Will Paramount & Skydance Merge? + A Visit with Sam Bankman Fried in Prison — ft. William Cohan

And I just love the fan base there. I think it's fantastic. I'm actually really excited. I'm going to Dortmund for the Euros. So I'm excited about that.

But yeah, I'm excited. I really wanted Dortmund to win. And they came close. They had a couple fantastic shots on goal, but it wasn't to be.

Let's do it.

Around half of the proceeds will be reinvested in Pershing Square USA at its IPO. Scott, your thoughts.

This time it was up 70%, now it's down, now it's up, I think, about 30%. It just feels like the sequels are getting more and more tired, if you will.

And so if you total all that up as of Monday morning, and assuming he exercises those options, his stake is worth $700 million. You know, last time we discussed this, after he had posted on Twitter and then GameStop ripped, I posed a hypothetical to you where I said, imagine if he had bought all of these call options before he posted on Twitter and started this rally, and then he sold them. Your view was, you know, that's okay, it's within his rights, it's free speech. That situation no longer looks hypothetical. I mean, he did buy call options, and if GameStop rises further, he could become a billionaire and he could dump the whole thing.

So I'm just wondering if your view has changed now that we know that the hypothetical is actually true.

We should get a securities lawyer on. But if he just says, I like this, I think it's undervalued, I think I can move it by virtue of the fact I've chosen to gone into it. You see stocks pop. every time an activist says, I'm here, or indicate or have a filing indicating they've taken a position, the stock pops. The fact that this stock popped more doesn't mean he's guilty of anything.

Now, if he makes several hundred million dollars, if this thing, you know, this thing is very volatile right now. And if he starts to sell that position, I'd be curious what percentage of total outstanding shares that position represents, he might have the same volatility on the way down. So yeah, on paper, he has gains, but no one's gonna probably loan him money against those gains. This is an incredibly volatile stock. I was looking at the options this morning.

The stock was trading at 30 bucks. You could sell call options with a strike price of 35, expiring on Friday for five bucks. Meaning that if it doesn't go up another 33% by Friday, you make money. And I'm not suggesting anyone write options, it's very risky. But this is, what's interesting is, per Josh Brown's comments, it looks like every time this happens, the pop gets smaller and smaller and smaller.

It'll be really interesting to see what happens when he finally liquidates, to see if, you know, if he made money. Because he's gonna have to rush out of the same crowded door that took the stock up. Yep.

And what's happening is there's income inequality amongst the most fortunate. So SaaS companies trade at a multiple of six times revenues, which is huge. Consumer companies trade at 0.2. to, you know, Ford probably trades at 0.1 or 0.2 times revenues. SaaS software companies trade at six times.

And even that is nothing compared to AI, which are trading at anywhere, you know, between kind of 10 and 20 times revenues to 150 times revenues for some of these private companies. What I think is happening is the kind of investors who are in Salesforce and Dell are saying, we're just piling into Nvidia. Because if Nvidia's stock is up, I think it added seven or three quarters of a trillion dollars just in May. That's not, that's gotta be a lot of money coming in and so much money coming in. It's not new money into the market.

That money is coming out of other shares. And I would imagine the kind of people that are going into Nvidia right now are probably the kind of people that might've been invested in Dell or Salesforce who are disappointed and wanna ride this momentum.

What's interesting, as you point out, is that number wasn't good enough for Wall Street. As you say, I think this is the same thing we saw last week with Salesforce. And that is investors, they're not looking for good growth or even great growth. They're looking for crazy, astronomical growth. And I think they look at this report and they see, okay, doubling in revenue.

But then they look over at Nvidia's earnings from the same quarter and they see a 450% increase in the data center revenue. And then suddenly, triple digit growth just feels a little underwhelming.

The guy who owns Nvidia. Oh, really? Jensen, Jensen, come back. My good friend. My good friend, yeah.

And I saw some of the numbers and the top two or three executives got, you know, just this ridiculous pay day when the company went public, and they're getting an even bigger pay day taking it private. I feel like a lot of this is just these guys figuring out ways to come up with cloud cover for an extraordinary one-time kind of ketamine hit. Like, wow, this is great. I can, under the cover of this, up my ownership, or what have you. But, generally speaking, these funds or these publicly traded investment vehicles don't do well.

What are your thoughts?

And, you know, he might be just capitalizing on his brand equity. And I don't know if this,

but this is true of everyone that's registered a little bit of success. So it's not a criticism of Bill. You generally hear from the people who just think you're fucking awesome, unless you're on social media. And I would imagine that a lot of people have said to him, including the bankers, who wanna take this public, your public profile is so positive that it'll trade up. People want an opportunity to invest alongside Bill Ackman.

