Fat Wallet: Tariffs, Mergers, Brands

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Speaker 4 I'm having a horrible week.

Speaker 3 Oh, no.

Speaker 4 Let me tell you about it.

Speaker 3 I heard.

Speaker 3 Okay, you tell me.

Speaker 4 It gets worse. It gets worse.

Speaker 4 I was getting on the subway and I was looking at my phone as one does, and I didn't notice in time that there was a just huge pool of oatmeal on the floor of the subway car.

Speaker 4 When you say pool of oatmeal, I'm 90% confident it was oatmeal. I'll tell you why.
There was a lid next to it.

Speaker 3 Okay, okay, that's good.

Speaker 4 So I don't know, maybe someone vomited and then threw a lid down, but I'm hoping that it was oatmeal. Anyway, it splattered up the back of my jeans.

Speaker 3 That was yesterday. Yeah.
That was today.

Speaker 4 I was walking with my lunch in my hand and just stepped in dog feces. Okay.
Just,

Speaker 4 I'm so upset. I hate this city.
It's horrible here. You have to always be on high alert and I'm tired of it, man.
I'm just, I'm worn down.

Speaker 3 Yeah.

Speaker 3 Since I've moved to the suburbs, I have not necessarily seen a decrease in my

Speaker 3 incidence of stepping in gross things.

Speaker 4 Yeah, but I feel like you're part of the dog community.

Speaker 3 So you're true.

Speaker 3 I'm bringing on myself.

Speaker 4 You're kind of asking for it, but I'm not. I'm specifically not in the dog community.
I have a cat, and I moved to New Jersey, so I try to avoid disgusting things. And I just, I can't.

Speaker 4 It all found me this week. And bad luck comes in three, so something hideous is going to happen.

Speaker 3 Yeah, you're going to step on something? Real bad?

Speaker 4 Something is going to step on me? I don't know.

Speaker 3 Hello, and welcome to the Money Stuff Podcast, your weekly podcast where we talk about stuff related to money.

Speaker 3 I'm Matt Levine, and I I write the money stuff column for Bloomberg Opinion.

Speaker 4 And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

Speaker 3 You know who else is having a bad week?

Speaker 4 The list goes on.

Speaker 3 I was going to say Donald Trump, but there's no real reason to think that. Donald Trump's tariffs had a bad day Wednesday in the U.S.

Speaker 3 Supreme Court because they're illegal and every court that has considered them found them illegal.

Speaker 3 And the Supreme Court has generally been more willing to let Donald Trump do illegal things than other courts are. Because the other courts, there's like a law and they follow the law.

Speaker 3 And the Supreme Court is like, yeah, we get to make up the law. So

Speaker 3 they've been a little more generous. But it seems like, from the oral argument on Wednesday, it seems like they might have hit their limit on Donald Trump's universal tariffs.

Speaker 4 Yeah, it's funny. It seems like skepticism was the word of the day.

Speaker 3 I think almost every media. Yeah, you can't really tell what they think from the RL argument, so you have to write that they were skeptical.
Yeah, yeah,

Speaker 4 asked skeptical questions, things along those lines. Yeah, we're talking about the 1977 International Emergency Economic Powers Act, IEPA, if you will.

Speaker 4 So Donald Trump says that it's in the interest of national security that he's basically able to levy blanket tariffs around the globe.

Speaker 4 And that's what's in question right now, defining the limits of this 1970s law.

Speaker 3 Aaron Ross Powell, yeah. Normal people, and lawyers and economists believe that tariffs are taxes because they are.

Speaker 3 And the U.S. Constitution says that only Congress can impose taxes.
And in AIPA, Congress gave the President the power to regulate importation in an emergency. But it doesn't say you can tax them.

Speaker 3 And it seems to me and many other people and probably five or so justices of the Supreme Court that

Speaker 3 that does not give Donald Trump the power to unilaterally impose taxes on the imports of every country in the world. Donald Trump disagrees, and

Speaker 3 in the Supreme Court argument, his lawyer, the Solicitor General, argued that these are not taxes, they're not designed to raise revenue, and the goal of the tariffs is to make everyone

Speaker 3 essentially

Speaker 3 actually said, the fact that they raise revenue is only incidental. The tariffs would be most effective if no person ever paid them because there were no imports, I think.
Amazing. Yeah.

