Yet Another Value Podcast - Chris DeMuth's State of the Markets February 2023

Episode Date: March 1, 2023

Chris DeMuth returns to the podcast for his monthly state of the markets, with updates on TGNA, ATVI, AMC / APE, and MANU.   Chapters  0:00 Intro  2:30 TGNA  27:00 ATVI / MSFT  42:30 AMC / APE  50:00 MANU

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listening to it. With me today, I'm happy to have my friend and the founder of Range of Capital, Chris the Mute. Chris, how's it going? It's going great, Andrew. Thanks for having me on again. Thanks for coming on for the monthly appearance. Let me start this podcast the way I do every podcast. First, the disclaimer, which remind everyone, nothing on this podcast is investing advice. That's always true, but probably particularly true today since we're going to go through probably three, four, five, six, a hundred bunch of stocks in situations. So everybody should just remember, please do your own work. Nothing on here is investing advice, consult a financial advisor. And yeah, down out the way, look, it is February, 2003, the shortest month of the year. But I almost feel like it's the most exciting month in terms of number of events and just weird things happening in quite some time.

So we can, I've got a list of tons of topics. People are lobbying a bunch of questions. We can start wherever you want to start, or I can just start walking down my list. Fire away. Okay, let's start. So I guess the most topical thing. And maybe this is most topical because it's breaking like as we. speak. But we've talked a few times on this podcast about Tegna and Standard General. So

Standard General is a concentrated hedge fund. They do buy out companies almost a year ago to the day. They announced a deal to buy Tegna. On Friday afternoon, kind of, you know, after the closed, one minute after the close, the FCC put out a press release that said, hey, we have serious concerns about this deal. We're the last regulator. We're not going to approve this deal. we think it's against the public interest. And in general, when the FCC says, we're not going to approve it, that is, the deal is dead. In this case, Standard today, as we're talking, you know, we're talking Monday, February 27th, standard came out, put out a press release that said, we have huge issues with what they,

with everything they've said. We're going to try and pursue this deal. We're going to try and find a way to get it to close. So we're just completely out into unprecedented territory as far as I know here. I'll just pause there. I've got some thoughts, but I'll just pause there. Like, what's your overall thoughts of the, what's happening here? What's your overall thoughts on the go forward path?

Everything. There are a half dozen things about last week at the FCC that were unprecedented. The most formulaic thing to say is that this kills deals. It's historically a death sentence for M&A. Deals cannot operate quickly enough to get through an FCC procedure like this. And in this case, it very explicitly would go well beyond the walk date. But it would kill the deal historically. It's also unprecedented to have this come out from the Media Bureau without a separate vote from the FCC commissioners.

it's also unprecedented generally thematically to have such a partisan FCC. Historically, I think DOJ, FTC, FCC, and Washington, a city that can be driven by parties and ideology had a little bit more guardrails around those agencies. you know, you have, if you have five people, you have to kind of work together or in this, in many cases, sometimes only four at a time. And you also have people who are, and you could say a cynical version or a benign version of the reality that people bounce back and forth constantly between the private and public sector. I can tell you at a personal level, it makes it much smoother. These are people who might have some testy quote the way two

people on Fintwit may have a testy tweet and then go out for drinks afterwards. These are all generally social friends and very frequently somebody who's interviewing you for a partnership at a big private law firm in a year. And everybody kind of treats each other with that attitude. So this has kind of gone off the rails in terms of how people are behaving, super aggressive, weaponized. And the fact that the buyer was this caught off guard, you could come up with a benign or an ominous version of that. The benign version is there's a lot left to do. The ominous version has they've been interacting with staff a long time.

And if staff does not believe these people, does not trust them, does not, it doesn't have any curiosity about the things they might offer, that's pretty bleak. It doesn't look to me like anybody's named issues that are solvable either through politics or through either legally or politically solvable. So it looks kind of dead-ish. Fairly conventional thought, probably a correct thought in this case. It's interesting to me that the buyers are still charging away, at least now.

Now, they still have duties under the contract until the walk date. So you want to be a little careful because if things bust apart, they can be come contentious between a buyer and a seller. So you might want to kind of put in the kind of effort at this point. So that was great. And I just, we throw out a lot of things here. So I just want to go into a couple of things you said because I think for, like, I've been working with you for seven years and I don't consider myself a particular

regulatory expert, but I've certainly like through osmosis picked up a lot of these things. But I do think like, even for me who's been working with you for seven years, you hear this stuff and you're like oh that's weird like okay you know it's a break but you don't understand why because i get inbounds all the time and they're like hey you know this is this seems fine under like this isn't antitrust why can't this deal go through in court and you say oh well this is dealing with media FCC this is licensed and stuff the DOJ actually already approved this deal this is not antitrust this is completely different standards so i just want to walk through a couple of different questions that might be popping in people's mind and let's start with

the simplest one duties under the contract until the walk date, right? The walk date is about May 22nd, 2003 at this point. I think this is a simple one. Yes, Standard has duties, but I do think, like, by putting out this press release and going after it, I think they're showing they actually want to close this deal because traditionally I've seen like if Tegna and Standard both saw this was going to ALJ and there was no shot of winning, they would both kind of just shake their hands and say, all right, let's call it off at this point. Do you have any discreements there? That's just a simple start. Okay.

