YouSaid · the spoken record

Andrew Walker

lines on the record: 52
first: 2021-07-09
most recent: 2021-07-09
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Comcast comes with a topping bid for Discovery, and you'll just have to have him back on. I'll say, I was the only one who told you so. I look forward to that. Thank you for having me on.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Well, I appreciate that. The easiest way Twitter, Andrew Rangeley, that's ranged like a driving range, LEY. So Andrew Rangeley is my Twitter handle. Obviously posts a bunch there. I write a moderately popular finance blog. It's yet another value blog.substack.com. And then I do an even more moderately popular finance podcast, which is called Yet Another Value Podcast where I would take it'd be like this. I'd have an investor on who'd say, I have a position of discovery and for an hour we talk exclusively about discovery much the way you and I talked about it for the last 30 minutes.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“People are scared about the kind of overhang from ATT distributing things. I'm Lynchy Det. And I don't think a lot of people have thought through the strategic pieces. I think most people think a chance of Comcast getting involved is zero, and I think it significantly higher than zero.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“It's tough to say, but I will say I have never been a part of a company that received a topping bid and been sad as a shareholder, right? Like Comcast NBC, in order to break this merger up, they'd have to go to Discovery and they would have to present a bid that is better than the current bid that Warner has on the table, right? Now it's structured is an interesting question because this deal is structured as the discovery Warner deal. It's a reverse Morris Trust. There's no cash coming to discovery. It's stock in a new company. It would be interesting how Comcast chooses to discuss it, but again, let's look at the last example. Disney merging with Fox. Disney merged with Fox. It was about a $35 per share deal. Comcast came and tried to break it up with a $45 per share bid, right? That's over 30% premium. If I got over 30% premium for discovery, I would probably be pretty happy. I think it's a hugely synergistic merger that creates a lot of value. I think people are overlooking it or scared to invest it because the headline leverage number scale for people.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“No, so this is typical topping bid stuff. If Comcast comes with a topping offer for discovery, Discovery's board has a fiduciary obligation to consider any topping bid that will create more value for shareholders. And again, you think back to 2017, Disney and Fox had a deal roughly the deal valued Fox at $30 per share, $35 per share. I'm doing something rough. Six months later, Comcast came with the topping bid that valued Fox at $45 per share. And yeah, Fox had a contract, but their board has a fiduciary obligation. This happens in public company mergers all the time. If you get a topping bid, you have to consider it. If you turn down, you better have a damn good reason or else your shareholders are going to sue you for a breach of fiduciary application.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“So there have been tons of reports that Comcast and NBC and NBC wanted to merge with Warner. There have been lots of reports that they tried. There have been lots of reports that AT&T wanted no part of that regulatory headache. We haven't seen the deal proxy yet, so we don't know exactly what their approaches look like and everything. But I think it's pretty safe to say that AT&T, you know, they evaluated all their options with Warner and they settled for the option with discovery with no regulatory risk where they could deleverage their balance sheet and where they could create a third global scale player. So I think that's why they chose Discovery. On the Comcast discovery side, that's just me reading the tea leaves. It is a non-consensus opinion for sure. But again, if I look at Robert's history, he has been aggressive when he wanted to buy synergistic media assets. And I do think he's going to look at the board and say, if I miss out on discovery, NBC is subscale. At some point, I will have to be a seller of NBC from a position of weakness. Let me go out.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“NBC Viacom and Warner. Discovery was the last remaining asset that you could buy with no regulatory concerns that would get you to that third player. Warner's announced a deal for that. That leaves NBC and Viacom scrambling. I think it's possible that Brian Roberts looks at the board and says, hey, you know what the best solution here is? Let's have NBC by discovery. And if we do that, we become the third scaled global player. We paint Warner into the same corner that they're painting us into. And by the way, down the line, if we get a new administration that's more open to mergers, we can do an NBC Discovery Warner merger, but we'll do it from a position of huge strength where we say, hey, Warner, your subscale NBC, again, they own HBO's rights in Europe. We're a global player. We've got great scale. We'll buy you, but you're a seller in weakness and we're a buyer in strength.