Power Lunch - M&A Monday, The $700 Million Man 12/11/23

Episode Date: December 11, 2023

Today has seen a ton of deal-making news, each highlighting trends across multiple sectors. Arkhouse Management and Brigade Capital offered to buy Macy’s for $5.8 billion. Occidental Petroleum is buying Permian producer CrownRock for $12 billion. And Paramount shares jumped after reports of takeover interest. We’ll break down what these deals mean for their respective industries. Plus, the Los Angeles Dodgers agreed to pay all-star Shohei Ohtani a record-setting $700 million over 10 years. We’ll break down what it means for the economics of baseball. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good afternoon, everybody, and welcome to Power Lunch. I'm Tyler Matheson, and we've got lots of big money deals to talk about a merger, a deal Monday today, from a rumored buyout for Macy's to the big bucks for Shohei Otani. There's a deal for you. But first, let's check on the market. Shares of Apple are lower today. Despite some positive analyst commentary over the weekend, Wedbush, Dan, Wedbush's Dan Ives, raising his price target on that stock and saying it could be the first $4 trillion company. by the end of next year. Dan is going to join us a little later in the program, and we will pepper him with questions on that. And check out Bitcoin. It is down significantly right now, as you see there, by $2,900 a year-to-date, however, up by more than 147%. Pulling back after that amazing run, you've probably noticed by now a new look to see NBC today. The things you're seeing used to be seeing maybe in a different place on the screen, but we hope you will get accustomed to and like our simpler graphics. Same great market coverage, however. We began with a ton of deal news across all different sort of spaces in business,

each highlighting the growing trends across multiple sectors. First, Macy's, the stock surging today up three, almost $4, after Arch House Management and Brigade Capital offered to buy the department store for $5.8 billion. Macy's sales have slumped over the past year, struggling to keep up with online competitors. Then a deal in the energy sector to tell you about. Occidental Petroleum buying the Permian producer Crown Rock for $12 billion. A lot of activity in that space, of course,

with both Chevron and Exxon making some big ticket purchases earlier in this year by multiple factors of the purchase price proposed here. Paramount shares moving on reports that Redbird and Skydance are exploring a takeover there controlling shareholder Shari Redstone has been in the market for a deal for some time after she fought so ferociously to put CBS and Paramount back together. And finally, Cigna reportedly abandoning its pursuit of Humana and instead planning a $10 billion stock buyback. Totally there was a lot of news today, and there is.

So let's start with Occidental Petroleum and its deal. For more, let's bring in Neil Dingman, who heads energy research at Truist. Neil, welcome. Good to have you with us. Is this proposed deal an overpayment on the part of Oxy for this company? They pay too much? I don't think so. I mean, I wasn't surprised by the deal, a little surprised by the price, as you pointed out. I think, number one, it still is very free cash flow accretive. And number two, I think OXE's got a number of assets that it can sell in order to pay for this,

lower returning assets, Tyler, that make this deal mix up a lot of sense. So you say they need. to reduce debt by about four, four and a half billion in divestitures because they're borrowing a lot, sort of like, I think it's $9 million, $9 billion in cash to do this deal? That's right. So you figure out about 6.5 percent, you know, obviously if they can pay and sell something for $4.4.5 billion in the first nine months, it'll cut a big den and that really helps with the accretion. So again, plus you think about it, the assets they're going to sell, I believe, are certainly going to be lower margin assets than these or low return assets,

I should say, than these. So that, too, makes a lot of sense to swap out to these higher assets. So let's go back to what they're paying, 6.3 times 24 cash flow. And when you compare that with other deals, isn't that a much higher multiple that they're paying? And does this company deserve it? it's definitely in the high side you know it's more in line of what we saw on the Chevron deal on the Pioneer or on the Exxon deal where 24 doesn't stick out but then when you start thinking about the efficiencies the upside they'll probably get on 25 then it starts making more sense so again I would tell you certainly higher than number of private deals but as far as the last two big deals we've seen with Pioneer and has been purchased I think it's very much in line with those and really to me that the big accretion really starts in 25 And the balance sheet is sufficiently strong in your view to pull this off. And they seem to think so in that they are increasing their dividend to 22 cents a share from 18 cents a share. You don't do that if you're worried about your balance sheet. That's right.