Well, at the extent that the buyer really wants to do the deal that really demotes the significance of the walk date full stop, right? Exactly. Yeah. Target should absolutely want to continue. I mean, the target, if you just, you look at prompts, you look at the market, you look at the results they've put out, this is a very good price for the target. And if Standard General wants to do this, they sure should. you know that was another question i i've just had in my mind this entire time whenever someone would bring techno i would say yeah okay you know it was always like it was at 20 24 if it goes

through 16 if it breaks was like the rough math so 50 50 is how i thought the market price whenever someone bring it up i'd always be like okay i get that and i'm with you i kind of thought that the FCC would ultimately approve this but i always look and be like why does standard want to keep extending this contract. Why are they so keen to do this deal? You know, they announced it about a year ago. If I look at their comps, gray GTN is down 45% since the deal wasn't out. SPGI is down 40% that's Sinclair broadcast. Nextar who is ostensibly in the same industry, but they are so much better run than everyone else. I don't know if you can consider them.

Their stock is slightly up over the same time frame. So I look at tech and I'm like, hey, why does standard want to pay, why are they so committed to paying a big premium for this company when over the past year, interest rates have gone way up. The industry has, you know, we're on the verge of recession, advertising rates have come way down, multiples have come way down, cash flows come way down, they're missing their rejections, like, why standard's so committed to this deal? Yeah, it's a good question. And they're possibly kind of sunk costs on the process.

but they seem to still want it. So I don't know. I don't know. They're working harder on this than I might. And it would be pretty standard just to put out a release saying, hey, we mutually agreed to terminate at this point in the FCC. But it just shows, I think, that they have had less than the typical amount of productive back and forth with staff. because even when you disagree with them, one thing I find is when I'm kind of enmeshed in a year-long

regulatory process, I kind of more or less end up being friends with the people I'm interacting with even the nominal opponents. You know, you're just talking to these people all the time. Everybody's getting paid to represent their side, and you kind of just get to see their perspective a little more. None of that seems to have happened here. Like, they seem to truly been caught off guard. Like, they don't even seem to know what the FCC is talking about, which makes it to me look really political, like they want to project this fight as opposed to solve any particular problem. And in that regard, it's kind of consistent with what we've seen in regulatory bodies across this administration. So let me go to the next question. So when you were preamling it,

you said, hey, this, how the FCC killed this, this kills deals. And I think a lot of people might hear that and say, oh, you know, we're going to talk about Microsoft Activision a second. Microsoft of Activision, they're getting blocked and they're suing. Why can't standard, you know, they seem done ho to do this merger? Why can't they just sue and go to court and try to prove their case that way? I think constitutionally and philosophically to me that has a ton of merit, nowhere in the federal government is there as much broad amorphous discretion as at the FCC. And nowhere has that kind of metastasized farther away from any statutory intent. They can ask for whatever they want.

And they can go deep, deep, deep into their own politics, the politics of a given administration. And kind of so frequently, when you are talking with staff, you have nothing to do with any telecom act. You have to do with DEI or the environment or employment or newsroom policy, anything. And you're kind of at their mercy, and it's a bid and an ask, and you pay the mugger and you settle. And the settled part hasn't happened here, but it's very broad. And so when they say, you know, let's check with us on whether we think this is legit or not,

It's, I mean, they can, they, they're aware of the discretion they have, but it's broad, amorphous, almost completely non-falsifiable, and there's a bigger constitutional philosophical stake, but that's not one that any company is well positioned to attack. Yep. And then if I just, I want to talk about the process for how they block this in a second, but let's just talk about, you mentioned they're blocking, and the reasons they say they're blocked. blocking. And I think the reasons they say, you know, they said, hey, this could raise prices for consumers, right? You have a bigger company negotiating because in this case, Tegna's not actually getting bigger, but Apollo is providing some of the financing. So if I remember correctly, they're saying Apollo owns other stations, maybe Apollo and Tegna actually start combining their power to talk to cable providers to get higher prices, which will then get passed on to consumers.

So they're saying higher prices for consumers, a big piece of this was localism, right? were saying if private equity buys this, you know, this is going to be, even though standard's not typical private equity, Apollo's involved, there's going to be leverage. They're saying that could result in local people getting fired. And when I was reading this, one of the things that struck me and jump out of me that, you know, if you just simplify it down, they're saying, hey, larger companies can raise fees on MB and can raise cable fees. And private equity fires people, both of these are against the public interest. Like, if I just read that and I'm a media company, the FCC has just said any deal that comes to us that has private equity backing, debt financing, or that involves two

companies getting bigger. There's just no mergers and acquisitions in the space that can pass the FCC under that jurisdiction. Am I wrong or am I kind of taking that to extreme? No, that's what it sounded like to me. I thought that the nominally antitrust points were pretty thin. It didn't sound like that's where their heart was in. I think that it was a shot across the bow of private equity. It'd be kind of to find private equity and said, ha ha, this is the scandal that we're against. And I thought, wow, that's, you just, I mean, Congress could write a law banning private equity,

but some folks that have jobs at the FCC seem like they've kind of taken on themselves to essentially do that. Nowhere is that in their statutory authority. But yeah, they interpret broadly, both politically and legally, and this is what they want to do with that. So I was just very, exactly, I was just very surprised by that. You know, I've never seen some of these things.

And again, the FCC, they can bring the public interests into play that is technically within their purview. But it just looked to me, if I was reading this and I was a private equity firm thinking about buying someone or I was a strategic company thinking about buying a competitor, I would just have to put that and say, no, the FCC can block this unilaterally. And it just seems like they don't want mergers. They don't want anything that could result in any firing. Like, it did seem a little extreme to me.

