Yet Another Value Podcast - Chris DeMuth's State of the Markets July 2024

Episode Date: August 5, 2024

It's time to welcome back Chris DeMuth for his monthly state of the markets. For this July 2024 edition, Chris shares his thoughts on: a few special situations (RCM, WOW, etc..) and banks. For more information about Rangeley Capital, please visit: http://www.rangeleycapital.com/ Chapters: [0:00] Introduction + Episode sponsor: Tegus [2:17] What's on Chris' mind as we head into August [4:27] RCM special situation [15:45] WOW special situation [28:26] Banks + final thoughts Disclosure: long RCM and WOW Today's sponsor: Tegus If you’ve been reading my newsletters, you know how often I rely on Tegus for my research. It’s truly revolutionized how I get up to speed on new industries and companies. Tegus has the largest transcript library in the world, with over 75% of private market transcripts. Whether you’re curious about AI, biotech, or any niche market, Tegus has the insights you need. What sets Tegus apart is its all-in-one platform. It’s packed with expert call transcripts, management checks, panel calls, and in-depth financial data. No more jumping between different services or piecing together fragmented data. With Tegus, everything is right at your fingertips. The best part? The insights you get are from the very people shaping the industries you’re interested in. You’ll find perspectives from insiders and executives that you simply can’t get anywhere else. To see Tegus in action and understand why it’s my go-to resource, visit Tegus.com/value – that’s T-E-G-U-S dot com slash value. Trust me, once you try Tegus, you’ll never look back.

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If you like this podcast, it would mean a lot if you could rate, subscribe. review wherever you're watching or listening to it with me today i'm happy to have on my friend and the founder of rangelie capital for his monthly state of the markets chris the mute chris how's it going it's going well thanks for having me ander and thanks for coming on uh happy to have you here before we get started let me just remind everyone a quick disclaimer that nothing on this podcast is investing advice that's always true but maybe particularly true today because chris and i are going to be doing our state of the market so uh neither him nor i really know what we're going to talk about, we're going to talk about a lot of different companies, a lot of different topics,

you know, just remember you should do your own due diligence, consult a financial advisor. Chris and I'm laughing because we were talking about Chris recommended Sylum Holt to me, which is used to clean your insides out, let's say. So I was going to say we might be talking out of our butts, but the fact that we were just talking about Silem Hulk gives that a whole new a whole new meaning. So Chris, it is the end of July, 2004, you know, the classic thing. He says, oh, nobody's around in the summer. There's no need to pay attention to the markets in the summer. Maybe true, maybe not true.

Definitely not true this year because it has been a rip-roaring July. But I just want to turn it over to you and ask what's on your mind as we kind of head into August? Well, on the topic of Sillium House, not only is this not investing advice, it's now not investing advice or medical advice. Although one of the questions we got preparing for the podcast was, was today going to be investment advice. And I was trying to come up with a funny, sarcastic way. and I realized we don't want to be in court sometime explaining I was joking when I was going to say, no, this is not investment advice. These are investment promises. So if anything ever goes wrong in the

future, just come back to us. These are guarantees. And I was going to come up with some way to make that a joke. And I'm like, you can't joke about that or you're going to be like quoted back. So yeah, not investment or medical advice. But you should take salamis. Okay. So lots going on. Yeah, goodness. M&A. pre-arb takeover battles, everything from small cap value working, small banks and regional banks working, bank M&A. So, yeah, the world's changing, active, exciting, busy, exciting July, 2024. So I think there are three places you and I were talking about before the podcast we could start.

