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-Will Hares, Bloomberg Intelligence Senior Global Energy Analyst, discusses Shell saying it has not been actively considering making an offer for BP, has not made an approach and no talks have taken place with BP with regards to a possible offer, according to a statement.
- Jonathan Palmer, Senior Equity Research Analyst at Bloomberg Intelligence, discusses Walgreens earnings. Walgreens Boots Alliance reported quarterly profit that beat Wall Street's expectations, with adjusted earnings per share of 38 cents and revenue of $39 billion.
-Jake Silverman, Bloomberg Intelligence Semiconductor Analyst, recaps Micron earnings. Micron Technology gave an upbeat forecast for the current quarter, driven by demand for artificial intelligence equipment, particularly high-bandwidth memory.
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Norma Linda Paul Shoeny were live here in our Bloomberg Interactive Brokers studio, streaming live on YouTube as well. I want to follow up on that story that Lisa was just reporting. Do we have a deal in the energy space or not?
Again?
Wall Street Journal was reporting that Shell early stages and talks to acquire British Petroleum BP. Then Schell say no, not so much. So I don't know where we are here. Let's check in with Will Harris. It's his job to know what's going on. He's a senior Global Energy analyst for Bloomberg Intelligence. He's based in London. Hey, well, what do you think's going on there with Shell and BP? If anything?
Yeah, So, I think it's pretty important to point out here. Shell was very quick to refute these reports from the Wall Street Journal. It's pretty consistent with what we think. This would be a very opportunistic and potentially quite risky strategic departure for Shell. They have shown a very strict capital discipline for the last several years, and so this would be a big, big ticket item for them to try and absorb. Any deal would likely near one hundred billion dollars assuming something like a twenty percent premium, and you would almost certainly see major antitrust hurdles, integration risks, synergy challenges over many many years which would follow. So in short, we think it's quite unlikely that the Shell would make a run at the full full takeover of BP. What we do think is probably more likely is they could be interested in select businesses of BP that they could add as sort of bolt on acquisitions.
Have this played out, of course, it would have been a really major deal here. But what is M and A activity look like More broadly in the sector.
So EMINE activity has sort of take a bit of a back seat over the last little while. We've had a pretty bearish commodity outlook, and notwithstanding the last couple of weeks with a surge and geopolitical risk, we're mostly seeing smaller, lower risk near field acquisitions from these companies. They're not taking the kind of big risks that we are that we have seen maybe in the last couple of decades, and that's for many reasons. I mean, these these portfolios are much more global and much more diverse than they have been in the past. And there's this tension at the moment within this peer group of how how much to focus on their core oil and gas hydrocarbon portfolios and how quickly to advance their energy transition ambitions. What percentage of their capeck should they be investing in renewable power hydrogen ev charging networks, knowing that these are much lower return businesses than their core oil and gas projects.
All Right, I'm putting on my m and a banker hat will here because I want to get a deal on the tape here. I want some bankers and lawyers to get paid here. BP's got a market cap of eighty billion dollars. That's a big number. That's a lot of money. But Shells at two hundred billion and Exon Mobiles at four hundred and seventy billion, is BP are they big enough to play on the global energy stage these days?
So it's a good point and the answer is not really. So. BP has suffered terribly on valuation compared to Shell, and particularly compared to their American counterparts Exon and Chevron. This is for many reasons. They've had a flip flopping strategy over the pace of their energy transition progress. Their costs have been far too high, They're spending has been far too high. They for a couple years they were planning to reduce their hydrocarbon production by a significant amount. They've turned that around, so they've sort of been all over the place. Their valuation has suffered, which makes them a potentially interesting acquisition target. We've written for a while now that the sum of their parts is much more than where they're currently valued. Their balance sheet is also quite over leveraged, so this makes them an attractive acquisition target. But as we know, there are very very limited suitors out there Exon, Chevron, Shell, potentially some Middle Eastern NOCs. But as I mentioned, there's those massive challenges for a scale of this sort of acquisition, and as a result, we continue to think that it is probably unlikely.
Not much happening.
When you look at this share performance here for some of these US based companies like Exon as you called out, and Chevron here. But how are these companies scaling right now? What is it looking like right now in terms of how these US based companies are performing in comparison to their competitors.
So Excell and Chevron have a very differentiated strategy compared to the Europeans. There's a very wide strategic divergence across the Atlantic. Exon and Chevron have stayed the course with oil and gas for the most part. They are still investing heavily in oil and gas growth, particularly in the Permian and also down in Guyana with some major projects coming online now and in the near future. And you can compare that to the European strategies which have moved quite quickly into renewable power, off solar, offshore wind, hydrogen, and I think the proof is in the putting as far as how the markets have received these. You can see Exon and Chevron are currently trading at about thirty percent higher on a forward earning spasis than the European group. So the market has certainly told them what they think. The issue with the Europeans that they've been pulled in two different directions. They have their traditional energy investors and they also have a growing cadure of sustainability minded investors that are demanding a quicker reduction in carbon intensity and a quicker pacing of their energy transition investments.