Let me walk through. Go ahead. Just a quick point. I think I've mentioned this thought in the past, but I feel like this is in keeping, which is this is not the current president's beat. This is not the current president's passion or what he ran on. He's more or less outsourced the regulatory kind of personnel and direction to Liz Warren. And she's pretty vocal on this. And boy, have her comments down the line, not always in every deal that she says like she wants.

blocked. I once got CHAPT to kind of form a letter for her because she just is against all of them. You can kind of do this reflexively. But if you listen to her philosophy on capitalism, M&A, companies, and so forth, I mean, she's put her people in the top slots of each of these regulatory bodies and their decisions have philosophically been very consistent with hers, much more in keeping to Liz Warren than historically Joe Biden, who's just busy with other things at the moment. Let's see. Just the other thing I wanted to ask about, so you mentioned in your, when you were talking about this, traditionally the FCC goes to the full commission. In this case, the FCC use a bureau order. And to simplify, A, this is a departure from

precedent. As far as I know this is the first time they've ever blocked a deal like this. And basically, it allows the FCC commissioner to block a deal kind of unilaterally without going to the commission and putting everything before. I might have simplified that. I might have simplified that a little bit, but I'll let you talk about, like, look, standard general and the press release they put out today, they noted this.

So clearly they take issue with this, and they think maybe there's a way around it. It does look like legally, the FCC is kind of okay. It gives the commissioner, like kind of unprecedented power for blocking deals, but I don't know how you get around it. But I've rambled.

Tell me if I was wrong on any of that, or if you disagree, agree, if you think there's anything else going on there. I think this is a powerful enunciation of the chairman's power. And chairman has a couple, has Republicans to deal with on the commission, which even if they can't vote the Democrats, they can make statements. They can kind of be revealing and make it politically, you know, making it a two-way conversation. but I think that if you look at the people running the Media Bureau, these are really the chairman's people and that they're completely aligned. So I don't think the deal gets done if you bring it to

the commission, but I don't think that the Democrats want two-two votes. Incidentally, there's a difference between license transfers and antitrust suits and that you need a majority for antitrust suits or and then and if it's too too it can actually even threaten settlements you can actually get a deal done as is if you can't agree this but you need uh but but you need an affirmative majority for the transfer right so so i don't really see what the company in this particular case has to gain i'm virtually certain like 99% certain that this is not a rogue Bureau against the interests of the chairman. I think that would be the least plausible explanation.

But I think it's just carving out. It's just removing the role for any opposition. And when I say opposition, I mean even like statements attacking it. So it's kind of the most, it's the most conceivably unilateral, farthest from statutory intent, least due process, least rule of law way of doing something to just kill something you aren't killed. I guess just last thoughts, where we go from here. And this has probably been a little longer than when we normally talk about stuff,

but nobody people like it. I don't know. I find it interesting. You know, Tegna, as we talk, is trading in about 1750. And when I do the math in my mind, I actually think that implies about a 10% chance that standard general is ultimately successful in this appeal and gets it through somewhere between people can argue it could be 10 it could be 20 could be five but it's somewhere in that low but still possible outcome so I guess the two things I wanted to ask you are does that you know

the market's ascribing odd somewhere around there does that feel about right to you and then I'll follow up with one more question there it feels about right to me um and it coincides with and I won't mention the specific one but it coincides with another thing we talked about recently that was a weird little, um, bankrupt equity. And it was similar in that if I understand the situation correctly, the chance is closer to zero than to 10%, but 10% I think is of reasonable odds for this is such a weird situation with a half dozen unprecedented things that it only take one more unprecedented thing to put the deal back on track. And so I like to think about that as more of 10% than zero. Uh, so if I properly understand it, the deal's dead. But,

so much is happening so fast, it would just take one more weird thing to put it back on track. So 10% sounds about right to me. In fact, that's just where I am. If I was the odds of this going back, right? Standard put out a press release today saying they're going to fight for it. And notable in the press releases, they don't say how they're going to fight for it. They just say they're going to fight for it and what the commission did was unprecedented here. I mean, I think the 10% chance where this goes through, I think what it rests on, and again, tell me if I'm wrong, is standard raises a fuss and contact. a bunch of, you know, kind of down the middle representatives, senators, that stuff and says,

hey, agree with us, disagree with us, whatever. This is an unprecedented use of the FCC's power that's going to have a chilling effect on mergers, premiums, rule of law, all that sort of stuff. Like, maybe you agree, maybe you don't, but do you really want, like, hey, if you're a Senator Democrat, if the Republicans control the FCC and pull this, do you really want them just letting every deal go through by pulling the exact same thing here? And if you're a centrist Democrat, like, maybe you don't think this should go through, but do you really want one commissioner having the power to do this? Like, I think standard raising that point and getting political pushback and like it's actually pressure.

It's not, there's no lawsuit they can do. It's actually pressure. Am I thinking about that different? Or do you see like a route where there's a lawsuit that gets this done at this point? There's not a lawsuit, not a winner, and certainly not going through the administrative process. The two ways, you can kind of use your imagination a little bit, trying to come up with 10. This would not be plausible to me if I was trying to explain to why it's a 70% chance or something. But the two ways I would come up with, and none of them sound, neither of them sound right to me is,

one is, what if the buyer just so completely hammed this up so badly that they seem to be individuals in an organization that missed every normal political queue in Washington, D.C. For a year, that fairly normal stuff that you give FCC staff, maybe there's, there's just an incredible amount of hubris that you restore normalcy over the next month and they get some kind of settlement. That's conceivable. I mean, single-ditch, mid-single-ditch possibility that things were so bad that you just make them normal now and you can put this back on the rails.

