Yet Another Value Podcast - Chris DeMuth's State of the Markets December 2022

Episode Date: December 22, 2022

Chris DeMuth joins the podcast to discuss the state of the markets in December 2022 and what’s catching his eye in event driven land, including updates on ATVI, why pre-arb was so bad in 2022, and  WLFC's proposed takeout.    Chapters  0:00 Intro  2:30 What's on Chris's mind  4:00 Discussing why "pre-arb" didn't work in 2022  11:20 Updating ATVI  21:00 Majority takeouts of minorities  29:45 WLFC takeout  37:20 AMZN's IRBT takeout

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Visible Alpha extracts data from every line item across sell-side models so professional investors can save time and better understand analysts' expectations on metrics beyond just revenue and earnings. Join our rapidly growing by-side client base and streamline your investment research workflow so you can focus on generating new investment ideas. Listeners are invited to try Visible Alpha for free by visiting Visible Alpha dot com slash value that's visible alpha.com slash value all right hello and welcome to yet another value podcast i'm your host andrew walker if you like this podcast it mean a lot if you could follow

rate subscribe review wherever you're watching or listening to it uh with me today i'm happy to have my friend and the founder of range of capital chris the meuth chris how's it going it's going great thanks for having me on andrew hey thanks for coming on for the last podcast of the year uh I still don't have any yet another value swag, though. I love the hat. You're such a liar. You know it's in boxes right behind you. I know where you are right now.

You can go get one later. I wasn't going to steal one. But anyways, I think that's really cool. I will wear one next episode. Well, thank you for that. The check is in the mail for that endorsement for getting people on the swag. Four stars. But let's start this podcast.

the way to do every podcast. First, a disclaimer to remind everyone, nothing on this podcast investing advice. That's always true, but probably particularly true today. I think Chris and I have a list of like eight or so situations in stocks that we're going to jump through. Maybe we'll get to them all, maybe won't, but everybody should just remember, this is an investing device. Please do your own work, consult a financial advisor. So all that out the way, Chris, I'll just turn it over to you. Where should we start off today? Well, we are flushed with liquidity with all sorts things having kind of resolved themselves over the last few months. So looking for kind of new fresh ideas. We kind of have invested, took big swings, invested probably, I think, in the event fund with the

most concentrated book I think we've had in years. But a lot of things are played out. So we've been kind of looking for new ideas, some of which I'm not totally ready to talk about yet, some of which we can talk about. But it's a great time to kind of freshen up I think my thought when I woke up this morning is no inventory bias. We happen to own some things. We happen to not own things, but that shouldn't make the difference in terms of what we think about next. Going into the new year, kind of just wanting fresh takes on everything. So I've been thinking about merger arb, I've been thinking about litigation.

I've been aware of the macro environment, but not something that I really like doing virtually all of my thought kind of firm level and just thinking about the dynamics for the kind of transactions that work in a changing environment in terms of interest rates in terms of market dynamics. So yeah, just thinking about all of those things. How about you? You know, so one thing, and we've talked about this a bunch on this podcast offline, all that. You know, I just on the last thing you said, thinking about the things that work in an environment like this, the deals that work in an environment like this, right? Like, 2022 was probably the worst year I've ever seen for, you have a stock that's involved in a process, right, a company that's involved in

a process. And one of the things event people do is companies involved in a process. Stock goes from 50 to 60. Event people are going to do a bunch of work on it. And they're going to say, oh, I think of a deal comes through. It's going to be at 70. I think there's four strategic. I think it's 80% likely to go through, downside 50, upside 70, markets got this price at 50, 50, I think higher possibilities it goes through, maybe higher odds, all this sort of stuff. And this has been the absolute worst environment for that sort of stuff because the stock market fell so quickly, interest rates went up so quickly, debt financing fell so quickly that every deal broke, right? And you and I would have deals where it was like, hey, the company turned down a 60 bid,

hoping for 65, and a month later, the stock was 30. And the company was like, what just that? I wish I, how did I miss out on this? You know, so I had been thinking in 2023, like, is this the year where, is it a year where so much bad happened in 2022? Like, it's just going to be easier to get deals done and Boers are going to be more accepting because they're going to look and as soon as the debt window cracks over, they're going to say, hey, if we could get to 45, forget that we turned down 60 or 70, 6 months ago. Like, let's just get the heck out of here.