I think that's indicative of them of what they think the free cash. Number one, free cash was going to do in the very near term. And number two, the balance sheet. But I'd still go back, even with that balance sheet, it's still going to be critical for them to sell a number of assets. I'm talking billions of assets in the very near term. And for $4 billion of lower value assets is the target that you have in mind. Are you expecting more such deals between now, potentially, and year end? And will most of those deals, if they do eventuate, will most of them involve private companies,

as this one is, a public company is buying private companies? I think the simple answers are yes and yes. I think there are a number of privates that want to monetize, want to cash in before the end of the year, nothing this size. By the way, I don't think anything this size. But I do think there's a number of deals here at Houston, Midland, you name it, especially in the Permian base that I think would love to cash out if anything near these prices. And oftentimes these privates like to cash right before the end of the year. Yeah, what is it, what is the magic about the end of the year just to get it done cleanly or what? Tax-wise. That's right. A lot of them are raising, a lot of them

raising new funds for the new year. And if they can show a big, big gain before the end of the year. It really helps to raise funds for that next go-round. So who would be among the potential purchasers, who do you think might be the most active here? Who's on the prowl? I think, you know, I think Devin is always looking out there. I think you have, the big one that always gets mentioned. Conoco has been sort of the one that's the big one that's been now that Chevron, Exxon, and now Oxy has done something.

I think I would say Conoco is the big one. that sort of left out of the party. So I'd say Conoco and Devin probably two of the most, have to be two of the most acquisitive ones, I would suggest. Very interesting. Neal, thank you very much for your time today. So basically, it's keep your eyes on this space for more news. Neil Dingman, we thank you. Thank you. All right, now to Macy's. Matthew Boss is an equity research analyst at J.P. Morgan, an institutional investor, Hall of Fame inductee. Matt, welcome. Good to have you with us. Thanks to have you back. You seem to think, if I'm reading your report correctly that this deal from a couple of private investors, they plan to take Macy's

private, undervalues Macy's rather dramatically, particularly when you look at, on the one hand, the real estate value that Macy's represents, and on the other hand, the, I guess you'd call it, enterprise value of their digital selling. Yeah, so there's a couple aspects that we really dug in here. Number one is the real estate value. We see $8 to $9 billion in real estate value. You have the trophy, Harold Square asset, which we think is $3 billion plus. Secondly, you do have the digital business at $7 to $8 billion in sales. Now, I do think you have to be careful in terms of double counting.

This is an omni-channel retailer. The real estate is important to the digital business and vice versa. But I think the real key unlock here is the portfolio company. So you have the Macy's brand, you have the Bloomingdale's brand, you also have the Blue Mercury brand, and then you have the digital marketplace. So really what we were laying out is more of a sum of the parts opportunity as you look at the value of each of these different components of the Macy's Inc holding company. So how does this play out? I mean, it seems to me you think this deal undervalues Macy's at writ large when you take the whole thing, the sum of the parts analysis. What would a, what would a, what do you think Macy should do?

So look, I think that this is part of the overall retail complex that you could make an argument post-pandemic to a degree is undervalued. We've laid out near term. We think holiday is on solid footing. I think you have a return to normalize demand trends, e-commerce outpacing brick and mortar. But as you look at Macy's, I mean, before today's announcement, I mean, it was trading 40% below. the multiple that it was trading at from 2017 to 2019. So this implied deal is actually 3.8 times EBAD. That's nearly the troth 10-year pre-pandemic multiple. If you look at what it was trading at from 2017 through 2019, call it roughly five times EBITDA.

That's a $30 stock. So as I look at the different components in terms of, as we said, real estate, digital, and the nameplates, but then more so, I think here you have a valuation disconnect, and they're not alone. I mean, there are other companies that we cover more on the global brand side that I think are undervalued in this backdrop. I guess the natural follow-up, and I mean this respectfully, would be, well, yeah, but the world has changed. I mean, from from 2017 to 2019. So you can't, it isn't fair, I suppose,

to go back and apply that level of multiple to today's business. How would you answer that? Look, distressed retail trades at roughly four to five times EBITDA. That was the historical valuation, and it's frankly no different today. This to us was a self-help value opportunity

that we've been calling. And this wasn't a lot. PVAH, some of the structural dynamics around Nike and some of the other global brands that they've gone through during the pandemic, to me, creates opportunity to own assets that are outside of macro. And that was really our call on the overweight thesis for Macy's, both from a fundamental and from evaluation construct. All right, Matt. We'll keep following this story, and we hope we can count on you to come back and explain it to us as things develop. Appreciate it, Matt. Thanks for having me. You bet. Thanks for coming. All right, now to talk more broadly about the current deal-making environment and what to expect going forward,