Well, I watched the first season A Landman. I now consider myself an expert on all things oil and gas, but I have to put myself in the shoes of some of these European investors. I mean they're willing to take lower valuations, lower returns for I guess a sociological kind of bent there a little bit. Or they are European investors? Are they saying scrolled, I'm just going to go where i can get the best returns in this space. I'm going to go to Exonmobile and Chevron and things like that. How are the clients that you talked to, how are they thinking about it?
Yeah?
So to be clear, I think that this ideology is somewhat fading into the background or for the time being. And I think it was initially viewed as the enegy transition was unfolding a lot more quickly than in reality, and so it was sort of seen as a heavy carbon profile was seen as a major major risk to these companies. But in reality, oil and gas investors want oil and gas exposure and So the European oil and gas companies have been sort of sitting on the fence as a result, and they've been unable to placate either side, either the energy investors or the sustainability minded ones.
I was looking through some headlines that came through earlier on the Bloomberg terminal. So the US is also targeting EU methane regulations in trade talks. Also the US target's corporate sustainability due diligence directive that's coming from the Wall Street Journal. What's the latest right now in terms of the atmosphere and environment? What are people discussing right now as we think about drilling really here.
So drilling is is taking a sort of very cautious approach at the moment. The investment plans for these companies are relatively flat year over year, and I think this is shadowing really the commodity price environment that we're seeing. So the growth is somewhat subdued. But what we what we are seeing from this group is is a big focus on shareholder return, so buybacks, continued dividend policy growth, and a focus on trading for the for the larger of the group.
All right, So Bill, just to bring in full circle here Shell BP. Do you think something happens and if you do, with the regulators allow it.
So the regulatory issue is massive for this, you know. I think it's important to note that this tie up has been rumored to happen for you know, longer than I've been alive, and it hasn't. And I think one one of the big reasons for that is the anti trust issue. And so this particularly applies for the fuel retail marketing component of these companies, where you could potentially see the majority or even all of the fuel supply of certain countries being dominated by one company. Countries will not like that, So I think this is probably the number one reason why it hasn't happened so far. I continue to think it's the reason why it won't happen. But I would not be surprised Shell to be interested in something like BPS onshore, a US shale business which is called BPX, maybe their Gulf of Mexico portfolio, which is where there would be huge operational overlap and potential cost synergies offshore Brazil in the deep water, and particularly BP's LNG business, which is about half of what Shells is, but combining those, it would be controlling roughly a quarter of the global LNG market, and we know that's a corner stone of Shell's long term strategy. So I think those could be interesting. It's just a matter of the right price and how badly BP wants to fix their balance sheet.
Well, great stuff, as I always appreciate getting a few minutes of your time. Will here, Senior Global Energy Antis, Bloomberg Intelligence. He's over there in Queen Victoria Street, Bloomberg European HQ. It is a spectacular building in the City of London, right next to the Bank of England. It doesn't get any more City of London than the Bloomberg HQ.
Appreciate that.
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Har we got normal, Linda Paul Swen. You live here in our Bloomberg Interactive Brooker's Studio streaming live on YouTube as well, So check us out there on that intraweb thing. Walgreens Boots Alliance report quarterly profit that beat Wallster rereet expectations. But this is the last one is a public company. They're going private. So I want to figure out what's going on out there in the world of the pharmacy business. Jonathan Palmer, Senior Healthcare Ants, So Bloomberg Intelligence joins us here in our Bloomberg in ARCTI broker studio. He doesn't mail it in from points beyond like his management team. He's here in the city John to talk to us about what is happening with Walgreens Boots. Not so much to Ernest say, but what's going on to it? They're going private? Why are they going private?
Yeah, thanks for having me on, Paul. So it's an interesting Wesson in terms of maybe how not to run a business. I mean, Walgreens was formed about a decade ago when it acquired Boots Alliance, the European businesses that it owns, and then as subsequently sold the wholesale business in Europe, and now it's just Walgreens and Boots pretty much. And then they have another little bit of healthcare services that acquired a couple of years ago. But pharmacy has been in a structural decline for the last decade. You know, the right AID tried to sell to then that got squashed from anti trust purposes. Right AD has filed for bankruptcy twice. Now there's a whole lot of pressure in this industry, and that pressure is coming from the payers, the PBMs, the insurance companies. And so it's an interesting time because I think we've probably reached the bottom where there's no more blood to be kind of squeezed from the stone from pharmacies, and we're seeing new reimbursement models come about what they call like cost plus, like Mark Cuban's model cost plus drugs, where the PBMs are actually forcing this on the pharmacies of the payment model. And so it's interesting in that Walgreens is probably selling at the bottom, but it might be you know, a little brighter in the future from here.