And, you know, like, are we going to see a wave of deals in this environment? Or do things get worse? I don't know. It's tough to put into words, but it's something that you're thinking about. A disaster for kind of pre-arb takeover candidates. As you say, I've for years and years thought a lot about the subtle differences in how press write about these. And even the wordplay they do when they've actually kind of gotten deals market checked, when they kind of know something's about to be announced.

best best case scenario deal gets announced it typically has been a few dollars beneath what a lot of the kind of analyst community had pegged the deals at in many more cases it gets delayed in many more cases it doesn't come to fruition even what I would have considered historically to be a pretty high quality not just rumortage but market check deals like a lot of things fell apart this year at the five yard line and it would have been an amazing, I didn't do this, sadly, but it would have been an amazing kind of probably one of the better short categories this year would have been kind of deal prospect, a deal speculations, just, I mean, just a debacle. And then so many of them not just traded down

horribly, but even at that point, I mean, one of my heuristics, I don't know, biases, is that I take pretty seriously corporate buyers that have five. financing, have, you know, a regulatory route. It's a data point, even if they don't specifically get their deal done, but it's not been a useful data point this year. A lot of things have traded down horrifically and then just kept like that initial arb puke, which I normally scoff at as, oh, arms that were sellers. They weren't in this year. And this year, a lot of that arbup was actually an okay sale price compared to what they did, you know, a month, a week or a month later and a lot of them haven't recovered since. So yeah, just, I mean, people were looking at

a decent number of stocks were takeover candidates at huge premiums where they are now. And if you look at their debt, they're kind of openly speculated to be questionable as going concerns. And it's amazing that they were ever serious takeover candidates even a few months ago or the market's gotten wrong now or just things have changed really super dramatically. Yeah, the two that pops to my mind are Kono Health, the sicker there, CANO, which, you know, two months ago was rumored to have a bid from CVS for like $10 to $12 per share. CVS fell through a couple other strategic buyers said no. And now the stock's trading for like a dollar per share. So it's like what happened between two months ago, you had strategics, you know, this is a very popular space for takeouts.

You had strategics that were looking at this and saying, hey, we think this is worth 10. worth a dollar and people are worried they can't refinance their debt they it you know maybe and the and the debts and the debt's trading super cheap too like the whole thing is just yeah it's it's a train right and maybe cvs found something in their due diligence right like i speculated about this on the blog maybe cvs found something that was like i i hate to use the effort on this podcast so i'm not going to but maybe they found like accounting irregularity or they found some type of stuff where they're like oh we can't touch this but it didn't that certainly didn't come out in the press it just seemed like they were like, oh, we were worried about the DOJ is already investigating one deal.

We don't want to do another. Or the other one I look at is coals that took her there as KSS, where, you know, they had they had a bid at 70 that I think they turned down. And then they had a final bit at 50 that they ended up turning down. And the bid at 50, like there was pretty good reporting that a big piece of it was based on financing a lot of the real estate coals owned at $35 to $40 per share, right? That was kind of the implied value. And today, coal stocks trade trades for $26 per share.

So not only is it way below all the offers, but it's, it's below the value that their debt was, that their real estate was going to get valued at. And it's kind of like, hey, I know, you know, I look at that and I say, is that opportunity? Because yes, the near term sales is going to suck. Everybody knows 2023, probably a recession. Retail is not in a good space right now. But if you're willing to look, you know, past nine months, especially for coals, it's like, oh, well, you're buying $35 of real estate for.

26, there's an operating business with a long history of brand. You know, I'm sure the board knows that shareholders are not happy with how they handle the past year. As soon as markets open up, is coal is going to be for sale or something? My guess is that anybody who had a hard year in 2022 who's thinking about a recession in 2023 has almost no time horizon to think about what something could be worth in 2024. And that's a huge opportunity for takeover candidates. because a lot of these do really retrade. And no strategic buyer should have been looking at something this year for something that just a recession, I mean, if you're a strategic buyer, you're going to own it through

a recession sooner or later. And just because one's going to hit in the next year, it shouldn't have made the difference. I think if you have a long enough time horizon to see through the next 24 or 36 months, for any investor who thinks they're going to be around in 24 or 36 months, these could be really good. as long as they're going to be going concerned through a tough recession for loaded mid-ed consumers. And so you have to look at leverage. You have to think about the cap structure. But if it's, if it can survive the next 12 months, probably a lot of these will retrade in the next 24 months.

