Disney, of course, as you heard by now, buying various assets of 21st century fox in a deal worth dl more than 66 billion when you include the debt david faber broke the story weeks ago that the two companies were in talks and lo and behold, its soup now. Congratulati congratulations. Thanks. We were reminiscing about the various deals youve broken over the years. Yes, you and i go back to my first big one, British Telecom and mci. 2 22 billion deal in inflation . Exactly that got to the finish line on this one, bill a lot of talking going on between disney and fox and also our Parent Company, comcast and fox. Thats sort of where we want to begin today as we head toward the later parts of the day comcast did compete vigorously for these assets people close to the company indicate, or people close to all the companies involved, that being the people who were advising and so forth, indicate that the bid from comcast, in fact, did have a higher value than what fox accepted from disney we all know our Parent Company fairly well here, brian roberts, of course, somebody i followed both as when ive been working as a part of this company, but long before comcast owned nbc universal, a very aggressive gentleman who has created a great deal of value through doing deals and certainly was focused on the International Assets in particular that were being offered by fox as a real opportunity for comcast to grow in an area that it does not have a lot of exposure in but on the fox side, ruppeert murdoch and his board of directors seem more focused on a disney deal for a variety of reasons including simply a preference for that disney paper. Remember, both companies were going to off a full stock deal the disney deal, of course, is all in stock as we told you it would be and so they went with that deal and, in fact, for weeks now weve been reporting while comcast was still trying to be aggressive, the focus for fox and its advisers was on getting a disney deal done ill come back to some of the other reasons, but earlier we did talk to bob iger, companys chairman and ceo at disney, who also explained, perhaps, why disney would have been favored while also admitting there is always the possibility that a comcast or another company could try to still seek the when you n agreement right this you have to have your eyes wide open to all kinds of possibilities whether the Regulatory Risk of risk of getting topped i think you have to look at whats best for the shareholders of the companies were convinced that this is certainly good for the shareholders of disney, but if youre a shareholder of 21st century fox, and you can suddenly own currency that combines disney and all of its assets and its reach and its heritage and quality of its brands, and the 21st century assets, particularly the international side, but also the intellectual property and the people, you end up with something i think is very, very compelling as an investment to create longterm value and that was a focus, of course, for Rupert Murdoch, his trusts, his children who will be owning this stock and all the fox shareholders, 25 of the new disney will be owned by current fox shareholders not an insignificant sum antitrust was also a concern, though, as to why it favored a disney deal. Comcast certainly would be a vertical integration we know where that is with the doj when it comes to time warner and at t and in the past fox had made known its opposition to that deal in certain areas and comcasts own acquisition of nbc universal. There was a fear that certainly could be used against it, were to have tried to do a deal with comcast. None of which is to say that comcast wont try to continue to figure out points of leverage as to whether it can somehow get something here the strategy of hanging around the hoop has worked in the past for the company. Although it does seem unlikely to imagine a deal in which it would simply make a public offer in a sort of unslolicited manne trying to upset the vote of fox and disney shareholders. The murdochss control 36 , 37 o the vote not inconceivable were you to have another offer far higher, the shareholders would say no, though that is a tough thing to do, bill more likely that comcast perhaps considers a way to cause trouble by making a bid for the 61 of sky that fox is currently trying to buy, or making a difficult partner in the likes of hulu we dont know but its certainly worth at least keeping an eye on as this unfolds in 2018. Nothings going to happen for the rest of this year. Bob igers eyes are wide open yes. Kelly has a question for you, kell yeah, i appreciate that, david, precisely that what you were just saying, i dont know if this is an antitrust issue but i thought that this deal was valuing fox around 40 bucks a share so why are they trading below 35 . Well, its going to take some time and theres certainly some question as to the overall value of fox, itself remember, this deal, the 515 million shares that are being exchanged for fox are worth roughly based on disney about 29 bucks then you want to make a decision as to what you think the remaining fox assets, what were calling the spin co, will be worth, kelly. 2. 8 billion you can put a multiple on it, assume a growth rate there bt the way, im hearing they they have a significant divid d dividend the company will have list debt on it because they are getting rid of 1 billion of debt. They will be taking on a certain amount of debt to pay the tax bill here but can do that over seven years. Theyre stepping up their bases. Thats why also a year, a year, at least, before you see anything given how long the regulatory processes take, kelly. Before you go, you and are i both parents our children come to us, were not sure they want, we say well think about it, well talk about it i was intrigued disney is saying on the succession issue with james murdoch, the role hell play in the transition period, what role hell play beyond that disney said hell talk about it. Mr. Iger earlier today indicated certainly james will play a role in the integration he has great knowledge of