Speaker 3 But no one believes that. Certainly not Donald Trump, who has talked about how much revenue they're raising.
And certainly not the Supreme Court. So, you know.

Speaker 4 Yeah, I feel like it's been pretty nakedly a goal of the tariffs is to raise tariff revenue and try to shrink the budget deficit.

Speaker 3 Sure, because they're a tax. Yeah.
So it's very hard to argue that. And they tried, and it doesn't seem like it went that well.

Speaker 4 Yeah. Again, we don't know what they were thinking.
We might get a decision by the end of the year, which is exciting.

Speaker 4 But I have a quote here from Chief Justice John Roberts saying that the tariffs were, quote, an imposition of taxes on Americans and that has always been the core power of Congress.

Speaker 4 That's a direct quote. And then you also have...

Speaker 3 It's literally right up front in the Constitution. The Constitution is like an actual piece of paper you can read, right? You actually see that it says Congress has the power to advise taxes.

Speaker 3 I've perused it now and again.

Speaker 4 A lot of amendments.

Speaker 3 Anyway. This is right up front.
Right up front.

Speaker 4 And then you had Trump-appointed justices as well, Neil Gorsuch and Amy Coney Barrett, apparently also asking skeptical questions as well. But again, it's very hard to know.

Speaker 3 It's hard to know. Neil Gorsuch, I have a certain personal fondness for Neil Gorsuch because.

Speaker 4 Go on.

Speaker 3 I think we talked about this on the podcast, but my wife argued a case in the Supreme Court. And that was a non-delegation doctrine case.

Speaker 3 The non-delegation doctrine has been around for a long time.

Speaker 3 Basically, it says that Congress can't just hand over its powers to the executive branch without giving it an intelligible principle how to regulate.

Speaker 3 That doctrine has been around for a while, but never really worked for the last hundred years. Like, the Supreme Court has never found a violation of the non-delegation doctrine.

Speaker 3 It's never said Congress delegated too much power here.

Speaker 3 But Neil Gorsuch believes in it and has tried to find violations of it and has dissented from decisions, including involving my wife, and saying that the non-delegation doctrine should have some real power.

Speaker 3 And

Speaker 3 it seems here that if Congress intended to delegate the power to unilaterally tax all imports forever to the president, that would be quite a striking delegation that would perhaps exceed the ability of Congress to delegate.

Speaker 3 So there's natural reason to think that he would oppose these tariffs.

Speaker 3 Similarly, John Roberts invented the thing called the major questions doctrine, which has become a big part of Supreme Court jurisprudence, even though he kind of made it up a few years ago.

Speaker 3 And in the major questions doctrine, basically, it's like if Congress is going to give the executive some huge new power, it has to do so clearly.

Speaker 3 And here, AIPA gives the president the power to regulate imports, which is not taxing them. So it doesn't seem like it does it clearly.
Yeah.

Speaker 3 So if you look at, you know, if you count like three liberal justices are going to say no,

Speaker 3 one, John Roberts loves his major question doctrine, and one Neil Korsuch loves his non-delegation doctrine, you kind of get to the terrorists being struck down.

Speaker 4 Yeah, which is interesting and exciting because the question has also been raised, would reimbursement have to happen?

Speaker 4 What on earth would that possibly look like?

Speaker 3 Right. If you just went to the Supreme Court a year ago and asked them, would this be legal? I think they'd all say no.
Yeah. But it's already happened, right? For sure.

Speaker 3 It's already raised hundreds of billions of dollars or whatever. And so unscrambling the egg is really hard.
And I don't know what will happen. I will say that.

Speaker 3 You could imagine the government being like, it would be impossible to pay refunds, and that's a reason not to strike this down. And they haven't done that.

Speaker 3 They've been like, yeah, we would pay refunds.

Speaker 3 I do think that's a little interesting is that if you think about the incidence, right, like on the one hand, I don't think consumers have paid a lot of these tariffs.

Speaker 4 Yeah, it seems like so far companies have eaten a lot of the costs.

Speaker 3 The pretty strong consensus is that tariffs have not been passed on to consumers nearly as much as economists expected. And I don't know exactly the reason for that.