Perfect. You know, I want to turn to some specific situations. And I just want to start with Activision. The sticker there is ATBI. And the reason I bring Activision up in particular is because we've talked about. it several times on this podcast. And earlier this month, the FTC, I don't know if they've officially sued or not, but there was a report that said they're going to sue, right? So FTC is getting ready to sue to block. They did officially sue. Okay. They brought a case and they brought it in front

of an FTC ALJ. So it's a little bit of a sneaky process in my mind. I actually have constitutional concerns about whether that is legitimate. It's kind of plotting its way up through the Supreme Court, and that ruling might come not really soon enough for this deal necessarily, but I think it's a really suspicious process for an unelected executive agency to basically refer a case to itself to ask whether it thinks it's right and something. I think these things should go in front of a judge, a real judge, and an administrative law judge is a sort of grandiose title for with these guys out. They're not real judges. They brought a case. The case was very, very, very similar to notes and thoughts brought forward by Sony's legal department.

I mean, this was this was a kind of a competitor's view. The FTC had two Democrat commissioners immediately signed on. One had this pull to her conscience for a few hours and then she signed on to it. So you have three Democrats, you only have one Republican there who opposed it, but it doesn't matter. And so, yeah, so they're litigating this, and Microsoft has signed up to fight it. Now, Microsoft, you know, I think they're going to want to stick with this case. you know, the, they could probably get out of it with their extended walk date. We'll see.

And it still comes down. We've not heard back from either the EU or the CMA. CMA being the worst procedurally. However, if you look at substantive gives from Microsoft, and I think Microsoft's been pretty sophisticated about this so far, they've very much lined up with. what the CMA has nominally said they're interested in. So if you listen to the CMA and you look at what they're offering in terms of the kind of Fran,

kind of bare reasonable use of their games, it does seem like it would line up pretty well with what the CMA is asking for. I've listened to a lot of the people people at Microsoft talk about this at this point. Either very senior people at huge corporations are just kind of like persuasive, charismatic guys, or they're really good. But I listen to them, and I'm like, I really think their kind of talking points on this are actually quite genuine in terms of what they're doing this deal for and kind of their interest in mobile and their

interest in some of these games. I don't think they have this secret plot. to screw over one of their platform competitors. I think it would be super dangerous in terms of their relationship with gamers. And I was just talking with my, I have a 14-year-old son, and they have various combinations of games they like and various consoles at different people's houses.

And if one company said, ha, ha, we're preventing this one combination. I think that would be a massive blowback amongst gaming customers. I think individuals who make the decisions that the companies would not really be incentivized to play that game to restrict a console competitor. And so I really don't, I think that, I don't think that they are trying to do that.

And I, if I were Microsoft, I think they have a jiu-jitsu move. They haven't played yet, but they've offered what seems to me very, very reasonable, long-dated, comprehensive, um, contracts for other platforms, especially Sony. And, um, I also think there's some kind of jiu-jitsu they could play that would harm other Microsoft competitor kind of app store type situation. I think that they could end up with a settlement with the FTC that actually is hugely valuable to Microsoft. There's a shot. The company outsmarts them here. Um, but we haven't gotten to that yet. And at this point, decent shot that they're not able to get through the regulatory process. Yeah, you know, in many ways it reminds me of AT&T Time Warner, the AT&T