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Very willing to pay top dollar to buy strategic media assets. For months, there's been rumors that Comcast and NBC wanted to merge with Warner, and AT&T ultimately decided, you know, AT&T has fought the DOJ in court twice in the past 10 years. They tried to buy Dean Mobile. The DOJ blocked that. They tried to buy Time Warner. The DOJ tried to block that. They beat the DOJ in court. They bought Time Warner. I don't think AT&T wanted any part merging NBC with Warner. That is a $200 billion merger. There would have been congressional hearings. The DOJ would have done a years-long investigation. It was up in the air if that would have been approved or not. AT&T didn't want any part of that. So AT&T decided to go with Discovery. By buying Discovery, Warner Discovery paints Viacom CBS and NBCU in a corner. There's now two months ago, there were two scale players, Disney and Netflix, and there were three medium-sized players.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Comcast is two companies, they own Comcast Cable, the largest cable player in America, and they own NBCUniversal. And they're headed by Brian Roberts, who I have great respect for. His dad started Comcast, but I think he's done a fantastic job running Comcast effort, nothing but good things about him. He's very strategic and very missionary. The one thing to know about Comcast is they have wanted to get into the media space for years. In 2004, they actually launched a hostile offer for Disney. They bought NBC in 2008 through 2010 from GE. They love the content space. And when they want to get bigger into the content space, they are not shy about being aggressive. So again, hostile offer for Disney in 2004. When Disney tried to buy Fox in 2016 or 2017, Comcast came with an offer at a huge premium to try to break that deal up and merge Box and NBC together when they couldn't buy Fox. They ended up paying a huge premium to buy Sky, which was a lot of European assets. So Comcast is...”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Say all the guy fiati shows, Chip and Joe, all that, those would have been hugely valuable on the market. They never did any of that because they kept their eye on the prize and they said at some point, we're going to want the rights of those so we can launch a global consumer franchise or we can merge with someone and they can use our content to launch that. So I think he's had a good vision. I think he's done a nice job building this company through acquisitions. It's tough to look at any of the acquisitions he's done and say they were bad. When Discovery bought scripts, a lot of people thought that was going to be a really bad merger. They outperformed on dividends. They outperformed on synergies. They've done really well. I think it proved to be a hugely synergistic merger. Those are all the positives. The negatives is this man is paid a lot of money. John Malone famously pays his lieutenants a lot of money, but I mean, Zaslov has made tens and tens of millions of dollars as the share price has stalled out for years and years and years. Some of that was beyond his control because it stalled out because people said, hey, you're a legacy cable bundle player.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Operationally, he was dealt a tough hand. You know, if you reround 20 years, Discovery was a one channel cable company and he's grown this thing into an absolute cable giant that takes up 20% of viewing time in the cable bundle. They've got great assets. And one thing that I think he doesn't get credit for, you know, the reason a lot of these media companies are struggling is because five years ago, Netflix went to all the media companies with a big checkbook and they said, hey, you've got a lot of movies. You don't make any money on those movies that are in your library. Give us the streaming rights to them and we'll write you a couple million dollars per check. And all of the media companies looked at that as free money. And three years later, all the media companies looked at it and said, oh no, that was a bad idea. We can't launch our own streaming services because we took this free money up front, but it turns out we way undervalued our content. Discovery has never done any of that, even though they could have made tens and hundreds of millions of dollars in profit by selling the rights to all their shows, you know, 90-day fiat.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Have you read the snowball? So, if you remember the snowball, there's a scene where in Buffett is on the board of Cap Cities, is what it's called. Cap Cities is a big television station. And Cap City is an ABC announce a merger. And they get buffet on the phone. He's a director. And they ask him his opinion in the merger. And he says, I think it's a great deal. I think this is going to be the rare merger where a stock goes up because you merge two media companies together and there are generally a lot of synergies when you merge two media companies together. And I feel the same way about Discovery and Warner. These are two media companies with hugely synergistic assets. To stop the morning it was announced both stocks were up 20% and then they fell I think because of the some of the concerns we talked about but I think this is a hugely synergistic deal that's going to create a lot of value over time. Let's turn to the discovery management team. Discovery is run by David Zaslov. He's been CEO there for a long time. Mixed reviews on him. John Malone who is the chairman controlling shareholder of discovery raves about him. I think he's done a really nice job.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Coming out five times levered, paying down a little debt, that's a lot of value going to the equity. I honestly think this could be a hundred dollars stock in five to seven years. It's a $30 stock right now. That would be a really good IRR.