Speaker 3 Some of it is just like a good profit environment, and some of it is like

Speaker 3 everyone's a little bit waiting and seeing. And if the tariffs continued forever, they might pass them on, but we'll see what happens.
But at the same time, if there are refunds,

Speaker 3 I don't know who gets the refunds. I think a lot of the importers have sold refund claims to hedge funds.

Speaker 3 This is a real Wall Street trade where some banks have been arranging trades where hedge funds will buy refund claims at 40 cents on the dollar.

Speaker 3 And if the Supreme Court strikes them down, then they get their money. And if it doesn't, then they lose the 40 cents on the dollar.

Speaker 3 So it would be more interesting if the tariffs had been passed on to consumers and then they were ultimately a transfer of money from consumers to hedge funds. Yeah.

Speaker 3 But instead, I think they're just a transfer of money from companies to hedge funds.

Speaker 4 Well, Amy Coney Barrett did ask the lawyer for the small businesses that sued basically how the process would work. Should the tariffs be overturned?

Speaker 4 His answer was that if they are overturned, then businesses may seek the return of the billions already paid to the U.S. Treasury.
So, in that scenario.

Speaker 3 Yeah, but like the businesses who sold them. Yeah.

Speaker 3 There's There's some interesting questions about whether the government would stonewall a hedge fund that has bought tariff claims, you know?

Speaker 3 Yeah. But probably it'd be fine.
Probably some hedge funds are going to do well out of this.

Speaker 4 So the most interesting possibility for this podcast is that these tariffs are overturned.

Speaker 3 Well, yes. And then a hedge fund sues the government for a refund and the government says no and it goes to the Supreme Court.
Like that's a fun one. That is a fun one.
It's a fun one.

Speaker 3 I would be interested in a tariff refund hedge fund case.

Speaker 4 I do want to put some numbers around the tariff revenue so far, because I think it's interesting.

Speaker 4 Apparently, it's helped bring the national budget deficit down to $1.78 trillion for the most recent fiscal years. That's a drop of 2%

Speaker 4 from 2024, which is good news, but you think about the overall trajectory of spends and tax cuts, it's probably not going to really change things that much. But even still.

Speaker 3 But also, it's getting reversed. Maybe.

Speaker 4 Maybe. We don't know that.

Speaker 3 Right.

Speaker 3 Again, like the government can't argue about this. They can't be like, we need these tariffs to keep the deficit down.
Yeah.

Speaker 3 I mean, they can, they can say it, but they can't say it in the Supreme Court because to the Supreme Court, they're saying, this isn't a tax. We're not raising revenue.

Speaker 3 So they can't talk about the revenue. Yeah.

Speaker 4 Well, it kind of reminds me of the situation with NVIDIA and AMD chips in terms of the idea was floated that the government would take a cut of Chinese revenues, like revenue that they need in China.

Speaker 3 It's like a reverse tariff.

Speaker 4 Yeah, but it's also like, how do you argue that's for national security? That also seems to be just nakedly revenue

Speaker 3 crazing.

Speaker 3 It's like you can sell advanced technology to our enemies as long as we get a cut. Yeah, right.

Speaker 3 Pony up.

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Speaker 4 What do you want to talk about next?

Speaker 3 Met Sarah?

Speaker 4 I love this story so much.

Speaker 4 Drama in the healthcare M ⁇ A space for this very hot, promising obesity startup, Metzera.

Speaker 3 Yeah. It's good to have an obesity drug.
Yeah.

Speaker 4 Everyone wants to. God, I wish I had one.

Speaker 3 Yeah, so Metzera is a U.S. biotech company that has an obesity drug that seems to be promising.

Speaker 4 Not on the market yet. No.
But it did recently complete a mid-stage trial.

Speaker 3 Yeah, so it's a promising but not yet commercialized obesity drug. And Pfizer, a big U.S.

Speaker 3 pharma company that had a notable failure in trials of its obesity drug, and is kind of like adrift without an obesity drug, agreed to buy Matzera in September.

Speaker 3 And since then, Novo Nordisk, which is a giant Danish pharmaceutical company that notably makes Ozempic and WeGovi,

Speaker 3 has come in with a higher bid for Matzera. Which, first of all, is an interesting drama.

Speaker 3 But secondly, because Novo has the leading obesity drugs, there's a huge antitrust problem with it buying Medcera.