those International Assets, in particular very much unclear whether he will take some sort of a place personal innocent l permanently at disney, itself, once the deal is done. Interestingly, none of the murdochs have a place on disneys board, very significant ownership by the family and shareholders of 21st century fox. Its unclear what happens with james. He was one of the engineers behind this certainly also embraced the idea that, you know what, we may simply not be big enough to compete with the scale we want to at 21st century fox, but i would agree, its unclear what his future will be, though, again, murdoch was motivated both by understanding the changing world, but also wanting to deal with some of the struggles within his family between the two brothers and between himself and james as well very interesting. Great stuff as always, david, thank you. Thanks, bill. Kelly thank you, guys and joining me now in an exclusive interview is mr. James chanos joining me from the jayae summit in midtown, manhattan thank you for your time. Hi, kelly, how are you . Were good. Theres a lot of stuff we want to get to. Is there anything about the disney fox deal that has you thinking about investing in it, against it, or in the media landscape, shifting media landscape in general well, the big news that david has been has been that merger and also the change in the Net Neutrality rules today so we had a session earlier today here at the yale summit, we had a pretty spirited discussion about what this means for the big four, google, amazon, facebook, netflix, and i think that the Net Neutrality rule coupled with a bigger competitor in the content area is going to put pressure particularly on the content buyers which is amazon, google, and netflix. Everyone forgets they look at netflix, but everyone forgets that netflixs biggest two competitors are actually google and amazon. Youre not willing to bet against any of these companies, are you . Were looking at all of them. Lets just say that. One or two more than others. I just think it will be interesting to see netflix, for example, came out this afternoon and said, sort of blasted the change in the Net Neutrality rules and yet for years now, they have said when asked, a change in Net Neutrality would not have a Material Impact on their business which is it . You know, is it not going to impact your business, or is it really something that youre going to go out and have a big legal protracted fight on . Its going to be interesting to see how this all sorts out. You do you think theyre more vulnerable because thats effectively their only business model, whereas other tech platforms have oather levers to pull and disney is trying to gear up to compete with netflix. Right, disney fox combination is going to gear up and try to have their own streaming system and netflix raised prices recently and analysts, of course, automatically assume most of that falls to the bottom line what if these price hikes really are to offset increasing costs and i dont think people have put that in their models and the fact of the matter is that netflix is a middleman. Theyre banking and producing and financing more of their own content but at the end of the day so is everybody else now, and its funny that the one company thats never been affected by amazon as a competitor has been netflix. Still, theyre the widow maker. Anyone whos tried to bet against netflix, thats been a difficult trade. Well, thats why we invest through the windshield, not the rearview mirror. But youre not doing anything right now to report on that front. Were looking at all of them with interest, leave it at that. Understood. The other big issue of the day emanating out of washington is tax reform marco rubio said he wont vote for it posupposedly. Unless they expand the Child Tax Credit now a democratic senator coming in from alabama. Whats the effect for you, what names are you watching as this moves through the process . So we sort of made our chops in the late 8s 80s inadvertenty on the last tax overhaul, reagans 86 bill. The 86 bill is interesting, it intended to do a lot of things but what happened is actually a huge unintended consequence. If you recall, they made passive losses in real estate nondeductible against ordinary income and seemed like sort of a technical thing. No one paid a lot of attention to it other than the Real Estate Industry at the time but what it did was took an already shaky commercial Real Estate Market and shoved it over the edge. Just as the s ls were having their own issues it put us into a banking crisis. And this is a problem with these kinds of bills particularly when theyre rushed that bill was not rushed that bill took a couple years. Years, as i understand, yeah. And so this bill has been rushed and the question is, what are the unintended consequences . One of the areas that we think, if it goes through, its going to impact the Health Care Economy a lot more than people think. Health care is that because the repeal in the individual mandate the mandate basic nondeductibility of medical expenses. Right. Really, i think it will be, as paul ryan, i think, has hinted at, it will be the opening salvos in 18 and 19 for cutting entitlements theyre going after obamacare in this backdoor sneaky way and we actually have this saying with the health care stats, we think winter is coming we think were about to see deflation. You just quoted netflix, by the way. No, that was hbo game of thrones. I stand corrected. Get your streaming services right. You know im a true viewer. We think that winter is coming is the reality for the u. S. Health care sector that deflation, not inflation, is coming. And youve bet against names like mckesson, drug distributors malencrot. Im sorry names in the kidney it dialysis space, for example are there any others you would expand weve been looking at the rentseeking companies, companies we think have existed on the periphery of the Health Care Economy that basically have went after these pricing sort of gamesmanship models. Thats over. We think as the pie shrinks, b