Time Warner deal. Now, in AT&T Tim Warner, that was all domestic focus, right? Only U.S. basically, because AT&T pretty much was only a U.S. company. But it's not a perfect parallel, but you had the DOJ coming out and saying, hey, you know, what if AT&T buys HBO and only lets HBO get sold on HBO only gets sold on AT&T devices or streamed it. And AT&T's response was that makes absolutely no sense. Like you make Game of Thrones, it's a game of scale, right? Game of Thrones is going to cost 10 million per episode, no matter if we show it to one person or 500 million people. So we want to show it to the most amount of people to spread it over the most amount of things. And, you know, call of duty is very similar in that. It's going to take $200 million to

make a new call of duty. It costs the same no matter if you throw it on your platform or 100 platforms. And I think Microsoft saying, hey, not only does it not make sense for us to make these AAA game titles exclusive, like, we'll, I believe the Sony offer was we'll give them a 10-year contract that says we can't make this exclusive. So it reminds me of that in a lot of ways. I don't know about you, but the thing that really stops me is the arguments I hear from event people are on Activision, two things. the downside on Activision. So if it breaks, you know, if Microsoft is to walk, pay Activision, I think it's $3 billion

at this point for a break fee, a lot of people say, hey, the market's got the downside on Activision at 60. I think it's 75. So you buy it here at 75, 77, whatever it is. You're basically getting a free upshot of the deal going through. That's number one. And the number two, a lot of people think, oh, they will beat the FTC in court. And I don't disagree with number two.

I think they will beat the FTC. I don't really know about number one, but the thing that scares me is number three. I just, UKCMA, we've talked about it so many times. I don't know how you get past that risk. It seems like that's a stopping gate if Microsoft can't get that over the edge. I guess if you think the downside is nothing from here,

then you're getting the free up shot. But anyway, I ramble three things. I'll kind of toss it over to you. I don't like the no downside argument in, a bare market, I think just the ability to hand off from our accounts to fundamental accounts. You know, it was a bad month, but I think that in an XPI, that was kind of the last time there was something that was so big and liquid and well followed and well owned amongst people who thought it was probably going to get blocked.

There was a big, in this case, it was Samar, a big Chinese regulatory delay. looked like it was going to be in trouble, but didn't look like a lot of it ultimately proved to be kind of correct, but it was the time to own it was after the bad news, that it's priced in, everything's fine, just the market's not efficient enough at handing these between a different kind of accounts. I've been in a few situations where it more or less worked out on lucrative deal breaks, but almost every time you actually have some, unless you're huge, and I think it's different for like prop desks or monster hedge funds that have to move around billions of dollars, but if you just have tens of millions of dollars to move around in a position, you can actually

get in on the bad news. And we saw that with Elon's purported termination, right? Like you can actually be pretty patient and lazy about trading these things. If you think this, that, then the other things are going to happen that look normally bad and then it'll all work out okay you can wait you don't need to set that up ahead of time yeah and i'm just looking like again active vision was really struggling right there was there were all sorts of issues with a bunch of their different divisions but i'm looking at the stock price year to date in management in management too manage all sorts issues but active in stock year to date up about 15% uh EA down about 10% so far this year, take two down about 45%. The Russell 2000 down about 22%. Like I look at those

and I say, yes, I get you like people like to point out, hey, they'll do, I think they can do $4 in earnings next year. It's a $20 PD. I get you, but it's just hard for me to imagine based on those peers that there's no downside here. I agree. I agree. Yeah. Let's see. What else should we talk about? I know one thing you've been pitching a lot is, Majority, strategics who own majorities of public companies taking up minorities. Yeah. I've been pitching it. I guess I'll just throw that out at you.

In a deal market this year, where you are pinched between the financing problem of LBOs having a horrible, I mean, it went from horrible to basically dead credit environment for syndicating. deal debt. I mean, it'd be, you know, deal, even nominally LBO deals have gotten less and less leveraged. I mean, they've been more BOs than LBOs and banks have been hanging on to debt. It's been terrible for deal finance. I don't think it's even a horrible credit environment today as much as it just changed too much. You need to be able to kind of reset, even if things just stabilize at current interest rates, I think we'll be able to do LBOs next year, but it will, it affects prices and it affects so many things just stops that would have gone forward otherwise as things were in flux. On one hand, and then on the strategic deals,

you have a hyper-aggressive regulatory process. What's left? For me, what's left this year has been public subsidiaries or minority positions in stocks with majority control or majority control or majority ownership where they already have so many of the attributes of a public company that are unattractive and so many of the attributes of a private company that are attractive, you might as well just take them out. So the things I look for are a majority owner, no need for the public markets. And kind of just having to deal with the public shareholders are, is kind of an annoyance. You know, you have, if you look at things that have worked this year, just a litany of public controlled MLPs.