But the FCC would have hinted that the whole time. They would have bought in other people. You know, that doesn't, I don't think that happened, but I think that could be a few percent odds. And then the other thing, the big problem that anybody in D.C. has right now, if you are unhappy with the Liz Warren progressives that have so much energy, I have a lot of influence with these regulatory bodies, is the inverse of these people who are kind of anti-capitalists in a lot of way, or not Chamber of Commerce, normal, free market, limited government, capitalists. A lot of the kind of MAGA-E, Trumpy people hate the same companies, hate the same deals, are really happy to intervene and have absolutely no interest in the kind of due process rule of law. Let's just do things in a way to protect ourselves from when the other people are in charge better arguments.

Now, one of the few people who do care about private equity and deals and not to get her into trouble, but Kirsten Cinema is actually a senator who's quite sophisticated and quite open to these things. And you have right now another Senator, Senator Manchin, who has kind of been very coy about whether he's still a Democrat and saying, well, he's American. He hasn't left the Democratic Party, but he has not kind of re-endorsed that label, at least at the national level. So, you know, if you have a huge amount of sensitivity about the razor-thin margin that the Democrats control the Senate on, you have one person who's left, one person who is kind of has one foot out the door, those two talk, cinnamon actually cares. You could imagine creating some kind of political

power, but like kind of normal people who want due process and rule of law and want kind of functioning markets. That's like the smallest minority in Washington, D.C. now. So you don't have, you know, you kind of have weird left-wing populace versus weird right-wing populace with kind of nobody who's going to take a bullet for private equity. So I think that this looks to me like a political loser. It looks to me like a legal loser. But there's a sliver just brainstorming what might be 10% chance. I think I'd put together a get Congress to lean on them. And I think that you add to that a, hey, let's make a new effort with staff, if they've been arrogant and obtuse so far, maybe a normal effort. But I think the staff wanted to get to this point.

I think the media bureau wanted to get to this point, and we're not trying to avoid this. I think this was the plan. You know, just to the, it did not, just reading some of the fines, I can't claim to have read everything here, but reading some of it, it did not appear to me that standard was. it's possible they were being obtuse, but it appeared they were making normal concessions, everything. But I think we need to move on to the next one, but it's just funny. As we're talking about how the FCC has maybe gone a little bit out there

as we're talking, actually the ICE's takeover of Black Knight is getting challenged. I guess that's two separate ones, but I just thought that was funny. Let's turn to the other one. So the most common thing I get asked about, and it probably makes sense. I get asked about when you come on this pod,

or whenever we're talking anything, merger, an event is Microsoft Activition. And that probably makes sense, right? This is a $60 billion takeover, massive takeover, huge spread. It makes sense everyone likes to talk about it and everything. So I just wanted to do an update there. And, you know, I guess, yeah, this month we got all sorts of stuff. I guess I'll throw some questions, some thoughts out, but I'll just turn over you as we're talking February 27th, how do you feel about Microsoft?

Microsoft, Activision, at this point in time. I'm not sure the market price is missing a ton, kind of like when you kind of try to back into standalone, you know, oof, I think procedurally the deal is maybe not as doomed as Tegna is procedurally, but it has problems in the U.S. It has bigger problems in the U.K. And I think since last we spoke,

there's been new FOIA information out about how aggressively these American regulators are going after foreigners to help them enforce their preferences on American companies and American deals. It's very similar to what in the global world, in terror we did with extraordinary rendition, which is to say, we have these inconvenient due process and rule of law problems. We want to do some stuff. Would you do them for us? And we'll send some guys over. You do. So it's kind of like, hey, we have these American companies. We're going to

send them. We'll blindfold them. We'll put hoods on them and send them over to you. We're not going to look. But if you do awful things, and that's kind of what they're doing with these companies. And so I think that procedurally, the deal is in terrible shape. I think that it's a little tricky to see where it would trade without it. I think it's probably trading largely broken. I mean, I think it trades down the day and the week that it breaks. But I don't think, you know, I think it's in kind of this kind of no man's land at this point. You know, so I get talked to about Microsoft Activision a lot. And it's mainly from people who are bulls or what I would call like bull curious. And they say, hey, look, I get it. Microsoft Activision, my issue, and we can go through

them, I always say, I don't really know how UK CMA goes, right? Like, I don't see a path to resolving there if they decide to plot. I'd feel great about Microsoft winning in court. I see no antitrust reasons Microsoft couldn't buy this. But, you know, similar to what we were just talking about with Degna, like UK CMA has some pretty interesting powers and Microsoft is not going to close Activision and like, you know, divest all of their UK division or something to get this done, right? That's not going to happen. So I don't know the path with CMA. And then a lot of the bulls will come out and say, oh, okay, that's fine.

But I feel like we're buying Activision for and getting the merger for free, right? And like the simple math is peers trade for 18 to 20 times EPS, that multiple on Activision, would basically get you to today's share price, then you throw in, they've got, you know, like eight to 10 billion of net cash, plus they'll get another couple billion from the Microsoft break fee. You know, that's like $15 per share of net cash for free. So they're like, look, my downside on a fundamental basis seems higher than today's share price. And if I get the deal, I get more than today's share price. So they're like, aren't I free ruling? And I get it. But my response, so I was like, look, nothing investing is ever quite that easy, right?

like this is a video game company if you and I had been sitting here a year ago and talking about Activision we would have been saying broken company sexual harassment scandals a call of duty their last release was a disaster they can't release anything on time blizzard is up in arms world of Warcraft is losing people it's like in a year all that seems have turned around now acquisitions the best executing video game company out there but all the other ones are awful so it's like these things can turn really quickly it's hard to assign 20 times earning so video game company with that much cyclicality and execution risk. Maybe we're all playing video games in the metaverse in two years or everything's on Roblox. I don't know. So like those are it. And then I always

come back to, of course you do. NXPI in 2018. People, event investors will remember this was a semiconductor company. Qualcomm was buying it for $135 per share. There was this big event bull case where it was, hey, if the Qualcomm deal breaks, NXPI's value is higher than the Qualcomm deal. Well, guess what? The Qualcomm deal broke, and three months later, NXPI was trading for $70 per share, not over $135. So like, I know, in fairness, that was a pretty rough December, I'd say. It was a rough December, but after it broke, like NSPI's fundamentals did not do well. It was a rough market, but you know, it could be a rough market when Activision emergency.