And I'll give you your choice. We could start, you just mentioned it. We could start with just bank, M&A, and kind of banks, I think, are in a very interesting spot right now. We could start by talking about that. We could start by talking about there are two activists kind of special situations I think are really interesting right now. One is RCM, which I published a blog post on included in the show notes, published a blog post

maybe two or three weeks ago, link in the show notes. And then the other is Wide Open West, where I literally, right before. we went to record, we sent a letter to the Wide Open West Board. We can talk about that. So I'm happy to talk about any of those three if you kind of want to choose which one you want to start with. So I think we should start with pre-RB, just kind of thinking logically, like, okay, we're doing pre, and then we can do the currently announced ones after that, and then maybe focus on financials, banks. I'd like to mention insurers as well. but so maybe uh so rcm if that would be a nice one to kick off with um has uh bids do uh wednesday tomorrow

tomorrow from as of this recording so it could be right around the time or maybe even by the time we we could be predicting things that are incorrect by the time this is out to listeners but so right around a key part of that process it's very interesting it's kind of like a i don't know game theoretically, it's almost like a three-way game of chicken with costs and benefits or risk and reward consequences created by kind of all the players, the company, the controlling shareholders that really affect that any kind of strategy, really everybody's moves affect everybody else, some of which has been projected, some of which hasn't been projected. It makes it very hard to just do a kind of traditional sale process.

because there's positive and negative control and bits and pieces divided between different players. So, yeah, no, I think very, very interesting situation. So if people can go read the blog post again, it'll be linked to the show notes for history, but after that blog post last week, you and I are tap be in July 30th, which will be important for people who are listening to this to know in a second. But last week, RCM comes out and they say, hey, New Mountain, one of our 30% shareholders has been 1325 per share for us publicly.

Towerbrook has publicly said they are partnering with CDNR to make a topping bid to that 1325. And last week, July 22nd, RCM says, hey, we're setting deadline. July 31st is the deadline for bids. And this has been an area of very hot debate among investors I talked to, right? Why did RCM set a July 31st deadline? Because A, that's a little tight. You know, C, Towerbrook and New Mountain have both. been involved with this company for years, but CDNR is apparently starting from zero, right?

They're the new equity partner for Tower, so they might need time to get in there. And people have kind of like, why would RCM set the deadline? Like, is this an indication that neither side's really ponying up? Is this, do they think a tighter timeframe benefits them more than a longer dragged up? But what do you think the reason for setting this July 31st deadline is? get a sense of urgency, get a real contract, get something that's ironclad. You know, if there's a later bid, you can always come in later, like, unless there's like a big breakup fee or there's some quantity of reason why you can't do it.

I always think it's funny when somebody's trying to control a process, whether it is a banker or even you'll see it at the retail level with a real estate agent. You know, the realtor say like, your bids are due on this day. It's like, what? If I offer 5% more, you're going to, you know, you're not the. hope. There's not like infallibility. You're just some person saying something. And you can always kind of violate the intended process as a participant if you have something that's worth listening to. But in theory, I think sense of urgency. Also, in game theory, there's some

interesting strategies where you don't want to hear certain things. Like you want to make yourself unavailable for being held hostage when you have somebody who could come back later and say, well, we're going to, you might want something signed or you might want some concrete before one of the players that want to be a bidder gives you an ultimatum, refuses to sell, kind of disrupts the vote, does something clever. One good reaction against cleverness can be to refuse to listen to it or to disrupt it by going too quickly. So I think it probably makes sense, get something signed. I mean, I love the, you know, sign a deal with no breakup fee or sign to deal with the low breakup fee. So, you know, the negative I've heard from people as being like, it's not

lost to me that the company would report earnings, probably like around August 7th-ish. I don't know the exact day. But July 31st, you put that deadline out there. And some people have come with the negative, like, hey, do you think they're doing this because there's historical, like some of their customers got half? There's these operational turnover issues. Do you think they're doing it because they need a bid before, like, the rug gets pulled out for them for earnings?