You have an actually very interesting litigation on that from the Lowe's Boardwalk case. So that just came, that just was overturned to the Supreme Court. So it's interesting to look at the advantages and disadvantages in this changing market. It's really changed for having public subsidiary MLPs. And then just generally, Turquoise Hill, Continental, a lot of these kind of big money controllers just don't need or want the bother of the public sub. And those have actually, that's probably been one of the smoother categories this year. of all the things that have been not smooth, those have kind of been working pretty well so far. No, I completely agree.

And, you know, it is one thing that if you own 67% of a company, as I, if I remember correctly, it was about the turquoise Rio Cinto thing, which we've talked about several times on this pod, like having the other 33% out, especially if it's strategic, if it's got synergies with your business, it just doesn't make sense. like the public company costs are running $5 billion per year. You take it out. You save that company. You save the hassle.

You save the headache. You save having to worry about getting sued for even if you are doing right by share orders, like everything you do that you're going to have to get third part, somebody to kind to price it out of arms length. Like you just save a lot of hassle. It just makes a lot of money. And, you know, add that all in. And you've got to market down 20%.

A lot of these stocks are down. Like even if you pay a pretty big premium, you can probably like, you'll have happy shareholders because who doesn't like a 30% pop in a down market and you'll probably be pretty happy because I look at something like you mentioned the publicly traded MLPs which all got taken out by their their majority energy companies recently. You know, Shell, shell, shell is the one that really pops to mind. Shell went and borrowed at like 4% to get, when borrowed tax deductible debt at 4% to buy up $4 billion worth of Shellex minority shareholders.

who are going to get a dividend yield of like 10%. So, you know, they get taxes on debt to go buy out this thing. They get the synergies from taking out. They lose the headache. Like, it just makes all the sense in the world. When the first one did it, everybody else must have looked at it. And you're like, it's a layup. And those I think are very legitimate.

You also have a little bit of accounting shenanigans going on with the prospect of sort of like rescuing the narrative on how you got in a situation, if something's trading really badly. I mean, I have, this was a little while ago, but there was one kind of retailer that wasn't doing all that well with a huge public equity position in a fund that raised money in a new fund,

took the whole thing out, took it private again, and then almost immediately the next day marked it down by like 50% in a fund that had another seven-year life. But the old equity was at the fund right at the end. end of its life. So they were kind of very incentivized to make that look good, wrap it up, have liquidity, get themselves paid on every which way, and then kind of deal with the new problems later and the new problems that end up being very big problems. But you know, you look at, I've seen a number of these where somebody already has a big position and they're

kind of, I mean, it's, it's a good money chasing after bad, but it's, but it can sometimes be, rational from the agency perspective to just kind of clean up messes in the private market versus the public market and not during your dirty laundry in public. So they're bad reasons as well as good. With the public MLPs, I think it's good. I think those are actually really good deals for the buyers. What you just said makes me think of the, did you see the Weber Bryant BDT deal? Yes. Yeah. So for those who are following, this was Byron Trott, who's pretty well known among value investors. I believe Warren Buffett once called him like a value investor's banker or something. He runs kind of a merchant bank now. And they took Weber, the people who

make grills, public, you know, 2,021. So outdoor grills are really benefiting from COVID, stay at home, all these trends. They take him public. The stock's down like 90% since they took him public. A couple months ago, he comes in with an offer to buy them out for, I don't know, it was a pretty nice premium. But last week, he came in with a definitive offer that was a huge premium on top and then they reported earnings and the earnings were not good and a lot of people were looking at it and they're like why would you take this public it might be a restructuring and I think a lot of people say well he owns 90% of whoever they made a massive massive amount of money on the IPO if he takes them out way below the IPO price now like he kind of saves