I wouldn't do this if I were him. The guy's already a billionaire. Why would he wanna subject himself to the kind of full body cavity search that you have to subject yourself to on earnings calls with the SEC? And if the stock gets cut in half, it's one thing to call PIF or Ottawa Teachers Fund that you've made a bunch of money for, and funds five, six, and seven, and say, aid sucks. It's another thing when you start losing, you know, orphans and widows money and CNBC starts reporting on it.

So I don't understand why, personally, he would do this.

And I have gotten, I have received emails. I've gotten to dinner parties here. And right after you said that, I saw Boris Johnson interviewed on the BBC or something talking, and someone said, someone said, you know, Brexit has been a failure. And he's like, oh, rubbish. And then everyone laughed.

And first off, he didn't offer any data. It's clearly been a fucking disaster. And the fact that he can't even admit that at this point shows that he has absolutely no integrity. And also, he looked like such a hot mess. He looked so ridiculously out of shape and his hair was ridiculous and he was so blotchy.

And I'm being very looksist right now, but for God's sakes, you represent London and the United Kingdom. Get your shit together. And it was obvious that he is fully embraced. He's gone full accidental success. Like it's clearly catered.

You've touched a nerve, Ed. You've touched a nerve. This is what I call your first viral moment.

Nobody actually talks about politics in Westminster. It's terrible. They talk about-.

So, you know, it's like, you know, if you're bringing up some tax issue in the tea room, it's kind of bad manners, right? Do you know what I mean? And he is a flashing red example of what's wrong with politicians in the UK. And, I mean, he was a massive failure and he just nails precisely what was wrong with Liz Truss's administration and what is wrong with him as a politician. We'll be right back with our conversation with William Cohen.

Stay with us.

And it keeps on getting better. This week, we have the one and only former Speaker of the House, Nancy Pelosi. After the drama of the last two weeks and President Biden's decision to step out of the race, a lot of people think the speaker has some explaining to do. And I definitely went there with her, although she's a tough nut, as you'll find. The full episode is out now and you can listen wherever you get your podcasts.

If you've been listening to the podcast, you know the story. The deal is valued at $8 billion, but the terms of the deal are a little confusing to me. I mean, there's this injection of cash into the balance sheet. They're buying out the non-voting shares, but not all of them. It's all a little messy, and I don't fully understand it.

So could you just give a breakdown of what has happened here with Paramount, and what does this deal actually look like? Sure.

The Redstone family will leave the picture. Shari may roll over some of her stock, but that this combination of David Ellison, perhaps his father, Larry, Redbird Capital, KKR, will first buy Shari Redstone's holding company, National Amusements, which controls 77% of the voting stock of Paramount Global, as well as around 10% of the economics. They'll probably pay her something around $2 billion for that stake, which is controversy number one, because on an economic basis, her stock is probably, even after stock traded up today, probably worth around $900 million, and so she'd be getting $2 billion for that, which other shareholders won't get, that kind of premium. Then the next step is that Paramount Global buys David Ellison's Hollywood production company, Skydance, for stock. Then the next thing that happens is that the money.

guys, Redbird Capital, KKR, and probably Larry Ellison, inject something like $3 to $4 billion into the company, some of which will be used to pay down Paramount Global's $12.

2 billion of net debt, and the rest will be used to, as you alluded, to, buying up stock in the public market at $15 a share, but there's only a finite amount of that cash, so if everybody tenders and wants to get out of this thing, which I gather a lot of people do, then it'll be pro-rata, and who knows what they'll ultimately get, depending on how many people tender their shares into this offering. And that money, by the way, that's coming from Redbird and KKR and Larry Ellison, will probably go in as some sort of convertible preferred. And then the final step is, of course, they wipe out the whole management team and bring in a whole new slate of people to run this thing.

I'm told that that's what she is seeking, but I'm also hearing that if she insists on that, that'll be a deal breaker for Ellis and Redbird, and so we may be back to square zero sooner than we think here.

I mean, it strikes me. I immediately started thinking we should go raise money, buy a bunch of common, and just raise hell, and say, okay, we're comfortable with a 20% premium, but we want 700 of that 1.1 billion to go to the common. I mean, this, it strikes me this is a pretty good suit. if the common bring a suit against the board and Sherry, or just try and block the deal on the notion that, okay, let me get this. That 1.1 billion should be distributed equally to the shareholders.

Maybe we'll give you a small premium here. I think the, I thought this was gonna go through, and now, after speaking to you for two to three minutes, I'm wondering if this thing gets queered at the finish line.

So if that even gets demanded by Sherry as a part of this deal, that could, you know, I think at that point, Ellison and Redbird walk. So, who knows? It's a very dicey leverage dynamic right now between these two sides. after all this time. I think it's, like, you know, fascinating, riveting from an M&A point of view, but I'm also told that, you know, by these, you know, M&A lawyers, that if it goes, you know, into Delaware court situation, that Sherry's gonna win, because, you know, people just knew going in, it's like, you know, your friends, Scott, the Sulzbergers, or the Murdochs, or, you know, Google, or any of these other situations, or Meta, where there's, you know, dual-class stock, you knew that going in.