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Everything's opportunity costs, and I acknowledge this stock, the deal could go through, AT&T could give the stock to shareholders, and it could trade down 20, 30, 40 percent tomorrow. But I just see so much value in the combined company that I'm willing to risk that bad mark to market and buy today because the stock market's a funny discounting place. You know, right now it's discounting, hey, there's going to be this overcang. But six months from now, people could get really excited about discovery. The stock could move a little bit and people could say, oh, I'm buying the combined company at a 10% free cash flow yield. And this is an actual Netflix Disney competitor. That is way too cheap. We need to buy this. And all of a sudden, you know, the stock's 40, 45 dollars before you know it. I don't know, but I'm willing to buy invest that because I see so much value in the company. 10% free cash flow year, they're going to be able to pay down billions and billions of dollars of debt every year. People are worried about the leverage. Once they pay down billions and billions of dollars of debt over a year or two, that value should accrue to equity because the combined”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Cost spaces there is negative and he's just done great deals. He's the controlling shareholder of Discovery. He owns super voting B shares. And one of the reasons I, you know, I follow Discovery for a while, but one of the reasons I like this deal is I follow John Malone for years. John Malone does not give up voting controls of the companies he owns. In the Discovery AT&T deal, he is giving up voting control of Discovery. And not only is he giving up voting control, he's giving it up without getting any extra money, any extra premium, which he I can't remember a time he's given up voting control without getting something in return. So one of the reasons I like this deal is John Malone, an absolute legend in the space, he is so bullish on the deal that to get it done, he gave up voting control without getting a premium.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“So he's a key shareholder and he's actually one of the reasons I first got attracted to this deal. So John Malone, there's a book on him called The Cable Cowboy. He is an absolute legend in media, telecom, investing space. Al Gore in the early 90s called him the Darth Vader because he ran TCI, which was the biggest cable company at the time. You know, nobody ever likes their cable company. He ran it. He built it. He made it into a mega giant. So he's a legend in the space. He's done legendary deals.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“If you own ATT stock, one of two things could happen. Either ATT could do what's known as an exchange offer where they could say, hey, give us AT&T stock trades roughly 30 discovery stocks trades roughly 30. So ATT could say, hey, we own a bunch of discovery stock now. If you give us one share of AT&T, we'll give you one share of discovery. That's one way they could do it. The way they'll most likely do it and the one that people are concerned is they'll do they'll just dividend out all their shares of discovery to their shareholders. And then if you were a shareholder of AT&T, you know, you owned 100 shares of AT&T, you wake up the next day, you own 100 shares of AT&T, and 20 shares of discovery. You look in your account and you say, I don't want to own 20 shares of discovery. I bought AT&T for the wireless network. I bought it for the dividend. Now I own discovery. Sell. And there's just going to be waves and waves of selling pressure when the steel goes through.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“As Discovery Plus deliver, post this deal, people are really concerned because Discovery is a 20, 30 billion dollar enterprise value company. Warner Brothers is $100 billion enterprise value company. So post this deal, one of the big concerns investors have is Warner Bros. will own AT&T through Warner Brothers will own 79% of the combined company, and they're going to spin it out to all of their shareholders. And AT&T's shareholders are famously dividend shareholders, right? They will own AT&T for the dividend. Discovery does not pay a dividend. Once this merger goes through, they're going to focus on debt pay down. They're going to focus on investing in content. And eventually they'll probably focus on share buybacks, but they're not going to focus on dividends. So people are very concerned that this merger is going to happen. It's going to complete in the middle of 2022. AT&T is going to give their Warner Brother Discovery shares to their shareholders. And every shareholder is going to sell irregardless of price because they've just received a security that does not pay a dividend.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I think there's two things. If I just zoom out for discovery over the past six years, the big worry has been these guys, all of their money for the most part comes from the US cable bundle. As the cable bundle unravels, what's going to happen to Discovery? And that's been a huge overhang on the stock for years and years and years. And that's one of the reasons that I thought Discovery Plus was so important, right? Discovery Plus, once they launched it and they launched it and they came out and they said we're beating all of our subscriber targets. Our subscribers are watching an hour and a half to two hours per day, which is great, great engagement. Our subscribers who sign up for the free to play, they're converting to pays at record rates. So Discovery Plus was so important to Discovery because it proved, hey, we have a future in the streaming world, right? You guys don't need to value us like a terminal asset that will die once the cable bundle goes away anymore. You guys can value us like a company that will be able to make it in the stream world. So that's kind of the long-term overhang on the stock, which I think was going away.