the face a little bit of having to restructure this thing publicly right all I don't know maybe it makes sense but to me like it is a little bit throwing good money out of that after bad rather just go through the rational process. But I don't know if I could make an investment thesis on that, but woof, did it work really well for the people who played it? One of my favorite things about these situations is people who for years and years have really positive spins on how they're doing. And so they always have kind of language in the quarterly call that it's very promotional. And then whenever you're in a management-led buyout or in a situation where the vote, the target shareholder votes really in peril,

you have these funny dynamics of management kind of like talking down in many times their tenure in the value of the company and usually kind of being very nerve-wracking in terms of their description of like all the uncertainty in the future. It's like, hey, do you want to own this here's all the terrible things that could happen. You know, you never work out the market and so forth. And not how they ever normally sound. but you have kind of, you never really hear them that negative on it, other than when they're trying to buy it and take it private themselves.

Case that I'm looking at right now, Willis Lease Finance, have a position, WLFC, it's a great business. It's a kind of multi-generational kind of founder, family, kind of controller. you know, with the name on the door, very much were better and for worse, treated as if it's their company. Leases, aircraft engines, they pretty much every year try to take it private. They've had a number of offers. This one, though, is much more structurally serious and that they put together a consortium. They lobbed in a $45 bid. It's trading at 56 right now. I don't think the market certainly doesn't expect it to get done at 45, but they've offered 110% of

tangible book value in the past. And so that would be kind of, you know, closer to 70 if they did a deal there. It's really interesting in terms of how they value their inventory. They are super sharp they know this business really well um you know they're always doing something clever in their purchases right after the kind of 737 max uh kind of whenever there's kind of macro general worries they're always kind of scooping up things for super bargains and then leasing them out um their their stock did you know really badly right at the beginning of covid that kind of has bounced back pretty well it kind of was you know 60 down to 20 something like that. Now it's, you know, and they've tried to buy it several times. This time

they're the most serious. I think it'll probably be, you know, something close to 70, maybe a little bit less than that. But the interesting thing is in terms of book value in terms of how they do all their accounting, they take the lesser of appraisals, which are generally pretty low or a depreciation schedule, which always goes down, even in markets where, just because of supply and demand, a lot of these prices actually in the market go up for the first five years. And eventually they go to zero. But for a few years, if you have a bunch of engines that people can't get OEM same day delivery, they'll be trading like twice the value of what they say they're worth. I think if they were trying to, like, raise equity next, they would be describing their

book value at well over $100 a share. There's a lot of different ways. I mean, it's totally, it's legitimate. It's just like the most bearish, least promotional, most, it's just the lowest possible way you can get any outsider to value this company. You know, my favorite thing about this, and I haven't looked in about since the new offer came out, but I've got lots of notes. And my favorite thing about this is, I think this is their third time they've tried to take a private. And in this letter, they just said, like,

hey, bring the old special committee back together from our last few times. Just throw them back together and get it. It's just like they've got the rhythms of how to try to take private down because they've tried it so much. You know, I've never seen anyone just be like, hey, put the committee together again. Bring the old gang back. I really like that.

And as you said, I do think it's interesting. this time they've got a consortium, whereas the prior two times, if I remember correctly, I don't believe they had committed equity partners. They were just trying to do it on their own. So it does seem like when you get a committed equity partner, it does seem a little more serious because you probably shops and talks around to a couple people. So it does seem a little more serious. I think so. I think they really want to own this. I think it should be a private company. They don't need the equity market for anything. And I just think that they're constantly they're good bargain hunters. They're good bargain hunters when it comes to their substantive business.

So I think they think about their stock very rarely. And when they do, they're like, hey, I'll buy it for a ton less than it's worth if you want to sell it to me. I think that's true on individual shares. They're good at buying back shares. I think that's true. And it'll be interesting to see how open the consortium is to current public holders who might be able to roll over equity into a private company. I think several might be willing to do that. So that's a really interesting one. But the other thing is you don't have, you know, we've had these horrific situations

of deals busting and buyers walking. But in this case, it's kind of on the same side of the table and that the buyers in these public subs don't really want to like crap all over the thing and have the whole thing implode. They don't want to go down, trade down 50%. You know, even if they don't need the public market, I don't think they want the share price to go to 25 bucks again or something like that.

