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Diana Rosero Pena, Bloomberg Intelligence Consumer Staples Analyst, discusses the main owner of US chocolate maker Hershey rejecting a preliminary takeover offer from Mondelez International. William Lee, Chief Economist at the Milken Institute, discusses U.S CPI data. Lindsey Piegza, Chief Economist at Stifel, discusses U.S CPI data. Jennifer Rie, Bloomberg Intelligence Senior Litigation Analyst, discusses Albertsons filing a lawsuit against Kroger.
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Let's go to another deal that we've been talking about throughout the morning, and that's Hers. She's in Mondaliz. Mondales makes a bit for her, She's Hershe's comes back today and says, Nah, she's not high enough. Want to get more on this with Diana Rosea Pina, Bloomberg Intelligence Consumer Staples analyst. Is there a number you think that Hershe's would be like?
Yep, Well, it really depends. Last time Mondales tried, which was in twenty sixteen, they went up to twenty five billion dollars with a multiple of twenty times EBITDA. Currently Hershe's at sixteen and he was still denied. There's a lot of hurt that Mondaliese will have to go through. Not only the trust that owns pretty much controls eighty percent of Hershey, but there's also the age for Pennsylvania that has to say on it and it's likely that they.
Will deny it.
Interesting, So, have we heard anything from the trust either now or in the past about kind of their willingness to sell because this is a family situation.
Yeah, it's unlikely that they will want to sell. Her reports that because cocoa is at you know, such high levels, they might be more willing to sell. It is unlikely. You know, ten percent of the revenue for Hershey is in salty snacks. There's expanding into it, There's a lot of things that they're trying to do. I don't think necessarily that you know, a commodity is going to make them sell. It's unlikely.
So you mentioned that Monley's made a bid bad with twenty sixteen. Is that what you've said? Yes, So what's the environment from twenty sixteen where you were looking at twenty five billion dollars bid twenty five times even da right, that's what it was valued at that versus today within this kind of snack foods market.
Well, you know, obviously there's been a lot more acquisitions compared to twenty sixteen. Rates might be going down in terms of that will make it permissible. Another thing that we think it's going to be difficult for Mandalize is actually to finance the deal. So currently they will probably go extending beyond six times abidad to be able to even get closer. And last time they actually did a fifty stock fifty percent cash. We're thinking that they're probably came back to the same with the same proposal and it was pretty much nigh.
What's your sense of how aggressive Mondalies may be, both in terms of price and I don't know, maybe structure giving the family some kind of special value or something.
Yeah, I mean it seems like they were going, uh, they're going in a I don't want to say a fishing expedition, but it's kinda I think they want to be friendly. I don't think they want to be extremely aggressive. You know, obviously they they have a relatively new CEO compared to what they had last time, so maybe he sees things a little bit different. Uh, the industry has gone beyond strategic m and A and more of like bolt on acquisitions. They do better with that because it's easier to assimilate, it's cheaper, uh, and it's easier on the balance sheet. So I think they're more there. I think they will be happy if it happens, but I don't I don't think it's going to be something that they're gonna be pressing on.
How uh, how fractured is the snack group right now, like how many players are in it and sort of what's the growth rate for these guys right now.
So for confectionery, you know, if if Mandalize is successful, then and the combined global market for the global share for Mandalize Hershey will be about sixteen percent and twenty seven percent in North America, So it is it is not as fragmented as you know other other situations. You have the snack Salty Snacks, which is sixty percent going to PepsiCo, So it's it's it's very concentrated. I would say, all.
Right, you put in Mandales md l Z is the ticker, and you go equity comp comp This is one of Matt Miller's favorite functions, SHUZI that compares the stock price of Mandaliese over the last five years average annual return five point seven percent, the Consumer Staples Index nine point eight percent, and the S and P five hundred over the last five years up almost sixteen percent. So Mandalize has been an underperformer are they just too big? Do you think what's the bare case on Mandalize?