its going to be tougher and tougher to justify the ability of companies to hike drug prices 1,000 or charge commercial insurers five times what you charge medicare and medicaid in the case of dialysis we think that theres a number of those companies, some have already dropped, some havent. Were still very negative on the pbm space, express scripts came out and reaffirmed guidance, raised it this morning theres no reason for independent pbms to exist, for example. Does the cvs aetna deal make sense to you i think thats everyones looking at it the reverse way through the telescope. We think its the pbm, cvs caremark because theyre worried about the pbm model than the other way around not an insurer getting more vertically integrated. One of the things we told clients is as Health Care Companies found more and more innovative ways in which to get paid over the past ten years, we think going forward, the payer is going to find more and more innovative ways not to pay. Thats one consequence from the tax reform bill. What about Something Else that actually this week we heard quite a lot of anger about, Stanley Druckenmiller said its outrageous. Yeah, its just ridiculous. Jamie dimon said its not proper jeff gunlock said its unbelievable its going to survive given Everything Else its a fee, we said that publicly. Is that how youre compensated. We basically get carried interest but everything is shortterm gains for hedge funds, by in large, it doesnt apply. This really affects the guys that hold assets longer. Carried interest is the performance paid on your clients capital its not on your capital thats the big difference. I think Stan Druckenmiller made that point if youre earning it on your clients capital, its a fee if youre earning a return on your capital on your part of the partnership or fund, then thats a capital gain thats just clear. And i think anybody that looks at the tax code . A reasonable way would say that. So why this was kept in analytically im scratching my head because it doesnt really hes not getting any extra votes from the private equity or Venture Community on this and seems politically to be really bad optics. Let me ask you just as were looking back on the year as well, one of the other things that mr. Druckenmiller mentioned, this has not been a great year for him, despite his portfolio having some solve the bestper fo bestperforming names in the market what kind of year has it been for you especially and a bull market that you typically think for a short seller would make it quite difficult . Low are you positioning for 2018 we have three pools, short only, market neutral, and our basically 19090, which is 100 net long but has short component in it. Market neutral up slightly 190 h 19090 beating the market. We let the clients make the market call. We have the same short portfolios in out. We had little bit of outflow this year. Mid Single Digits outflow which is okay, not great. Its been an average year for you then, youd say . Historically weve done midteens, although thats been tough for the last sort of ten years, so for us, its okay, not great. Let me ask you about one more thing before well take a short break. But you just called bitcoin beanie babies. Given that they actually theres cryptokitties being created in the ethereum market is probably an apt comparison. Does that to you indicate broader successes do you blame the Federal Reserve for or see in the stock market . Jeff asked me this morning in the session were we short bitcoin . I said im having a hard enough time being short the stuff i understand, so were not short bitco bitcoin, but, i mean, i think the speculation of bitcoin, whatever you might think about the valuation, i think is indicative of the speculation beginning to increase in this cycle, right weve always said, wheres retail theres no speculation well, there is now clearly. And so whether you understand what blockchain is, and you understand what bitcoin eretheum is, understand what icos are, which are all sort of different concepts, you know, i just heard in this room, a few hours ago, really, really smart people including computer scientists, Financial Security experts, ceos of banks, and everybody had a different answer as to who this was going to be a big thing, whether it was not, whether it was going to be implemented and regulated. Quite laiterally, leaders of business and finance had diametrically opposed viewpoints and not anybody could have had the tsame explanation of what they were talking about so its sort of a head scratcher a little bit. Well leave it there. When we come back, well talk a lot more about other investments. Well ask you about tesla and a few other things in youll be so kind were going to take a quick break and well have much re thr. Chanos when we come right back welcome back can to tto cl bell. Were sitting down with kynikos founder and president jim chanos thank you for rejoining us a lot of individual nates we want to talk about, companies you discussed in the past. I actually wanted to start by asking about shale when you talk about the prospects, you know, back in september when w saying i saying, look, it doesnt look very good. The stocks have been on a tear since then. Some have, some havent i mean, the chesapeakes of the world have stayed on their lows. The continental is up. It sort of depends on their debt structure and percentage of gas versus oil and theres a new belief, kelly, that they found religion, right, theyre going to cut back now on the growth at any cost. Yes. Live within their means. Profit over production. Yeah, we told people be careful what you wish for because thats fots going not be very attractive, either. Why not when they were growing capx, they said it was due to growth most of these companies, not all, but most, if they spent 3 Capital Spending enough to keep their production constant, so maintenance capx, we call it, cash flow, ebitda, minus that figure, is usually close to zero which means you dont cover your interest and so thats a problematic problem. Thats what weve been saying for years now.