So as we're looking at the pharmaceutical space, or its pharmacy space more broadly, here you've got Walgreens, you've got CBS, but you also have you know, right in and all these other companies.
But they lean a lot into the retail space.
So how much of these companies is really retail versus the pharma pharmacy side.
Yeah, so the model has always been that the pharmacy in the back of the store was what drew people in, and they have to walk by all the shaving cream and shampoo and salty snacks, and those were higher margin products. The pharmacy was there to get them in this store. I mean, there's been the Amazon effect over the last fifteen years, right, everything goes online, so people aren't buying things in the same way that they used to for a convenience factor. I don't have to pick up my shampoo right here at CBS because it's going to come from Amazon tomorrow when I click the button. So that piece of it has kind of gotten smaller and less important over time.
So you did mention the idea of Amazon.
You've got Hymns and Hers, You've got all these other brands that are literally bringing stuff to your doorstep. How has this really impacted those brick and mortar companies.
Yeah, it's a great a great question because we've seen a move to online business models. So you mentioned Hymns and Hers. There's row Amazon has their own pharmacy. I mean, they're not really big impactful companies from like a dollar perspective, like their revenues or share of prescriptions is really quite low. But I think what's happening is like we're just commoditizing all this right and making it super easy. I think ultimately in ten twenty years, all of our prescriptions will be online.
Who sets prices for prescriptions? I know I'm going to regret asking this question because the economics of your business are the most complicated I've ever seen in my life.
Well, that's one of the big arguments around why there's so much frustration from consumers and Washington and around drug pricing, because our drug prices are the pointing at Boomberg's, are different for people in Medicare and different from people from Medicaid. There's no one price, Like if you go and buy I don't know, a toy from Walmart, it's the same no matter where you go, and it's usually probably within spinning distance if you go to a competitor. Drug prices are just all over the place. And so one of the reasons the PBMs come under such fires, they're the ones kind of controlling that system of pricing and making it not transparent. And so I think what's happening is we're getting to a place where transparency is being valued and being pushed both in the market but also from washing as well.
So we're looking at this situation right now where Walgreens is being bought by Sycamore, you have Writing that went bankrupt, you have all these companies struggling here. Where do you see this going moving forward? In terms of those other companies out there? Do you see more of these buyout situations?
Yeah, it's a good question when I think about the landscape. I mean, as I mentioned a little while before, you know, I think we're going to see this move to more stuff online. Walgreens is interesting in that they've never really partnered with insurance in the same way like CBS has a PBM, they have insurance. They have this vertical model. United Healthcare has a vertical model. I think those are going to stay. I think we'll see I think we'll still see retail pharmacies because people still need to go around the corner and get something when they get I don't know, a sinus infection or something like that they needed today. But I think the value of those is going to be minimized over time.
I go, after years of being a CBS guy, and I've got like a jillion doses over the years of like a Maxistilan for the four kids at CBS. I'm now main Pharmacy, Spring Lake, New Jersey. No big company.
You switch, Hey, I switch, and.
But even those guys will say you switch to a mom and pop.
Yes, now, but they'll say, we don't have everything. So sometimes some things we just know we're not going to carry because we can't.
We've done the same thing in Westfield, New Jersey.
Yeah, so there you go. So CBS is good for me? All right, Jonathan? Are we gonna have any M and A in the space there's nobody left?
Well, we've had a bunch of IPOs and kind of this like tech golf care bubble. I don't know if bubble is the right term, but we've seen Hinge Health come to the market recently Omada. There's a lot more waiting in the wings.
See all right, Jonathan Palmer, Senior Healthcare ANTLS. Bloomberg Intelligence is one of our best Joining us live here in our Bloomberg Interactive Broker Studio.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple Corplay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
We got normal Melinda, you have Paul Sweeney. You were live here in our Bloomerg Interactive broker studio, streaming live on YouTube as well. We're doing all that kind of stuff. Were out there on your smart TV, you know, like Samsung TV. Maybe it's little Roku when you just search Bloomberg Pursuits and we just popped right up there.
All right.