I think I think it has to do with how snacks have have performed in the past a couple of years. Also because of you know, chocolate being high. They are actually exposed to chocolate. Obviously they have half of their revenue comes from Oreo, which is obviously.
The revenue Mondolize comes from Oreos. Yes, wow, see there the problem here. First, for these snack good companies, there's more and more people like Lisa Mittelo out there. You know, healthy food, always exercise.
Excuse me, am, I insulted. I was not included in this list sitting right next to you. Yeah. Mostly that's no good. But that's the point. And then you also have the GLP one drugs numbers, all the worries that like, oh that was going to tank food, et cetera, but that we haven't really seen that. But if you talk to the CEO of say Novdes like a year and a half ago, who had been like, oh, yeah, I'm getting calls from the snack guys for sure.
Yeah.
I mean it's it's these companies have been around for a hundred years. They have seeing everything and last time there was another wave of like healthy snacking. They responded by doing what they call permissible snacking, which.
Was basically their Oreos.
Cookies in like a smaller package, which was more profitable for them, and they will like market it as you know, it's only one hundred calories. You can actually eat this as a snack.
So you know the ylp.
Thread, it's it's of our vlona.
I think Eric from the back row rights and Oreos are vegan.
Oh that I.
No, No, the cookie parts not vegan. The's no way.
I don't know.
Maybe they have a vegan version.
You're gonna have milk and eggs in there in some capacity, you know, or unless it's you ate one like I've eaten them. I just don't eat them. Although I did make an Oreo pavlova for Thanksgiving that was really good, and uh oreo with cream. It's basically it's like a big Moraine cake with Oreos in it. Okay, and nobody ate it. Everybody ate it. My mom and wanted to bulky. There's like four of us, but still all right, enough of that, Thank you very much. We appreciated Diana Dana Pena Roseero Penya Bloomberg Intelligence.
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All right, back to the economic data of the day, You're going to take a look at CPI. So it felt like a pretty benign read on inflation. That was sort of the zeitgeist. After the number broke, However, the question really becomes, then where else will we see disinflation? Or is the stickiness of higher prices going to change the neutral rate in that terminal rate for the Fed? While Bill Lee is joining us one of the best in the industry, Bill Lee, chief economists at the Milken Institute, Hey Bill, do you think that the disinflation trend is over for now?
Hy Alex, Well, we see the disinflation trend mainly in goods and that seems to be continuing until perhaps we see the tabs come in. But the key to the inflation picture is going to be services, as you know, and.
I think most people have not realized.
That they've concentrated so much on services and housing services they forget that services X energy X housing has been running somewhere three and a half to three to three quarter percent for the longest time, and that doesn't show any sign of coming down.
And I think that's one of.
The reasons why perhaps the discontent elected President Trump, because people are saying, I just can't make ends meet, I might cost a living just doesn't show any signs of recovering. And I think the reason there is because launch things like personal services, haircuts, medical services, car insurance, use, car prices. These are things that are still showing a lot of momentum, and there's no sign that those are ebating. And I think that's what the FED worried enough to say, Look, we need to normalize, but we're going to be normalizing at our own pace, and it's going to be determined by what's happening the services, X housing, eccentergy, eccentergy.
So how do you think the FED will interpret today's data as it thinks about it's December eighteenth meeting.
I think they think it's on track.
They really see that downward momentum in the in the overall numbers and especially on the PC the flavor where people's behavior can really adjust to relatively cheaper stuff. But I think what they're going to say, come come January is let's see more momentum going down. We've seen the bulk of that from that surprising sharp rise that we saw in February March down to the lows in July. But since July and even financial markets have reacted that the long term expectations, the five year breaking inflation rates have risen from the low of like one point nine percent up to about two and a quarter. We're realizing that when inflation is not over yet, that this inflation services has yet to start really significantly. And until we start to see that, I think the FED is going to start to slow down its normalization and kind of recalibrate where normal.