But you can't deny that information to the bidder, though. Exactly. Exactly. That's kind of been my thing. Look, I understand what you're saying, but these bidders, like, you look at the 13Ds. They each have board members on, not only on the board, but more board members who they pulled off to, like, help them with due diligence. Like, I'm sure they know what Q2 earnings are going to look like. And it's not like you're going to sign a multi-billion dollar deal and then be like, we were surprised at like earnings, which, you know, ended a month ago. So I've heard that I do, I have wondered if it's like, you know, if the earnings report would come a week. after that deadline it does line up nicely with you get final bids you negotiate a definitive agreement and you kind of announce it alongside earnings i have wondered if there's like a less like tinfoil hat but there is something to that on your game theory point i think that's really interesting because i've had this debate with people right they've said hey what does the july 31st deadline really matter if chrispids 15 and then on august 1st i see chrispit 15 and i decide i want to go to 1550

you. I don't, like, and my answer is yes. You can top after July 31st, obviously, but the two things you're going to run into are, one, if you come too late, Chris will have signed a definitive deal and there will be a breakup fee. And the breakup fee will be tens of millions of dollars, which will be, you know, 30, 40, 50, a dollar per share. So you're going to have to pay that. And then two, the board does have a right to consider likelihood of clothes, right? So if you, if they say final bids are due July 31st and then August 1st, you know, you kind of I'm running and saying, I object, he's paying 15 and I've got 1550. Well, the board can say, look, 3% more is not worth it for us for certainty of clothes.

Like, you know, now if you came with 1750 versus 15, maybe they have to listen, but 3% more. Like, we gave you a deadline. You couldn't meet the deadline. Like, we're allowed to consider certainty of close when we're, when we're doing this. And we're late stage negotiating the documents. We're worried if we stop those negotiations, like maybe you. pull out. So that's kind of how I've thought about it, but it's really interesting because I can't really remember a company publicly saying, here is the deadline for bids. I mean,

I can't remember two 30 percent shareholders bidding for a bidding against each other per company. But can you remember a time where a company said, here's the deadline for bids? Not this exact situation. It's funny, as you were mentioning those numbers, Those were precisely what I was thinking in my head was if you thought there was any innuendo from bidders, especially that it's a little bit like monopsony pricing, right? Like, you know who the players are at this point. And if there was any innuendo that's like, I want to buy it for 1750, you want to buy it for 1750, can we kind of somehow get it towards 15, not towards 20, by our coordinating? And if you're the seller, you want to speed it up to give them less time. you're like, hey, like, maybe you heard that they were going to meet down.

Maybe you're talking to people there and they're like, oh, yeah, we're talking to them in a few weeks, you know, or a few days or like we were talking, you know, like any innuendo of communication between the bidding parties because they know who each other are and they prefer, like, so if you just kind of added up all of their different preferences, it could be to buy it for 15, not 20. And if you want to sell it, you want to sell it for closer to 20. And I think that, I think like high teens is possible, midteens is possible. I'd be surprised if it's less than the teens, I think it's going to sell.

And so you have this kind of non-transitivity, and I think rushing it might be one way to just give less time for coordination. Yeah, no, I do think there is something to that, though, in this case, like when I go back and reread a lot of the documents, look, you've got 2.30% shareholders, right? It would always make more sense for them to work together to bid because then they can pay less, right? You're removing competitive attention. And by the way, 2.30% shareholders together have a blocking stake over everyone no max one. In this case, they have decided to divorce each other and bid against each other. So I kind of have started looking at this and saying, like, I think there is a lot of bad blood here.

And another reason I think the company might have put out a tight time frame is they've been like, okay, you two kind of have irreconcilable differences. Like, it's better for us to rip the bandaid off, get the best bid and get this sold now than it is for this to linger. because I think part of the irreconcilable differences is very different views for strategy. You know, you and I are running a bank. You want to turn it into a hypergrowth bank. You want to go do national M&A. And I'm over here saying, hey, we're going to run with a fortress balance sheet and we're going to pay a dividend and we're going to go golfing. We're going to be at the golf course every day. Like those are irreconcilable differences. And I think not that one of the these, but I think one person wants to go much more tech heavy. One person wants to go more Salesforce heavy.