let's bring in Herb Greenberg, editor of Herb Greenberg on the street at Substack and a CNBC contributor, and Dan Freemak is business editor at Axios. Herb, what do you think of all these deals? I think, you know, it's interesting looking at just at a chart here from S&P that we're at a period where this has been from a big deal standpoint, even though the headlines are hitting today, this has been a horrific year. There's just been, if you look at this compared to going all the way back to 2018, you don't see much. So what you're seeing now, and I think somebody mentioned it earlier, you have the end of the year push. But you also have a situation where think about it. You have interest rates that are ridiculously high levels for some of these people who want to

use cash or want to get debt. And you have a very volatile market, and you have an economy that's totally unsustainable. But I do think there's going to be some potential operational. opportunity and interesting moves possibly in 2024. So these deals that we're seeing here are sort of opportunistic in your view? Absolutely, 100%, because each one is very different. And you can even see with a Cigna deal, which is really interesting, with them pulling out of the deal, that, you know, shareholders and companies that are being approached of companies that have cash are basically saying, hey, wait a second, you know, there's opportunity not to merge.

And in this case, with Cigna, it's clear, you know, use the money for something else. give it back to shareholders, share repurchases, which is what they're trying to do, anything but selling at what the shareholders perceived to be, perhaps a not great price. Yeah, I mean, you say this is, this is the really big story. If you've got discretionary cash, use it,

use it prudently to invest in the business or do buybacks and dividends and so forth, and that's what, indeed, they seem ready to do. This deal might not have even made it through any trust scrutiny. Might not have her? Oh, well, what deal is going to, make it through antitrust scrutiny right now. I mean, that's the big issue. Obviously, that was, you know, any of these big deals, that's what's getting in the way. But look, I think one of the

interesting things is when you look at this from a balance sheet perspective, there's a great stat out there that in net interest payments by corporations at their lowest levels since the 1970s, that's because of all the big refinancing, right, that we had early on in the, you know, when cash was free. But now you've got this mix of companies that look good and other companies that even if they refinanced or financially fragile. And that's where I think you may see some of the opportunity going forward as some of those companies are parsed because they can only go so far. Some are going to have to refinance. Will they sell out? Are they not worth it? I think that's where the opportunity and the story is going to be going forward. Yeah. Dan, pick up on any angle that Herb just mentioned or any

other that comes to mind here. Why are we, do you agree, for example, that these are opportunistic deals? I mean, when would have? Okay. So yes, they are. I mean, I will say, the energy one, the Permian Basin one, that's part of a trend we've seen all year. Right. We've had a record number of deals like this where we've got oil companies who are basically trying to grab up all the best and last kind of available resource land that exists. You know, in general, it's interesting. Herb mentioned, and he's right, you know, that if you look at the S&P numbers for the year,

2023, overall M&A is down, big, you know, kind of mega market. MNA is down kind of, and overall it's, I think, 20, 22 percent below last year. That said, it's been pretty strong over the second half of two. 23. It's kind of been a little bit of a tale of two years. Again, I don't think there's been anything kind of from a sector perspective that's been driving it. It's been, as you say, opportunistic. But there have been a number of decent-sized deals and overall activity kind of ever since the Fed started to signal it was done hiking rates. Yeah. What are your initial reactions to the Macy's, Dan, Macy's offer? Two things. One, that is one sector we have seen relatively little

in, which is kind of big retail. I mean, the thing that jumped out to me, was kind of how this thing hit the press and kind of the original journal story, which said, well, if we can get into the diligence room, you know, we could potentially raise the price. So your past guest who said this is a low price, it seemed like that was very much an opening bid from these prospective buyers. They want to be able to get more information and they're willing to go higher. What about Sherry Redstone? What's going to happen there, Dan?

And then, Herb, I'm going to come back to you with the same question. I mean, one thing that's fascinating to me about the Sherry Redstone things is, as you mentioned, And she's been kind of looking, or at least theoretically, looking for a deal off and on. One of the buyers on this, Redbird Capital Partners, they're kind of all over. This is kind of everything is turning up Redbird right now, which is a relatively, relatively new firm, kind of in private equity land. They're also part of this thing right now, which is going to maybe be an alternative to the Saudi deal for the PGA Gulf. They're involved in kind of a big British newspaper deal. They're all over, and they've been buying sports teams.