Where normal is, So is that a cut in December, pause in January.
January pause can be in the cards.
But the thing that's driving the FED to really lower rates is that they're well above neutral, and neutral is somewhere between what three and a half four percent, So unless you see a four handle on the short term rate, we're nowhere near that neighborhood. Are normal now maybe you can say we don't need to get to normal that quickly, and that's exactly what the FED is going to be debating between now and January.
So, but when you see inflation prints like this and kind of what we know about elevated prices for you know, a lot of folks out there in the supermarket and other places. What's your call on the US consumer these days?
You know, Paul, that's a great question. I strongly believe for the longest time, even when I was back at City, that we live in a bifurcated economy. The consumer spending has been very strong because so many people are dipping into savings. And where's the savings coming from is for the asset owners, the people who own the NVIDIAs and all the tech stocks. Well, that's only twenty percent of the population. So what we see is that forty percent of the bump in consumption, the growth of consumption is accounted for it by about twenty percent of the population. Well over sixty percent of the population is hand to mouth and they depend upon wage income. And that's just not high enough because even though we've had a lot of job creation, it's in payrolls, which means people are getting second and third jobs. We don't see it in household surveys, which have averaged about thirty five thousand per month over the last year. So we're not seeing a lot of people more people being employed. We're seeing a lot of more jobs being created. And that to me sounds like a lot of second and third jobs just to make ends meet. And the jobs are in the low wage paying sectors of hospitality and healthcare and that kind of stuff.
Some breaking news for everybody right now. Hershey's main owner has said to reject Mandalese's offer as too low. Now, this comes after Mondalese made a preliminary approach to acquire Hershey that could create a food a giant of combined sales worth almost fifty billion dollars. The deal would help Mondalze compete with Mars. But nonetheless, it looks like Hershey's main owner is said to reject Mondalese's offer as too low. So we'll see there's a potential counter that comes back. Bill when you look at your models for next year and sort of game out, how do you think about US policy? Right, there's there's one side and one and one positive one negative in that you have immigration, and you have taxes and deregulation. Where do you think sequencing is going to be and how does that affect your growth forecast.
That's a really interesting question because in order for the policies that really matter for growth to take effect, and to me, those are deregulation, a lowering energy prices, and these pro growth agenda that present Trump is talking about that can can take place fairly quickly in the sense that people can be reassured that that the the the the government is going to be very supportive of whatever promotes growth, which means technology uh and and the mega agenda is to create more jobs.
So even with the tariff policies.
Being announced, we know that they're going to be used as a bargaining tool to get foreigners to invest more capital the United States. So we expect to see capital flows coming in, more domestic investment, more domestic job creation. But where you're going to hire people, and you need skilled people in order to fulfil fill these high paying jobs. If you're going to suck in a lot of labor into these high paying sectors, where you're going to find people in the services sectors that are lower paying, you need immigration for that, and I think it's going to be tricky how the Trump administration arranges the immigration laws in the way that allows legal low skilled workers to stay in the United States, And that's really the key to staining growth going forward. Will the low skilled labor be legalized in a way that that doesn't interrupt the flow that goes into construction and and a lot of the entertainment and restaurant businesses that are are absorbing these lower cost labor. So so this a long witted way of saying the first half of the year, I expect.
To see a lot of uh.
Pent up demand for domestic investment and a lot of investment in high tech industries. But later on in the year, unless we see the low wage workers staying in the United States in legal fashion, that's what we're going to see the bottlenecks.
Hey, Bill, people come up to your cocktail parties and say, should I be worried about deficits and the debt of this country?
What do you say? All? You know, that's the mantra of every economist that.
Well, first he says, why am I at this cocktail party?
Yeah?
And then the second question is.
Well, I think I think the bond market vigilantes. I have really not been at work yet, otherwise we'd be seeing that bear Steepener really go crazy and long end start to rise. So, as as Cheff Paul says, we're not at an unsustainables position right now, but surely the path is completely unsustainable and has been unsustainable for the last ten years.
