Fed Shake-Up, Tech Earnings Divergence & Tesla’s Strategic Pivot

Hello and welcome back to the Market Maker podcast, and we are going to do a couple things in this show. We are going to go through some of the major M&A deal flow of last week. We're also then going to look at some of the big mega-cap tech earnings that we had last week. So the likes of Microsoft, Meta, Tesla's pivot in strategy, and Apple's earnings. And then we're going to do a bit of a deal deep dive with some good business strategy outcomes from that as well. But before we dive in, perhaps, our last episode, which actually we recorded probably 12 hours ago. So not long ago is actually redundant. And the reason why is because we did a whole episode talking about what the betting markets were backing was this BlackRock CIO called Rick Rieder, who was hotly tipped to take the Fed chair position from Jerome Powell. And in typical fashion, Donald Trump has come out and named Kevin Walsh, as the next Fed chair. And Piers, maybe you can tell us, how have markets taken that news? We're recording this on the Friday.

Wow. Not particularly well. That's gone down pretty badly, like with the kind of risk asset, like, so I guess, and the risk assets is the wrong word. The markets that have been on a tear to the upside. So like we talked about gold and silver, they have been absolutely crunched. Silver's down Hang on, 16% on the day, on the day, that is so far. Still, even so, still 36% up on the year, mind, even with that massive chop today. But look, gold's down 7%, platinum's down 13%. So those more kind of, I guess, precious metal category, but the dollar's, you know, the dollar's strengthened a little bit. And yeah, I mean, when you look at, we'll talk about obviously some particular stocks in a second in terms of earnings season and stuff, but the S&P, I mean, all right, it's down, but it's not, it's down half a percent, you know, the futures. So it's like, well, okay, not too bothered it would seem in the stock market at least.

And just a very quick summary of why this has happened in terms of those moves you described. So Walsh is a former Fed governor. We were talking before about this Ryder or Reader chap, he would've been a complete outsider to the normal kind of selection or the candidates that we'd see. So he is a crisis-era policymaker. In fact, he has been around the block a few times, but he is a long-term critic of the Fed's post-financial crisis era playbook. He's kind of insinuated that the central bank's gone too far with its balance sheet expansion, So the kind of stimulative measures taken to support the economy and the blurring of the lines between monetary and fiscal policy, all of that then basically meaning that he's probably going to put discipline and credibility first. Seems like a, actually an obvious choice in some ways for Trump. He appeases the market. This is someone who doesn't like what the Fed have done. So probably going to do a little bit different, but someone that will be actually friendly to markets. So despite this negative reaction, what it's actually pricing in is fewer aggressive rate cuts, tighter control of liquidity, and more focus on longer-term inflation risk. And so yeah, maybe we saw rate cuts get pushed out and they've just been pushed out probably again a little bit more. And those metal prices, as you said, they had been overextended. So a little more aggressive pullback, not so unsurprising, I would guess. So absolutely. Yeah. Less dovish than markets were prepped or primed for, hence the market reaction. So with that being said, I'm going to quickly run through my list of the kind of tour of headlines in M&A deals from last week. Shout out as always to Sarp, our amazing researcher, for putting a lot of the notes and the heavy lifting together. So 5 stories to be aware of very quickly. So Clorox is acquiring Purell maker Gojo Industries for $2.25 billion to expand its footprint in health, hygiene, and professional B2B categories. CVC Capital Partners, you know, one of the big alternative asset managers, investment managers, is acquiring US-based Marathon Asset Management. That's for an initial $1.2 billion. Strategically, that acquisition provides CVC with a scaled entry into fast-growing US credit market, especially across asset-backed and real estate lending. The next one is an investment firm Stone Peak and the French shipping giant CMA CGM. They formed a new entity called United Ports, which is a US-based joint venture valued at $10 billion that encompasses 10 major terminals across the US, Brazil, Spain, and Asia. Strategically, very interesting, the tie-up aligns with US national security goals to strengthen domestic shipping infrastructure, and importantly, reducing reliance on Chinese-controlled logistics. So good segue from our previous conversation we had, if you listened to the last episode. Talking of China, Alibaba's logistics arm, Cainiao. Sorry, I'll say that again. Cainiao is merging its autonomous driving unit into Zelos Technology to create a unified Robovan business valued at approximately $2 billion. Strategically, that allows Alibaba then to streamline its operations and focus on its core thing, which is, as we, most people know, e-commerce.