Sure. I just remember that precedent. I'm just a little scared. I'm rambling. I'll turn it over to you, but yeah, that's kind of where I get scared with this one. Handing over shares from ARBs to fundamental owners tends to be a really sloppy process. You can, especially in a generally bearish market, you can, bad news is bad news, you can buy later lower.

I've never felt the need to kind of step ahead of this on a potential broken deal, and it looks potentially breaking. I really like how Microsoft has handled everything so far. of some great executives who I find wholly compelling. Activision, separately from the Microsoft effort, has some really feisty kind of comms people who have just been laying into this in a way that players don't normally let you,

and that's been kind of fun. So I like the people on both sides here of this deal. I think they expected a big fight. Like they were not, I mean, whether Standard General and Tegna were caught off guard, Microsoft and Activision have not been caught off guard. I think that they thought this is about where we could be, which also shows they really want to do this deal.

And I find them wholly compelling and economically plausible that what they want to do this deal for is not any of the conspiracy theories that their competitors have whispered in the ear of the regulators. But it really comes down to Sony and Nintendo and other players. There's this little glimmer that you could settle on, which is, I don't think Microsoft's can do anything structural. I don't think the regulators want to do anything they call behavioral. I would put everything that's contractual within the behavioral category, but the CMA sometimes makes that just rhetorical distinction between behavioral fixes and contextual fixes.

And so, which I don't, so I don't, but just kind of thinking about it, if the competitors really wanted to grab the best possible deal and not just kill this, hey, Penny, look it right behind you. Just have room to actually, for people on the video. I'll give you. It's only for people on video, but. Oh, that's going to make no sense to people listening to the audience. Your dog just walked into the camera.

Sorry, guys. But so if you could take out the competitor opposition, you'd also got the case on the U.S. side in terms of witnesses. That would help quite a lot. I assume they're just trying to kill the deal. They're just trying to hurt a competitor. But, you know, I think you're dealing with a very competitive market. So there's competitors there to complain about it.

and you're dealing with a restraint of well-functioning markets with collusion between regulators to kill this and the kind of tawdry process of Americans using foreign regulators to kill a review that even though they're largely worldwide markets, the American regulators aren't in. If this was a private entity, the U.S. government would, you could bring an antitrust case against them, and atorcious interference case against them because they, you know, they are totally disrupting

a review that they're not a party in in Europe and they're kind of cluding and I think hurting the market and making a lot less dynamic than it would be otherwise. But it really comes down to the competitors. They probably are pretty happy with their accomplishing. I read it at face value, but if they wanted to take the best possible deal they could get, they might get a better deal for themselves in a settlement. You know, just, so when you say competitors, the competitors, Nintendo's already got, I believe, a 10-year commitment for Microsoft to put pretty much everything.

And that's actually a good deal from them because I think a lot of the previous call of duties and stuff haven't been on, you know, if you're a gaming person, the Nintendo system, the Switch is a lot lower powered than Xbox's and PlayStation. So I think Activision generally released like doesn't release on Switch or they release lower powered games. So Activision promised, hey, we're going to release. our stuff on Switch, and it's going to be about the same as everywhere else. I think that's actually a pretty nice win for Nintendo, especially because people buy Nintendo

for Zelda and Mario, not for the Call of Duty, right? But I think the real thing is Sony here. So I guess the two questions, I want to go through everything that the regulators have against Microsoft, but I guess the question is, like, what is Sony playing for here, right? Is it just, hey, we don't want Microsoft to own Activision? Or is there something, is there some give Microsoft can, right? Like, I don't think Microsoft can give them a pile of money. They can't say, hey, here's $2 billion to go away and stop complaining.

But is there a give that Microsoft actually can? Because they've already offered Sony, I think, 10 years of exclusive or 10 years of game access as well. So what else can Microsoft really offer soon? They've said they're not going to do it permanently. And that wouldn't even be really an appropriate thing to offer. And when they say that, that sounds wholly reasonable to me. And I think they've sounds sort of a little bit of their wits. because I think they've kind of thrown things against the wall trying to not negotiate against

themselves. I don't believe they've had an ask from Sony. I think they've had concrete bids and have been fairly open about discussing that. So I don't know. I don't think Microsoft knows if you're rational and self-seeking and profit motivated, you should always have an ask for everything, including how to fix this deal. let me go through so I think the governments and there's there's overlaps in all of them but let me just go through I read through the overview of everything the governments are asking or complaining about to Microsoft here let me just go through them with you and see what you think or if there's a solution I mean the first problem that governments have with this deal is they say hey Microsoft could withhold active visions games from rivals right so they're not going to release all of duty on Sony on the PlayStation they're not going to release it on the switch again I think that's been pretty much solved we can talk about the commitment issue here but I think that's been pretty much solved but

what do you think about what governments are saying there um contractually solvable with a kind of fair and reasonable access contract companies do those all the time I also think if you were in front of an impartial judge in the US which is not going to be decided in front of um that I think that there's a pretty easy econometrics case against that like I just don't I don't at I don't know the proof of this, but I think I would be very surprised if a, you know, kind of lexicon type, you know, economists couldn't put together a case that that's just the math doesn't check out. I don't think the government has econ metrics saying that it does check out. I think it's just a theory. It's something one can say. You know, as I look at all these, like they all come back

to that and I kind of look at them all. I'm like, this might be the more libertarian side of me coming out, but I look and I'm like, look, if Microsoft really excluded, like, A, who says we have a God given right to have a video game system? But like, if Microsoft really excluded, there's, Sony's got plenty of exclusives on Sony that are awesome. You've still got Nintendo. Like, Mario is exclusive on Nintendo. I'd love it if Mario was everywhere, but nobody's been able to get a Nintendo to opening up Mario. Like, I don't know. It just seems great.

