Wendy’s Jumps on Report Trian Offers to Buy for $1.4 Billion

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0:24 Of course, we're keeping an eye on corporate news. And Wendy's, as John told us earlier, soaring today in trading this morning, up 14%. Nelson Peltz's try-in fund management offered to buy out the hamburger chain for about $ 1. 4 billion. Michael Halen, our senior restaurant and food service analyst, joins us now.

0:41 And Michael, is Nelson Peltz right in his argument that this multi-year turnaround bid will be better completed as a private company under Tryon Wealth Fund Management's ownership?

0:57 Yeah, I think so.

0:58 You know, we wrote back, you know, it's been rumored a couple of times that Nelson Peltz was trying to get a group together to make a bid for Wendy's in May. And then most recently in August, you know, in August, we wrote that we thought the odds were, were, uh, higher that a deal could get done because, uh, what the board put in, in place a great management team, CEO, Bob Wright, um, and CFO Steve Cerullos did a phenomenal job turning around pop belly, which, uh, eventually, uh, led to an acquisition, uh, of that sandwich chain. Um, uh, Bob and Steve now are freed up to make decisions on a long-term basis, which sometimes is really hard to do being a public company when you have guys like me analyzing your results quarterly. So Tryon was patient. The

1:53 stock has sold off significantly. The entire sector has sold off significantly since August. And Tryon's patience seemed to have paid off here.

2:01 I mean, Tryon has been.

2:03 Looking into taking over Wendy's several times, because it's been a longtime shareholder of Wendy's, do we have a sense of what the playbook is going to be? I mean, I would imagine that Nelson Peltz and Tryon has kind of laid it out a couple of times here, and it's just going to follow through on what it's proposed.

2:21 I think this is more a vote of support for the management team that's in place and not anything new that Nelson Peltz and Tryon and this investment group is going to come up with. They have the CEO and CFO in place. They have the track record. You know, what they're looking to do is improve the operations first.

2:41 Right.

2:42 Then improve the quality of the product, improve the everyday value, improve the marketing, which it's been sad to see. But the marketing, you know, this is a brand that's historically had a phenomenal marketing team and has done some amazing, iconic work.

3:00 Ads like, where's the beef? I knew you were going there.

3:03 Yeah, and it's really fallen off. It's been kind of sad to see. So, no, I don't think Nelson Peltier is going to be in the office daily in Bob Wright's year.

3:16 Mike, I've got to jump in.

3:17 This is really about confidence for them. I was in line for like 15 minutes for a fast food restaurant the other day. I don't care what the management is. At the end of the day, it depends on the pimply-faced kid who's flipping the burger, like whether he's like, you know, on the ball or not.

3:33 And that's if they're flipping the burger versus heating up in the microwave, which is often what's happening here.

3:37 Really?

3:38 Yeah.

3:38 I did not know that.

3:40 Mike, we— Well, I would disagree.

3:43 You know, I would completely disagree because you're going to attract better employees, better GMs, which is the, you know— Biggest correlation between having a successful restaurant or not is having an experienced, strong GM. If you have people at the top where your frontline employees trust, who they trust and their franchisees trust, right? It's going to make for happier franchisees who more easily attract good employees that run a better business. And then from there, once you get the operations nailed, then you start to improve the food, you improve the marketing so that when you bring more people back into the brand, they have a good experience.

4:28 He's arguing for the trickle down effect.

4:30 No, I want a special phone line where you can call up, in this case, I guess, Nelson Peltz, and he actually picks up and you can register your complaint.

4:39 You want something like Burger King, right? Because Bloomberg has a.

4:42 Story out, Michael Halen, about how the Burger King president is calling some 40 customers a week in order to get its comeback bid, make it more successful, this turnaround plan. Burger King is definitely having a moment, isn't it?

5:00 Yeah, and listen, this has been a few years in the making. Tom Curtis, who you mentioned, the head of Burger King US, has done a really good job, him and his team, of picking up where McDonald's is struggling, picking up some customers from McDonald's. Because earlier this year, McDonald's CEO took a pretty wimpy bite of a Big Mac, and Tom Curtis and team really immediately.

5:28 Capitalized on that.

5:30 Um, you know, but for years they've been, um, you know, the, the core, the corporate entity restaurant brands has invested hundreds of millions of dollars into the assets, right? So renovating the stores. into improving the quality of the product, improving the marketing, right? Some of these things that Wendy's is looking to do right now. But Wendy, you know, Burger King has been doing this for years, and now it's culminating in very strong, high single-digit same-store sales this year, right?