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Think of all the HBO shows Game of Thrones. They've got like four Game of Thrones spinoffs in the works. They're going to have great assets that draw people in. They use the Discovery Library to reduce churn, keep people watching. I think that combination is going to be really powerful. You mentioned what happens to the content creation. I'll go back a little bit. People worried because Discovery's buying Warner Brothers and Discovery historically has focused on cheaper reality fair. People worried that they were going to say, hey, we're going to cut the budget on the DC Cinematic Universe. Game of Thrones, $10 million per episode, that's pretty expensive. Let's make it $3 million. And one of the things they've said is, no, we know that is not the way. We need to invest in big, buzzy shows that will draw people in, and then we can use the strength of our reality library to keep them in once they're in there.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Part of the free cash flow is there are going to be making investments into content. And one of the things I think people worried about is discovery, historically, food network, HTTP, discovery network. You think about all of those. They don't have a lot of drama programming, right? Discovery has specifically said we focus on reality in documentary style series because they're much cheaper. And that makes sense for them because they didn't want to go compete with the big Netflix Disney budgets and all that. The problem with that is that's great background in library viewing, but again, that doesn't draw people in like a game of thrones or a Wonder Woman. When they merge with Warner Brothers, they're going to have incredible properties. I think the only company that will have better IP than them is actually Disney, right? Disney's got Marvel, Pixar, Star Wars. Nobody's competing with that. But when this company is merged, they're going to have Warner Brothers. So they have the DC studios. They've got the rights to other fantastic assets that can really bring people in.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Than a year. This company spits off free cash flow. So when I look at that and when I look at what I think should be a very synergistic merger, given the combined company's assets, I think is going to really improve their standing in the DTC world. I think they're going to be able to get a lot more subs. I think Churn comes down a lot over time. I think they'll be much more profitable. It comes out leveraged, but that combo, I think they can pay down debt awfully quick.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“That's a great point. So, this company, when Discovery and Warner Bros. merge, they're going to emerge with five times leverage. And people are very concerned. That is an awful lot of leverage for a company that's going to still get a lot of money from the legacy cable bundle that has to invest a lot of money into content to kind of make sure they're hitting the scale they need for global streaming. So people are scared about that. The reason they're emerging with so much leverage, by the way, is because AT&T, they've got a lot of debt. And AT&T as part of this deal, they wanted to unlever their balance sheet. So Discovery said, all right, we'll lever the combined company up. You take a big dividend from Warner when you sell it to us. We'll pay down the leverage over time and they'll deleverage you. That's part of the reason they got this deal done. When I look at it, I think a couple things. A, discovery has a great track record of deleveraging, as you said. They are a free cash flow machine. They levered up to about four or four and a half times when they bought scripts a couple years ago. They said, hey, we'll get down to three times in 18 months or two years. They didn't less.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Channel companies out there. And yeah, it's just a great business. They took pricing because as they got larger, they commanded better prices from the cable companies and they managed to increase their free cash flow.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“So Discovery, I mentioned John Malone, who runs Liberty Media before. John Malone is the controlling shareholder of discovery. And he loves discovery for the same reason most people love businesses. If you think about their business, their cable channels on a cable network. It requires no CapEx, right? It is super profitable, super high margin business. They get into that. They're really sticking in the cable bundle when they get that. Every dollar that they get in revenue converts really well to the bottom line into free cash flow. John Malone would call it a free cash flow machine. Over the past five years, it was spitting off free cash flow because, A, once they're in the bundle, you know, you've got this thing where cable channels don't want to black you out because if they black you out, they'll lose subs. But because they don't black you out, they pay increasing prices for you and the cable bundle prices go up. That's why the cable bundle is kind of unwinding. But over the past five years, they've improved their scale by, they bought scripts, which is another cable channel, became one of the largest cable channels.