Now.
Because it's been unsustainable for the last ten years, people say, hey, well, I don't need to worry about it right now. And I think until something really hits, like a default in the US Treasury or something that gets people excited about about what's going on in the future and future deficits in future crying out, we're not going to see much reaction in the bob markets.
That's it. I don't think.
I just I don't see the political will on either side.
I thing is, I think I've heard this the whole time I've ever been in this man syet right, and it's like it doesn't matter until it matters at the end of the day. So can the US exceptionalism theme continue?
Then?
You know, I've been saying this in all my eighteen years of the IMF, where people said that Bill, you know, such an American. When you go to Paris, it's like John Wayne walking down to the cham Zays. I am so pro American and that always have it because that's where capital is coming to.
You know.
The famous Lucas paradox means is that says, why is it that advanced economies draw in capital even though they are capital rich. It's because that's where innovation is and the United States is the heart of innovation. So for me going forward, unless the administration somehow screws up and destroys the technological advantages that we have, and that's very unlikely under President Trump, I think we see more of the exceptionalism continuing because we're at the edge of the leading edge of AI, we're at the leading edge of other technologies.
The fear I have is that people are ignoring what's going on in China.
China is determined to be our biggest competitor in these high value outed fields, and unless we really pay attention to what's going on there, we may lose our edge.
All right, Bill, thank you so much for joining us. Billy, he's the chief economist at the Elkin Institute, giving us a few minutes of his time. As we break down this inflation data.
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Alex Steel Paul Swiney live here in our Bloomberg in Actor Broker Studio or streaming live on YouTube as well to check us out there. As johns is reporting, the economic news of the day was one of inflation. CPI headline zero point three percent, bang in line with expectations, a little bit higher than the prior month ex food and energy. You know, it was also up zero point three percent and that was in line with expectations as well. Let's break it down with Lindsay Piegs, chief economists for Steefel. Lindsay, what are your takeaways from this CPI report we saw this morning?
Well, nothing overly alarming. As you mentioned, it did come in write in line with expectations. Excuse me, But at the same time, this does show a further lack of disinflationary progress and this should be pretty alarming for the Fed that had really started to focus on potential labor market weakness as opposed to still focused on getting inflation down to two percent. We've seen inflation not necessarily re accelerate per se, but certainly move sideways for the past several months, and this morning's report is no exception.
Does that mean the disinflation narrative continues or just lack of more inflation?
Well, I think you're kind of it's two sides of the same coin. We are still in a disinflationary environment, but the progress of disinflation has largely stalled at this point, making that conclusion of getting back to two percent still somewhat of a reach for the FED. Now, again, we've made ample progress coming down from earlier peak levels, but this is not the time for the FED to lose focus on that last mile getting us back to a sustainable two percent level.
What do you think is the sticky part of that next one undred and fifty basis points of reduction in inflation?
Well, if you look at this morning's report, the games were widespread across a number of different categories. But when we take a step back and we look over the past couple of months, we see that a lot of that sticky pressure is really on the services side. So we see that in terms of consumers shifting their preference away from stuff, away from electronics and goods towards services and experience. But we also see one of the components that remain sticky is housing. That owner's equivalent rent components still on a year over year basis up near five percent, And because it can holds such a sizeable portion, such a sizable weight in the CPI or even the pc for that matter, it's going to be very difficult for the FED to get that headline back to two percent without further reprieve on the shelter costs or on the housing side of things.
What do you think the picture is going to look like next year with question marks about tariffs in etc. Directionally, where do you think the CPI the PPA numbers move Well?
