In this episode of MarketFoolery, host Chris Hill chats with Motley Fool Asset Management's Bill Barker about the latest headlines from Wall Street. Two big chipmakers come together, a social media giant finds its U.S. footing, and a promising new treatment for cancer gets a boost by acquisition. Also, the guys chat about sports, beer, and much more.
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This video was recorded on Sept. 14, 2020.
Chris Hill: It's Monday, Sept. 14th. Welcome to MarketFoolery. I'm Chris Hill, with me today, Mr. Bill Barker. Good to see you.
Bill Barker: Good to be here.
Hill: It's the NFL's opening weekend, and we are going to talk a little bit about what happened this weekend through the lens of business. But it is not just merger Monday, it is M&A Monday. We got deals [laughs] happening out there. And we're going to start with the biggest one, just in terms of raw dollar amount. NVIDIA is buying fellow chipmaker Arm Holdings from SoftBank. This is a cash-and-stock deal worth $40 billion. And I am assuming NVIDIA got a decent price, because shares of NVIDIA are up 7% on this news.
Barker: Yeah, shares of NVIDIA are up, although SoftBank ADR is up as well. SoftBank perhaps needs the money after the recent missteps in some of its investments. Longer story is still a very positive one. But given what may have been occurring with some of their options plays, we don't really know, but it seems to have perhaps affected the market, perhaps SoftBank lost some money on that. But this was a property that they could get their money back on a little bit more than their money. I think they bought it for $31 billion, I want to say, something like that, about four years ago. Probably invested some money into it along the way; I'm sure they did. So, getting $40 billion today is something they seem to need or, at the very least, want. But the market is treating their ADR here in the U.S. positively.
Hill: I agree with absolutely everything you said, with the exception of your use of the word "perhaps," as in perhaps SoftBank needed the money. No, they needed the money. For anyone who followed the whole WeWork debacle -- and I think that's its official name, the WeWork debacle. When I saw this story this morning, I sort of did a double-take, I'm like wow! that's like -- and then as soon as I saw, oh! SoftBank owns Arm Holdings. I was, like, oh, OK, yup! Now, I understand [laughs] why this deal is happening at this price. And, yeah, I mean, this seems like something where, you know, all joking aside, there is optimism that there's not going to be any regulatory issues for NVIDIA and that this is a good deal at a good price.
Barker: Well, there's optimism about that, I don't know whether that optimism will be fulfilled, because there are, I think, some, at least on the Arm Holdings side, are urging some caution about this. I think one of the former founders, or one of the founders that's no longer, I think, affiliated with the company, doesn't like the look of this, thinks that it'll cost jobs in the U.K., which is possible; he would know far better than I would. But it's a deal, and we focused on the SoftBank side before; now to the NVIDIA side, it's a win-win if SoftBank needs the money, they win on that. NVIDIA combining their chip excellence with the Arm Holdings design, which they have, they've got, sort of, a place in every mobile device there is, more or less, and that's something that NVIDIA is likely to be able to do a lot with. And I think it's a stock which has been on fire this year, has doubled, I think, from its January prices, and longer term is an even better story than that. So, I think this is a marriage which seems to make a lot of sense for NVIDIA shareholders.
Hill: Shares of Oracle (NYSE: ORCL) are up more than 5% on the news that Oracle has won the TikTok sweepstakes. They are not buying TikTok, instead Oracle will become TikTok's technology partner in the U.S. Oracle gets a stake in the business and it's going to provide TikTok with cloud infrastructure. I understand why the stock is moving up, because the more I think about this partnership, the more it makes sense to me than if Oracle simply bought TikTok outright. And I think that's something that I think I, and a lot of other people, have had a little bit of a challenge wrapping our head around with the whole, well, TikTok needs to sell its U.S. operations to someone. And then you see the names coming forward, whether it was Oracle or this partnership between Walmart and Microsoft. It's not to knock the people at those businesses, they got smart people at all of those businesses, but it's still, sort of, like, OK, how is this going to work if you buy TikTok, what is it going to do to the product? Like, all of those obvious questions. As opposed to, hey, this is a partnership, we're going to take a stake, we're going to give you our cloud infrastructure. This one makes a lot more sense to me.
Barker: Well, having said that, at least, let's acknowledge that there are just different questions, like, what is this partnership exactly? That is not spelled out in any great detail here. It may be a win-win-win; a win for TikTok/China, that didn't want to look like they were going to accept being forced into a sale. It appears to be a win for Oracle, which needs something to juice its growth. It's surrounded by a lot of entities in the tech space that are growing far faster than Oracle's, sort of, low-single-digit revenue growth, and really declining revenues in several last few quarters. And also, is going to be, if approved, is going to be cited by the administration as a win for fulfilling their desires, whatever exactly they were.