Yeah.

And obviously AI as well. And then the final one here is Carlyle. They've reached a provisional agreement to acquire the international assets of the sanctioned Russian energy giant Lukoil. A sprawling portfolio valued in filings at approximately $22 billion. Not sure how they've managed to get that over the line. They have somehow. Strategically, this transformational acquisition would grant Carlyle control over essentially a global empire of refineries, gas stations, oil fields, and reinforcing its commitment to traditional energy at a time when many other private equity peers are diversifying away from the sector. So they've managed to squeak that in before the midterms, perhaps. But let's talk about the big tech earnings. There were a number of them last week and quite a mixed bag, namely the difference between the outcome for the share price for Microsoft and Meta. So maybe we can start with Microsoft, who on the surface delivered a record second quarter fiscal performance in revenues hitting $81.3 billion and net income $38.5 billion. But their shares, I mean, I saw at one point down nearly 10%. So what happened there?

I mean, what have you got to do to keep share, you know, keep traders happy here? Because yeah, the numbers like on the surface are again, just kind of just stonking staggering. Whatever word you want to use. But yeah, down, they ended up down 7% on the day. I mean, they're down again today, or so, well, they've recovered, sorry, a touch today, but still right down towards the bottom end of this general overall selloff. And actually just from a share price point of view, that puts us back to levels not seen since April last year now. So, you know, people just assume, you know, the big tech stocks are the ones that are propping up and driving up the S&P index, for example. But this one ain't. I mean, Microsoft's all-time high was actually set back in October. So, you know, it's a whole 3 months now where this stock's been under pressure, and this earnings report has just taken another little tilt to continue that downside. So, you know, what is going on? And actually, I think To answer that question, in some ways we need to bring in Meta as well because, and we'll talk in detail about them in a second, but if you took both earnings reports on face value, they're pretty similar as in really strong, right? Nice solid growth. But one went up massively and one stock went down massively. So Microsoft's the one that went down and Meta's the one that went up. And it's quite a, it's an interesting one. You know, you've got to really dive deep and split hairs to figure out, well, hang on, what's the difference between these two performances? And basically you've got a 20% divergence in stock price. One went up 10%, one went down, and it's like, well, hang on, are those differences, do they really justify a 20% divergence in performance? And it's kind of no, but I think maybe the kind of bottom line here is that investors are rather than allocating more capital to the AI race, I think now it's like, well, okay, we're going to rotate our assets, you know, depending on our tilt at any moment in time. It just looks like here investors have gone, well, we'll talk about Copilot in a second where they've gone, well, I don't like Microsoft so much. So which other hyperscaler am I going to move my money to? Okay, I'm going to move it to Meta this time. So it's almost like there's a, rotation of assets from one to the other, which kind of explains the big divergence because the numbers don't really justify a 20% divergence like this. But still, coming back to Microsoft, look, I mean, all right, AI and the AI race is king. Now behind that is their Azure cloud platform, which has always been their, you know, or well, more recently in the last decade, let's say, has been a really core growth driver for the business. That grew at 39%, which is awesome, right? 39% growth year on year is absolutely amazing for a business that's chucking out that amount of revenue. However, analysts had forecast 40%. So it's like, oh, okay, it's 1% off. But that's the problem when your valuations are this high, when your share price has rallied so strongly. It's priced for perfection. So if you're just a whisker off perfection, well, yeah, all right, you get, you get some downside.

So technically speaking, your job title is the CFO of AmplifyMe. And one of the things that I enjoyed talking of Azure is that the CFO of Microsoft, Amy Hood, she was talking about to investors because the way that these earnings drop, they then have a conference call, they talk to the analysts and so forth, try to kind of calm the storm, particularly when you have a big aftermarket shock like Microsoft had. And she was talking about the limited availability of AI hardware is currently capping Azure's revenue potential. Is that smoke and mirrors to try and explain away? Is that just the standard operating procedures for a CFO there.

Absolutely. I mean, you know, decent answer, I would say, but you know, very much like from the playbook of a CFO, just explaining underperformance in a way that's saying, look, it's not our fault. You know, but look, will that pent-up demand that fine, there's not infrastructure in place for now, will that demand stay solid in the future? You know, will that will that money come through in the future? Like she's suggesting there's an unknown, but I think one of the points investors didn't like, and I think it's for the first time, they disclosed that approximately 45% of its remaining cloud commitments are driven by OpenAI alone, which I think is an extraordinary number. Yeah.