And that would bring Jeff Zucker back in a big way into the media business and the studio business. Based on what I read, but I think there's actually a really another part of the story that Dan knows better than most, given that he covered private equity. And that gets back to private equity. And while there's been a bunch of controversy around private equity, obviously, it's the cash they have. And what are they going to do with that cash? And are we starting to see it now with some of these deals? Yeah, yeah. I mean, I guess that's right.

It seems so funny. I mean, Paramount has been in the deal world almost as long as I've been covering finance. I mean, it split apart. It reconstituted itself under Sherry Redstone. It's a very interesting sort of epic story, right, Herb? Well, yeah, based on what I read. It's not, you know, it's not in my wheelhouse, so to speak, Tyler, but we've heard this story going back to her father. and the other transactions.

It's just the drama and the saga and the soap opera of the Redstone family continues. All right. And Dan, as you point out, the Occidental Petroleum Deal, which we're just sort of skipping around here a little bit. As you point out, this is part of a trend in this business to acquire the exploration and production assets. Yeah, and you mentioned in your last segment, you know, this in this particular case, it is a private equity firm that is selling it to Oxy.

And what you saw maybe kind of going back 10 years ago, a lot of private equity firms, energy-specific private equity firms, basically just started buying acreage, lots of it, you know, portfolios from various places, and now they are getting to cash in because the big strategics are all desperate for it. You know, one sees their rival, buy some, they've got to buy some, and that continues to move on. And then the second piece of the Oxy story is, again, they are going to have to do some divestiture. So this one big deal is going to create other smaller deals, but not tiny deals, right?

Like multi-billion dollar transactions. All right, guys. Thanks very much. Herb Greenberg, Dan Freemak. Appreciate it. Thanks. Coming up, Dubai, real estate is booming, becoming the fastest growing city in history. However, extreme heat and rising sea levels could put that booming area at risk. We'll talk about that. Plus, a major league deal in major league baseball. The Dodgers on Saturday signing up Shohei Otani for $700 million. We will discuss that later on Power. Welcome back, everybody. One of the big business stories of 2023 has been labor versus industry,

and one of the big worries about AI has been whether it will take jobs from humans. Today, Microsoft trying to get ahead of all that, announcing a new partnership with the AFLCIO. Amon Javers has more. Amen. That's right, Tyler, the AFLCIO, and Microsoft announced the formation of a new partnership to discuss how artificial intelligence must really anticipate the needs of workers. This is a first of its kind partnership between a labor organization and a tech company to focus on AI and Microsoft President Brad Smith, standing shoulder to shoulder with AFLCIO President Liz Schuller, told me that it reflects the company's new approach to organize labor. It's based on a fundamental recognition that people in the United States have a right to organize. They have a right to form a union if that's what they wish to do.

And so we've adopted a labor neutrality approach. We've adopted an approach that honors the rights that people have. And Schuller said the agreement also gives workers a chance to have input into the programs that are really going to define their future. If you have a housekeeper in a hotel who is running a cart through hallway, heavy cart, based on an algorithm that isn't reflective of the way they do their work, it's not going to work. And it's not going to be good for the company ultimately either. So we think that workers' insights, their knowledge and expertise will be tremendously valuable in how we shape AI on the front end. Microsoft says the deal will have three main components, sharing AI information with labor leaders and workers, incorporating worker perspectives and expertise in the development of AI technology,

and helping shape public policy that, as they say, supports the technology skills and needs of frontline workers. Now, Smith told me that there's no money-changing hands between the two entities as part. of this deal agreed to today. And Schuller said her union is looking to sign similar deals with other AI companies so that workers have more of a say into how this groundbreaking technology unfolds. Tyler, back over to you. Would this, would this, quote, deal involve only the portions of the Microsoft Empire or globe that are involved with AI?

Would it affect other things? Well, for now, they're mainly focused on the AI piece of this, right? So they're talking about having Microsoft engineers conduct training sessions for AFL, CIO, executives, and workers, right? So things like that for now. But as you heard Brad Smith say in the soundbite there, you know, Microsoft has an entire approach to organize labor that's different really than what we see in other tech companies. They're much more willing to stand shoulder to shoulder with labor, he says, than they are to go toe to toe with them. All right. Interesting. Amid Javers, thanks very much.

