. Samantha Velas and Raymond Lue are associate producers. Euchenowa Ogu is our technical director. Billy Minino is on audio.

hair and makeup went out to dinner already. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow. Yamava Resort and Casino at San Manuel is California's number one entertainment destination for today's superstars.

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