When I saw that, I was like, wow, that is a huge red flag.

I mean, yeah.

Talk about concentration risk. And Steven and I were talking about this in an episode about a month ago, I think at the beginning of the year. And it was how like we were talking of the big listings that are going to happen probably in 2026 and OpenAI is one.

Yeah.

And about just how that first mover advantage has been eroded and now there's, it feels like significantly lagging after the Google shift that we saw at the back end of last year. So I did see that beyond OpenAI, Microsoft is diversing its AI infrastructure and they've got a $5 billion investment in Anthropic now, who is that other more enterprise-orientated frontier kind of lab, if you like. So it just seems like, yeah, that, that, that's a trade that Microsoft went all in, right? Which paid. Worked out really well this time 12 months ago, slightly got a little overweighted.

It would feel like they got too far into bed with one player and, you know, OpenAI haven't had a great 6 months and like, and actually, 'cause Copilot, so Microsoft, it's not just about investing in OpenAI, right? Copilot, Microsoft's one of their AI tool, their key AI tool Copilot. Is basically, you know, that uses the OpenAI kind of system, right? And so ultimately the Copilot performance hasn't really wowed many people and people are turning towards more things like Claude. And so, yeah, I mean, when you've had Google's Gemini really start to maybe even an inch ahead in this race because they're so exposed to OpenAI in multiple ways, including that cloud. I mean, just crazy, you know, 45% of their cloud commitment is just that one player. So yeah, look, they've kind of, yeah. And, and they're, so their, their, their $5 billion play on, on Anthropic really just tells you the story there. And I think it's time that they do diversify away from OpenAI. They're going to continue obviously their commitments there, but yeah, diversifying away is definitely a sensible play.

So let's talk about Meta then, because as you said, not too dissimilar, but a completely different investor reaction to their results. And before we begin, for anyone watching the video, Piers hasn't just sort of drifted off into the heavens in the sun. You look like you're getting baked in hot sun there for a moment. You're watching this on the video.

Sunshine in London.

He's back again. There is such a thing as sunshine in January in London. It just happens to be right now when we're recording. But let's talk about Meta. So Meta posted record again. I mean, these are just phenomenal numbers. They're just record after record with these big tech names. So revenues were just short of $60 billion, up 24% year-on-year increase, significantly outperforming on their earnings per share. They jumped fell well in excess of 10% after these numbers came out. However, capital expenditure numbers were insane, like huge. And I thought that that was the type of Zuckerberg talk that investors got freaked out about only about 6 months ago. So what exactly has changed that you can see that perhaps has moved things?

Well, so It's really interesting. And can we just like, can we just take a step back? 24% growth to hit $60 billion in one single quarter's, you know, period. People, we just take this for granted because these lot, these big guns, they just knock out these numbers every time. It's just absolutely staggering that a company this gargantuan can repeatedly, and it's the same for the other hyperscale, it can just repeatedly grow at not only double digits, but kind of mid-20%. So it's just absolutely extraordinary. But anyway, yeah, I think the story, you've got to go back a bit to understand their 10% rally here because last year and back end of last year, particularly Meta were the underperformers. And that's because the narrative was, well, hang on, Meta are spending big. They're always spending over and above what analysts had expected. They're trying to stay in this race with Google and Microsoft and Amazon, and yet they don't quite have the kind of free cash flow that those other big giants have. And so the thought was that it's costing, it's hurting Meta more to stay in the race than the others. Okay. So it was really all about, well, can they convert this spend into revenue? And clearly the kind of unbelievable numbers we've had here are indicating that, ah, wow, actually they are able to convert this into straight up dollars into the bank account quicker than perhaps analysts were worried about last year. I think that's kind of basically the bottom line here. And look, there's been stuff around their kind of LaLaMA hasn't really been perhaps, or it's been falling behind in the race as that language model. And so Zuckerberg's big time gone and spent on talent, you know, hiring some crazy expensive people and putting them, you know, into strategic places in their kind of AI quest. But ultimately, you know, the surprising thing was yet again, Zuckerberg said, right, we're going to step up spending. Again in this year ahead, like big time above analysts' expectations. That used to be the signal, okay, cue the big sell-off, but here it's actually cue the big rally because the revenue number was so strong and it's like, okay, maybe they can afford to be in this race. So I think that's really the bottom line here.