I think that right now that's part of the motivation of why the FED remains committed to a potential third round reduction in December. The Committee really does want to provide as much relief as possible before we turn the calendar page and face a potentially more aggressive fiscal policy agenda which could bring upside risks to inflation. Now, nothing in the Trump administration is a foregone conclusion in terms of inflationary pressures, but there are upside risks. Large sizable tax cuts could be inflationary if they're not offset with sizeable reductions in other areas of government outlays, tariffs inive themselves, excuse me, not necessarily inflationary. But if we did see the US engage in a back and forth tit for tat retire he military retaliatory cycle with some of our trading partners, that absolutely could be inflationary. So there's a lot of upside risk, not only from international unknowns, with domestic policy initiatives as well.
All Right, Lindsay, thank you so much for joining us. Lindsay Pigs, a chief economist at Steve, will break it down the CPI data.
Today, you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecard Play and Android Auto with a Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
Albertson's is Johns reporting Albertson sus Kroger for breach of contract over scuttle deal what's called?
Isn't that why they made breakup?
Fish don't get it in.
Jennifer Ree joins a senior litigation analyst for Bloomberg Intelligence.
Jennifer, is it rare?
Is it common for two merger partners on a broken deal to suit each other?
So it happens once in a while.
I'll say it's pretty rare, but it has happened. I mean, think about anthemin Signa. I don't know if you remember that deal from back in twenty fifteen. It fell apart also, and there was litigation for a couple of years after the deal was terminated in Delaware, and you know, they both came out with nothing.
Spent a lot of money and both came out with nothing.
Is it true that you think that Kroger didn't do enough here?
Like?
Do they have a leg to stand on Alberson?
I think a breach of contract claim based on, you know, failing to abide by sufficiently defending against the antitrust claims is very difficult because you know, this is really very subjective and to some extent, when companies go to court and they have a remedy, they're sort of rolling the dice.
They're hoping they'll convince the judge, even though they didn't convince the FTC.
And I'm not so sure that you can think of that as a breach in this case, though, having meant a trial, the remedy really was deficient. I mean, it was very difficult to understand how a judge, after the FDC presented their case on how this deal could cause harm in thousands of markets, how a judge could accept the remedy that had been put forward by Kroger, which was really very piecemeal, very complicated and difficult, and didn't really have the best buyer.
So you know, we're gonna have to see what happens here with this.
I mean, so again, I kind of thought that's kind of what a partially what a breakup fee kind of covers there. I mean, if this deal doesn't go through for whatever reason, you guys wanted to buyas youd initiated the deal, if it doesn't go through.
Right, you got to compensate me, right, right, that's exactly right.
The seller is really has a difficult time during that interim period, right, they lose employees.
They can always enter new supply contracts.
So this is really intended to make that seller whole, you know, in this case, I think now Kroger's turned around and said, no, it was it was Albertson's that breached the contract, you know.
And of course they're probably doing that to get a little bit of leverage here.
Maybe the hopes would be that they could settle for something less than that six hundred million breakup fee in order to make all the litigation go away. Maybe that's what's happening here, just a little bit of leverage. But you know, again, we'll have to see what happens. It would be a shame if they continue to litigate this and spend millions of dollars.
Good for the lawyers.
A deal.
Dumb question, is the deal really done?
Oh?
Yes, they killed for sure.
It's done.
So Albertson's is already terminated. They exercised their right under the agreement to terminate, so it is done.
The deal.
Agreement is no longer good. So if they even wanted to do another deal, they'd have to enter a new agreement. And now obviously there's antagonism between the.
Companies, all right.
In your world of antitrust, What is the expectation of change given a new administration? Given you a Republican control House and Senate. Is there any expectation that things will get easier?
I just saw Paul.
Taubman being he was at the Golden Siens conference and he's shaang next year is going to be a huge m and a year and there were hiring bankers in anticipation of that.
He knows what he says. I think he does. I think it will get better.