Speaker 3 And Medzera, the board of directors, is choosing between a higher offer from Novo that might not go through, or a lower offer from Pfizer that has very little antitrust risk.

Speaker 3 And Novo got around that problem, or thinks it got around that problem, or probably got around that problem, by basically paying the money up front.

Speaker 3 So instead of like signing a deal and going to get antitrust approval, and when you get antitrust approval paying the money for the shares novo is just going to hand over the money up front it's going to be dividended out to matzera shareholders like as soon as they sign the deal and then novo will get back like sort of this like debt like claim so that if they get antitrust approval, the deal will close and Novo will end up owning Matsera.

Speaker 3 And if it doesn't close, then Matsera can sell itself to someone else and Novo gets the first like $6.5 billion of proceeds. It's a very weird structure.

Speaker 4 It is super weird. I had to reread it a number of times and then listening to you describe it, I feel like I need to go back and play it again.

Speaker 3 Yeah. Basically, they're just paying for the company even if they can't end up buying the company.

Speaker 4 Which is wild. It's a very bold move by Novo.
You mentioned that they have the leading obesity drug. I will put an asterisk there that they have ceded market share to Eli Lilly in the U.S.

Speaker 4 So they're trying to regain

Speaker 3 ground. Okay, so one possibility is they're trying to regain ground by getting Matsera's awesome new drug.
Yeah. Pfizer has a different theory, which is that they don't care about this drug.

Speaker 3 They're just trying to catch and kill it.

Speaker 3 They're trying to prevent Pfizer from getting an obesity drug by doing this deal where they will lock up Metzera in like trying to get regulatory approvals for two years.

Speaker 3 And Pfizer says the deal with Novo will never close.

Speaker 3 They'll never get antitrust approval, but like it'll take so long that the actual purpose of this deal is to prevent Pfizer from buying it, to sort of like maintain Novo's position.

Speaker 3 So that's Pfizer's view. They've sued in multiple courts.
They kind of lost around this week. The Delaware Chancery Court refused to stop Metzera from taking the Novo deal.

Speaker 3 But, you know, there's still lawsuits kicking around.

Speaker 4 Yeah, that is a very cynical take. I feel like the fact that it's not Eli Lilly doing this, maybe...

Speaker 3 Yeah, it's a cynical take. I mean, it's very weird to pay for the company up front, even if you might not get it, right?

Speaker 3 And like one possibility is that Novo is like, we don't think there's that much antitrust risk.

Speaker 3 We understand Metzera is worried about it, so we're going to bear that risk ourselves by paying everything up front.

Speaker 3 But another possibility is that everyone thinks there's a lot of antitrust risk, and they're like, we don't even care if we don't get the company. Yeah.

Speaker 4 I will say we heard from the CFO of Novo talking about why they wanted this company and their promising drug in particular.

Speaker 4 And the CFO said that they're particularly interested in Metzera's amylin targeting drug.

Speaker 3 Okay.

Speaker 4 If anyone following along at home is really well versed in this stuff. Apparently, amylin is another potential target in obesity treatment.

Speaker 4 And just on Thursday, actually, Eli Lilly said that its amylin targeting helped patients lose up to 20.1% of their body weight over 48 weeks. So I don't know.

Speaker 4 Like, Pfizer has their take, but Novo seems to have their own.

Speaker 3 Right. You can't fully believe the extremely cynical take of like Novo spending billions of dollars just to stop Pfizer from getting an obesity drug.

Speaker 3 That said, Pfizer also has a sort of patriotic argument of like, you know, kind of playing to the Trump Justice Department.

Speaker 3 Shouldn't an American company end up buying this American obesity drug rather than giving it to the Danish?

Speaker 4 Aaron Ross Powell, and the government's going to be like, what if we got a golden share, perhaps? Something along those lines? Perhaps a cut of revenue?

Speaker 3 I'm sighing because this is what's going to happen.

Speaker 3 This is totally what's going to happen.

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Speaker 4 Speaking of drama, this has nothing to do with obesity.

Speaker 3 Well, this is a story about a guy who spent $500,000 on his personal chef.

Speaker 4 Talk about a fat wallet.

Speaker 3 So stupid. The nice thing about, like, so, uh, Sam Bankman-Fried had his appeal this week.
Oh. Yeah.
Didn't go well. Oh.
I mean, we don't know the result, but skeptical question. Skeptical.