Yeah. And just the other notes that I saw was about two new AI models that that team apparently is working on, codenamed Avocado. And mango.

That's just amazing. Someone in marketing needs to get fired here. Avocado and mango. I mean, no, it's not for me.

You need your Post-it note on your camera again, by the way. Tesla. Okay. So Tesla reported fourth quarter revenues of $24.9 billion. That was a 3% decline from their previous record a year earlier. What it did mean then, it marked the company's first annual revenue drop on record. Yeah. Net income for the quarter fell 61% to $840 million as operating expenses soared nearly 40%. Because of heavy investments in AI and research projects. So I mean, these numbers, you, I mean, you talk about the size of those numbers, the percentage swings in these numbers.

Yeah.

Equally is insane.

Yeah. I mean, we know the story here. Obviously Musk has been suffering. His personal brand took a whacking because of his alignment with Trump and then the fallout with Trump. But like in Europe particularly, You know, sales are down big time. I forget the number, but I think it's, you know, it's double-digit percentage, like large double-digit percentage decline in orders in Europe where he's particularly suffered, you know, from a, so it's kind of the Musk personal brand damage is one, but then it's BYD, you know, they are officially no longer the biggest producer of EVs on the planet, like in 2025, officially for the first time. BYD became the biggest player on the planet in terms of vehicles delivered. And so, you know, that it's a difficult game, especially when Trump's come in and it's kind of changed the story a little bit on the green agenda and Trump's canceling some of the subsidies that the Biden administration put in for buying EVs. And so there's political headwinds, there's personal brand headwinds, there's Big competition coming outta China, headwinds, right? So all these things together. Yeah, it's not been great. So in true Musk style, he's kind of gone, right, enough. 'Cause actually the numbers in this earnings report, that's the small print, that's the sideshow. This earnings report was officially Trump going, we are going to no longer be a car company. He's been talking that game for a few years, but now it's actually going to happen 'cause he is ending The Model S and the Model X is the, it's stopped. They're gonna stop producing it. And those, the line, the two kind of production, or more than two, I imagine the lines, the production lines in the, you know, big manufacturing plant they have in California, for example, are gonna get repurposed to build robots, baby. So Optimus is now, so Optimus is in generation 3. And this is apparently, this is finally the version of that robot that's geared for mass production. So this is it. He's now gonna spend $20 billion this year in converting his production facilities to gear them up for A, building Optimus Prime, but then B, also building their CyberCaps. So look, this is a very, this is a seminal moment. In that business's history, I would say. I mean, it sounds dramatic, but I think it is that big. And I think, you know, so, all right, how do you respond to that? Like as an investor, and look, the share price was actually up a little bit off the earnings. It's kind of been choppy and actually it's going to finish down on the week. And actually it's kind of hitting lows we haven't seen since kind of November. So it's been a bit muted and mixed. It's kind of still up around, you know, it's above 400. So these are toppy levels for Tesla, but mixed response. But I think it's really execution risk now because look, on paper it makes a lot of sense, this pivot, especially with the BYDs of this world. I mean, how do you compete with them being heavily subsidized by the Chinese government as a public company? How do you compete with that? So I think it makes sense. It's time. Now it's just, do you believe him? What, you know, in terms of timescales, repeatedly in the past, he's aggressively said, right, we are going to be building X robots by Y date. And of course he's never got anywhere near it. So are they going to execute in a timely manner is really now the judgment you've got to make if you want to start Trading investor, sorry, trading Tesla, buying or selling.

You and I know that from being at a management level running a business, I really admire his ability at this level of stakes that are on the table in terms of, what was it? The revenue coming from the car line division. I mean, it's still huge. I mean, by any stretch of the imagination. But particularly that BYD point you made about the government backing, and that is not going to change. I mean, it's within the incentive of the Chinese government as almost like a soft power play to roll that out as expansively across the globe and as fast as possible. So they're only going to further support that mission, whereas the changeable political landscape of the US makes it unfavorable for for Musk and he's just gone, yeah, you know, we're just going to pivot. I mean, execution risk, sure. Short term to measure then the success or not of the execution risk, I guess one is time and the one is, well, how much money is being spent over that time? So what sort of numbers are we talking here in terms of CapEx? Because I know that's a big focal point for the other big tech firms. What does that look like now for Tesla?