And so most of the time it doesn't matter, but when it comes to important things like selling the company, or change of control, and votes, and things like that, you know, it's Sherry's way. I mean, she's fired her CEO in the middle of this. a month ago, four board members left. I mean, she's just, I mean, she can just do whatever she wants, and has been doing whatever she wants for years now. And this is just another example of her doing whatever she wants.

We'll see what she does. But, you know, you don't really have much leverage as a non-Redstone shareholder in this situation.

You have an excess of capital. You have the son of one of the wealthiest men in the world, who's a smart guy, who's shown some success around movie production. It all adds up to an irrational deal that loses money to me. And when I look at every single media company, whether it's John Stankey or the guys at Verizon or David Zaslav saying, I wanna play Hollywood, and coming up with rational reasons why, oh, this thing can be consolidated or I have a new vision for it, they find chief capital, they go in, and nothing has worked. Nobody wants to acknowledge that.

they're pilots for Pan Am in the 70s. And while they might be banging stewardesses and people are really impressed by them, this thing is going away. The golden age is over. Why am I wrong here? What is the vision that's gonna make this?

turn chicken shit into chicken salad here?

They'll tell you. But let me put it this way, is it that it's gotten so cheap that they might be able to make money here? Has the thing traded down to the point where, maybe with a private equity-like mindset, where they cut costs faster than the decline? Because I have gone into distressed assets and made money, but we have acknowledged we're no longer teenagers. We just need to make Nana and Pop-Pop comfortable for as long as possible and cut costs faster than revenue declines.

I don't get the sense. that's the mentality here.

I think they're just trying to lay low and win this thing, get control of it, and then Jeff Schell is gonna go to town, and it's gonna be a rough ride under whichever ownership. And even if Sherry does nothing and tells these other two suitors to go away, which she still could do, it's gonna be a rough ride for CBS and those cable channels, because with declining cash flows and declining revenues, as profitable as they are, that just spells cost-cutting left and right. But, as I've written before, I think David Zaslav at Warner Brothers Discovery could be a beneficiary here. He's always wanted CBS. I could see, no matter who buys this, that CBS could get sold to a David Zaslav, combined with CNN.

Whether that's good or not, I don't know, but he also would like Paramount Plus and all those subscribers. I think we're in a period where there's gonna be a lot of dramatic change as a derivative fallout from this transaction, if it ever occurs.

We're back with Profit Markets. You spoke last month with Sam Bagman-Fried, the disgraced crypto founder of FTX. You spoke with him in person or in prison, I should say. Could you tell us a little bit about what you learned from your conversation with him?

He's in a dormitory-style setting with 35 other guys who either, most of whom are in the Witness Protection Program, and others, are like high-profile, white-collar criminals like Sam.

As I said, they would. It was a kind of momentary, it was like a period of time where the confluence of events, it was a run on the bank, you know, liquidity crunch. I was trying to solve the liquidity crunch. You know, you guys took the, Solomon Cromwell, took the company from me, gave it to John Ray, filed it for bankruptcy and then I get arrested. and, you know, I'm the bad guy here.

And now, you know, things have turned out well. You know, you've talked about Anthropic a lot, Scott. You know, his investment in Anthropic has worked out and it looks like, you know, the creditors are in fact going to do relatively well. Now, it's of course based on their claims as of the filing day, which was November, whatever it was, 2022. But, you know, I don't think that matters.

I mean, that's just a nice consequence. I mean, you know.

and we're dating ourselves out, so you can take a break here. but why is John Corzine not in prison? I mean, wasn't what happened at MF Global exactly? So, if I understand this correctly, it's not that people are getting or not getting their money back. It's just that when people put their money into a deposit account, thinking it's being invested in one thing and you borrow it to use it in riskier investments and you don't disclose that, that's fraud.

And then when you try and cover it up and you purposely don't have a board and you purposely incorporate it in the Bahamas and then you go on an apology tour or I'm not guilty tour that just further and further sends you into a rabbit hole and then everyone around you turns state's evidence on you, you just become the absolute defense attorney's nightmare. And it feels to me like Corzine did exactly the same thing. The former governor of New Jersey, people invested in deposit accounts and then somehow it ended up in investor accounts. There was a run on the bank. I forget if it costs the government money, but he had smart lawyers and didn't go to prison.

Do I have this wrong?