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Got paid versus how much people watch them. They got paid very low amounts of money compared to something like ESPN, which would get $8, $10 per sub because it has Monday night football, which a lot of people really want. But on a hours viewing basis, they actually got paid way more than Discovery. So I was very bullish about Discovery's direct consumer chances because they had all this great content. People spent hours and hours per day watching it, but they were kind of undermonetized in the legacy table bundle.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“So, they are one of the largest cable companies, cable channels in the world, one of the largest content channels in the world. But their main business is the US, the legacy cable bundle. They've got Discovery, they've got Food Network, they've got HTTP, they've got a lot of other channels. So when the 60 or 70 million people who still subscribe to Legacy Cable Bundle, Discovery gets about $2 per sub for every person who subscribes. That has historically been a great business, but as the cable bundle unravels, it's going away. They were transitioning to Discovery Plus, which was going to be a direct-to-consumer offering where instead of getting on the cable bundle, you could go and subscribe Git Discovery Plus and get their backlog, their library, everything. And I personally, and I think a lot of people were pretty bullish on this because Discovery, they got $2 per user in the legacy cable bundle, but they were actually responsible for about 20% of cable viewing. So if you kind of did it on a how much they...”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Of thrones or for Wonder Woman. Warner Bros. has that. They don't have international scale and they don't have a lot of those kind of background shows that reduce churn. Discovery has that. You merge the two, you get a third global scale player. And I think the deal is going to be a real home run.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Most of them are coming from Disney. You think the Marvel Cinematic Universe and all that, or Netflix? You can go on and on all the hits Netflix to launch. That's because those guys have scale and distribution. By merging Warner and Discovery, you get a third global scaled player. Warner does not have, they've got great content and great assets, but they don't have a lot of their international rights. So HBO. Warner doesn't own the rights to HBO internationally. Sky actually owns the rights to HBO in Europe. Warner sold a lot of their hit movies. They don't own the rights to those to put them onto a streaming service, right? The key thing with discovery is Discovery owns all of their international rights. When you merge the two, Discovery has great content that you kind of just sit down, go brain dead and consume. So they've got food channel, they've got HGTV, they've got Discovery, they've got great background product. What they don't have is they don't have buzzy shows that draw people in. People sign up for a”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Players. There's Netflix and there's Disney. Time Warner's Too Small, Viacom's too small, NBC's too small. When Warner merges with Discovery, they will be a truly scaled third global player, and you will have, because Discovery is kind of the last viable piece on the board, those three will kind of lock in a dominant scale presence and everyone else will be scrambling to figure out what to do. This deal, content is a game of global scale, right? If you have 100 million subscribers and you pay $100 million for a movie, the movie costs you $1 per subscriber. If you have $25 million, it costs you $4 per subscriber. So that's a big advantage. The bigger you get, the more scale you have, the more you can invest into content. Right now, Netflix and Disney have that scale, right? If you think of the breakout hits from the past year to 18 months, all of them are coming on one of three places. HBO, I think of mayor of Eastown, which I haven't unfortunately haven't watched yet, but mayor of Eastown broke out a couple others.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so they said the leverage was about five to one. So for every $1 of equity, they were putting about $5 of debt. And, you know, a lot of us looked at this and we do wonder, like, what were these guys doing? Discovery stock went from 30 to 90 in the course of three months. Like how were they not trimming it? How did they stay this leveraged? How could you be invested in a company like that on leverage and manage to lose money when the stock triples? But anyway, that's what's happened with the stock price. Along the same times that this discovery stock price is racing, discovery reaches out to time warners, AT&T CEO, and says, hey, you've got Time Warner. Time Warner owns HBO. It owns TBS, TNT, Warner Brothers, a couple other assets. Why don't we merge Time Warner with Discovery and create a media giant? And AT&T ultimately agrees to do this. And I think it's going to be a really interesting deal. Right now in media, there's two truly global scales.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“A lot of people said, Is this a short squeeze? I don't think so. The short interest in this isn't crazy. And Bayacom, another big legacy media stock was squeezing at the same time. So you can go back and read the transcripts. The management teams at Discovery and Viacom, they thought the market was giving them a Netflix multiple. They thought the market was finally seeing the vision that they had been laying out for years. Well, it turns out Archigos, which is a was a family office, but it turns out what had happened was they were buying up 10 to 15% of discovery Viacom and a couple other companies and they were doing it with a lot of leverage. So they were just buying, buying, buying, buying, and they were driving the stock price up, up, up, up, up. In late March, Viacom did a secondary offering because their stock was really high. They said, we'll raise money. That blew up Archigos. And Archigos was forced to sell everything and discovery and buycom drop like a rock.