So I think it might be they're trying to rip the Band-Aid off here and get a deal done early. And yeah, I don't know. Anything else on RCM? No, just, of course, they're rolling over equity to pay us cash. So we're just trying to get the biggest number possible. With the best speed, IRR and certainty, but assuming a deal could close, that's the end of our interest in the beginning of theirs. right like so they so like their strategy for after they buy this is this like hugely topical thing for them in a way that it's not really for us like if they come up with something that's plausible cool just pass and so yeah and i think that's what a lot of going on behind the scenes is right now i mean look this can look foolish really quickly because again we're taping this july 30th the deadlines are new july the bid deadlines july 31st i doubt we hear august first like the sales numbers but we'll know quickly so this can look really foolish really quickly, but I'm used to that. I will just say, like, I've never seen a public bidding war between

two kind of majority-ish bidders like this. And I just remain shocked. The stock, as you and I are talking, $12.75, New Mountain's bid was $13.25. Tarburg put in a 13D that they said we're going to top that bid, and it seems we've got a bidding war. And I just remained shots. I don't understand it's an end of one. I just kind of don't understand what the market is thinking, I'll disclose. Like, if it wasn't clear as we're talking about it, we have a position here. We'll either look very foolish or sort of smart in a week, two, three. But that's the disclosure. Like, I'm just very surprised by the whole situation. Anything else you want to talk about with RCM? No. How about, wow. Well, we'll just start with the disclosure that we're

also long. Wow. I published a letter as kind of you and I were going to tape, but I'll flip it over to you on Wow, and I'm happy to add anything on that. No, no, no, you should start with this. So just, I was going through the letter right before. Let me see how to phrase this as a question. What does Charter mean for Wow, and how does that affect its value? How does it affect the kind of dynamics of the situation? So I guess just to step back slightly, in early, I believe it was May,

press view, which owns about 30% of Wow. It's funny, 30%. So similar. Similar situation. Yeah. Except RCM has two private equity firms that are in 30%. But Cresview made a bid for WOW at 480 per share, which they said was about a, for memory, about a 30% premium to the unaffected share price.

And we published a letter to them in early June that said, hey, look, we understand. Wow is a small levered cable company. It's probably too small to be public. They've sold assets since they've gone public. It's probably too small. Nobody cares. It's the only cable overbuilder that's publicly traded. We get it.

Being public is expensive. But even at the 30% premium that Crestfew is offering, wow, this would be the cheapest telecom, forget cable. This would be the cheapest telecom M&A that we're aware of in the past 10 years. And look, maybe there's some small deals or off market deals that we're not aware of. But the overarching trend is this would be cheap. And that alone is damning, but it's even more damning because we're, including cable, or sorry, copper deals in that deal set. So, you know, wow, is a cable plate. Cable has a long future ahead of it. You can get gigabit, two gigabit, 10 gigabit data speeds using

cable. Copper does not have a long life. That is declining. You know, that is basically AOL dialogue. You can get at max 25 meds from copper. You know, they go look at any copper player frontiers publicly traded and they did, we have a small position there. They actually disclose their churn and, you know, they're losing 10, 20% of their customer base every year because nobody wants copper. They want cable or they want fiber. So we said, hey, you're selling at the cheapest multiple in our telecom database, but you're selling a better asset than those cheapest multiples have gone to. If you go to cable assets, they all suffer much better. So we said you need a bump. And then I guess the reason I published the updated letter and was charter reported results last

Friday, and Charter stock was up 20% of the results. If you look, since the Crestview bid, charter stock is up 40 or 45%. So charter stock is up more than Cresfew's premium over the unaffected price. And all of the reasons that Charter has done well apply to Wow. In fact, they might apply to Wow more. So we were just saying, look, everything we said in our first letter remains true. And on top of that, the environment has gotten much better. And look, if Cresfew wants to offer a full and fair price where they can make a good return and we get paid fair value for wow we completely understand going private but the full and fair price is a lot higher than the initial price it's a lot higher than in my opinion the market price and if they don't want to do that

i think wow should consider selling themselves to the highest bidder and or just starting to run a capital return model so i rambled a lot i'll kind of toss it over to you uh financial bids always have a self-help public market version of it. And I've always thought you should have this in proxy battles where you could have a vote to simply try to do it yourself, right? You can do it to your, like, this is the separate topic of who's the best owner from what is the optimal, uh, uh, uh, cap structure. If you're not helping, I'll talk to companies. He'll be like, hey, you're leveraged. 2x, why don't you go to 3x to buy shares? And they'll be like, oh, we can't do that as a public company.