You bet. Further ahead, NASDAQ 100 arrivals and departures. We will take a look at some of the shifts within the index and trade them in three-stock lunch. We'll be back in just a moment. Welcome back to Power Lunch, everybody. We had a couple of bond auctions today and, of course, the Fed meeting on Wednesday, last one of the year. So how are bond traders reacting to all of this? Rick Santelli live in Chicago. Hey, Rick. Hi, Tyler. Yes, we've had 50 billion three-year notes. I gave the auction a D. We had 37 billion 10-year notes I gave the auction at C-minus. So after 87 billion, what have we learned? I'll tell you what I've learned. First of all, the three-year note yield right at the 1130 auction end result, put in its intraday highs, the highest intraday highs, since November 28th.

And the 10-year already poisoned by the notion that investors didn't really like the taste of a three-year, while the 10-year was arguably a bit better, but at 1 o'clock Eastern, right at the auction ended, We are still at the intraday highest yields since December 4th, let's call it a week. So what I learn is you could have a first place team and still have really lousy games. And I think that many believe that the auctions and yields have been very well behaved, all things considered. I don't disagree with that, but all of a sudden there's a politicalization going on with regard to good auction or bad auction. These auctions weren't that good.

End of story. Let's go talk to a trader. Paul? All right. So we see that we had 87 billion in supply and two auctions. We see that the equity markets, for the most part, seem to be holding up. What are you seeing in equities, considering we have CPI, PPI, and a two-day Fed meeting. That, of course, starts tomorrow. Well, Rick, down here, we're definitely paying attention to the rest of the week, and we've seen a lot of interest in these expiries today tomorrow, the rest of this week. But overall, the VIX is low, and the macro sense, I wouldn't say, market's really on edge right now pending the outcomes. Now if we see a hotter than expected CPI tomorrow, is that something that's going to be taken lightly or is that going to potentially have the ability to change the goodwill equities have built up the last three or four weeks? I think it'll matter. I don't think in and of itself it's going to be the driver to change things,

especially because people are then going to be waiting to see what everyone says on Wednesday. but there is interest in it and people are paying attention. Every bit of data matters while the fed's on the data-dependent track. Many traders tell me that the reason equities are doing better is because many believe the Fed is done and eases are coming. If the Fed is done but eases don't come, does that alter the trajectory in your mind in a large way? That's the part of the meeting people are paying attention to

the timing and the extent of the cuts for 2024. If the market gets thrown something they're not expecting, I do think there would be a reaction. Well, we want to make sure we pay really close attention to about 830 Eastern when we push out that CPI because not many hours after that, $21 billion and 30-year reopened bonds are going to hit the market. And assessing investor interest in the here and now might give us big glimpses into the future. Tyler, back to you. All right, Mr. Santelli, thank you very much. Let's get to Bertha Coombs for a CNBC news update. Bertha.

Tyler, Vivek Ramoswami's campaign says he was the target of death threats ahead of a scheduled appearance in New Hampshire today. Federal prosecutors charge a 30-year-old man for threatening a 2024 presidential candidate. Court documents did not disclose who that candidate was, but Ramoswami's team says the man had responded to a text blast from his campaign with the violent messages. The State Department weighed in on reports that Russian opposition leader Alexei Navalny is missing. Department officials say this afternoon they're deeply concerned for his well-being and have communicated to the Russian government that it is responsible for what happens to Navalny. His team says they lost contact with Navalny after he was believed to have been moved from a penal colony where he had been imprisoned since last year. And President Biden

traveled to Philadelphia today to announce federal funding to reopen three fire companies that had been decommissioned during the recession. The $22.4 million will cover pay and benefits for 72 firefighters over the course of three years. It was a came as the president holds a campaign fundraiser in the city this afternoon. Tyler? You really can't underestimate the importance of Pennsylvania in next year's election. And certainly Joe Biden recognizes that. Thanks, Bertha.

Despite the ongoing geopolitical tensions and the heated chip race, Wedbush says don't count China out as a potential boost to Apple's stock. Always fun to hear from Dan Ives. He's going to explain next. All right, welcome back, everybody, to Power Launch. It's been a strong year for Apple with shares up by nearly 50%. It's kind of been an unloved stock, though, recently. shares are lower today. Our next guest is naming Apple, his top tech pick for 2024,