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“It's really interesting. It's been a crazy year for discovery. So I guess I'll back up a little bit. In early December, they launched Discovery Plus, which is their, you know, it's their discovery direct consumer product that they launched. The stock was around 25 or 30. They launched it. It got good reviews. I think people really liked the vision, the price point, the economics they laid out and everything, right? And then earlier this year, the stock started taking off. It went from 30 to 35 to 40 to 45. And I think a lot of people looked at it and said, oh, the market must be really giving them a lot of credit for Discovery Plus. And the early reviews were good. They got really good sign-up numbers. And their Q4 call came out and they gave great numbers. They sounded great about Discovery Plus. And the stock just kept going up and up and up. And every legacy media person was looking at each other and saying, what is the market seen here? Like, yeah, it seems like it's doing good, but the stock is just on a squeeze. And this was a month after GameStop and AMC ran for the first time.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“That bet because I buy it right now within the next year, they'll announce a deal. It'll probably be with a unicorn company that's in Softbank's Vision Fund. If the market loves it, great. The stock could go up 40, 50% or something and you'll have big profit. If the market hates it and doesn't trade it above trust, you just redeem. So it's a heads you could win a lot and tails. You make a little money situation. So I love those type of trades where you're buying people with proprietary deals and a history of value creation and you're buying them at or around trust.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Injected $100 million at really preferential terms into ComScore, which is kind of a Nielsen competitor. But they injected in it and they got access to that deal because they have relationships up and down the media space. And when they put money in, they weren't just offering money. They were also offering relationships. And they extended com scores deal with charters. So they were offering more than just money. And I like that in a SPAC sponsor. If you merge with Liberty Media, they could say, hey, you want to do something on the sports side? We own Formula One. We own the Atlanta Braves. We own charter. We can get you distribution. We can get you relationships. We can get you all that. So I want that type of proprietary deal flow when I'm looking for. Another one, Softbank. Softbank actually has three SPACs outstanding. One of them, the largest one, it was like a 525 million spac. The ticker is SFVA. That one trades a little below trust right now. It trades for about $9.92. And I love.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“The great thing about 500 SPAX is there's 500 SPAC sponsors, and you can bet on the sponsors that you really like and that you think will deliver a good deal. So the things I personally like to look for is I want SPATs with proprietary deal flow, right? So if you and I raise this back, bankers would come to us left and right and say, hey, this company is going through an auction. Do you want to come in and we put in a high bid for one and we get a deal done? And that's how you get the winner's curse I talked about earlier where you pay too much for a company. You technically won it, but you pay too much and it destroys value. What I want is someone like Liberty Media, which is run by John Malone and Greg Mafay, absolute legends and the cable and media space. They have proprietary deal flow and a history of creating value, right? So one of the best investments of all time was they bailed out serious XM at the bottom in 2009 in the financial crisis. Or more recently, this was a smaller deal, but because they've got relationships across the media space,”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Are about 500 specs looking for deals right now. And again, there aren't 500 public ready companies. So I think what we're going to start seeing is a couple things. You're going to see SPACs coming with more and more ludicrous deals. You could even see this at the height of SPAC Mania. All these deals valuing the 12th largest electric vehicle company that had never produced anything that thought they could get a car on market in five years coming with a multi-billion dollar valuation, you'll probably see a lot of those. But what's going to happen is the SPACs are going to come with crazy deals and investors are going to start voting a lot of these deals down left and right. And the SPACs will redeem and the investors will get their money back. But the founders will lose their sponsor promote. And some of the specs that go through, it'll turn out that they didn't do a lot of due diligence. The deals they do will do awful. And the SPACs, you know, after they report a quarter or two, they'll be dispatched, but the stocks will probably go down a lot.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“In today's market, but again, I kind of think it's a unicorn spat. So if there was one spat that I thought deserved a premium, it would be Persian squirts on team.