I think some of the exuberance on Wall Street is maybe a little overdone. Okay, these huge deals between competitors are still going to get challenged, and we have to remember that the two Republican FDCs commissioners who will still be there on the commission both voted yes to sue the Tapestry could pre deal and to sue the temper se Lely Mattress Firm deal. They both said yes we should sue, so they are aligned in some restrects with suing the deals that could cause harm. I do think what we're going to see though, is an upticking deals that can close with settlements.
We didn't have any of that in Biden.
The Biden enforcers did not want to settle deals if the deal was bad.
They wanted to challenge the deal, and that's what they did. I think in this case, once we have.
A majority of the FTC and new people at the DOJ, we're going to see that list of settled deals that then go on to close grow.
What do you make of the potential new FTC people coming in.
Well, I'll just say this.
If Lenacon's mission was to stop consolidation and revitalize antitrust, their mission is going to be to stop with they perceive as censorship of conservative viewpoints by big tech platforms. There has been a lot of talk about that, even suggesting that there could be collusion amongst big tech platforms to censor conservative viewpoints and that the FTC should be going after these companies under the anti trust laws to stop them.
And I think that's going to be a big focus.
So what's the timing there at the FTC and the DOJ. When are the new sheriffs? If you will kind of get in town, the.
FTC could be DOJ will be quick, these people will leave.
The appointees by Biden will leave in January, and that is the expectation also that Lena Kon at the FTC will leave in January as soon as Trump is inaugurated January twenty, then Andrew Ferguson will become the chair. If Lena Khan is still there, she'll then just become a commissioner, but she will probably leave. And then at that point he just has to get his new appointment mark meter through the Senate confirmation process.
It could take a few months. He has a majority in the Senate.
In the House, I don't think it's going to be too difficult, So it'll be a few months, and in the meantime it'll.
Be a two to two FTC.
Probably the DJ will change over more quickly, probably in January.
So if I'm a company and I'm interested in buying another company, do I get on the list now? Do I wait until all the stuff is cleared and then I get on the waiting list to get my deal done? Like what's my strength?
I think if you know that it has some issues.
Let's say, if we see this big chocolate deal that I've been hearing.
About my mom, right, if you know that, uh exactly, Mondali.
Is hershey, And if you know you're probably going to get investigated, you can go ahead and file it now because you have eight months ahead of you and the new people will be the decision maker.
So if you have a deal you think has no issues and could get through in thirty.
Days, maybe you wait right because you have a greater hope of just getting it cleared in thirty days once the new people are in.
Do you have any pending on this mand Leze Hershey deal.
I know it sounds crazy, but I actually think they have a shot at getting that through. I mean, really, the only overlap is in chocolate, and the FTC has tended to look at food markets very very narrowly, not all chocolate, but certain kinds of chocolate, and if they do that, those overlaps become more limited and perhaps there are more competitors.
So I actually think that there's a shot there for that deal, even though.
It's huge, and I do I did get some confirmation via the Internet that Oreo cookies are in fact vegan.
Yeah, I know I would guess that's wrong, but I know that. I mean it just because they're vegan, It doesn't mean that they're good. It's right on her desk, okay, But like, then, what's in it? Okay? So it's sugar? Oh I see, Okay, it's like palm oil and flour.
I got you.
Okay, that makes sense. But it's not like, Yay, that's good for you situation.
Okay, it's not.
I make a really good vegan chocolate cake, by the way, you do really good. Best chocolate cake I've ever had. Okay, super moist.
Now you have to clarify that by saying or just qualify by saying, best vegan cake I ever.
Had, best talc cake period. But if you're also vegan, you can also eat this cake. Just put it out.
I need that recipe.
Oh, I'll send it to you. I'm telling you it's really really good. I hate cake and I love me this cake.
Everything you want to know about the anti trust, we go to Jennifer and Cake. We got to Jennifer Ee, senior litigation analyst for Bloomberg Intelligence, joining us here in our Bloomberg Interactive Broker studio. So tough day for the supermarket business in terms of getting deals done. But we'll see what happens in the chocolate business.
Yeah, we'll see what happens to chocolate business.
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