Hill: So, we're still going to need some more information out of this, aren't we?
Barker: Yes, we got a lot of questions. What does this technology partnership mean if it is not an ownership stake? Having TikTok use your cloud; OK, that's a thing. They're very fast growing, they're going to need more and more services from Oracle. But I do think that there are additional questions about, does this satisfy the actual stated or, you know, whatever the actual desires of the administration are? And, of course, people are raising a lot of questions about whether Oracle has been able to get more approval or conditionary approval at this point, based on the relationship between the CEO and the president.
Hill: And how much money is involved? I mean, to the point you made earlier, we don't know how big a stake this is, we don't know how much Oracle is paying. And if it were an outright acquisition of the U.S. operations, presumably we would get that number, and then we'd probably have a better sense of how to judge this deal. So, I think, broadly, directionally, this makes more sense than an outright acquisition of the operations. That being said, yeah, there is [laughs] -- you know, we could come out in a couple of days and find out an amount of money that collectively, we all go, oh, wow! Oracle paid that much? That really seems like an overreach.
Barker: Or their being paid some amount. We just don't, we don't know, [laughs] we don't know what this partnership amounts to. I think it, at least, buys TikTok some time and a claim of goodwill efforts to meet the conditions that have been imposed upon it. And whether this goes through, you know, I think there are a couple more chapters before this one wraps up.
Hill: Well, let's get to a deal with more concrete details. Gilead Sciences is buying Immunomedics for $21 billion. Immunomedics makes treatments for cancer, and the stock has doubled. [laughs] So, if you're an Immunomedics shareholder, congratulations, you're having a great day, because the stock is up 100%. But, and this is something you and I chatted about a little bit this morning, Gilead Sciences shelling out $21 billion, that stock is still up 3%. So, for anyone who thinks that may be Gilead overpaid, at the moment, the market disagrees with that.
Barker: Yeah. If you want to engage with somebody who's been saying everything is too pricey, the stock market is too high, you now have one additional data point to point to and say, you know, Gilead disagrees. It found something which it thought was a bargain at twice the price or a fair buy at twice the price. And Immunomedics has got essentially one drug, but it's very promising, it's been approved, it's sort of been fast-tracked. I won't go through the science, because I don't understand it, but I saw in one article today that the therapy, which at this point primarily targets a particular kind of breast cancer and has been approved for treatment there. And the trials are still going on, it was, sort of, fast-tracked from phase 2, completed phase 2 and into a phase 3. That the results were so good and so important that it was, you know, it's treating such an aggressive form of cancer that it could be fast-tracked and approved before the phase 3 trial is completely finished.
And the hope is that it is an application which can be applied to additional types of cancer. And it is referred to, at least in this one article that I read, as a type of "smart bomb" for cancer. So, that rather than the kinds of treatment which are largely used, and even though chemotherapy is a better and more targeted treatment today than it was 20 years ago, this is a significantly more specific treatment for cancer. And it has some side effects, the survival rates are much better with this treatment. And so, if you can apply that across additional forms of cancer and that all holds, then, you know, Gilead has got the scale to make that happen faster than Immunomedics could have on its own.
Hill: The NFL season kicked off this weekend. Viewership was down a bit compared to the opening weekend last year. Only Kansas City and Jacksonville allowed a limited number of fans inside their stadiums; the rest were empty. And that may be why Anheuser-Busch InBev is cutting its property sponsorships by 25%. This is the paid branding that you see inside stadiums and arenas; you know, the Budweiser FanZone and that sort of thing. And we've talked about this for a while, certainly with Coca-Cola and Pepsi [PepsiCo], now is the time, if you are a large producer of beverages, to seriously put your marketing budget under the microscope, particularly [laughs] if you are a beverage company that depends on live events.
Barker: Yeah. You're going to be able to get back in and buy again later at a better price, I think. And one of the problems that Anheuser-Busch has is, with the decline of beer sales, and particularly the leading names, Budweiser Bud Light, and needing to be in other parts of the market, including craft beers, and including hard seltzers, and including even wine now for Anheuser-Busch, you know, really their budget being targeted around Bud and just a very few names, they have to be in other places where the Bud name doesn't get them any business. So, their advertising budget needs, I think, an overhaul.