So you a little bit have some, in a tough macro environment, you have a little bit of a less kind of brutal back and forth in terms of bidding. Even people who don't want $45 probably think there should be a deal. Even people who want to get a great bargain as a buyer, a member of the kind of going private group, probably can understand that, okay, this is going to take at least tangible book values, probably some premium, especially given the way they count for it is so, so, so on the very low end of what you could say this is worth. I think it's worth over $100 per share. I think they will capture a lot of it, but it's the kind of situation that I really love right now.

And I generally like, in these take privates, I generally like things like the airline lessorers, injured, and lessers, everything, where you can point to a hard book number and say, hey, you know, book is 70 and these things that should trade at 1.1 times book, one book, because you generally don't get under book. Like, I haven't seen anybody really, you can, but it's really tough to make a fairness opinion say, hey, we're worth less than the value of our tangible book. whereas if you're doing something more earnings-based, you can, A, sandbag the earnings by running a bunch of expenses the year into it, or you can say, oh, look, we think we should trade towards low end. But saying we should trade for eight times earnings where everything else goes for 10, nothing wrong with that. But go ahead and saying, oh, we think we should trade for below book. Like, it's just harder for you to pull one over on a special committee, on the courts, all that when you're doing that. Especially when they're the decision makers, I would

compliment them as very, very good decision makers. They should be. worth some kind of premium. This book is a book they put together because they thought they were buying bargains and leasing them out. There is an active market for each of these things. It's substantively what they do. I would say that their pride in the arithmetic enunciation of the value they add is the premium over the book value that they deserve. If the market doesn't notice that, the market's wrong. I think that's why we own the shares. But yeah, it would be, be overly humble of them to say, oh, you know, we are worth less than the book value that we put together. We deserve a discount. In normal times, other than when they're the buyer, it'd be hard

to get them to, I think they'd be the last people who would make that claim. I just want to go through one more. We got a couple of questions on I-Robot, Amazon. I know this is following closely. You know, I-Robot, IRBT is the ticker there. Amazon's trying to buy them. The people who make Rumbus and everything, if I remember correctly. I think there's a lot of investigation. So I just want to toss that over to you because we've got a lot of questions on that. Yeah, no position, no interest. It's getting to be a more interesting question as it trades down.

When it was announced, it was briefly trading really close to the deal price, you know, just beneath $60. A share, we're dealing with a $61 cash takeover, currently $13 spread, which is, you know, a monster. IRR if they can get this done anytime soon. I think that we're just dealing with regulators that are just throwing everything at the wall and will not be willing to turn down a hook to go after Amazon. So I think it has all of the difficulty that Activision has in terms of a hook to go after one of the big tech companies. When you look at what the kind of speeches are of the antitrust authorities right now, they really are very fixated on tech and healthcare, probably even especially tech. And so I think that's hard to own here. It gets better and better

as it gets closer to, I mean, it's almost back to the pre-deal price. It was trading kind of 46 right before, right before the deal was announced. So better at 48 than at 59, but I really am not stepping before any of these big antitrust risk right now. Glad I haven't so far. Probably should have shorted it, didn't. And just from the sideline kind of waiting on a suit. I just don't understand the antitrust argument.

Like one of the arguments that's been thrown to me with Irobot is, you know, they make Roomba and Amazon's going to take the data from the Roomba like that shows the size and shape of your apartment and use that for for what like I really don't understand the antitrust argument they're they're buying there are plenty of other competitor what is it like automated vacuum makers out there I just I don't understand it doesn't seem like this knowing the size of my size of shape of my apartment doesn't seem that valuable it doesn't see I don't get it here And it's a very ripe for kind of unbranded competition. It's not, yeah, no, it is not a traditional and a trust case.