5:58 Like I said, being bolstered by McDonald's slip-ups.

6:02 Stay with us. More from Bloomberg Intelligence coming up after this.

6:10 You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

6:23 Let's turn our attention to some company-specific news here.

6:27 GE Vernova. This is a company. It's an electric power company.

6:31 They design, manufacture, and deliver electric power systems and services worldwide. that generate power and all that kind of good stuff. It's a global company. They announced some earnings today, number one. Number two, they announced that they agreed to pay $ 9 billion to an acquired trench group to bolster its portfolio of high-voltage power grid equipment.

6:51 There you go.

6:51 That sounds right up John Tucker's alley when talking about the grid here. Mustafa Okur joins us here, Senior Industrials Analyst.

6:59 For Bloomberg Intelligence.

7:00 Mustafa, first talk to us about what did we hear from GE, Vinova with their earnings first.

7:06 Sure.

7:07 Thank you for having me. So the earnings were actually pretty robust, Paul. And both sales and the margins came above expectations. We attribute that really to really higher priced gas turbines being shipped out. Those were booked about two years ago. And now that they've been built and being shipped out, of course, that brings some operating leverage and productivity gains as well. And really, that was the big surprise in 3Q because 3Q usually for that business is a seasonally weak quarter.

7:34 Okay.

7:35 Okay.

7:36 I'm curious, as with any company these days, how much of GE Verno's growth is tied to data centers, to the AI power build-out?

7:45 Sure.

7:46 So the direct exposure in the gas business is about 20%, so that leaves 80% to more traditional customers in that side of the business. But we have to remember that the big chunk of the power increase or the demand increase for power in the States, it does go back to the build-out of data centers. You have some semiconductor fabs and other factories being built, but really the bulk of the demand is from data centers. But the direct exposure is about 20% in the gas business. And then on the electrification side, this is the grid business where they put the trench group in, a little over 10% of the year-to-date bookings appear to be directly tied to hyperscaler demand.

8:25 Mustafa, talk to us about this acquisition they announced. What is the Trench Group and why is GE Vrnova paying $ 9 billion to acquire it?

8:36 Sure.

8:36 So Trench Group, a couple of years ago, was actually owned by the big rival of GE, Siemens Energy. And they make components like bushings and coils that go into a substation or high voltage transmission lines. transformers, these are basically key equipment that enable the grid, enable stability and the transmission of power in the grid. The company is paying nine billion dollars for trench, buying it from a private equity. They're basically adding about 10% to their electrification business and to be honest with you it doesn't move the needle that much initially but we really like the deal because of its strategic impact. As I said, some of the components here are really in short supply. So they're adding both scale and also vertical integration to the company,

9:28 securing these critical components.

9:31 Do you like the price, the valuation that GE Vernova is paying for this business?

9:37 On the surface, it looks a little bit expensive. Management has cited the 2028 EBITDA-based multiples 13 times. If you sort of bring it back to the end of this year instead, pro forma, it's more like 19 to 20 times. For an industrial deal, that looks high, but the asset is very high quality. Trenches growing at mid to high teens.

9:59 EBITDA margins are at 35, 36% as opposed to the current electrification segment EBITDA margin of 20%. So it will be immediately accretive. And as I said, it does unlock a lot of things on the strategic side, securing the supplies. It helps with winning contracts as well.

10:17 What is management saying about synergies here? Is this something that can drive returns here?

10:24 On the cost synergies, they appear to be quite small, so $ 50 to $ 100 million by the end of 2030. We really think the upside here will be revenue synergies, which management typically doesn't quantify. But there was an interesting anecdote from the call. Management said, we have customers who are specifying specifically trench bushings and the transformers we sell, as an example. It sounds like this is a premium asset with sort of very reliable components, and the margins are definitely there to back up that claim.

11:00 Stay with us. More from Bloomberg Intelligence coming up after this.

11:07 You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

11:21 People are still spending, whether you're on the higher end of the K, of this K-shaped economy, or on the lower end.

11:27 And we see that with Visa's numbers.

11:30 Earnings exceeded estimates as consumers both domestically and internationally turn to these branded cards to make their transactions.

11:37 Diksha Ghera joins us now.

11:39 Diksha is our global fintech and payments analyst, and she joins us now from Palo Alto. Diksha, what can you tell us about what we learned from Visa's latest earnings?