They're an outstanding company in terms of thinking about advertising. I can remember being at an Anheuser-Busch presentation many years ago, I've mentioned that before, where the CEO got up and rather than talking about, this is how much we're going to grow, this is our strategy, he basically started by showing a bunch of Super Bowl commercials. That was essentially, here's our business, we make great Super Bowl commercials, invest. And by the way, that was working back then. You know, you don't have the same loyalty, they used to have a hell of a lot of loyalty to beer brands, but there are new people coming into the market, younger kids, they're not being raised on beer for their college drinking a lot of the time, and if they are, it's not on Bud.
Hill: By the same token that they should all be looking at their marketing budgets, they should also be looking at the hard seltzer market. Just based on what I've read, based on watching the next generation of my extended family. Yeah, hard seltzer acquisitions should absolutely be in the works for all of these large producers.
Barker: Yeah. And so, given that, you know, we were chatting earlier today about an article covering this, that you sent me, which has some quotes by --
Hill: Shout-out to Sports Business Journal. Always a good source of news.
Barker: The Anheuser-Busch InBev vice president of partnerships, beer culture, and community. And what a cool job, you know, to be vice president of beer culture, I would just condense the whole thing, you know, when you're at parties and you're meeting people, you say, I'm the vice president of beer culture. But you know, his job may not be as critical in the near future as the vice president of hard seltzer culture; if there is such a culture. You seem to know more about it than I do.
Hill: I don't, although I'm just sort of chuckling because I think we've all, whether we know someone with this title or we've just read a business article where it's like, oh! VP of partnerships. Yep, seen that plenty of times; VP of community, yup, seen that plenty of times as well. Beer culture! Now, I just want to know, like, wait a minute, did you come up with that name, was that a job that was posted and you applied for it or are you the one, like, this is what my title is going to be. And I don't have a strong opinion either way, I just want to know.
Barker: Yeah. Well, I think that's where the title comes in handy. But, of course, we jest, [laughs] but of course, for Anheuser-Busch it makes lot of sense to have somebody who's focused on beer culture, expanding it when possible, and reacting to what is, I think, a declining beer culture across society; at least as we both have mentioned, what the kids are drinking these days, illegally, you know, pre-21, but they're still drinking. And it's not beer as much as it was back in my day. I say "my," even though I'm not really any older than you, but you never got sucked into the beer culture, you're not a beer drinker.
Hill: Not a beer drinker, never developed a taste for it. I was saying, right before you joined the Zoom call, that my experience watching football this weekend, I felt a bit of disconnection watching games that are in empty stadiums. And the only thing I can liken it to is times when I've watched sports that are happening in other countries, there's just some undefinable disconnect that I feel in that case because of the distance, but in this case it was just a little weird watching games with no fans in the stands. It's not to say I won't try to get used to it, because it was nice to watch football again, but that was my experience. Did you get a chance -- you were probably watching that epic U.S. Open Championship.
Barker: I assume that is why viewership was down 11% year over year, was because of the men's final of the U.S. Open. Went five sets. First time it went to a tiebreaker in the fifth set of the final of the men's. So, yeah, I mean, America is still talking, still trying to recover from the massive adrenaline expense, you know, that everybody went through, so.
Hill: Well, and not just a fifth set tiebreaker, am I correct, that history was made that it's the first time in the men's final that someone has been down two sets to zero, and came back to win?
Barker: It may be --
Hill: In the Open era.
Barker: In the Open era, OK, that's possible. And, I mean, that had happened, well, in the semi as well. But yeah, it's a rare event and kind of exciting. I mean, the tiebreaker was not the best tennis that either of these guys played during the match, but --
Hill: Is it possible they were tired?
Barker: [laughs] Yes. After four-and-a-half hours, yeah, very possible. So, I didn't see that much football. And one of the reasons for that was that my Eagles were playing some football team from Washington, and that's their name, right?
Hill: Yes, the Washington Football Team.
Barker: "Some Football Team from Washington?"
Hill: Yes. [laughs]
Barker: And, yeah, the Eagles frittered away an early lead, and I don't know, glad I'm not listening to Philly sports talk radio today because there's a lot of hostility going around there, I'm sure.
Hill: That sounds like fun. Let's wrap this up, and then [...]...
Barker: Turn on WIP.
Hill: Bill Barker, thanks for being here.
Barker: Thanks for having me.
Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.
That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd, I'm Chris Hill, thanks for listening, we'll see you tomorrow.