I think it's absurd. I think it's absurd on a couple grounds. One is these companies routinely fail. their customer in some ways. And they look to me just like vicious competitors who do absolutely anything to beat their rivals and to beg for the happiness of their customers. They make successes and failures all the time. But I have a little kids, including kids that play all sorts of games at different people's houses on different platforms. So one of the things I think super important is that the content can kind of flow fairly seamlessly.

between different hardware. And I think you would alienate these kids if like one person's house, then like this company kind of made it really hard to operate. Like I think that that reputational issue would be really big, number one. Number two, it's just not feasible to me to say that when you create, that when you create content, I mean, if you made a painting halfway through a painting, you're a monopolist who's monopolizing that one thing. It just seems to be this stupid idea

that it's not part of our like society's infrastructure. It's this thing that wouldn't exist other than you making it. It seems like you deciding where it goes kind of seems like just rational. It's like you're always monopolizing everything with a narrow enough definition that you made, that we wouldn't have any of it without you having made it. So it just seems like a dumb point. That's always why I think the history of anything intellectual property when it goes in front of antitrust, it basically gets destroyed in court, right? Because there's so much competition for entertainment, it's like, look, if Microsoft

had built Call of Duty internally, you know, Sony, I think God of War is a really popular Sony franchise. They built that completely internally. Nobody's got a problem with them having God of War. exclusive for PlayStation, what's the difference between that and Microsoft going out and buying Call of Duty or something? You know, like, it's just one of the reasons. Again, Nintendo owns Mario, and I haven't seen any, like, calls from the DOJ for Nintendo to

make Mario open access and allow everyone to get Mario games. Like, it just seems crazy me. Anyway, there are two, we probably, look, we talk about Microsoft Activision every pod, because, again, it's the largest spread out there. Everybody wants to know, we always get questions on it, but there might not be any updates on that in March. We'll see. The next date is, I think, CMA reports due April 26th. There are two smaller special situations out there that I think a lot of people ask about that I think you and I are looking at that. I thought it might be worth talking about. The first one of those

is AMC 8. You know, this is like just today, we got news that it appears the AMC 8 vote is going to happen March 14th. But then the results of the vote, like they'll get tallied. But if it's yes, it appears there's going to be a preliminary injunction hearing on April 27th that's going to kind of determine if that vote actually matters or not. But yeah, I'll just turn it over to you. Like, what do you think it's going on with the AMC-Ape situation? I think they will hold the vote. I think the vote will pass. And I think it will be helpful for the company to actually have the vote in hand with whatever happens after that. They'll have a established this representation, and the delay is a huge problem.

It's a situation where having read the case, point by point, it seemed plausible, but barely. It's interesting that the companies agreed to this solution versus fighting out over a TRO. which I thought had a decent shot of getting rejected and then we'd be done with it. Either they made a mistake or if they were doing something clever it would be to define the class, define the representation,

get the vote in hand, and then be in a better situation to settle after mid-March. And you could go back to the representation and the shareholders and say, this thing's worthless otherwise. This is like, you know, my analogy is like, if there's a fireman and he knocked down your door with an axe, but the house was on fire and

going to burn down, would you sue him for wrecking the door? Like the counterfactual is that it would be even more wrecked. So, you know, you have business judgment rule, which can kind of drive us nuts generally because you're allowed to be stupid, allowed to make mistakes, but you're really allowed to do all sorts of things when the alternative is zero. And so what are these guys supposed to do? They're doing something creative. They are supplying securities to people who demand those securities and they're keeping the company out of bankruptcy. So maybe you get it down to kind of a one-on-one conversation with the vote in hand and are able to settle after that. But it looks like it's probably going to take longer than it was without the suit. I guess two questions.

The first is I've got some theories on why they would agree to, you know, the TRO hearing in April 27th and just hold the vote on March 14th. But ignoring that, I can't remember. remember too many times where you've had a lawsuit and the companies have gone and settled and said, hey, we'll just have the vote six weeks ahead of when we'll decide the lawsuit, right? So we'll have the votes, we'll know the results of the vote, and then we'll have the lawsuit six weeks after to decide if the votes matter or not, right? Like most of the situations I've seen that are kind of analogous to this, they would just delay the special meeting and then they'd have the lawsuit, or they would have, as you said,

they would have had the hearing on, what was it? It was like March 10th or whatever. And then the judge could have said, no, we're throwing the suit out, or yes, we're going to delay this meeting for 60 days while we figure out this ruling. I've never seen a company like, we'll have the vote. And if the judge decides that we did something wrong, well, the vote just won't matter. Like, it just seems a little strange. It is strange.