11:50 So I think Visa's modest EPS beat and 13% top-line growth for this quarter, which is, by the way, the last fiscal quarter for the year, it supports their 2027 guidance as well. And exactly what you pointed out, like both U.S. discretionary and non-discretionary spending remains strong. Part of it is driven by higher fuel costs, but retail was strong.

12:14 Visa Direct growth was very solid. The FIFA-related spend helped. Credit was up 11%. Debit is growing 9%. So yeah, I mean, the general consumer spends were pretty much on track. But the one thing that really stood out for me was the value-added services and new flows growths. Value-added services revenue was up 31% in the fourth quarter, and Visa direct transaction volume was up 23%. That just tells me that this is no longer just a tool collection business on the card swipes, but Visa is really building up new levers for earnings.

12:49 So talk to us about branded cards for Visa. How does that work in their business? What's their strategy there?

12:57 Yeah, so Visa is actually trying to put an overlay of a card network over all, any and every type of transaction. So, I mean, of course, you mentioned the branded business, but I think the new lever around there is the whole agentic, AI agentic commerce. And I think... CEO Ryan McInerney specifically addressed that topic during the call, and they framed it as not like a distant speculative trend, but actually it's the next moat for Visa, and we agree with that view. So basically, Visa's creating rules and protocols around how agentic transactions will happen. And that could become a significant mode. So they will identify if the AI pinging a merchant is a bot or is it an authorized agent? Is it your agent or is it

13:41 some rogue agent? And what is it permission to do? Like how much money can it spend? And if there's a conflict, how does that happen? So that's an area where Visa has been focusing a fair bit. And on the same front, like we think B2B would be the area where we'll see faster growth in agentic commerce. Consumer shopping obviously generates a lot of headlines. But in case of B2B spending, where commercial flows is something that Visa has targeted for a while now, that's a more controlled environment.

14:09 That's a more controlled context. So that's where we see that evolving much faster.

14:16 Diksha, do the midterm elections pose any kind of threat to Visa, to MasterCard, to any companies tied up in the credit card industry?

14:26 Yeah, see, Scarlett, we've seen some bit of impact from the Europe de minimis. So there is a political angle, like our political impact there. But I think the broader question will again boil down to how long and how resilient does consumer spending remain? And that was also a theme that we were particularly interested in, like, what is the level of confidence that we have that these pending patterns will remain in the fiscal 2027 for Visa or in the calendar 2027 coming for here? That's something that time will tell.

15:01 Diksha, what's the key thing here, Visa versus Amex? How do investors kind of differentiate between those two?

15:09 So Amex is more of a credit play, given the fact that they underwrite their own credit. Visa traditionally has always been a play on toll collection, on volumes, on scale, given that they're an open network and all the banks and issuers kind of can use that network. So that's how we would position Visa differently versus Annex. There is no credit risk in this. And also, I think Visa, as I mentioned, they've built a very strong competitive moat on agentic commerce. So that's like a wild card that could actually position Visa in a very strong position if agentic commerce scales, given all the big AI companies are kind of pushing out and Muse showed that commerce was the biggest use case that Meta's customers were using it for.

16:02 Stay with us. More from Bloomberg Intelligence coming up after this.

16:09 You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

16:24 This is Bloomberg Intelligence with Paul Sweeney, Scarlett Fu and John Tucker.

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16:29 We are reporting from the Bloomberg Interactive Broker Studio in Midtown Manhattan. We got the Anthropic S1 filing that sets us up for the IPO later on this month. It was long awaited and people have had a field day going through. the filing, looking at all the potential risks. I want to bring in Gautam Mukunda. He is a lecturer at the Yale School of Management. He is also a contributor to Bloomberg Opinion for his thoughts on what he saw. Because, Gautam, there's one thing in that S-1 filing where Anthropic is warning investors that it's advocacy, outspoken advocacy for AI safety could make it a target of government retaliation. And this really shows just the degree of government-related risk to its business, its future business as well.

17:14 How do you think through something like this, given that this is such a big, big player now in the AI economy?

17:21 Yeah, it's really striking.

17:22 And I'll say, and it's not just that it's a target for government retaliation. It's that big chunks of the industry, which are far more leaning forward and far less more willing to accept AI risk and judging by the S1 and are not actually competing with Anthropic all that well on even terms, it also generates hostility from the industry towards Anthropic from those people as well. So they get sort of doubled up as a target. I think it's very real, and their behavior only makes sense if you think back to the founding history of Anthropic, which is people who left OpenAI because they just thought that this was not being managed responsibly, and the risks were so high that they had to found their own company to

18:04 do it. You know, you can disagree with their approach and their strategy and whether this race to the top thing is working for them. I have some mixed feelings about that. But the sincerity of that is real. And I think that they really are sort of coming out and saying, like, we don't have a choice. We have to say this, even though we're accepting those risks. And if you're not comfortable with that, you should invest with someone else.