citing iPhone growth, China resilience. He's also raising his price target to $250 from 240. Dan is managing director of equity research at Wed Bush Securities. Do I have it wrong, Dan? I mean, I've heard a lot of people kind of questioning Apple, which is a polite way of putting it lately, but not you. I think it's been a heated stock this year. I mean, if you look, in terms of worries about iPhone growth, China, that that was really going to be the demise. And Cooper Tino, I actually think they're going into a renaissance of growth in terms of what we're seeing on iPhone units. Services now double digit, I think it's a get out to popcorn moment. It's now starting the next phase of the growth story. I think multiple expands. We think a $4 trillion mark cap by the end of

next year. Four trillion dollars in market cap. How much of a gain would that be from where it is today? So is it over three today? Yeah, so it's a little over 30%. Yeah. But Tower, I think the big thing, it's really services. I mean, services we think is worth 1.5 to 1.6 trillion, still being massively underestimated by the bears in the street. What about this iPhone 15?

How hot a product is it? How much market penetration is it likely to experience in China over the next 12 months? I could tell you from our checks in Asia, even over the last 24, 48 hours, there's been no cuts to supply chain. And that's important because it shows, I think, the China story is actually much more resilient than I think, you know, even we thought. That's about 20% of the upgrades that are going to come at China. There's 100 million iPhones based on our estimate in the window of an upgrade opportunity. China is going to grow. I think overall, this is actually firming out to be actually a really good house.

season, despite many yelling fire in a crowd theater. Renaissance of growth in Cooperino. Not many people have been saying that, Dan. Look, I think it's easy. Look, I think ultimately the New York City cap driver has been barrage on Apple. I mean, if you go into this year, it was iPhone growth slowing. The China worries. That's what was ultimately going to haunt the stock.

I think many were really calling for a $2 trillion mark cap. I think the reason we're here is Cook and that golden install base to about over 2 billion iOS devices worldwide, a massive install base in terms of upgrade opportunity. 25% have not upgraded their iPhone in four plus years. That's the key, and that's ultimately why they continue to sit on the top of that mountain in big tech. I was reading somewhere. I saw a headline somewhere. It probably was this morning. I've gotten to that age now where I can't remember where I said.

I can't remember why I went into certain rooms in my house, but that's another matter. I think I saw something that said Cook is on the prowl for a new hardware device. What would that be? And is that true? Well, I think you've seen some changes on their product design team. They're on the offensive right now. I mean, we saw Vision Pro. I think that's ultimately going to really go into something that's going to look like sunglasses two years from now.

But we continue to think it's about the Apple car in 2006. That ultimately, which will be an OEM partnership, is going to be the next big thing, along with what we view as an AI app store released late next year. Are you a Nittany Lion, Dan? Is that what I'm seeing behind you over your shoulder? We are. My son applied there. So loop for the Nittany Lions.

We'll hear in a couple of weeks. I will be. All right, Dan I've. Thanks a lot. Appreciate it. Coming up, Rising Risks. Dubai is one of the fastest growing cities in the world, but climate change could undermine its burgeoning real estate boom. We will explain how, when, and why when power lunch returns.

Welcome back, everybody. Final negotiations now underway at the United Nations Climate Summit in Dubai. There has been plenty of controversy over the global event being held in a major oil-producing nation, but there's also a lot at stake here for Dubai's own future. Diana Oleg joins us now from Dubai with the latest. Hi, Dai. Hey, Tai. Dubai is actually one of the fastest growing cities in history. Its population more than tripling since the turn of this century. Recently, it's seen an influx of wealthy Chinese buyers due to strict pandemic protocols and then wealthy Russian buyers after the invasion of Ukraine.

But as fast as Dubai is rising, so too are the risks to the city from climate change. It is a rare piece of sky in Dubai that doesn't have a crane in it, on the mainland and on a man-made island called Palm Jumera, which both some of the city's most expensive residences and resorts. The skyscrapers just keep going up, but much of that pricey real estate and its value are at risk from global warming. This is what parts of Dubai could eventually look like with three degrees Celsius warming above pre-industrial levels. Even if countries adhere to their current emissions reduction pledges, the world is now on track to reach 2.9 degrees warming sometime this century, according to a recent UN report. Add to that, already more intense rainfall as the atmosphere warms. Here they never even really built sufficient drainage. So even just a few weeks ago, there was massive flooding, actually, and just a little bit of rain can do a lot of damage in the streets here.