We could do that as a private, but now public company, like, why can't you do that as a public company? I understand your stock would be a little more volatile. But if you think that's the optimal leverage level, why can't we do that as a public company? Why can I get those returns instead of KKR or a digital or whoever you want to name? It's most infuriating when it's a MBO, right? When it's like, hey, we can do it the bad way for your money or the good way for my money.

And I'm like, wait, wait, wait a second. Wait a second. Why don't we do it the good way for the Porsche bucks? that already owned it. So it's different when you're talking about a strategic deal when you're talking about cost savings and the other things people say about M&A that work, but especially when you're talking about cost savings, okay, so part of the premium you're getting paid is you're getting handed back some of the money that they're going to be able to take out of their cost. That's a different topic. When you're just talking about a presumably smart, self-seeking

person who can do arithmetic and likes making money, they're looking at this company and they're doing very similar work to what you're doing. And they're saying, like they're in a sense that you both agree they just want to be able to underpay and you're noting that they're underpaying or offering to underpay at this point. So it's possible to do it in the public market. It's possible. And I've always thought that every deal, my reform would be even on the buyer's side. So if you're offering to do a, it presupposes that there's capital available to do things. Can you at least say versus buying back your own shares versus doing a self-help or like levered recap or something, you could, you know, you could do other

deals in the public market as well as private, uh, that presupposes, hey, the public market doesn't want like value correctly this thing, which is kind of the unspoken assumption behind offers. Um, and so the easy way is if they want to own this, just pay the right price, uh, or the company can find somebody else willing to because there's nothing really special about a financial buyer, right? There's a lot of capital. There's a lot of, and you kind of, get to free ride off of the IP that they have assertively thought that it's worth this. And so maybe it's worth it as somebody else. Maybe we can find somebody else who would pay slightly or a lot more.

And then you have things changing because of charter and kind of the environment improving since then. So it's conceivable. You have one bidder that had this amount of money or had the scale that they'd presuppose they were going to do. We can find somebody else who has deeper pockets. And again, look, there are Crestfew owns 30% of it. the equity here. They've historically had this as a private company. I have had debates with people on if WOW's debt is portable to just Crestview or to any bidder. But I guess what I'm saying is if Cresfew offered, I'm picking a number. I'm not saying this is fair value. If Cresview offer 10

versus if another party offer 1050, like you could make arguments. You should go with the Cresby bid for certainty or like for speed of close. Like they've probably, they've gotten regulatory approval from the cable regulators state by state before like i completely understand that so there is a little bit of a kind of tie or even slight loss goes to the incumbent party but again if they want to pay their initial bid was 480 i i think it laughably undervalues the company as i kind of discussed earlier if they say hey we want to go to five they need to go run a full process and try and find a bidder bitter and even if they can't even if every other bidder's like hey we don't want to risk a 30% shareholder voting us down or you know it now's not the right time cable still kind of depressed

the board still has a duty to say hey we're not going to sell at all time low multiples just because our majority shareholder wants to take us private for a song like we can do a lot of the things that they're saying they want to do we can do it ourselves and return capital you know which one was interesting just uh we've got a position here i've talked about recently but uh ballets out b a l-y just last week they announced their majority shareholders buying them for a large premium, but it was really interesting there. I've never seen this before. I'm really interested in how it will work. We haven't seen a proxy yet, so we don't know. But they said, hey, we're going to buy you for 1825 per share. But as part of that, if you were a shareholder and you say, hey, I see what

the controlled shareholders sees here. I think there's a lot more value here. I want to roll my stake. They're letting shareholders roll their stake. And like, with wow, I would be kind of interested is that, hey, instead of $4.80 per share or $6 per share, here's the bid, but also if you believe in the value, you can roll. Now, there's lots of other questions here, but I've never seen that before, and I'm pretty interested in it. I wonder if that's the start of a mini trend. I love it. I love it. I think it's kind of rational, logical, and it's kind of revealing, it lets people act in their preferences, and it makes it less contentious in some way, right? If you think, if you have this really strong thesis and you're a relevant player with a relevant