They must have thought they were getting something better than the TRO. Or it's just a company that plays fast and loose and they tried something and they thought they were caught dead to rights and that they would have a TRO so it was neutral but they must have thought they were getting something better than neutral um I think it's just that you go back after the vote because there's no way there's no delay until after that uh this suit is then what's querying the process maybe even if you look at the is on that day, it's an easier case to make to a shareholder, say, look, here's the situation immediately, not net present value, not all of the weirdness about the difficulty on the short

side to capture the spread with AMC, say, look, this is what it's costing you immediately, you can fix it immediately. So they might think, if they're doing something at all sophisticated and I'm not at all convinced that they are, it would be improving negotiating dynamics and simplifying after the vote. So my skeptical reading is that I think if you read through a lot of the AMC, they don't have a ton of preferred shares left, but I think if you read through a lot of the contracts around this, as long as they have the vote, they can start issuing preferred shares again. They don't need to have the deal close, if that makes sense. So I think a skeptic would say AMC is so desperate for financing right now that they could just go have the vote and then they could

start issuing preferred shares while waiting on the lawsuit to play out. But even that, like, strikes me as, A, I'm not sure if I've read all the contracts, right, because AMC at this point is a very, very convoluted company. But B, like, if they wouldn't issue shares between March 14th and April 27th with this lawsuit out there and then the lawsuit won or lost or whatever it was, like, I would think maybe they don't care because they're bankrupt, but I would think they would have some trouble. I would think the banks that offered their securities would be in trouble. like it just yes i know they can uh kind of caveat all sales every which way but i think that would raise

a lot of issues i don't know i'm being very speculative and kind of spitballing a little bit that that could be part of the negotiation though with the plaintiff yeah though not do that you know it with the plaintiff like it does strike me as it would be pretty good taxes from amc to go hold the vote and then go to the plaintiff say, boat's done. We've got this approved. We're going to beat you in court. What would it take for you to walk away? And how many props do you want me to issue while we're having this conversation? But if I was anyone else who was in the plaintiff's group, I'd be like, hey, that's preferential treatment. But, you know, I just don't know. And then I guess the other thing it comes back to is, yeah, I don't even know. Oh, the other thing comes back to, as you said,

reading the lawsuit, you read through the lawsuit and you're like, I mean, AMC issued eight shares to the AMC shareholders. The whole lawsuit presumes that the AMC shareholders were disadvantaged. And as you said, if they don't issue these ape shares and they don't raise the equity capital, the whole thing is zero. So it's kind of like, they gave the shareholders and they issued more. I'm not sure how AMC shareholders were harmed. The company didn't go bankrupt and they got the ape shares. Like, where was the harm there? Yeah. And the key to common stock ownership is that you're treated in common and they all got this they all they are the ones issued these prefs so yeah it doesn't it doesn't seem like a great point to me strikes me is pretty

crazy real quickly the other situation i think we wanted to talk about was uh manchester united you know again we're talking february 27 this is a very active situation i mean if it takes me two days to get up to get this podcast uploaded the company might have sold for a fortune or you know shareholders might be unhappy and they might have called the whole deal off but i guess you know Manchester United, it's a storage soccer franchise. You've got a controlling shareholder group who's not super liked by fans. I think it would be fair to say you've got two bidders in there. The Qataris allegedly bid $4.5 or $5 billion.

You know, you've got the market is very skeptical. Is this sale going to happen? Are the glazier going to take minority capital to retain control? Is somebody only going to buy the majority controlling shares leave minorities out there? I guess I just want to turn it over to you and see kind of what you were thinking these days. It's hard to think about this as a kind of a traditional value investment, kind of using some kind of market metrics for what it's worth as a stand-blown and what somebody might want to pay.

It's different than that. I'm trying to think of the last one that was analogous. I think that it's a $5 or $6 billion toy. and if you are wealthy enough to buy something like this, it's hard to care about something that is a full order of magnitude or beneath the kind of marginal thing that you're able to buy that your peers can't. And that's sports teams.

People love owning them. And if you think about just the supply and demand of sports teams, it's been incredibly valuable. It's what these people want. It is what they can marginally afford. it has all sorts of tax shenanigans and benefits. It is one of the situations where a very wealthy private party has the best leverage against all types of government, revenue authorities, but also you can get all sorts of good deals when you own a sports team, all sorts of

social benefits, and all sorts of benefits. If you come from an autocratic routine and you can get out, if your jet makes it out of the airspace, you still are left. this valuable asset in the first world. So it's kind of kiting and tax shenanigans and social cachet and what people care about at that rarefied sliver of society. You can buy whatever plane you want. So nobody really cares about your $100 million plane if your peers all can buy the same one. But maybe just you get not only because of the cost, but also because of the nuance to kind of winning these things. And not only is it just the supply and demand in terms of the numbers, the teams, and numbers of multibillionaires, but they just don't come up that much.

So, you know, I think whenever I'm thinking about a purchase decision, it's trying to say no to all the obvious nos and yes to all the obvious yeses. And then all of my close calls are to the most reversible decisions. So that's usually saying no to something. But putting in a good bid on every continuous property to land I always already owned is something I just do formulaically. My next door neighbor's house goes on the market, but in a bit. Why? Because it's easier to change my mind. I just want to be in the situation where I give my future self the most options. And in this case, if you ever want to do it, you've got to do it now because somebody might hold on to this thing for the next 25 years or 50 years or forever.

I've used this analogy a lot, but like, as you said, with trophy properties, they call up once, And one of the bidders here, Jim Ratcliffe, is apparently a lifelong man you fan. I know soccer less than basketball, but if you're a Knicks fan and the Knicks come for sale, right? The last time the Nix were for sale were in the late 80s, early 90s, right? You get one shot to buy the Nix. And yes, you can start building out business cases for buying sports franchises and stuff. But ultimately it comes down to, you know, if you had $20 billion and you're a lifelong fan of the Nix, your dream has always been to own the Knicks.