Speaker 3 Skepticism. And Sam Bankman Fried has said that all of his problems started when he handed over control of FTX to people who are running it in bankruptcy.

Speaker 3 Sort of you file for bankruptcy and someone else takes over the company.

Speaker 4 That was the starting point of the company.

Speaker 3 Well, that was in the starting point. He was like, I could have recovered before that.
But then after they took over the company,

Speaker 3 the new CEO has an incentive to throw the old management under the bus and find as many problems as possible.

Speaker 3 And I was thinking about that because like, so we're going to talk about First Brands, which is a auto parts conglomerate that went bankrupt and this week sued its former CEO and sole shareholder, Patrick James, for various alleged badness, basically like doing a lot of fraud to borrow from various like factoring companies and like taking all of that money and giving it to himself and spending it on 17 exotic cars, lavish homes in Malibu and the Hamptons, six-figure bills for a celebrity chef, other stuff like that.

Speaker 3 And I was thinking about it because it's the same kind of dynamic where you file for bankruptcy,

Speaker 3 essentially a bankruptcy firm takes over the company and they're like, you know, let's be as negative as possible about the previous management.

Speaker 3 And so, you know, they seem to have found a lot of stuff.

Speaker 4 Yeah.

Speaker 3 But, you know, you have to be able to say, you have to be a a little skeptical, right? Because like they were running the company on behalf of the creditors, right?

Speaker 3 And like this is a company that was 100% owned by Patrick James. And so they're like, he used it as his personal piggy bank.
He absolutely did. Like, of course he did because he owned the company.

Speaker 3 And so he didn't like follow a lot of like formalities. And like when he needed money, he just sent himself some money from the company.
And now they want all that money back to pay to the creditors.

Speaker 3 Right. And so they're like, oh, he did lots of fraud.
Like, I guess I believe them, but it's just like, it's an interesting dynamic. Like, they have incentives to say he did lots of fraud.

Speaker 4 If I own 100% of an auto parts supplier, I can take the money out and buy cars.

Speaker 3 Well,

Speaker 3 the question is, who's going to object to that? And if there are no other shareholders, in the ordinary course, no one's going to object to it.

Speaker 3 Now, if the company goes extremely bankrupt, the creditors are going to object to it. They're going to be like, give me back the money.

Speaker 3 And they're going to look very carefully to see if you did anything bad. And I do think that

Speaker 3 they found that he did bad stuff in terms of like, I mean, like, the real allegation here is that most of their borrowing was secured by invoices.

Speaker 3 So, like, they'd sell auto parts to like a car dealership, and they'd get an invoice, and they'd borrow against the invoice from, like, a factoring company.

Speaker 3 They would, like, send over lists of thousands of invoices to borrow the money, and they would just change the numbers on the lists to get more money. And, like, that's fraud, if that's true, right?

Speaker 3 Like, that's really bad. And so the creditors have, like, allegedly found a lot of that.
But then there's just like the other question of, like,

Speaker 3 if you have a company that borrows money, can you take money out of the company? And it's like, well, it it depends on what the credit agreements say.

Speaker 3 And like they make a lot of noise about how he doesn't follow a lot of formalities, but they don't say like it was forbidden by the credit agreements. I don't know.

Speaker 3 I don't mean to defend him more. I feel like I'm

Speaker 4 listening cold could.

Speaker 3 I know. I just think it's an interesting dynamic that the creditors have every incentive to look for fraud and that

Speaker 3 they are like, he took money out of this company, which is like fine if you, you know, if it's his own company, but it's not his own company because he borrowed a lot of money. Yeah.

Speaker 3 That said, I do want to emphasize that the stuff they say about crossing out the numbers on the invoices and writing much larger numbers is really bad fraud.

Speaker 4 Yeah, like much larger numbers.

Speaker 3 Adding a digit, maybe two. Yeah, yeah, yeah.

Speaker 3 Like there's an example in the complaint of like they batched together $2 million worth of invoices, like thousands of invoices that totaled $2 million, and they changed them to make them $11 million.

Speaker 3 And then they borrowed $11 million. That's really bad.
Yeah. do that.