18:23 Staying on the AI theme, Gautam, in a recent note, you say companies need to put effort into protecting innovation from AI.

18:30 What do you mean by that?

18:32 Yeah, so I think this is one of these, the more I see the way people are thinking about using these tools in their business processes, and it's quite fascinating, right? One of the things that you're seeing a lot of is this idea that we can take humans who are quirky and variant and expensive and replace them with AI systems that can do the same things, but do them less expensively, and even more importantly, do them uniformly, right?

18:56 Like just do them the same, the right way over and over and over again. I think back to a previous sort of business wave of transformation, Six Sigma, and one of the things management, which had sort of made the same promise, right? And one of the things management researchers discovered about companies that adopted these sorts of approaches was that they got more productive and more efficient, but in many ways they got less innovative. And they got less innovative because what these processes do is they squeeze variants out of the system. If you are manufacturing widgets, that's a really good thing because it means that you stop discarding badly manufactured widgets. But there are lots of other places where variance is what lets you innovate, right?

19:36 It lets you sort of wander around and try new things, sometimes even by accident. And so the less variance you have, the less innovative you get. And this was sort of the counterintuitive but actually often worse, you know, where the disease became– the cure became worse. than the disease, where the lack of innovation cost more than the Six Sigma approach saved.

19:55 What does it mean for a company that's very much in the build-out of AI infrastructure, like a Microsoft, for instance? We keep talking about the news, how Microsoft is offering buyouts or reportedly will offer buyouts to about 60,000 workers. That's a quarter of its total staff. And of course, this is as part of its efforts to trim costs and retool its workforce for the AI era. We're talking about a much leaner and meaner, potentially, Microsoft down the road.

20:22 What does that mean for its ability to provide solutions to enterprises if it's going to put all its eggs in the AI basket and reduce the number of people who can come up with those innovative solutions, think creatively, think outside the box, all of that.

20:36 Yeah, so think about that as it's a two-sided problem, right? So on the terms of like, oh, they're doing the build-out, what this is a caution for is kind of like their customers, right? Not that you shouldn't use these tools, but that you need to think really carefully about how you use these tools and you protect the innovation part of your business from that.

20:53 But for Microsoft that's.

20:54 Doing what you're describing, the internal sort of re-engineering, I'm going to be really curious to see how this works out because previous companies that have tried this experiment, they have generally walked back from the cliff, right, or found that it was not useful. We had that wave of stories that came out of Facebook where they did something similar and they were planning this huge, you know, huge cutbacks of the company, things like that. And they just found that it wasn't working. And they had to back off, you know, they started the cutbacks and then backed off.

21:21 There's no doubt in my mind that people enabled with these tools are going to be able to do things that you couldn't do without them and vastly more productivity. That is true in my own personal workflow every day. But at scale, I'm quite confident we don't know how to do that yet. And when I look at what Microsoft is doing, I'm like, either you have figured it out and not told the rest of us, or you are making an extraordinarily high leverage bet that you will figure it out on the fly and you won't regret losing these people who, after all, have built this astonishingly profitable business for you.

21:54 And Gotham, the next person that comes in this studio and tells me AI is not going to take jobs away, I'm just going to punch him in the nose because, I mean, if Microsoft, Microsoft, you would think that they have their business buttoned down more than anybody. If they're saying 25% of their workforce may not be needed, that is just, we've never seen that.

22:14 No, we aren't. And so, like I said, Paul, it's just a really complicated question, right? I mean, we keep seeing these announcement of layoffs. It's obvious, like, even if I talk to my friends who are computer engineers, they'll say it's a lot harder to get jobs. But if we look at the macro numbers, unemployment for software engineers is just, you know, it's not high, right? Like, these people are mostly still have employment. So, right now, I think what you're seeing is a lot of fear and seeing a lot of potential and a lot of transferal.

22:40 But The argument that AI is not going to take jobs, sure, over a 20-year time horizon, I'm comfortable with that. I'm not sure that's right, but it sounds totally plausible to me. But there's a lot of transition that happens in that 20-year time horizon, and that can really suck for you.

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