Well, I mean, yeah. So they spent $8.5 billion on CapEx last year. It's now going to $20 billion. So, you know, we're not, this is a 2.5x increase in your CapEx in, in one, from one year to the next, which is monstrous. By the way, that's nowhere near the amount of money that the superscaler tech firms are throwing at the AI race. You know, we're talking about, I mean, wasn't it $80 billion, I think? Meta spent last year. So look, it's not in that game, but for a company with much lower margins at this point, at least because they're an automotive. But the point is, well, let's invest heavily now so that we're not an automotive in the future and margins can ramp. One interesting stat they came out with for the first time, and again, all about this narrative, we're not a car company, we're not a car company, we're a tech company. We're a kind he calls himself a physical AI company. Kind of if you think about Optimus needing AI intelligence, their robo cabs needing that AI driverless vehicle stuff, right? So he calls himself physical AI. But one of the stats they brought out was actually subscriptions for Full Self-Driving. So this is people who own Teslas can subscribe to software updates. And so you can buy and subscribe to the Full Self-Driving package. That went up 38%. So that's almost like if you think about Microsoft or Amazon. So Microsoft have got that Azure cloud thing, Amazon have got AWS, and over the last few years, that's been the real growth engine and the exciting part of the business. I think for Tesla, this subscription thing is actually beginning to become interesting. They've got over a million users now. So Something to watch out for in future earnings reports, I would say. But yeah, look, it's definitely sort of execution risk. I mean, with his taxis, I mean, the thing is they've only just now started a pilot ride-hailing service in Austin. If you go and have a look at Waymo, the Google-owned competitor, they've got I don't know, like, I can't even remember now. It was like hundreds of thousands of bookings a month that they're doing, and they've had that for more than 12 months. So Tesla are a bit behind here, but look, this is a founder-led business. He acts as a dictator when he wants to make a major pivot. Sod shareholders. That's not in his— I mean, he's the biggest shareholder, by the way, but it's like, I will make decisions for the long-term benefit of this business. If it causes problems in the short term, hey, well, so be it.

And does that increase or decrease then execution risk?

Well, I think you've got, unless you get on board with that idea, you know, you buy Tesla, if you're a Tesla shareholder, this is not a short-term hold. This is, if you hold it for 5 years, and finally executes in 5 years' time, then if he does what he reckons he can do, you'll be laughing. However, as we know with Musk, it's difficult. The intervening years might be a little bit lumpy because you never know what he's going to do. And yeah, I, he says he's going to roll out this year. He's not going to do it this year. It'll take longer than he always says. We know that. But so it's interesting. And in the meantime, another little small print in their earnings was that Tesla are going to be buying a $2 billion stake in Musk's xAI. So if we want to bring this story full circle back to the kind of, you know, talking about Microsoft and Copilot and OpenAI earlier, obviously Musk has got his own AI company in the race, xAI. And it's interesting, maybe my final point on this is you think about every, all the players in this race. You got the hyperscalers who can afford to be in the race 'cause they've got disgusting cash flows. All right. Microsoft, Google, for example. Okay. Then you got the Metas who are trying to punch up at that top weight, but it's just costing them a little bit extra, but looks like their insane revenue growth means they can afford it. Then you got Oracle who are trying to play this game and their company's nowhere near as good. And they are really starting to suffer and their share price is now lagging big time and they're falling behind. Then you've got the others in the game like OpenAI. How are they trying to stay in the game? Well, they're doing these circular deals with basically every player on the table, you know, Nvidia investing $10 billion, Microsoft obviously. And they're, so they're trying to do these circular deals to stay you know, with a positive working capital and keep functioning this business. They're looking to IPO this year as the next kind of trick or rabbit they're gonna pull outta the hat to keep the cash rolling. And then you've got xAI. And interestingly here, this is where just Musk uses his profitable other businesses. 'Cause $2 billion coming in from Tesla. Do you know what? There's another $2 billion coming in from SpaceX. As well into xAI. And like SpaceX are looking to IPO this year and one of their plays is, well, actually this AI race is gonna be won in space. That's where we should be putting our data centers. And xAI's kind of prospectus when they come to IPO later this year, it's gonna be packed full of stories like that. We're gonna have our data centers up in the sky, people, and we're the only ones who can get it up there.