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Most backs have $10 in trust. This has $20 per share in trust, so you do have to kind of divide by two to compare it to your normal. But I think it's been a couple things. A, there have been lots of rumors about who they're buying. You know, there was reporting that they made an offer for Airbnb. There was a reporting that they made an offer for Bloomberg. You can go on. There's a daily Reddit Persian Square taunting discussion board where they speculate on all sorts of targets. Lots of people think they're going to buy Strike or a really buzzy financial unicorn. So some of it has to do with the buzz of Ackman Spack. The other piece of it has to do with, back in February, every SPAC was trading at a huge premium to trust. And again, Purging Square is kind of a unicorn spac. So it kind of rose with the market today at $25, you know, it's got $20 per share in trust. There are warrants attached to it which aren't attached to most other normal SPAC stocks. So I think it's probably trading for about a 15% implied premium to trust, which is big.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“And I get your taunting warrant. So it's incentivized for people who believe in whatever deal they do if they don't redeem, they'll get extra warrants in the company from the people who do redeem.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“A taunting is basically a group of people put money into a pool and whoever survives gets the money is distributed between them, right? So you and I could put $10 into a taunting. Whoever outlives the other would get the taunting. We'd get $20. They're generally banned because governments don't like pools of money that people will collect when some of the people die because it encourages murders. And that's why there's such good murder mystery stories. But in this case, how the taunt team works is Pershing went public. And it's got warrants attached to the shares that are non-redeemed that don't break off from the shares. And what happens is if they announce a deal and you and I both own shares and you redeem your stock, you'll get your $20 per share back. It's different than specs. It's got $20 in trust instead of $10. You'll get your $20 back, but you'll give up those tonne warrants that are attached to it. And if I don't redeem my shares, I have stock in the company. I keep my tonne warrants.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Five to seven billion. Most SPACs are two to four hundred million dollars in trust. So it's orders of magnitude larger than every other spac, which means it can go after a lot bigger companies. And it can incredibly tell them, hey, you go do a deal with another spec. That spec might have a lot of redemptions. They might not actually deliver you a lot of money. Even if our spec has a lot of redemptions because Persian Square is writing one to three billion dollars of a check, we're going to deliver billions of dollars of cash to you, right? So they can incredibly say you get certainty of a huge check and our incentives are significantly aligned and they can go after bigger targets. And then the third thing is purging square is a taunting structure. And that is very unique. As far as I know, there's only one other spec that came with the taunting structure. And a Tauntine structure, it's kind of famous. Like it's a really popular device plot and murder mysteries and murder movies. So Agatha Christie used a couple in her books. There was a Simpsons episode, an Archer episode with it.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Common stock when they announce a deal. At the same terms that public shareholders bought into the IPO. The incentive system for Bill Ackman, the only way he will make money is by purging square going up over time. I gave an example earlier where a spax price could go down by 50% and the SPAC sponsors would still make four times their money. If Pershing Square stock went down by 50% after they announced the deal, Bill Ackman, because his deep out-of-the-money warrants would be basically worthless, Bill Ackman would lose more than any minority shareholders. his incentives are aligned. That's one. Number two, it's by far the largest back that's ever been raised. They raise $4 billion in trust. And in addition, Bill Ackman and Purging Square agreed that they'll buy one to $3 billion of stock when they announce a deal. Five to seven billion dollars in cash buying power. That is orders of magnitude larger than every other spec. There's a couple specs like KKR raised one that touch about a billion dollars, but we're talking”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so take everything I said about bad incentives and bad structure for SPACs, and you can basically throw it out the window for Persian squares. Persian Square, originally they were going to hunt for a unicorn target and in many ways Persian Square Tauntin, which is the spec, is a unicorn spec. So it's a unicorn in three ways. First, the incentive system. Most SPACs we've already talked about how most SPACs, the founders get the 20% of the company in the promote for very little money. Bill Ackman and Pershing Square Taunting did not take any promote. What they did is all of their promote, quote unquote, was bought, they wrote a hundred million dollar check to buy warrants that buys the Purging Square stock at $24 per share after they announced a deal. Now, their long-dated warrant, so they can create value as the company compounds over time, but he doesn't get any promote. He only bought those warrants. Plus, he agreed to a right of $1 to $3 billion check to buy purchasing square.