Speaker 4 That's super bad. That's flagrant,

Speaker 4 if you really think about it. I do wonder if anyone in his family was like, Patrick, you run an auto parts supplier.
How do you have so many houses? How do you have so many cars?

Speaker 3 No, it's a big auto. It's not like a, you know,

Speaker 3 like a multi-billion dollar conglomerate of auto parts suppliers. Yeah, that's true.
But I don't know.

Speaker 4 What do you think? With the benefit of hindsight, it seems a little sketchy.

Speaker 3 But he was like, I know he's your dude. He's supported a billionaire, but he's not my dude.

Speaker 3 I might have gotten myself into this.

Speaker 3 Anyway, he's completely innocent.

Speaker 4 I do think it's interesting that, I don't know, it feels like every week more news breaks about First Brands and the unraveling here.

Speaker 3 Even before it went bankrupt, people were raising concerns about double pledging.

Speaker 3 And yeah, it makes sense that when their bankruptcy team did a forensic examination, they're like, oh, wow, there's tons of double pledging here. Yeah.

Speaker 4 You aptly linked to a Wall Street Journal report talking about how now you have a lot more firms perhaps suggesting that we should up our due diligence.

Speaker 4 There was an interesting report, too, from the Financial Times today talking about how UBS is going to liquidate its funds with major first brands exposure.

Speaker 4 Apparently, they have a fund specializing in invoice finance, specifically at O'Connor that is owned by UBS, in the process of being sold to Canner Fitzgerald, which is pretty funny.

Speaker 4 Just in terms of obviously when this deal was signed in May, things were much different. Yeah, yeah, yeah.

Speaker 3 And you want to buy an invoice financing hedge fund? No, not so much.

Speaker 4 Yeah. And they're even liquidating a high-grade fund that invested in invoices linked to less risky companies without any first brands exposure.
But

Speaker 3 also no one's like looking to get into like invoice financing right this minute.

Speaker 3 I will say, you know, I've talked about diligence on this sort of thing where it's literally like you send over an Excel file with thousands of invoices and then they just send you the money and like,

Speaker 3 you can edit that Excel file. I will say I got at least two emails that included the word blockchain.
Oh, good. So, you know, that's like a

Speaker 3 we've found a use case.

Speaker 3 Whether or not it's blockchain, it does kind of feel like we have the technology to not just take it on faith that this pile of PDFs is real. But not everyone deploys that technology.

Speaker 3 And, you know, there's a lot of trust in the financial system. And

Speaker 3 sometimes people buy 17 17 exotic cars on the back of that trust.

Speaker 3 It's really funny.

Speaker 4 Blockchain does seem like an obvious answer here, but don't put that in there.

Speaker 3 No, we're putting that in there.

Speaker 3 One more thing. He's a true believer.
No.

Speaker 4 Oh, invoice financing funds. I don't know.
You say that now maybe isn't a great time for them. I want to read the story in the next three months about someone coming in and moving aggressively here.

Speaker 4 Because

Speaker 3 what was that story? It's a real business.

Speaker 3 I feel like people only ever talk about it when someone goes up in a flaming pile of fraud. But it's a real business.
Yeah. Like it's mostly fun.

Speaker 4 It kind of reminds me of the Credit Suisse Blub. Wasn't it AT1s? What am I trying to remember?

Speaker 3 I don't know, but Credit Suisse had that green soul problem, which was with the invoice financing firm.

Speaker 4 No, I'm definitely not thinking of that bad.

Speaker 3 Oh, the AT1s in that. Yeah.
Yeah. Because Credit Suisse wiped out billions of dollars of AT1s.
And for like 20 minutes, people are like, I'll never buy an AT1 again.

Speaker 3 And then like the AT1 market came roaring back. Yeah, yes, I have to say that like the day that was happening, and people were like, I'll never buy an AT1 again.

Speaker 3 I'm pretty sure I wrote in a column, like, they will definitely buy AT-1s next week.

Speaker 4 And they did.

Speaker 3 The credit market has no memory whatsoever. Maybe that will happen with

Speaker 4 invoice financing.

Speaker 3 Like, I don't think that invoice financing will be dead, but like, I think people might do a little bit more due diligence for a while.

Speaker 3 And that was the Money Stuff Podcast. I'm Matt Levine.

Speaker 4 And I'm Katie Greifeld.

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