Still, the real estate here is not only rising, it's selling, with home prices up 19 percent from, just a year ago. We witnessed a phenomenal growth over the last two years. Mahadi Amjid is executive chairman of Omniat, a Dubai real estate developer with a $10 billion portfolio. Omniad is building luxury residences like this one on the palm, with resale units starting around $10 million. But what comes to Dubai, I think, and the UAE, particularly, I think the government has taken a lot of initiative, all the way to from protecting the environment, all the way to building and populating a much better climate environment to protect the city. City officials have already put in place new heat restrictions for workers,

and they're expected to improve infrastructure for drainage. As new construction goes up, they're using new materials that don't add to the urban heat effect, and working on new ways to cool the city through new architectural techniques and wind flows. Tyler? So really, I mean, the idea of flooding in Dubai is kind of crazy to me. You think of it as a desert kingdom. Yeah, you do, but remember it is on the water, but it's really the warming of the atmosphere, which we see across the U.S. all the time.

It creates much heavier rainfall. So you see this very intense rainfall in a very short period of time. And the drainage system here, as you said, it is the desert, just wasn't built for that. They weren't expecting that. Let's talk about what may come out of the COP summit. I think I heard over the weekend some dissatisfaction among some parties there that the sort of concluding statement is going to be a bit more watered down in terms of having a goal to wean the world from fossil fuels. Yeah, and we actually got the latest draft report tonight. You remember

it, of course, tonight here, even though it's still midday where you are. But that latest draft report was very, very disappointing to a lot of folks here who were looking for stronger language on the reduction or phasing out of fossil fuel emissions. In fact, the language in the draft statement basically says that countries can do whatever they want. And that is a very watered down version of what was expected. Now, there will be negotiations through tonight and into tomorrow, and most cops never end on time, although the leader here, Sultan Al Javier has said that he wants to wrap it up tomorrow.

They've got other events that are going to be going on at the Expo where the cop is, but there will still be many more negotiations going on. So, as they say, Ty, it ain't over yet. Ain't over until it's over. Diana, thank you. Appreciate it. Coming up, trading places, a dozen stocks either entering or leaving the NASDAQ 100 today. We will trade a few of the names being added to the index.

There's a fresh three-stock lunch after the break. All right, welcome back, everybody. Time for today's three-stock lunch. Today we trade three stocks that are being added to or taken out of the NASDAQ 100 here with our trades. Malcolm Etheridge, CIC, wealth executive vice president, and CNBC contributor. First up, Malcolm, welcome, by the way, is Zoom part of the annual makeover of the tech-heavy NASDAQ.

Zoom is going to be out of the NASDAQ 100. What's your trade on Zoom, which, of course, was the pandemic. Darling, a little of the luster gone now. Yeah, Tyler, that one for me is a sell. I'm not surprised to see it getting booted from the NASDAQ. I think during COVID, you know, it was a great name that provided an essential service. But since then, they haven't found a way. to really pivot away from the one singular product they have,

which is their video chat service. And so I think they're just in danger of names like Microsoft and Google who can sell multiple products to the same enterprise software client, just continuing to take market share and not leaving much left for Zoom. Are they an acquisition target, potentially? I think it is a great potential acquisition target for someone who doesn't already have their own video conferencing service. I would look out for that in 2024 for those rumors to start floating around. Up next, another sort of,

I think of it as a pandemic darling. That would be DoorDash added to the NASDAQ 100. Shares up about 2% today. Your trade on Dash. Yeah, so DoorDash actually consider a hole. You're right that coming out of COVID, we saw a trade down as far as demand for their services. Folks started moving around and were willing to go and pick up their own things on their own. But they have started showing great unit economics, right? The Q3 earnings report, I think we saw something like a 27% increase in revenue. But my concern is if the consumer is slowing down as much as we think they might be, folks are stretched budget-wise. We're seeing 401K hardship withdrawals at all-time highs and that sort of thing. That's going to impact DoorDash directly because one of the very first things that you're going to cut as a consumer are the convenience items, not necessarily the staples.

And so DoorDash, I wouldn't go building a position in it today, but if I already own it, maybe I would, would hang on to it, hoping that we do get some sort of soft landing. Let's move on finally to CDW Corp, also being added to the index. Shares up about a percent today. So what should trade on that one? So that one I consider a buy, and there's a little bit of a trend happening here where this one was actually impacted by COVID in the sense that where the world initially stood still and companies needed to send out laptops and different docking stations and all those sorts

of things to their employees, we were about. We're about three plus years removed from that, which means that we're entering that replacement cycle where those same companies will need to start trading in those older models for new ones. And CDW is perfectly positioned to actually capitalize on that increased enterprise spend from small and mid-sized companies. All right, Malcolm. Thank you very much. We appreciate it. We got to buy. We got to sell and we got a hole.