Especially Dick Fuld, who, after he saw what happened at Bear Stearns, had six months to do something about it and didn't do anything about it. And, you know, or Silicon Valley Bank or Republic Bank, you know, borrowing short and lending long is a very dangerous business. It always has been. People forget how dangerous it is. And, but when it happens, we usually just say, or sometimes we say, oh, you know, mistakes were made and nobody's held accountable for it.

I mean, Preet Bharara didn't hold anybody accountable for what happened on Wall Street in 2008.

. And along comes Sam, and again, I don't want to sound like a Sam apologist, but, you know, we did talk about this. Along comes Sam, you know, in 2022, you know, the richest person in the world under 30 on the cover of Forbes and Fortune, and everybody wanted a piece of Sam. And then they, you know, build him up and then they tear him down and he gets prosecuted. All of his direct reports get deals to turn on him.

It just seemed like he was too delicious a defendant, again, not, unlike Trump, too delicious a defendant not to go after. And, you know, Sam was sort of left hanging out there by himself.

But that wasn't illegal. They were just caught in a classic bank run. that says a lot about your access to phones and no one lost any money covered by the FDIC. One is plain, you know, vanilla fraud. The other is poor investment, poor risk management, right?

I mean, there is a distinction between the two, correct? I don't think anyone at SVB should go to jail, in my view.

You have to have your head examined to invest in the bond market. at that point in the cycle. You've got to believe, if you have any sense on your shoulder, and how many millions was that guy getting paid, to not realize that you are skating on extremely thin ice and that the quantitative easing was gonna end, the zero interest rate policy was gonna end. And if that were the case, you cannot have possibly invested in the bond market, because those bonds are gonna get trashed. And when that happens, you're gonna need to, you know, everybody's gonna find out about it.

You're gonna need to raise capital. You're gonna need to sell some of that portfolio, which is what they did through Goldman Sachs. They got whatever, 70 cents on the dollar. Then they couldn't raise more equity. And then, you know, les jeux sont faits.

The game was over.

He should have all his money clawed back. But I don't think he thought knowingly. He was taking deposits he wasn't supposed to and using them for things he wasn't allowed to do. Did he invest at the absolute top of the cycle? Idiotic, stupid, never working in, yeah.

But it's not illegal to be stupid. I do think there's a sharp distinction.

What I'd love to get from you, Bill, I'd love to get a little bit of a, I don't know, I'll call it a preview. But you're writing a book on Apollo, right?

Their foray's into consumer banking. I don't think that's as true. If anyone was kind of the golden child right now, I would say it's probably Apollo. But I'm curious, give us your state of play, of who you think has come up in power and who's lost currency in this market.

And, you know, they're dominating the private credit market, which is a huge new market. You know, their assets under management are growing by leaps and bounds. And, you know, he's made it a much more kind of user-friendly place, Marquez, than when it was sort of that hard-edged, sharp-elbowed, you know, pure private equity firm that it was for, you know, like the 20 years of its existence.

I mean, given where Citigroup was in the end of the 90s and where it is today, but, you know, I think all of Wall Street.

B. Morgan Chase before he came, and I knew what a mess it was. It was a total mess. after the Chase-J.B. Morgan merger and all these other things, they tried to do, and Jamie came along and really picked that place up by his bootstraps and made it the number one bank in the country, obviously, and he's, you know, King Jamie, so he's really come up in the world, but Wall Street generally, since the Dodd-Frank law, has been put in a box, intentionally so, by the Fed.

They can't take nearly, you know, they're in the moving business. They gotta, and they're not in the storage business. They gotta move that stuff off their balance sheet. They gotta syndicate it. They gotta sell it off.

They can't hold it. The Fed regulates all of Wall Street now. That never used to be the case, and basically, they said, we don't want Wall Street to be the cause of the next financial crisis. We know there's gonna be another financial crisis. We just don't know when it's gonna be, but we don't want Wall Street to be the cause of it, so therefore, Wall Street is just not quite as interesting as it used to be when you and I were there.

Scott, it's just not, it's kind of a little boring. You know, you can still make a lot of money, especially since you're not putting up capital, but it's places like Apollo and Blackstone, and, you know, various hedge funds that are much more interesting, and that's why, you know, they're kind of getting the best and the brightest now, all of whom used to be like, you know, Scott Galloway and go to Morgan Stanley or Bill Cohen and go to Lazard.

Just get in that flow and things will happen. That's what happened to me. I went from covering Wake County public schools to financing leveraged buyouts, only in America, right?

On the one hand, you often say boring is sexy, steer clear of the sexy stuff, get into the boring stuff. On the other hand, you also say run into the fire and some of your best investments have been in distressed assets. How do you think about balancing your own advice when it comes to an investment like Paramount?

I still hold to that strategy that your return on your invested capital, both your financial and your human capital, is inversely correlated to how sexy the business is.

♪ You held me in kind reunion ♪.

♪ And the dark eyes in love, love, love ♪.