It is a hook for agencies that want to pursue other things with big tech companies. Looking at the history of these, if you really were to success, seed in bringing antitrust cases against any of these. And I think I robot might be even dumber than Activision. But if you really don't bring all these cases, one of the things that you do besides kind of making a mockery of the point of antitrust and just benefiting the competitors as opposed to benefiting, even conceivably benefiting the customers, you tend to walk in that moment's industrial organization, right? Like, There's throughout the history of these tech platforms, there have been dozens and dozens of

different moments in history where it's been very hardware dominant or software dominant or consolidated or separate or startups or private or public. The free market is changing things all the time. And like nobody really knows what comes next, but it's the agency saying we're just going to freeze everything as it is right now. It's like, why now? If they had this power 10 years ago, they would have frozen in that. a moment. And so I think it's horrible for technology and innovation and just general dynamism and understates how much people like money and are doing smart things to make it and take share from incumbents in all sorts of structures that nobody really knows about. Like I can't even

tell you who's doing it or how or why. I just bet you somebody is. And because it's happened dozens of times, not just with specific companies coming and going, but dozens of times of the whole structure of the industry changing. And so when people say tech, they imply evidence like these companies now and will be forever. But there's no point in history where the ones that were presumed to be dominant even were relevant necessarily a few years later. I mean, one of the big things that they were concerned about a number years ago was in dash nav systems were going to be this antitrust dominance like the railroads crossing to the west. And this was just right before everybody had nav systems in their phones.

You know, I have older vehicles that don't have very sophisticated new dash nav systems. And I always thought when I got them like, oh, I'm really going to want the new technology in the dash, but I don't even care anymore because I just use my iPhone for ways. And so they never seem to perceive, they look at technology, they're skeptical of technology, but they're very obtuse about just the idea of dynamism. The whole thing changes. Look at the stock prices of all the fangs this year. You know, look at Google, everybody knows how great Google's mode is.

But until a month ago, I don't think people were thinking about chat GPT and then chat GPT comes out and people like, oh, my God, this is the greatest threat to Google of all time. I think as it is now, it's a little overstated. But, you know, now you can see a credible thing. and when these things spread, Chatsy, GPT was what? It was the fastest to hit one million users thing ever. It did in like five days or something. Like these things spread and they spread like wildfire.

And that's why when people say, oh, Google trades for 15 times earnings, Coke trades for 20 times earnings. Google's growing quicker or better cash flow dynamics. Like, yeah, but Coke, like you've got a hundred year history. I guess it's Lindy as the kids say these days. But Google, you know, when things flip, MySpace at 10 times earnings in 2006 or whatever,

the earnings went to zero like that, whereas a Coke or something, even in a bare case scenario, you're probably getting the tobacco path, right, where people start really taxing sugar or all that type of stuff. So, you know, and this FTC would be, who have adamantly been out there defending, you know, locking in my space, locking in Netscape, locking in whatever the Domina company was of the day, and would have not ever thought of chat GPD, which I think it's just unbelievable. I've been messing around with it so much. I just think it's spectacular. Just two quick questions on iRobot. So that on top of U.S. approval, that has EU and UK CMA. Correct. Especially CMA. Is that as big a concern for IRobot Amazon as it is for

Activision Microsoft? You know, I have a great contact who's in front of the CMA on another matter, not this. I don't believe they are actively coordinating or there's been lots of contact between CMA and the U.S. on this yet. So I don't have any, based on information, there's not that specific worry. Based on judgment, it always makes things a bit trickier if you were going to have some huge bet that they were going to be able to see their way through a tricky regulatory process because there can always be trading between U.S. agencies and CMA. No, CMA and the EU are very, very close.

Thick as thieves almost always. And the Brits are kind of in a weird situation and they've kind of replicated all the worst things about the EU in terms of their deal regulator, but still have now a separate process. So it's been really lousy for them. But so no, I don't have, I don't have specific reason to think that this case has the same problem

and practice, in theory, while I'm very happy waiting and being out of this one, if you were huge, if you're taking existential firm risk that you knew this was going to get done because you had a theory about it, I trust, you'd always have to, in the back of your mind, worry that there are games these regulators can play. I even think the FTC referring something to the ALJ is a bit of a game. I think that's where the process becomes the punishment and could be. even more with the CMA review. Perfect. Perfect. Okay, cool. Well, hey, Chris, almost been an hour. I'm getting over the flu, so I think I'm going to wrap it up here.

But hope you have a great holidays. Looking forward to talking to you before them, but looking forward to having you all again in January. And we'll talk to everybody in the new year. Merry Christmas. Happy New Year. Hope you feel better soon. Thanks so much. See you soon, Chris. Bye. Bye. investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.