player scale, you think, oh, the price is really high or low, lets you act on it either right. You can be buyer-seller. No, I think it's a great way to have a market. And there are questions. Like, I do want questions around, hey, what is the, are the control people getting management fees? Are they like, how does the role process work? But it does kind of solve the issues where if I'm going to forget, well, just any generic company saying, hey, you're selling to your majority shareholder too cheaply, if they offer,

okay, we'll let you roll it on their terms, then it's kind of to me like, hey, are you willing to accept the illiquidity, the long term? Like, you can invest at the exact same prices. You're saying they're still, like, if you think it's taking advantage of people, you can join the taking advantage of all the people who want to catch up for cash. And then, I mean, the other two things you kind of see here is there's always this kind of risk aversion behind management and boards in that even if you have a very concentrated portfolio, you might have a dozen different things, but you're the management or board, you're pretty much like, this is your one thing. You kind of don't want to screw it up. And you tend to, I mean, there might be some

animosity and frustration, but you tend to trust more these large concentrated holders. You just know what. So like, I think that I think R.C.M's going to sell. And I think White Open West is going to sell. And I think it's going to sell to the obvious people. I actually don't think it's going to end up being some other kind of exogenous force here. I think it's going to be kind of the most obvious thing is going to happen, but it's partly just like the human element of the people you're dealing with anyways. It's kind of the natural conclusion of this. Our job to make sure we get the best value, and I think we will. But there's just kind of this natural inclination just to deal with the people you know. You know, there is something,

wow and RCM also both have another interesting thing. Like, wow, when the initial bid came out was the worst, was the worst environment, sentiment for telecom and table socks, I think I've ever seen. That's improved a little bit, in part thanks to interest rates, in part thanks to the operational performance, all that sort of stuff. But, you know, wow, when they did that bid, or sorry, Cresby when they did that bid, having Digital Bridge as their partner, I personally thought was very reassuring and very value affirmative because Digital Bridge is a digital infrastructure fund, right?

So they own towers and fiber players and everything. And the fact that they were looking at this thing, you know, they're not in this for charity. They were saying, hey, if we buy 60% of the wow equity at 480 per share, we think we're going to realize private equity returns. Like that's pretty affirmative. And then RCM, you know, there's been an active shortcase on RCM. There's been a lot of angst over, as I mentioned earlier, some of their customers had issues with hacks. Customers and suppliers had issues with hacks that are causing short-term noise in their financials. And the fact that you had at the time, one, and now it seems like both that they're kind of majority shareholders are saying, we see the value here.

You know, I do think there is as a investor and as someone thinking about these deals going through, I think when you've got a majority shareholder who's got a lot of info on the company that probably you and I don't really have and they're kind of underwriting and saying, yeah, we think we're going to get really attractive returns at this bid level. I think that's also a really interesting value signal. Yeah. And in one case, we wrote a public letter. In the other case, we didn't. But in both cases, it's like, there's nothing untoward here. It's like they're being opportunistic. I mean, it kind of, the timing really checks out that the people who know the most would be picking, trying to pick off the right time to get a low ball deal. It would be really funny if one of these guys filed a bid and we're like, hey, you know, we're bidding $25 per share, a 50% premium to the unaffected price. And we're doing this not because we think the company's cheap. We think the companies, we think the companies, way too expensive, but we want tax write-off. This is our, you know, some people donate to children for charity. We donate to minority shareholders. Like that would be a kind of funny one. Anything else on WAL, RCA, don't take private to anything?