So it's so, when you, 'cause I also saw in the UK news yesterday, a man in Britain was given Musk's Neuralink brain chip in its first UK trial. And I watched some videos. It's incredible. Like it's insane. So when you start actually talking about, you know, data centers in space, monopoly of that market of the new you know, space dimension and then the AI ownership. Then with these investments in some of these, you're like, oh my goodness, actually he could be literally lord, master and executioner of the human race in like a few decades' time. It's quite frightening. So yeah, I think it's exciting for what he's doing here with Tesla. Yeah. I've always been a Tesla, you know, you know how I feel about Tesla, but This is actually now it's the cars I've not liked, right? But, uh, all right. Well, look, let's, um, quick, quickly, we won't discuss it, but just as an overview, Apple also posted a record, uh, $144 billion in Q4 revenue. I mean, I think we, you and I were speaking maybe, I don't know, 12 months, 18 months ago, and it crossed $100 billion and we were like, wow, $100 billion.

I remember.

We're now at $144 billion. And it's been fueled by the iPhone 17 demand. But importantly, I think for the firm, a huge rebound in China, 38%. Couple other things there. Net income hit $42 billion. Revenue is forecast to grow 13 to 16% in Q2. That's above expectations. But they didn't really move a great deal really on the back of the earnings. The other parts that kind of somewhat impeded the gains, if you like, or positivity, rising memory chip costs, weaker Mac and wearable sales, and a little, you know, the ongoing lack of AI enthusiasm around Apple. So not too much has changed there. But okay, final thing then. We normally do a bit more of a deal mechanics or business strategy, you know, pure play M&A deal. And there is one that we'll briefly discuss. So, uh, Anta Sports, and they're acquiring a 29% stake in Puma. So Puma is the sportswear brand. Um, they're, they're going to become the, the German brand's largest single shareholder, but perhaps a little bit of context on this one could be, could be interesting. Uh, and then we can go from there.

Yeah, we've got some notes to go through. I've got a side story very briefly. Bit of history, bit of a history lesson for you on Puma. And actually this is a really good, interesting business school kind of case study on how, you know, what does it take for a business to succeed?

You're going to tell me the story about the brothers now? Yes. Was I sat in that lesson when you were—

maybe. So Adolf Dassler, right, is the brother of the founder of Puma, Adolf Dassler. If you kind of shorten those two, so shorten Adolf to Adi, shorten Dassler to Das, you see what happens. His brother founded Adidas. Okay. Then the founder of Puma, it was kind of went into business with his brother. So they were both running Adidas, small little town in Germany. And it was like, wow, they, their product was awesome because Adi, Dassler was just this kind of maverick genius in terms of building these amazing shoes, trainers that then athletes started to wear 'cause it gave them an edge in performance, right? Anyway, the two brothers fell out, like big time fell out all during the Second World War and stuff. Lots of politics involved as well. But in his rage, the younger brother crossed over the river. There's a little river in this small town in Germany and set up shop on the other side and called it Puma 'cause that was his nickname, Puma, right? So then now you've got these two rival global sports brands, like mega brands, and yet they both came from a tiny little town in Germany. And the business school case study is, well, what does it take to be successful in business? And the whole conclusion around Puma is, And indeed Adidas, it was the rivalry that drove them to try and always be exceeding and beating the other one. It was that really close rivalry that created this unbelievable drive from both businesses to try and succeed. And so, and then this brought this kind of double global sort of, yeah, sportswear brand.

Well, you and I will know both with older brothers. Nothing like a brother to juice the competitive nature within us.