If you spend, if Forbes says they're worth seven and you spend 10 or 12 or eight, like what do you care when you're achieving your lifelong dream? And, you know, if you're a 20 billionaire in New York, you are an important person. There's no doubt about that, but people probably don't know who you are. Maybe, you know, 20 billion is getting up there. But James Dolan, you know, people know who he is. People hate him, but people know who he is because he owns the Knicks. Like this is your, not only you're spending money to achieve your life to a long dream,

And the Qataris case, like, I think there's been a lot of evidence. If you buy sports franchises, you can really, I think people call it sports washing these days. You can sports wash your reputation by owning sports franchises. You get more famous, sports wash your reputation. Politicians have to deal with you because you control Manchester United. You've got this built-in base, you know, like there are, you can build a business case for it, but there are a lot of non-business things that would never be in a spreadsheet that do come up when you control one of these teams that have to go into play.

And again, you've only got one shot. at it. So, you know, I think right now the share price has, it ran from 13 to ultimately 25 on the Glazers announcing strategic alternatives. And as we started getting info of bids coming in, and now it's down to about 20 as people have gotten skeptical. Like, how do you think this ultimately will play out? And then what else are going to spend five or six billion dollars on you? You can buy an aircraft carrier. I mean, there's not that many things in that. Yeah. The Qataris could, because I guess they're a nation. But, you know, if Sir Jim Ratcliffe went out and bought an aircraft carrier, I think a couple of governments might

have a problem with that one. I mean, maybe it seems like a good idea at the time, but then the next day you wake up, you're trying to explain to your wife that you bought this thing. You need to find a place to park it. You know, there's all sorts of trouble with it. I'm very skeptical of press during auctions with multiple bidders. I think most press is motivated and leaked and people buying one to pay less, people selling want to get paid more. And if there's really two at this point, I think it would be a much more dynamic situation where there are three, decently likely that the bidders are communicating, if not colluding. And so I would want to make clear, like normally you would say things to push down the price

if you were bidding and a shelter price if you were selling. But if I was selling, I would want it out there. We might not sell it all. We might do a different arrangement because if I said, hey, I'm going to take the high bid, but definitely between the one of two of you, that could lead to a bad outcome for the seller, right, in terms of coordination or communication or them splitting it, you know, putting on some guardrails in terms of avoiding the bonanza scenario, which I think is still possible.

It doesn't look like it today that we're going to get it of somebody just paying much, much, too much. Sometimes when there's, you know, I don't know if you remember the Belmont auction. You know, there was like 150 bidders or something like just like every rich person, every, you know, the got kind of enthused by that. Again, it was not sports teams,

but it was, you know, hotels and stuff that rich people care about socially and separately from the economic value and it kind of was a pretty great, pretty lively process. So we could have some motivated press out today, even though it's pushing down the price that could be from the seller side. But I'm just skeptical of almost everything I hear at this point because there's so few players, their interests are so clear and they've got to be talking to press about this. So it could be legit, but could be not. I've talked to a lot of them people about this. And I think everybody, you know, I hear some people who are just really distraught.

I'm not sure if that's because they wrote it from 25 to 20 or if they're actually like really analyzed the situation. I've heard some people a bit like the things I keep coming back to are the Glazers did announce a strategic alternatives process, right? So I do think they were serious about selling it. On the negative side, you know, I think they wanted to sell this because they have to put like one and a half billion into upgrading Manu Stadium. and a lot of the reporting has indicated there is financing for them to do that.

They don't have to put that money themselves. So maybe they wanted to avoid that 1.5. They found the financing. They're like, look, we love being some of the most hated people in England because fans do not like the glazers. We love being some of the most hated people in England. We'd love to raise more financing and do this. I mean, 100% possible, especially if they think, man, you will double in value over the next three years or something, right? Look at the path of sports teams.

It's not unquestionable that could happen. but you know the other thing I keep coming back to is as you said like you get one chance to buy this what else are you going to do this you sports washer reputation a lot of this seems like it could be leaks from the glazer saying hey if you wanted to buy this we have other alternatives even if there's not three people to drive the bidding crazy like you don't hit our number we're going to walk and I keep thinking like you know again the one shot to do this what is five and a half versus $5 billion to the Qataris. I don't know.

Like I don't want to write checks for other people, but it does seem like a lot of this is the glazers in the press saying, we'll pull this trigger. We'll keep it if you don't hit our price. And I just keep thinking every time I've seen one of these guys go for sale, the price tends to get hit and it does tend to get bid. And maybe I'm focusing too much on basketball where over the past four years, there have been a lot of teams where the seller says,

I'm reluctant to sell, but I'm putting the team up for sale. And then three months later they said, We got the big check. Let's do this thing. We're going to, you know, we're buying our aircraft carrier. So, I don't know, any last thoughts from you on this? The only thing that matters is what the glazers want and what the couple bidders want. And if they qualitatively want to do something, it's not going to come down to dollars or cents on the margin. It is going to be a pretty simple process with a pretty high price, I would surmise. And it's going to be kind of in a chunkier, cruder increment than if you reduce several zeros. If you took the scale down

to, like, you know, mere multimillionaires to kind of have a little bit more normal upside and downside, a little bit less self-indulgent. So I think it's going to be a self-indulgent process. I think it's going to trade, and I think it's going to trade for a high price. That seems less likely today than it did a few days ago, perhaps. But that's still my expectation. Perfect. Perfect. Well, it is February 27th. I think we'll know the results of the high price or not for Manu for next month's podcast. So it'll be interesting follow up there. But either way, Chris, thanks for coming on and talking soon. Awesome. Talk to you later. a quick disclaimer nothing on this podcast should be considered an 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