Pretty straightforward. Let me go. I just want to go to one thing that's been on. Let's talk banks. And we've talked banks several times on this podcast. But, you know, one thing that's being on my mind, and I'd love to get your thoughts, because I know you talk to a lot of banks as well. over the past, since kind of Silicon Valley and First Republic fell, and even before that,

but especially since they fell, you know, banks have been in a tough spot. Short-term interest rates are long, were and are higher than long-term interest rates. You know, the yield curve is inverting. And a bank traditionally, what do they do? They borrow short to lend long. When the yield curse inverted, that's really tough, right? So as you and are talking at the end of July, like we're kind of finally have line of sight into the Fed cutting interest rates.

The yield curve is kind of starting to uninvert. And banks have responded really quickly, right? Every bank has wrecked two months ago, I could have pointed you to a ton of banks that were trading for 80% of tangible book. And today, it's really hard to find that. But I just think it's interesting in terms of the outlook for banks. And particularly over the past 15 months, there hasn't been a lot of bank M&A. So I just want to ask you, like, what do you think about the outlook for banks?

What are you hearing for banks in terms of M&A? their appetite for buying, selling all this sort of stuff. Because also, you know, this administration has not been, it's been very difficult to get banks, bank mergers approved under this administration, the possibility for a change either to a Harris administration or Trump administration, like, I think that's interesting in bank outlooks as well.

So I threw a lot out there. I'll toss it over to you. So clarity always helps transactions. And so not only is the environment getting better, but it's getting less kind of amorphous the environments, one that the boards and managements presupposed when they set up their books, the risks that they are taking is much closer to the risk they thought they were taking. So it's kind of like, unsurprisingly, they thought that they were doing good things,

but they're also doing things that they have an easier time valuing. It's a much, much, much better time for doing deals. Because you'd think bad news isn't necessarily bad for transaction, especially like a stock-for-stock deal. You could always have. have something, you know, if we want to do a deal and your values cut in half, and my values cut in half, and we're doing equity, that should just be, it should just totally check out. It's not, there's no, there's no arithmetic problem with that. In practice, there's all sorts of human problems with that, you know, just being annoyed at getting bought for way beneath your recent high.

Again, totally arbitrary, but like, it does affect actual psychology. So much better environment. there's going to be a ton of deals. Can I just pause on the recent high? The recent high point you make is interesting because every bank dropped in March to April 2023 quite a bit. That's when Silicon Valley and First Republic was happening. And now you and I are talking to end of July.

Like that kind of, that's in the rearview mirror, right? That you're no longer, your 52 week high is no longer pre-SIVB. It's post-SIVB. And I do think that makes a difference when you're negotiating talking. People have kind of adjusted maybe to a lower stock price level as well. you know the kind of mid-twit meme of the bell curve the dumbest kind of just first-order observation about like the stock price shouldn't matter at all and a mid-tuit person might say like oh no that's why it doesn't matter but it actually does matter when you're dealing with boards and manage like the

people who make the decisions they do kind of care about this stuff now sometimes they have personal you know comp that's related whatever but they mostly just want to feel smart and they don't have to do something and you kind of want to retire, but you might hold your breath because you think this two shall pass me at a better price. And that kind of thing does make a difference in how these deals are timed. It all makes a difference. It also makes a difference. You put in a proxy, if you put in, hey, Chris offered $11 and that is a premium to the 52 week high. That sounds a lot better than Chris offered $11. And that is, you know, the 52 week high was 17. And it doesn't matter that, you know, there's been a nuclear winter since the 17th to today. This is a huge

premium scrape price. Like, you no longer can say in your proxy, this is a 50, it's a premium to the 52 week high. People making money are happy, even if, like, if you make them 20% and sensible decisions should have made them 40% and you were kind of, you know, botched a bunch of things, they're still going to be happy, less litigious, and there's not really quantifiable damages. And if You lose the 20%, but you were brilliant. You were just this wonderful, like anything should have said. You should have lost them 40%, but you manage things so well. They're still pissed because they're poorer, even if you did a really good job.

So, and the damages thing, that is a, like it's harder in court to come up with a, you should have done even better when you've done pretty okay. Companies have this defense, too. There are a few companies where I've done, and I just think the management teams have done just abysmal jobs, abysmal, right? But the stock has gone up 20%, right? Which 20% is a nice return. And I just think the management teams have done an abysmal job.