So that all sounds great. Problem is for Puma, it's been shocking for the last 5 years. The share price is down 70%. Really struggled for just a number of reasons. Headwinds around, well, stuff like tariff risk with Trump, for example, competition, just generally finding it hard. Anta Sports are coming in and acquiring a 29% stake. Okay. Now on the one hand you think, okay, interesting. What's the price? Well, they're paying, I think it's a 62% premium over Puma's share price, closing share price like earlier this week. And actually you think, wow, that's a lot of premium. But when you go and look at their share price chart, actually that really just puts them back to levels they were at like 12 months ago. 'Cause they've been on a real downer. But ultimately the stake is being purchased. So this Anta Sports Group is kind of being, you know, this is part of the Group Artemis. Okay. It's the investment vehicle of the Pinault family, which is a very famous, incredibly wealthy family who their money comes out of them being founders of Kering, which own like global kind of luxury brands like Gucci, Yves Saint Laurent, all that kind of stuff, right? Alexander McQueen. That's that all those houses are in their portfolio. So here they are coming in and they're kind of looking to buy Puma perhaps on the cheap. And one thing they've done, you know, there's a bit of a case study from the past here because the same sort of consortium here, Amor Sports, sorry, the same consortium, Anta, this is where I'm getting mixed up. They acquired Amor Sports about, back in 2019. So it's a little bit like a rinse and repeat of that strategy actually, where you're kind of coming in and buying an underperforming brand that you feel is therefore mega undervalued. And then, right, can we put 'em into our playbook and can we just kind of turn the ship around?

And just for context, Anta Sports is a, just to be clear, it's a Chinese sports equipment multinational corporation. So it's based out of Xinjiang in China. It's the third largest sportswear company by revenue. So Nike, Adidas, and then it's these guys, Anta, who own all these different types of brands. So part of the intention here, I guess, geographically is using their dominant Chinese distribution network. I mean, they are, you're right in the Western world, you're like, sorry, who are these? Who are these guys? If you're in China, you definitely know who they are. So they're looking to revitalize Puma sales in Asia. While leisure, like equally so leveraging Puma's infrastructure to grow their brand in the West. Yeah. And like you said, then this kind of rinse and repeat strategy, they've got a proven track record, meaning then that actually trying to, you know, get the funds to do this all cash deal, no problem. Because, you know, this is a good, it's done, we've done it before, it's paid off, we'll do it again. Yeah. That's entirely funded through their own internal cash reserves, this deal.

Yeah. As you said, no financing, just straight up cash, which is again, just impressive, isn't it? But yeah, that's, that geographical expansion plays an important point here. 'Cause Puma operate, I mean, they're pretty good in obviously Europe, they're a German business, but then they've got really good brand sort of strength in Latin America and in Africa actually. But yeah, it's China where I think it's only 2%, less than 2% of their revenue comes outta China. So yeah, a really interesting sort of geographic synergy here as part of this setup for sure.

Alright, well to wrap up then, 5 kind of key takeaways from that M&A deal. And I think this is really good, like you said, like a business case study aside from the brothers fallout, that is. And number 1 is the, as we were just saying, the kind of platform play repeat. So investors value acquisitions that follow a proven blueprint. It minimizes the uncertainty. Ant has had a successful history of reviving Western brands. Think about Fila, for example. That could be another one as well. Number 2 is the premium for control without control. So that massive 62% premium signals that the strategic value of blocking rivals, having a seat at the table, can outweigh the costs of full ownership, especially for these kind of legacy brands, which still have quite good underlying fundamentals. Number 3, the geography, like you said, so arbitraging geographic brand equity, as we were just mentioning. So, you know, 97% was one of the stats, US awareness of Puma. Its local underperformance is less than 2% in China market share. Number 4, portfolio sharpening. So like we were talking about with Elon and the strategic pivot within Tesla, so large conglomerates like Artemis often divest non-strategic minority stakes to quickly raise cash, reduce debt, refocus on capital on their core controlled assets. And then finally, brand portfolio complementarity. So strategic buyers using acquisitions to fill technical gaps in their portfolio. And I love that one. It's kind of like the acknowledgement of we're not very good at that. Let's not try to invent that. Let's just go out and acquire the gaps that we have in our portfolio, such as Anta then using Puma to gain immediate authority in sports like soccer or motorsport or geographies. So yeah, it seems like a really good, quite clear deal. Absolutely.

And I'll, I'm gonna give a strong recommendation to the listeners. If you want to hear about the Adidas, Puma story, there's a great podcast. It's called Cautionary Tales. So go to the Cautionary Tales podcast, search up their Adidas Puma episode. Really, really interesting.

You getting commissioned for that?

Yeah. Thanks, Anthony.

Get back to that.

All right. Maybe I'll get a pair of Adidas and maybe a pair of Pumas, actually.

If anyone from Adidas is listening, please send me the Adidas trainers and Piers the Puma trainers. He's a big Puma fan.

Yeah. If it's free, I'll wear it.

All right, cool. Thanks very much, Piers, and wishing everyone a great week ahead. Till the next time.

Take care.