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Look, one of the reasons SPACs got so big is because if you're doing a normal IPO, you can't provide projections because if you miss those projections, you could be sued. You broke securities law by providing a forward-looking projection that you missed. If you're doing a SPAC because a spec is actually already a public company, and technically what they're doing is just a merger with another company. In a merger, you can provide projections. So these spacs are providing five or forward projections. But because of those poor incentives we talked about, a lot of these spats came public with these beautiful rosy projections. Yeah, we didn't earn any revenue last year, but in five years we're going to be bigger than Amazon. Then they'd come public in the first quarter public, they'd pull their guidance, the financials would be awful, and the shares would drop like a rock. And that was kind of a more generous interpretation. You saw things like Nicola, where they went public and they literally rolled a vehicle down a hill and called it a working prototype. So I do think there needs to be regulation. I think that for a projection loophole should really be investigated.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“First quarter of 2021, we saw about 300 spaced IPOs, so that's 550 spac IPOs in a year. There aren't 550 new public ready companies. So these SPACs are pulling in. There's so many SPACs out there, and they're merging with every company, and there's companies that have never been public before, new types of companies that have never been public before that are coming public. And that's awesome for an investor who's willing to look through all these specs. I said about 500 specs have come public. I think about 250 or 300 have done deals. Probably 50% of those deals are going to be awful. 40% of those deals are going to be blah, but 10% of those deals are going to be really interesting. And because they're bringing new types of companies public, if you can identify one of those 10% of deals, there's a lot of upside potential. And because there's warrants outstanding, if you can identify a really interesting one and buy it through the warrants, you could make multiples of your money. So as in investment.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“There's two appeals. The first was so we run a SPAC fund, full disclosure, and we started it in late 2018, early 2019. So actually before the SPAC boom. And we started because for years we had looked at SPAC asymmetric trades based on exactly what I told you before, right? We could buy the units. We'd split them into a stock and a warrant. We could wait till they announced a deal. If it was a great deal that the market loved, great. We'd sell the stock on the open market for a profit. We'd sell the warrant for a profit. If it was an awful deal, whatever, we'd redeem for $10 per share. We'd sell the warrant. Nothing's ever investing in advice. Nothing's ever risk-free, but it was about as close a risk-free trade as you could make. That's why we started the spec one. More recently, I've become obsessed because, you know, in a typical year, there would be about 200 companies that would IPO in a typical year. And of those, you know, from 2015 to 2019, 200 companies would IPO. Of them, 30 of them or so would be SPACs. In 2020, we saw about 250 SPAC IPOs. And then in the”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“You are 100% correct. You can get your $10 back. That's why a lot of hedge funds and event driven funds love specs so much, right? You go, you buy a spec. So the way most specs work when they IPO, theyPO, what's called a unit. And that unit is one share and let's just call it one warrant to make it simple. And you buy that unit. Eventually you can split the share from the warrant. They come, they announce a deal, and you can choose, do I want to hold on to my share or do I want to redeem and get my $10 back? And even if you redeem, you can keep that warrant. So you get a free warrant. So from a hedge fund perspective, an arbitrage perspective, SPACs make a lot of sense because you kind of get a free look at whatever deal they love. What I was talking about for minority investors is it's generally bad if you hold through the deal. SPACs have a huge track record of destroying value after the deals are approved.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“Better. So, as a minority investor, if you're investing in a SPAC, you are buying into a company and you are paying the top dollar for it. And even worse than that, you're paying 20% more than top dollar because you're getting diluted by the founder share. I think that's the overview of the incentives and why SPACs can be so bad for minority investors.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT
“That can get done. Let's say he finds a deal, it gets approved, and the stock goes from 10 to 5. You and I have lost half our money. Absolute disaster. But the company's value has gone from 200 to 100 million. He gets 20% of it. He turns his $5 million into $20 million. Pretty good for him, right? So the incentives for a SPAC sponsor in general are to get a deal, any deal done because if they do that, they will make multiples of their money. And then for minority investors, it's even worse because a SPAC is a cash shell. Most mergers destroy value because whoever's buying the company overpays. But mergers, they can create value and in general they create value. Everybody likes to think they get a good deal in a merger. But in general, the way you create value for merger is from operating synergies, financial synergies, all that type of stuff. A spac is a cash shell. It has no synergies. The only way it can win a deal for the most part is to go to an auction and be the highest.”
2021-07-09 · We Study Billionaires · TIP359: The Rise and Fall of Archegos and Discovery w/ Andrew Walker · IDENTIFIED FROM THE TRANSCRIPT