That covers the basis, my friend. Thank you. All right, still ahead. The $700 million man. The new record-setting contract could change the economics of Major League Baseball, maybe forever. We will discuss Shohei Otani when Power Lunch returns. All right, welcome back to Power Lunch. We have been talking a lot about big money deals on the show today.

And not a one that has been rocking the sports world. The Dodgers from L.A. agreeing to pay Shohei Otani $700 million over 10 years. It sounds like the money you'd throw at a corporate buyout. For more on this historic deal and what it means for the business of baseball, joined in studio by Mark Spinesand, MLB.com executive reporter. Welcome, Mark. Good to have you with us.

Thanks. Appreciate you. How much of this $700 million, so it goes over 10 years, how much of it is sort of backdated or deferred money? Well, the actual details of the deal have not come out yet. He hasn't passed his physical. They haven't made the official announcement. but sources told me that the majority of his salary, so that could be $351 million,

could be $400, it could be $500,000, is going to be deferred beyond the 10 years of the contract. The reasoning for that is very simple. The more they can defer, the less the present-day value of the contract is, and that's what the Dodgers have to pay in the competitive balance tax.

So rather than paying $70 million a year towards that, whatever the present-day value is, that's what they'll be doing. And it was actually Otani's idea to defer the money and bring that present-day value down because it'll help the Dodgers stay competitive in terms of being able to spend money on other players.

So it effectively cheapens the... Correct. What is counted against that luckily tax. Correct. And yet Otani and his representatives can say, hey, we got $700 million, the largest contract in North American sports history. Yeah.

How does baseball pay that kind of money and still make money? I'm sure the Dodgers are making plenty of money. Yeah. an interesting situation. Because they must have to merchandise the hell out of. Well, you know, he's the biggest star in the world as far as baseball goes. And I would imagine that the money that the Dodgers will make in sponsorships from Japanese corporations alone will pay for a big bulk of that contract. The Angels, who were Otani's last team, it was estimated they were making about $30 million a year just in Japanese sponsorships. The Dodgers, now that he's won two MVPs,

now that he's going to be the face of their franchise on a franchise that has some other pretty big names, they're going to be leveraging that into some really big sponsorships. So unlike most other players, right? Aaron Judge signs with the Yankees, there aren't a mere $350 million. There isn't a whole country worth of sponsorships coming his way. The Yankees are already making a lot of sponsorships off of Judge. Otani's going to bring revenue to the Dodgers that wasn't there at all for them before, and it's going to really help pay for that contract.

Why do the Dodgers get sponsorship money that is really Otani's money? In other words, it's Otani who is, I guess anytime he appears in a Dodger uniform, the Dodgers are going to get a cut of it, right? I don't know what Otani's cut on his own sponsorship deals are. I don't think Otani's hurting in the sponsorship department. We see him here in America, New Balance ads all the time and some others. I'm sure his face is going to be plastered on billboards all throughout L.A., but he's got enough Japanese marketing and sponsorship opportunities of his own that I don't think he's heard.

On the wall behind you are the payrolls of one, two, three, four, four. four, five, six, seven, eight teams that will pay less this year than Shohei Otani's sort of annual value of his contract, 70 million. That's pretty amazing. What does it do to the competitive balance in baseball? Well, do we need to worry about that? The Orioles won their division handily this past year. And the Orioles benefit right now from having some really young talent that's just coming into the league,

making the league minimum. Those guys, three, four, five years from now will start making serious money, whether the Orioles are the team that can keep them or not remains to be seen. But the Dodgers have been a big spending team for a long time. The Yankees, the Mets, there are plenty of big spending teams out there that are maybe going to look at other ways to get creative with contracts if players are open to doing it. Yeah, this was the big timber to fall. Who's left out there? There's another pitcher coming from Japan named Yoshinobu Yamamoto. He's going to be the next big domino. Yeah. He's expected to get a contract worth $250 million to $300 million despite having never pitched in the big leagues.

But Otani was the first big one. Back to Otani very quickly. He's coming off Tommy John surgery, so he's not going to pitch next year. He will hit next year and not pitch. He's hoping to resume pitching in 2025. Mark, thanks very much, Mark. Fine, Sand. Appreciate it.

Thanks for watching Power Lunch. Closing Bell. We'll start in about five seconds from now. See you tomorrow, everybody.