Micron Technologies reported earnings here today, a semiconductor company. I don't know a lot about this company, so I said, let's get somebody smart in here to talk to us about it. Jake Sullivan Silverman, he's the one. We got semi conductor anolds fro Bloomberg Intelligence. He joined us here in our Bloomerg directed broker studio talk to us about Micron Technology. What did they report and what's to tell you about the semi space.
Yeah, so they were had pretty strong results last night. It was a beaten rays very strong on earnings based on you know, strong gross margins and the big growth was really what drove the strength in the quarter. And pricing was relatively we based on mix but generally in the right upward trajectory, and really, you know, the way to think about memory is it's pretty ubiquitous across electronics. You can think about smartphones, PCs, servers, both traditional and AI. You know, everything that you have that's a in your pocket, on your desk, sitting somewhere in your house, it's going to have memory or storage some combination of the two potentially as well.
So we all know that demand for AI computing is really high right now. We're seeing a lot of those companies capitalizing on it, and Wall Street really keeping a high bar for these companies.
But how is Micron matching up with all the other companies? Where are they in line?
Yeah, so, so generally speaking, you know, it's important to keep in mind that Micron and a lot of the memory peers really trade on a cyclical basis. There are quite a few you know, inventory build ups and then you know, companies do restocking. And in the past there wasn't really as much of an AI story for Microns specifically, but with high bandwidth memory of some of their other products. You can think about high capacity solid state drives and high capacity DRAM modules. That has all been an AI story for the most part, and we've seen a lot of tailwinds in that business. Micron continues to gain share execute very well. It was a pretty important part of their story for this past quarter and heading into the end of this fiscal year.
And I started the beginning, I didn't know a lot about Micron Technologies. No surprise, the stock's up fifty percent year to date.
What's the story there.
Yeah, So, you know, there were definitely a lot of worries once we got into the sort of you know, tariff related potential headwinds in April, and that really was a major drag on the stock price because there was potential for higher prices across all of their product lines and that could really be a hindrance to demand for a lot of consumer related specifically products. But you know, like PC's smartphones, USB drives and so as that kind of you know, headwind kind of faded away, what's happened is Micron has gotten those tailwinds from AI and bitter pricing, and so there's just a couple of different factors that have actually been really helping them out. They've continued to generate solid free cash flow over the next over the last several quarters, and the expectation is for that to continue. That's very important in an industry that's very cyclical.
So it's out the conference called the Analysts, we're really asking the CEO questions about HBM. They're trying to get a sense of how much growth is coming.
Can you explain what that is for our listeners.
Yeah, So, high bandwidth memory HBM it's a very important part of AI servers. It's attached pretty much directly to the GPUs that Nvidia cells that end up in these big server stacks, and so high bandwidth memory has been an area where Micron has been gaining share. Sk Heinex was the incumbent, and Micron has been executed very well on their roadmap. First on eight high as you'll hear in the call right, but also twelve high as well. So eight high is for Blackwell and twelve high is for Blackwell ulture GB three hundred that's coming out, So that procurement cycle has already kicked in and they're going to see a pretty strong demand over the next coming months and quarters for their twelve high stack products. And it's really all AI related demand for HBM.
It's AI.
So that takes us back to the big big picture, And I know you and your technology research colleagues at Bloomberg Intelligence, you do a ton of work on AI. You've got what I think is the definitive report on AI. So folks, if you haven't seen it, go to the Bloomberg BI go and that's the definitive.
Report on Wall Street.
I think on AI, we never talk about eighty eight more because it's tariffs all day, every day. Just give us the latest on the AI story. The investors you talk to, the clients you talk are they still as bullish on AI as they were, say, last year.
Yeah, I think there's a lot of optimism still in AI. For Micron specifically, it's been you know, we've been talking about in Nvidia kind of beating and raising for so many quarters and maybe a little bit of a slowdown last quarter or so. But but Micron, the story was so early. They still like very small percentage of their revenue is AI related. So it's kind of interesting how there's been a little bit of a dichotomy in terms of AI not being the same tailwind for Micron that you'd see for some other companies like in Nvidia. But there's still a lot of optimism in the investor community, and there's quite a few people trying to understand where does Micron really benefit from AI and how much more you know, infrastructure expansion for AI, you know, hyperscale capics, how does that benefit Micron and how much more do we need to see for Micron or really benefit heavily from that?
All right, Jake, thanks so much for joining us. Really appreciate it. Jake Silverman, Semiconductor Anas Bloomberg Intelligence joining us live here in our Bloomberg Interactive Broker studio. We have what I think is the best technology research on Wall Street mandates seeing anarag Rana lead it. But we've got Animal globally covering the global technology space, Asia, Europe, the US, We're everywhere. So that's how you have to cover technology these days, and we make the investment.
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