Peers are up 50%, you know, all this. But it's hard. I'll talk to other shareholders be like, hey, you know, this management team, they're building, their pricing strategy, they're underpricing, whatever you want to say. And other investors just kind of like, broke 20%, man, don't care. Whereas if they're down 20%, and every peer is down 98%. You know, you talk another rest and be like, this management team, let's get them out of here. Like, let's tear them apart.

And you're kind of like, well, yeah, maybe I think they could be better, but it's a tough environment. But it is funny how a major team can be a rising tide, list all boats, but it also kind of protects the management scene. Yeah, exactly. So I'll see. I forget if I mentioned this last time, but a lot of an increasing, and even if I had mentioned it even more now than a month ago, credit union, mutual interest. in as buyers in MMA, in M&A, you have kind of remutualizations, some announced, some in process, but I think that's going to be kind of a big theme in banks. You have the ESEP banks, I think, are going to be big kind of sellers in the M&A. You have, you know, one kind of coming out saying

like, oh, we're easily qualifying for the kind of very low lowest preff payments, which would have a subtle range, and it looked like they were either very low or next to zero cost, and it's looking like less, more like the next to zero costs for the government funding that they got, so which makes them even more valuable. So I think that that's going to be a big category. And so, yeah, I think we're going to see a lot of deals. Look, I think we've been going for about 45 minutes We've hit most of the stuff

We can talk Chevron if you want Or we can just wrap it up here Kind of up to you Oh, let's see Maybe we can talk next time Airlines I think we could have news On Hawaii, Alaska And see kind of what the next

Shoot a drop is on airline antitrust. And it'll be interesting to see if there's a complaint against that deal how if and how spirit is cited, given that spirit is now raising prices and changing their business model and doing a lot of the things that the suit to block the JetBlue deal was designed to prevent. We kind of know the outcome in that in a lot of ways. We've had a history and lost few years of a number of you could say failed deal approvals that had or failed divestitures. And this was in a sense of failed complaint or a failed block or they didn't achieve any of the things they stated they were going to achieve by blocking it. And you already

have that outcome that was kind of decisive and fairly fierce by the time they had to make their next decision. So these things would come in short order. So I think that's maybe a conversation for next time. But I think we're going to know a lot more in the next few weeks on that. No, I just like what you said. Like, look, long-time listeners know how you and I feel about the Spirit Airlines, a blue merger, but exactly what you're saying. Like, cool, the administration blocked it. They blocked that merger. Spirit's changing, like, hundreds of millions of dollars are now going to restructuring lawyers, financial lawyers, all that sort of stuff that, you know, I'm sure Spirit would have rather sent to their shareholders' pockets and then had JetBlue, like,

implement all these changes, but Spirit's making the changes. Like, Spirit got blocked because they said it was a unique business model, but here's the thing about business models. Whether you change them, JetBlue changes them or the company changes it on their own, like they can change. It's not a asset thing. And I can't believe that merger was blocked. I can't say I've like eagerly, eagerly inspected Hawaiian Alaska yet. But, you know, if Spirit JetBlue could get blocked, I think Hawaiian Alaska is just as likely a case. I do know I heard from people who, who were in the courtroom, who kind of were sitting next to some Hawaiian, Alaskan observers who thought that some particular aspects of that case

that went against JetBlue were actually good precedent for them. But I can't say I'm a super expert on that case yet. But as you said, it seems likely that will be blocked. And it seems likely we'll be going to court on that case in the near future, unless we have a change of administration and they try to block it. And then the new administration says, Oh, I, Alaska. You guys do what you want to do.

Cool. Okay, well, that's it for the July 24th State of the Markets. Chris, looking forward to the next one. We'll talk before then. And yeah, thanks to everyone for listening. Thanks, guys. This episode is brought to you by Tegas, the future of investment research. Look, if you've been reading my newsletters, you know how often I rely on Tegas for my research.

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